Alliances have long been an important strategy in the pharmaceutical industry even though more than half fail. Eli Lilly set out to create a core competence in the area of strategic alliance management that would not only improve its success rate, but also differentiate the firm from its competitors in the industry. The manner in which Lilly approached that challenge provides an applied example of how theories of organizational values, the resource based view, the five forces and the extended value chain can promote sustainable advantage. More importantly, Lilly's experience provides numerous managerial lessons on the importance of topto-bottom organizational commitment to collaboration, deployment of personnel and financial resources to operationalize that commitment, and the development of routines and procedures that enable the organization to learn from prior failure.
Alliance Management at Eli Lilly: Lessons On How Alliance Capability Contributes to Sustainable Advantage
IntroductionThe uncertainty of the drug development process has long made the outsourcing of research and development (R&D) programs an important part of pharmaceutical firms' strategies (Clarke, Cortada, & Fraser, 2004). Such initiatives have typically taken the form of strategic alliances: collaborative organizational agreements (Inkpen, 2001) enabling firms to achieve competitive advantage by producing and marketing new products and services (Gulati, 1998; Teece, 1992) and sharing resources, knowledge and capabilities (Spekman, Forbes, Isabella, & MacAvoy, 1998). Unfortunately, more than half of the alliances in the pharmaceutical industry fail (Clarke, et al., 2004; Fraser & Henderson, 2007), making this approach a highly risky one. Nevertheless, in the late 1 990s Eli Lilly and Company decided to pursue an aggressive alliance strategy to augment its internal drug development and commercialization capabilities. In order to mitigate the risks associated with these relationships, Lilly set out to create functions designed to identify, formalize and develop collaborative skills and routines to better manage them (McKenna, 2006). The purpose of this study is to consider the effectiveness of Lilly's strategy and determine whether it has helped them create a sustainable competitive advantage for the firm.This investigation considers the decisions behind Lilly's alliance management philosophy and the manner in which it has created its partnership programs. It will investigate the goals that guide Lilly's strategy, the internal capabilities that enable it, and the external factors that challenge it. The next three sections of this study consider each of those elements through a variety of theoretical perspectives, including organizational values (Nash, 1988), the resource based view of the firm (Barney, 1991), the five competitive forces (Porter, 1980), and the extended value chain (Porter, 1985). Finally, the implications that Lilly's experience provides for managers are discussed.Values and MissionLilly's Commitment to AlliancesSuccessful companies link their strategy to operations through meaningful value and mission statements that are clearly articulated and reinforced throughout the organization (e.g., Neely, Adams, & Kennerley, 2002; Tichy & De Vanna, 1990). Eli Lilly's corporate values are prominently displayed on the firm's website ("Compliance and ethics," n.d.) and are based on three core elements: integrity, excellence and respect for people. These describe the importance of honest dealings for all stakeholders, encouragement of innovation, high-quality products and superior ...