Planning that Thousand Year Future - Pharmaceutical Executive


Planning that Thousand Year Future

Pharmaceutical Executive

Nature nurtures business

The practical question arises: what are the natural analogs of extending these proven survival principles into our contemporary pharma organizations? The fact is corporations also employ "gene mixing" and other approaches to seed corporate vitality. Proven tactics include partnerships (R&D and commercial), new business forms and spinouts, M&A, product and technology acquisitions, hiring from outside talent pools, and rotations (scientific or commercial) with other universities or partners. Surely BioPharmaCo has done many or all of these. The more telling issue is whether BioPharmaCo consistently does most or all of these frequently enough to ensure ongoing diversity—not just stress-induced episodic diversity. Is BioPharmaCo progressing fast enough? Is it pollinating and mixing new technologies and "genes" to ensure its survival for the next 1,000 years?

IBM: case study in survival

In the business world, there are some striking examples of companies that teetered on the edge of extinction, only to change, adapt, and evolve to survive. Some have even returned to even greater health and vitality. IBM is perhaps our best current example.

IBM is an innovation and technology-oriented company—very similar in lineage, pedigree, and culture to our BioPharmaCo. However, IBM nearly went extinct in the early 1990s. Like the Roman Empire at its height, IBM became slow, bloated, and full of itself—resting at the time on its extraordinary early innovations in a mainframe and hardware-centric world. The company failed to fully appreciate the threats of its changing world. Lou Gerstner famously led the company's much chronicled turn around between 1993 and 2002. Today, IBM has returned to health and profitability, with great resilience. How did it evolve to avoid extinction? What growth and survival strategies has it "expressed" to help it become a stronger company in a world that remains highly turbulent for technology companies? Current chairman and former CEO Sam Palmisano describes various key strategies:

Investing in new technologies. IBM has consistently acquired, invested in, and invented break-through technologies. Interestingly, companies like IBM, Cisco, GE and others have grown so large that they have determined their internal innovation engines are not adequate to ensure their long-term survival. So they do scores of deals, acquisitions, and partnerships to bring in new technologies. Indeed, IBM has acquired more than 100 companies during the past decade.

This is similar to nature's way of mating to mix up the gene pool. In view of this strategy, one may ask: "Is BioPharmaCo investing rapidly enough and frequently enough in external technologies to continuously reinvigorate its gene pool?" This strategy is different than the ad hoc large M&A or a few alliances. It is a systematic approach to renewing the gene pool.

Acquiring is easy. Successfully integrating the technologies, talent, products, and facilities is a greater challenge. If a company embraces new technology acquisitions as a core strategy, then M&A integration expertise becomes a required competence. Interestingly, this is an area that many biopharma have been observed to be weak, not knowing how to integrate new technologies, units, founders, scientists, and approaches for optimal impact of the products, technology, and culture. How does BioPharmaCo score on this competence for its acquisitions? How can BioPharmaCo enhance its skills here if it is to continue to acquire new companies and high-potential technologies?

Growing through software and services. If you think of IBM still as a computer maker, you'd be wrong. Since its turn around, it has dramatically morphed to high-margin and high-growth recurring-revenue software and services. IBM's current annual report highlights this transformation from an early hardware innovator to a larger but more nimble company generating 81 percent of revenues through recurring software licenses and technology services. Indeed, 44 percent of IBM's $99.8 billion revenue in 2010 flowed from these recurring revenue software sources; 39 percent came from multi-year technology services. "We changed our business mix toward higher-value, more profitable technologies and market opportunities," acknowledged Chairman Palmisano. What lessons are there to be learned here for long-cycle life science companies like BioPharmaCo?

Focusing on global business growth and integration. IBM, GE, and others—just like BioPharmaCo and other companies in the pharmaceutical and medical device industry, but arguably even more so—are focused on global growth and demand. IBM, for instance, has already achieved 21 percent of its revenue sourced from developing countries—and it is targeting 30 percent within three to five years. Right now, in the biopharma sector, developing country revenue is more typically 5 to 15 percent of total revenue.

Adding value through services. One hallmark of resilient companies like IBM and General Electric is their embrace of services. Focused on growth and survival, savvy companies expand their offerings beyond manufactured goods to include services. Because the global services economy is larger and more value adding than many manufacturing economies, service expansion becomes a critical survival skill.

Google is a stunning recent example of a company that re-envisioned opportunity—and then transformed the advertising and media landscape with a disruptive technology and service for Internet search. Likewise, Pfizer—forced through economic crisis to re-imagine itself—has launched an e-payment card system offering electronic payment services for Pfizer medicines. This service links it directly with patients in many of the world's fastest-growing economies such as the BRIC countries.


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