NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, November 5, 2015

Ask chief executives why their companies are performing so well, and they’ll typically credit a brilliant strategy coupled with hard-nosed, diligent execution. But when you ask Lars Sørensen of Novo Nordisk what forces propelled him to the top of HBR’s 2015 ranking of the best-performing CEOs in the world, he cites something very different: luck. Based in Copenhagen, Novo Nordisk was founded in the 1920s to make insulin, then a newly discovered drug. In the years since, demand for diabetes treatments has exploded; today close to 400 million people suffer from the disease. The company now controls nearly half of the market for insulin products—which are second only to oncology drugs as the fastest-growing category of pharmaceuticals. The firm also has branched into growth hormones, hormone replacement therapies, and drugs to treat hemophilia.

In a wide-ranging conversation withHarvard Business Review editor in chief Adi Ignatius and senior editor Daniel McGinn, Sørensen describes his distinctly modest approach to leadership—one that would be atypical in America but not necessarily in Scandinavia. Here are some edited excerpts.

HBR: Is your company too dependent on treating a single disease?

Sørensen: Outsiders sometimes come in and say, “You’re dependent on diabetes for 80% of your revenue—you should diversify.” But I’ve always believed that you should do things that you know something about, that you’re good at. We’ve tried a lot of diversification strategies in the past, but we’ve failed because of the inherent scientific and commercial uncertainty and our own naïveté. So our expansion has been completely organic.

What about diversifying into adjacent areas?

Since I joined the company, 33 years ago, I’ve been part of some of the most stupid mistakes. One of the worst was trying to get into glucose monitoring. Everybody said, “This makes sense. You’re a diabetes company; you should get into glucose monitoring to offer more products to your customer.” But the technology for blood glucose monitoring is different. The regulatory framework is different. The sales and distribution are different. We would not have been successful. I could share many, many similar examples. So over the past 20 years, we’ve been narrowly focused on the thing we’re really good at.

What happens to your business if diabetes is eventually cured?

After I became CEO, in 2000, I predicted we would cure diabetes in 15 years. We’re still 15 years away. But that is the big goal. I tell my employees, “If we wind up curing diabetes, and it destroys a big part of our business, we can be proud, and you can get a job anywhere. We’ll have worked on the greatest social service of any pharmaceutical company, and that would be a phenomenal thing.”

You sell a lifesaving drug at different prices all around the world. How do you manage that?

When I took charge of the company, the pharmaceutical industry was going through a major PR catastrophe in South Africa over how it priced HIV-AIDS drugs. We didn’t sell those drugs, but the problem made me consider: What if the conflict had been over diabetes drugs? How would we have responded? One of our answers was to create an independent nonprofit organization called the World Diabetes Foundation. Its objective is building capacity in countries where diabetes is poorly treated. We take a slice of revenue from each vial of insulin we sell and put it into the foundation. The foundation makes grants in such places as East Asia, some Latin American countries, and Africa. After its creation, criticisms that NGOs had been directing at us completely vanished.