Supplement | HBS Case Collection | 2010

Organization and Strategy at Millennium (B)

by Julie M. Wulf and Scott Waggoner

Abstract

This case examines Millennium's strategic and organizational responses to the rapid evolution of the biopharmaceutical industry. In the early 2000s, as Millennium's competitive advantage in early-stage research slipped away and its losses mounted, founder CEO Mark Levin moved the firm downstream away from research and towards drug development and commercialization, while narrowing horizontal breadth from over a dozen therapeutic classes to just three. In 2005, Levin hired Deborah Dunsire from Novartis as CEO to lead Millennium's continuing transformation. Students are asked to put themselves in the shoes of incoming CEO Dunsire and to provide organizational recommendations to execute the new strategy.

Keywords: Leading Change; Transformation; Decision Choices and Conditions; Crisis Management; Competitive Advantage; Commercialization; Selection and Staffing; Product Development; Organizational Change and Adaptation; Pharmaceutical Industry;

Format: Print

11 pages

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Citation:

Wulf, Julie M., and Scott Waggoner. "Organization and Strategy at Millennium (B)." Harvard Business School Supplement 710-418, February 2010.

Do horizontal wage comparisons affect firm policies on executive pay? This paper explores that question using a 1992 SEC proxy disclosure rule that mandated increased disclosure of executive pay. We argue that this rule differentially increased wage comparisons within firms with geographically-dispersed managers—firms with the greatest information frictions prior to the rule change. We report three changes related to compensation after 1992 for division managers. First, within firms with dispersed managers, division manager pay is less sensitive to individual performance and co-moves more with peer pay. Second, pay disparity between managers located in different states decreases relative to that of co-located managers. Third, division productivity falls in dispersed firms, with the effect driven by managers at the low end of the wage distribution. Taken together, our findings suggest that principals account for horizontal peer comparison when designing executive wage contracts and that they face a tradeoff between the incentive effects of performance-based pay and effects of peer comparison.

For decades, management consultants and the popular business press have urged large firms to flatten their hierarchies. Flattening (or delayering, as it is also known) typically refers to the elimination of layers in a firm's organizational hierarchy and the broadening of managers' spans of control. The alleged benefits of flattening flow primarily from pushing decisions downward to enhance customer and market responsiveness and to improve accountability and morale. Has flattening delivered on its promise to push decisions downward? In this article, I present evidence suggesting that while firms have delayered, flattened firms can exhibit more control and decision making at the top. Managers take note. Flattening can lead to exactly the opposite effects from what it promises to do.

Top management structures in large US firms have changed significantly since the mid-1980s. While the size of the executive team – the group of managers reporting directly to the CEO – doubled during this period, this growth was driven primarily by an increase in functional managers rather than general managers, a phenomenon we term "functional centralization." Using panel data on senior management positions, we show that changes in the structure of the executive team are tightly linked to changes in firm diversification and IT investments. These relationships depend crucially on the function involved: those closer to the product ("product" functions, e.g. marketing / R&D) behave differently from functions further from the product ("administrative" functions, e.g. finance / law / HR). We argue that this distinction is driven by differences in the information-processing activities associated with each function, and apply this insight to refine and extend existing theories of centralization. We also discuss the implications of our results for organizational forms beyond the executive team.

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