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When the Boss Won't Budge.
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Harvard Business Review; Jan/Feb2000, Vol. 78 Issue 1, p25-35, 7p, 1 Color Photograph, 5 Black and White Photographs Document Type:
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*CASE studies *MANAGEMENT -- Case studies *SUPERIOR-subordinate relationship *MANAGING your boss *EMPLOYEE complaints *MANAGEMENT -- Employee participation *INDUSTRIAL relations *EMPLOYEE morale *DELEGATION of authority *BIOTECHNOLOGY Abstract:
AllerGen, a young biotechnology firm, is heading for trouble, possibly even bankruptcy. The company's one product--a vaccine for people allergic to cats--may never make it to market. And turnover is on the rise, not only because of the vaccine's uncertain future but also because employees are increasingly unhappy working for founder and Chief Scientific Officer Harry Huston. Although Harry is an excellent scientist, he has no business background. Several years ago he recruited a president and COO to bring some much-needed business savvy to the organization, but that executive left after a year because Harry simply wouldn't let him do his job. It hasn't helped matters that AllerGen's board consists mainly of Harry's friends and family, who go along with whatever he wants. Recently some scientists at AllerGen had the phenomenal good luck to develop, almost by accident, an alternative potentially lucrative product. But Harry won't give the go-ahead to develop a business plan for it. "There has to be someone who stays the course and works for the sheer joy of finding the cure," he says. "There are people out there who need this vaccine. Some very badly. That's why we're here. Not for the money." It's up to two senior scientists to make Harry see that he is holding AllerGen back. How can they convince Harry that changing course is critical? Five commentators offer advice in this fictional case study. [ABSTRACT FROM AUTHOR] Full Text Word Count:
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When the Boss Won't Budge
What happens when the top manager is holding back the company he created? NORMALLY, BRAD FINNERAN and Len Tanaka wouldn't have been sitting at a corner table in AllerGen's small basement cafeteria, drinking coffee at 3:45 in the afternoon. Brad, AllerGen's director of research, and Len, the biotech company's senior scientist, were second and third in command, respectively. Normally, the two would have been in the labs, working. But things weren't normal at AllerGen these days. Although the company's one product- a vaccine for people allergic to cats had done well in Phase I clinical trials, the Phase II results had been ambiguous, which meant the product might not even make it to Phase III, much less to market. And turnover was on the rise, in large part because of the vaccine's uncertain future but also because employees were increasingly unhappy working for founder and Chief Scientific Officer Harry Huston. Huston, many employees felt, was living in a dreamworld. Brad and Len, sitting there at the corner table, were trying to figure out how to wake him up. "I NEVER THOUGHT THIS WHOLE thing would come to a head over something as insignificant as T-shirts," said Brad, shaking his head in disgust. "I knew it would," Len said. He crumpled his empty Styrofoam cup and threw it at Brad. "There's the slow, slow windup. There's the pitch. It looks like an instant replay, but it's not. The ball seems almost suspended in midair. Then, boom. It hits the batter right in the head. Down he goes. Out cold. And he's down for the count." "You're mixing up your sports." Brad shook his head again. "I really need help here. Do you have any bright ideas, of a managerial, not scientific, nature?" Len thought for a moment. "Get Heiss back in here," he said. Marc Heiss had been the company's president and chief operating officer for three years. Harry had brought him in, with the blessings of the small, largely familial board, to "run things." Harry had no business background; he was a brilliant scientist with one promising idea and a great deal of passion. So Heiss's mandate had been to manage the place and to raise venture capital. The problem was, Harry hadn't let Heiss do his job. Sure, Harry had recruited Heiss specifically to bring much-needed business savvy to the organization. At more than one staff meeting early in Heiss's tenure, Harry had spoken at length about how important it was to have a professional manager to "help make the dream a commercial reality." In practice, though, he had tied Heiss's hands. Harry couldn't, or wouldn't, delegate authority. Heiss had found himself faced with pressing responsibilities and unable to take any action. When he had turned to the board, instead of finding support and objectivity there, he had to contend with Harry's brother, his college roommate, his cousin's wife, and his distant, rather eccentric friend. AllerGen had been funded thus far by those people; there were no stockholders pushing for profit, or even for solvency. The board members were solidly in Harry's court; they would do whatever he told them to do. When Harry wanted a business manager, they said okay. And when Harry suggested that Heiss wasn't right after all- and that AllerGen probably didn't need a business manager-they said okay again. "Heiss," Brad said, grimacing. "If we can find him. Isn't he at some rehab center for people with severe ulcers?" "Yeah, that's it," Len said. "Get him back here- we'll promise him a lifetime supply of Tums. No, better yet, we'll tell him Harry's retiring. Stepping down. Or that he's had a sudden and complete change of personality, and he's willing to let his employees do what he hired them to do." "No, better than that," Brad said, sitting up straight. "We could tell him that Harry is willing to concede the point that a company should make money, at least for a short period in its life." He paused. "Oh, hell," he muttered, slumping back again. "I shouldn't have lost it over the T-shirts." He tossed the crumpled cup back- at Len. "But I never thought he would threaten to fire me. I mean, he must be feeling some pressure or he wouldn't have exploded like that." NOT THAT ANYONE EXPECTED AllerGen to make money at first. Young biotechnology companies rarely do, and AllerGen was just nine years old. But riding on the wave of favorable early clinical data, it had grown quickly from an original staff of three to its current headcount of 5o. The problem was, the larger staff, combined with recent, less promising data, put the company in very real danger of going under. Yet Harry remained completely focused on his original idea, even though the company had had the phenomenal good luck to develop- almost by accident- an alternative, potentially lucrative product a year earlier. That product was a cell-culture media- the material the scientists grow specimens in. AllerGen's scientists had developed it as a way to save money so they wouldn't have to keep buying the stuff. And their media had turned out to be better than anything on the market. Once Brad realized what the company was on to, he applied for patents so that the product couldn't be easily copied. But Harry wouldn't even give him the go-ahead to develop a business plan for selling the media. Brad's hands were tied, as Heiss's had been. Unlike Heiss, however, he wasn't going to walk. Brad had been a research postdoc at the university with Harry and had joined Harry when he'd decided to go commercial with his idea for the vaccine. In addition, Brad had gotten divorced at about the same time. AllerGen and the people who worked there were his life. Len wasn't going anywhere either. He had joined the company five years ago. "The beginning of the end," he always said, "that's when I showed up." Despite his sarcasm, he was very loyal- or else very risk averse. He was raising a family; his kids were in middle school. His wife had a great job with a prominent local landscape architect. He was at AllerGen for the long haul. "This company will die if Harry doesn't come to his senses," Brad said, getting up to pour them both more coffee. "I mean, his money is running out, we're in no position to attract private placement investors right now, and he won't let me run with the cell-culture media." "What's going on with that?" Len asked. "I'm going crazy, that's what," Brad said. "We could be selling it to other labs in three months if Harry would only see what we've got. Why can't he understand that we need to do this ?" "It's less glamorous than developing a vaccine," said Len. "No, strike that. That's not fair to Harry. The thing is, selling cell-culture media would be a livelihood, not a calling. It's not science the way Harry thinks of science. You know what Harry is always saying about this company. I can almost quote him, he says it so often. 'AllerGen is still pure,' he says. 'I'll never sell out. When I started this company, I vowed that we would never become just another profit monger. There has to be someone who stays the course and works for the sheer joy of finding the cure. There are people out there who need this vaccine. Some very badly. That's why we're here. Not for the money.'" "I know, I know," Brad said, waving a hand in the air. "Harry's even proud of the fact that we still have a controller that we've never had a CFO. And that we have 3 S scientists in a 5o-person company, when most companies like us are staffing up on the business side. He walks the walk, too. He still volunteers at the high school, teaching science in that after-school program and in the summer school. And every year he donates money to the library so that it can buy new science books for the elementary grades. I have to admit, I admire the guy for all of that. Harry's a rare breed." "But he has to understand," Len cut in, "that most of his employees don't think the way he does. They want to work for a successful company. They need to. They want to buy houses and take vacations. They're not willing to starve for the love of the work." "I don't think he gets that," Brad said. "If he did, he wouldn't take it so personally every time a scientist leaves the company. Listen to me. One minute I'm on his side, and the next I'm ready to throttle the guy. Do you think this is what Heiss felt like at the end?" "I thought Heiss was going to implode by the time he left," Len said. "He stayed what, three years? Yeah, he's been gone a year. I'm surprised he lasted as long as he did." "I'm still not clear on whether Harry pushed him out or whether he walked," Brad said. "The final conversations between them were private. Who knows who said what?" "Who knows?" Len echoed. "But enough about him. Your problem, my friend, is that you keep backing down. It's my problem, too. We're the second and third in command here. It's up to us to convince Harry that he needs to go where the money is if he wants to save the very thing he's trying so desperately to protect. We need to hire a head of business development. We need to hire a regulatory affairs guru of some kind. We need to hire a marketer. If we get that kind of expertise, we'll have a chance." Brad rolled his eyes. "Think, Len. What would really happen? If we got that kind of expertise, they'd find their hands tied, just as Heiss did, and they'd be out of here before the company crashed around them. Heiss wanted to hire a director of business development. He wanted to hire a marketer. He even had some good people lined up. Harry just wouldn't let him finish anything. He seemed supportive, but he just stalled and stalled his final sign-offs' until the candidates found jobs elsewhere. "It's like that with everything: Applications to venture capital firms. Equipment- remember the fuss over the new centrifuges? Basic supplies like disposable tubes and flasks. T-shirts. We had been talking about buying those stupid T-shirts for over a year. Just to boost morale a little bit. And what does Harry say? 'Well, run some designs by me, and we'll talk about it.' Then when we show him designs, he says, 'I'm concerned that if people outside the company wear these shirts, we could get into trouble. Suppose someone who wasn't an employee wears one of these shirts and, say, robs a bank?' I mean, who's going to rob a bank wearing an AllerGen T-shirt? Who thinks that way? Then he disappears into his private lab and stays there for days. "He's great with the new scientists, sure. He snows them. He loves the work; they love the work; everybody's happy happy happy. I was, too, for a long time. Some days, I still am. But this is a business. After a year or so- these days not even that long - those fresh young faces realize that AllerGen is on a path that doesn't lead anywhere, and they leave. And when that happens, Harry acts as if his children have betrayed him. He keeps getting these reality checks, but he refuses to pay attention to them." Brad banged his hands on the table, pushed back his chair, got up, and started rifling through the cupboards. Finding an open bag of chips, he returned to the table, sat down, and stuffed a handful into his mouth. "You were ranting," Len said. "So? So I got impatient. I ordered the shirts. They came. Everyone loves them. Harry hates them. Goes berserk. Says I'm deliberately trying to undermine him. Says I have it in for him. Says I can just walk out now if I want to. Well, I am- trying to undermine him, that is. For his own good." "You know what Heiss said to me a few weeks before he left?" Len asked. "He asked me if I thought he could have done anything differently." "He did? What did you say?" "That I thought he did the best he could and that I knew he was in a tough position. He didn't say much to me after that. Said a rather formal good-bye when he left, in fact. He looked so damn sad." Len got up and stretched. Brad sighed. "I'm sad. You're sad. Anyone who has been here for more than a year is sad. We can't fire Harry. I wish we were a public company. Then this wouldn't rest on our shoulders so much. What can we do?" AllerGen seems doomed. So what Brad Finneran and Len Tanaka should really be thinking about right now is not "How should we deal with Harry?" but "Where are we going to work next?" I doubt they could return to academia. Scientists who leave university positions for commercial ventures rarely go back. Why? Because the two arenas operate under different rules. In academia, you compete to publish basic research and are rewarded largely with prestige. In business, you compete to make commercial products from the findings of basic research and are rewarded largely with money. Those differences make it hard to return. For some reason, few people question a biotech CEO focusing solely on research. Yet imagine trying to succeed in academia by selling products out of a biology lab- it's ridiculous. Similarly, it's ridiculous for Harry Huston to be ignoring the business opportunities that have come his way. And if the clinical trial news turns out to be good, does he have a vision for the future? I'll bet he hasn't given it any thought. Under these circumstances, Brad and Len have two options. The first is to approach Harry with an offer to buy the cell-culture media. It's a viable product. If they pursue it correctly, they could have a commercial success on their hands. The other is to brush up their resumes and start pounding the pavement. It sounds harsh, but they're going to have to do it sooner or later-why not get out before they're faced with bounced paychecks and the extreme personal stress that comes with being part of a bankrupt company? Personally, I think they should pound the pavement rather than attempt to start a new venture. Because if they had the management acumen it takes to run a company, they would have been in Harry's face years ago with business plans, projections, concerns, and so forth. These two are the second and third in command at AllerGen, and they should have shown the courage of their convictions long before problems reached this advanced stage. Running a company, regardless of whether you are at the top or only near it, means aggressively pursuing Success. Granted, the lion's share of responsibility for the current situation is Harry's. It's deplorable that he's avoiding reality and, by doing so, failing to remember that 49 other people and their families are all depending on the company so they can keep paying their grocery bills. But Brad and Len shouldn't be too proud of their own performances, either. And I doubt that either man would take my advice. They seem content to sit and whine. With that in mind, I'll suggest a third option-a long shot, to be sure. Brad and Len can round up as many senior members of the company as they can find who agree with their views. Then they can go to Harry-separately or as a group and try to convince the guy that he needs money from another source if he ever wants to see his vaccine hit the market. With enough people on their side, Brad and Len might succeed. When you strip away all of Harry's talk about having a "pure" company, you might just find a businessman at his core. After all, AllerGen's not exactly involved in "glory science." At the center of the company is a very mass-market, profit-oriented product. And Harry decided nine years ago to go commercial with his ideas and research- he must have been looking at the possible financial rewards as much as anything else. That's why it seems odd to me that he's rejected consideration of a viable commercial alternative like the cell-culture media. If enough people confront him, Harry might buckle under the pressure, admit that he's made mistakes, and recognize the need to regroup. As I said, it's a long shot. Considering all the ingredients-Harry, Brad, Len, the passive board, the Phase II trial results-AllerGen hardly seems to have a recipe for success. But it's what they've got. And it's come this far. If Brad and Len can summon up the necessary courage, work on their persuasion skills, and find the businessman who must have been somewhere inside Harry when he started the company, then AllerGen might just make it. Harry isn't a typical entrepreneur- he is a true visionary scientist. And if Brad and Len hope to get anywhere with him, they have to recognize Harry's core passion- curing the world of cat allergies- and begin dealing with him on his own terms. Whether they realize it or not, they've been ignoring Harry's passion and talking instead the clinical language of strategy. But operational thinking isn't Harry's strength, and the more he's hammered with it, the less responsive he will be. I'll bet that when Brad talked to Harry about the cell-culture media, he didn't link his pitch for the new business to the company's broader mission of curing cat allergies. He probably sounded shrill and said something like "The cat allergy vaccine isn't going to succeed. Let's cut it loose and make tracks with our cell-culture media. It's the only way we'll survive." If so, you can be sure that Harry didn't hear one word beyond the first sentence. Great salespeople will tell you the way to influence others is to understand their needs and communicate on their level, not on yours. So Brad and Len need to keep in mind, at all times, four central facts about Harry: he is passionate about the founding mission of his company; he feels strongly about AllerGen staying "pure"; he doesn't like to make decisions; and, however paradoxical this may sound, he has a need to be in control. Brad or Len might begin by talking to Harry about the cell-culture media in a way that doesn't slight his sense of mission. They could say something like "Harry, we want this organization to stay pure, just as you do. Curing cat allergies is what this company is about. Let's use this cell-culture media to help us continue to pursue our mission. If we get a small group within the company to market it and make some extra money, then the rest of us can continue to pursue our real goal." The three keys: Persuade, don't alienate. Stay calm. Back off when Harry starts to glaze over or push back. Alternatively, they could ask Harry to prepare a talk for the entire staff. They might say something along the lines of "Look, Harry, we're with you all the way. But the troops are flagging a little. They think we're in real trouble. We need to let them know that the burn rate is manageable, that we can stay the course, and that we're really okay. We think it would be great if you would talk to the whole staff-the more information, the better." The idea, of course, is that in the process of preparing the talk, Harry will have an "aha" moment. He'll realize that he's been wearing rose-colored glasses and that some change is needed. And because Harry will think that he's come to this realization on his own, he'll "own" the idea and control it. He will then feel more comfortable about asking Brad and Len to suggest the next steps. Incidentally, with either of those approaches, Brad might do well to emphasize his long personal relationship with Harry. He might say "Harry, we've been together a long time. You've influenced my life; you've profoundly affected my professional development. I want us to succeed through this next stage." Brad feels that he isn't being heard, and he needs to remind Harry- in terms that connect the two men emotionally -why he should be heard. If Harry is unmoved by these attempts at persuasion, Brad and Len can, as a last-ditch effort, appeal to the board. That would be extremely risky, and they would have to be prepared to leave the company if they went that route and ran into opposition. But the board just may listen to them if they paint a thorough, realistic picture. Unless they're all filthy rich, the board members have a fiduciary responsibility to themselves; after all, they have money invested in this business. Ideally, Brad and Len won't have to go to the board. There's a good chance, I think, that they will be able to persuade Harry to change enough to save AllerGen. But working with Harry will probably always involve a high degree of "managing up." At this point, they seem to be able to invest at least a little time on that task. But in the end, they need to think of themselves and how the next few months will shape their own futures. Harry has a classic problem: he's fallen in love with the technology, not the business. And nine out of ten times when that happens, you end up with a failure. Despite our many successes, I've seen that often enough at our company. At this point, Brad and Len need to assume some responsibility. They need to talk to venture capital firms to secure a general infusion of money and business guidance. They should talk to Harry first, but they need to be clear about what they're doing and why: "Look, we're going nowhere, and we're going to fail if we don't act now. We're not running a nonprofit or an academic institution. We need to use business judgment. We have an obligation-to our investors and to the company- to go to the people who can give us the help we need to stay afloat." At Thermo Electron, entrepreneurs within the company start many ventures. We could fund 100% of these operations ourselves, but instead we bring in venture capitalists during the early stages to take a 5% or 10% stake in a business. Why? Precisely because we want our startups to go public eventually, and we feel it's helpful to give our entrepreneurs exposure to outside investors sooner rather than later. The venture capitalists serve two useful functions: they give us a second opinion on a new venture's viability, and they help motivate and educate the entrepreneurs by asking tough business questions and by keeping them focused. Having said that, were I a potential investor in AllerGen, I would be worried about the issue I've already mentioned: Harry's too enchanted with the science. It's not that Harry shouldn't love his idea, but he's let his feelings blind him to the business realities. Brad and Len have to alert the venture capitalists to Harry's mind-set. Should they decide to invest, it will be their job to guide and mentor Harry, who has no business experience. Just as it is the job of any major investor in a start-up. However, Brad and Len are making a mistake if they think the cell-culture media can carry the company on its own. What makes AllerGen valuable is Harry's central idea for the cat allergy vaccine; the media is a peripheral idea. That's not to say it's unimportant-it may help keep the company going so that Harry can pursue his grand plan. But Brad and Len have to be careful not to divorce the central purpose of the company from their excitement over the cell-culture media. Let me say one thing about the board. In my view, the board should not be made up of insiders in any company. We've limited the number of insiders on any board to one- the head of the company- and we've maintained that policy for 42 years. The fact that this board is composed only of Harry's relatives and friends doesn't make Brad and Len's task any easier. In the final analysis, Brad and Len have to take the big risk that they've been trying to avoid: they have to play hardball with Harry. It's true that they may end up looking for work if Harry refuses to listen. But the alternative- the demise of AllerGen- comes out the same way for them. Better to act now, before it's too late. We believe that Brad and Len should discard their fantasy about bringing Marc Heiss back. He wasn't the right hire. For one thing, even though he was ostensibly brought in to run things, he didn't have the "run things title"- chief executive officer. He made some fundamental mistakes before he even started. If he had a written contract- as any experienced executive walking into a place like AllerGen would have demanded- he must have caved while negotiating it. It gave him too little authority and gave Harry too much. He failed to notice that the board was a group of business amateurs in Harry's hip pocket. We suspect that Heiss looks better than he really was to Brad and Len only because the alternatives appear so dreadful. But that is tantamount to preferring negligent homicide over murder one. In short, forget Heiss. Deal with Huston. Like Brad and Len, Harry is a man of data. Any good scientist- and we assume that science is one thing Harry excels at- thrives on data. Brad and Len therefore should speak a language Harry understands. They should bury him with data. Brad and Len should tell Harry that they "want to discuss some important issues" with him some Saturday morning soon when things are quiet and few people are around. To prepare for their upcoming meeting, they should chart the company's steady decline, basing their graphs on monthly statements of cash flows prepared on the direct basis. Obviously there won't be any cash received from customers yet, but Harry needs to see where the cash is going-to suppliers, to employees, and so on. A second graph of a least squares regression line will show, with reasonable and defensible accuracy, when AllerGen will be insolvent. Not just illiquid, but insolvent- total liabilities will exceed total assets. As soon as Harry leaves on his next business trip- and if he doesn't have one scheduled, they should arrange for one to arise suddenly- Brad and Len should conduct an employee satisfaction survey. The survey should be short, direct, and statistically based. It should measure employees' attitudes about their pay, promotion, communication, contingent rewards, confidence in management, and so on. In addition to statements calling for numerically scaled responses, the survey should contain open-ended questions. One that we routinely ask is: "If you could wave a magic wand and change two things- any two things- about working here, what would you change, and how would you change it?" We'd include others, too: "What do you like most about working here?" and "What do you like least?" Anecdotes enrich statistics. These employee satisfaction data should be buttressed by graphs of the company's increasing employee turnover, of its declining productivity, and of the high cost of recruiting and training new employees. If life at AllerGen is as bad as it appears, the results will be a gigantic no-confidence vote in current management. Again, more hard data for a scientist. Finally, Brad and Len should work with the controller to develop some conservative projections about the likely impact of the cell-culture media on AllerGen's financial health. They should also look at what would happen if they didn't pursue the new media. That data should also be presented graphically. The opportunity cost of remaining with the status quo should be clear. After Harry returns from his trip, Brad, Len, and the controller should have that meeting with him. The controller should present graphs of financial performance and solvency, employee turnover and productivity, costs of recruitment and training, and the opportunity cost of not going after the cell-culture-media opportunity. The controller should respond to any questions posed to him and then leave. Brad and Len should then tell Harry that they wish this meeting were not necessary, that they're worried about him and about AllerGen, and that their primary interest is the company's survival. Having said that, they should present the results of the employee satisfaction survey. Brad should then say, "Harry, AllerGen has two choices. One, you become the nonexecutive chairman and turn over full responsibility for running the company (and the authority to run it) to a professional manager who will report to a board with a majority of outside, disinterested directors capable of making tough decisions in the harsh light of economic reality. Or two, the company goes kaput, and so do we all." Harry is like many first-generation owners we've seen in small, rapidly growing companies. He confuses having rights with being right. We're not optimistic that a control freak who loses it over T-shirts will make the correct choice. Brad and Len should be ready to propose to him that AllerGen license the cell-culture-media opportunity to them so they can run with it in their own separate company. Perhaps the royalties could pay off some of AllerGen's creditors. But they should also update their resumes. Harry has made reservations on his own economic Titanic, and he seems determined to show up for the voyage. Matt Benasutti, is a biotech entrepreneur in Charlton, Massachusetts. Mark Lipton, is the associate dean for academic affairs at the Robert J. Milano Graduate School of Management and Urban Policy at New School University in New York City. He is also a strategy consultant to small and mid-sized technology-driven companies, where he coaches members of executive management teams. George N. Hatsopoulos, is the founder and chairman of Thermo Electron in Waltham, Massachusetts. Dorothy Beckert and Warren D. Miller, are cofounders of Beckmill Research, a consulting firm in Lexington, Virginia, that focuses on strategic management, business valuations, and market research for closely held businesses.

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