Corporate Renewal as Turnaround Strategy: Schering-Plough

The Scenario

A couple of weeks ago, I attended a very interesting lecture by Fred Hassan, the CEO and Chairman of Schering-Plough (S-P). His remarks focused on two things: how he turned Schering-Plough around in some very difficult circumstances, and on the principles and practices required to create a sustainable internal capability – or “engine” – of corporate innovation and renewal. In the case of Schering-Plough (SP), both were sorely needed.

When Mr. Hassan took over the reins at Schering-Plough in the spring of 2003, the company was in serious financial difficulty, and faced a host of problems – all of them of their own making.

The patent rights (exclusivity) for their flagship product and chief driver of revenue and growth – Claritin – had recently expired, and competition from less expensive generic replacements was taking giant chunks out of their revenue stream. There was nothing in the pipeline to replace it, either. Market share and sales were also falling in their other major lines of business, like Hepatitis C and Respiratory. The bottom line: ALL of S-P’s major products were severely challenged by increasing, intense competition.

On top of this, historical compliance and quality problems led to an FDA consent decree, requiring an unprecedented and very costly commitment to upgrade both quality and compliance across all major plants. As part of that same decree, the company had to cough up a whopping $500M to the Federal government. S-P was also facing more legal challenges from the Feds in connection with past practices in sales and marketing. Credibility with shareholders, customers and employees was badly damaged.

The result: severe business disruption, steeply falling revenues, major cash bleed, internal performance problems, and lousy employee morale. More-or-less, the company had “lost its way”: i.e. plagued by a host of complex and thorny problems, with no simple or obvious way out of the mess. What to do?

The answer, in a nutshell: corporate renewal as turnaround strategy! I think of it as corporate renewal because Mr. Hassan had to make some deep, transformational changes in the company so it could survive in the short run, let alone in the long run. He had to take a bloated, sluggish, complacent, fragmented bureaucracy and re-invent it as a lean, responsive, innovative, cohesive business. Quite a task. So how’d he do it?

First, a bit of explanation. To our way of thinking here at the Center for Corporate Renewal, we think that sustainable growth depends critically on three core competencies that we call Strategic Focus, Disciplined Execution and Creative Renewal. That is, a self-renewing company must be able to…

Think with STRATEGIC FOCUS: Make sense of a changing environment and gain focus on the next right strategic move
Act with DISCIPLINED EXECUTION: Align and mobilize the entire organization behind this new strategic focus
Lead with CREATIVE RENEWAL: Renew the entrepreneurial spirit, while enabling your organization to continually cycle through stronger and stronger strategy-to-execution phases

That is...
Sustainable Growth = Strategic Focus + Disciplined Execution + Creative Renewal.

I’d like to begin by discussing how Mr. Hassan successfully achieved his business turnaround, and then follow that with how he built internal capability for sustainable innovation and renewal. I’ll describe how he did it in terms of the sustainable growth equation above. And although Mr. Hassan simultaneously launched a wide portfolio of changes that affected all three elements of the sustainable growth equation, it will be perhaps a bit easier to understand them if we discuss them sequentially, following the order of the equation. So, let’s start with Strategic Focus.

Strategic Focus

Strategic Focus is the capacity to continually make sense of a changing environment, and to respond to it appropriately; i.e. to focus on the next right strategic move. This capacity is enhanced by the ability to think about the business at a very high “big picture” level, and to understand, interpret and align all actions within a sophisticated strategic framework. Mr. Hassan appears to have this capacity in spades.

First, Mr. Hassan did NOT follow the advice of Wall Street analysts or activist shareholders, both of whom were preoccupied with short-term problems. Their shared goal was to quickly stabilize the company by restructuring it into a smaller, successful business, but at the expense of sacrificing its drug discovery and primary care capabilities. The unstated goal of this maneuver was to quickly create a financially advantageous environment, so they could exit without losing their shirts. No long-term strategy here, thank you. Just give me my money so I can cut and run. Mr. Hassan resisted this “advice” and chose to sacrifice short-term financial performance for long-term viability and business growth.

Next, to address the internal morale problems and corporate “doldrums” that had the business firmly in their grip, Mr. Hassan and his team developed a compelling vision for the future – one that both employees and senior managers could genuinely believe in, and which would – hopefully – overcome the reign of internal self-doubt and reignite the energy and passion of everyone in the business. You can read that vision at: http://www.schering-plough.com/schering_plough/about/about.jsp. A compelling vision provides a key foundation for both Disciplined Execution and Creative Renewal.

Next week we’ll focus on Disciplined Execution.
Dean Robb, Ph.D.