Knowledge Strategy – Business Management

KNOWLEDGE STRATEGY – BUSINESS MANAGEMENTtc "KNOWLEDGE STRATEGY – BUSINESS MANAGEMENT"

Knowledge as an asset:  Most assets are subject to diminishing returns, but not knowledge. The cost of knowledge based product is in its creation and not in production or distribution.  The fixed cost of knowledge is in fact a fraction, as it is generally an idea, a concept, a vision.  Once the knowledge has been created the development cost can be spread over increasing volumes of production.

Once the product gets into the market, the market response and feed , gives fresh impetus to more innovation and greater knowledge application and enrichment.  It is a dynamic process of continuous enrichment and improvement.

In traditional industrial production and marketing, the assets and the products decline in value as more and more people use them, as time goes by, or because the product is a copied version or its original knowledge base has not changed over the years.  In other words the product’s share of the market becomes directly linked to the increasing volumes of product use or continuous decrease in price.  Ultimately, the product perishes to the market forces.

Asset value: The asset value of knowledge is uncertain and intangible.  In many cases markets may not accept the product.  In some cases it may lead to exponential growth, in which case it also becomes a standard on which others can build. A series of knowledge advances, each building on the previous one may suddenly come to a halt leading to static market conditions and gradually declining value.

Therefore, success depends on refreshing and recreating the knowledge base.  It is a dynamic process of continuous enrichment of knowledge base to gain competitive advantage.

Value decline: The knowledge based product is often the creation of a person or persons with the help of a team of colleagues or experts.  Therefore, the knowledge gets shared at its creative stage itself.  It is embedded in peoples’ minds and cannot therefore be owned exclusively or permanently or controlled.  It may be copied.  Some body else may build on the concept without detection.

Investment in knowledge assets is therefore a gamble with a lot of insecurity and uncertainity. Traditional industrial companies generally find it very difficult to understand how value will be created and who captures most of it.

Knowledge opportunities: The Pharmaceutical industry is a fine example of knowledge and value creation.  Every pharmaceutical product is developed, first in the research laboratory as a concept in the form of a molecular model.  Work is then taken up to synthesise the molecule. For such synthesis many other ingredients, some already being produced, or some to be developed, are needed. These ingredients are sourced from producers or product developers who by themselves are independent researchers. Thus the process of developing the molecule is already fragmented but still under wraps as out sourced parties do not know the end use of the ingredient supplied by them.

Once the molecule is produced in the lab, at a gram level, it is studied for the impurity profile and necessary changes incorporated in the process.  The product is then produced at pound levels.  The economics of the process route is then studied and changes, if any, are planned.  The product now goes for tests on mice, rabbits, monkeys etc., to ascertain the (a) therapeutic effects (b) adverse reactions (i.e.,) toxicity levels.  After such prolonged tests, clinical tests are carried out on patients to establish the safety of the product for medical use.  The product is then patented and released into the market.  It may be well received or may bomb, because the users may not see any enhanced medical value over the medicine they are already using.  Some times a competitor who has also been working on identical or similar product might have launched his product slightly earlier or at a much more affordable price or with a better delivery system into the human body.  Even when the patent is still valid, some body else may launch into the market a more potent medicine, but much cheaper. 

The sequence and time frame of various stages of development of the product has not been exactly narrated.  It is enough to know that the process is very very expensive, time consuming and completely knowledge oriented from the stage of concept to the delivery of the product.

A patent offers to the product security and protects the value for certain period.  Once the patent is off, the product is on the block for exploitation by all & sundry.  The creator can only see the vanishing value of his creation.

Contract Research: For every end drug product, there are several ingredients, many of which are out sourced through contract research.  The value of such outsourced ingredients mostly depend on the end drug succeeding commercially, which is a long drawn out time consuming process.  But some times, it may find other uses or use in other products, which creates value for the ingredient.  While the synthesis of the ingredient may be as difficult as that of the end drug, the security and value protection for the ingredient is generally limited, patented or not, because as its use increases, others may produce the ingredient by a different chemistry or at a much lower cost, as there are no hassles of animal and clinical tests involved.

Thus the asset value of both the ingredient and drug is one of steady decline or obsolescence, unless the producer continuously refreshes, recreates or enriches the knowledge base.

There are examples galore in the bulk drug and pharma ingredients industry, in which products have travelled through the chain of development to obsolescence.

Example: -  Pheneramine maleate is a popular anti allergic drug, once a patented product ruling at a high price.  Over the years, the patent expired and the price is now a fraction of what it was even as recently as 10 years ago.  Many other anti allergic drugs such as astemizole, diphenyl hydramine, cetrizine, terfendine, ketofen furmarate, with similar therapeutic properties but slightly different adverse effects have made significant inroads into the pheneramine maleate market.  The game is one of different molecular structures.

Innovation in knowledge management:

Sodium Amide (Sodamide) is a highly hazardous chemical, the production process for which is also hazardous.  The packaging, transport, delivery and useof this product is also fraught with risk of explosion and fire.  But this is a very important ingredient used in the synthesis of chemicals, particularly pharmaceutical ingredients.

A company in India, developed a process for its production and put up a plant 30 years ago, to meet the domestic market.  Users in India, were then importing the same from Europe.  There were only two manufacturers of this product abroad.  The packaging was critical, as once the container was opened, the Sodamide in the container must be used up immediately.  It is not safe to use the contents partially and leave the residual quantity in the container, however tightly the container is sealed again. Once exposed to atmosphere, a peroxide compound of the material is formed, which has a detonating characteristic, hence the danger.  Sodamide is used in the manufacture of many bulk drugs.

Sodamide used in each batch is usually in multiples of 2 Lbs. but not more than 20lbs. at a time.   The imported material used to be supplied in loose condition in containers which hold 2 lbs or 10 lbs. of the material.  The container was heavy and of special type construction with full open top lid with ring lock tightening device, water and air tight.  The containers had to be specially manufactured and were quite expensive.  All this and the hazardous nature of the product made the Sodamide very expensive to the user.  Further only limited marine and road carriers would transport the material.  The user also was particular to keep the inventory of this product as little as possible.

Therefore, the Indian producer had initially faced the following problems in the production and marketing of Sodamide.
(1) The total consumption in the country was only about 80,000 lbs/year.
(2) The users were fragmented spread over a vast country like India.
(3) The standard acceptable packing was a 2 lbs. container.
(4) No user was willing to keep more than 200 lbs. in his premises.
(5) Transportation by rail was out of question as a special hazardous cargo carrying covered wagon was required, the availability of which was uncertain and again   from the rail head to destination, it had to be carried by a road carrier.
(6) Very few road carriers were willing to carry the product, not more than a few pounds and that too along with non inflammable cargo.
(7) Due to the peculiarity of the process, the minimum output of Sodamide per batch was 600 lbs. The packaging and storage of the material posed serious constraints on production.

The producer had to find solutions.  First and foremost was to tackle the problem of container and packing size.

Sodamide was packed in double walled polyethylene bags and the bags heat sealed.  Shelf life was tested in different sizes of packing.  Some of the HDPE bags were stacked in full open top steel drum with ring lock tightening device, commercially available in the country.

Shelf life was tested for over one year.  There was no deterioration in quality or safety. Once this was established, the producer packed the product 2 lbs. and 10 lbs..each in double walled HDPE liners and stuffed such packs into 15 / 25 / 50 gallon drums.  Void space if any in the steel container was filled with thermocole sheets, which prevented the packed material getting tossed up during transit.  The steel containers were sealed and kept in storage, ready for dispatch.

At the user point, the operator has to merely cut a corner of the HDPE bag and unload the material into the process vessel.  A metal screen was kept on the nozzle of the receiver meant for feeding the material.  The screen prevented the emptied HDPE bag from falling into the process vessel.

The consumers were initially reluctant to try out this packaging as they were accustomed to the sturdy containers in which the Sodamide in loose used to be imported.

Marketing staff visited the consumers and explained the benefits of using company’s product.

(1) The packaging was safe and did not require specially fabricated container.
(2) The product is always contained in hermetically sealed HDPE bags and not in loose condition in the steel container.
(3) One Steel container can hold safely several number packages in HDPE liners.  This dispenses with the use of steel container for each individual package.
(4) The consumer can keep in his premises safely larger quantity of the product for the same number of steel containers he was earlier accustomed to.
(5) The road carrier can now deliver a larger quantity of the product in the same number of containers he was hitherto willing to transport.
(6) Due to drastic reduction of packaging cost, the product price will be substantially lower.
(7) No user point is more than 4 to 7 days away from the producing point,.
(8) Therefore the consumer can draw his requirements, if needed, even on weekly basis, instead of waiting for months for the imported product.
(9) Above all, the product is now available to the consumer at a fraction of the imported cost.
(10) Packed material was taken around and shown to consumers and road carriers.
(11) Carriers and consumers were invited to production plant to see the storage and shelf life tests.

It took some time and effort to convince the consumer. But that is part of marketing effort of an innovation.  Sodamide now became readily and easily made available across India, within less than a week of its requirement, which gave great impetus to the use of Sodamide for synthesis.  The Bulk drug industry has grown by leaps and bounds in India – in the past few decades.  Along side demand for Sodamide also grew, because of its easy and ready availability.  New uses were also found.  All in all, the product has now a peak demand for a few million lbs. a year. In fact, the Indian plant is the largest in the world now and the product is being exported to several countries.

Of course, the product packaging and delivery system have seen many more innovations to keep the competition at bay.

Conclusion: Assets decline in value and returns.  Knowledge based asset is intangible, it enhances the value of the product.  It can create exponential growth for the product, generate new ideas, new products and new uses and also new players. To keep competition and obsolescence at bay, the knowledge base has to be continuously refreshed or recreated, enriched or innovated.

Pharma industry is a classic example.
Innovation is the key to successfully swing the user to your side. Continuous recreation of knowledge base and innovation will enhance and enlarge the market.