It’s the perfect storm and your ship is sinking

It’s not pretty. Everything that could go wrong with the pharma business model has gone wrong. Payers are desperately angry with the participants in the value chain. Healthcare providers are discouraged and mutually antagonistic. Patients are watching the pharma ‘sausage’ being made and feel that the word ‘practicing’ is a disconcertingly accurate way of describing what’s happening to them. Academia has decided to deflect criticism from its own monumental inefficiency by attacking healthcare. Politicians, ever eager to come down from the hills to prey upon the wounded, are piling in and adding cost and inefficiency while taking credit for providing something for nothing.

Perhaps most importantly, the voters – patients, mothers, fathers, sons and daughters, caregivers and taxpayers – are withdrawing permission for the healthcare system to make a profit.

As the most visible and the most profitable of all the participants in the healthcare value chain, Big Pharma is everyone’s favorite whipping boy. The aforementioned academics are having a field day criticizing Big Pharma, the single most efficacious player in the healthcare value stream but the only one that must occasionally prove the cost benefit value of its products (think what would happen if academia were held to this standard for more than 10 seconds!).

The pharma ship is sinking, but the good news is that the best advice is given on sinking ships. Here’s two pieces of advice for the big pharma companies.

Step 1: Think about patient solutions

Stop thinking about selling ‘molecules’ and start thinking about selling a solution for the patient. Look at healthcare delivery as a process or system with multiple inputs and outputs by all the participants. Optimize the quality for the patient instead of focusing on optimizing the cost or profit for any single participant in the stream. System theorists such as Dr W. Edwards Deming were quick to tell anyone who would listen that optimizing individual inputs and outputs can be disastrous for overall system output. Focusing on the individual components instead of its contribution to the output will generally sub-optimize total quality and lead to higher costs, poorer outcomes or both.

The Deming ‘total quality’ approach has a model for this, but more important there’s a practical business model for this from the world of consumer packaged goods (CPG).
Over 10 years ago, the major participants in the CPG industry sat down, looked at the two major value streams (supply chain and demand creation), mapped them at a high level, broke down the processes into digestible chunks, put the key players in that sub-process in a room together and said: “Fix this so that costs are lowered and consumers are better served.”

The results were phenomenal. Everyone in the value chain saved money through dozens of improvements large and small. Let me cite one simple example. Many manufacturers were paying shipping premiums because trucks loaded with their merchandise sat for hours in retailer’s parking lots waiting to be unloaded. Manufacturers were forced to pay millions in ‘demurrage’ charges to truckers while products got stale or in some extreme cases dangerously contaminated. By creating a simple ‘advanced shipping notice’ form that could be electronically sent to warehouses to alert personnel to the precise arrival time of a specific shipment, retailers and shippers could plan for a smooth unloading process that saved everyone time and money. One manufacturer, P&G, even offered to reduce the price to the retailer if its shipments were unloaded on time – in effect sharing cost savings and thereby encouraging commercially desirable behavior.

Looking at the larger picture, through these and many other small improvements, consumers got fresher food at a lower cost. We and other consultants were able to make our contribution to this revolutionary process, primarily by identifying improvements and helping to quantify savings. We did a little group therapy too.

The techniques we used in CPG can work in every disease state. It’s as simple as getting all the participants in a dangerous, expensive and rapidly growing disease state such as diabetes in the same room and working through all the issues from the point of view of a patient solution. Some forward thinking participants can make this happen in diabetes or another disease state by rallying their partners in the delivery stream. It’s in everyone’s best interest, especially the patient. Who will step forward to rally the troops? We know how this movie ends. We would be happy to show you the script.

Step 2: Understand the marketing process

Now for the second piece of advice: Stop thinking about pharma ‘marketing’ solely as seeing how many 90 second sales calls you can arrange between US$90,000-a-year detailers and harassed doctors. This is insanity! In the old cold war days we called it MAD: mutually assured destruction. What pharma calls ‘detailing’ is actually a subset (albeit an extremely important subset) of what everyone else calls ‘marketing’ – and marketing is a lot more than a 90 second rendezvous over an examining table.

Everyone in pharma who is talking about ‘transforming’ marketing needs to understand one thing. Marketing is a process. Most pharma companies do not have a marketing process; a calendar perhaps, a schedule maybe, but no process. This is more than a little ironic because in every other function in the industry (research, raw materials sourcing, regulatory compliance, manufacturing, etc.) pharma is awash with processes, most of them close to bulletproof. As one wag observed: “If we made our products the way we make marketing, everyone in the company would be in jail!”

The marketing process starts with an unblinking eye on the customer (both patients and healthcare professionals). The purpose of keeping the eye on the customer is to gain insights into the rational and emotional motivations of the customer. Unfortunately, pharma is well behind other verticals in this important area in several key respects. The first is that pharma has no process for uncovering what it does not know about the customer. Second, pharma has no process for sharing data cross-functionally along the pharma demand creation value stream in such a way as to gain the unique perspective and power of a multi-lens view.

This lack of a smoothly integrated linking of inputs and outputs that comprises a powerful process pollutes the healthcare demand creation value stream. This dangerous series of defects masquerading as a process is further exacerbated by a deficiency in the use of sophisticated analytics and metrics. Where some pharma practitioners do utilize modern multi-variate analytics, none (with one important exception) have integrated the analytics into the process so that they drive critical decisions. In most pharma companies analytics are an artifact observed in vitro not an ingredient used in vivo.

The real shame of all this is that pharma marketing has available to it the most sophisticated data sets in the entire marketing universe across all verticals. Unfortunately, the CEOs and COOs of virtually all pharma companies do not come from marketing-intensive backgrounds so they do not know what they do not know – and therefore they tolerate approaches that are demonstrably sub-optimal.

We were stunned to hear one mid-level pharma marketer reject a common analytical approach to portfolio spending and profit optimization because it would just “provoke management to use a technique that could reduce my budget”. There are two crimes in this scenario, the first an act of commission by an unethical marketer, the second an act of omission by his management who did not know these techniques were available. Analytics such as those pioneered by the analytics firm MMA have revolutionized the packaged goods industry, generating massive savings and significant profit increases. Based on our knowledge of both pharma and CPG, I would bet my reputation there are more savings to be wrung from the pharma system and more brand building effectiveness to be realized in pharma than in CPG. Everyone who knows both verticals would instantly agree that the metrics and analytics available in pharma are much more robust than in virtually any other vertical in all commerce because of the unique ability to link attitudes and behavior at the physician level.

The point is this. The pharma ship is in a perfect storm. More of the same won’t save the ship or its passengers, who include shareholders, employees and, most importantly, the patients. Pharma management needs to be sufficiently desperate and courageous to reach out for the kind of end-to-end, top-to-bottom ‘transformation’ that is only available from the unique combination of process, metrics and technology.