,Contents
Acknowledgements
Use of the book
1Introduction – a valid question
2CEOs and firm performance
3CEOs and innovation
4CEOs and science-based innovation
5CEO absorptive capacity
Index
Chapter 1
Introduction – a valid question
DOI: 10.4324/9781003142379-1
This book reflects on the role of CEOs in science-based innovation – referred to as R&D, research
and development – from the perspective of both managerial practice and scholarly knowledge. It
inquires how CEOs play a role in R&D when they do not understand the complex knowledge that
drives its operations. It could be argued that CEOs do not have to play a role in R&D as long as it
operates along its objectives. CEOs do not need to understand the science that supports R&D in
the same way that they do not have to be experts in supply chain management, intellectual property,
manufacturing or finance. However, the role of CEOs in R&D may be fundamentally different
from their role in other functions in the firm. For example, in contrast with a supply chain unit, the
R&D function can take initiatives that affect the direction of the entire company (Grove,
1999; Burgelman et al., 2004). In addition, mid-level R&D scientists, especially those working in
life science R&D, are educated to the highest academic level to act creatively, innovatively and
autonomously. They are a particularly difficult group to manage given their individualism,
particular linguistic and social practices and self-monitoring capability (Styhre, 2008). R&D
scientists fall outside full management control (Florida, 2004), fiercely criticise the use of
management practices (Uitdehaag, 2008) and managing them is like herding cats (Cohen & Cohen,
2018). In other words, while the objective of finance, supply chain management and other
functions in the firm is to align them with the strategy of the firm, the R&D function is capable of
redirecting strategy autonomously. Firms that rely on intensive R&D using complex knowledge
for their strategic direction cannot allow their CEOs to become disconnected from that knowledge.
Such firms are under competitive pressure to innovate, and CEOs are expected to find new ways
,to remain competitive. In new product development that requires high-tech R&D, this pressure
translates into considerable budgets and high risks, making the strategic choices of CEOs pivotal
for a company’s long-term survival.
Scientists’ knowledge and expertise are not only different from the knowledge fields held by
business-oriented CEOs but also grow with time. Science has become ultracomplex (Oransky &
Markus, 2016; Gannon, 2007) and communicating science has become a scientific discipline
(NAS, 2017). CEOs, busy as they are in their managerial roles, gradually lose the knowledge
necessary to assess the R&D function’s arguments and statements intelligently and critically.
Although it could be argued that the urge to innovate has reached a level that leads to irrelevant
and failing products, innovation is still important for human health and societal welfare. Therefore,
the way innovation is organised, structured and led is important both in commercial organisations
and in public institutions. Understanding the role of CEOs – as the perceived drivers of R&D – is
key to a better understanding of innovation. The research literature offers scarce information about
the role of the CEO in R&D in general and in life science R&D in particular. It focuses on the role
of the CEO in innovation from the viewpoint of CEO characteristics and CEO leadership, and
offers insight into the effect of these parameters when weighed against environmental variables
such as non-profit or commercial organisations. For example, the role of the CEO in innovation
has been explored by linking either CEO age and tenure (Barker & Mueller, 2002) or leadership
behaviour (Jung et al., 2008) to innovation output in an attempt to predict the level of firm
innovation while studying the effect of environmental factors. However, there is no data on how
CEOs actually discharge their role in R&D firms. This is hardly surprising as the methodology
used until now to understand the role of the CEO in innovation may miss the point: trying to
understand the CEO’s role by looking for relationships between age (or other demographics and
characteristics) or leadership styles and innovation does not shed light on what CEOs do.
There has been considerable debate in the scholarly management literature on the impact of CEOs
on innovation. Some argue that the impact of CEOs on innovation is that they are simply not very
relevant in driving innovation and that the locus of innovation lies in the middle of the firm, with
middle and senior R&D scientists and engineers (Burgelman et al., 2004; Christensen & Diehl,
1997). The common view of the role of the CEO in innovation is that they have an effect on
innovation at the project level through their support of individuals and team working (Yadav et al.,
2007; Hegarty & Hoffman, 1990; Montoya-Weiss & Calantone, 1994). Although it is generally
believed that CEOs play a role, it is not yet clear how this is achieved and – if such a role exists –
how it is discharged.
When asked about their role in innovation, CEOs offer a general recipe: articulate a vision, attract
and keep the innovators, make funding available, set the boundaries and reward successful
innovators (Berger, 2009). CEOs recognise the increasing complexity of R&D but feel that they
are ‘ill-equipped’ to face upcoming challenges. For example, life sciences CEOs anticipate much
more complexity than they feel confident about handling and recognise that they lag behind their
peers when it comes to simplifying products and processes to manage the complexity of life
science R&D more effectively (IBM, 2010). These findings are corroborated by data reported in
surveys (Barsh et al., 2008), which show that most senior executives do not actively foster
innovative behaviour and few of them explicitly lead and manage the innovation process in their
companies. About a third say they manage innovation on an ad hoc basis while another third
, manage innovation as part of their leadership’s team agenda. Most executives are disappointed in
their ability to stimulate innovation and create a culture of innovation. In other words, CEOs do
not seem to be in a position to innovate, especially when they have difficulty in handling the
complexities of R&D.
The problem of the role of the CEO in innovation in life science R&D firms can best be illustrated
by the following case, presented by Loch et al. (2011):
[a] pharmaceutical supervisory council was confronted with trial data hinting toward heart-
damaging side effects of the drug. The VP of discovery and the VP of development went to the
CEO, who had the supervisory role for the project, with this information. The CEO simply said,
“I trust you.” But what he was implying was, “I don’t understand any of this, so you make a
decision.” The VPs ended up taking the decision to introduce the drug. Without guidance, they
settled the risk- reward trade-off in one way, but it was not necessarily the trade-off that the CEO
wanted. Indeed, the drug ultimately had to be taken off the market with damaging effects for the
company. Bad outcomes can happen, but a supervisor who abdicates his responsibility causes
risk-reward profiles that are disadvantageous for the organization.
The question whether CEOs play a role in innovation in the research and development of drugs,
vaccines or diagnostics therefore is a valid one.
The premise of this book is that the world of science – the micro-world of science-based
product innovators, scientists and engineers – is fundamentally different from the world of
business. From the various innovation activities that can take place in an organisation, the book
focuses on initiatives that are based on the research of scientists and engineers, that is, on science-
based product innovation. The book does not distinguish between breakthrough and incremental
innovation or between developed science-based innovation and developing science-based
innovation. In the context of science-based product innovations, incremental vs breakthrough or
developed vs developing science-based innovations are irrelevant: whether new drugs are
developed with a new therapeutic focus in mind or established drugs are reformulated using high-
tech drug delivery systems may not make much difference from a complexity point of view. In
both cases, the breakthrough of a new therapeutic area or the ‘incremental’ innovation introduced
in an established therapy may be equally complex, risky and require similar leadership skills from
the CEO.
By taking a dual perspective, the book offers a comprehensive view that may be of interest to
practitioners. The first perspective is scholarly and is based upon an extensive review of research
reported in the relevant academic innovation and leadership literature. It answers the question
about the role of CEOs and their leadership in firm performance and (science-based) innovation.
The second perspective is based on qualitative data obtained by direct questioning of CEOs about
their experienced world view of science-based innovation in the context of advanced
biotherapeutics. The CEOs’ responses are contrasted with the perceptions of their R&D managers.
The book helps CEOs both with and without a science background to take up a leadership role in
science-based innovation. It collates the data from the research literature, the analysis of the
interviews with top R&D management and personal experience into actions that managers use to
lead innovation, even if they do not understand the science that steers the innovation. It makes
Acknowledgements
Use of the book
1Introduction – a valid question
2CEOs and firm performance
3CEOs and innovation
4CEOs and science-based innovation
5CEO absorptive capacity
Index
Chapter 1
Introduction – a valid question
DOI: 10.4324/9781003142379-1
This book reflects on the role of CEOs in science-based innovation – referred to as R&D, research
and development – from the perspective of both managerial practice and scholarly knowledge. It
inquires how CEOs play a role in R&D when they do not understand the complex knowledge that
drives its operations. It could be argued that CEOs do not have to play a role in R&D as long as it
operates along its objectives. CEOs do not need to understand the science that supports R&D in
the same way that they do not have to be experts in supply chain management, intellectual property,
manufacturing or finance. However, the role of CEOs in R&D may be fundamentally different
from their role in other functions in the firm. For example, in contrast with a supply chain unit, the
R&D function can take initiatives that affect the direction of the entire company (Grove,
1999; Burgelman et al., 2004). In addition, mid-level R&D scientists, especially those working in
life science R&D, are educated to the highest academic level to act creatively, innovatively and
autonomously. They are a particularly difficult group to manage given their individualism,
particular linguistic and social practices and self-monitoring capability (Styhre, 2008). R&D
scientists fall outside full management control (Florida, 2004), fiercely criticise the use of
management practices (Uitdehaag, 2008) and managing them is like herding cats (Cohen & Cohen,
2018). In other words, while the objective of finance, supply chain management and other
functions in the firm is to align them with the strategy of the firm, the R&D function is capable of
redirecting strategy autonomously. Firms that rely on intensive R&D using complex knowledge
for their strategic direction cannot allow their CEOs to become disconnected from that knowledge.
Such firms are under competitive pressure to innovate, and CEOs are expected to find new ways
,to remain competitive. In new product development that requires high-tech R&D, this pressure
translates into considerable budgets and high risks, making the strategic choices of CEOs pivotal
for a company’s long-term survival.
Scientists’ knowledge and expertise are not only different from the knowledge fields held by
business-oriented CEOs but also grow with time. Science has become ultracomplex (Oransky &
Markus, 2016; Gannon, 2007) and communicating science has become a scientific discipline
(NAS, 2017). CEOs, busy as they are in their managerial roles, gradually lose the knowledge
necessary to assess the R&D function’s arguments and statements intelligently and critically.
Although it could be argued that the urge to innovate has reached a level that leads to irrelevant
and failing products, innovation is still important for human health and societal welfare. Therefore,
the way innovation is organised, structured and led is important both in commercial organisations
and in public institutions. Understanding the role of CEOs – as the perceived drivers of R&D – is
key to a better understanding of innovation. The research literature offers scarce information about
the role of the CEO in R&D in general and in life science R&D in particular. It focuses on the role
of the CEO in innovation from the viewpoint of CEO characteristics and CEO leadership, and
offers insight into the effect of these parameters when weighed against environmental variables
such as non-profit or commercial organisations. For example, the role of the CEO in innovation
has been explored by linking either CEO age and tenure (Barker & Mueller, 2002) or leadership
behaviour (Jung et al., 2008) to innovation output in an attempt to predict the level of firm
innovation while studying the effect of environmental factors. However, there is no data on how
CEOs actually discharge their role in R&D firms. This is hardly surprising as the methodology
used until now to understand the role of the CEO in innovation may miss the point: trying to
understand the CEO’s role by looking for relationships between age (or other demographics and
characteristics) or leadership styles and innovation does not shed light on what CEOs do.
There has been considerable debate in the scholarly management literature on the impact of CEOs
on innovation. Some argue that the impact of CEOs on innovation is that they are simply not very
relevant in driving innovation and that the locus of innovation lies in the middle of the firm, with
middle and senior R&D scientists and engineers (Burgelman et al., 2004; Christensen & Diehl,
1997). The common view of the role of the CEO in innovation is that they have an effect on
innovation at the project level through their support of individuals and team working (Yadav et al.,
2007; Hegarty & Hoffman, 1990; Montoya-Weiss & Calantone, 1994). Although it is generally
believed that CEOs play a role, it is not yet clear how this is achieved and – if such a role exists –
how it is discharged.
When asked about their role in innovation, CEOs offer a general recipe: articulate a vision, attract
and keep the innovators, make funding available, set the boundaries and reward successful
innovators (Berger, 2009). CEOs recognise the increasing complexity of R&D but feel that they
are ‘ill-equipped’ to face upcoming challenges. For example, life sciences CEOs anticipate much
more complexity than they feel confident about handling and recognise that they lag behind their
peers when it comes to simplifying products and processes to manage the complexity of life
science R&D more effectively (IBM, 2010). These findings are corroborated by data reported in
surveys (Barsh et al., 2008), which show that most senior executives do not actively foster
innovative behaviour and few of them explicitly lead and manage the innovation process in their
companies. About a third say they manage innovation on an ad hoc basis while another third
, manage innovation as part of their leadership’s team agenda. Most executives are disappointed in
their ability to stimulate innovation and create a culture of innovation. In other words, CEOs do
not seem to be in a position to innovate, especially when they have difficulty in handling the
complexities of R&D.
The problem of the role of the CEO in innovation in life science R&D firms can best be illustrated
by the following case, presented by Loch et al. (2011):
[a] pharmaceutical supervisory council was confronted with trial data hinting toward heart-
damaging side effects of the drug. The VP of discovery and the VP of development went to the
CEO, who had the supervisory role for the project, with this information. The CEO simply said,
“I trust you.” But what he was implying was, “I don’t understand any of this, so you make a
decision.” The VPs ended up taking the decision to introduce the drug. Without guidance, they
settled the risk- reward trade-off in one way, but it was not necessarily the trade-off that the CEO
wanted. Indeed, the drug ultimately had to be taken off the market with damaging effects for the
company. Bad outcomes can happen, but a supervisor who abdicates his responsibility causes
risk-reward profiles that are disadvantageous for the organization.
The question whether CEOs play a role in innovation in the research and development of drugs,
vaccines or diagnostics therefore is a valid one.
The premise of this book is that the world of science – the micro-world of science-based
product innovators, scientists and engineers – is fundamentally different from the world of
business. From the various innovation activities that can take place in an organisation, the book
focuses on initiatives that are based on the research of scientists and engineers, that is, on science-
based product innovation. The book does not distinguish between breakthrough and incremental
innovation or between developed science-based innovation and developing science-based
innovation. In the context of science-based product innovations, incremental vs breakthrough or
developed vs developing science-based innovations are irrelevant: whether new drugs are
developed with a new therapeutic focus in mind or established drugs are reformulated using high-
tech drug delivery systems may not make much difference from a complexity point of view. In
both cases, the breakthrough of a new therapeutic area or the ‘incremental’ innovation introduced
in an established therapy may be equally complex, risky and require similar leadership skills from
the CEO.
By taking a dual perspective, the book offers a comprehensive view that may be of interest to
practitioners. The first perspective is scholarly and is based upon an extensive review of research
reported in the relevant academic innovation and leadership literature. It answers the question
about the role of CEOs and their leadership in firm performance and (science-based) innovation.
The second perspective is based on qualitative data obtained by direct questioning of CEOs about
their experienced world view of science-based innovation in the context of advanced
biotherapeutics. The CEOs’ responses are contrasted with the perceptions of their R&D managers.
The book helps CEOs both with and without a science background to take up a leadership role in
science-based innovation. It collates the data from the research literature, the analysis of the
interviews with top R&D management and personal experience into actions that managers use to
lead innovation, even if they do not understand the science that steers the innovation. It makes
