Business Unit Strategy at Lonza – Linking
Executive Education and Strategy
Development
Submission Paper
EFMD Excellence in Practice Award 2012
Submitted by
Lonza AG in partnership with the Executive School of
Management, Technology & Law of the University of
St. Gallen
Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Content
1. Executive Summary .................................................................................................................3
2. Introduction to the Partners ............................................................................................................. 4
3. The Challenge ...................................................................................................................................... 5
4. The Commitment ................................................................................................................................ 7
5. The L&D Initiative .............................................................................................................. 11
6. The Impact ............................................................................................................................... 14
6.1.
Tangible Results ......................................................................................................... 14
6.2.
Revolutionizing the Strategy Development Process at Lonza ............................. 15
6.3.
Revitalizing Lonza’s Organizational and Individual Capabilities .................... 15
6.4.
Continuation of Process ............................................................................................ 16
7. Final Reflections ...................................................................................................................... 17
Word Count: 3873 (excl. tables)
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
1. Executive Summary
In 2010 Lonza, a leading international supplier to the pharmaceutical, health care and life
sciences sector was evaluating different options to review and harmonize the strategy
development process of their nine Business Units.
The process had thus far been decentralized with significant differences in quality and
relevance of the resulting strategy papers. This made strategic discussions with the Business
Units and their consolidation into a corporate strategy difficult and led to frustration with all
participants.
A new strategy development process was to address these issues and had the following
goals:
harmonized high quality strategy documents
improved strategic skills of participants
high ownership and commitment by the participants
improved organizational climate within the Business Units
deepened networks across Business Unit borders
Lonza opted for an innovative, deeply customized action-learning approach together with
the University of St. Gallen. Combining managerial learning and corporate development
Lonza’s 150 most senior managers developed their own Business Unit strategy as an actionlearning-project embedded in an in-depth strategy development and implementation
program.
The University of St .Gallen provided a highly customized, structured strategy development
process, individual and group coaching, and cutting-edge thought-leadership. The actual
content development however remained entirely in the hands of the participants. This
approach ensured both a high degree of commitment and ownership on the part of the
participants, and optimal use of managers’ expertise.
Acknowledging these advantages, Lonza suspended its established strategy development
process and replaced it by the joint process with the University of St. Gallen. Three
classroom-based interventions marked the cornerstones of two action-learning sequences of
45 days each, where the Business Unit-teams developed their respective strategies. The
outcomes of this exercise were adopted by the Management Committee, incorporated into
the corporate strategy and then approved by Lonza’s board.
Direct results of the strategy process included a major acquisition and the reinforcement of
existing joint ventures in the Bio Generics industry.
In a focused survey one year post-program HR-managers of the Business Units reported a
significant improvement in the participants’ strategic skills, in their commitment towards the
strategy and in the organizational climate. According to Lonza’s Management Committee
the program has significantly contributed to Lonza’s strategic as well as organizational
development.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
2. Introduction to the Partners
Lonza is a leading international supplier to the pharmaceutical, health care and life science
sector. With 11'000 employees and €2.3bn in sales, Lonza manufactures and provides critical
products and services to those industries such as organic chemistry, fine chemicals and
performance chemicals, custom manufacturing of biopharmaceuticals, chemical synthesis
capabilities, and chemicals, detection systems and services for the bioscience sector. It has a
strong presence in the US, Asia and Europe and is listed on the Swiss and Singapore stock
exchange.
The Lonza Team was made up by Stephan Borgas, Lonza’s CEO at the time, Uwe H. Böhlke,
Head of HR and Corporate Services and a member of the Group Executive Committee and
Lisa Middlebrook, head of L&D at Lonza.
The University of St. Gallen is a leading international business school with a wide range of
offerings for pre- and post-experience learning.
Thomas Gutzwiller was the Academic Director and core faculty and Philipp Guthof was the
Program Director in this program.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
3. The Challenge
Lonza manufactures products and provides services from research to final product
manufacture mainly to large customers in many different countries and industries. Its
success depends on in- or out-sourcing decisions by its customers, changes in the regulatory
environment as well as fluctuations in raw material prices. For an international player with a
large production base in Switzerland the appreciation of the Swiss franc plays an important
role as well.
In 2010 the Lonza Management Committee identified the following challenges:
 more volatile/ less predictable currencies
 raw materials prices entering another spike period
 very cautious customers
 changing regulatory policies, becoming partly unpredictable
 rapidly developing emerging markets
 growing global r&d networks
 increasing speed in application creation
These issues called for a fundamental review of Lonza’s business positioning, market
assumptions and forward strategy on a corporate as well as on a Business Unit level. The
management team therefore discussed different options to best structure and implement the
strategy development process.
A firm believer in the importance of keeping decision power close to markets and clients,
Lonza has established a decentralized structure with the Business Units having a high degree
of autonomy (see
Fig. 1). At the same time Lonza Business Units, share the same
production facilities to a large extent, thus requiring a highly coordinated resource allocation
strategy.
Fig. 1: Lonza organization and Business Units
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Lonza’s strategy process followed the classical strategic planning cycle with the corporate
strategy developed top-down and the Business Unit strategies developed bottom-up. Lonza
senior management largely consists of highly qualified chemical engineers, biologists, medical
doctors and pharmaceutical experts who, however, had not been trained extensively in
strategy development and implementation. As a consequence, the quality and depth of the
strategy process and the resulting strategy documents varied from a condensed 2-3 page
document to a very elaborate strategy booklet. This made it difficult to consolidate Business
Unit inputs for a consistent corporate strategy - especially with regards to resource
allocation. These challenges demanded a more coordinated approach.
In 2005 Lonza had initiated a strategy process with a major international consulting
company. While the result had been adequate in terms of strategy content, it had been less
satisfactory from a process perspective. Many Business Unit senior managers felt they had
not been involved sufficiently and therefore did not feel committed to the results. The
process eventually petered out and the willingness amongst senior management to enter
another such process was small.
Understanding the importance of committed Business Unit teams Lonza therefore started
looking for an approach which (1) generated a new strategy while (2) leveraging the internal
expertise and (3) improving senior Business Unit executives’ strategic and leadership skills.
The HR and the Corporate Development departments were jointly mandated to suggest a
new approach.
The program had identified the 150 highest ranking Lonza managers as its target group,
essentially the Business Unit leadership teams and some corporate functions. At the end of
the process the program participants were to:
• have developed a clear understanding of strategy and the strategy process from a
technical as well as from a leadership perspective,
• have developed a comprehensive and consistent strategy paper for their respective
Business Units,
• have developed a common language with regards to strategic issues,
• have strengthened their network within the Business Unit and the Lonza leadership
community.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
4. The Commitment
In two rounds Lonza invited five potential vendors from consulting and academia to present
their respective approach. After each round an intense and sometimes controversial
discussion took place within the selection team.
"We deliberately invited potential partners from different types of consultancies as well as from
academia because we wanted to have a broad overview of potential approaches. We also had
lengthy discussions about the potential partners. One of the main issues was how to achieve
commitment and leverage the know-how of our people while still having a very structured
approach. We felt that while all the consultancies were convincing with regards to their knowhow they were less so in their ability to pass on the ownership and the commitment towards the
strategy to our managers."
Uwe Boehlke (Head HR & Corporate Services, Lonza)
The University of St. Gallen proposed an innovative approach marrying the most successful
elements from executive education and consulting to create a deeply customized learning
and strategy development experience (see Fig. 2).
In this approach participants embark on a learning journey not only leading them to
understand the essence of strategy development and implementation but also to develop
their own strategy as an action-learning-project. A well-structured and highly customized
process makes sure that the program participants develop valuable results. Close interaction
between participants and top management assures the constant support and the close fit to
Lonza’s business needs. This way participants keep the ownership of the process and
develop not only valuable strategy documents but also a high commitment towards their
strategy. The facilitation of such a process is complex and therefore must be done by
experienced faculty with a sound business background.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Traditional custom
business
Consulting
Deep customizing:
“Process-oriented
executive education”
Focus
Management learning
Corporate development
Management learning
cum corporate
development
Approach
Deliver programs to
improve participants’
knowledge in a defined
field of expertise (i.e.
strategy)
Conduct a thorough
strategic analysis and
come up with a
analytically sound
strategy and
implementation plan
Develop a committed
strategy and improve the
participants strategic
skills based on a wellstructured action-learning
process
Process
Different approaches, but
often top-down with
limited link to the
company’s strategy
Mainly Top-down (top
management buy-in)
Top-down and bottom-up
through multiple learning
and feedback loops
Degree of
customization
Moderate
High
High
Ownership
External – faculty
External – consultants
Internal & External:
participants for strategic
content, faculty for
strategy know-how,
process and coaching
Commitment
High with the participants
but often low at top
management
High at top management,
but often low with other
participants
High at top management
and all participants
Facilitators
Experienced and
knowledgeable faculty
Consulting teams with a
mix of experienced and
junior consultants
Experienced and
knowledgeable faculty
with sound business
experience and coaching
and consulting skills
Fig. 2: Differentiating factors of the deep customizing approach
(description of traditional custom business and consulting are archetypes and may differ in concrete cases)
Following extensive discussion in the diagnostic and design phases between Lonza HR and
Corporate Development and the University of St. Gallen, the partners jointly developed a
process which addressed the strategy development process and implementation as well as
the resulting leadership issues (see Fig. 3).
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Fig. 3: The underlying design principle
The design principles were characterized by eight important elements:
1. The program was driven by a real and pressing business need – developing a
sustainable strategy for the future of their respective Business Units.
2. An action-learning approach with a mix of short in-class sessions and longer transfer
phases formed the foundation of the program design.
3. Participants would keep the ownership and have as much freedom as possible
regarding the content of the strategy – but follow a standardized process to make
sure all the strategic key questions were addressed.
4. Templates were developed together with Lonza and made available to the
participants to make sure the strategy documents were comparable.
5. The teaching blocks had to be tailored to the different knowledge levels of
participants to appropriately familiarize them with the core concepts of strategy
creation.
6. Important leadership aspects of implementing the strategy were addressed in-class as
well as through coaching in the transfer phases on an as-needed basis.
7. A member of the Management Committee would be present at every in-class session
to quickly address any arising issues from the participants.
8. And last but not least the program would establish platforms and leave room for
networking and peer learning.
This design allowed for a maximum of freedom and ownership of the participants and at the
same time clearly defined output and results.
To Lonza, the process was attractive also from a financial perspective. The cost was less than
what a strategy process would have cost with an established strategy consultancy. At the
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
same time the company leveraged its know-how, developed a common language and
generated commitment. Being convinced of this process the Executive School also offered to
make part of the fee dependent on the success of the program:
"Being in competition not only with other business schools but also with consultants we knew
we had to offer some element which put ourselves at risk to show that we're rowing the same
boat as our client."
Philipp Guthof (Program Director, University of St. Gallen)
In a joint half-day workshop with the University of St. Gallen and Lonza’s Management
Committee, the program was discussed in depth and aligned with Lonza’s long-term goals.
Among others Lonza’s vision and mission were discussed and refined in order to fit the
process. Through this workshop the program achieved unanimous support from Lonza’s
Management Committee.
At this point it was decided that Lonza’s established annual strategy process would be
suspended and replaced by the program. This created a very close and vital link between the
program and Lonza’s business reality. Participants were encouraged to make use of the
program to improve their strategic skills while at the same time developing a highly relevant
strategy document, which would be used for the annual budgeting process as well as for
board presentations.
Being driven by a real business need the program had to be implemented quickly. From the
start of the program at the end of August 2010 until the final presentation to the
Management Committee in February, only 6 months were given. Shortly thereafter the
results would be presented to the Board of Directors. The program participants were also the
drivers of Lonza’s existing business. Time was their most scarce resource - so the process had
to be extremely time-efficient.
"We had to develop a process which would make sure all participants have a solid
understanding and common language of strategy very quickly in order to have enough time for
the strategy development process. At the same time we had to create commitment and
ownership within the participating teams. It was therefore crucial to communicate clearly that
the participants were responsible for the content of the strategies and our role was nothing more
and nothing less than to facilitate this process as well as we could. The very close interaction
with the Management Committee and particularly with Uwe Boehlke throughout the program
development and implementation were another vital success factor."
Thomas Gutzwiller (Academic Director, University of St. Gallen)
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
5. The L&D Initiative
The in-class part of the learning journey was divided into three short modules (see fig. 4). The
first module - lasting two days - guided the participants through the fundamentals of
strategy and provided input on the leadership challenges in developing and implementing
strategy. The strategy development process was explained and participants received a set of
relevant templates for their strategy work. Then the participants worked on their respective
strategic challenges for 45 days. Coaching was offered on an optional basis and two Business
Units made use of this offer.
Fig. 4: Program design overview
In the first transfer phase the teams analyzed their Business Unit gaps and their critical
success factors as well as their environmental assumptions in order to generate strategic
options. They returned to class for a day to present their progress to their peers and to
engage in a process of friendly peer consulting. Some additional guidance on the way going
forward was also given.
This session spurred some interesting dynamics among the participants. The quality of the
first round of presentations varied. Excuses were abundant ranging from demanding daily
jobs to special situations requiring participants’ full attention. However when less
performing groups saw the high presentation quality of their peers and received feedback
from the facilitator and their peers, these teams’ ambitions were triggered more than in a
usual in-class environment. They took advantage of the coaching available to them and
worked hard to bridge the gap. As a result, the lowest performers at the start developed one
of the most thorough and convincing strategy presentations at the end of the program.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
The teams worked a further 45 days mainly on the product-, customer-, regional and channel
strategies before coming up with a final strategy document. In the last one-day session they
presented and exchanged the final documents. Feedback was given by the faculty and a
member of the Management Committee.
After some final refinement those documents served as basis for the strategy discussion
between the responsible members of the Management Committee and the Business Units.
The on-site meetings were held at
different locations. The initial meeting
was held at the University of St. Gallen’s
Executive Campus to provide a neutral
environment. The second meeting was
held at Lonza’s main production site in
the secluded rural mountain area of Visp
to remind the participants to stay downto-earth and remain pragmatic in their
strategy process. The final meeting of
each stream was held at Lonza’s
headquarters in Basel in the main Board
room to underline the importance and
seriousness of the process.
In order to achieve an efficient working
group size the whole program was
divided into four overlapping runs with
30-40 participants each (see Fig. 5).
Between two and three Business Units
participated in each stream. Each
Business Unit leader decided which
members of his or her Business Unit
should be part of the process.
Selected members of the corporate functions also joined the process and were assigned to the
different Business Unit teams. That way corporate functions understood the process, were
involved from the beginning and could provide input where relevant. This proved especially
valuable when Lonza and the University of St. Gallen developed functional strategies in a
follow-up program.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Fig. 5: Four overlapping work streams embedded with Management Committee and Board of Directors
interaction
After the last stream the results were presented to the Management Committee. For the
Management Committee the resulting strategy papers were an excellent basis to assess the
different Business Unit strategies, to prioritize projects and investments and consolidate the
input from the Business Units into the corporate strategy. Additional commitment for the
corporate and Business Unit-strategies was generated through a leadership conference in
February. In a board meeting on April 11th 2011 the corporate strategy was presented to the
board and unanimously approved.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
6. The Impact
The program has had a major impact on three levels: (1) it led to concrete tangible results such
as the acquisition of Arch Chemicals; (2) it revolutionized the strategy formulation process
and outcome; and (3) it revitalized Lonza’s organizational capabilities and individual
competencies.
6.1. Tangible Results
Because this project defined the strategy it yielded very tangible results in the form of a clear
strategic direction, a stream-lined and prioritized project portfolio and several important
management decisions directly linked to the project.
Among others the strategy process led to a much clearer understanding of which markets
and segments were attractive for Lonza. One of the most promising sectors identified for
Lonza was microbial control – products which destroy disease-carrying microorganisms and
clean, disinfect and preserve materials, surfaces and aqueous environments.
Significant growth in this sector however was only possible through an acquisition. On the
top of the list was US microbial company Arch Chemicals. Its annual turnover was much
bigger than Lonza’s in that segment and meant a quantum leap for Lonza’s microbial
business.
Besides being in an attractive market the potential acquisition addressed several other
challenges identified in the strategy process:
a more balanced regional portfolio with a strong presence in the US
a reduction of the cyclicality of Lonza’s business
a significant reduction in the currency exposure of Lonza
a strong development platform for new products
a significant improvement in the presence in BRIC countries
synergies in the magnitude of $50m a year
When Arch signaled an interest in negotiations that project became the number one priority.
Because Lonza and Arch had worked well together on different projects before there was an
open and trusting discussion. On June 11th 2011 Lonza launched a tender to acquire Arch.
Lonza completed the acquisition on October 26th.
Uwe Boehlke, who coordinated the strategy process from Lonza’s side, today is also
responsible for the integration of Arch Chemicals. Jeanne Thoma, who was one of the nine
Business Unit Heads running the strategy review with HSG is today Head of the sector
Lonza Microbial Control, which incorporates old Lonza and the newly acquired business.
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
Another result of the process was the confirmation of Bio Generics as a major source of
growth and revenues in the future. Lonza reinforced and invested heavily in the existing
joint venture for the generic production of pharmaceuticals.
The project portfolio derived from the process included roughly thirty potential growth
projects. In view of the magnitude of the Arch acquisition many of them had to be
postponed. Among them are promising projects in the area of nutrition which may be
realized at a later stage.
6.2. Revolutionizing the Strategy Development Process at Lonza
The new process revolutionized the strategy development process at Lonza and more than
delivered the promised results. All Business Units went through the strategy process and
finished their strategies on time. All strategies went through a final quality check and were
consistent, of high quality and of strategic relevance. The Management Committee was able
to use these strategies as a basis for their corporate strategy and their strategic decisions
going forward. The board approved the corporate and Business Unit strategies unanimously.
One year later those strategy documents still serve to a large extent as the strategic
guidelines for the Business Units.
6.3. Revitalizing Lonza’s Organizational and Individual Capabilities
In light of the tangible and visible results of the process and the satisfaction on the
part of the Management Committee it was decided that a quantitative impact
assessment would not be necessary. However, a survey of the Business Sectors HR
managers was carried out under the guidance of scil (Swiss Centre for Innovations in
Learning, www.scil.ch) one year after the end of the program. This survey confirms
the following results (see fig. 6):
the strategic capabilities of the participants – which mostly had a scientific
background - have improved
the commitment of the Business Unit-teams towards the Business Unitstrategy has significantly improved – because it was “theirs”
the collaboration and the climate within the Business Units have improved in
most cases as well
and many participants still profit today from the network developed during
course-related activities within the organization
“The process gave the Business Units a very structured way to develop a strategy. As it was a
common approach for all Business Unit’s the outcome was comparable and made the differences
between the Business Units more obvious. The process brought the whole team together and
almost everyone at Business Unit level contributed to the result. I assume this would not have
been the case with another approach. I am sure that a lot of participants made a step forward in
their strategic thinking. There were a lot of follow-up and break-down activities (down to
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
16
Business Teams, whether to involve even more people in the organization than just the initial
participants).”
Paul Clausen (Head of HR, Lonza Custom Manufacturing)
Score
1 Through the strategy development program the participants have come to a better
understanding of the overall Lonza strategy.
4.5
2 Through the strategy development program the participants have come to a better
understanding of the strategy of their Business Unit.
5
3 Through participating in the strategy development program, the participants have
improved their ability for strategic thinking.
4.5
4 The strategy development program has contributed to improved collaboration on
strategy matters in the Business Unit.
4.8
5 The strategy development process was personally motivating and inspiring
4.5
Fig. 6: Results of survey of Business Sector Heads of HR (5=Fully Agree, 1=Fully Disagree)
6.4. Continuation of Process
Based on the above assessment of the success the success fee was paid out in full. The success
of the program then led Lonza and the University of St. Gallen to address Lonza’s functional
strategies with the corporate functions in a follow-up program in a similar way. In 2011 the
program for the functional strategies was carried out successfully.
Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
17
7. Final Reflections
Looking back the approach and the results were a very positive example of the successful
implementation of a “deep-customizing” approach (see Fig. 7). The consistent
implementation of the design elements of this approach was the key success factor of the
program.
Deep customizing:
“Process-oriented
executive education”
Application in Lonza Project
Focus
Management learning cum
corporate development
Improved the strategy and leadership skills of the
participants and developed sound and harmonized
Business Unit strategies
Approach
Develop a committed
strategy and improve the
participants strategic skills
based on a well-structured
action-learning process
Participants learned the essence of strategy and
leadership and directly applied them in their actionlearning-project. A structured process, relevant Exceland PowerPoint-Templates and coaching ensured
positive results
Process
Top-down and bottom-up
through multiple learning
and feedback loops
Throughout the design meetings, the roll-out and the
final meetings top management was present and
assured a constant exchange of ideas between
participants and top management
Degree of
customization
High
The process was developed and agreed upon in detail in
a series of design meetings with Lonza HR and senior
management, so that it would fit the Lonza culture and
key challenges
Ownership
Internal & External:
participants for strategic
content, faculty for strategy
know-how, process and
coaching
The participants were the sole owners of the content of
their strategy and what they were going to present to
and discuss with senior management. The University of
St. Gallen facilitated this by framing the process,
providing input on strategy, and by offering leadership
training and coaching
Commitment
High at top management
and all participants
The ownership and the constant interaction with the
Management Committee ensured a high degree of
commitment
Facilitators
Experienced and
knowledgeable faculty with
sound business experience
and coaching and
consulting skills
The Academic Director is a professor and the founder of
a consulting company at the interface of strategy and IT
(which he sold when it was 800 employees strong). The
Program Director could draw upon more than fifteen
years of in-company leadership experience, including at
C-level, in different industries
Fig. 7: Implementation of “deep-customizing”-approach at Lonza
This program was not only successful but also very rewarding for the participants, top
management and the faculty. Being in the driver’s seat of one’s own strategy development in
Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
a safe and supportive setting has been pointed out consistently by the participants as being
highly motivating and effective at the same time.
“It was a unique and truly rewarding experience to see how the initial skepticism turned into
growing enthusiasm with each step we took.”
Philipp Guthof (Program Director, University of St. Gallen)
Since the program was so central to Lonza's future course of action, its impact has been
unrivaled. Being a driving force in a large acquisition typically is not part of a customized
program. The program proves that Executive Education can provide extraordinary value if it
is willing to leave the beaten paths of traditional teaching-oriented programs. Being able to
facilitate such a decision making process is a great sign of confidence for the future of
business schools.
"We were aware that this process - like every strategy process - had some risks to it. Abandoning
our established strategy process for this learning journey had led to controversial discussions. But
through the discussions in the design phase a mutual level of trust had developed between us and
the St. Gallen faculty which gave us the confidence to take this decision.
The result of this process was more than satisfactory – several extremely important management
decisions can be directly linked to the process."
Uwe Boehlke (Head HR & Corporate Services, Lonza)
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Business Unit Strategy at Lonza – Linking Executive Education and Strategy Development
University of St. Gallen (HSG)
Executive School of Management,
Technology and Law (ES-HSG)
Custom Programs
Girtannerstrasse 8
CH – 9010 St. Gallen
T: +41 (0)71 224 75 50
F: +41 (0)71 224 76 79
[email protected]
www.es.unisg.ch/custom
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