Reaching the Inflection Point

“A company in an industry at an inflection point can set a trajectory toward industry leadership”

‘Inflection point’ is a term used in multiple disciplines including mathematics, engineering and business strategy to describe a point on a curve at which the curvature changes from convex to concave. In business strategy, an inflection point is frequently used to describe a scenario where the dynamics of today’s business situation shift significantly.

Here, we use the term inflection point to indicate the point at which the business requirements needed to compete significantly shift. We must clarify that we do not mean to imply that the fundamentals of today’s model no longer work, but rather that there is a transition occurring, when a new set of rules is being defined to set the stage for a new and different competitive landscape. Managing this transition is the ultimate challenge for industry leaders.

The experience of a wide array of industries, from airlines to entertainment to retail, shows that new leaders emerge when companies are able to recognize that an inflection point provides the opportunity to create performance differentiation in the future. In making the transition, though, organizations must continue to operate in the world of today, while preparing for the world of tomorrow.

That challenge presents a host of dilemmas including:
• How aggressively should companies pursue the future model?
• Should they lead – or follow?
• How do they overcome reluctance to change?
• What capabilities are required to be enhanced or built?

The answers to these questions for biopharmaceutical companies will depend on their situation and beliefs. All are confronting mounting evidence of a significant change in the landscape:
• A dramatic increase in customer clout as payers consolidate, government becomes increasingly important and patient power mounts.
• Declining research and development productivity as fewer new blockbuster drugs are developed.
• Growing competitive intensity, driven by a surge in promotional spend and marginalized customer relationships.
At a minimum, all biopharmaceutical executives need to have a point of view on the future industry landscape, evaluate current capabilities and portfolios, and create a change plan of action.

Critical juncture
Our research suggests that the biopharmaceutical industry has reached an inflection point – a juncture at which an organization must begin to move away from the old ways of doing business to the new in order to remain competitive.

There is no single approach to developing a strategy to deal with an inflection point, which necessitates operating concurrently in two worlds – the world of today and the world of tomorrow. Since much depends on a company’s product portfolio, its organizational readiness and tolerance for risk, transition time frames can be very different for each organization.

Any inflection point, however, provides the opportunity to erect the building blocks of high performance and achieve differentiation. A company in an industry at an inflection point can set a trajectory toward industry leadership. Now is the time for US biopharmaceutical companies to seize that opportunity.

Strategies and imperatives
During an inflection point, an organization is forced to prepare for tomorrow while still operating today. As our research shows, US biopharmaceutical companies have adopted different responses to that challenge as executives begin to recognize the shortcomings of today’s model. While companies are not necessarily creating a single, comprehensive and coherent strategy, some common strategic elements are beginning to emerge.

Our research revealed three general strategies for inflection point success:
• Ready today’s model by improving critical aspects of the current business model in an attempt to slow declining performance.
• Institute new capabilities to drive competitive advantage and boost performance.
• Change the game by defining new business practices to create a new performance trajectory.

Industrialized analytics
In an industry facing the paradox of being awash in data but often lacking in insight, industrializing the approach to analytics offers a means to drive competitive differentiation. It is no longer enough to gather and maintain data on customers, products and promotional activities. High-performance businesses not only efficiently gather and integrate compelling data, they also analyze it swiftly, generate insights from it, make informed business decisions – and act.

Many organizations have recognized that they are falling short in this endeavor because:
• Senior management does not create a culture of fact-based decision-making.
• Data is not well organized or integrated.
• Analytics capabilities are isolated.
• Decision makers do not have ready access to tools.
• Companies lack the skill sets to move from analysis to insight.

Regardless of the cause, the result is that far too many decisions are made primarily on the basis of “management judgment,” and a significant amount of analysis results in no action or no change in behavior. Coupled with the fact that data is often weeks or months old, this generally results in a ‘wait and see’ approach.

Building the talent bridge
Performance anatomy – the cultural and organizational capabilities, including the acquisition and nurturing of talent – is what powers companies toward their goal of out-executing the competition over the long term. Many executives believe they need to identify new sources of talent. Others are convinced that the existing workforce can be reskilled. Our research shows that training and retaining the best talent can increase the likelihood of becoming a top business performer.

Some leading companies are beginning to develop consistent and holistic approaches to business analytics. One way to do this is by establishing more fact-based decision-making processes (that is, portfolio allocation and optimization) that lead to organizational action. This requires adopting a capability orientation that ensures a clear strategy/purpose, well-defined processes, effective use of tools and – importantly – a focus on changing behaviors.

To move their organizations from reporting to insight to action, these companies are using new and multiple data sources to understand and predict opportunities that create a proprietary advantage. Their focus is on anticipating the future, rather than dwelling on the past. These executives are redefining what analytics means and are working to drive insight through execution, moving beyond the achievement of an interesting perspective to a real change in the business and corresponding outcomes.

Some are digging deeper into their analytics to develop the sub-national and customer segment views that make the analysis more actionable. They are using new customer metrics and new valuation approaches and measures. Others are considering a shift in responsibilities for basic reporting and analysis to allow internal resources to focus on higher value-added insight-generation. The market is changing so swiftly that developing analytics as a driver of action needs to become a continuous process that informs all decisions – not just when the team is setting its annual plan or refreshing the tactical plan.

Large-scale cost removal
Pricing pressures and decreasing numbers of new product opportunities are necessitating leaner, more streamlined commercial functions. More attention is being focused on:
• Eliminating redundancies in roles.
• Reengineering/streamlining processes
with a customer focus.
• Instituting controls to manage spending.
• Leveraging technology to speed access to information and reduce
inefficiencies.
• Seeking synergies across functions.
• Instituting new sourcing arrangements.
• Identifying and outsourcing noncore business processes.

Biopharmaceutical companies are actively assessing their internal organizations and functions to see just where and how they are over- and under-investing. All functions within sales and marketing are under scrutiny, as the value of each activity and function is questioned in the process of streamlining and focusing on customer value. Companies are targeting transactional and noncore functions for removal, scale-down or outsourcing.
Transactional areas under consideration include sales operations processes, customer inquiry functions/call centers and standard reporting. Noncore functions include enterprise support areas like information technology, human resources and finance. Pursuing areas individually can result in average cost savings of 20 to 40%.

More aggressive biopharmaceutical companies are pursuing outsourcing and/or offshoring arrangements on a global scale – a more transformational cost-removal strategy that has been implemented by a wide range of other industries. They also are seeking partners that they can hold accountable to desired service levels and outcomes while reducing costs.

By identifying significant inefficiencies and implementing large-scale cost improvement change programs, executives are creating capacity to invest in the future. Companies are able to free up resources and capital to redirect toward core areas of the business in order to drive future growth, relationships with physicians over the next three years. Similarly, 89% of respondents reported the same need in communicating with patients.

Multichannel marketing
Executives believe that utilization of new, alternative channels is key to supporting future commercial efforts. Developing a multichannel marketing capability is a three-step process. In step one, organizations introduce a new level of integration in which they create integrated brand and channel strategies based on customer preferences, needs, interactions and behavior.

In step two, they put the customer perspective first by executing coordinated tactics across channels to manage both the customer experience and the desired outcome. Finally, in step three, companies measure, assess and refine campaigns based on reactions and behaviors from deployed tactics.

Commercial compliance
Manufacturers also are being held increasingly accountable for relationships with health care providers, as regulators seek to understand how much a manufacturer has serviced a physician and what the total financial benefit has been. The consequences of noncompliance are significant. Since 1992, US $13.9 billion has been recovered through major health care settlements. While the number of major cases in the hospital sector is the same as in the pharmaceutical sector, the trend is definitely in the direction of pharmaceuticals: Total settlements in the hospital sector have been $ 3.7 billion compared with $ 5.8 billion in the pharmaceutical industry.

Developing a strong commercial compliance capability requires investing in a combination of customer information management, processes, training and supporting analytics to provide a total view of the interaction and relationship with health care providers.

Customer information management capabilities and associated technology solutions like customer master and approval/workflow software are needed to track and manage all interactions and financial or value-oriented transactions. Processes and supporting analytics must be crossfunctional, providing marketing, legal and regulatory solutions for improving compliance management. Organizations must put more effort into the development of promotional policies, standard operating procedures, and decision-making processes, retaining a flexible yet proactive infrastructure to allow for anticipated changes in policy and reporting requirements.

The commercial organization must fully understand what it takes to avoid negative consequences of noncompliance as well as maintain a consistent view of what it takes to compete effectively. However, a strong commercial compliance capability can also offer opportunity over the long term. In the future, companies may need state-by-state commercialization approaches to address differences in laws and regulations. This would create an increased level of complexity in the commercial organization that could favor big companies.

More barriers and costs for small pharmaceutical and biotech commercialization efforts might also boost the attractiveness of partnerships. Overall, companies will need to step back and define a comprehensive vision of what their commercial compliance capability will look like. They will need to decide how reactive (or proactive) they want this capability to be, as well as whether or not it will be a differentiator for their organization in the future.