Building Organizational and ScientificPlatforms in the Pharmaceutical Industry:A Process Perspective on the Development

of Dynamic Capabilities

V. K. Narayanan,1 Ken Colwell1 and Frank L. Douglas21Drexel University, LeBow College of Business, Philadelphia, Pennsylvania, USA, and 2Ewing Marion

Kauffman Foundation, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA

Email: vkn22@drexel.edu, kcolwell@drexel.edu, fldoug@mit.edu

In this paper, we examine the process of dynamic capability development in a largepharmaceutical firm. Using interviews with multiple managers at different organiza-

tional levels, we developed two narratives of the process of developing two separate

dynamic capabilities in the same firm. We focus on three areas that prior research has

shown to be critical in the early stages of the process of implementing new strategicinitiatives: the cognitive orientations of key personnel, managerial action undertaken

within the firm, and the firm’s internal and external contexts. We provide evidence that

managers undertake specific initiatives based on their own particular cognitiveorientations, and that senior managers play a major role in the development of

capabilities by imprinting the organization with their specific cognitive orientation and

then orchestrating the multilevel organizational routines necessary for actualization of a

capability. These replicable actions by senior management during the early stages ofcapability development can lead to the development of a capability that is not initially in

the cognitive frames of lower level employees. Finally, we will show that internal and

external contingencies have a profound impact on the decision to develop a capability,

and to discontinue its development. Our findings thus suggest that the process ofdeveloping new capabilities shares common elements with other strategic initiatives.

During the last decade, ever since Teece, Pisanoand Shuen’s (1997) pioneering paper appeared inthe literature, the construct of dynamic capabil-ities has offered strategic management scholarsthe potential to incorporate managerial actioninto discussions of the sources of competitiveadvantage. This focus on managerial action isbest highlighted in Eisenhardt and Martin (2000),who defined dynamic capabilities in terms ofprocesses. Yet, from an empirical point of view,the study of dynamic capabilities in terms ofprocesses is rare. Thus, some of the early writingsand recent empirical works on dynamic capabil-ities have focused on linking it to competitiveadvantage and performance, prompting Helfat

et al. (2007) to argue that progress on this topicdepends on a deeper look at process issues.A process view of dynamic capabilities offers

two benefits. First, it directs attention to thebeginnings of dynamic capability development –actions managers undertake to develop andsustain capabilities, often intentionally and al-ways without any guarantee of eventual success(see Dutton, Fahey and Narayanan (1983) foran elaboration of this point in the context ofstrategic decision making). We view capabilitybuilding as contingent upon managerial action,and we will focus our discussion on whatmanagers can do to develop dynamic capabili-ties, not merely on the link between dynamic

British Journal of Management, Vol. 20, S25–S40 (2009)DOI: 10.1111/j.1467-8551.2008.00611.x

r 2009 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, OxfordOX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.

capabilities and firm performance. This is parti-cularly important because in spite of significantdebate in the literature on the specific processesthat constitute dynamic capabilities, little atten-tion has been paid to the process of dynamiccapability development (Helfat et al., 2007).Second, a process perspective enables us toconnect to the rich strategy process literature(see Pettigrew (1992) for a discussion of thisliterature), which offers a wealth of frameworksand methods that can be employed to study thedevelopment of dynamic capabilities in organiza-tions. Thus we are able to integrate a majortheme in the strategic management literature intothe dynamic capabilities framework.The motivation for our current work was to

understand the origins, impetus and dynamics ofcapability development: What prompts managersto undertake capability building? How do theygather ideas for specific capabilities? Are therereplicable steps in development? Using narrativetechnique, we undertake a comparative analysisof two field studies documenting a pharmaceu-tical company’s attempts to build two distinctcapabilities – fast cycle drug development andchemical biology R&D platforms. In comparingthe full lifecycle of the development of these twovery different capabilities that both act to trans-form drug development, we hope to shed somelight on the process of developing dynamiccapabilities. Although recent literature has em-phasized that knowledge is distributed through-out the organization, and that the role of themanager is more to coordinate purposeful actionthan dictate normative practices (Tsoukas, 1996),both cases of capability development we studiedare senior management led, i.e. top-down. Theythus offer a contrast to processes driven fromlower organizational levels such as those at Inteldocumented by Burgelman (1983).This study makes three contributions to the

literature on dynamic capabilities. First, wehighlight the role of human agency in thecapability building process. We provide evidencethat managers undertake specific initiatives basedon their own particular cognitive orientations, andthat senior managers can play a role in thedevelopment of capabilities by imprinting theorganization with their specific cognitive orienta-tion and then orchestrating the multilevel orga-nizational routines necessary for actualization ofa capability. These replicable actions by senior

management during the early stages of capabilitydevelopment can lead to the development of acapability that is not initially in the cognitiveframes of lower level employees. Finally, we willshow that internal and external contingencies havea profound impact on the decision to develop acapability, and to discontinue its development.The scheme of the paper is as follows. First, we

discuss the theoretical underpinnings of ourstudy, and the key theoretical constructs pursued.Second, we describe our research procedures,highlighting the organizational setting, datacollection and the narrative analysis of thequalitative data that we collected. In the fourthsection, we present narrative accounts of the twodynamic capability development processes. Wethen analyse and compare the similarities anddifferences between the two processes, and drawconclusions from this analysis. Our concludingsection points to further research directions.

Theoretical orientation

Although the dynamic capabilities view hasemerged only recently as a major theoreticalframe in the strategic management literature,there is broad agreement that dynamic capabil-ities lead to improved firm performance in someway, such as helping firms deal with dynamicmarket environments (Teece et al., 1997),improving productivity (Makadok, 2001; Zolloand Winter, 2002) or generating new strategies(Eisenhardt and Martin, 2000). Despite thestrong theoretical linkage between dynamiccapabilities and firm performance, ‘we havelimited understanding of where capabilities comefrom or what kinds of investment in money, time,and managerial effort is required in buildingthem’ (Ethiraj et al., 2005, p. 25). This lack ofunderstanding is heightened by the fact that theevolution of dynamic capabilities may consist ofa combination of idiosyncratic and path-depen-dent elements (Teece et al., 1997) that are uniqueto the firm as well as industry-wide best practices(Eisenhardt and Martin, 2000). The firm’s path todeveloping new capabilities may also be highlydependent on the human and social capital of keypersonnel, as well as their cognitive endowmentsand the environmental context in which theyoperate (Helfat and Peteraf, 2003; Zollo andWinter, 2002).

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Theoretical work has suggested that dynamiccapabilities may be borrowed from outside as wellas developed internally. Eisenhardt and Martin(2000) focused on commonalities across firms, andsuggested that capabilities may not be distinctiveand thus may be sourced externally. Lampel andShamsie (2003) took this view a step further,suggesting that there are dynamic capabilities thatare shared among all major competitors in anindustry. Zahra, Sapienza and Davidsson (2006)argued that dynamic capabilities could be sourcedeither internally, through various learning pro-cesses, or externally, through imitation.This theoretical work on dynamic capabilities

leads us to focus on three major themes thatemerge from the literature on strategic processes:(1) human agency; (2) the origins of new strategicinitiatives; and (3) the impact of the externalenvironment.

Human agency

Strategic process research has identified two majorcategories of human agency in the initial stages inthe development of new strategic initiatives thatdetermine the direction the firm will take: thecognitive orientation of key personnel and thespecific managerial actions they take.

Cognitive orientation. All new strategic initia-tives begin with an idea (Van de Ven, 1986).Having an idea involves not only comprehensionof the process necessary to implement the idea(McGrath, MacMillan and Venkatraman, 1995),but also understanding that there is a need forthe new initiative in the first place. Cognitiveorientations thus embrace both the belief in theefficacy of the idea and the cognitive schemas andknowledge that lead to its effective implementa-tion (Hodgkinson, 1997). For example, althoughthe decision to develop a new capability is oftendue to a change in the firm’s external environ-ment, individuals within an organization mustinterpret the relevance of the event and decide onan appropriate course of action. As Meyer (1982)noted, the strategic orientation of the topmanagement is highly influential in how firmscope with an adverse exogenous event.

Managerial actions. Having decided upon acourse of action, the individual actor begins

gathering resources and support for the newinitiative. A properly defined strategic initiativecontains an economic as well as a technical logic,and relevant employees must be convinced ofeach (Burgelman, 1983). Narayanan and Fahey(1982) modelled the entire strategy formulationprocess as a series of political moves byindividuals, with the ultimate outcome being theformation of coalitions supporting the desiredinitiative. Van de Ven (1986) called this part ofthe process the ‘management of attention’ whenthe impetus came from the management team.Dutton et al. (1992) called it ‘issue selling’ whenthe idea initiated from lower organizationallevels. Although this phase may begin with thedevelopment of effective group functioning andcommunication (McGrath, MacMillan and Ven-katraman, 1995), it may also involve managerialactions such as forcing favoured initiatives (orneglecting ones that they do not favour) and thenrationalizing these actions to senior managers(Burgelman, 1983).

Origins of capabilities

Burgelman (1983) theorized that the idea for newstrategic initiatives can occur in two ways. Theidea can originate at the lower levels of theorganization and be selected and rationalized athigher managerial levels, or it can come from theranks of senior management with a specificstrategic intent. For example, Maritan (2001)found that capital investment proposals initiatedat both the senior management and lowerorganizational levels. However, both of theseauthors found that new strategic initiatives weremost commonly initiated at lower organizationallevels, with senior managers generally responsiblefor filtering and legitimizing the best ideas. Bycontrast, initiation of major capabilities may alsooccur at senior levels of the organization. Indeedthe trajectory of development in top-downapproaches may be vastly different, but extantempirical works documenting this are relativelyrare.

The external environment

Discussions of path dependency generally recog-nize the role of the external conditions and thefirm’s position within its environment. Besidesthe intentional acts of deciding on a course of

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action and building support for it, the externalcontext in which the actors operate will alsogreatly influence the strategic direction of a firm.As mentioned previously, an external event isoften the impetus for a new strategic initiative inthe first place. Eisenhardt and Martin (2000)believed that the dynamism of the firm’s environ-ment was a key mediator in the efficacy ofdynamic capabilities. Environmental factors mayalso impact a firm’s allocation of resourcesbetween new strategic initiatives and exploitingexisting ones (March, 1991). Teece et al. (1997),in their discussion of dynamic capabilities,explicitly recognize the role played by the firm’sposition within the environment.

Research design

This paper focuses on the process of developingtwo specific capabilities – fast cycle drug devel-opment and chemical biology platforms – in amajor pharmaceutical firm based in the USAover a roughly nine-year period. Although thechoice of the firm was due to convenient access totop managers, and the choice of specific capabil-ities were firm-level managerial decisions (outsidethe control of the researchers), our analysis isanchored in three crucial research design con-siderations. First, it accommodates the twodifferent origins of capabilities discussed in thedynamic capabilities literature: internally throughvarious learning processes (Zahra, Sapienza andDavidsson, 2006), or externally through imitation(Eisenhardt and Martin, 2000; Lampel andShamsie, 2003; Zahra, Sapienza and Davidsson,2006). Second, we track capabilities at the firmlevel, and since the firm used projects as thevehicle for developing capabilities, we trackedmultiple projects in each capability, thus avoidingthe trap of inductively leaping from a single

project to the organizational level (Miles andHuberman, 1994). Third, this paper invokes thenarrative analysis approach, one of the majorqualitative approaches and arguably the one bestequipped to capture the synchronic–diachroniccharacteristics of the capability building process(Clandinin and Connelly, 2000; Creswell, 2007).The two capabilities we tracked – fast cycle

drug development and chemical biology plat-forms – both pertain to pharmaceutical R&D. Asshown in Figure 1, the firm we tracked conceivedof R&D as a series of linked activities, with twobroad phases – discovery and development. Thediscovery phase involved the choice of a candi-date for drug development, whereas develop-ment, the second and longer phase, involvedmodifying and assessing the drug candidate tomeet Food and Drug Administration (FDA)requirements. Fast cycle drug development re-ferred to an organizational capability to achieveorganizational speed or reductions in cycle timeduring development. Since this capability is notunique to a particular firm or industry, it couldbe sourced externally through the use of con-sultants. On the other hand, chemical biologyplatforms are specific to drug discovery. They aimto create biological response profiles by smallmolecules, selected on the basis of the structureand function of the biological target, and arecharacterized by a need for extensive cooperationand knowledge sharing between chemists andbiologists, which was a completely novel ap-proach at the time. At the time of this study, aninterdisciplinary field called chemical biology hadbegun to be established in academia, but had notyet been implemented in the pharmaceuticalindustry. Therefore, it was necessary to developthis capability internally.Our study profiles a major pharmaceutical

company over a nine-year period. During 1995–1998, the firm undertook the creation of fast cycle

Figure 1. Chemical biology platforms and fast cycle capability in the drug discovery/development process

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capability for the development stage of drugcommercialization. During 2002–2004, it furtherundertook the creation of chemical biologyplatforms for the discovery stage of the drugdevelopment process. Although both studies tookplace in the same corporation, the corporatesetting had changed considerably between thefirst and the second study due to a series ofmergers. All the fast cycle projects were eithercompleted or terminated before one set ofmergers whereas the chemical biology initiativewas interrupted by a second wave of mergers, andabandoned in their wake. In Figure 2, we haveprovided a timeline which summarizes the keymilestones in the development process andpinpoints the data collection time periods.

Data collection

Our primary source of data was interviews withseveral levels of management. For fast cycle drugdevelopment, we interviewed 27 individuals,including eight executives, 13 directors andmanagers, and six project team leaders (thisincludes the project leaders for the four fast cycledrug development teams as well as two other‘regular’ projects). For chemical biology, weinterviewed seven individuals including oneexecutive, two programme managers and fourproject team (platform) leaders. In both cases, weinterviewed all managers with direct day-to-daydecision-making responsibilities for the projectsat issue. The chemical biology drug discoveryplatforms had a much more limited implementa-tion, and thus fewer employees were involved intheir development. The Appendix profiles theinterviewees in the fast cycle and chemicalbiology platform initiatives.We conducted the interviews during the cap-

ability development period, when the events werestill fresh in the interviewees’ minds. Themanagers of the fact cycle initiative that took

place from 1995 to 1998 were interviewed from1996 to 1999. The managers of the chemicalbiology initiative that took place from 2002 to2004 were interviewed from 2003 to 2004. Weconducted the interviews in person where possi-ble (mostly in the case of the fast cycle initiative)and by phone (mostly in the case of the chemicalbiology initiative) when the participants were outof the country. The interviews were semi-struc-tured and open ended. Senior managers wereasked about the logic of developing the capabilityin question and the challenges of implementation.The focus of these questions was on events andprocesses, managerial actions and their rationale,and the actual impact of these decisions in orderto create a chronology of processes involved inthe initiatives. Project leaders were asked todescribe day-to-day experiences running theteams, as well as to rate the level of support theyreceived from senior managers. Most interviewslasted between one and three hours.All in-person interviews were recorded and

later transcribed. In the case of telephone inter-views, the interviewer took elaborate notes. In thecase of the chemical biology platforms, theinterviews were summarized and sent back tothe platform managers for corrections of scien-tific terms and ideas, as they were outside therealm of expertise of the researchers. The finalsummaries incorporated the changes made by theparticipants.We supplemented the interview data with

archival data in the form of internal technicaldocuments and external industry reports.

Data analysis

Process research focuses on how decisions aremade, not merely what is actually decided (Huffand Reger, 1987). We employed the narrativetechnique (Creswell, 2007), ideally suited to handleprocess data that is composed of dynamic

Figure 2. Timeline of firm events during capability development processes (FC, fast cycle; CB, chemical biology)

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sequences of events through multiple organiza-tional levels with ambiguous boundaries (Langley,1999). In retrospective analysis, one of the keyadvantages of narrative technique is that it allowsmuch more context and detail to be reportedthan other qualitative methods (Creswell, 2007;Langley, 1999). We distinguish a narrative froma story. A story is a simple account of events,often in chronological order. A narrative, on theother hand, adds plot and coherence to the story(Boje, 2001).One key advantage of the narrative method is

that it allows much more context and detail to bereported than other qualitative methods such aspaired or comparison case studies (Dyer andWilkins, 1991). Context may be a particularlycritical issue when examining episodes of organi-zational change (Pettigrew, Woodman andCameron, 2001). In fact, narratives are the wayactors create meaning from a series of events, andmay be necessary for organizational sense-making(Weick, 1995).In order to capture the process of dynamic

capability development, we created two narra-tives of capability development, one each for fastcycle capability and chemical biology platform.This required aggregation of data from multiplelevels, both individual and project level, into thecapability level. We did this in two steps. First,we created a total of eight case studies – four forfast cycle project teams, and four for individualchemical biology project teams, based on thetranscribed or summarized individual-level datafrom the project leaders. Second, based on theseeight case studies and the interviews with seniormanagement, we prepared two narratives of theprocess of developing the two capabilities. Thus,both the narratives adopted a nested case studydesign (Burgelman, 1994; Leonard-Barton, 1990;Yin, 1994).Although retrospective analyses can be very

useful for recognizing overall patterns in theprocess (Leonard-Barton, 1990), care must betaken to avoid spurious connections betweenantecedents and consequences, creating a ‘just-sostory’ (Pentland, 1999). In this study, we amelio-rated this possibility in two ways: (1) the use of aconceptual framework, and (2) care in construct-ing the narrative, both prescribed in the literatureon narrative methods (Creswell, 2007).We used a conceptual framework developed by

Narayanan and Fahey (1982) and modified by

Narayanan et al. (2003) to depict the stages of thecapability building process. The early stages ofthe capability building process – activation,articulation, mobilization and implementation –represent the emergence of the capability, and arethe focus of the narratives. The later stages of thecapability building process – diffusion and reten-tion – are not applicable to these cases, as will bediscussed below.Using this conceptual model of the process of

capability development, our analysis unfolded inthree phases. In the first phase, we reviewed theinterview transcripts to create a basic narrative ofeach capability development process. Threeresearchers independently created narrativesfrom the transcripts – one who had conductedthe original interviews and two who were notinvolved in the original research project. Second,we met to compare our narratives and identifythe four initial stages for each of the two dynamiccapabilities, the key challenges faced by themanagement team during each phase, and thedecisions made in order to deal with thosechallenges. To do this, we identified the keymanagerial actions over time for each capabilityas well as the reasoning behind those actions.This ‘restorying’ (Creswell, 2007) or ‘emplotment’(Czarniawska-Joerges, 2004) of the narrativesinto a general conceptual framework is importantto create a coherent narrative, since the indivi-duals interviewed did not necessarily present theirstory in a consistent or chronological sequence.Finally, we isolated the common and distinct

elements of each process, paying particularattention to cognitive endowments of key in-dividuals, internal political manoeuvring, andexternal context in which the initiative occurs.The narratives developed from our case data aredeliberately broad, and oriented to address majorchallenges faced by senior management at eachstage of the capability building process, alongwith actions taken and the rationale for thoseactions. To this we now turn.

Capability development narratives:comparison and analysis

The two capability development efforts wereundertaken within the same firm, yet the organi-zational context, natures of the capability, andthe firm’s path towards building were somewhat

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different. Table 1 summarizes the differencesbetween the two capability development initia-tives; in what follows, we compare the narrativesof their development along the stages identifiedby Narayanan et al. (2003), especially activation,articulation, mobilization and implementation asprojects; we conclude with a summary descrip-tion of the termination of these efforts. In otherwords, we juxtapose the two narratives by stage,which enables us to show the similarities anddifferences between the two.

Activation

The environmental context in which the devel-opments were attempted was similar: industry-wide declines in R&D productivity. This declinewas partially due to industry-wide issues includ-ing rising costs of clinical trials, difficulty inrecruiting patients, expanding development pro-grammes and longer development times. Theseconditions, together with increasing societalexpectations, put pressure on all pharmaceuticalfirms to simultaneously speed up and increase theeffectiveness of the drug development process.However, the organizational context and the

triggers for development were quite different. Inthe case of fast cycle capability, the then newlyformed company had brought in several newexecutives, who included the Executive VicePresident (EVP) of Drug Innovation and Ap-

proval (DIA). Externally, the company wasfacing a crisis – the threat of significant futuredeclines in sales and profitability as a result ofactions by the US FDA. As one Senior VP put it:

The FDA had issued a warning on [the product], a

major contributor to our sales. Our company was

at risk.

In the case of the chemical biology platform,the organizational context had changed becausethe company had undergone another merger.Over a period of several years prior to theintroduction of chemical biology platforms, dis-cussions among very senior R&Dmanagers in thecompany had led to the conclusion1 that the trialand error approach in drug discovery could beimproved by deepening the knowledge of ‘chemi-cal biology’. However, no pharmaceutical firmhad implemented a chemical biology platform,and it remained in incubation until a galvanizingevent took place. A senior executive of the firmwas making a keynote address at the 2000 DrugDiscovery and Technology forum in Boston. Inthe other keynote address, Craig Ventner ofCelera Corporation described an incrediblebreakthrough in the human genome project.The senior executive, not to be outdone, finallydecided to publicly commit to the application ofchemical biology in his address. As he put it:

I was really under pressure. I knew Craig Ventner

was going to announce his breakthrough in his

keynote address in Boston. My address followed

his. I had to do something impressive [to keep the

audience’s attention]. After consulting with my

senior scientists, I decided to announce the chemical

biology platform.

Articulation

Both the managerial challenges and the emergentstrategy of development during the articulationstage were also somewhat different for the twodevelopment efforts. In the first, the new EVPhad the vision of imprinting the organizationwith fast cycle capability, which was already awell-known set of routines in industry at large, inresponse to the impending crisis. The managerial

Table 1. The two dynamic capabilities contrasted

Dimension of

comparison

Fast cycle product

development

Chemical biology

R&D platforms

Impetus Impending crisis for

the firm

Industry-wide concern

for innovation

productivity

Strategic

purpose

To avert impending

crisis

To enhance the

effectiveness of drug

candidates

Origin of

capability

Well-established

concepts, imported

from outside

Ill-defined concepts,

internally elaborated

and clarified

Focus of

capability

Altering

organizational

processes

Building a scientific

platform

Strategic focus Drug development Drug discovery

Applicability

to drug

development

Late stage Early stage

Approach Project teams linked

to functional units

Autonomous pilot

project teams

1These conclusions were published in a series of peerreviewed journal articles in chemistry and relateddisciplines; we have withheld these references to protectthe anonymity of the individuals.

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challenge during fast cycle capability develop-ment was to get some degree of commitmentfrom the rest of the senior management team tolaunch the initiative. The development of fastcycle capability could not be accomplished with-out a significant shift in both the beliefs andbehaviours of senior management. As a result, theactivation stage lasted over a year until the headof DIA decided to confront the issue directly.Two senior managers in particular were publiclysupportive of building fast cycle teams whileprivately undercutting the efforts. This led todelays and missed deadlines. As a senior execu-tive characterized it,

We decided to have a ‘come to Jesus’ meeting.

One of the senior managers was asked to stepdown and the other was reassigned overseas.The strategy that emerged was to focus on a

select set of fast cycle projects, to learn from theexperience, and then to embed the capability inthe organization as a whole. Senior managementdesignated several projects as ‘fast cycle’. Theseprojects were expected to beat the best in class inthe industry. These fast cycle projects ranconcurrently with ‘regular’ projects that operatedaccording to the accepted practices within thecompany.A second challenge emerged at this stage for

senior management: to tailor general fast cycleprinciples to the specific organizational contextand resource constraints of the firm. On onehand, the firm adopted core fast cycle principles.Senior management encouraged rapid decisionmaking, priority in resource access, and increasedautonomy of project teams. The functional unitsretained key roles in the process includingenforcing standards, maintaining quality, andfacilitating the transfer of function-specific learn-ing across teams. On the other hand, the firmtailored accepted fast cycle best practices to theirspecific organizational context. For example, thefirm decided not to co-locate project teams andkept fast cycle project teams anchored in thetraditional context of the scientific functions thatwere the backbone of the DIA organization.Resource constraints forced the firm to assignfast cycle status only to a small number of R&Dprojects. Other firm-specific principles articulatedduring this phase included the establishment ofeconomic and scientific feasibility criteria fordeciding which projects to designate as fast cycle.

In the case of the chemical biology platformthe managerial challenges during articulationinvolved rank and file scientists more than seniormanagers. Senior management had a clear con-ception of what the chemical biology platformshould do, but the rank and file scientists whowould actually be developing the scientific con-cepts, models and methods of chemical biologywere not part of these early deliberations. Seniormanagement appointed a long-term insider as theleader of this initiative to help deal withresistance from staff scientists. This person wasa well-respected scientist with global experienceand a strong interest in the philosophy ofinnovation. The first approach to sparking theinterest of the scientists met with mixed results.The firm held a kickoff meeting on chemicalbiology with 25 promising scientists in the fall of2000. There was no real excitement and a lot ofscepticism. Unlike the senior managers, thescientists did not see much value in the newapproach. The leader of the chemical biologyinitiative initially considered the meeting to be adisaster, stating that it was ‘scary’ to hear suchscepticism from young scientists.

Mobilization

During mobilization, imprinting the fast cyclecapability required challenging the long-heldcentral premises of the organization that focusedon ‘functional excellence’. Functional excellence,defined as the pursuit and preservation of thehighest possible scientific and functional stan-dards above all else, had traditionally been thekey tenet that guided R&D operations. The ideaof fast cycle, with its more pragmatic approach toR&D and emphasis on speed, often seemed toconflict with functional excellence.The introduction of fast cycle teams created

uncertainty for functional managers as well asproject team members. Fast cycle teams hadmore decision-making power and direct access tosenior management, partially circumventing tra-ditional reporting relationships. Thus, the role offunctional managers evolved from a control-oriented towards a more support-oriented role,creating a natural level of discomfort amongsome affected managers. The conflict for indivi-dual team members was exacerbated by the factthat many of them were not fully dedicated to theproject team and thus were living in two worlds

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with two different belief systems at once. Also,pay and promotions were still largely under thecontrol of the functional units. Many functionalleaders did not fully buy into the fast cycleconcepts and favoured the status quo.The firm discovered the need to embed new

organizational routines to deal with these issues.Embedding routines required compliance bydifferent levels of the organization – seniormanagement, middle management and projectteam levels. At the senior level, a structuredprocess of portfolio planning, project leaderselection and organization-wide communicationwas implemented. As new, more effective routinesemerged in one fast cycle project team, thedesignated executive sponsor helped to dissemi-nate them to other teams. Newer routines werealso needed at the middle management level. Forexample, during annual performance reviews ofproject team members, functional leaders had toincorporate the input from project leaders. Themost visible organizational routines emerged atthe project team level, which had been encour-aged to do things differently in support of theproject; these routines required both cognitiveand behavioural learning. As one senior executivedescribed it, fast cycle team members had to‘migrate from relying on checklists to a problem-solving orientation for rapid execution’. Forexample, fast cycle teams were given tight dead-lines, and knew the importance of speed. Yet inone project team, senior scientists continued tofax rather than email documents and did notfollow up with their counterparts in othercountries to ensure the recipients received thedocuments. In some cases, the faxed documentsstayed on the respective administrative assistants’desks and valuable time was lost.In the case of chemical biology, out of the early

experiences with rank and file scientists, a manage-ment strategy for mobilization emerged to combatthe challenge of producing a major organizationalimpact while taking an incremental approach. Thestrategy was built upon three major anchors: (1) apilot approach; (2) project-focused science; and (3)virtual organizational platforms.The pilot approach was a direct outgrowth of

the scepticism of scientists. This convinced seniorR&D managers that it was advisable to moveslowly rather than adopt an organization-wideapproach to introduce and build chemical biol-ogy capabilities. The pilot approach involved

starting with a small group of scientists focusedon a specific set of projects, and over timefollowing up with several other projects. It waseasier to locate a small number of enthusiasticscientists within the corporation, and theirscientific and organizational successes wouldensure the interest of others. Over a period oftwo years, the firm launched four pilot chemicalbiology platforms.The scientific challenges in developing chemical

biology platforms necessitated interdisciplinaryproject teams. Chemical biology involved scien-tific work at the intersection of two divides –basic versus applied science and chemistry versusbiology. The focus was on rapid learning andknowledge development through leveraging re-sults of experiments on specific members of aclass of molecules to determine applicability withother members in the class. The senior manage-ment team chose to focus ongoing project teamsto ensure that ‘better compounds, faster’ wereproduced.Like most pharmaceutical companies, the

firm’s R&D organization was a matrix. Scientistsbelonged to a disease group and to a projectteam. In this structure, functional excellence andknowledge of the disease were systematicallybrought to bear upon the drug discovery anddevelopment decisions. However, the knowledgeof the target classes tended to be ad hoc andjudgemental. To avoid this issue, the firm settledupon the concept of virtual platform. A virtualplatform is a ‘collateral organization’ made up ofscientists with significant experience, working inparallel to the existing drug discovery anddevelopment matrix. The virtual platforms wereexpected to infuse the project teams with knowl-edge about the targets pertinent to the challengesthey were facing. The virtual platforms also hadthe advantage of a clear internal organizationalstructure. They each had a platform leader, acore team consisting of several members, asponsor who was a member of the seniormanagement team, and several strategy groups,each led by a core team member working onspecific scientific or science-related challenges andpopulated with individuals drawn from the R&Dorganization as necessary. Each platform hadsignificant operational autonomy, although allthe platforms were encouraged to learn from oneanother. Thus, a virtual platform is not a team,but an organization with at least four levels.

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Implementation as projects

In the case of fast cycle drug development, someproject team members transitioned quickly intothe fast cycle way of operation and actuallywelcomed the increased autonomy, flexibilityand responsibility. Others had difficulty resolvingthe cognitive conflict between the deeplyrooted ‘ethos’ of functional excellence and themore pragmatic and speed-oriented fast cycleapproach. In addition, not all members thrived inthe hard-charging, unstructured, heavily team-oriented environment of fast cycle projects.Intensive training and team building efforts byproject team leaders as well as reassignment ofsome personnel helped to resolve these issues.During this phase, senior management played

an active role in monitoring and empowering thefast cycle projects by ensuring they receivedsufficient resources and also by using their powerand political capital to insulate the project teamsfrom pressures to conform to standard functionalprocedures. Forces from other parts of theorganization continually intruded into the im-plementation of the fast cycle initiative. Althoughthe Board of Directors understood the strategicvalue of the projects and had approved the fastcycle initiative, several top-level non-DIA execu-tives had limited understanding of the logic of theframework and organizational architecture devel-oped to support the initiative. Some top-levelexecutives did not fully subscribe to the conceptsfrom the beginning. Departures from normalorganizational practices communicated throughboth formal and informal communication chan-nels became occasions for discussion, and seniorDIA managers often had to buffer the projectteams from the intrusive pressures coming fromoutside the DIA division. These buffering activ-ities involved protecting the fast cycle experi-ment, and controlling the boundaries of theinitiative.In the case of chemical biology, the firm

implemented the four pilot platforms over atwo-year period. The main implementation chal-lenge was that the four platforms were orientedto different disease groups, and had differentdegrees of in-house expertise to rely on. Theywere markedly different in terms of the keyscientific challenges because the targets them-selves were different, and because the platformsdiffered in complexity. The firm tried to create a

standard template for the internal organizationalcharacteristics of the platforms. However, thetasks confronting each platform and the adoptedmode of operations differed from one another insignificant ways. Nonetheless, there was anattempt to learn from these pilot platforms. A‘Book of Knowledge’ was established to captureexperiences, problems and solutions as the plat-forms were established. The first platform groupmembers were reluctant to inject their knowledgeinto the working of project teams. This reluctancedecreased over time. Later platforms adopted aplanned approach to knowledge transfer. Tech-nology alliances were common, spanning thespectrum from setting up scientific advisoryboards to purchase of databases and outsourcingof certain activities.Table 2 summarizes the narratives in terms of

the similarities and differences of key elements ateach stage of the capability building process inthe case of fast cycle drug development andchemical biology platforms.

Discussion

Both of the initiatives examined in this paperwere championed by senior managers withspecific strategic intents and implemented fromthe top management team down. Unlike priorresearch (Burgelman, 1983; Maritan, 2001), thesenior managers in these cases were not passiverecipients of good ideas from the ranks oftechnical staff. Nonetheless, both were under-taken in response to issues that arose within thefirm’s environmental context. The narrativesprovide a unique window on dynamic capabil-ities, not hitherto captured adequately in pre-vious analyses on this topic. We discuss theinsights from this process study along threethemes: (1) cognitive orientations and organiza-tional routines as interlinked components ofcapabilities; (2) the role of the senior manage-ment in capability development; and (3) thefragility of the development process.

Cognitive orientations and organizational routinesas interlinked components

The capabilities as conceptualized at the seniormanagement levels – fast cycle capability andchemical biology platform – were expected to

S34 V. K. Narayanan, K. Colwell and F. L. Douglas

r 2009 British Academy of Management.

Table 2. Comparative analysis of the two capability building processes

Activation Articulation Mobilization Implementation

Fast cycle drug development

Internal and

external context

New head of R&D

brought in from outside

the organization

Some senior managers

still resistant to change

Conflict with entrenched

norms of functional

excellence

Merger, initiative

aborted

Impending firm crisis

required decisive action

Uncertainty for

functional managers

Senior managers resist

change

Cognitive

orientation

New head’s belief in the

efficacy of organizational

capability

N/A N/A N/A

Embarks on fast cycle

capability initiative

rather than ‘fixing the

immediate problem’

Managerial

challenges

Obtain commitment

from senior management,

which is protracted

Resource constraints/

existing culture prevent

imposition of completely

novel processes

Career development and

culture were highly tied

to functional excellence –

had to gain support from

all organizational levels

to embed new routines

Change culture at all

organizational levels

while protecting nascent

fast cycle teams

Managerial

actions

New head of R&D

retired or reassigned non-

compliant managers

Tailor general fast cycle

principles to specific firm

context

Intensive

communication, new

‘sponsor’ role

Nurture and protect

teams from outside

interference

Concurrent phasing of

fast cycle and regular

projects

New performance

evaluation system

Selection of project

leaders and teams

Encourage knowledge

spillover of new

organizational routines

Some teams needed to

be brought up to speed

Monitor and empower

the teams

Resource allocation

issues

Chemical biology R&D platforms

Internal and

external contexts

Industry-wide decline in

research productivity,

but no impending firm

crisis. Senior managers

required a galvanizing

event to push them into

action

Resistance from rank and

file scientists

Firm had no history of

interdisciplinary teams

Merger, initiative

aborted

Cognitive

orientation

Discussions and debates

over a 3–4 year period

prior to announcement

has crystallized both

beliefs in and contours of

chemical biology domain

Scientists have legitimate

concerns regarding career

impact of new platform –

must convince silo-bound

scientists to work in new,

interdisciplinary way

Efficacy of

interdisciplinary teams

N/A

Managerial

challenges

Commitment from senior

management evident

prior to announcement

Kickoff meeting to

introduce initiative was

ineffective

Development of an

organizational approach

Unique platforms run

risk of silo thinking – do

not want to ‘reinvent the

wheel’. Codify and

standardize learning

when each pilot

platform is highly

unique

Dynamic Capability Development in a Pharmaceutical Firm S35

r 2009 British Academy of Management.

alter the drug development process in manifestways. In the case of fast cycle capability, thiscould be observed not merely in the fastcompletion of specific projects, but in overallreduction in development times and fasterdiscontinuance of projects relative to the past,as well as relative to competitors. In the case ofthe chemical biology platform, deployment ofchemical biology in drug discovery and theeffectiveness of drugs chosen for developmentwere expected outcomes of the capability.However, to bring this about, the respective

capabilities required a shift in cognitive orienta-tion among some or many members of theorganization, and organizational routines toactualize the capability. Table 3 presents acomparison of cognitive orientations and inter-linked organizational routines witnessed in thesenarratives.An important point can be made in this

context. The concepts that we have employed –cognitive orientation, organizational routinesand environmental context – are at a sufficientlyhigh level of abstraction that they allowed us tocompare two disparate capability initiatives.However, as shown in Table 3, the two capabilityinitiatives differed significantly in the content ofcognitive orientation and organizational routinesregardless of similarities in the external context.Future work should develop a more fine-grainedway of capturing these concepts.As we mentioned earlier, the shift in cognitive

orientation appeared to be more difficult in thecase of fast cycle drug development relative to thechemical biology platforms, and the changesin organizational routines appeared to be justthe reverse. Nonetheless, both capabilities re-quired shifts in both cognitive orientation andorganizational routines. Thus, capabilities aremore than routines or processes but encapsulatecognitive orientations to be imprinted amongsignificant segments of an organization. Intop-down approaches, as we have studied,this may be a very significant task to be

accomplished by senior management. We nowturn to this topic.

The role of senior management

In extant discussions of strategy formulation, therole of management has garnered significantattention. Previous work has identified andcategorized managerial roles in terms of resourceallocation (Peteraf, 2005) as well as traditionalmanagement roles (Mintzberg, 1985). Althoughwe find pervasive evidence of these kinds ofactivities, our narratives also uncover two addi-tional roles played by senior managers: pathfinding and negotiating resistance.

Managerial

actions

Appointed a trusted

insider as leader, listen

and respond to concerns

Sequential phasing of

chemical biology

platforms so teams can

learn from prior efforts

Take an incremental

approach to introduce

interdisciplinary teams

for the first time; use

pilot projects for proof of

concept, virtual

platforms

Create standard

template, encourage

knowledge sharing

Table 3. Profiles of the two capabilities

Fast cycle drug

development

Chemical biology

R&D platforms

Cognitive

endowments

1. Speed is a primary

criterion for market

success

Knowledge of the

chemical biology

paradigm

2. Fast project

completion and

discontinuance are

BOTH value

creating

3. Speed requires

integration

Organizational

routines

1. Stretch goals in

timeline

2. Continual

innovation in

project team

conduct

3. Attention to

strategic phasing of

project activities

4. Project–function

coordination

1. Communities of

practice to develop

chemical biology

principles

2. Infusing knowledge

of chemical biology

in discovery

Manifest

indicators of

capability

1. Reduced

development times

for projects

2. Fast discontinuance

of unworthy

projects

The degree to which

drug discovery

decisions are

influenced by chemical

biology

S36 V. K. Narayanan, K. Colwell and F. L. Douglas

r 2009 British Academy of Management.

Path finding. In both narratives, neither theexternal nor the internal firm context wassufficient for the development of the capabilityat the time the decision was made to moveforward. In both cases, there were competingalternatives that were not necessarily identified bythe interviewees. In the case of fast cycle, thecentral player could have focused on salvagingthe product under FDA warning, a choice thatwould have helped the firm survive the crisis. Inthe case of chemical biology, there were manyother competing alternatives. For example, somecompetitors had adopted a strategy of alliances,which was perceived as successful within theindustry.The choice or the path ultimately chosen was

idiosyncratic to the organization, and perhaps tothe senior manager in charge. It was clear fromthe interviews that ‘capability building’ was thecentral theme in the belief structure of the centralactors. As the executive responsible for both ofthese initiatives put it:

I view my task as building organizational capabilities.

Various internal and external triggers broughtthis belief into play, and the central actor settledon capability building as the way to frame thechallenges faced by the firm. At the same time,alternatives were available to address the chal-lenge at hand. It is as if the problems could bediscovered and formulated only when the centralactors had access to alternatives they could frameas solutions to the problems. The belief structureof the central actor remained the same in bothefforts, whereas the complex of triggers, informa-tion ecology and the specific actions takendisplayed considerable differences.

Negotiating resistance. In both narratives, thesenior manager was called upon to negotiateresistance with various sectors of the organiza-tion. Recall that fast cycle capability was anorganizational platform, grafted from outsidewith the help of external consultants, and wasembedded directly into the existing organiza-tional context of the project teams. The decisionto build the capability was made very quickly bya newly appointed executive responding to animpending crisis. This organizational platforminvolved a power shift from functional units toproject teams within the existing matrix structure,and imposed significant behavioural changes on

senior managers. This resulted in a protractedarticulation phase, due to lack of cooperation bysome key executives, and ultimately led to amanagement shakeup when the initiating execu-tive perceived that some managers were not onboard with his decision.

Unlike fast cycle capability, chemical biologywas a scientific platform. The changes requiredwere technical rather than managerial in nature,and the knowledge necessary to succeed with thiscapability had to be developed internally. Thenovelty of the chemical biology platform made itdifficult to recruit enthusiastic scientific personnelfrom the internal labour market. Many of theyounger scientists were afraid of a dead end intheir career paths if they participated in thiseffort. This concern contributed to the incremen-tal approach adopted by the firm.

Both path finding (Kaplan, 1989) and thenegotiating with middle management (Woolridgeand Floyd, 1990) have been discussed in therelated literatures. Our narratives provide evi-dence to both these roles. Indeed, taken together,these roles capture the essence of leadership indevelopment of capabilities.

Finally, few of the activities we documented inthe narratives – resource allocation, traditionalmanagement roles, path finding and negotiatingresistance – appear to be inimitable. Althoughtheir effectiveness may vary over contexts, theactivities themselves appear to be replicable byother managers. Thus it is possible that the earlystages of capability development may be charac-terized by managerial activities that may appearto the onlookers as routine managerial work.

The fragility of dynamic capabilities

The implementation challenge was similar inboth cases – to integrate the best practicesdeveloped by project teams with the organizationas a whole. However, the challenges faceddiffered greatly due to prior decisions that weremade as well as the differing nature of thecapabilities. In the case of fast cycle capabilities,the initiative still faced significant resistance fromboth senior management and members of func-tional units. Senior management who were ‘onboard’ took actions to buffer the project teamsfrom outside interference while encouraging themto continue their development. The integration ofchemical biology platforms was much more an

Dynamic Capability Development in a Pharmaceutical Firm S37

r 2009 British Academy of Management.

issue of codifying and sharing knowledge outsideof the pilot teams. This effort was made morechallenging by the fact that each pilot platformwas highly unique. However, the pilot approachlimited resistance from scientists, and buy-infrom senior management was not an issuebecause this initiative did not require any newbeliefs or behaviours from them.What is most notable is that even after

implementation both the capabilities remainedvulnerable. Even after the successful transition tothe institutionalization phase, when the firm hadbegun to exploit the benefits of the fast cyclecapability, the merger created a context in whichthe ‘new’ senior managers did not recognize theemerging capabilities. In the case of chemicalbiology, when in 2004 this firm participated inanother merger that involved a senior manage-ment shakeout, work on these nascent capabil-ities was discontinued. Thus, a capability isfragile even after it is built. Just as naturalresources have economic meaning only when theyare complemented by technologies to exploitthem, dynamic capabilities, which are conceptualin nature, have organizational consequences –both economic and human – only when they arepart of the top management schema.

Concluding comments

The beginnings of capability development in thetwo different top-down initiatives in the samecompany, summarized in this study, witnessedthe important role played by senior managers inthese efforts. An analysis of the senior managers’actions suggests the influence of their beliefsabout the efficacy of the capability and develop-ment of their cognitive orientations, the politicalchallenges they had to confront, and the manage-rial actions – resource allocation, traditionalmanagement roles, path finding and negotiatingresistance – they undertook. Their actions do notstrike us as unusual, and indeed many of theirpolitical resolutions and managerial actions areeasily transferable to other settings and easilyimitable by other managers. Put another way,our analysis highlights the persistent dedication,but not the intellectual brilliance or visionaryexecution, of the senior managers.Since both the initiatives we studied atrophied

due to mergers and acquisitions, we could not

trace their evolution into later stages of imple-mentation, and hence we are in no position tomake any claims about their linkages to firmcompetitive advantage. Nonetheless, our analysisof the managerial actions suggests an intriguingtheoretical puzzle. Although some have suggestedthat capabilities can be transported from outside,others have offered the hope that dynamiccapabilities may lie at the core of a firm’scompetitive advantage and are hence inimitable.Yet our managers did not seem to have engagedin inimitable actions. This raises an intriguingquestion: how do replicable managerial actions (inthe early phases of capability development)accumulate to generate an inimitable capability?This is a theoretical puzzle that calls for furthertheory development and clarification.Finally, we underscore the need for further

process studies to link dynamic capabilities to thestrategy process literature. These studies typicallyprovide a view of the capability development fromthe beginning, where managerial decisions aremade without any guarantee of eventual success.As we noted above, our analysis is of terminatedinitiatives. This analysis thus offers a complemen-tary perspective to those studies which take thecapability as a given, thereby confining themselvesto only successful examples of development. Weneed to be able to juxtapose the lessons from bothsuccessful and unsuccessful experiments to distillessons for practising managers.

Appendix 1: Interviewees for fast cycleand chemical biology narratives

Position at the inception of the dynamic capability development

process

Fast cycle interviews

Executive VP of R&D (Head of DIA)

Senior VP of Operations, Technology and Quality

Senior VP of Clinical

Senior VP of Development

VP of HR

VP of Clinical

VP, Fact Cycle project sponsor

VP of Regulatory

Senior Director, Drug Safety

Senior Director, Pharmaceuticals

Director, Project Management

Director, North American Development Controller

Director, HR

Director, North American Pharmacokinetics

Director, Quality and Operations

S38 V. K. Narayanan, K. Colwell and F. L. Douglas

r 2009 British Academy of Management.

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V. K. Narayanan is the Associate Dean for Research and the Stubbs Professor of Strategy andEntrepreneurship at Drexel University. During Spring 1998, he held the Fulbright-FLAD Chair inManagement of Technology at the University of Aveiro, Portugal. Narayanan has published fourbooks and monographs, including Managing Technology and Innovation for Competitive Advantage,published by Prentice Hall (2001). His articles have appeared in leading journals such as Academy ofManagement Journal, Academy of Management Review, Journal of Applied Psychology, Journal ofManagement, Journal of Management Studies, Management Information Systems Quarterly, R&DManagement and Strategic Management Journal.

Ken Colwell is an Assistant Professor of Management at the LeBow College of Business, DrexelUniversity. He holds a PhD from the University of Oregon. His research interests revolve arounduniversity technology transfer and the strategic factors that lead to success for startup technologyfirms. His current research focuses on regional economic clusters and other network structures thatform due to the commercialization of radical new technologies, and the role of individual action inthe emergence and evolution of organizational fields.

Frank Douglas is a partner of PureTech Ventures and a Senior Fellow at the Ewing MarionKauffman Foundation. Douglas founded and was the first executive director of the MIT Center forBiomedical Innovation. At MIT, he also was a professor in the Harvard-MIT Division of HealthSciences and Technology. Formerly, Douglas was executive vice president, chief scientific officer andmember of the board of management of Aventis, where he headed drug innovation and approval.

S40 V. K. Narayanan, K. Colwell and F. L. Douglas

r 2009 British Academy of Management.