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Achieving objectives is the essence of executive life. “Management by objectives works” the famous Austrian thinker Peter Drucker declared in his seminal book The Practice of Management, published in 1954. There has been little change in thinking since.
But what happens when the more challenging objectives have been achieved? How should managers approach the transition?
Witness the case of Alchemia. The company has produced a generic version of GlaxoSmithKline’s Arixtra drug, Fondaparinex, which is used to treat deep vein thrombosis and pulmonary embolism.
Peter Smith, chief executive officer of Alchemia, says proudly that the complexity involved in replicating the drug was daunting. “Even though we were just copying this drug it has taken us 10 to 11 years to get to this point,” he says.
“Chemists pale at the difficulty of replicating a drug when it has eight steps. This had 60 steps. It was a phenomenal achievement for such a small company.”
The business objectives have also been partly met. Alchemia’s sales of Fondaparinex in 2011-2012 were $324 million and the company made its inaugural profit in September. It has become a matter of managing steady growth for a product with a price advantage. Smith does not divulge the margins, but he says it is a “very profitable product”.
The management challenge now is to defend or increase market share. Smith draws lessons from game theory, which postulates that when there are three players in a market – the two other players in this case are GlaxoSmithKline and Apotex – then there is unlikely to be a fourth competitor, assuming the barriers to entry are high.
“I’m not saying that no-one else is going to going to come in, but what makes it less likely is that there are three players in the market. When you get four players it is a straight shoot out on prices. But it costs hundreds of millions to get in, so it is a pretty stable market.” Smith says Alchemia gets about a 40 per cent market share in the retail market but has negligible sales in the hospital market, where it hopes to get growth.
Smith will not be making the transition to managing the more predictable business, however.
Alchemia is to be broken into two entities. One is the predictable Fondaparinex company, under the Alchemia name, with its predictable revenue streams. The other will be Audeo Oncology, a research and development arm seeking to develop cancer treatments, which will be domiciled in Delaware and listed on NASDAQ.
Audeo will continue to aim high. Smith’s eyes light up when he describes the challenge of aiming high, which typically means managing constant crises. Third stage drug trials, for instance, he describes as “terrifying, absolutely terrifying – what can go wrong will go wrong.”
Managing the more predictable Alchemia business is no longer for him. “I will be exiting the Alchemia board but remain acting chief executive for six months,” he says. “There won’t be a huge amount of activity in Alchemia.” Smith’s energies will be focussed on Audeo Oncology, where he will become president.
Having the ability to let go, as Smith is doing, requires a degree of self-awareness, according to business coach Neil Posus, founder of the web site askacoach.com. He says executives should apply a balanced scorecard to themselves and to their staff when a business is undergoing a transition from being high risk to predictable. “You have to identify what has been learned,” he says. “Leaders have to do some important reflection. Did they get the result they wanted and is it really measurable? Do people acknowledge their own strengths and continue to use them, or are they exhausted from their efforts?”
The measures should be aligned with the company’s strategies, says Posus. These include, in sequence: financial targets, customer targets, business process metrics and growth metrics. He says it is important to pay attention to the cost of growth.
Executives often struggle to apply such examination to themselves. “Leaders can be self-aware but only if they act on it do they become self-actualised leaders,” says Posus adding that a decision to exit “could be very wise”. “If the person can articulate why they are making the move then it is likely to be sound.”
Martin Nally, managing director of hranywhere, says the psychology of entrepreneurial activity differs from managing a more conventional business. “If (managers) are attracted to that delivery of an outcome, then they have to ask themselves if they are the kind of person who can morph into a maintainer rather than an innovator, or whether their time is done. In a way we are fortunate that people no longer think of having a career for life.”
Nally says unless executives are prepared to “reinvest” themselves in the business at all its stages the business will not be operating at an optimal level. But he estimates that only the top fifth of executives possess the self-awareness to recognise when they aren’t as engaged.
“To advance yourself (effectively) you have to understand what your strengths are. I think the problem, more often than we realise, is that we are not outrageous enough to make the next step. You have to ask yourself whether you are really as satisfied as before. Often what people say is that it is just ‘that time in my career’ but that may not be good enough.”
Senior executives can be motivated by many different impulses, such as the desire for power, money or achievement. But when the main motive is to achieve, executives may have to look for new goals once one has been realised.
Deborah Rathjen is one such executive. The chief executive of Bionomics, she has had success in the scientific field, having developed the anti-cancer antibody Humira, and the business field. She compares scientific success to “climbing Mt Kilimanjaro” and business success to “climbing Mt Blanc”. “I live in the future; I’m not interested in the past.”
Drucker commented: “Work is an extension of personality. It is achievement. It is one of the ways in which a person measures his or her worth and humanity.” The implication is that when executives have achieved important goals, and are considering whether to move on, they have to understand how they derive their sense of self-worth. The transition will inevitably involve some deep reflection.