Roche’s Bet on Genentech’s Culture

Tuesday, July 22, 2008

In case you haven’t heard, Swiss pharmaceutical company Roche announced yesterday that it wants to buy the remaining 44% share of Bay Area biotech company Genentech it doesn’t already own. (In the interest of full disclosure, Genentech is one of my clients.) It’s not surprising that Roche wants all of Genentech’s capabilities when it comes to the business of science – Genentech has been hugely successful with its suite of oncology therapies.

And if you follow some of the pharma blogs, many inside and outside Genentech are predicting a brain drain of scientific talent once mean old Roche (and all its minions in Nutley, New Jersey) get their hands on Genentech’s cherished entrepreneurial, “science is king” culture. All of this may be very true and Roche’s press release announcing its intent mentioned more than once keeping Genentech’s culture intact. But one way to assess the possible effect of a brain drain on Genentech’s ability to continue to perform as it has so far is to look at this situation through the lens of Clayton Christensen’s Resources-Processes-Values (RPV) framework and how the source of an organization’s capability migrates over time.

Let’s start with Christensen’s definitions of resources, processes, and values, in his own words.

Resources include people, equipment, technology, product designs, brands, information, cash, and relationships with suppliers, distributors, and customers. Resources are usually people or things – they can be hired and fired, bought and sold, depreciated or built.

Organizations create value as employees transform inputs of resources – the work of people, equipment, technology, product designs, brands, information, energy, and cash – into products and services of greater worth. The patterns of interaction, coordination, communication, and decision making through which they accomplish these transformations are processes.

An organization’s values are the standards by which employees make prioritization decisions – those by which they judge whether an order is attractive or unattractive, whether a particular customer is more important or less important than another, whether an idea for a new product is attractive or marginal, and so on.

Christensen points out that:

In the start-up stages of a business, much of what gets done is attributable to its resources – particularly its people. The addition or departure of a few key people can have a profound influence on its success. Over time, however, the organization’s capabilities shift toward its processes and values. As people work together successfully to address recurrent tasks, processes become defined. And as the business model takes shape and it becomes clear which types of business need to be accorded highest priority, values coalesce.

Success is easier to sustain when the locus of the capability to innovate successfully migrates from resources to processes and values. It actually begins to matter less which people get assigned to which project teams. In large, successful management consulting firms, for example, hundreds of new MBA’s join the firm every year, and almost as many leave. But they are able to crank out high-quality work year after year because their capabilities are rooted in their processes and values rather than in their resources.

So the big question is whether Genentech has evolved (what would a story about a California company be without at least one use of the word “evolve?”) to the point that its “locus” of organizational capability has migrated from resources to processes and values? If so, we need to remember that processes and values don’t reside in any one person or group of people. It is as though they exist in an alternate universe, to the point that even if in some fantastical circumstance, every single employee were to leave Genentech, there would still be a virtual repository of processes and values that other smart, scientific people could plug into and get comparable results.

So where does culture fit into the RPV framework? Dr. Christensen, if you please.

As successful companies mature, employees gradually come to assume that the priorities they have learned to accept, and the ways of doing things and methods of making decisions that they have employed so successfully, are the right way to work. Once members of the organization begin to adopt ways of working and criteria for making decisions by assumption, rather than by conscious decision, then those processes and values come to constitute the organization’s culture.

So Roche’s real bet when it comes to Genentech’s culture is that is has evolved past a person-dependent capability and resides much more in the company’s processes and values, whether or not they are followed by assumption or consciously. If so, Roche could withstand the loss of an Arthur Levinson (Genentech CEO) or Richard Scheller (Genentech Chief Scientific Officer) and still maintain the organizational performance of Genentech, as long as it doesn’t screw around with its processes and values. But that’s a big “if.” Roche’s leadership team has a big decision to make -- where business and philosophy intersect. Should Roche become more like Genentech or Genentech more like Roche? Quite the wager.