Case #1 – Open and Closed Innovation at Merck

When teaching about open innovation, I found it much easier to start a clear description of what closed innovation is, and why firms may decide to be closed even when presented with a potentially viable opportunity to open up. With that knowledge in mind, students (in subsequent classes) found it much easier to appreciate the difficulties of introducing open innovation to companies, the differences in mindsets required, and the somewhat varying contingencies predicting successful innovative performance.

The case I usually employ in this context is several years old, but has lost nothing of its relevance: Gary Pisano’s Discovering the Future: R&D Strategy at Merck (HBS-Case 9-601-086). The case describes how Merck came to find itself in a very strong position in the early 2000s, at a point in time when the large pharmaceutical firms were increasingly committing themselves to biotechnology, and leaving behind traditional technologies of medicinal chemistry. In this setting, students are asked to evaluate Merck’s plans about how to make this transition. Clearly, Merck does not intend to “go alone” and follow an entirely closed, internally-focused approach to innovation. Nevertheless, they make some very interesting assumptions about the nature and value of external collaboration and outside knowledge in general. While I will not elaborate on these here (after all, this is not supposed to be a publicly accessible teaching note!), I have found that (1) students would usually be able to identify these assumptions and that (2) there would be a nice split in the class regarding students agreeing or disagreeing, leading to some of the most valuable and productive discussions I have seen for a supposedly “neutral” technology strategy case.

In addition to the closed-open innovation setting, I have also used this case at the onset of a lecture series on the strategic management of technology and innovation (either as the very first case, or as the second case following a case defining what strategy is). Taking this perspective, the focus of the case obviously has to be on Merck’s larger R&D strategy, and how its constituent parts (including open approaches to innovation) work together with each other as well as Merck’s business strategy. Similarly, you may think about using the case in a lecture series specializing on markets for technologies, as this element from the case may feature prominently in case discussion.

All in all, Discovering the Future: R&D Strategy at Merck is a brilliant choice as an introductory-level case in many settings. I have used this case with advanced undergrads with a strong background in technology and engineering, as well as MBA students, and it has worked equally well with both audiences. In addition, it comes with a concise, but very useful teaching note (HBS-Case 5-603-137). As a result, if you somewhat feel at home in the pharma/biotech sector, you should be able to apply this case fairly easily and quickly in your preferred setting.

Please feel free to comment and send in feedback, suggestions, and your own experiences with the case. Also let us know if you like the format of “case presentations” as is – is this useful to you? How can we improve? We are looking forward to hearing from you!

Reference:

Gary Pisano, Kim Slack, “Discovering the Future: R&D Strategy at Merck,” Case 9-601-086, Harvard Business School Publishing, revised July 19, 2006. http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?R=601086-PDF-ENG, last accessed April 25, 2011.