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Remarks by Ley S. Smith, Executive Vice President and President, PPC U.S. Pharmacia & Upjohn, Inc.
Rotary Club of Kalamazoo Kalamazoo, Michigan
April 21, 1997


Small Steps To The Future

Thank you for the opportunity to speak with you today. In years gone by, this was something of an annual event for the former Upjohn officials. Past leaders have come to Rotary to give a "state of the company" address.

 I understand that some of you came to hear that today, and I promise to oblige. But I want our time together to cover more than just the past. Let's take a moment to carefully consider the future as well. I say "carefully" because, in my view, society usually takes the "ballistic chicken" approach to the future. Let me explain the reference:

The Federal Aviation Administration uses a unique device to test the strength of windshields on aircraft. It's a big gun that fires a dead chicken at about the speed that the plane flies. The F-A-A figures that if a windshield survives the impact, it will survive a real collision with a bird in flight.

A couple of years ago, some British railroad officials decided to use the gun to test the windshield of a new locomotive. They borrowed the launcher, loaded a chicken, aimed it at the locomotive and fired. The chicken proceeded to shatter the windshield and embed itself in the back wall of the cab.

The stunned Brits asked the F-A-A to help them find out what went wrong. After a thorough review, the F-A-A had just one recommendation: "Use a thawed chicken." [humor; pause]

Obviously, the British went into the test without a lot of forethought. They were so enamored with the chicken gun that they lost sight of what they were really trying to do. It got in the way of their vision.
Vision is what I want to talk about today -- a vision of what we want to be as a community ... a vision of where we want to go ... and most importantly, a vision that includes everyone.

There's a tendency to cringe when the word "vision" comes up. People think of vision as something far too big and too complex to consider over lunch. But I disagree with that assessment. A true vision is, in fact, realistic and attainable.

Four years ago, a toymaker named Ty Warner had a simple vision -- that of selling little cloth animals stuffed with plastic pellets. Those of you with kids or grandkids probably know all about his vision. His so-called "Beanie Babies" are the latest consumer craze, with sales growing tenfold in each of the last two years.

While a vision need not be enormous, it's certainly imperative for future success. Life is not an episode of "Route 66," in which you wander aimlessly like Buzz and Todd, doing a few good deeds but never committing yourself to anything lasting and true. You need a destination. You need to know where you are going and how you will get there.

Will there be surprises along the way? Yes. Will the conditions of the road change as you travel along? Almost certainly. But when you have your destination clearly in mind, change becomes just another part of the road.

After almost 40 years in the pharmaceutical business, I've learned a thing or two about change. The most significant change I've seen has involved my own employer, particularly during the last year-and-a-half. Let me take a moment or two to bring you up to date on what change has wrought at Pharmacia & Upjohn, and how that affects our corporate vision.

Since the merger of Pharmacia and The Upjohn Company in November of 1995, we've steadily laid a foundation for accelerated growth in future years. In 1996, our worldwide sales were better than 7 billion dollars, and our earnings grew 6-point-1 percent. Our sales growth was led by two new products: Camptosar for colorectal cancer, and Xalatan for glaucoma. Several of our businesses posted gains, including oncology, critical care, women's health, consumer products, animal health, and chemical and contract manufacturing.

Just two weeks ago, we received approval on an important new drug -- Rescriptor to treat H-I-V. We're awaiting final approval for Mirapex, for the treatment of Parkinson's disease. We also recently filed a New Drug Application for Detrusitol to treat urinary incontinence. Our pipeline is filled with products that take aim at cancer, asthma, schizophrenia and bacterial infections. So we are already building on the foundation we've established over the last 18 months.

Locally, as you are well aware, you are well aware, we maintain a significant presence. In fact, our economic impact on Kalamazoo County was nearly

1-point-4 billion dollars last year -- the most ever. That includes over 23 million dollars in property taxes, and 3-point-7 million dollars in charitable contributions. In addition, we employed more than 6,200 people.

Kalamazoo County hosts 4 of our company's 7 Pharma Businesses, with global responsibility for research, development, supply and market strategy in these therapeutic areas: central nervous system diseases, women's health, infectious diseases and inflammation. Also here are the headquarters for Market Region North America and Market Company U-S, both led by Jack Jackson [ask JJJ to stand] ... Market Region Asia-Pacific/Latin America, led by Fernando Leal [ask FAL to stand] ... our Associated Businesses, including worldwide headquarters for Animal Health and Pharmaceutical Commercial Services, and those are all under Don Parfet [ask DRP to stand] ... and our U-S centers for Diagnostics and for Consumer Healthcare, which is led by Mike Valentino [ask MJV to stand].

Further, we've established our North American packaging center of excellence in Portage. We have invested more than 70 million dollars to expand our sterile products capability, with the potential to do even more in the future. In downtown Kalamazoo, we conduct significant discovery research -- not only in the therapeutic areas for which we are responsible, but also for other areas of the company.

As a company, we are concentrating now on our vision to make Pharmacia & Upjohn a single ... integrated ... global business. We want to be a leader in the industry. Most importantly, we want to generate breakthrough drugs that meet the needs of patients all over the world.

Where we go from here as a company hangs on many things. Ultimately, success requires vision. It requires us to be in control of our own destiny. And to do that, we must carefully and fully envision what that destiny will be.

The same must be true for the Kalamazoo community. We must share a common vision. By "we," I mean municipalities ... business leaders ... educators ... service groups ... and everyday citizens. In short, everyone. The Book of Proverbs says, "Where there is no vision, the people perish." That bit of wisdom refers to people in the broadest sense. Vision impacts everyone.

So we must all interact together. We must pursue a common destiny that benefits all people in the community. There is far too much at stake for any player to pursue his or her own parochial vision -- or worse, to have no vision at all.

I'm not here to be the voice of doom -- merely the voice of reason. And maybe, if you will indulge me, a fortune-teller as well.

[ SLIDE #1: Scenarios ]

For the next few minutes, let's speculate on two possible futures for Kalamazoo County -- one in which we maintain the status quo, where the county's many units and groups interact in limited ways but largely pursue their own agendas; and one in which we find new, innovative, and realistic ways to work together toward common goals.

Now, let me address the thought that's running through a lot of minds right now. This will not be an exercise in which I paint one future as dark and depressing, the other as bright and without fault -- leaving us with an easy choice to make. That's dishonest at best. Life is rarely so clean and neat. In fact, for some of you, this exercise may leave the choice all the harder to make -- not because of where it may take us, but because of what we must do, or not do, to get there.

However, I do believe there is a right choice to be made, and I hope our glimpse ahead will help you to make it.

Before we begin, I want to thank the W-E Upjohn Institute for Employment Research for its help in generating the scenarios we will see today.

[ SLIDE #2: Status quo description ]

The first scenario takes current trends and conditions in the county and tracks them from 1995 to their likely outcome in 2015. By "current trends and conditions," I mean the current level of growth -- or decline -- in business and industry ... the continued level of investment in development by individual communities ... the continued level of population growth in the county ... and the continued existence of separate municipalities and their respective services.

As an aside, it's interesting to note that Kalamazoo County has 15 townships, 4 cities and 5 villages -- many of which have their own police, fire, school, taxation, assessing and, in three instances, their own road departments.

[ SLIDE #3: Status quo forecast table ]

Given the status quo, here is what the evolution of Kalamazoo County might look like over the next two decades. If I had to use a word to describe it, I would say "bleak."

In this scenario, we find ourselves well behind the national average in terms of economic and population growth:

You can see a pretty steep drop-off in manufacturing jobs, at a rate of almost 1 percent a year. The bulk of this decline would come from paper, automotive and pharmaceutical industries in the county.

In non-manufacturing jobs, there is a slight decrease in the retail sector, easily offset by substantial growth in services. But couple that with the drop in manufacturing and almost no growth in government employment, and we're looking at total employment growth of just 10-1/2 percent by 2015 -- an average of 0-point-5 percent per year. The nation, on the other hand, will grow at 1.1 percent annually.

You can guess the ramifications of this possible future: Minor growth in the tax base. Limited job opportunities. Greater challenges to maintaining necessary services, improving the quality of life and enticing new business investments to the area.

Further, where there isn't strong job growth, there isn't much increase in population. That raises major concerns for a number of units in the community. How will the local hospitals build their customer base, for example? True, the population will age, get sick more often and offset some of that effect. But that's a double-edged sword, because those aging people will die eventually, further impacting that base.

A greater negative effect would certainly be felt by local businesses. They need a growing population in order to gain more customers and grow financially. This scenario does not leave much room for that growth. Now, some people embrace the concept of no growth, thinking it preserves a standard of community life that they find acceptable. I think this scenario makes it pretty clear that no growth won't preserve a thing.

Before we wallow too much in gloom and doom, let me add a disclaimer. This scenario, like the one that follows, is a "best guess." Any number of things could happen to change the mix for the better -- all without any of us lifting a finger to change the outcome. But that's not a bet I'd take. It's better to be in control of your own destiny rather than to bank on luck.

[ SLIDE #4: Alternative future description ]

Hence the scenario I'll call the "alternative future." It makes a few assumptions about things that we can andshould do to mold that destiny in the image we choose.

Again, these are reasonable things -- things that are doable. It isn't very constructive for me to preach sweeping change that's beyond everyone's ability to grasp. A child working backstage at a school play can't suddenly become a Broadway star overnight. But that child can learn a simple line, or do a walk-on in the next school play. That's the rationale we followed in creating the alternative future.

In general, we made these assumptions:

The trends that feed the status quo scenario will unfold as I've just described.

In addition, there will be a degree of intercommunity cooperation in a few specific areas, mostly related to economic development. I will talk about these specifics shortly.

[ SLIDE #5: Alternative future forecast table ]

Here is the future that this cooperation might create. You will see right away that it isn't a radically different future from the one we just considered. But it is different.

With just a little shared vision, we could almost eliminate the drop in manufacturing jobs -- 0-point-3 percent, as opposed to 16 percent, by 2015.

With just a little shared vision, we could reverse the decline in retail jobs and further increase those in the service sector.

With just a little shared vision, we could double the rate of population growth that we saw in the first scenario.

With just a little shared vision.

[ SLIDE #6: Specifics of the shared vision ]

I see three specific aspects to that shared vision.

First, cooperative efforts that help lower production costs for local industries. Those efforts would include better truck access to industries on the north side of Kalamazoo and Kalamazoo County ... better public transit services for inner-city residents so that they can get to and from work ... and better vocational and technical training to further improve the skills of the local workforce.

In fact, I would challenge our local business and education leaders to join forces and do more to meet that particular need. There are some good efforts already in place, but I also believe there is opportunity for even greater collaboration on vocational training.

The alternative-future model predicts that these types of improvements would lower production costs by 1 percent compared to the rest of the nation. That doesn't sound like much, but it has the greatest effect on the differences between the two scenarios in terms of new jobs and population growth.

The second aspect of our shared vision is even more specific. It builds on some ideas and initiatives that are already out there.

For example, we envisioned a partnership between Comstock Township, the cities of Kalamazoo and Portage, and Kalamazoo County to redevelop the General Motors plant if it closes. In less than 10 years, such an effort could create about 1,400 jobs, half of which are new.

Another partnership is a proposed utilities extension and development involving seven companies, along with Charleston Township, the cities of Galesburg and Kalamazoo, and Kalamazoo County. If pursued, by 2010 this project could generate 1,800 jobs in instrument manufacturing, machinery and industrial equipment -- again, half of them new jobs. And that's just for starters.

Yet another example is brownfield redevelopment, which is already being looked at. With open industrial space becoming scarce, there is a growing realization of the need to rework and reuse existing, vacated sites. That, of course, requires broad investment -- something that few municipalities have the ability to do within their own limited resources. But the possibilities are great if we do it right, and if we do it together. The alternative-future model suggests that a successful brownfield redevelopment program could generate 440 new jobs and preserve another 1,760.

The third aspect of the shared vision is the effect on employment if we work together to improve our local quality of life. This would truly be a broad-based initiative, involving nearly every facet of the community -- civic leaders, public leaders, educators, businesses, service groups and citizens. The goal would be to make this county such a great place to live that new residents would be willing to accept wages of up to 1 percent less than they are likely to get somewhere else. In other words, they could earn more money taking a job in another city, but our higher quality of life would make it worthwhile for them to choose Kalamazoo County.

[ SLIDE #7: Net impact of alternative future ]

This table shows the net effect on employment and population in Kalamazoo County if we were to realize the alternative future. Let me remind you that these jobs are over and above the ones we might see if we did nothing -- that is, if we let current trends create the status quo scenario.

As I said earlier, the two scenarios we've considered today aren't vastly different. The alternative future is brighter, but basically it leaves us slightly behind the national averages in job and population growth. But remember, it's based on a small number of realistic changes. The more we are willing to change ... the more we pool our ideas and resources ... the better destiny we can build. This is a start. It gets us off dead center.

I would use downtown revitalization as another example of where we can begin. Parts of the downtown plan have been heavily debated. I'm thinking of mall access in particular. A lot of people are opposed to opening up the mall -- which is interesting, given that when the proposal to close off the mall arose 40 years ago, there was the same kind of resistance. That indicates to me that the real issue is not whether we should open the mall to traffic. It's whether we're ready to embrace change to benefit the community.

As I said earlier, some people are proud to stand up and say they're opposed to change. Fair enough. But just because you refuse to change doesn't mean that you won't. Author G-K Chesterton once said, "If you leave a thing alone, you leave it to a torrent of change." As you saw in the status quo scenario, we can reject change ... but it will come all the same. And it won't be change for the better.

[ SLIDE #8: Education ]

There is one more area I'll cover today in which cooperation and shared resources could make a great difference in the years ahead: Education.

H-G Wells said that human history is becoming, more and more, a race between education and catastrophe. If that's true, the logical question is, how goes the race?

Apparently, not too well in this country. Late last year, an international study found that U-S students fared poorly against those in 40 other nations. They ranked 17th in science and 28th in math -- well behind nations such as Singapore, Slovakia and Hungary. Interestingly, U-S students get more homework than their counterparts, but the Department of Education says academics today lack focus and depth. The emphasis is on quantity rather than quality.

It's not all depressing for education today, and there is some debate as to the value of test scores as a measure of academic quality. But experts generally agree that, if current trends continue, we will produce a generation of graduates who are incapable of competing on an international scale. Many won't even have the skills to get a decent job in an increasingly high-tech marketplace.

This shouldn't be a startling revelation to any of you. We are all aware of the challenges in education today. Some of you are actively involved in efforts to make things better.

Given those challenges ... given the push to make things better ... can anyone explain to me why we dilute those efforts by maintaining 9 separate school districts in Kalamazoo County? Each has its own curricula, its own infrastructure, its own revenue base, its own transportation system. Worse yet, there's an academic competitiveness that further isolates each district. "Kalamazoo is better than Parchment." "Portage is better than Kalamazoo." "Gull Lake is better still." I fail to see the value in that attitude.

I don't necessarily blame the schools for this. There are many social and economic factors involved, and competition is part of our human nature. But I prefer to see competition on the playing field, or wherever it lifts the quality of academics for everyone. I don't see bragging rights over MEAP [meep] scores as very healthy to the quality of education.

Please understand that I am not picking on our local schools. In fact, I would hold them up as leaders in community cooperation. An excellent example is "Framework For The Future." It's a vision for countywide collaboration developed jointly by all the school districts in the K-V-I-S-D area. The guiding principle is that local schools, working together, improve options for all students.

I like the goals of the Framework: Access to a full range of educational opportunities ... common standards and expectations ... technology-sharing ... teaching collaborations ... and consolidation of support services. The school boards met in joint session last month to endorse the Framework, set priorities and identify action plans for the next school year.

I believe they will succeed. They have the track record to prove it. Existing interdistrict programs such as the Math and Science Center, Education For The Arts, and Education For Employment have enjoyed great success. In fact, 52 percent of county high-school juniors and seniors participate in Education For Employment. Congressman Fred Upton is meeting with some of those students tomorrow to find out why E-F-E works so well so that he can share it with others as a model of success. Partnerships with higher education and the business community are giving students important, real-world experience.

These are the kinds of successes we must build upon. The potential is there to do so much more -- revenue sharing ... consolidated transportation ... crossfunctional innovations in teaching. Creative ideas will bring about a better future for local education --if individual districts can resist the temptation to build moats around their schools.

The needs of all area students -- not just those in "your" district or "my" district -- must be met in any way possible. More than 70 percent of manufacturers in Kalamazoo County say at least some of their employees need training in basic reading, writing, math and leadership. Nearly 14,000 residents over the age 25 have poor literacy skills. These aren't problems that affect one or two school districts. These are community problems with a community impact.

And there are many other problems as well. Poverty. Health care. Violent crime. If I had a lot more, I would work through these issues with you.

But in the end, perhaps the greatest threat we face as a community is the inability to change. Maybe some people are too afraid of change. The word itself carries a connotation of upheaval ... of something alien and insurmountable. And yet we've seen today how just a few smallchanges in attitude and effort can make things better. Imagine what the future might look like if we take those tiny steps ... and when we're done, take a few more ... and then just a few on top of that.

Not for a moment do I believe this interaction will be easy. Ease isn't the point; necessity is. We must recognize that there will be conflict -- and conflict isn't necessarily a bad thing. Good can arise from conflict if the conflict is constructive, if it can be channeled toward accomplishing mutual goals. There is conflict in our community today; unfortunately, most of it doesn't strike me as constructive.

We talk about cooperation. We talk about interaction. We talk about a common vision. We've even seen people getting together in recent weeks, and in this very building, trying to create one. But in the end, no one seems to grasp what a vision is all about -- how it takes clear, decisive steps to make it real. People want the brightest future, but they don't want to give up anything to get it. They don't want to change their modus operandi.

Clearly, though, change must come. As a concerned member of the community, Pharmacia & Upjohn wants to help make that happen. We are prepared to facilitate any broad, decisive, constructive effort to bring the many players of this community together.

I'm not talking about a vacation day at Brook Lodge, where a bunch of people sit down and talk and talk and talk some more, and then do lunch. I mean developing and committing to a serious, clearly defined approach to what everyone will do as a community, in all areas, to bring about change. I'm prepared to hear your ideas on how to make this happen.

I believe the potential in this community is great. I can even see a day when we might cooperate with other communities to attract business and enhance the quality of life regionally. That's a thought for the long-term -- first, we have to get our act together in Kalamazoo County. But we also need to keep dreaming while we're doing.

There is too much talent here ... too many good ideas ... too many hard workers for us to continue on the path of the status quo. It's time to unlock the creativity of this community and create a future that benefits everyone.

Thank you for your time and for your personal investment in that future.
rtc (4/21/97)