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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.

Pfizer's basic instincts

Business model evolution can’t defy strategic gravity

I read the recent news announcing Pfizer’s new logo with interest.

It happened to coincide with a blizzard of emails from friends who work for parts of Pfizer or for Mylan and now have Viatris.com addresses.

It reminded me of one of the first ‘Darwin’s Medicine’ columns I wrote (‘The Future of Pfizer(s)’). But it also reminded me of the irresistible force of strategic gravity on the evolution of business models in our industry.

As usual with this column, allow me to frolic in the management science before I come back to the practical implications.

Signalling strategy

On the surface, both the Pfizer logo change and the Viatris name change are just the sort of superficial fluff that generally doesn’t interest me.

I’m much more interested in the meat of competitive strategies and capabilities. But in this case, they are both examples of what the great Edgar Schein called cultural artefacts.

That is, they are symbols of something deeper going on in those organisations and, as I’ll explain, those deeper goings-on are different facets of the same, fascinating law of strategic gravity.

So, in Pfizer’s press releases about the logo change, the company talks about its shift ‘from commerce to science’.

Now most of Pfizer has always been what we’d call research based, so this signals an intensification of the company’s existing strategy. Along with other investments, such as in cell and gene therapy, it tells us that Pfizer sees its future success as being even more science-led and innovative than it always has been.

At the same time, the welding of Mylan and Pfizer’s Upjohn business was accompanied with press release verbiage about expanding access to medicines.

This is already a branded generics business, so this tells us that they are going to focus even more tightly on making trusted products cheap enough to compete in price- driven markets.

Their scale and complementary geographical strengths are meant to make them even stronger at this than they already were.

What’s interesting here is that two very different strategies have something in common. In both cases, the smart guys at the top of these organisations realise that to succeed they need to be even more extreme versions of what they already are.

Porter’s point

Now, allow me a moment of self-satisfaction here. In my Master’s classes, and even more in my books, I talk about this sort of polarisation as being inevitable and a sort of inescapable ‘gravity’ of business model evolution.

I can’t claim too much credit for this idea; the great Michael Porter wrote about this when I was a spotty chemistry undergraduate. He made two points that added to a third, basic instinct about strategy.

First, competitive advantage is expensive: you need to invest lots of money to be significantly better than the competition. Second, the same money can’t be spent twice: what you spend on R&D to be innovative can’t be spent in the factory to make your supply chain low-cost.

Together, this means that you can be technologically innovative or operationally low-cost but you can’t be both at once. Those who try, Porter said, end up neither innovative nor low-cost enough to compete.

Funnily enough, although Porter’s point is probably the most robust idea in the whole of management science, it is the one most challenged by my Master’s students and, especially, by executives.

‘No, we are both low-cost and innovative’, they insist. This provides a good starting point for a discussion, which concludes that you can be an innovator who controls costs or innovate within your cost constraints.

But you can’t be the most innovative and the lowest cost at the same time. And, to compete, you need to be one or other. That’s the gravity of Porter’s strategic logic.

The chasm of compromise

This reality – that the most innovative business models and the most efficient ones are different beasts – has really important practical implications. For a start, it means that everyone in the organisation, from the top down, needs to agree which beast they are.

Innovators need to know that cost control is a good thing until it erodes their innovativeness, which is a point often lost on their financial controllers.

Equally, companies focused on efficiency need to limit innovation when it threatens their cost base, which is a point their scientists often forget.

Both kinds of company need to be very wary of falling into the chasm of compromise. It is full of dead business models that were neither innovative enough nor efficient enough to compete.

Choices, choices

This doesn’t mean that they are only two possible business models. There’s a third way – customer intimacy – that is a form of innovation.

And these three, broad families of business models include many different ways to be innovative, low-cost or customer intimate.

In my work, I identify 26 different business models. Each model is a good way to compete but these peaks of excellence are separated by chasms of compromise. That’s the basic instinct that Pfizer and Viatris are following.

Professor Brian D Smith works at SDA Bocconi and the University of Hertfordshire. He is a world-recognised authority on the evolution of the life sciences industry and welcomes questions at brian.smith@pragmedic.com

15th February 2021

From: Research, Marketing

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