Leaner and Meaner
Aware that the Street is more swayed by metrics than the huah spirit that embodies Valeant's inner circle, the company is doing its part to quantify success. As part of the restructuring
phase in the turnaround, Valeant introduced a company-wide Lean Six Sigma initiative.
Six Sigma is a statistics-based, quality-improvement methodology originally designed for manufacturing and made famous by
the cost savings it generated for such early adopters as Motorola and General Electric. The goal of the methodology is to
reduce the number of defects that occur in a given process, eliminating inefficiencies and unwanted costs, thereby improving
quality. Lean Six Sigma is a variation of the methodology that prioritizes process flow and speed.
Despite widespread adoption of Lean and Six Sigma throughout the business world, the pharmaceutical industry has been slow
to respond. Many pharma companies—GlaxoSmithKline, Johnson & Johnson, and 3M, to name a few—have implemented Six Sigma strategies
on a project or departmental basis. But few (only one, if you ask Valeant) have taken a holistic approach.
"In pharma, we see a lot of people play around with Lean and Six Sigma," says Robert Blaha, president of Human Capital Associates,
the Six Sigma consulting firm hired by Valeant to help implement the initiative. "They do some projects. They push the envelope
around the table. But at the end of the day, this stuff really has to be the way you think. It's about changing a lot of the
fundamental ways pharma has run for decades. That takes leadership relentlessly pursuing it."
While Tyson is quite proud of Valeant being what he says is the only pharma company pursuing Six Sigma in all parts of its
business ("Nobody but us is doing it across the whole company"), he believes industry overall would benefit from the approach.
"We are fat, dumb, and happy," he says. "That's the problem with pharma. We've made too much money on margins, and it's been
too easy to increase profits by making double-digit sales and increasing prices two or three times a year. We're not focusing
Valeant says it generated over $10 million in savings for the first full year it adhered to Lean Six Sigma principles. That
figure excludes reductions made in factory staff and discontinued operations. When Tyson first joined the company, it had
12,000 total employees. Today, there are about 3,700. The majority of the cuts came in manufacturing, which at the time of
Tyson's arrival employed 8,000 people in 33 factories throughout the world. Today, Valeant has about 1,800 people working
in eight plants. By the end of 2006, the manufacturing headcount will be even lower, as the company plans to shut down plants
in Montreal and Brazil. The long-term goal is to knock the number of plants down to four, bringing the manufacturing headcount
to 1,300—less than 20 percent of what it was when the turnaround began. (Tyson expects that by the time that happens, overall
headcount will hold steady as the company adds sales reps. It currently has 1,000 reps worldwide, only 25 percent of whom
cover North America.)
The big surprise, though, was how avidly the R&D group took to the idea of Lean Six Sigma.
"R&D groups think they're special," says chief scientist Lamon. "They think Lean Six Sigma doesn't apply. So when Tim started
to gear this up, I thought, 'Uh-oh, here we go. I've got to try and sell this to this group.' But it was amazing. Even on
the discovery side—they're the worst, freethinking discovery scientists—they've really adopted it. We actually had to turn
people away from training." But Lamon says about 80 percent of his staff has been through a shorter operational excellence
program that introduces the basics of Lean.