Over the past few years, the concept of “New Commercial Models” (NCMs) has rapidly progressed from novel idea to overused buzzword in the pharmaceutical industry as leading companies strive to adapt their sales and marketing infrastructures to changing market realities. However, the record of accomplishment so far has generally not matched either the grandiose language or the underlying need for change. Although several companies have shed a considerable number of sales representatives, these moves have generally tracked with the lifecycle trends for their product portfolios. True innovation has been limited and even then, much of what companies have conceived in the design phase has not translated into effective implementation.
A number of factors account for the current state of affairs. One is that the industry has not yet reached the tipping point where company leaders are convinced of the need for transformational change and are able to drive it through their organizations with a sense of urgency. Another is that the shape of the next successful commercial model is not yet evident to most people in the industry—making it difficult to move away from the existing standard model. Aligned against that uncertain destination is the risk inherent in disrupting organizations that are responsible for driving revenues—the lifeblood of any company. Finally, pharma commercial organizations are large, complex, and widely dispersed geographically, so it is inherently difficult to implement significant change.
Consider the experience of one major pharmaceutical company, which we’ll call “Bigpharm”. Over the past two years, Bigpharm has designed and implemented a NCM throughout its US sales and marketing organizations. A key objective of Bigpharm’s design was to increase the scope of authority of local sales managers to redeploy their sales reps to different products in their portfolio based on local market conditions. The company had concluded that the rising influence of payers on pharmaceutical sales has led to significant variation in regional market conditions for specific drugs, depending on their formulary status with the leading payers serving the local market. Increased local flexibility was deemed an essential strategy for the company to capture these market opportunities. In the restructuring that accompanied the NCM, sales managers were selected in part based on their strategic business management competencies, and each of them received some initial training on these competencies. The company also assigned regional analysts to give the sales managers help in evaluating local market conditions, identifying growth opportunities as well as competitive challenges, and developing tactics to address them.
Nine months into the implementation, Bigpharm management concluded that the local sales managers were not exercising the new authority they had been given. The analysts remained focused on traditional tasks such as sales forecasts rather than identifying opportunities to gain competitive share in their assigned markets, but the sales managers were content with the support they were receiving. In short, there was a gap between the objectives and the reality of the NCM, and this gap probably cost the company several points of market share across the company’s product portfolio, with each point representing scores of millions of dollars in additional revenue.
Lessons Learned
1. Establish clarity around the specific business problem the new commercial model is intended to address.
Bigpharm’s NCM was not a comprehensive solution to the challenges facing the company in its approach to the market, but it was positioned as one. Given the ongoing stream of negative press and disappointing results related to the industry, it is becoming easier to establish consensus within companies that “something needs to change” – and the idea of a “new commercial model” is the embodiment of that consensus. However, there tends to be a wide divergence of opinion across the organization as to the scope and degree of change that is necessary. As a result, companies need to be very clear about what needs to be changed and how the NCM will do so, or they increase the risk that the initiative will under-deliver, leaving all participants more skeptical as a result.
2. Clarify the implications for roles and responsibilities
Within Bigpharm’s field organization, the local managers were not convinced of the flexibility they had been given and most were reluctant to test it. In the absence of effective interventions, inertia and experience favored the status quo. This tendency was reinforced by the behavior of other parts of the commercial organization that resented some important trade-offs that were inherent in the NCM design. For the company’s national brand managers in particular, the increase in authority among local field management created a complication in the implementation of their national strategies. Not surprisingly, Marketing’s direction to the field emphasized their national plans over local discretion. Bigpharm should have better anticipated the resistance that derived from the new responsibilities that the NCM implied, not only for the local field managers but also for the national positions that interfaced with them. The design team should have surfaced these issues and dealt with them directly—by clarifying the points of overlapping responsibilities and developing approaches to resolve potential conflicts.
3. Set clear expectations for new accountabilities
In the face of such significant barriers to change, the company should have been much more explicit in setting expectations and accountabilities for their sales managers. For example, no expectation was set for local managers to develop territory business plans based on a thoughtful assessment of their local market conditions. Such an expectation would have forced these managers to demand more effective support from their assigned analysts. Furthermore, the give and take involved in management review of these business plans could have reinforced the degree of discretion local managers had in adapting national strategies to their own market conditions.
4. Provide adequate development support
For strategic analysis and decision-making to occur at the local level, Bigpharm needed to embed a new set of competencies in the field. The design team was aware of this need, but they did not recognize the size of the gap and the corrective actions they took were insufficient. Even though these requirements were reflected to some extent in the selection criteria and initial training for the local manager role, they did not provide reinforcement once the managers were operating in their new positions—nor were the specific competency gaps of individual managers identified and addressed through tailored development programs. Furthermore, the analysts who were assigned to support these managers never received training on strategic market analysis at a local level.
5. Provide enabling tools
Local decisions concerning redeployment of reps across brands involved complex assessment of trade-offs that were inherently difficult for the managers. By itself, assigning analyst support was not enough to overcome this difficulty. Bigpharm could have provided the field with standard models and tools for determining the optimal rep deployment based on local market conditions. Such tools would have simplified the task and thereby lowered resistance among field managers while increasing the likelihood they would make good decisions. By providing a consistent methodology for decision-making across the country, the tools would also have facilitated a more productive dialogue between field managers and national brand managers.
It is important to remember that Bigpharm’s first-generation NCM represented incremental—or at best moderate—change to the company’s existing commercial model. The NCM did not address fundamental issues such as the overall cost structure of Bigpharm’s commercial organization or the capabilities of the company’s sales reps to engage in conversations that would truly add value to physicians. Given the incremental nature of the changes, the implementation gaps that the company has nevertheless experienced underline an important reality: NCMs represent a major undertaking for any company with a large, established commercial organization. Successful execution requires effective change management practices along the lines suggested above. It also requires active guidance and sustained direction from senior management—even if one of the principal objectives is to increase local creativity and scope of authority!
Authors: Jack Nightingale, M.P.A. & Michael N. Abrams, M.A., Numerof & Associates, Inc.
Jack Nightingale, M.P.A., is a Consultant and Michael N. Abrams, M.A., is Managing Partner at Numerof & Associates, Inc. (NAI), a strategic management consulting firm located in St. Louis, Missouri.
NAI works with clients to increase revenues, reduce costs, enhance service delivery, and sharpen strategic focus, providing consultation in three broad areas: strategy development and execution, operational excellence, and organizational infrastructure. For more information, contact NAI at 314.997.1587, info@nai-consulting.com, or visit http://nai-consulting.com/.
