When announcing his retirement in August, Brian McNamee, CEO of blood products company CSL, told the Weekend Financial Review what his advice would be to other business executives. He summed up his views on manufacturing’s recipe for success as being: “globalise, innovate, focus on productivity and move up the product value chain”.
For strategists, it is worth looking in some detail at McNamee’s record to understand what he means:
Globalise: Ultimately, CSL’s strengths in manufacturing emerged as a critical component of its core competence. This was based on its quality in the manufacture of blood plasma and associated biopharmaceutical products. These, in turn, were fed and strengthened continually through a focused and innovative research and development capability.
With the strength of this base, CSL grew organically on an increasingly global stage (such was the value and uniqueness of its product offering). Even inorganic growth (through acquisitions) was designed to strengthen CSL’s core competencies as witnessed by the purchase of plasma businesses, ZLB, from the Swiss Red Cross in 2000 and Aventis Behring, acquired four years later.
There are two primary aspects of strategy theory that are not well explained in text books’; these are the transformational and/or differentiating activities that form the essential link between an organisation’s core competencies (inimitable resources) and the market positions it chooses to take to obtain a sustainable competitive advantage.
While strategy theory is strong on definitions of each, there is little explanation as to the activities that a firm undertakes to leverage resources and protect market share. More specifically, core competencies/resources and market positions are something a firm has; activities are the things a firm does. Strategic activities are those activities a firm undertakes to leverage competencies and defend/grow market share. Logically, without doing the activities resources are just resources and market positions impossible to fill.
Under McNamee’s stewardship, CSL was able to add significant value to its core competence in manufacturing through extensive and focused innovation, realised through its investment in scientific research which is now an annual investment close to $400 million. McNamee also encouraged innovation in areas that ensured all its competencies were efficiently and effectively transferred into markets; both in products and in the development of efficient and effective production and delivery systems. He also applied innovation in market development, ensuring CSL’s technical prowess was well recognised in the marketplace; building brand image through the conduct of excellent relationship management and employee engagement with the community.
Although we have identified the basis for CSL’s strong capacity for growth, McNamee also demonstrated another skill that allowed him to deliver growth; that of continual renewal and transformation – or more accurately, continual regeneration of the business. Whereas some companies use international expansion purely as a means to increase volume (eg resources, global brands and automotive companies); CSL’s story is about leveraging their innovation by:
> Forming alliances where necessary
> Acquiring new businesses where appropriate and using these new experiences to grow
> Strengthening existing competencies and to leverage them into new markets as opportunities arise.
– To illustrate, when CSL sought to market its breakthrough discovery – a vaccine against cervical cancer (Gardasil), it didn’t try to reinvent the wheel. Instead, it leveraged the global distribution capability of a larger pharmaceutical company (Merck). CSL now benefits from a strengthened global capacity (and inherent learning) that it previously didn’t have.
McNamee notes at the end of his interview with AFR that he believes “the company is in great shape”. “It is a combination of the intrinsic growth we have and the R&D pipeline.I am pretty happy we have the model right.”
We are inclined to agree, especially now that we know what he means.