9 August, 2010 Chris Nickum, VP and Global Practice Leader, Commercial Effectiveness, IMS Health Management Consulting
For Pharmaceuticals and Biotechnology
Maximizing the efficiency of commercial operations is standard fare for companies operating in a difficult economy and with budget constraints. Yet, because the pharmaceutical world is moving towards heavier commoditization, with 75-80 percent of mature markets expected to be undifferentiated by 2015, creating commercial efficiencies is no longer simply about managing costs - it's about devising a New Commercial Model (NCM) that better leverages available or yet-to- be-discovered approaches to suit new market realities. This requires fundamental change that ranges anywhere from incremental to substantial.
Creating commercial efficiencies isn't just about managing costs—it's about devising a better commercial model.
The good news is that as a very experienced industry addresses these issues, some of the fog is beginning to lift. IMS has been on the forefront in helping the industry define, quantify and address these new challenges. However, based on IMS research conducted with 500 industry executives, over 90 percent of respondents have not implemented any major, groundbreaking changes to their go-to-market approaches.
By 2015, pharmaceutical manufacturers in the mature markets will be pressed to evolve their commercial practices in fundamental ways. Two circumstances will shape both how pharmaceutical manufacturers go to market and what they market.
First, in just five years, the world's leading pharmaceutical markets will be dominated by products that are largely undifferentiated from their competitors. The degree and timing of commoditization will not be uniform across the mature markets, and thus will dictate a country-level approach to model development. Second, robust health economics and outcomes research (HEOR) arguments promoting the cost savings of a new drug are not the only way to measure progress. Varied stakeholders will continue to look to the industry for improvement in the holistic treatment of disease—improvements that extend beyond the benefits of a chemical compound. Relationships formed in cyberspace between the extended healthcare delivery mechanism and patients will allow companies to better match their treatments, programs, and investments to patient needs, driving improved individual outcomes.
Companies can transform their commercial operations by applying one or more of five key building blocks, based on each individual company's current state and needs.
- Landscape Assessments: Understand the Market Landscape of the Future - companies that have not yet fully determined their future direction should develop a common point of view on how the healthcare environment will change over the short- and long-term. Essential to this is recognizing how power will shift among the stakeholders for a given therapeutic class in a given geography. More precisely, what aspects of demand will be driven by the stakeholder versus the healthcare environment, key market events, or other factors. Companies are most successful in performing this analysis when they properly plan and fund the collection of information, maintain corporate or best-in-class frameworks across geographies, and execute in parallel with local market resources. To be accurate, the analysis must have full participation from therapeutic and functional experts and across business functions. In most cases, this means a good deal of pre-work, teamwork, and execution within each local market.
- Strategic Planning: Articulate the Implications for the Business - companies that have already established the commercial context in which they will operate need to assess the timing and importance of various trends and events. At the end of this phase, a company will have a clear idea of how its commercial model is—or is not—prepared to meet the demands of the future. The ideal method of devising a commercial strategy is to hold a series of organized and integrated planning sessions with representatives from all disciplines across the commercial organization. Conducting smaller meetings between representative disciplines and stakeholders can result in a better solution and a stronger roadmap as the group comes back together. The group should follow a pre-defined process that includes reading and reacting to prepared materials and thinking outside the "box" imposed by current roles, capabilities, and other organizational barriers.
- Capability Assessment: Support the New Strategy - any change in a company's commercial strategy also directly affects a wide range of capabilities within the organization. Depending upon the types of changes implemented, companies may need to build or amend their marketing, technical, motivational, knowledge repository, reporting, and analytical capabilities, among others. Rather than tackling drastic, sweeping changes all at once, companies are finding it more manageable and ultimately more successful to make incremental changes to their commercial capabilities. Once the supporting capabilities are in place, they can gradually evolve their traditional approaches to deliver a return on their investment. A well-structured commercial blueprint with logical priorities, coupled with a roadmap to the future and proper key performance indicators (KPIs), is at the core of many of the success examples we have witnessed.
- Organizational Design: Organize to Support the Strategy - for companies that have designed their blueprint and envisioned the required capabilities, the task at hand is to organize the change required to support the implementation of the new strategy. They must consider the structural implications (the organization, roles, and responsibilities) as well as non-structural implications (processes, tools, skills, and knowledge). Companies often underestimate the effort required to drive even step-wise evolutionary change. The real focus - and the fundamental objective - should be in making it work. IMS sees companies make the most progress planning their new organization and supporting processes when they bring together people from geographical management, brand leadership (sometimes with emerging P&L responsibilities), and those in charge of new service strategies. In the end, most strategies will cross all of these stakeholders in different contexts.
- Execution and Performance Management: Make Changes and Track Progress - for many companies, this is where the strategy meets its doom, for as the roadmap is sent down the line to be implemented, it is quickly dismantled due to budget limitations, technological deficits, and other "unnatural" boundaries. The ideal pace of change will depend, in some part, on the company's culture and current state. IMS recommends that companies implement and support a thoughtful, change-management program not only for the macro transformation, but for the smaller components as well; rely on change agents at the regional and local level; follow the overarching plan, but do not be afraid to move slowly when needed - in many cases this is new "turf," and speed can cause derailment; assess progress often, as managing expectations is critical while pilots and other implementation aspects take place; and realize that there is no such thing as "over communicating," as communication is a primary tool for ensuring alignment and inspiring acceptance throughout the organization.
Figure 1: IMS New Commercial Model Framework
To date, most change that IMS has observed has been to augment existing approaches or to make incremental moves, such as to regionalization or a different channel mix. However, today we see a couple of pioneering companies poised to make large scale change, and we believe the industry is on the brink of putting it all together.
Bringing all the pieces together involves taking action on the broader strategic plan. This will include, but is not limited to, changing commercial strategies, redeveloping commercial partnerships, aligning the organization and staff to new objectives and measurement, and then layering this on top of new infrastructure. This of course will take time, and we will see if as an industry we can go further than "toe deep." We believe that since the pharmaceutical industry is now armed with proven approaches to define the future, a view past the patent cliff, and many solid examples of innovation and transformation, it will soon take the next steps as an industry.
Chris Nickum leads the global commercial effectiveness consulting practice at IMS, where he helps life sciences clients of all sizes develop and implement successful commercial strategies. Nickum has nearly 20 years of pharmaceutical and consulting experience, including specific focus on developing commercial strategies; sizing and designing sales and marketing organizations; devising and implementing new capabilities; and designing program measurement and management strategies.
Most recently, Nickum has focused on developing and deploying a strategic framework for new commercial models. Using IMS global information assets and conducting extensive research on commercial practices and environmental drivers across the world's top eight pharmaceutical markets, Mr. Nickum identified $15 billion in commercial effectiveness and efficiency improvement opportunities as well as recommendations how these opportunities can and should be addressed.
Prior to joining IMS, Nickum held senior management roles at McKesson, the oldest and largest health services company in the US, as well as NDC Health and PCS Health. While at these companies, Nickum led efforts to develop and commercialize the first electronic signature capture technologies in the industry. In addition, he helped drive the initial use of anonymized patient-level data through McKesson's independent pharmacy consortium.
Nickum's industry perspectives and opinions on pharmaceutical commercial opportunities and transformation have been published in numerous periodicals around the world, and he is a frequent presenter at industry events, academic conferences and university forums. Contact him at email@example.com.