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Pharma's Visit to the Plastic Surgeon


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-11-01-2011
Volume 0
Issue 0

The bigger the company, the thicker the sclerosis, the more they need to suck out the fat

Consider this: In 2011, IMS projects US Rx market growth to be 2.7 percent. The top 10 pharma companies account for 50 percent of the entire market's revenue, but will deliver only 10 percent of the growth. In fact, the growth rate of the top 10 is estimated at 0.9 percent.

And it's even worse than that: Take out the non-organic growth, i.e., the 'growth' padded on purely by gobbling up acquisitions, and growth among the top 10 companies is, in fact, negative.

So Pfizer, Merck, GSK ... the largest companies keep getting fatter. And slower. And more dysfunctional. And people inside these companies know this. But very few are willing to say it out loud.

Bill Drummy

As I've been saying in this Speed of Change series, the consequences of slowness were once (perhaps?) tolerable. But in the ever-morphing technosystem in which we all now swim, lack of speed kills.

I write this just after Abbott's announcement that it has seen the wisdom of rapidly getting smaller. Expect similar disgorgements to follow, as more shareholders of the biggest of the big (and Abbott wasn't really that big, at around $40 billion) realize the returns they're not realizing. Two really big examples: Since 2000, the share price of Pfizer and Merck, two of what I call the 'super-pharmas,' has dropped 60 percent, while the Dow Jones Industrial Average rose 19 percent.

Abbott expressed, in press release non-speak, that it is "strengthening [its] outlook for strong and sustainable growth and shareholder returns." But maybe this is the reason for cutting itself in half: the recognition that innovation has been crushed under the company's own weight; that it has simply failed to find its next Humira.

If you have worked inside or nearby any of the super-pharma companies, you've seen this too: as oft-merged entities are squashed together, decision-making slows, strategic focus blurs, and people get more and more risk-averse.

At a certain super-pharma company that shall remain nameless, we are seeing shockingly silly decisions being made even as the people involved in (or victims of) the decisions know they are wrong. (Without getting too specific, it is in the realm of spending tens of millions on programs that have been proven to be failures.) It is as though the brain is now too far removed from the outer extremities—the signals just don't get through.

All metaphorical playfulness aside, this is serious. If the industry is going to prosper, to reach its full potential in the 'Pharma 3.0' era (as Ernst & Young seems to have christened it), C-suiters need to do two things: liposuction down their companies to their essential, vital cores; and change the reward system to truly—finally!—value innovation inside and beyond the labs.

Let's hook up the blubber-sucking tubes and go.

Preping for Surgery

There are only a few things a pharma company needs to be good at: 1) developing products and services of true, differentiating value for patients, doctors, and payers; and 2) figuring out how to market and service those products and services powerfully, ethically and efficiently.

That's it.

Anything else you do is either a necessary evil or necessarily an actual antagonist to the company's success in the Speed of Change world.

The trick to succeeding in this world is to turn the threat into a weapon. In pharma, that means, among other things, developing extreme dexterity in managing the flood of data about health outcomes that saturates every step of the patient journey.

The power lies in achieving rapid, real-time awareness of customer activity across all customer types, and across all stages in the customer journey—from behavioral insights through purchasing behavior.

The ability to deal with information with great speed and agility (what I call 'knowlagility') is a critical source of competitive advantage in myriad ways: it provides deep customer insights, it enables more efficient delivery of high value across the healthcare delivery continuum, and, critically, it empowers companies to make credible arguments about the true economic impact of their therapies to the healthcare system.

Yet little of this capability—which is extraordinary in its importance now, and even more extraordinary in the rate its importance will increase—has been built into pharma IT as it is currently configured. The layers in a super-pharma organization actually cover the company in folds of bloat, threatening the vital organs.

Let the Sucking Begin

That's why it's essential to cut out any non-essential IT process. Stop obsessing about the trivial—that means please stop talking about social media! Instead implement programs that deliver the ability to see farther and move faster.

The idea is to get smaller, yes. Spin off those divisions that aren't crucial, sure. But more than that, cleave the processes that are more about 'control' than value.

A ridiculous example: We have clients who can't run basic software or access popular websites. Why? Either because IT plays the 'security' card and so access to—and insight about—much of the world gets cut off. Or else Finance cries 'efficiency' and suggests that if only we could get people off Facebook, then we'd be more profitable.

If you are a CEO and hear these things from your managers, you can do more for your profitability by firing them.

In the Speed of Change era, IT has one of the most important jobs in the entire organization. But it's not about control; it's about the discovery and release of value. Sure, you have to do the basics of control: secure your (cloud-based, I hope) networks and endure the Sarbanes-Oxley torture, etc. Just understand that this is a distraction from the real work.

The real work then is in applying knowlagility to unlock potential; by uncovering patterns in the data about your customers, and patterns in the data about potential products and services. In a post-blockbuster world, the winners will be those companies (of whatever size) that are better at identifying the highest-value opportunities and delivering them to customers with greatest possible speed and satisfaction.

What does this mean for the super-pharmas?

According to Clayton Christensen, author of the groundbreaking "The Innovator's Dilemma" and the healthcare-focused "The Innovator's Prescription," "In all probability, they are too large for today's competitive conditions, and much too large for the fragmented product markets they will confront in 10 years."

Smaller companies, or large companies with 'federated' structures (e.g. Johnson & Johnson), stand a better chance of combining the advantages of size and agility. But whatever the size or structure, the organizing principle remains the same: In a Speed of Change world, victory belongs to the swift.

Bill Drummy is the CEO of Heartbeat Ideas. He can be reached at billd@heartbeatideas.com

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