How to grow value quickly in pharma
We all know the situation. The industry is facing some very major challenges, and the reality is that we as an industry should stop being all the same.
By on Aug 18, 2009We all know the situation. The industry is facing some very major challenges, and the reality is that we as an industry should stop being all the same.
Copying each other with the obvious strategies that are not working anymore (e.g. follow on brands, new formulations, geographic expansion, mergers and acquisitions, generic businesses, pharmacy benefit management companies, disease management etc) needs to end and examination of our unique competitive advantages and where we can really add value to our stakeholders to sustain long term profitable growth is the way forward.
These obvious strategies work (or worked) in the beginning, but in terms of a long term solution to the issues we are facing, they are not sustainable. We all know we have to do more with less, we have reduced cycle times, and we need to integrate technologies and systems into our businesses to cut costs and save time. In 2006 CEOs at two major US based pharma failed to meet the expectations of their stakeholders and were let go. This has forced a focus on how to demonstrate quick wins to keep a position rather than concentrating on overall company transformation. And indeed, in many pharma, an opportunity for change only lies in getting some quick wins to demonstrate the value of change before really being able to look at overall company transformation.
So where can we go next to create more value quickly?
1. Downsizing the Sales Force
The industry had a virtual arms race with each company ramping up their sales force to increase their Share of Voice. Takeda UK were the first to downsize their sales force, closely followed by Pfizer then many other companies followed e.g. AstraZeneca, GSK etc. This tactic has a dramatic impact on costs immediately and improves the company image with stakeholders who see the massive sales force as a high and unnecessary cost. And, they could be right. By downsizing the sales force a company can then right size the sales force for the environment today.
2. Downsizing DTC Promotion
DTC promotion costs a FORTUNE! Okay- in many countries we dont do it, and that certainly saves budgets in those countries, but consider the US market and the considerable costs to the brands of DTC advertising. We are seeing costs per brand in the hundreds of millions of dollars. Consider Rozerem in the US where the DTC advertising campaigns, although winning numerous awards, were costing more than the brand was selling in revenue. Massive savings can be had without losing sales - especially with the advent of social media and the massive positive impact that can be gained on sales. See http://www.epharmaroi.com/index.asp to understand how to use the plethora of social media in pharma.
3. Company Cultural Check
Cultural issues are part of the fabric of a company and were certainly part of the problem in the execution of the merger between Sandoz and Ciba-Geigy (I know, I was on the integration committee!) as well as between Sanofi and Aventis and even in the alliance of Bristol-Myers Squibb and ImClone. Usually in M&A situations the larger company imposes its culture on the smaller company which can lead to resentments and performance and productivity issues. The types of issues we see are imbalance of power and power struggles, slow decision making, poor teamwork, and a lack of alignment of goals and strategies. By doing a check of your company culture you may be able to identify impediments to productivity that can aid productive growth.
4. Zero-Based Budgeting
I am a firm believer in zero based budgeting. Nothing is taken for granted, and everything is analyzed and reviewed in line with goals and objectives firmly in mind. This is an area I hear a lot of lip service paid to but often when I go into a company I see the classic outdated approaches still used (i.e. historical spend levels, percent-of-sales rationales, or match-the-competitors share of voice and spend). These approaches fail to offer real effectiveness in a changing environment but are not challenged. Even if we go back to the sales force size issue we see most discussions are how many to reduce it by rather than a proper analysis of how many make sense to achieve our goals?. All budgets need to be justified and one should start with zero and figure out what is needed right now to achieve a goal.
5. Measuring Return on Investment
We all know my views the good, the bad, and the ugly on this topic. Nonetheless, ROI is a term that is now used to cover a plethora of measurement approaches, including the classic ROI approaches. Regardless of which approach you use, I am a firm believer in the school that everything must be measured. We need to be spending money on things that achieves our financial goals and prioritize activities based on those that offer the highest return for the bottom line. Activities with no value should be eliminated and investments can be reallocated to where they are proven to create the most return. This will grow the bottom line and minimize the whole gut feeling approach which is clearly failing in todays market environment.
Conclusion
By examining how you can make some changes in these areas, quick wins can be gained. However, this is not the end of the story. We need to really start to examine the overall business organization and structure and how we can efficiently grow and deliver value in order to sustain a profitable long term future. The jury is still out on how this change will come about but one thing is for certain the future success of the industry will depend on the quality of the decisions made by management who will have to be bold and abandon the blockbuster model eventually and implement new approaches to sustain a long term viable competitive advantage.
For any further information on how to implement these ideas, or for additional ideas, please contact the author, Dr. Andree K Bates at Eularis www.eularis.com