23 Jul 2001  Research & Ideas

How Relationships are Building Biotech

What's one way to give an industry a kick-start? According to HBS professor Monica C. Higgins, the power of professional relationships should never be underestimated. In this article, she outlines some of the key lessons now emerging from the earliest stages of a long research project on how careers create an industry—in this case, biotechnology. Higgins' work is also outlined in a chapter she wrote for the forthcoming volume from Oxford University Press, Career Creativity.

 

How does an industry get born? To answer that question, it helps to turn the microscope on one fairly new industry: biotechnology.

A still further way to get inside this question, according to HBS professor Monica C. Higgins, is to take a closer look at the subject of careers—and how people's own career relationships help to build up organizations. The study of careers seems to act as a powerful lens for examining the birth of biotech.

Higgins, who specializes in research, teaching, and course development surrounding the field of careers, has focused much of her work to date on the power of relationships. Connection in meaningful relationships is essential to professional learning and development, she believes.

Most scholars have tended to focus on careers as they affect individuals. These researchers, for instance, look at how relationships affect a person's commitment to a firm, personal work satisfaction, the decision to change careers, professional advancement, and the like. All are valid areas for study because they help employers figure out how to best select, train, and retain valuable employees.

Other scholars have opted for a more "macro" approach. They look at how seismic events in industry—such as the founding, merger, and dissolution of companies—have a ripple effect on the opportunities available to individuals.

What Higgins has done recently, though, is to get at what she calls a "missing link" in careers research.

Instead of focusing just on the individual level, or on tracing a line from the macro to the micro level, Higgins is taking a separate yet complementary path for exploration: examining large-scale organizational dynamics from the direction of individuals' careers. A chapter she has contributed to forthcoming volume Career Creativity (Oxford University Press) spells it all out.

The Missing Link

Higgins became interested in this missing link after watching a young biotech company go through two public offerings in the early 1990s. The observations she made at the time—of the power of shared work histories and networks—have in large part been borne out by her subsequent in-depth research.

Though Higgins clarifies that her results so far on the biotech industry reflect the early stages of a long research project, she has already hit on some exciting points about how people's career relationships can accelerate the early stages of entrepreneurial firms and new industries. Her new chapter builds on a huge research project she began several years ago with Ranjay Gulati, a professor of organizational behavior at the Kellogg Graduate School of Management at Northwestern University, as well as a subsequent paper they wrote.

Higgins and Gulati discovered that the top executives' connections established in their previous jobs had a large, and positive, effect on biotech companies in terms of securing resources.

Together Higgins and Gulati gathered the career histories of over 3,200 executives who made up the IPO teams of almost 300 biotechnology companies that went public between 1979 and 1996.

Even more than firm age, size, product stage, and receptivity of the equity markets, Higgins and Gulati discovered, the top executives' connections established in their previous jobs had a large and positive effect on biotech companies in terms of securing resources. And if the top executives had a career background at a pharmaceutical and/or healthcare company—the companies considered "downstream" to biotech—so much the better.

The IPO is one of the most important events in the lifetime of a young firm, and by extension in the emergence of an industry, Higgins writes in her chapter, titled "Careers Creating Industries."

"With a significant number of IPOs, what was previously simply a group of young organizations engaged in similar business emerges as a recognizable collective—an industry. As more firms go public, an industry is 'put on the map'; analysts begin to track these groups of firms and to compare their values, developing a marketplace for investors which, in turn, spurs the growth of the firms."

Biotechnology, she acknowledges, is perhaps a "strong" context in which to study the missing link. Product development cycles are long, usually between seven and ten years. Millions of dollars are spent before a product ever gets to market. Uncertainty about the viability of a company's science is rampant. Given this shaky foundation, it's well possible that potential investors pay special attention to the career histories of all involved.

Careers Count

So what career factors gave biotech a boost? Higgins found three specific advantages in chief executive officers who led a successful IPO:

  • Prior IPO experience in the biotech industry.
  • A prior job function that made it clear the CEO could carry the new firm forward.
  • An affiliation with a previous employer, which suggested skills and connections that could benefit the young firm.

Other people on the core management team—the chief financial officer and the chief scientific officer, for instance—factored in as well. Indeed, Higgins learned, the collective history of the entire IPO team was very important in securing resources.

Even more persuasively, however, was the discovery that previous employment affiliations were usually crucial.

As Higgins writes in the book chapter, building on her work with Gulati, "The simple fact that these executives chose to leave large, established pharmaceutical/healthcare companies to join young biotechnology firms may also signal the firms' quality" to the investment community.

While graduates of pharma/healthcare companies such as Johnson & Johnson and SmithKline made a strong showing in their data set, young firms led by biotech executives who came from one particular organization—Baxter-Travenol—stood head and shoulders above the rest in terms of getting a successful IPO. (See sidebar, this page: That Ol' Baxter Magic.)

"It appears that some career histories mattered more than others in helping to get the biotechnology firms founded and to move from private to public status," Higgins writes.

Monica C. Higgins is an assistant professor in the Harvard Business School's Organizational Behavior unit.

Higgins, M.C. Forthcoming. "Careers creating industries: Early evidence from the biotechnology industry." In Career Creativity, ed. by M.A. Peiperl, M.B. Arthur, R. Goffee, and N. Anand, London: Oxford University Press.