Clark Golestani, CIO of Merck, has adapted McKinsey’s Three Horizons framework for his IT organization at the $44B pharmaceutical company. In the McKinsey model, Horizon One includes the core products and markets that provide the majority of a company’s revenue. Horizon Two covers emerging products and markets, and Horizon Three contains products that will drive revenue in the much longer term.
Horizon One: CIO as CTO
CIOs, suggests Golestani, can use this Three Horizon model to understand their own roles. In the first horizon, the CIO acts as a CTO. “In the near term, the CIO should be driving performance up and cost out,” Golestani says. “In this stage, the CIO is focusing on infrastructure and operations. If the first horizon isn’t working well, it is hard for IT to move onto anything else.”
Once a CIO stabilizes the first horizon, he or she is now free to move onto the second horizon, CIO as business strategist.
Horizon Two: CIO as Business Strategist
“In the second horizon, the CIO functions as a business partner who is helping to grow revenue,” says Golestani. “This is where a CIO develops a deep understanding of the business and drives step-level productivity by using automation or step-level revenue growth by applying IT analytics and informatics.”
CIOs who have achieved the second horizon tend to appoint “junior CIOs” to work with each line of business or function. “Second Horizon CIOs have graduated to trusted advisor and consultant, and are driving digital business models into the company,” says Golestani.
Some CIOs never make it to the second horizon, but those who do, and have done so for years, are ready for something more. This is where the third horizon comes in. “In the third horizon, the CIO acts as a venture capitalist,” says Golestani. “This CIO is looking out beyond 36 months to envision the business’s future.”
Horizon Three: CIO as Venture Capitalist
CIOs that act as VCs spend time asking: how can we capitalize on the value that new technologies will bring to the business? How do we build a patented portfolio of IT processes and technologies that puts the company into a better position for licensing and driving future value beyond the business’s core products? How do we carve out best-in-class capabilities and stand them up as new businesses? How do we drive business value on the leading edge?
Golestani has a team at Merck that is currently focusing on the third horizon. “In the pharmaceutical industry, we produce a great deal of quantitative data, but the interpretation of that data is always in document form — internal reports and externally published material in AMA journals and Science and Nature,” he says. “But at Merck, we have developed some pretty incredible capabilities to do semantic analysis, so we have been looking at how to apply those capabilities to the protection of intellectual property.”
For example, Golestani and his team have developed technologies that will allow them to discover online intellectual property leakage and counterfeiting. “There are a large number of web channels that sell pharmaceuticals,” says Golestani. “But which ones are selling counterfeit drugs and which aren’t? We are able to mine the internet and find out.”
Merck is currently carving out this counterfeiting discovery capability and standing it up as an independent business (called Steelgate Intelligence Systems) that will serve the pharmaceutical industry and potentially other markets that sell expensive goods. “It has the potential to be the leading industry provider of internet counterfeit services,” says Golestani.
Look inside IT: “Any IT shop within an industry builds specific IT skills and capabilities,” says Golestani. “If you drill down, you’ll find value even in how you manage the back office.” At Merck, the IT team created an expense processing application for the iPad that sits on top of SAP. “It takes all of the paper out of the process and drives everything to the transaction level with imaging and credit card processes,” he says. “We could take that new capability, carve it out, and license the technology.”
Likewise, Merck’s IT operations team developed an automated upgrade process for Window’s PCs. “We can rip through 80,000 Windows upgrades with no noise, a process that many believe to be best-in-class,” Golestani says. “When the CIO has a VC mindset, this kind of operational innovation could be services to carve out as new businesses. If you separated your entrepreneurial groups from you IT operations, you would never identify those kinds of opportunities.”
Hire for Entrepreneurial Skills: It is fun to imagine how everything you do in IT could be a new business for your company. But populating your IT organization with people who can manage this for you can be tough. “The IT organization is now doing business development, which is not typical of IT,” says Golestani. “Your team needs to know how to create new businesses, structure them, the legal aspects, accounting, negotiation, and more.”
Golestani’s advice is that you do not try to find all of these skills in one person. “If any one person had all of those skills, they’d be running a business of their own or they would be a partner at a VC firm,” he says. “You need a team of people who can work together to bring an entrepreneurial capability to your IT organization. That’s what we’ve done here. We have Wall Street executives, high tech executives, business development people, financial professionals, and people with backgrounds in branding and marketing.”
Become a student of the VC World: For CIOs ready to move into this third horizon, Golestani suggests that you start out as a student of the venture capital world. “Every VC firm has CIO councils that they use to give air-time to their portfolio companies,” says Golestani. “Go join a CIO advisory board at a VC. In exchange for giving feedback on their portfolio companies, you can ask them about how VCs work.”
In the meantime, suggests Golestani, check out blogs written by Brad Feld, managing director of the Foundry Group, a VC firm. “Brad has published a wealth of information on VCs,” says Golestani.
Change your personal mindset: CIOs must focus on costs, but in doing so, they run the risk of missing new investment opportunities. “To many CIOs, driving costs down is the end of the game,” says Golestani. “But to be a VC, the CIO needs to think like a CEO, and any great CEO is relentless about driving out costs, but investing in the business as well.
Start small: Don’t try to hit it out of the park on your first try, cautions Golestani. “Go do a small deal, something of a size that is appropriate for your company. Demonstrate how you can create value on a small scale, and your CEO will listen.”
About Clark Golestani and Merck
Clark Golestani, executive vice president and CIO at Merck (www.merck.com), is responsible for the company’s global information technology. Golestani is a member of Merck’s Executive Committee, Innovation Venture Board, and reports to Merck chairman, president and chief executive officer Kenneth C. Frazier. Additionally, Clark serves on the Board of Directors of Liaison Technologies (www.liaison.com).
Previously, Golestani held various positions of increasing responsibility across the company spanning IT architecture, divisional and corporate roles, as well as global infrastructure. Prior to joining Merck, Golestani was principal with Oracle Corporation’s consulting practice and was responsible for managing strategic client relationships from business development through consulting services delivery.
Today’s Merck is a global healthcare leader working to help the world be well. Merck is known as MSD outside the United States and Canada. Through its prescription medicines, vaccines, biologic therapies, and animal health products, it works with customers and operates in more than 140 countries to deliver innovative health solutions. It also demonstrates its commitment to increasing access to healthcare through far-reaching policies, programs and partnerships.