INTEGRATING ROBUSTNESS AND RESILIENCE IN CHANGE & COMPETITIVE ADVANTAGE FRAMEWORK: INSIGHTS FROM INDIAN PHARMACEUTICAL INDUSTRY
Dr. Anil Kumar Singh
Associate Professor- Strategic Management
FORE School of management, New Delhi
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ABSTRACT
Organizational capabilities of strategic Robustness and resilience dynamically configure organizations for competitive advantage. Erstwhile treated as distinct attributes, this study on one hand explores the similarity and mutual dependence of these two attributes and on another hand develops a correlation frame work of organizational attributes, based on primary data collected from 216 senior level managers of Indian Pharmaceutical Industry.Organizations will be myopic in their strategic orientation and behavior, if they focus only on robustness or resilience as distinctly discrete attributes. Consideringresilience and robustnessas organizational capability to anticipate and adapt to environmental change in order to maintain competitive advantage, how organizational strategies can be configured with the capabilities ofsynergy between resilience and robustness?How these elements support organizational change capability and how they are related among themselves to result in competitive advantage?This paper reviews and examines the themes of resilience and robustness and its impact on organizational change capability to drive competitive advantage.The study resulted in useful insights into the field of factors contributing to robustness,resilience and changeleading tosuperior performance which is an indicative of competitive advantage.
KEY WORDS: Robustness, Resilience, Change capability, Indian Pharmaceutical Industry, Competitive advantage.
1.0 INTRODUCTION
Organizations and its managers today are facing formidable challenges for exploring and exploiting the capabilities which can address to the changing dynamics of the environment in which they operate. Change and adaptation are the prerequisites which establish and dictate the rulesfor success in the current hypercompetitive scenario. Management mainstream now has rich text of taxonomies and methodological understandings related to drivers for change, adaptability and competitive advantage. The desired ideal configuration for an organization to win the game of strategywarrants organizations to possess resilience, robustness, flexibility and agility all in one. But possessing these capabilities under one-roof is far from reality because their cultivation requires divergent set of competencies.
Call it adaptation, evolution, change or reinvention, firms have to face it. Scholars have been trying to propose frameworks which can insulate firms from shocks of chaos, incoherence and unpredictability. The attempts to establish causal linkages which can provide immunity to firms from the surprises of ambiguity, inconsistency and uncertainty revolves around the terminologies which have made inroads in management mainstream of contemporary research.Gone are the days when one fortified wall could keep you immune from the attacks of environment (robustness), instead one should not only build strong walls but also be ready to come up with systems which can install new walls/barriers (resilience) upon affected by the environment. This is where the gaps between robustness and resilience can be bridged.
What understanding the concept of robustness and resilience generate in the realm of change readiness. Should the organization be robust or should it be resilient, which aspects to weather the effects of environmental uncertainties should be focused upon by managers? Should they design organization to be robust or shall the process of adapting to change should have resiliency imperative ignoring robustness. Or, as a single, holistic strategic synthesis robustness and resilience should synergize in a symbiotic relationship? These are the issues explored in the current article in light of the industry specific paths adopted by the firms in pharmaceutical industry in India.
2.0 CHANGEANDCOMPETITVE ADVANTAGE
The adaptive capabilities for change in contemporary settings have changed the nature of the discipline of change management. Innovative approaches are now required for responsiveness to the changing environment (Pádár and Pataki, 2010). The nature of competition and competitive advantage have mostly changed (Bryan, 2002; Farsani, Bidmeshgipour, Habibi & Rashidi, 2012; Kotter, 2012; Mendenhall, Jensen, Black & Gregersen, 2003; Miles, Snow, Fjeldstad, Miles & Lettl, 2010; Pieters & Young, 1999; Beer et. al., 2000; Smith & Fingar, 2003; Wang & Ahmed, 2003), The nature of modern business world in the era of chaos and turbulence has led to organizations facing threats that are rarely identified and recognized until they take the shape of crisis or catastrophic event.
It has been established that dynamic capabilities are an essence for creation and sustenance of competitive advantage (Teece et. al.1987). Henderson & Cockburn (1994) and Teece et. al. (1987) has demonstrated that it is the dynamic capabilities which lead to the creation, evolution and recombination of resources for configuration of competitive advantage. Within research on the dynamic capabilities concept there is a discussion of the mechanisms underlying the development of the firm’s resources and organizational capabilities. Attention has been given to organizational learning (Winter, 2000; Zollo and Winter, 2002), organizational processes of exploitation and exploration (Benner and Tushman, 2003), dynamic capabilities as fundamental business processes (Eisenhardt and Martin, 2000), knowledge transfer and change capacity (Zahra and George, 2002). Change capability is a dynamic capability which leads to competitive advantage.
Contingency theorists argue (Burton and Obel, 1998), and the empirical studies concur (Entin, 1999), that the effectiveness of an organization is influenced by the "degree of fit" between the requirements of the environment and the characteristics of an organization. The effort to achieve dynamic congruency in the face of changing environments forces organizations to adapt while they continue to operate (Mackenzie et al., 1996; Levchuk et. al. 2001). Therevelation from the literature is navigated to identify the characteristics and traits which are reflected by the terminologies suiting organizational adaptability, change readiness and superior performance.
Husdal (2009) explores Flexibility, Agility, Robustness, and Resilience in contest of supply chain for competitive advantage. Gary Hamel (2003) explores Resilience inThe Quest for Resilience focusing on turbulence. How Organizational health is related to resilience (Smet, Loch & Schaninger, 2007) which is important as organizational health contributes to value creation and competitive advantage (Smet et al., 2007). The ability to improvise has also been considered as a building block of resilience (Coutu., 2002) Resilience has more close affiliation with flexibility. Nimbleness(Conner., 1998) is the ability of an organization to consistently succeed in unpredictable, contested environments by implementing changes more effectively and efficiently than its competitors.
Ability to change course (flexibility/agility), ability to quickly gain stability (robustness) and ability to survive (resilience) are the mechanisms which can align organization as per the demands of change. Flexibility and agility are strategic attributes of organizations whichhave their roots in robustness and resilience.Some authors use agility and resilience interchangeably (Jamrog et al., 2006) Agility and adaptability together with flexibility are said to contribute to resilience, even though they are not sufficient themselves (Lengnick-Hall et al., 2011; Sheffi & Rice, 2005; Jackson, 2009).Ability to change and adapt is therefore linked with the attributes of resilience and robustness, these two terms require further investigation for the conceptual strength in theproposed theoretical model.
Change Capability in the context of this research is defined as the ability to sustainably integrate, reconfigure, gain and release resources to ensure alignment with changing organizational environments.
2.1 ROBUSTNESS- A SURVIVAL ATTRIBUTE
The terminology of robustness and resilience as an attribute for competitive advantage are marred in controversies due to divergent understanding among the scholars, practitioners and researchers. Robustness is a linguistic attempt to describe a desirable property of an entity. Robustness as a concept has been investigated by researchers in context of biological systems focusing on mutation (Wagner, 2008; Whitacre, 2010) which is a link to evolution of new forms and species. In engineering it refers to the maintenance of system performance either when subjected to external, unpredictable perturbations, or when there is uncertainty about the values of internal design parameters (Carlson and Doyle 2002). Anderies et al., (2003) define robustness in Socio-Ecological systems as “the ability of a SES to remain in its social and/or ecological domain of attraction on a particular time scale”. In Operations Research (OR) and Decision Aiding (DA) robustness is expressed as solution to an optimization problem is defined as: solution robust if it remains ’close’ to optimal for all scenarios of the input data,” and second, “model robust if it remains ’almost’ feasible for all data scenarios” (Mulvey et al., 1995).
Whitacre (2010) on new perspective on the mechanics of evolution and the origins of complexity, robustness, and evolvability, proposes that robustness and evolvability are vital to the persistence of life and their relationship is vital to our understanding of it. Wagner (2008) asserts that,”understanding the relationship between robustness and evolvability is a key to understand how living things can withstand mutations, while producing ample variation that leads to evolutionary innovations”. Robustness although has been multiply defined, still has been used widely for analyzing system, methods and definitions (Bankes, 1993, 2002, 2005; Ben-Haim, 2006; Brooks et al, 1999; Groves and Lempert, 2007; Groves et al, 2008, Lempert, 2002; Lempert et al, 2003).
However, there is no universally agreed definition of robustness in organizational and strategic context, and the situation is further blurred by its relationship to resilience and stability. Furthermore, according to how the term is used, very different theoretical or epistemological meanings may be attributed to the notion of robustness.A closer look into robustness as a construct reveals that it is the ability of an entity to balance tradeoffs induced by interactions within the system and between the system and its environment and, in particular to balance the tradeoff between current adaptation and future adaptability (Hüser 2006). Cultivating robustness enhances the ability to deal with uncertainty in the system’s components and environment and to preserve important structural and functional properties or solely its identity.
A robust system is one which must be able to adapt its behavior to unforeseen situations, such as perturbations in the environment, or to internal dysfunctions in the organization of the system, etc. However, this definition does not sufficiently discriminate between the notions of functional regulation which aims to return the function of the system to its initial stage and structural regulation where both the environment and the internal structure of system are modified by the perturbation (with the eventual loss of the original systems functions). If we see the literature more closely the first type of regulation is related to resilient systems and the second to robust systems. Thus, a resilient system generally aims to restore the initial functions of the system without fundamentally questioning its internal structure incharge of the regulation.
2.2 RESILIENCE- A SURVIVAL ATTRIBUTE
Resilience as a concept finds its place in diverse contexts and it refers to a fundamental quality of individuals, groups, organizations, and systems as a whole by which they respondobjectively to the significant changes that are disruptivein light of the expected pattern of events without uselessly engaging in an extended period of regressive behavior (Horne III & Orr, 1998; Braes & Brooks, 2010). When we extend this context to a person, people deal with traumatic events in life and display hardiness, an ability to overcome difficulty and recover to continue with their lives (Kobasa, 1982; Kobasa, Maddi, & Kahn, 1982; Westman, 1990).In academic terms resilience, has its origin in fields of psychology and child behavior (Coutu, 2002; Reinmoeller & Van Baardwijk, 2005) and is found in social and ecological literature (Walker & Salt, 2006) individual and organizational psychology (Barnett and Pratt 2000, Powley 2009), supply chain management (Sheffi 2005), strategic management (Hamel and Valikangas 2003) and safety engineering (Hollnagel et al. 2006).
Organisational Resilience as a term is often vague in its interpretation and its definition is ambiguous (Gibson & Tarrant, 2010; KPMG, 2007, March; TISN, 2007). In spite of the ambiguity, resilience can be defined as the “quality or fact of being able to recover quickly or easily from, or resist being affected by, a misfortune, shock, illness, etc.; i.e. robustness; adaptability” (Oxford, 2010). Pooley and Cohen (2010) suggest towards resilience as the potential to exhibit resourcefulness by using available internal and external recourses in response to different contextual and developmental challenges.
Although the context of the term may change, across all of these fields the insights from the concept of resilience is very closely related with the ability of an element to return to a stable state after a protuberance (Bhamra et al., 2011). When the notion of resilience is applied to organizations, this definition does not drastically change. Resilience is therefore significant as it relates to both the individual and organizational responses to turbulence and discontinuities.
2.3 SUCCESS & SURVIVAL ARCHITECTURE- INTEGERATING ROBUSTNESS AND RESILIENCE
Robustness and resilience are complementary concepts (Pavard et. al., 2007)Robust decision methods provide solutions that trade-off among different risks and multiple objectives to allow us to confront a list of known unknowns and resiliency involve some phrase such as recover from or bounce back from external shocks (Bankes et al, 2002; Bankes and Lempert, 2004). Recovery implies a failure of robustness on a shorter time scale than that at which the system is judged to be resilient (Bankes, 2010).
The designers of walls of the ancient fortes did consider the tolerance of the walls if shelled; this was a strategy to enjoy success and survival by virtue of robustness as an attribute. Scaling up this attributes if newer and a number of walls were erected to defend the attackers after newer experiences will lead towards resiliency in approach. Resilience means recovery or/and bounce back, the concept of recovery implies a failure of robustness on a shorter time scale than that at which the system is observed to be resilient (Bankes, 2010).
Resilience and robustness have drawn ample attention from researchers in recent years due to environmental uncertainties (Anderies et. al. 2012; Lesne 2008; Kari., 2006; Hamel and Valikangas, 2003). Although, researchers have tried to differentiate between these two terms (Whitacre, 2010; Anderies et. al. 2012), but the attributes of these capabilities have not been clearly identified. For the purpose of this paper the term resilience and robustness are used as the poles of a continuum because the difference between these two terms in practice becomes negligible when we increase the tolerance and time scale of observation thus, can transform a resilient feature into a robust one. From the discussion it can be interpreted that robustness is in a way foundation for resilient organization.
On mathematical grounds, in the context of dynamical systems theory, the distinction between robustness and resilience is illustrated by the distinction between a stable fixed point and an excitable fixed point (Lesne, 2008).Liisa Valikangas (2010) aptly relates resilience and robustness, “When designing systems that are resilient, robustness is called for... The more varied and intense the challenges the organization can cope with, the more robust it is... robustness is the portfolio of strategies available for an organization and its capacity to adapt to or resist change to negotiate its future”.
3.0 THE CONTEXT- INDIAN PHARMACEUTICAL INDUSTRY
Pharmaceutical industry all across the globe is feverishly attempting to address issues like; Limited approval of NCEs, Increased generic competition, regulatory changes, political impact, changing disease patterns and patent demographics (Baines, 2010). Apart from these issues political and fiscal challenges also constitute critical issues facing the industry. Politically, governments around the world are trying to contain costs and, as health care budgets constitute a very significant part of governmental spending these costs are the subjects of intense scrutiny. This issue further propagates the fiscal pressures that face the industry from the perspective of R&D.
The demands of the changing industry structure in post liberalization scenario (1991 onwards) have been addressed by the Indian Pharmaceutical Industry in a variety of new ways (Chaturvedi & Chataway, 2006). Ranbaxy, Dr. Reddy’s and Sun realigned their focuson Novel Drug Delivery Systems (NDDS)to survive in emerging scenario;this was managed by adding value to the existing products. “There were even more successful attempts to produce products better tailored than MNC drugs for the Indian market” (Smith, 2000). Other players in the Indian Pharmaceutical sector viz. Alembic , Cipla, , Cadila and Lupin focused on improving manufacturing efficiency and thus established large production facilities. More firms likeCadila, Sun Pharma., Dabur,Torrent, and Wockhardt chose a path to restructure and thus shifted their emphasis on technology, product basket and market scope.
Post-TRIPs regime posed newer challenges to the Indian Pharmaceutical sector, the reverse engineering skills in the Pre-TRIPs lost their charm hence firms reoriented their outlook and strategies. The focus was on transforming their R&D activities. This movement also saw firms adopting different strategies. Market leader firms like Ranbaxy, Dr. Reddy’s, Dabur, Sun, Wockhardt, and Torrent considering competencies and skills are pursuing new drug discovery programmes now. The study by Chaturvedi & Chataway (2006) suggests that these are the firms, generally, that have invested more in the R content of R&D and have gradually moved away from reverse engineering. Other firms like Cipla, Lupin, Cadila and NPIL have invested more in the D content and have strengthened their infrastructure and financial position through process efficiencies, economies of scale and large product baskets rather than research (Chaturvedi & Chataway, 2006).
For Indian Pharmaceutical sector Market liberalization (1991), and intellectual property reforms (1995) can be considered as Watershed events, or exogenous shocks because they changed the competitive landscape in the industry, especially for domestic firms, requiring them to not only reconfigure their resources and capabilities, but also to acquire new capabilities to survive. This sector thrived and has achieved remarkable success because they followed the iterative process of exploration or learning activities that lead to the addition of new resources, and then their subsequent exploitation by using these resources in new product markets (Danneels 2002, March 1991).
4.0 THEORITICAL BACKGROUND-STRATEGIES FOR SUCCESS AND SURVIVAL
Strategies commensurate with environmental dynamism can be configured in two different ways. Towards one extreme, we may construct an organization capable of processing a range of expected missions. At the other extreme, we may build a ‘finely-tuned’ organization for a specific mission, and allow online structural reconfiguration and/or strategy adaptation to cope with unforeseen changes in the mission and/or an organization (Levchuk et. al., 2001). The multi-mission organizations, termed robust, are able to sustain high levels of performance in dynamic environments without having to change their processes, systems and structures. The latter organizations, herein termed adaptive/resilient, are able to generate new strategies and/or reconfigure their processes, systems and structure to potentially achieve even higher performance.