Successes and Failures in Biotechnology Innovation
When I first started this paper I would have to admit that I was pretty green in the field of Biotechnology, I had a brief understanding but nothing near an in depth understanding of the field. So when I first started looking for a success story, I tied my views on successful innovation in the areas that I am familiar with to the biotech field. The major theme that emerged was that successful innovation equals a product that produces quality profits for a company. After further research on the success of innovation, you do realize that profits may be the end goal of the company but success stems from a total company wide effort, that may start many years before a single cent of profit is ever realized.
In my opinion, you have to look at three major areas to see if a company successfully manages their innovation; at the company level, customer level, and the impact the innovation had on society. From the company viewpoint, you have to look at how well management set the company up to be innovators in a given market. Did they choose an industry that would provide the company potential for continuous growth? How did they utilize their employee base and acquire a strong base of knowledge to continually come up with new ideas in the area of interest they are trying to enter? In addition once a product is developed did they manage their intellectual property in the in a manner which provided themselves maximum protection? Finally you have to look at the end results of the innovation. Did they introduce an innovation that allowed the company revenue to grow, were they able to achieve a strong segment of market share, did this innovation have a positive effect on the companies stock price, etc?
From the prospective of the customer you have to look at if the innovation introduced by the company successfully met their needs. Would this product help them save time and money and improve their overall business? How did they manage the channels to which deliver their products to their customers? Your customer will ultimately impact your final sales figures, if they view the product as a benefit to them and if you can meet the needs that the customer has you can have your innovation viewed as a success.
Finally from the standpoint of how the companies innovation had an impact on society. Was it viewed as a welcome innovation and did it have a positive impact as a whole? You could have a great product but if the press and other reputable sources view your product ass a detriment to society they can sink your innovation with bad press.
An innovation that can meet the needs of these three categories can be viewed as success in my opinion. Yes its true that there have been innovations that have been viewed as a success even though they have meet one or more of these requirements but for the ultimate feeling of success I feel that threes three categories have been meet in some way shape or form.
My success story starts with a company called Monsanto. They original started as a chemical company providing primarily chemical herbicides to farm and household consumers for weed control but as of recent, nearing the expiration of the patent on their biggest cash cow “Roundup”, they have changed their scope a company focusing on innovation in biotechnology, genomics and breeding. (Monsanto, 2005) They saw that their herbicide was still a leading seller in the industry and saw a way to improve on that product so they genetically engineered a soybean seed that would be resistant to their herbicide Roundup creating Roundup-Ready Soy beans, the first genetically engineered crop to be commercially available. Farmers now had to no longer apply herbicides before planting and on the borders of field they could spray the herbicides directly over the crops eliminating any weeds from intermingling and taking away nutrients from their crops producing bigger yields. They were an early mover in the market place creating a strong foothold as the leader in genetically engineered crops.
Taking a look at why this product was a success, let’s first look at the company level critical success factors for this particular innovation. Management at Monsanto has always filled their knowledge base with incredible people. They have been willing to spend the big dollars on R;D, $527 million in 2002 or roughly 10% of their sales, to not only create new and innovative products but to entice the best employees to Monsanto. With the promise of 80% of that R;D budget going towards biotech research as well as the companies desire to put out one new product each year, the researcher know that they will have budgets deep enough to see products through to the end. (Ruen, 2005)
In addition, Monsanto management effectively manages their intellectual property of their Roudup-Ready (RR) soybeans. One measure being that they forced farmers using their products to sign contracts to prevent them from reusing the seeds from the RR plants during the next season, a process called brown bagging. They also required that the farmers allow for inspections of their fields to ensure that they were indeed not performing brown bagging techniques. This made sure those farmers using their product purchased seeds each year that they were going to grow RR crops. There was some initial anger towards these measures but in the end they were widely accepted. (Geo-Pie Project 2004)
The revenues generated by this new innovation were significant. It not only boosted numbers by the sale of the seeds themselves but the innovation helped boost the numbers of sales of their Roundup herbicide as well. In 1999 over 30% of the worlds crops of soy beans were the RR variety and over 50% of the US crops were of the RR variety. That has even increased to the point where now in 2005 over 90% of the US soy bean crop is of the RR variety. This helped to boost numbers for Roundup to the point where the sales of Roundup generated over 40% of the total revenue for Monsanto. (Estes, 2002)
The sales success of the product is due to the fact that the product clearly shows a positive benefit for farmers producing these products and in turn helps them increase their bottom line. RR soybeans help farmers reduce the traditional application of herbicides and tillage which in turn helps them save time, labor and input costs. The traditional saving that a farmer can have in just fuel consumption and wear and tear on their machinery is $10 per acre and overall providing a gross profit advantage of $22 more than using traditional soy bean crops. (Monsanto, 2005)
One environmental aspect that shows that the adaptation of RR soybeans is success is that Roundup is viewed as one of the safest to mammals. This dramatically reduces the risk to humans, farm animals and wildlife in the areas that herbicides are used. RR soybeans with their no-tillage feature also help to reduce soil erosion rates up to 90% which is a tremendous benefit (Monsanto, 2005)
It has been shown that by focusing on meeting the need of many different stakeholders, Monsanto has been able to successfully bring an innovative product to the market. They continue to use these factors to be a leader in the agriculture biotechnology field and once there is a more global acceptance of GE crops Monsanto will only be able to increase their growth.
On the other end of the spectrum I choose, Aventis Crop Sciences and their Starlink corn as a failure in biotech innovation. Starlink corn was a technology developed in 1998 as corn that would be resistant to insects allowing farmers to grow corn with out having to spray them with insecticide. It utilized the gene for Cry9C, one of the family of Bt proteins. Starlink was primarily developed to ward off black cut worms and corn stalk borers. (starlinkcorn.com, 2002)
Overall you can see why Aventis was a failure from an innovation standpoint based on a couple of features; Aventis tried to move to fast into an already established market of Bt corn seeds, as well as their lack of control of how the corn was grown by farmers to prevent the contamination of corn sold for human consumption. The later had big repercussion with the media which ultimately forced Aventis to stop production of Starlink corn.
Aventis tried to take advantage of the fast growing GE seed market in the US during the mid 90’s. There was one problem though with their Starlink corn it wasn’t approved by the EPA for human consumption. Wanting to try to gain some market share in the GE seed industry Aventis was able to release Starlink corn in a limited and conditional registration for animal consumption only. (Harl, 2000)
They lost here in a sense because they didn’t clearly show an economic benefit for their customers. Farmer that were going to grow Starlink corn, which was not cheaper that tradition Bt seeds, could only grow a maxium of 40,000 seeds per acre on any site and had to have a buffer zone of 660 feet of field between the Starlink corn and corn that was going to be used for international sale or for sale for human consumption. Farmers also had to store Starlink corn in a facility that was separate form any corn that was going to be used for human consumption or international export. (Harl 2000) These extra efforts that one had to take to make sure that growing regulations were done correctly took time, money and extra space, posing a burden not a benefit on the farmers growing Starlink corn.
They also lost in the aspect of managing compliance to these regulations. They didn’t make sure that all the farmers that were growing Starlink corn signed the licensing agreements. The regulations of how Starlink corn was to be grown placed on the back and bottom section of the traditional disclaimers so most farmers took no notice to the exact requirements, and by not signing the agreements left the liability on Aventis. (Harl, 2000)
With the break down of knowledge of the exact way in which Starlink corn was to be grown Starlink corn was leaked into the channeling system for corn produced for human consumption. In 2000 it was discovered by a group that certain taco shells sold in super markets contained traces of Starlink corn. The shells were recalled form the market and as a result Aventis had to back some 80 million bushels of corn from there buyers from buyers at a premium price of $0.25 per bushel and had to halt all production of Starlink corn. This had a serious impact on the investment Aventis had made into Starlink corn. They were now in jeopardy of losing all the time and money that they had invested into bring this product to market. (foodstandards.gov, 2004)
This also had a serious impact of how genetically engineered food was viewed by the public. With the media taking the story of the potential health consequences of Starlink corn and running with it, it made people more skeptical of purchasing products that were labeled as genetically engineered” even if they poised no harm at all.
The sale of corn was also impacted by the views of foreign buyers of US corn. They were nervous that corn bought from the US might be contaminated by the Starlink gene. Japan, who is the largest buyer for US exported corn, purchased 6% less in 2001 than it did in pervious years. (Planetark.com, 2001)
Numerous lawsuits have sprung up against Aventis for their role in leaking Starlink corn into products for human consumption. In 2001 the Missouri attorney general required that Aventis pay $25 million to farmers and grain handlers for losses incurred from the contamination of Starlink corn. In 2001 alone there was over 30 lawsuits filled against Aventis for similar concerns. All together in the end of 2001 Aventis had spent over $80 million removing Starlink corn from the market in addition to all the settlements that they had reached, posing serious economic impacts on the company as well as a serious loss of image. (Harris, 2002)
This situation could have been avoided if Aventis could have been more patient and worked with the EPA on approving Starlink corn for human consumption. They forced the product into the market to early and as a consequence they placed a burden on themselves having to deal with the repercussions.
It becomes clear that proper management of innovations in biotechnology can lead to significant gains for a company but if even a few steps are not handled correctly or a few decision are made to fast serious consequence can be felt. With the world population soaring you will continue to see the emergence of genetically engineered crops to continue and you will be able to see who the winners and losers are within that industry based on how they handle the introduction of their products.
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