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MOON SHOT THINKING

Updated: Mar 4

"Knowing how to transform Innovation into Opportunity through strategic thinking allows us to understand the complexity and diversity of innovation that is essential for the future of organizations"


Randy Dennin, former CEO of Capsugel, wondered how to design strategies to rescue the company.





A few years ago I had the opportunity to collaborate with Capsugel, a manufacturer of empty gelatin capsules for the pharmaceutical industry, which was a division of the renowned and defunct North American pharmaceutical company Warner Lambert.

Empty gelatin capsules serve to mask the taste of medications, so that they pass easily through the larynx, but, above all, for dosing medications into the stomach.


One benefit that many users gain from purchasing encapsulated medications instead of tablets is the ability to customize their supplement regimens. This means mixing particular herbal formulas, which are not available at retail (homeopathic and alternative medicine).

It is known that the Egyptians took some painkillers "encapsulated with a starch coating", to mask the bad taste of the medicines and facilitate their passage through the larynx. This is documented by Mohamed El Shahhat Saad regarding a medicinal plant called "Salix Subserrata “Willd.”


Capsugel was founded in 1931 in Detroit, Michigan, as the Parke - Davis Division, after Arthur Colton designed a machine that simultaneously manufactured the body and caps of a hard gelatin capsule and assembled them automatically.

 

Years passed and in 1970, Parke-Davis, including Capsugel, was acquired by Warner Lambert, which was acquired by Pfizer in 2000.

 

On August 1, 2011, Pfizer sold Capsugel to global investment firm Kohlberg Kravis Roberts for $2.38 billion, and the latter in July 2017 sold it to Lonza Group for $5.5 billion.



 

Randy Denning, was a brilliant North American executive and excellent CEO of Capsugel Latin America

On one occasion Randy Dennin, the general director of "Capsugel", a factory of empty gelatin capsules for the pharmaceutical industry, asked me if, starting from the strategic position, one could determine the course of action (strategy) that a company should to follow. My answer was undoubtedly affirmative, but this requires the foundations of "Strategic Thinking".


What is strategic thinking?

As a manager, we all routinely face complex situations, difficult problems and challenging decisions. Therefore, our job is to deal with these situations as best we can using the information we have.

Ideally, we should have access to all the information we need to navigate through these situations and decisions. But in reality, we probably only have a limited amount of information to work with. Furthermore, because we are part of a particular organizational function, we may have an incomplete view of the forces that lie outside our organizational sphere of influence. Strategic thinking helps us overcome these situations. In its most basic sense, strategic thinking is about analyzing opportunities and problems from a broad perspective.


STRATEGIC POSITION MATRIX AND EVALUATION OF THE ACTION TO BE FOLLOWED

To answer Randy's question about whether, starting from the strategic position, the course of action (strategy) that a company should follow could be determined, I answered that the first thing to do is define the Internal and External Factors. of the Company:

Facilities of the Capsugel plant in Puebla

Every organization is impacted by:


Internal factors:

Financial Strength (FS): liquidity, cash flow, inventories, etc.

Competitive Advantage (CA): quality, product cycle, use of installed capacity, etc.




External factors:

Stability of the external environment (SE): inflation, prices, entry barriers, etc.

Industry strength (IS): growth, technological development, infrastructure, etc.


To carry out the diagnosis of the company's Strategic Position, once the key variables that affect it have been identified, values are assigned to them as follows:

For Financial Strength (FS) and Industry Strength (IS), assign between one and six, with the Worst being + 1 and the best being + 6

For Competitive Advantage (CA) and Stability of the external environment (SE), assign between one and six, with the Worst being 6 and the best being 1


Next, and thinking that we are going to build a Cartesian graph (x, y), we proceed to average the value of the dimensions of each axis:

x-axis: Algebraic sum of IS + ( –CA )

Y axis: Algebraic sum of FS + ( –SE )

Finally, it is graphed


EXAMPLE: ANALYSIS OF THE CAPSUGEL CASE

When I started my collaboration at Capsugel México, the entire administrative and commercial structure was in Puebla even though the majority of the clients were in Mexico City; The capsule market in Mexico was an oligopoly formed by “Capsugel” and “Lilli”.

Let's next evaluate Capsugel's strategic position in those years in which I participated with them as an Internal Strategic Consultant:


Through the data obtained (strategic thinking), as shown in the table above, the strategic position of Capsugel can then be graphed in a Cartesian graph as shown below:


As can be seen in the graph above, the directional vector is located in the quadrant of an Intensive/Aggressive Strategic Position, this means that it is a company that has great financial strength (it was part of a large pharmaceutical conglomerate), in an industry that is rapidly growing, but that suffers from several weaknesses that have caused its sales to drop.


KNOWING THE FOUR QUADRANTS IN WHICH ANY COMPANY CAN BE LOCATED:


Conservative Strategies:

It contemplates low risk in order to operate in a more relaxed way, without pressures related to the demands of creditors.

This means that companies that are in this quadrant suffer from having significant competitive disadvantages in an industry that is stable technologically, but that declines in sales, therefore, the recommended strategies would be:

  • Cost control and operation efficiency

  • Joint Venture

  • Take moderate risk

  • Current market development

  • Expenditure cut

  • Diversification

  • Outsourcing


Defensive Strategies:

It is to reduce the probability of attack and/or reduce its intensity. They seek to protect market share, constraining the action of the most dangerous competitors.

The recommended strategies are:

  • Cost control and operation efficiency

  • Market Development

  • Product development

  • Horizontal Integration: strategic alliances and/or outsourcing

  • Disinvestment

  • Concentrate resources, eliminating superfluous activities and unprofitable products

Intensive/Aggressive Strategies:

It is searching and developing strategies for sales growth. When a company wants to grow, its first efforts are aimed at:

  • Sell a greater quantity of product or services within the same market.

  • Sell the same product to new customers or markets.

  • Develop a new product or service for your current customers, after having identified an unmet need.

  • Develop a new product or service for a new market.

These four ways to grow, called intensive strategies, seek to increase company sales through:

1) Greater market penetration

2) The development of new markets;

3) The development of new products

4) The development of products and markets.

5) Vertical Integration.


Competitive Strategies:

It is the company's plan that, oriented to the long term, helps it exploit its strengths, develop new capabilities and take advantage of opportunities to obtain an advantageous position in the market.

  1. Cost Leadership

  2. Differentiation

  3. Focusing.


MOON SHOT THINKING: TRANSFORMING INNOVATION INTO OPPORTUNITY THROUGH STRATEGIC THINKING

WITH THIS DIAGNOSIS, WHAT ACTIONS (STRATEGIES) WERE RECOMMENDED?

Strategy recommendations can be made with two approaches:

Sales and Marketing Strategies:

▶️ Market Development

▶️ Product Development

▶️ Vertical Integration

▶️ Improve customer service (visits) through consultative sales


Operations Strategies (internal processes)

▶️ Operating leverage to improve productive efficiency

▶️ Improvement of Customer Service

▶️ Standardize and improve quality, decrease complaints

▶️ Improve delivery times


INTERNAL PROCESS STRATEGY

It involved the following tactics.

  1. A culture of Innovation was implemented, aimed at improving customer service and market focus and developing safer capsules to avoid being adulterated.

  2. The commercial management, in coordination with the general management, redirected the Quality Control area to convert it into Quality Assurance, to transform Capsugel into a reliable JIT type company (on-time delivery) and certified quality.

 

SALES STRATEGY

It involved the following tactics

  1. The commercial area in Mexico was restructured, for which a new Commercial Director (responsible for sales and marketing) was hired, based in Mexico City.

  2. The customer service area was restructured to improve the supply chain, to achieve the credibility lost to customers due to the poor delivery times that the company fell into, implementing on-time deliveries (JIT).

  3. Visit industrial clients (Pfizer, SKF, J&J, Shering, Chinoin, Sheramex, etc.), which were completely abandoned, because the previous Capsugel sales manager lived in Puebla and his visits to the City of Mexico, (where 80% of the clients were concentrated) were sporadic and very expensive due to the travel costs incurred (they stayed and ate in the most expensive places in Mexico City). In visits to clients, with the new strategy, we sought to rescue their trust with words and actions, the guarantee of quality and service.

  4. Segmentation of clients by size and profitability and thereby adjust the itinerary of visits to them, to make resources (money, time and effort) more efficient to achieve more results with fewer resources.

 

MARKETING STRATEGY

It involved the following tactics

In essence Capsugel can be considered as an industrial marketing company (BTB), because, within its strategy, it was to position empty gelatin capsules among large laboratories and, even compete, against substitute products such as tablets and pills.

Without a doubt, Capsugel knew how to position its value proposition among the large drug manufacturers, through its slogan: "BETTER CAPSULES FOR BETTER MEDICINES."

 

  • Design and production of film material to “indoctrinate” and reposition among current and potential clients, why capsules are a good substitute for pills, dragees and tablets, thus demonstrating that capsules are better for passing through the digestive tract and for dose micro granules.

  • Public relations campaign for repositioning, through training seminars at different levels of decision makers within organizations, demonstrating why capsules are better than tablets and pills: a) Finances, the cost-benefit of a capsule It is larger than a tablet or pill. b) Marketing, for what has already been said, a capsule is better for the end user. c) Operations, if they already have an encapsulating machine, it is easier to operate, reducing time and raw material costs.

 

  • Public relations campaign mentioned above included different forums such as the Mexican Pharmaceutical Association to ensure repositioning.

 

POSITIONING AND THE MARKETING MIX

Let us remember that “Integrative Marketing”, also called “Marketing Mix”, provides us with the fundamental strategies for the POSITIONING of a product or service: Product, Price, Distribution and Marketing Communication Mix.

  

THE MARKETING MIX APPLIED TO THE CAPSUGEL CASE

  • Target Market (target customers), all pharmaceutical industry laboratories that already use capsules and, in addition, those that use substitute products such as pills and tablets; firms that manufacture homeopathic products.

 

  • Searched Positioning “Better Capsules For Better Medicines”, this is the value proposition transformed into a captivating slogan.

 

  • As? Through internal processes and marketing strategies (sales management and marketing management).

 

CONCLUSIONS

  • To win the battle in the “customer's mind”, you should not compete head-on against the market leader that already has a vigorous and firm positioning; You should try a detour, above or below, but never head on.

    

  • In our over-communicated society, the name of the game today is positioning.

    

  • You have to understand how the power of words affects the mind; “Language is the currency of the mind”

    

  • If a company adopts a position in the appropriate direction, it will overcome the currents of change, taking advantage of the opportunities that arise. But when the opportunity arrives, the company must act quickly.

    

  • One of the most critical aspects of positioning is being able to objectively evaluate products and find out how current and likely customers view them.

    

  • According to positioning theory, smaller can be better. It is usually better to achieve small objectives that you can own exclusively, rather than sharing a broader market with three or four different brands: you cannot be in everything and also obtain a powerful position (market segment approach, third generic strategy by Michael Porter).

    

  • You don't need a reputation as a marketing genius. In reality, this can be a fatal hindrance. Very often the leader of a product makes a huge mistake by attributing his success to his marketing skill.







Transforming Innovation into Opportunity

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