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ADVANCED FECHNOLOGY

Technovation, 16(1) (1996) 21-32 Copyright 1996 Published by Elsevier Science Ltd Printed in Great Britain. All rights reserved 0166-4972/96 $15.00 + 0.00

Strategic ilRM: The implicationsfor pharmaceuticalR&D

Oswald Jones Aston Business School, Aston Triangle, Birmingham B4 7ET, UK

Abstract
The paper is concerned with the strategic human resource management (HRM) implications of recent pressure for change in the pharmaceutical industry: the mergers and marketing agreements which began in the late 1980s; Government attempts to control NHS spending through the 'Limited List'; and competition from generic drugs. Despite the increasing use of information technology and expert systems, scientific research remains highly labour intensive and very costly. However, the continued success of all the leading pharmaceutical companies is heavily dependent upon the ability of R&D to innovate new drugs. The research establishes that there has been a switch from personnel management to HRM in the pharmaceutical industry. This change is symbolized by a 'hardening-up' of the personnel function as 'welfare issues' give way to a more business-centred approach to employee relations. In addition, first line managers (FLMs) are taking greater responsibility for the appraisal and reward of their own staff. 7"he research also establishes that leading pharmaceutical companies no longer regard R&D as a core activity and this represents their desire to improve efficiency and reduce R&D spending. The extent to which the core-periphery model has had an impact on employment contracts of R&D staff varies between firms in the sample. Three companies rejected the use of fixed-term contracts while in the other three companies such arrangements were viewed much more favourably. However, there was certainly a consistent trend towards the sub-contracting of some R&D activities. In each of the companies R&D employees were encouraged to become less insular and more aware of the commercial aspects of the business. The study also confirmed the widely-held view that HRM decisions are not regarded as strategic issues: only one company had an HR professional on the main board. It is argued that the changes identified in the research pose a serious threat to the unique position of pharmaceutical companies in the UK economy. The strength of UK pharmaceutical companies has been based on their ability to maintain a long-term perspective with regard to R&D investment. The trends identified in this research are not irreversible, but it is clear that the value of in-house R&D is being questioned at the highest levels within the pharmaceutical industry.

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1. INTRODUCTION: PHARMACEUTICAL THE INDUSTRY
LI Changesto the competitive environment Internal reputation has been established as an important influence on the morale, motivation, productivity, retention, and commitment to task and organization of R&D scientists [1-3]. This research also identified a trend for R&D employees in hightechnology industries to be given short-term contracts rather than taken on as permanent staff. It is suggested that shifting from traditional employment relationships will have important implications for the reputations of major UK pharmaceutical companies. This may ultimately threaten the motivation and commitment of R&D employees and consequently damage competitive advantage enjoyed through a long-term commitment to scientific excellence. Consequently, this study investigates the strategic human resource management (HRM) implications of recent pressure for change in the pharmaceutical industry [4]: 1. There were a number of mergers and marketing agreements between leading companies in the late 1980s. Many companies have continued to negotiate agreements with their 'rivals' and it seems that industry restructuring will continue throughout the 1990s. 2. Government attempts to control National Health Service spending by introduction of the 'Limited List' (and the proposed Clinton reforms of US Healthcare). Growth in pharmaceutical sales in Europe averaged 11% between 1987 and 1991 but fell to zero in 1993 [5]. 3. Increasing use of generic drugs resulting from the combination of shorter effective patent life and government desires to reduce health spending. 4. The secular rise in the cost of R&D as public authorities require longer and more complicated testing of drugs. 5. Effective patent life (currently about 7 years) has been eroded by requirements for more detailed testing procedures. Major companies, Glaxo most successfully, have responded by attempting to reduce development time. According to Green [5], the response of pharmaceutical companies can be summarized in four themes: the cutting of payroll and closing of sites; emergence of new marketing strategies; a shift away from 'me-too' drugs to more innovative products, or concentration on generic drugs, which the government is encouraging; and an increase in the number of strategic alliances. The continued success of all the leading pharmaceutical companies is heavily dependent upon the ability of R&D to innovate new drugs. Despite the increasing use of information technology and expert systems, scientific research remains highly labour intensive and very costly. Leading companies have responded by critically examining their commitment to R&D as a core activity, which has major implications for the management of human resources. This research investigates the personnel human resource perspective on this trend and establishes the extent to which the HR/personnel function has a significant influence over employee-related issues.

1.2 Restructuringthe pharmaceutical industry

In this section, it is argued that the pressures described above are leading to very significant changes in the nature of pharmaceutical R&D. Furthermore, the changes have considerable implications for the management of human resources in high-technology organizations. Webster & Swain [6] suggest that the increasing cost of R&D has resulted in a shift away from traditional compound screening to research on specific therapeutic areas. New techniques, particularly biotechnology, are regarded as precursors of a second pharmaceutical revolution. Della Valle and Gambardella [7], the CEO of an Italian pharmaceutical company and an economist, namely agree that the 'biological revolution' (biotechnology) has substantial implications for the organization of pharmaceutical R&D. The traditional method of drug research involved the massive screening of compounds which depended on economies of scale derived from large laboratories [8]. This largescale screening of compounds was a 'fairly routine activity' which was organized in hierarchical and bureaucratic structures. It is widely recognized in the literature that even R&D-based large firms are subject to strategic and organizational inertia [9-11]. Advances in genetics, molecular biology and pharmacology have given scientists a better understanding of human physiology and cell receptors, which encourages the design of appropriate compounds rather than large-scale screening [7]. Chemists are now more likely to have a priori models before they attempt to identify a compound which focuses the research and enables experiments to be designed more efficiently. Randle and Rainnie [12] acknowledge that biotechnology is breaking the barriers between pharmacology and biology and this is leading to the direct targeting of compounds which obviates the need for lengthy screening (from in vivo to in vitro). More extensive use of basic science has substantial implications for the organization of pharmaceutical R&D: "the increasing use of science in drug discovery intensifies the differences in character and organisation of research and development stages in this industry" [7 (p. 289)]. Companies must fundamentally review their 'upstream' research activities by allowing senior managers to define strategic areas and then pass on the operational responsibility to small groups of gifted scientists [7]. Finite resources allocated by senior management will be distributed by scientists themselves according to 'peer evaluation' of competing projects. This re-orientation of scientific activity will lead to companies increasing the number of employees with strong academic backgrounds, particularly PhDs [7]. As a consequence, there will be greater research openness as employees demand interaction with the wider scientific community by publishing their research and attending conferences. Such openness can be a disadvantage for the firm, but della Valle and Gambardella [7 (p. 291)] indicate that secrecy is likely to incur greater disadvantages:

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SWategichumanresourcemanagement
"the company is not part of the scientific network, and it cannot trigger effective links with the wealth of external information"

The shift from random screening of compounds to a more scientific approach may lead to greater division of labour in the pharmaceutical industry. One group would be responsible for investigating a family of receptors; another would examine the receptors' biological activity; a third would be responsible for the molecular activity of compounds that fit receptor sites; and a fourth party would organize the clinical trials [7]. Consequently, small firms could undertake basic research activity and sell their outputs to larger firms with access to greater resources. However, the transfer of information will not be a simple market transaction but based on a long-term relationship between the organizations:
"In short, the innovator is no longer an individual company. It is a network of agents with complementary and heterogeneous skills and assets, wherein the parties are connected with one another by elaborate types of linkages" [7 (p. 292)].

Randle and Rainnie [12] agreed that it was necessary to allow considerable freedom to creative scientists (see [15]). Nevertheless, the authors believe there will be a continuing tension between the nature of scientific work and the need for large pharmaceutical companies to remain profitable. This means that projects will be discontinued because of marketing requirements rather than on the basis of scientific potential. External evidence of the changing nature of scientific work is provided by the emergence of 'temping' agencies specializing in the supply of laboratory employees. Levi [16] quotes a UK company, Lab Staff, which is run by a former personnel director of the scientific equipment division of Fisons:
"Our very existence as providing professional laboratory scientists and technicians on a temporary basis has prompted two large companies to take a fundamental look at the way they staff their labs".

To support this argument, della Valle and Gambardella [7] present details of an extensive network of agreements established by four major companies: Ciba-Geigy, Pfizer, Hoffman La Roche and Merck. However, of the 107 agreements negotiated by the four firms since the mid-1980s only 37 ] (34.6%) involved research or development rather than marketing or distribution. Nevertheless, if the scenario presented by della Valle and Gambardella is accurate, then there are substantial implications for major pharmaceutical companies and their scientific employees. Supporting evidence is provided by Whittaker & Bower [13] who report a significant increase in collaborative R&D activities amongst leading pharmaceutical companies in the US and Europe. The authors established that 4.7% of products on the market, compared with 27.8% in the R&D pipeline, were produced by alliances.
"The increase of R&D collaborations with small biotechnology companies indicates that drug companies are becoming more dependent on external invention" [13 (p. 258)].

Lab Staff has a large database of scientists from all disciplines who are located in a wide range of sectors including the leading pharmaceutical companies. It is claimed that Lab Staff increased the supply of temporary laboratory staff to industry by over 80% between 1990 and 1993 and that almost 70% were graduate scientists [17]. Temping agencies such as Lab Staff provide permanent as well as temporary employees. For the employer, a temporary contract provides a low-risk way in which to assess the scientist's skills. Temporary contracts also provide potential employees with a Realistic Job Preview (RJP), when they can decide whether or not the company is one to which they could commit themselves on a permanent basis [18, 19].

1.3 Humanresourcemanagement
HRM emerged in the early 1980s and represented a US response to Japanese economic success. The 'excellence' literature was also a key influence on the widespread adoption of HRM in leading US companies [20, 21]. Blyton and Turnbull [22] classify two distinct approaches to HRM, first the 'Harvard Model' [23] which they claim has had the most influence in business and academic circles. The Harvard model is widely recognized as drawing its academic lineage from the human relations school and is described as 'developmental humanism' by Blyton and Turnbull [22 (p. 4)]. The alternative view of HRM is the strategic approach of the 'Michigan School' [24] which adopts a much more unitarist and managerialist perspective. The dichotomy fits neatly into the 'hard' and 'soft' categories of HRM identified by Storey [25]. Nevertheless, there has been considerable debate about the nature and status of human resource management, and Guest sets out the key elements in a theory of HRM [26]:
Strategic integration: the ability of organizations to integrate HRM issues with their strategic planning. High commitment: encouraging behavioural commitment to agreed goals and attitudinal commitment based on identification with the organization.
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The basic thesis that biotechnology is enabling drug research to move upstream to smaller, flexible and informal organizations, proposed by della Valle and Gambardella, has been criticized for being overdeterministic. Shenhar [14] describes a rather more sophisticated approach which classifies four project types: low-tech, medium-tech, high-tech and superhigh-tech, each of which are controlled by different managerial styles varying from the formal bureaucratic to the highly flexible. Managers interviewed by
Ciba-Geigy: Hoffman: Pfizer: Merck: Total 11 out of 25 = 44% 10 out of 32 = 31% 8 out of 32 = 25% 8 out of 18 = 44% 37 out of 107 = 34.6% (R&D)

O. Jones
High quality: the extent to which the management
of employees is designed to develop a high-quality workforce delivering high-quality goods and services. Flexibility: the functional flexibility of employees and organization structures which are appropriate for the management of innovation. As discussed in the next section, this research is primarily concerned with identifying the extent to which HRM issues associated with R&D employees are incorporated with corporate strategy. However, the research is also concerned to examine aspects of flexibility with regard to the management of R&D. The extent to which companies incorporate HRM issues into their strategic decision-making has been widely debated in the literature. A number of writers have reported considerable variation in the commitment of companies to incorporate HR issues with their business strategy [27, 28]. Therefore, ideas central to the strategic management of HRM are examined in the following section. potential competitive advantage, and the 'matching model' [24] is based on the view that human resource practices should match and support business strategy [39]. However, this approach encourages the application of portfolio analysis and 'generic' business strategies to the evaluation of employee stocks and flows. Kamoche [39] points out that the application of business models leads to an emphasis on shorttermism and financial rationalization which is at odds with the 'developmental humanism' aspects of HRM [35]. Consequently, strategic HRM is driven by the organizational imperatives of greater managerial control through the legitimatory device of strategy and by HRM practitioners attempting to achieve higher status [39 (p. 35)]. Nevertheless, while acknowledging that the concepts of strategy and HRM are contested, the approach adopted in this paper is that organizations are practising strategic HRM when employees' issues are linked to corporate strategy which itself is anticipatory of environmental changes [36, 38].

1.4 Strategic humanresourcemanagement(SHRM)

According to Boxall [29], integrating strategy and HRM is problematic because both concepts are controversial and contested [30, 31]. Purcell believes that political and power issues inherent in organizational decision-making are rarely acknowledged in the formulation of corporate strategy [32], whereas Legge [33] argues that the contradictions which exist in HRM are simply representations of the fundamental contradictions of capitalism. Ahlstrand and Purcell [34] criticize writers who define SHRM in terms of discrete activities such as 'manpower planning' or 'training and development' [35]. Rather, SHRM is concerned with those fundamental choices which 'significantly alter employee relations outcomes': decisions about location and deployment of personnel management at corporate, divisional or establishment levels and the integration or separation of internal labour markets [36 (p. 4)]. Miller [36] agrees that there is little consensus about the meaning of strategy but asserts that it is necessary to distinguish the non-strategic from the strategic aspects of employee management. However, Boxall [29 (p. 62)] suggests that Dyer's work [37] gives the 'critical definitional contribution in the literature on strategic HRM'. Dyer [37] follows Mintzberg [30] in perceiving strategy as a pattern that emerges from important managerial decisions and that, consequently, realized HR strategy may be very different from intended strategy. In a later paper, Miller [38] acknowledges that strategic HRM is 'theoretical distinctive' and he defines strategy as a market-oriented concept that is concerned with products and competitive advantage. Miller then suggests that non-strategic HRM can be identified by a number of features: separate from the business; reactive and short-term; of no interest to the Board of Directors; constrained by a legalistic and institutional definition that focuses on lower-level employees [38 (p. 25)]. Hence, strategic HRM "must flow from and be dependent on the organization's (market oriented) corporate strategy" [36 (p. 46)]. Many writers have identified HRM as a source of
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1.5111eresearch objectives
It is argued that changes to the competitve environment are leading to a restructuring of the pharmaceutical industry. On the one hand this is represented by the take-over fever which began in the late 1980s and has continued throughout the 1990s with even the largest pharmaceutical companies using mergers and strategic alliances to secure their long-term market positions. On the other hand, restructuring is taking place internally as senior managers examine options for increasing the efficiency and effectiveness of R&D. The competitive position of leading pharmaceutical companies is heavily dependent on the ability of R&D scientists to innovate new drugs. Inevitably, within the industry there are very close links between business success and scientific success. Consequently, scientific employees have been central to the achievements of the main UK pharmaceutical companies over the last 10-15 years. The argument in this paper is that HRM policies adopted by the industry will have a strong influence on the way in which leading companies perform in the next decade. The specific research objectives are as follows: (1) to assess the impact that greater competition has on the management of scientists in leading pharmaceutical companies; (2) to evaluate the nature of the recent HR changes in relation to R&D employees; (3) to evaluate the HR changes that are likely to occur in the near future; and (4) to establish the extent to which HRM policies are linked to the strategic direction of individual firms. The more general objective of the research is to examine these issues in the perception of senior HRM/Personnel practitioners within the industry. In doing so it is acknowledged that the results will be subjective and may suffer from the tendency of individuals to overestimate their own importance in the organization. Nevertheless, it is suggested that 'hightechnology HRM' will be an important element in the

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development of pharmaceutical R&D as leading companies respond to the challenge of a rapidly changing environment. Therefore, it is useful to consider the views of those individuals who have direct responsibility for human resource issues related to R&D employees. analysts, ensuring that they understand the link between R&D and long-term profitability and informing them of new drugs in the pipeline. Therefore, the importance of the leading pharmaceutical companies to the UK economy, both in terms of their export successes and as repositories of R&D best practice, cannot be overstated. As I have briefly outlined, this success is heavily dependent on a continued long-term commitment to in-house R&D.

1.6 "lhe significance of the research

Britain's well-documented decline as a manufacturing nation is, according to many observers, the result of a failure to invest in R&D. The UK pharmaceutical industry is unique in terms of its commitment to R&D and its competitive success nationally and internationally. The leading UK pharmaceutical companies, Glaxo, SmithKline Beecham, Wellcome and Zeneca, spend between 10% and 16% of turnover on R&D, which compares favourably with global competitors such as Hoffman La Roche, Merck, Pfizer and Eli Lilly. In contrast, the main UK companies in electronics and electrical equipment, GEC and Racal, spend 5.73% and 7.09% respectively. In engineering the figures for the major companies follow a similar pattern: Roils Royce, 7.19%; VSEL, 4.31%; Vickers, 4.03%; Smiths Industries, 6.69%. Glaxo is the only UK company in the top 50 international companies on the basis of R&D expenditure and spends a total of 739 million compared to the 398 million of GEC, the leading spender in the electronic and engineering sectors. In addition to the UK-owned companies there are a number of major foreign-owned pharmaceutical companies based in the UK which also invest heavily in R&D: Merck, 9%; Roche, 8.48%; and Pfizer, 37.8% [40]. Britain is regarded as having a "particularly productive R&D culture" and, in the late 1980s, six of the world's 15 top-selling drugs originated in the UK [41]. A report by the National Economic Development Office suggests that the pharmaceutical industry typifies the "high-tech sunrise sector" which is essential to the future of the UK [42]. For example, pharmaceutical exports amounted to 2993 million in 1992 and provided a trade surplus of 1330 million, the second largest after power generating machinery. Manufacturing industry as a whole had a trade deficit of over 10000 million in 1992 [43,44]. The pharmaceutical industry employed 76 900 in 1992, which represented a 12% increase since 1982. During the same period the numbers employed in pharmaceutical R&D rose from 13 000 to 19 000, which accounted for over 70% of the increase in total employment [43]. In comparison to other manufacturing sectors, the pharmaceutical industry is also unique in terms of its profitability and analysts regard the leading firms as being recession-proof. For example, between 1989 and 1993 the average pre-tax profits, as a percentage of total sales, reported by the four leading companies were: SmithKline Beecham, 19.5%; Wellcome, 25.1%; Zeneca, 30.9%; and Glaxo, 36.6% [44, 45]. The pharmaceutical industry recruits a steady supply of graduates and postgraduates, many of whom ultimately move from R&D into other functions, marketing and line management. Hence, pharmaceutical companies have been able to avoid the inherent shorttermism of most British industries [46]. The leading companies also maintain good relations with industry

1.7 Research mel~ods

There are approximately 20 pharmaceutical companies in the UK which sell ethical (prescription) drugs and have a substantial commitment to R&D. The largest of these are UK owned: Glaxo, Wellcome, Zeneca, SmithKline Beecham, Amersham International and Fisons. There are also a number of foreign-owned companies: Ciba-Geigy, Hoechst, Bayer, Merck, Bristol-Myers Squibb, Roche and Pfizer. This research concentrates on major UK-owned companies and interviews were carried out in six organizations, here designated 'PHARMA 1-6'. The respondents were the senior managers with on-site responsibility for HR/Personnel issues specifically related to scientific employees. The respondents agreed to participate on the understanding that their companies were not identified, and this constraint was accepted as the research objectives were to identify sectoral trends rather than the policies adopted by individual organizations. The interviews were semi-structured in nature and the respondents were asked to reply to questions about various human resource issues related to R&D scientists. The interviews were written up and copies sent to the interviewees requesting additional comments, amendments or corrections. The interviews were supplemented by internal documentation relating to the employment of R&D scientists.

2. RESULTS
2.1 From personnel managmont to HRM
The emergence of HRM in the early 1980s stimulated UK universities and business schools to establish departments of human resource management [47]. However, it is not clear that the practices of personnel management have been superseded by human resource management. Guest and Hoque [47] argue that there is little evidence to suggest that UK companies have made the switch from personnel to HRM. This research attempts to establish whether practitioners regard their activities as HRM and, if so, how those activities differ from traditional personnel management. In PHARMA2, the adoption of the term HRM has led to a 'hardening up' of the function in two senses. First, there has been a shift away from the conventional personnel concern with welfare issues, such as visiting sick employees or counselling and advising those facing personal crises [48], to greater emphasis on a business-centred approach. According to the respondent, personnel staff were considered to be "nice people", who assisted with the unpleasant realities of life such as ill-health, redundancy or

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O. Jones
bereavement. The new business-centred HRM adopted by PHARMA2 allows a much less sympathetic approach to scientists considered to be underachievers. Whereas in the past low performance may have been tolerated, the HR department is now more "ruthless ''2 in using redundancy and transfers to other functions scientists no longer at the "cutting edge". The second way in which HRM has led to a hardening of the personnel role is much greater involvement in business-related decisions of the research group. The HR manager and department head examine business needs and decide on levels of recruitment and the training required to enhance or refocus existing skills. The emphasis of training has switched from external to in-house with much more careful evaluation of its effectiveness. The company operates 'Open Learning Centres' which are used for the development of personal and managerial skills (it was claimed that at least 10% of staff are receiving training at any one time). PHARMA3 changed the title to Human Resources in 1993 and staff were redesignated HR advisors. There was no 'fanfare of trumpets' but there were significant changes in the operation of the department. Traditionally, the Personnel Department retained control of the 'Rule book' which was used to ensure that line managers did not overstep the mark and closely followed company procedures. First line managers (FLMs) now have much greater autonomy and responsibility for personnel decisions and HR staff are less concerned with welfare issues, which represents "a change in their behaviour". The HR department still controls the 'core curriculum' of training: 'business awareness programmes', supervisory skills for FLMs, team-building programmes for scientists (all of which are centrally funded). FLMs have responsibility for the more technical/specialist training which is funded departmentally. Appraisal is now the sole responsibility of FLMs, with support when requested from the HR department. Recruitment is based on a system known as 'targeted selection' which involves the analysis of particular jobs to systematically identify the 'behavioural dimensions'. These dimensions are then used to establish the behavioural requirements and each applicant is rigorously assessed on the basis of these 'behaviours'. The core function of personnel management in PHARMA5 involves working closely with senior and first line managers (S/FLMs) and encouraging them to take on greater responsibility. The respondent suggested that the department had shifted away from traditional personnel activities in order to exert more influence on business-centred issues. The demand that Personnel should be seen to 'add value' to the business in the same way as any other department was the driving force for change. This has meant much greater emphasis on business issues at the expense of the welfare role. Although the department was still known as Personnel, there had been a debate within the company and the department about changing the title to HRM. However, PHARMA5 has established 'HRM Groups' with responsibility for developing the strategic plans of each operating group: research, development, medical etc. The respondents in PHARMA1 and PHARMA6 both claimed to be practising HRM, and changes similar to the other four companies were certainly apparent: greater links with FLMs; more proactive involvement in making recruitment and training decisions; a 'consultancy' rote with each HR officer linking to a particular part of the business; and a shift away from welfare issues. However, the changes appeared to be less far reaching, perhaps because the principles of HRM had been adopted rather later in PHARMA1 and PHARMA6. The Personnel Director claimed that PHARMA4 has not changed its approach to resource management and the department is still known as Personnel. PHARMA4 has always taken the personnel function very seriously perhaps because of the personal authority of the director, who has been a member of the Research Executive for 20 years. While it was argued by the director that personnel practices have not changed substantially, there is no doubt that there have been modifications in recent years. For example, there is now a much closer partnership between personnel and FLMs in making decisions about recruitment and training.

2.2 fixed-term contracts and agency staff

The data in this section are central to developments in the industry and the policies adopted by each individual organization are described in detail. The PHARMAI Research Division employs approximately 500 scientists but only a very small proportion of these (about 10) are on fixed-term contracts (usually 2 years). A further 50 employees are on short-term ('pink') contracts for periods of up to 2 years, but there is no security and a post can be immediately terminated if the company chooses. A small proportion of the pink contracts are funded externally by bodies such as the MRC (Medical Research Council) and most of those on such contracts are relatively inexperienced post-doctoral researchers. These contracts 3 are often used for the short-term employment of overseas postdocs seeking experience or, perhaps more optimistically, 'the exchange of scientific ideas'. In the past most of those on short-term contracts (fixed and pink) have been offered permanent posts but PHARMA 1 is now committed to the 'increased flexibility' given by such contracts. The earlier commitment to provide a permanent job was 'unspoken' and short-term contracts were seen by the company as a 'trial' period. PHARMA1 has operated a job-freeze on scientific personnel since June 1993 and it is becoming increasingly difficult to attract postdocs on short-term contracts as there are few prospects of permanent posts. PHARMA1 does not use agency staff in the Research Division as there are "too many issues of security". Use of external research staff is obviously a difficult area and it seems unlikely to increase other than for very mundane work. However, there was a clear indication that -~The contracts appear to have been used as an altemative to work permits for overseas researchers,which are sometimesvery difficult to obtain.

2On readinghis interviewtranscriptthe respondentcommented:"ruthless looks quite startling when seen in black and white print".
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Strategic human resource management

short-term contracts will be used much more extensively in the future. PHARMA2 did use short-term contracts for a few years but the experiment is now regarded as a failure: "many of these contracts went wrong". In particular, there was a lack of commitment and motivation as scientists found the uncertainty associated with such contracts debilitating. This was particularly the case for those in their late 20s and early 30s who were married and had young families. PHARMA2 does use short-term (one-year) contracts when there is a need to temporarily augment particular project teams. However, these posts are generally filled by experienced scientists and most are eventually offered permanent jobs. In addition, two other groups are still employed on short-term contracts: 1. The company has about 12 postdocs working on very specific business applications but they are 'one-off' projects and it is always made clear that the job is temporary. 2. The company funds about 200 postdoctoral and PhD researchers in a number of universities who are working on projects which are of direct interest to the company. The general use of short-term contracts was not judged to be a success and it appears unlikely that PHARMA2 will pursue such a course of action in the future. The company does not use agency staff but subcontracts clinical trials when internal resources are stretched. PHARMA3 has made more use of short-term contracts in recent years "but not significantly so". FLMs prefer short-term contracts because they offer "a way of investigating particular areas without making a long-term commitment". The company uses shortterm contracts for postgraduates and postdocs but this applies to very low numbers (perhaps 6% of its UK R&D staff or about 20 scientists). This very limited commitment to short-term contracts is regarded as successful by FLMs. It was thought unlikely that numbers will increase for those engaged in basic research but there will be more use of sub-contract staff ('a make or buy decision') for development work. The decision to increase the use of bought-in R&D services at the expense of permanent staff was certainly taken at the strategic level. The respondent suggested that, although he personally was not in favour, the core-periphery model [49] would be applied to R&D and "the changes could go quite deep". In other words, there are a number of activities currently done inside the firm which in the future would be bought in. The response in PHARMA4 to questions about the use of short-term contracts was: "No, we have not gone that way at all, flexibility is not an issue". The UK R&D function will continue to grow in the future and this will provide the organization with the necessary flexibility. Recently, PHARMA4 "had the field to themselves" in selecting new recruits as no other major companies were recruiting at the same level. Some clinical research is out-sourced and a major contract was recently arranged with a company in Denmark (clinical R&D is still regarded as a core activity). PHARMA4 will continue to out-source some process R&D but overall the policy is to retain control in-house. At present a small number of postdocs are employed by PHARMA5 on fixed-term contracts but the majority are offered permanent posts. However, the idea of R&D being a 'make or buy' decision is under active consideration at the highest levels in the company and it was strongly suggested that PHARMA5 would also eventually adopt the coreperiphery model for R&D [49]. Inevitably, the company had identified a need for a more flexible workforce; for example, there was a change of emphasis from the company's core drugs, in which other companies had now caught up, to other therapeutic areas such as the central nervous system (CNS). This change left the department "over-loaded" with pharmacologists. The future vision was of a smaller, core work force surrounded by 'satellites'; universities and small biotechnology companies. That is, there would be far fewer permanent scientific posts available at PHARMA5 as the majority of work would be subcontracted to other organizations. This information was regarded as 'VERY SENSITIVE' by the respondent. At present PHARMA5 does use small numbers of contract staff in the area of toxicology. Within PHARMA6 all graduates, postgraduates and postdocs are recruited for permanent posts as it is not company policy to use short-term contracts for R&D staff. It was stressed that the company prefers to recruit staff who are not likely to suffer any 'crisis of identity' when they start work. PHARMA6 regularly uses agency staff and at present employs approximately 25. Generally, permanent staff are not recruited from the ranks of temporary employees because such work tends to be at a technician level. The company uses contract staff to overcome particular workloads rather than as part of a core-periphery strategy. It appears that scientific work is still seen as a core activity and is unlikely to be sub-contracted in the near future.

2.3 ]he sb'ategicrole of HRM

The key factor which differentiates HRM from personnel management is the extent to which employeerelated issues are integrated into corporate and business strategy [27, 50]. Consequently, the research examined whether or not HRM was regarded as a strategic factor in the major pharmaceutical companies. Of the six companies surveyed, PHARMA5 had the most fully developed links between business strategy and HRM. Within PHARMA5, each function (research, development and medical) has an HRM group, consisting of the personnel manager, a personnel officer and six departmental managers, with responsibility for developing the annual HR strategic plan (HRSP). These plans are linked to a longer-term functional strategy designated 'Research 2000'. The strategic plans are integrated with broader business and corporate strategies by the following process: the HRSPs are passed to senior management who then consider the likely implications for the business. Modifications are made to the HRSPs which are then passed back to the operational level. It is possible that the combined HRSPs may well influence business
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strategy as senior managers become aware of the human resource issues facing their organization. Nevertheless, as illustrated in Fig. 1, the linkage is rather less than full integration as HR strategy is driven by business strategy. The absence of a human resources director in PHARMA5 confirms that HRM and business strategy are not fully integrated: the HR General Manager sits on the 'HQ Board' but does not have a place on the Main Board. Neither do four of the five other companies have personnel/HRM directors and HRM issues are dealt with at a sub-board level: PHARMA4 has a Personnel Director who sits on the Research Executive which reports to the Main Board; PHARMA2 has a Director of Management Services (IT, library facilities and HRM) to whom the HR Director reports; PHARMA3 has an HR Director but he is not a member of the Board; in PHARMA1 the newly appointed Personnel Director is not presently on the Board but this appears to be a period of 'probation' as the previous incumbent was a Board member; PHARMA6 has a Director of Personnel and Administration with a seat on the Board, but there was a strong impression that HRM issues were secondary to corporate strategy. All respondents claimed that HR issues were central to the business and corporate strategy. However, it was clear that the "key indicator" [27] of HRM influence on corporate strategy, the presence of a human resource professional on the company Board, was absent in five of the six companies. (FLMs) take a very active interest in the work of each scientist and the potential for success is 'graded' at an early stage. Two main questions are addressed by the FLM: is the work relevant to the particular therapeutic area? Is it viable? If the work is not relevant then it is abandoned as scientists are no longer allowed to continue with projects that have little obvious commercial value. PHARMA1 has also implemented a 'business-awareness scheme', partly in response for requests from new entrants to find out about other opportunities in the business but also to break down the traditional insularity of research scientists. While it is very difficult to measure benefits in the short term, one negative outcome has been scientists' greater awareness of work in other departments. Many younger employees found that sales and marketing were more exciting and 'sexy' than research and began to question their commitment to science. One section subsequently withdrew from the scheme because "we have lost too many good people in the past". All the other companies have introduced business-awareness schemes, but participation is voluntary and there appears to be little enthusiasm amongst the more experienced scientists for information about commercial aspects of the pharmaceutical business. PHARMA2 has attempted to improve scientific efficiency by allocating 'extraneous' duties, such as bottle-washing, obtaining material from stores, and the electronic acquisition of information (articles), to non-scientific employees. A key change to HR policy has been the introduction of a 'Childcare Scheme' to assist women returners (not only scientists but, perhaps more importantly for the company, staff on 'technician' grades). The scheme has been highly successful as 80% of pregnant women now return to work and Childcare is now 'in profit'. PHARMA3 has introduced a TQM initiative called 'simply better', aimed at improving the efficiency of processes (to simplify and eliminate waste) and establishing better linkages between groups and disciplines. Personnel in PHARMA5 have initiated a major scheme known as 'Performance Management' (PM) which was defined as an attempt to change the culture of R&D by improving individual effectiveness. PM is designed to link each individual's role to the company's broad business objectives. The scheme operates in the following manner: senior managers establish the business objectives for each therapeutic area; the objectives are communicated to managers of the therapeutic areas who incorporate the objectives into the human resource strategic plan; FLMs are then responsible for ensuring that each scientist contributes to the broad objectives. PM is linked to a 'Reward Plan' for each of the business functions and the individual's contribution is acknowledged by financial bonuses which are audited by Personnel. In response to questions about improved scientific efficiency, the PHARMA4 Research Director responded: "issues to do with the market are more important". He then spoke about "re-engineering our culture" to give much greater market focus by encouraging entrepreneurial activity within the company: "a paradigm shift".

2.4 HRMand R&Deffeel~eness

Glaxo's success in reducing the time for drug development from 10-11 years to approximately 5 years is regarded as industry 'best practice'. Combined with the environmental changes described in the introduction, this has exerted considerable pressure on the other companies to improve their R&D efficiency. Better use of IT in accessing on-line databases and the robotic screening of compounds are common to all the companies. Departmental structures are organized according to scientific discipline (chemistry, biochemistry, pharmacology and biology) or therapeutic area (cardiovascular, cancer, immunology, CNS, infection, pulmonary and arthritic) but all companies form multi-disciplinary teams once compounds have been accorded 'project' status. A number of the other significant initiatives which have been adopted by individual companies are briefly described. PHARMAI has attempted to make project selection a much more rigorous procedure. Team leaders
Business Strategy

Business/HR Principles

T
Functional Objectives & Strategies

T
Functional Plans
Fig. 1.

T
& HR

Human~sou~esandbusinesss~ategy.

28 Tochnoval~on )6 No. 1 Vol.

StTategichumanresourcema.aEeme.t 3. DISCUSSIONANDCONCLUSION 3.1Discussion

Overt evidence of a switch from Personnel to HRM was inconclusive as three companies retained the terms Personnel Department and Personnel Director while the other three companies had HRM Departments and HRM Directors. However, only one of the six 'directors' actually had a place on the main board which, according to Purcell, is essential if they are to have real influence in the organization [51]. More subtly, in terms of the practices adopted by the six companies, the evidence was more convincing that there had been a change from personnel management to human resource management. There has been a 'hardening-up' of personnel activities, with welfare issues giving way to a business-centred approach to employee relations. Evidence of the change is particularly apparent in relation to decisions associated with recruitment, training and career development. For example, the personnel approach was to provide training for R&D employees who requested courses which they considered to be interesting or relevant. All six respondents claimed to have adopted an HRM approach based on the identification of business 'needs' and the use of training and development to enhance or refocus existing skills and competences. In addition, FLMs were actively encouraged to take on greater responsibility for the appraisal and reward of their own staff. The HRM literature suggests that links to corporate strategy distinguish human resource management from personnel management [50]. In each of the six companies it was claimed that the HR function had strategic influence within the organization. In reality this appeared to be a one-way or, at best a two-way linkage rather than a full integrative linkage [28] as senior management establishes corporate strategy and the likely human resource implications are then considered by the HR department: HR strategy 'lags' corporate strategy. In the fully integrated model human resource considerations are an essential component of the strategic decision-making process [28] although, according to Purcell and Ahlstrand, integration of HRM and corporate strategy is unlikely for multidivisional firms:
Business policy ignores the human resource dimensions: specialist personnel or human resource management strategies are pursued, it seems, with scant regard to the wider business context [52 (p.1)].

As described above, leading pharmaceutical companies spend between two and three times as much on R&D as other manufacturing industries. Consequently, there are close links between corporate success and activities in the R&D laboratories. In addition, scientific employees are regarded by themselves and by management as a group deserving of preferential treatment in terms of their conditions of employment. Therefore, pension rights, opportunities for flexible working, childcare schemes and so on are very different than those available to 'shopfloor' workers, referred to by Kanter as the 'segmentation' of HRM [21].

The central thrust of the research was to examine changes in the nature of employment in pharmaceutical R&D. There is certainly a trend towards the use of short-term contracts for new recruits although, inevitably, this policy has been pursued with greater vigour by some companies while others have been more reluctant to abandon traditional employment contracts. Perhaps more significant is the increasing propensity to subcontract R&D as a cost-reduction measure. At present, the use of subcontract and agency staff is concentrated on the more mundane and routine activities carded out by R&D departments. However, there is little doubt that very significant changes are being considered at the highest levels in major pharmaceutical companies. Until recently, R&D has been regarded as a core activity but this perception is certainly changing as senior managers begin to see R&D as another 'make or buy' decision. The extent to which the six companies have adopted short-term contracts and sub-contracting of R&D activities does vary considerably, and it would be impossible to suggest that an irreversible trend has been established. Nevertheless, that R&D is now being considered as a make or buy decision does indicate the seriousness with which changes in the business environment are regarded within the industry. While significant strategic changes are under serious consideration within leading pharmaceutical companies, there have also been operational responses designed to improve the efficiency of R&D activities. All companies have introduced IT and robotic screening and are more rigorous in their project selection techniques. There has also been a general move to give scientists a keener awareness of the commercial realities of R&D, although the effectiveness of these initiatives is open to question. The word most commonly used during the interviews to describe R&D scientists was 'insular' because of their apparent lack of interest in non-scientific topics. The HR professionals recognized the importance of employing R&D staff with a strong commitment to science. However, there was also a belief that such singlemindedness meant that most scientists preferred to ignore the link between scientific endeavour and new products which is fundamental to the continued success of all major pharmaceutical companies. The initiatives described in the paper are based on the need for pharmaceutical R&D to become more flexible in response to external change or to a repositioning of the company's product portfolio, as in the case of PHARMA5. While it may be possible to achieve numerical flexibility by subcontracting and establishing alliances with biotechnology companies, functional flexibility may be harder to achieve with such a specialized workforce. Clearly there are practical boundaries which prevent biologists becoming chemists or biochemists becoming pharmacologists. However, the flexibility sought by pharmaceutical companies is to end the divisive disciplinary isolationism which blocks creativity. The use of multi-disciplinary teams is a key method of encouraging scientists from different specialisms to communicate and cooperate, leading to an overlapping of skills and knowledge. In the words of the respondent in PHARMA2: "good scientists can turn their hands to anything". The view that it was essential to ensure scientists remained
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O. Jones
flexible and interested in a broad range of topics was emphasized in all six of the companies. Informal communications are also encouraged by the design of communal areas in which R&D staff can meet and discuss their research problems. governments face in holding down healthcare costs is provided by a report that drug sales increased by 5% in the world's 10 biggest markets between January and October 1994 compared with the same period in 1993. In the US, the rise was 8% as a result of Clinton's failure to implement his healthcare reforms [45]. Clark [53] notes that theoretical models of HRM can be used in three ways: prescriptively, descriptively, or conceptually. This research follows Hendry and Pettigrew [35] in attempting to describe what is happening in the pharmaceutical industry and conceptually comparing these practices with a model of strategic HRM, although it has been pointed out that the professional aspirations of personnel practitioners can lead them to exaggerate their importance within the organization [53, 54]. While claims of strategic influence by HRM practitioners may be questioned, there is evidence to suggest that representation at board level does lead to more effective corporate management in terms of productivity improvements and the career planning of senior managers [51]. With regard to the data presented here, exaggeration on the part of respondents seems unlikely as initiatives with regard to more flexible R&D are not being proposed by HRM specialists. In fact, there was considerable apprehension about the effect such changes would have on individual companies and on the industry. For example, the respondent in PHARMA3 stated:
I have a vision of just one eminent scientist remaining in the company while all other activities are in the 'periphery'. I don't like this trend but it might become a way of life.

3.2 Conclusion
A number of authors suggest that the pharmaceutical industry is going through a period of very significant change [6, 7,12]. Pressures from the external environment, particularly the desire of Western governments to reduce healthcare spending, are combining with wider use of biotechnology to change the nature of pharmaceutical R&D. It is suggested that large-scale screening of chemical compounds in giant laboratories is being replaced by research on specific therapeutic areas. This will lead to much greater involvement of small firms and higher education institutes (HEIs) in basic research with the results then passed on to the major companies [7]. However, these arrangements will not be simple market transactions but small and large organizations will become part of elaborate networks. The companies which were the subject of this study certainly have not yet made fundamental changes to the ways in which they carry out their R&D activities. It may be that the thesis proposed by della Valle and Gambardella [7] is more appropriate for mediumsized continental pharmaceutical companies than it is for the major UK companies. Nevertheless, the views expressed by the six respondents indicate that leading pharmaceutical companies no longer see R&D as a core activity. This change represents an attempt to reduce R&D spending and improve efficiency in response to the many external pressures which face the industry. However, the success of pharmaceutical companies in the UK has been based on a strong commitment to in-house R&D and their ability to take a long-term perspective with regard to that investment [46]. It is argued that the changes identified in this research pose a serious threat to the unique position of pharmaceutical companies in the UK. Between 1982 and 1992 the number of jobs in manufacturing fell by 24% while employment in the pharmaceutical industry grew by 12% and most of these new jobs were created by R&D. In addition, the industry has a substantial trade surplus which is also against the trend in manufacturing as a whole. Changes in the employment of R&D staff which place greater emphasis on short-term cost-savings at the expense of long-term investment will inevitably result in a declining HR reputation amongst the leading companies. Furthermore, this decline in reputation could have a major impact on the UK as a base for pharmaceutical R&D. The respondent in PHARMA4 summarized the concern with which the industry faces the future:
We are all very anxious that the UK government doesn't go 'over the top' in trying to keep healthcare costs down. If it does, it may risk killing the geese that lay the golden eggs in the form of royalties, exports and inward investment.

The reorganization of R&D is being driven by environmental and market changes or, at least, by senior management' s perception of those changes. As indicated by their profits, achieved during a major recession, leading UK pharmaceutical firms are not yet confronted by crisis. Hence, the companies are attempting to be proactive rather than reactive in anticipating the likely impact of change on the industry. It is therefore suggested that the HR initiatives described in this paper can be classified as being strategic in nature [36, 38].

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44 Keynote. The UK Pharmaceutical Industry. Keynote, Middlesex, 1994. 45 D. Green. Drug sales increase despite state spending curbs. Financial Times (19 January 1995). 46 I. Demirag and A. Tylecote. The effects of organizational culture, structure and market expectations on technical innovation: a hypothesis. British Journal of Management, 3(1) (1992) 7-20. 47 D. Guest and K. Hoque. The mystery of the missing human resource manager. Personnel Management (June 1993) 40-41. See also: N. Millward, M. Stevens, D. Smart and W. Hawes. Workplace Industrial Relations in Transition. Dartmouth, Aldershot, 1992. 48 D. Torrington and L. Hall. Personnel Management: A New Approach. Second edition, Prentice Hall, London, 1991. 49 J. Atkinson. Flexibility: planning for an uncertain future. Manpower Policy and Practice (IMS), 1 (Summer 1985). 50 R.S. Schuler and S.E. Jackson. Linking competitive strategies with human resource management practices. Academy of Management Executive, 1(3) (1987) 207-219. 51 J. Purcell. Personnel earns a place on the board. Personnel Management (February 1994). Also: P. Marginson, P. Armstrong, P. Edwards, J. Purcell and N. Hubbard. The control of industrial relations in large companies: initial analysis of the 1992 company-level industrial relations survey.

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December 1993, 52 J. Purcell and B. Ahlstrand. Human Resource

Management in the Multidivisional Company.

Oxford University Press, Oxford, 1994. 53 I. Clark. HRM: prescription, description and concept. Personnel Review, 22(4) (1993) 17-25. 54 K. Sisson. Personnel management in perspective. In: K. Sisson. Personnel Management in Britain. Blackwell, Oxford, 1989. Dr Oswald Jones is a lecturer in technologymanagementin the Strategic ManagementGroup at Aston Business School. He was previously employed as an ESRC Teaching Fellow at the Manchester School of Management (UMIST), which followed three years' doctoral study at Manchester Business School and a degree in Organization Studies at Lancaster University. Before the move to academia he served an engineering apprenticeship with Hawker Siddeley Aviation and spent 12 years as a work study/industrial engineer with Hotpoint. He has researched and published on the topic of R&D reputation in the pharmaceutical industry. Current research interests include: innovation strategies in the pharmaceutical industry; technological links between HEIs and SMEs in manufacturing industry; and contemporary developments in labour process theory.

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