Eli Lilly Company was one of the largest pharmaceutical firms in the industry. The company mainly focused on the areas of drug research and development with the focus being on neuroscience, oncology and women’s health. It was the first company to launch large-scale production of pharmaceutical products such as insulin, penicillin, and erythromycin. The company also brought into the market an anti-depressant drug using the brand name Prozac. This drug becomes one of the best selling drugs for the company, accounting for more than a third of the total revenue of the company. The company had now specialized in a few drugs, with much of the revenue target being from the Prozac brand. However, the challenge began when the company’s revenue started to decline with the patent of th4e anti-depressant Prozac soon to expire. The problem was not on the patent expiry, but on the fact that Prozac accounted for 30% of the total annual revenue. Having made a decision to put many efforts into the Prozac and Zyprexa, they were facing the consequences of relying on a few products when they had the opportunity to innovate new products based on the needs of the customers. The decline in the market capitalization of Eli Lilly was brought about by increasing competition, rising R&D expenditures, the expiry of essential patent and rapidly changing market conditions. All these were attributed by the fact that the company had a rigid operating system that did not respond to the rapidly changing business environment.
The basis of competition involves a range of benefits that are important to the customer’s choice of the different competing products. The basis of competition changes from time to time due to the ever-changing preference of the customers. What forms the basis of competition is a range of products benefits that customers view to have value and can make a choice over that of the competitors ( Santos-Vijande, López-Sánchez & Trespalacios, 2012 ). Firms must, therefore, shift the basis of competition and produce products that add value to customers. Value addition and creating what the customers want is the key to remaining at the top of the business. Some of the big companies such as Eli Lilly enjoy the benefits of the economies of scale such as brand equity large market share and high capital base. However, some of these companies focus on the processes and the creation of products without having to identify what the customers are looking for. This was the case of Eli Lilly, which enjoyed a large market base and failed to make innovations of new products but instead focused on a few lines of products such as the anti-depressant Prozac. This was despite the several opportunities that the company had to introduce new products which were on high demand by the customers.
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The company did not listen to the pain and needs of the customers. They invested millions of dollars in a few products such as insulin and Prozac. While Prozac became one of the most selling products, failing to diversify in a wide range of products led to a decline in the total revenue when the patent of Prozac was approaching expiry. Some of the insulin products that were produced by the company were not what the customers wanted. Instead of getting to customers to understand their needs and then innovate products that best satisfy that need, Eli Lilly only invested millions of dollars on a few ranges of products, some of which customers did not see the value as compared to that of the competitors. The company failed to shift its basis of competition even if the competition was increasing and the customers’ preference was changing. With the opportunity to innovate many other products, the company opted to rely on a few already existing ones, and this became a major revenue problem when such products could no longer generate revenue. Even when the company opted to employ 1000 doctors to research on the new drugs and bring it to the market, it was too late as the company was already suffering from financial constraints.
The introduction of 100% pure insulin Humulin was an innovation that was not absorbed by the market. This was because the basis of competition of insulin was based on convenience while the new drug was based on the dimension of convenience. The drug was only for the smaller segment of patients who had developed resistance towards the animal-based insulin. The company did not consider the preference and needs of the customers while introducing the product. Shifting the basis of competition is important to ensure that there is continuous innovation and that the firm produces a variety of products based on the needs of the customers rather than relying on a few products as the source of revenue. This was the major mistake that Eli Lilly made, failing to innovate in many areas and also failing to hear the voice of the customers. Since the competition within the industry was rapidly growing, customers were consistently having a variety of products to choose from and based on this; they would go for what they believe would offer them benefits and value compared to that of other competitors.
Job to be done is a concept that guides the companies towards making an innovation that goes beyond just improving the situations but to offer customers the purpose for which to buy the product. While making a product, the company must analyze the main tasks that customers aim at achieving; the main job to be done. Customers want products that will offer a solution to their needs, and therefore companies must base their innovation around what job customers want to be done. The company must first highlight the human needs it tries to fulfill before embarking on the process of making a new product ( Leavy, 2010 ). Eli Lilly Company never highlighted the needs of the customers it wanted to fulfill while introducing insulin, and instead of understanding what customers wanted and making a diversified product base, it invested huge sums of dollars into a few products. Following this failure, the company lacked sufficient funds to hire Ph.D. researchers to help in the invention of new drugs. The company had an opportunity to explore a wide range of products due to the competitive advantage it enjoyed based on its size. However, this never happened as the company chose to focus on a few products thus putting its revenue generation channels at risk.
The recommendations to solve the issue at Eli Lilly Company is to reorganize the firm by creating a separate department that is charged with the core role of developing innovative products after doing market analysis without necessarily going through the functional organization. This will ensure that there is diversification, flexibility and being faster in the understanding and development of new ideas that will add value to customers and solve their problems. Instead of focusing on a few products to generate revenue, the firm through the product development division ensures that the company diversifies its revenue generating sources to avoid the problems it went through when it invested millions of dollars in anti-depressant Prozac which was the primary source of revenue, but the patent was about to expire. With constant innovation, shifting the basis of competition and diversifying its products, Eli Lilly can turn around its challenges and generate more revenue.
Other recommendations are to develop a flexible functional system that allows for changes at a time when the industry is experiencing the changes. The organization had a rigid functional structure making it difficult for any change to be implemented immediately and appropriately. Having a flexible structure can ensure that there is always room for change whenever things are not going on as planned.
References
Leavy, B. (2010). A system for innovating business models for breakaway growth. Strategy & Leadership , 38 (6), 5-15.
Santos-Vijande, M. L., López-Sánchez, J. Á., & Trespalacios, J. A. (2012). How organizational learning affects a firm's flexibility, competitive strategy, and performance. Journal of Business Research , 65 (8), 1079-1089.
