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Darwin's Medicine blog

Professor Brian D Smith is an authority on the pharmaceutical industry and works at SDA Bocconi University and Hertfordshire Business School.

Targeting's Book of the Dead

Companies often carry harmful old genes in their DNA

The power of Darwinian evolution to explain things that I see happening in the life science industry never ceases to amaze me. Despite its roots in the entirely different domain of biology, no other scientific theory has the same power to explain management phenomena. In this month's column, I want to illustrate this with a prosaic but important example seen in many pharma and medtech companies. As always, allow me to give the background before I can return to the practical application.

When I discuss competitive strategy with companies, it almost always involves a discussion of targeting, the process of focusing resources on to one part of the market and, obviously, away from another. How best to do this was settled by management research many years ago. The best risk-adjusted rate of return is achieved by focusing on homogenous market segments that are both attractive and winnable. The rationale behind this is embarrassingly obvious, although the practical difficulty of implementing this approach is what maintains it as a source of competitive advantage. Look at almost any successful strategy and you will see such segments targeted and their antithesis - unwinnable segments - relatively neglected.

But the well-established nature of this practice doesn't mean that it is common practice. More often than not, targeting in life science markets is dictated by another mental heuristic: one that says 'attack where the potential for overall returns is greatest with relatively little regard for the probability of success'. This approach is irrational, reduces return on investment and goes against decades of research. But even today, it is also by far the most common way that life science companies focus resources within a market.

Bad targeting influences how we structure our organisation... and how we measure success

This is a conundrum. Why might companies full of bright, educated people do something that is, frankly, not very bright at all? The answer lies in what Richard Dawkins called 'The Genetic Book of the Dead'. This colourful metaphor refers to all the old, useless and sometimes harmful genes that our genome carries alongside the useful genes. Such genes are hangovers from our evolutionary history. There are lots of biological examples, such as the gene mutation most commonly associated with haemochromatosis, C282Y, which many Europeans seem to have inherited from their Viking ancestors. Haemochromatosis is an example of our body doing something as dumb as ineffective targeting not because it is right but because it is written in our DNA's 'Book of the Dead'.

Darwinian evolution, applied to industries, clarifies the analogy. Regular readers will be familiar with my work on the 'routineome', the corporate equivalent of the genome, which is a firm's complement of organisational routines. The routineome evolves over time as it adapts to the social and technological environment and enables the firm to survive. However, it seems that the routineome is just as susceptible to carrying old, formerly useful but now harmful routines as the genome is of carrying bad genes. Sometimes, useless or harmful routines persist when, ideally, they should not, simply because they are written in the routineome's 'Book of the Dead'.

One of these hangover routines appears to be the aforementioned 'faulty' routine for targeting on the basis of segment size but not winnability. I've noticed a number of others too, in areas like cross-functional working, segmentation and knowledge management. And just like the genes associated with haemochromatosis, these old routines are very persistent and widespread.

So what's the practical use of this explanation to industry executives? Well, there are a couple of lessons to draw from the analogy between the 'Book of the Dead' in both the routineome and the genome. The first is to recognise that our routineome, just like a genome, might not be perfect because it carries hangover genes. We must learn to question old routines when the environment changes.

Secondly, we should recognise that even one faulty routine might have serious, far-reaching consequences. For example, bad targeting influences how we structure our organisation, how we design value propositions and how we measure success.

Finally, we can learn from the biological analogues that while we may be able to treat the consequences of a faulty routine (for haemochromatosis, it is phlebotomy), it is far better to cure the disease by replacing the old routine with a better, more effective one. For targeting, such routines exist and are well understood and proven. It is only the persistence of the old routine that slows down organisational adaptation and the expression of the new routine.

Theodosius Dobzhansky once said that, in biology, nothing makes sense except in the light of evolution. In the example of outdated, ineffective targeting practices we can see that the same is true in strategy and management. Not only, but perhaps especially, in the life science industry.

12th September 2016

From: Healthcare

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