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Amgen: A Case Study In Leading Transformation

Amgen, the biopharmaceutical, was like a 35-year-old house with the original plumbing, windows, roof and electrical systems—the infrastructure needed a serious upgrade. Here's how they did it.

Given that transformation is now a fixture of every leader’s job description, and since there is no more dangerous position in business than muddling along and clinging to the status quo, perhaps it’s time for the phrase “leading change” to be declared redundant. To lead is to change and it requires refining how your company operates today while simultaneously disrupting yourself before someone else does.

Yes, it can be difficult enough to master the challenges to crystallize a simple plan, build a high performing team, and create a culture that aligns everyone on behaviors that drive the strategy. The challenge of remaking and reinventing almost every aspect of a company on an ongoing basis can be overwhelming for many leaders, particularly because employees tend to prefer sameness over uncertainty, especially the uncertainty caused by disruption (nothing can set a company on edge faster than a CEO who starts asking a lot of what-if questions). Faced with the prospect of trying to overcome the powerful inertia of the status quo, some leaders instead kick the can down the road, telling themselves that their successor can deal with all the disruptive forces after they have stepped down. Or perhaps they hire a chief digital officer to handle the transformation, not recognizing that the person is likely to be pushed to the sidelines by colleagues who want to protect their empires.

What are the keys to driving transformation? The approach here is not to provide you with an eight-step process. Such frameworks are readily available elsewhere, and their usefulness can be limited by the simple fact that no single playbook can address the unique challenges that each company faces. Our focus instead is to discuss transformation through the lens of leadership and a real world case study that will be useful for any executive embarking on an effort to drive change.

Amgen: Transforming a legacy company

During the two-decade stretch when Kevin served as president and then CEO of Amgen, the company’s primary focus was growth. When his successor, Bob Bradway, took over, the new leadership team recognized that work was needed to get Amgen ready for the next phase of growth. The shorthand they used was that Amgen was “in a good spot, but…”

The “but” was that Amgen was like a 35-year-old house with the original plumbing, windows, roof and electrical systems. The infrastructure needed an upgrade. Some of Amgen’s drugs were coming off patent (meaning big drops in revenue), new product launches needed funding, and the company was planning an expansion into dozens of additional countries. Amgen recognized that if it didn’t make the necessary changes, someone was going to come along, whether a competitor or activist investors, and potentially force those changes from the outside. “We knew we were going to need several quarters to sell the idea internally and to get people moving, and a few quarters to make the changes,” said Bradway. “So we knew that we had time, but not an abundance of it. It was really a case of changing before we have to.”

Pressing for change is always harder when things are going well, but Amgen provides a useful case study on how to disrupt the status quo even when the need isn’t evident to all. Amgen’s leaders started with a simple mantra to start the necessary conversations around transformation: “Build a better company.”

“We wanted to create a language and a skill set and a methodology that would enable Amgen to keep changing a decade later,” said Brian McNamee, chief human resources officer on Kevin’s leadership team who was named chief transformation officer by Bradway. “Transformations can be serial events, but if done right, they turn into long-term continuous improvement capabilities,” McNamee added. “So, the goal was to build that capability, to build a better company. We were very careful not to put anything underneath that at the outset, in terms of specifics.”

Bradway and McNamee put a simple question on the table for the leadership team. How do we build a better company? But they did add some ground rules for the coming brainstorming sessions. For example, everybody was told they had to “concede to the middle,” shorthand for signaling that members of the leadership team had to let go of any impulses to protect their respective parts of the business, and that the company’s best interests were going to come first. That meant wrestling with some tough issues, like cost structures that needed to be reined in. “My role was to make sure they were brought into the discussion,” McNamee said. “You’ve got to set the tone up front that these things are going to get put on the table; no more just talking about them in the hallway.”

Bradway then recruited a team of high-potential younger executives inside Amgen, calling them the “Gang of 30,” to explore new approaches to solving some of the company’s challenges. But he also solicited ideas from all levels of the company, sending a clear signal that he wanted to hear every idea they had, even if they seemed a bit off the wall. And as chief transformation officer, one of McNamee’s responsibilities was to ensure that members of the leadership team did not screen out any ideas.

“The organization needs to get comfortable with the notion that they can give us the full range of options and leave us to choose the sensible options,” said Bradway. “We were trying to give the organization confidence that people didn’t have to eliminate the extreme options because they might be afraid that these idiots at the top will choose things that are harmful to the company. Very often, leaders on the rungs below will say, ‘I don’t want to give them that option because I’m afraid they might choose it, or ‘they’ll think I’m stupid for putting it on the table.’ So we had to continuously give them confidence by saying that we want all the options. You have to just keep role-modeling that idea and keep insisting that they bring you the full range of options, even the things that they think are too extreme. Because then we can see that there are a lot of different ways to attack this.”

For example, Amgen’s development process for new drugs had long been split into two divisions R&D and operations which had created inefficiencies and silo behavior in the company. The team working on that initiative suggested that the two be combined so that programs could move faster, with fewer handoffs, and eliminate overlaps and redundancies. The leaders running the separate divisions, not surprisingly, resisted the notion, but once it was put on the table for the entire C-suite team to review, they made the decision to put them together. “This was a major change from the past, and sent a signal to the organization that this transformation was going to be different in that nothing was off the table in terms of options when it came to building the best company,” McNamee said.

Bradway and McNamee also knew that the process of soliciting and sorting through ideas would have to be coupled with a deliberate communication plan to slowly win over the top 500 people at the company about the need for the transformation. In business, after all, there is a widely used metaphor of the “frozen middle” of companies, referring to the layer of managers who, to preserve the status quo, keeping ideas from bubbling up from below and freezing out directives from above. But that frozen layer can be much higher in organizations than the leaders might want to believe. So Bradway and McNamee embraced the idea of creating a “sponsorship spine” to ensure that the level of leaders below the C-suite would themselves be won over about the need to change, so that they would champion the plan to their direct reports, who in turn would advocate for the need to change with their teams.

“The CEO can stand up and talk all he or she wants about making change, but at the end of the day, the manager in France or the team leader in Tampa, Florida, is going to go to a conference room and see what his or her direct boss thinks,” Bradway said. “If his or her direct boss says, ‘Yeah, we’ll do the bare minimum,’ or ‘I don’t know what it means, we’ll figure it out later,’ then there’s no energy. If, on the other hand, you go into the conference room and your direct boss is saying, ‘Here’s what we’re going to do,’ and they’re articulating the message in their own authentic voice rather than reading the CEO’s script, that’s the magic and that’s what we did. We recognized that we needed to enlist five hundred people in the storytelling.”

The transformation effort succeeded. It led to cost savings of $1.9 billion, faster growth, and bigger profit margins even as the company expanded into additional countries. After stepping down from Amgen in 2019, McNamee started consulting with other companies on their transformation efforts. One of the most common problems he sees is a false consensus among the leadership team members about the need for transformation in the first place. “One CEO I was working with told me, ‘This is where we’re going, and everybody agrees,’” McNamee said. “I told him, ‘Give me an hour with six of your direct reports.’ After I met with them I told the CEO, ‘There’s no agreement on the current state and there are wildly different views on how we got here.’ ”

His experience is a powerful reminder that there has to be a shared understanding about the current state of affairs before meaningful discussions can start on what needs to change. “You have to stop and focus and make sure that you’re building an objective view of what the current state is and not bending to the political sensitivities in the room,” McNamee added. “It’s like building a case for the need to change.”

Given the success of the transformation at Amgen, other CEOs often reach out to Bradway for his advice. “I always start with the same question: Are you going to lead it or are you going to delegate it?” he said. “If CEOs delegate transformation, your organization figures it out overnight, and they will be less motivated to follow through. If the CEO is really on it and devoting energy to it, the organization figures that out as well. They realize, ‘Oh, I guess we really have to do this.'”

Excerpted from THE CEO TEST: Master the Challenges that Make or Break All Leaders (HBR Press, March 2021).


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