R E V. J A N UAR Y 04, 2002
CIBA Vision: The Daily Disposable Lens Project (A)
On August 2, 1992, the top management of CIBA Vision AG, a leading manufacturer of contact lenses, met at corporate headquarters in Bulach, Switzerland. Amidst a rare heat wave cast over the country’s central valley, temperatures swelled and stifling humidity penetrated the company’s un- airconditioned offices. In this cauldron a discussion raged about a proposed project to develop a “daily disposable” contact lens. CIBA Vision and its main competitors currently offered a lens designed to be replaced after seven days of wear. Some executives believed a daily disposable lens represented the next major potential industry breakthrough and that market evolution in this direction was inevitable. Alan Fisher, head of central marketing, argued:
Daily disposable lenses offer the ultimate in customer convenience. It’s perfectly simple: a new pair of lenses every morning without the hassle of having to use lens care products. There’s only one reason why daily disposable lenses haven’t yet been introduced: they cost too much to manufacture. But that’s changing. It’s only a matter of time and effort. The only question is: will it be us or our competition who will take the lead?
The concept was far from universally accepted by either those in R&D or marketing. Some within marketing wanted to conduct much more extensive market research before launching such a project. Others wondered about the company’s capability to compete in this segment. Richard Francis, who headed U.S. marketing, noted:
CIBA Vision has always competed by having a differentiated product. A daily disposable lens must compete on the basis of low cost manufacturing, something that compared to Johnson & Johnson (J&J), we’ve been lousy at. We’ll never beat J&J in the high volume disposable game.
Perhaps even more contentious was how to organize such a project. Worried that the company’s existing R&D group in Atlanta (Georgia) was too wedded to the existing technology, that the manufacturing organization lacked necessary competencies, and that middle managers within marketing were not committed to a daily disposable product, one group of executives proposed creating an autonomous project team isolated both geographically and organizationally. Fisher proposed putting the project team in Germany, where it could have access to state-of-the-art automation and optical engineering capabilities. Others objected strongly. Mike Zabrinski of CIBA Vision’s U.S. operations, for example, argued for putting the project under the U.S. R&D
Professor Gary Pisano prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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organization: “They have 150 people who can start work on this project tomorrow, they are just down the road from the plants, and the United States is by far going to be the largest market for this product.”
As the day wore on, Walter Patton, CIBA Vision’s CEO, grew impatient. Over the past few years the company had seen its dominant competitive position eroded by J&J, which had entered the market in 1987 with the first seven-day disposable lens. Conventional contact lens, where CIBA Vision had been strongest, appeared to be a shrinking segment of the market. “This debate has been going on for two years now,” Patton stated tersely. “Before tonight is over, we have to decide: Are we committed to a daily disposable project and, if so, how are we going to do it?”
Company and Industry Background
CIBA Vision was a wholly owned subsidiary of the Swiss-based multinational pharmaceutical and chemical company, CIBA Geigy AG (1994 sales: Sfr 22 billion)*. CIBA Vision was established in the
U.S. in 1980 under a technology licensing agreement with a German contact lens manufacturer, Titmus Eurocon. In 1983, CIBA Vision acquired Titmus Eurocon outright and thus gained a presence in the European market. Over the next decade, CIBA Vision grew steadily through a series of acquisitions throughout the world. In 1985 the company acquired American Optical and greatly expanded its presence in the United States; 1986 witnessed several acquisitions around the globe, including the contact lens businesses Alcon (Europe), Weicon (Taiwan), and Urokon and Galileo (Italy). A full list of the company’s acquisitions is provided in Exhibit 1.
Through these acquisitions and its own internal growth, CIBA Vision had become one of the top players in the contact lens and lens care products1 markets. In 1992, total sales were SFr 750 million, 40% of which came from lens sales and 49% from lens care products (the remaining 11% were derived from a newly established business in ophthalmic pharmaceuticals). Approximately 50% of the company’s sales came from North American markets, 25% from Europe, and 16% from Japan and Southeast Asia. The total worldwide market for contact lenses in 1992 was approximately Sfr 2 billion and was expected to grow at 6% annually through the year 2000.
Eight companies dominated the 1992 global contact lens market with a combined share (by revenue) of 75%. The top four companies—Bausch & Lomb (18%), Johnson & Johnson (16%), CIBA Vision (15%), and Menicon (8%)—controlled almost 60% of the market. The figures, however, masked some important differences between shares in specific contact lens market segments. For example, J&J dominated the high volume disposable segment with a market share of around 85%.
CIBA Vision’s corporate headquarters were located in Bulach, Switzerland (about 20 minutes from Zurich). However, Atlanta was home to the company’s largest R&D and manufacturing sites. Both R&D and manufacturing in Atlanta were responsible for developing and supplying products on a global basis. The company also had smaller contact lens R&D and manufacturing operations in Grosswallstadt, Germany. Plants processing contact lens solutions were located in Mississauga, Canada; Macclesfield, England; and Munich, Germany. All these sites also had global supply responsibilities. Local sales and marketing activities were the responsibility of the CIBA Vision’s local country subsidiaries. On a global basis, CIBA Vision was organized into three geographic “area companies,” each of which had its own CEO (see Exhibit 2 for an organizational chart). Area 1,
- Exchange rate: 1 Swiss Franc = $0.83.
- Lens care products included saline solutions, sterilization systems, lens cleaners, and lubricating
headquartered in Atlanta, covered the United States and Latin America. Area 2, headquartered in Bulach, included Europe, the Middle East, and Africa. Area 3, headquartered in Ontario, Canada, encompassed Canada and Asia. “Area CEOs” were responsible for all R&D, manufacturing, and marketing in their designated regions. Thus, although the R&D and manufacturing operations in Atlanta developed and made products sold throughout the world, they reported to the Area 1 CEO. Although some central coordination existed, it sometimes caused conflicts in the priorities of different regions. Joseph Ruggiero, CEO of Area 3, was a vocal critic of the structure:
What we produce from Atlanta often doesn’t meet the quality standards of the Japanese market. For instance, Japanese contact lens fitters routinely inspect contact lenses under microscopes in their offices, and will reject lenses with minute imperfections that don’t even affect performance. I’ve tried over and over to get R&D and manufacturing in Atlanta to understand this. They say they’re listening, but at the end of the day, they report to the head of the U.S. company. We always have to take a back seat to the demands of U.S. marketing.
Competition and Technical Change in the Contact Lens Market
A contact lens was a deceptively simple medical device. Placed on the eye, a contact lens corrected nearsightedness and other vision deficiencies. First introduced in 1937, these lenses were fabricated from a hard plastic (similar to Plexiglas); they were not particularly comfortable and often required long adjustment periods for users. Although incremental innovations were made in materials and design, such “hard” lenses remained the dominant design on the market until the early 1970s, when Bausch & Lomb introduced the first “soft” contact lens. Fabricated from a polymer that was approximately 40% water, soft lenses offered a quantum leap in comfort and immediately attracted new wearers. Throughout the 1970s and 1980s, a series of incremental improvements and refinements were made to both “hard” (known as rigid gas permeable or RGP) and “soft” lenses. For instance, new materials increasing the oxygen permeability of hard lenses dramatically increased their safety and comfort. Incremental refinements in the materials and designs used for soft lenses also led to improvements in comfort and visual acuity. CIBA Vision itself introduced several innovations, including the first tinted contact lens approved by the U.S. Food and Drug Administration (FDA), the first soft bifocal contact lens, a unique lens designed to correct astigmatism, and a cosmetic opaque contact lens designed to make brown eyes appear blue.
With each incremental innovation in the marketplace, the range of product choices expanded. Both RGP and soft lenses were offered in different materials, designs—sphericals, toric, bifocal—and tints. By 1990, CIBA Vision offered more than 20 lines of RGP and soft lenses—each of which was offered in a variety of sizes, corrective powers, designs, and tints. For instance, CIBASoft, Ciba Vision’s largest selling contact lens, was offered in two different diameters, three basecurve sizes, 57 different corrective powers, and nine different tints (resulting in 3078 SKUs for this product family alone). Across all 20 lines, the total combination of SKUs was approximately 3 million. However, about 98% of CIBA Vision’s contact lens sales were attributable to the top 200,000 SKUs. Although this degree of variety could be costly in terms of manufacturing complexity and logistics, it was viewed as an integral part of the company’s marketing strategy of offering the contact lens fitter “one- stop” shopping. In contrast, it was estimated that Johnson & Johnson, which offered only two product families (a 7-day lens and a 30-day lens) and did not offer tints, had fewer than 1000 contact lens SKUs.
A reputation for high quality with the eye care professionals who prescribed contact lenses was a critical ingredient for success. In 1990, CIBA Vision had approximately 15% of the contact lens market in the United States and Europe and, in most segments, was either number one or number two (behind Bausch & Lomb or J&J). Despite the growing popularity of contact lenses, market
penetration remained relatively low. Of all the people who required some type of vision correction in the United States, only 20% wore contact lenses. The figures for Japan and Europe were 9% and 5%, respectively. As shown in Exhibit 3, there were numerous reasons why people wore glasses instead of contact lenses. The leading reason, accounting for approximately 7.5% of non-wearers, was the inconvenience of cleaning and disinfecting lenses. Close behind that (at 7.3%) was the “effort to use” contact lenses.
Lens Manufacturing Technology
The technologies used to manufacture soft contact lenses also continued to evolve over the years, and each new generation of process technology resulted in lower manufacturing costs (Exhibit 4). Traditionally, contact lenses were made by lathing and polishing “buttons” of polymer into the desired lens shape. This method of production was costly for two reasons. First, it was time consuming: it took several minutes to lathe and polish each lens to the high degree of precision needed. Second, most of the material used in the process never wound up in the lens but instead was lost as waste that eventually wound up as dust on the shop-floor. In 1984, when CIBA Vision acquired American Optical, it acquired the rights to a molding process that could be used to manufacture soft contact lens more efficiently. This process, which the company further developed and refined, involved molding the back surface of the lens (the base curve) and lathing the front surface (the power curve). The base curve was the side of the lens in contact with the eye. Since a relatively small number of base curves would fit most eyes (three sizes fit more than 90% of the population), molding this side offered opportunities for exploiting economies of high volume molding. However, there were many more variants of power curves, and thus the flexibility of lathing was more attractive for this surface.
With this single-sided molding process (SSM), the first step was to design an injection mold, a plastic mold with the base curve side properly shaped and the power curve side flat. A liquid polymer was then placed in the mold and exposed to ultraviolet light, which polymerized (hardened) the material. The plastic mold was then opened and the half-formed lens removed. The next step was to lathe and polish the power curve to the desired specifications. To soften the lens and extract impurities within the material, the lenses were then hydrated in a bath of saline solution. After several days, the lenses were then removed and packed in glass vials. By the mid-1980s, CIBA Vision used SSM for most of its soft lenses manufacturing, but lathing was still the method of choice for RGP lenses and extremely low volume soft lenses. One of the biggest barriers to lower manufacturing costs of soft lenses was the need to hydrate the lenses after molding in order to soften them and to extract the impurities. This step created large work-in-progress and created a bottleneck on production throughput.
The 7-Day Disposable Lens
The year 1987 marked a major watershed in the contact lens market: Johnson & Johnson’s then tiny Vistakon division introduced Acuvue, the first contact lens designed to be worn continuously and discarded after 7 days of wear. Up to that time, users generally kept a pair of contact lenses for one or two years. While on the eye, contact lenses accumulated protein deposits, bacteria, and other residue from the environment. Soft contact lenses were particularly vulnerable to the accumulation of dirt. If lenses were not sterilized and cleaned, deposits would interfere with the performance and comfort of the lens and lead to potentially serious eye infections. Thus, it was recommended that contact lens wearers sterilize and clean their lenses on a daily basis, and use a special protein remover on a monthly basis. But care regimes were both costly and a source of inconvenience. In 1988, the typical contact lens wearer spent approximately $175 per year on lens care systems (a typical pair of
soft contact lenses which would be expected to last for 12 months costs approximately $175). In many instances, wearers became lax in their care and suffered serious eye problems or discomfort. The main attraction of the Acuvue lens was convenience. Because the lens was disposed of after a very short period, it required less cleaning and long-term care than traditional soft contact lenses. When introduced, a year’s supply of Acuvue lenses cost approximately $350. Although this was higher than the annual costs of a typical pair of conventional lenses, the wearer had far lower expenses for lens care.
While the concept of a disposable lens was novel, the product design and material were not. The Acuvue was fabricated from the same basic type of polymer used for other soft lenses, and although the lens was thin (to increase oxygen transmissability to the eye), its basic dimensional design was similar to existing lenses. What was novel about the Acuvue was the manufacturing technology. The basic marketing concept of the Acuvue lens—weekly disposability—would not have been feasible without a manufacturing process which reduced lens costs to the point where a consumer would find it economically attractive to throw away lenses. In addition, because consumers were essentially fitting themselves each week with a new pair of lenses (as opposed to being fit annually by their optometrist), lenses had to be manufactured with an extremely high degree of uniformity: consumers would notice, and not tolerate, minor differences in corrective power or fit.
In the early 1980s, a small Danish company developed a process for efficiently molding both surfaces of the lens. Although similar to SSM, the process used a high precision injection mold with both the base curve and the power curve appropriately shaped. Thus, it completely removed the need for lathing. However, the most important breakthrough was that it polymerized the lens in the hydrated (i.e., wet) state. By avoiding the swelling normally associated with the hydration of a lens, reproducibility was markedly improved. This new process also led to drastically shorter throughput time for lens production and a significant increase in productivity. The Danish company believed that its new technology offered a dramatically lower cost structure for lens production and attempted to license it to several contact lens companies, including CIBA Vision. Given the traditionally high margins on contact lenses, however, a cost reducing process innovation was not viewed as a strategic imperative. Joseph Ruggiero recalled:
We all had an opportunity to license the technology. But no one saw the potential. The market was growing so rapidly, everyone was too busy selling conventional contact lenses. Some people started talking about the concept of a disposable lens, but few people took them seriously.
J&J saw things differently. It viewed this process technology as a way to turn the contact lens market on its head from its current orientation of low volumes and high margins to one revolving around high volumes and lower margins. Its Vistakon unit, then a $20 million niche player, opted to license the technology. It spent the next several years further developing and refining the process. Working closely with an injection molding firm called Nypro, Vistakon developed a process for molding the plastic dies to an extremely high level of precision. The resulting tighter tolerances allowed the company to greatly reduce testing and sorting costs (about one-third the cost of manufacturing traditional lenses) and deliver a product that met customers’ needs for consistency. Initial production costs per lens were estimated to be approximately $1 (compared to approximately
$5 per lens for existing soft lens production technologies).
In June of 1988, Vistakon received regulatory approval to begin selling its Acuvue brand of lenses in the U.S. and immediately embarked on a heavy television advertising campaign targeted directly to consumers. This was a departure from existing marketing strategies in the industry, which had traditionally targeted eye professionals through advertisements in trade journals. Production ramp- up was so rapid that Vistakon was able to market Acuvue nationally within just a few months from
its production facility in Jacksonville, Florida. Competitors initially were skeptical that the disposable concept would work; some thought consumers would reject it associating disposability with low quality. But following a meteoric rise in Acuvue sales, this skepticism quickly turned to concern. Within three years of its introduction, Acuvue’s worldwide sales topped $225 million, captured approximately 25% of the U.S. market for contact lenses (across all segments), and catapulted Vistakon into a leading position in the industry. In the high volume disposable contact lenses, the fastest growing segment of the market, J&J’s market share was 85%.
Within a year after the introduction of Vistakon’s Acuvue lens, CIBA Vision introduced its own 7- day disposable lens called the NewVue. Manufactured by its own version of the double-sided molding process (one that, however, did not eliminate the hydration step), the NewVue represented CIBA Vision’s attempt to gain a foothold in the rapidly growing market for disposable contact lenses. Unfortunately, J&J’s lead proved insurmountable. “By the time we got to market with the NewVue,” Fisher recalled, “it was really too late. J&J was already down the learning curve.”
An internal analysis conducted by the company estimated that due to its earlier start and higher market share, J&J’s cumulative production volume using the new technology was 10 to 12 times greater than that of CIBA Vision.
Adding to the difficulties of catching up with J&J were the challenges of mastering the new DSM manufacturing technology. Not only did DSM involve much higher volumes than CIBA Vision had been accustomed to, but it also required much higher levels of process control. One production engineer explained:
With DSM, there are sources of variation that you just don’t have with lathing or even single-sided molding. First, you have variations in the mold itself. For example, let’s say you want to make a lens with a power curve of -4.5 and a base curve of 8.8. Because of variation in your injection molding process, you may get a mold that is -4.7 and 8.6 instead. Then, you have the variation in the polymerization process. You may put too little or too much polymer in the mold, or the curing time may be off and the lens shrinks or curves differently. So, even if you get the mold perfect, you might still get a lens that is off. Finally, when you hydrate the lenses, they shrink and curl in ways which are hard to predict. Your power curve may start off at -4.5, but wind up being -4.75 by the time you take it out.
Mark Philips, the plant manager in Atlanta, added:
At first, we struggled a lot with DSM. Even more frustrating, because J&J had exclusive contracts with the best suppliers, it was hard for us to get outside help. We have managed to expand capacity dramatically but only by investing heavily in new molding equipment and doubling our headcount in the Atlanta factory.
Technology and Operations Strategy
By 1989, although CIBA Vision remained profitable given strong sales of its conventional soft lenses and lens care products, several managers were worried that its position was tenuous. Conventional lens sales were stagnating, and in some segments declining, as more users switched to disposable lenses. The disposable market was by far the fastest growing segment of the contact lens industry. Vistakon’s 85% share of this segment was daunting. Even more worrisome, operations was having serious problems improving the DSM process and production costs were still above the levels desired to compete effectively. “We were barely making money on NewVues,” noted one member of the finance staff.
In 1989 the company launched a massive multi-year project—code-named “Godzilla”—aimed at reducing manufacturing costs by automating and rationalizing process flows, and by improving process control. Tom Seaver, a production engineer who had been involved with the project for several months in its early stages, commented:
The goal of Godzilla was to take us into a new era of manufacturing. In conventional lenses, manufacturing costs were historically not a big issue. Our manufacturing operations in Atlanta and Germany evolved over time to help us cope with the enormous variety of products we produced. They were not set up for high volume-low cost manufacturing. We had very little automation and production was organized by process stages.
Almost immediately, however, the project became mired in conflicts between R&D and manufacturing. Seaver recalled:
R&D never really assigned the resources necessary to do this. They saw their main goal as developing new products. They assigned people to the project, but kept pulling them every time a new product launch came up. But frankly, we weren’t much better. During this time, we were also trying to put two new products into the plant, transfer some production from Germany back to Atlanta, and find ways to max out our existing capacity to meet our production targets. Everyone was stretched as thin as they could be.
Barbara Becker, a Ph.D.-level chemist who had just joined the company’s R&D group, described the situation:
In the past, many new products were put into production without anyone having fully characterized the chemistry. That’s where a lot of our quality and yield problems were coming from. So our first priority in this project was to go back and figure out the chemistry underlying the processes. The manufacturing people who were not competent technically didn’t understand what we were up to. They thought we were stalling. It was really frustrating.
Throughout the Godzilla project, R&D and manufacturing personnel held numerous joint meetings, and consultants specializing in teamwork were hired to assess the problems and find ways to improve communication and cooperation. One engineer involved in the project summarized it this way: “There were lots of meetings, lots of talk, and lots of memos, but no one got anything done.” After almost three years, very little progress had been made, as Ruggiero recalled: “Godzilla really exposed this organization’s weaknesses. We had no capabilities in production engineering in either R&D or manufacturing. We had research chemists running the project who really did not understand what went on on the factory floor.”
Frustrated by the lack of progress in reducing manufacturing costs, CEO Walter Patton authorized the investment in a new plant in Batam Island in Indonesia. The plant would focus on manufacturing some of the company’s mature soft lenses that did not require a high degree of technical support. With a combination of extremely low wages and tax concessions, the plant would break even in an estimated two years and provide CIBA Vision the low-cost source of manufacturing needed to stay competitive in certain segments of the soft lens market. Patton, who had once run the company’s manufacturing operations in the United States, explained:
I know many of the top executives on my team were dead against this Batam facility. They kept talking about improving the capabilities of our existing manufacturing plants through automation, new processes, and everything else. But I’ve been hearing them talk and talk for two years, and I haven’t seen a thing. Batam doesn’t solve all our problems, but it at least keeps us cost competitive.
To further reduce its manufacturing cost structure, the company was also contemplating closing its contact lens manufacturing plant in Grosswallstadt, Germany. This plant had been opened in 1986 to provide CIBA Vision a contact lens manufacturing presence in Europe. Capacity was expanded significantly in 1989 in anticipation of growing demand for CIBA Vision’s 7-day disposable lens (NewVue) in Europe. However, the company’s forecasts proved to be optimistic, and the Grosswallstadt facility, in 1992,was operating at only 50% capacity utilization. In addition, due in part to high German wages2, production costs at Grosswallstadt were significantly greater than those at Atlanta (see Exhibit 5). An internal analysis indicated that it would be more efficient to transfer production of high volume disposable lenses from Grosswallstadt to Atlanta, and to transfer its production of mature conventional lenses to Batam Island when that facility would be ready (in about three years).
Even more worrisome, new product introductions, which had helped CIBA Vision’s growth in the past, began to stall. Concerned about the company’s long-term future, Patton asked his senior management team to review the company’s strategy. “We were losing our innovative edge, and we needed to take action soon to regain the initiative,” he recalled.
Two internal reviews of the company’s development operations were particularly revealing. One was an analysis of the company’s process for developing products using a recent attempt to launch a new lens—called “Excelens”—as a case study. Tom Seaver explained:
Excelens was a tragedy. It was one of the first soft lenses in the past 20 years to be based on a new material and it had major advantages over existing lenses. It was extremely comfortable, deposit resistant, and had fantastic optical qualities. Everyone loved it in clinical trials and test marketing, and we were expecting it to become a major seller in the industry. Unfortunately, when we got to the factory with it, our yields were close to 0%. We just couldn’t manufacture it. Eventually, we pulled it off the market.
The analysis of the Excelens case revealed that the company’s approach to product development suffered from a severe lack of integration between R&D and manufacturing. The project was kept within R&D up until the last minute and then transferred into production. As Seaver noted, “It was the classic case of R&D saying, hey, the process worked when we ran it in the laboratory, it’s your job to get it to work in the factory.” During the Excelens project, there was little communication between R&D and manufacturing about the product, the process technology, or its manufacturing requirements. R&D was responsible for developing the process. Sam Adams, a chemist who worked on the project, recalled:
We fully validated the process in the laboratory and even ran some small scale runs in pilot equipment. We went over the process with manufacturing, and we didn’t hand it over until the product supervisor signed off on it. Frankly, I don’t know what happened once it got into production. The yields should have been 40%, but they couldn’t seem to run the process consistently.
The supervisor of the Excelens production area, Rita Smith, remembered:
- Wages paid to hourly workers at the Grosswallstadt facility were approximately 33% higher than those paid to workers in the company’s Atlanta
When I first saw the Excelens process, I was horrified. It was essentially a bunch of beakers and test tubes hooked up on a laboratory bench. It was nowhere even close to being a manufacturing process. At that time, manufacturing was under huge pressure to start production, no matter what. We had received FDA approval, and U.S. marketing had started promoting the lens to doctors. The orders were coming in. I really felt like we had no choice but to accept the process and do our best. My expectation was that R&D would provide technical support. But they were nowhere to be seen after the sign-off. They had another project to work on.
For a year in production, yields on the Excelens process continued to be extremely low and highly variable. While the occasional batch might hit yields as high as 75%, there were numerous batch failures, and yields hovered around 5%. Actual Excelens production costs came in around $15 per lens against a budgeted standard cost of $5 per lens. It was decided to halt production and send the process back to R&D for further development and refinement. After another year in R&D the process was then transferred back into production. Initially, yields on the “new” Excelens process jumped to 65% and there was a burst of optimism that problems had been solved and that production would reach commercially viable levels. This optimism was short-lived. Within months, yields once again became highly variable and failed batches sent yields plummeting and costs skyrocketing. In 1992, with each Excelens sold resulting in negative contribution margins, the company decided to launch a new effort to develop the process.
The other analysis focused on the company’s total portfolio of R&D projects. Using a tool known as “aggregate project planning,” a list of current R&D projects was generated and arrayed on a matrix characterizing them by the scope of product and process change (see Exhibit 6). The results of this analysis were presented to senior management at the meeting in Bulach in August 1992. Fisher described the reaction:
It was a real eye-opener. First of all, we were working on far too many projects. There was something like 20 projects on the “official” list alone and enough technical resources to do maybe eight. Everyone was stretched so thin they spent all their time jumping from project to project. Nothing ever got done. Even worse, no one seemed to be accountable for any given project, so things fell between the cracks. The second striking thing was the distribution of projects. Virtually all of our resources were going into incremental refinements of existing products and “me-too” versions of competitive products. We had no major long-term initiatives.
Advanced Development Initiatives
Two major areas for longer term product opportunities had been discussed over the past several years within the company. One of these was the concept of a true “extended wear” contact lens; the other was a daily disposable lens. Faced with the data on the company’s development portfolio and competition position, CIBA Vision’s senior management once again launched a discussion about whether and how the company might pursue these.
The Extended Wear Project
Virtually all contact lenses on the market could only be worn for one day at a time. Before going to bed, the wearer had to remove the lenses, clean them, and put them into a sterilizing solution for the night. Over the years the industry had explored various attempts to develop a lens that could be
continually worn safely for several days or even several weeks. But these attempts had generally encountered problems. In the mid-1980s, Bausch & Lomb introduced the first extended wear lens but later pulled it off the market after an unacceptable proportion of wearers began to experience eye health problems. Even Vistakon’s ACUVUE lens was originally introduced and approved as an extended wear lens. However, reports of complications from continuous wear led many eye doctors to recommend that the lenses be removed on a daily basis. Many users simply found the lenses uncomfortable to sleep in. Although many continued to be able to wear ACUVUE and even CIBA Vision’s NewVue lenses for several days at a time without complication, there was a general consensus among many in the industry that a long-term extended wear lens (e.g., up to 30 days of continuous wear) that was safe and effective for the vast majority of users was a goal still to be achieved.
The advantage of an extended wear lens was convenience: the user would not have to remove or clean the lens for several weeks. As one marketing executive for CIBA Vision described it, “It would be like having normal vision. You wake up in the morning and you can see your alarm clock without groping for your eye glasses.” Although the concept of extended wear was attractive, it posed significant technical hurdles. To date, the major constraint on extended wear was the oxygen permeability of the lens. When any contact lens sat on the cornea, it partially blocked oxygen flow to the eye. In excess, this blockage could be unhealthy to the eye. When lenses were removed each night oxygen permeability was not a critical issue because the eye received sufficient oxygen during that period. If an extended wear lens was contiuously worn, perhaps for several weeks at a time, however, high oxygen permeability became absolutely critical. The metric for oxygen permeability is barres/cm (Dk). Scientists at CIBA Vision believed that for a lens to be safe for continuous wear for 30 days, the oxygen permeability had to be 90 Dk. In comparison, ACUVUE and NewVues had oxygen permeability of 25Dk to 40Dk. Dr. Nick Leonard, who had been exploring the concept of extended wear lenses for a few years, noted, “The critical bottleneck is materials. Currently available contact lens materials just don’t have the oxygen permeability. For a true extended wear lens, we need to develop a completely new material.”
Past efforts at developing an extended wear lens within CIBA Vision had been frustrated by a lack of resources. “We had some small exploratory efforts,” Leonard said, “but we lacked the resources or a champion to drive it through.” At the meeting in Bulach senior management at CIBA Vision universally agreed that the development of a true extended wear lens, although technically very uncertain and still several years away, could offer a major strategic advantage. A decision was made to fund an advanced development project (code named SEE3) to explore and develop materials for an extended wear lenses. Unlike past development projects, which lacked strong project leadership and had unclear resource commitments, SEE3 received its own budget and a dedicated team of research scientists. The initial project budget—for the exploratory research phase (expected to last 2 years)— was set for $5 million, but would escalate dramatically if the project were to yield a viable lens and move into clinical trials. The project would be based in Atlanta, but would also involve collaboration with CIBA Geigy central research in Basel, Switzerland and CRCER, one of the world’s leading contact lens research units located in Australia. The project was put under the direct control of Nick Leonard, who was responsible for all aspects of the project execution and for meeting the specified project goals. This was the first time in CIBA Vision’s history that the authority and responsibility over the entire project was placed in the hands of one individual. As one executive put it, “SEE3 is Nick’s show, win or lose.”
The Daily Disposable Project Proposal
The second major initiative under discussion was far more controversial. For the past two years within CIBA Vision, and within other contact lens companies as well, there had been a great deal of debate about the promise of a “daily disposable” lens. However, given the plethora of other projects under development within CIBA Vision, and little push from the company’s marketing units in various countries, no serious efforts had been launched. There were market, financial, and technical reservations about developing a daily disposable lens. Max Heidenheim, who was head of marketing for Germany, noted:
Disposability is associated in most people’s mind with poor quality. I for one just don’t see the appeal. Most people are content with their current lenses and looking after them takes little longer than brushing your teeth.
From a financial perspective, the daily disposable project would require a massive commitment of R&D resources. It was estimated that the R&D costs of developing a daily disposable lens over a five-year period would be approximately $50 million—on an annual basis about 20% of the R&D budget. Another $60 million in capital expenditures might be required for plant and equipment associated with daily disposable production. Moreover, if the extended wear project proceeded as anticipated, it was expected to consume another 20% to 25% of the company’s R&D budget within the next two years. Dorian McAllister, vice president of finance, commented, “If we do both of these projects, half of our R&D budget will be consumed by two projects. That’s a hell of a risk.”
There was also an issue of cannibalization. A daily disposable lens threatened CIBA Vision’s own franchise in lens care solutions, which accounted for 50% of the company’s revenues, and an even larger share of its profits. Several marketing managers from the United States expressed serious reservations about the daily disposable project and its implications for the company’s high profitable lens care business. As Jack Thompson, who headed U.S. marketing for lens care products, argued, “No matter how you do the numbers, there is no way profits from daily disposable lenses would make up for what we lose in lens care. We’re shooting ourselves in the foot.”
Another issue was technical but also bore on market potential. To make a daily disposable lens economically attractive to the customer, it was believed that the total annual costs to the user could not exceed $350, i.e., what existing 7-day lenses cost. Thus the lenses would have to cost the wearer about $1 a day ($.50/lens). Given the margins in the retail distribution, this translated into a wholesale price to the practitioner (who sold the lenses) of $.35/lens. To make the lens acceptably profitable for CIBA Vision meant a variable manufacturing cost of no more than $.20 apiece. Currently, the company’s DSM process technology was producing 7-day lenses at 85 cents per lens. J&J’s manufacturing costs for its 7-day lens process were estimated to be 35 cents per lens, and falling. Thus, CIBA Vision would need to achieve a huge cost breakthrough to have a viable daily disposable product. Although various technical concepts had been discussed over the last several years, there were no proven alternatives to the DSM process capable of consistently producing a contact lens below the 20-cent level. Opinion within CIBA Vision was split about the right strategy for achieving this goal. Some believed that the fastest route to the sub-20-cent lens was continuous improvement of DSM, while others advocated researching and developing an entirely new process technology.
Alan Fisher was among those who believed that the best path for CIBA Vision was to develop an entirely new “breakthrough” process technology. He also believed that by introducing a daily disposable lens before J&J, CIBA Vision could regain its momentum in the marketplace. “There are huge first mover advantages in this market,” he stated. “Once a patient is fitted with a particular brand of lens, the doctor won’t switch them unless there is a problem.” There were rumors that J&J had already begun developing a daily disposable lens (using a version of its existing process
technology) and might even begin test marketing within the next two years. Fisher also advocated a completely different approach to this project from both a technical and organizational point of view to achieve the requisite cost and time-to-market breakthroughs:
We need to start with a blank slate and explore a wide range of technical options, rather than just figuring out how to improve DSM. We need a completely different cost structure than the one we have now and given J&J’s lead, we just aren’t going to get there with our DSM technology. Also, the window of opportunity is only a few years, so we need to do product and process development simultaneously, something we’ve never been good at before.
Fisher proposed creating an autonomous project team under the direction of a project leader with full control over the entire project and reporting to the Operating Management Committee,* rather than to R&D. Fisher and others on the senior management team envisioned a small group of perhaps 20 to 30 chemists, materials scientists, lens designers, and process engineers responsible for all phases of both product and process development, and free to pursue whatever technical options it believed were most attractive (within specified budget constraints). The project leader’s and the team’s incentive package would be directly tied to how well they met specified commercial goals. To leverage technical resources, Fisher also wanted the team to use external technical resources wherever possible. Preliminary discussions with CIBA Vision’s parent company, CIBA Geigy, had indicated that the corporate research laboratories in Basel would be eager to participate in such a project.
The proposal’s most controversial part called for locating the team in Germany. “I don’t believe we have access to the people or suppliers we need in the United States,” Fisher argued. “When it comes to automation and optical engineering, the Germans are second to none. Also, keeping the project away from Atlanta will ensure that the team is not influenced by how we currently do things.” Although CIBA Vision had a small R&D group in Germany, Fisher emphasized that the daily disposable project team would also be physically and organizationally separate: “Although I would like some of the best people from our existing R&D group to join the project, I really want this to be a separate entity. It would be like a start-up company. Clear objectives and no compromises.”
A number of other members of the senior executive team had serious concerns about this proposal, and some had a completely different approach in mind. Mike Zabrinski, president of the company’s U.S. operations, objected vehemently to the autonomous project team proposal:
Alan, I’m with you all the way on doing daily disposable. But it would be absolutely ridiculous to do it your way! The United States is by far our single largest market, and is almost certainly going to be the largest market for a daily disposable lens. You can’t put the future of this company in the hands of a small group of German engineers who don’t know anything about the U.S. market!
The head of manufacturing operations in the United States, Mark Philips, the plant manager in Atlanta, also voiced serious concerns:
I have to agree with Mike, but for a completely different set of reasons. We know from past experience how hard technology transfer is from R&D into manufacturing. So if we decide to do the R&D in Germany, then it means we’re going to have to do the manufacturing there as well. And that’s what scares me. If low manufacturing costs are what we’re after with this
- The Operator Management Committee comprised the seven most senior executives with CIBA Vision. It was chaired by Walter Patton and included the three “Area Companies” CEO, the head of the Ophthalmics Division, the head of central marketing, and the vice president of
project, why on earth would we go to Germany. We know by comparing the manufacturing costs of Atlanta and Grosswallstadt that Germany is twice as expensive.
The head of U.S. R&D, Ralph Flaherty, was also adamantly against the idea of doing the daily disposable project in Germany and attempting to develop a completely new process technology.
DSM is fully capable of giving us low costs with further development. After all, that’s what J&J is using, and they’re producing in the United States. I have 150 technical people who can start on this project tomorrow if you give me the go ahead. Now is not the time to go off and chase some holy grail, It could take 10 years to find a breakthrough to give us 20-cent contact lens. In the meantime, J&J will have the market all to itself. It’s a pipe dream!
Flaherty also argued that the R&D organization in Atlanta was fully capable of undertaking the project with the required degree of speed and integration. He continued:
I know we’ve had our problems in the past, but we’ve learned and we’ve changed. We now have a project management system to track projects and we’re going to full time project managers within R&D who can coordinate the projects. We’re also in the process of setting up a project prioritization system to keep our resources focused. With the extended wear project already being done outside of R&D, the daily disposable project is the only big one left for us to do. R&D needs this project if it’s ever going to regain its momentum. If you do it in Germany, you’re consigning us to the left-overs. Our U.S. R&D capability will just wither away.
Fisher countered this argument: “I don’t see it that way at all. If we do this project right, it becomes a role model for how to do future projects. I think that will save your group, not destroy it.”
Another concern—even among those who advocated the project and the need to set up a focused project team—was how to integrate the project and people back into the rest of the organization at some future point. Given the scope of the project, and the potential size of the market around the world, CIBA Vision’s existing clinical development, operations, marketing, and distribution infrastructure would eventually be required to successfully commercialize the product. For instance, to gain FDA approval of a new lens, CIBA Vision would need to conduct extensive clinical trials in the United States, an activity that would almost certainly require the services of CIBA Vision’s existing clinical development unit in the United States. Distribution, marketing, and even manufacturing were other areas where it might be infeasible, in the long-term, for the autonomous project team to maintain its autonomy. Joseph Ruggiero argued, “If we’re not careful, the autonomy and isolation that may benefit us during the R&D phase of the project may come back to haunt us when we need to leverage our existing organization.”
As the debate wore on late into August 2, there was a clear sense that the company was at a critical juncture in its history. Taking on the daily disposable project presented high risks. Technically it might fail or the market for such a lens simply might not pan out. Johnson & Johnson might beat them to market. Organizing the project as an autonomous team also presented risks. Although senior management had read case studies of companies successfully using this approach, they all knew that there was a huge gap between theory and practice. “We’re going to have to learn how to manage an autonomous project team in real time,” noted one executive. Walter Patton knew CIBA Vision needed to become more innovative. The question now was whether the daily disposable project and the autonomous project team approach would lay the foundations for the future or send the company permanently into disarray.
Exhibit 1 CIBA Vision’s List of Acquisitions
|Year||Company Acquired (Segment)||Geographic Locus|
|1983||Titumus Eurocon (CL/LCP)||Europe|
|1985||American Optical (LCP/CL)||USA, Asia|
CL: contact lenses LCP: lens care products
Optha: ophthalmic pharmaceuticals
Exhibit 2 CIBA Vision Organizational Chart, 1991
This document is authorized for use only in Edyta Kostanek’s MSIN0068 at University College London from Nov 2020 to May 2021.
696-100 CIBA Vision: The Daily Disposable Lens Project (A)
Exhibit 3 Market Survey on the Reasons for Not Wearing Contact Lenses
|Base: Never Wore Contacts||(236)||(72)||(95)|
|Cleaning and disinfecting is a hassle||7.2||7.4||7.6|
|Contacts require too much effort to use||7.0||7.3||7.5|
|Can’t just put on or take off, so feel trapped||6.9||7.0||7.2|
|Can’t get comfortable with process of insertion||6.8||6.8||7.3|
|Always feel there’s something touching my eyes||6.8||6.6||7.7|
|Would feel like I had an eyelash in my eye||6.8||6.7||7.2|
|Eye doctor never suggested contacts||6.8||6.8||6.9|
|Cleaning and disinfecting products too expensive||6.7||6.6||6.8|
|More expensive than glasses||6.6||6.8||6.8|
|Would be aware of lenses while wearing||6.6||6.2||7.1|
|Helpless feeling if lose contacts||6.3||6.0||6.9|
|Contact lenses might damage eyes||5.9||5.8||6.6|
|Eyes dry out with contacts||5.8||5.7||6.4|
|Like the way I look in glasses||5.8||5.7||5.9|
|Don’t feel comfortable without glasses||5.3||5.1||5.5|
|Doctor told me I couldn’t wear contacts||3.5||3.5||3.9|
Source: 1991 Consumer Segmentation Study, U.S.
This document is authorized for use only in Edyta Kostanek’s MSIN0068 at University College London from Nov 2020 to May 2021.
Exhibit 4 Cost Structures of Contact Lens Manufacturing Technologies
SSM: single sided molding DSM: double sided molding
This document is authorized for use only in Edyta Kostanek’s MSIN0068 at University College London from Nov 2020 to May 2021.
696-100 CIBA Vision: The Daily Disposable Lens Project (A)
Exhibit 5 Production Cost Comparison, Atlanta vs. Grosswallstadt
Estimated Costs (in $ U.S.) of Manufacturing Medium Volume Conventional Soft Contact Lens Using Double-Sided Molding Process
|Direct Labor (Inspectors)||$0.16||$0.73|
|Total Manufacturing Costs||$3.23||$7.32|
Notes : Exchange rate: $1 = 1.5 DM
These cost data have been significantly disguised for purpose of confidentiality.
Exhibit 6 Portfolio of R&D Projects at Bulach Meetings, August 1992
Extent of New Process Technology
Note: Size of / indicates relative resources budget
: contact lens project
: lens care project