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Spurring success
Pharmaceutical firms are prime examples of knowledge-based companies whose best assets walk out the door each evening. Although we have complex command and control systems and processes, our commercial fate lies in the hands of those bright, but sometimes non-conformist individuals who we ask to implement our strategies. In marketing strategy, for example, our segmentation, targeting and positioning is visible to our customers mostly through the actions of the sales, medical affairs and market access people who deliver it to prescribers, opinion leaders and payers.
It follows then that it is "mission critical" to manage the motivation and commitment of our colleagues. Yet, our research at the Open University, Europe's largest business school, shows that many managers don't understand what drives motivation and, worse, many typical pharmaceutical company processes actively undermine commitment. To understand this, we must first understand what it is that determines the enthusiasm with which an individual implements that part of the strategy he or she is entrusted with.
There are three key pieces of research to understand if you want to influence how well your strategy is implemented by individuals. The first is that the large number of actions we ask people to perform falls into two broad categories. Some are highly visible and measurable and we're aware that if we don't do them, punishment will ensue. Call rate, delivering reports on time and quantified targets all fall into this category. Meyer and Allen, the two seminal workers in this field, called these sort of tasks non-discretionary. They compared them to discretionary tasks that can't be measured easily and are easy to hide from inspection. Attitude in a sales call, the effort put into a report and qualitative targets are all discretionary activities. #
The important point here is that, in complex knowledge-based organisations like pharmaceutical companies, many of our tasks are discretionary. Some researchers go further and argue that the most value-creating activities in knowledge-sed companies are mostly discretionary. The non-discretionary tasks are necessary, but tend not to create differentiation and advantage in the marketplace. It follows then that most value creation relies less on simplistic measurement and more on individual motivation.
The next thing to appreciate is the effect goals have on people. By and large, people like to have goals and respond to them well. Locke, the prominent American researcher, found that we work harder when we are set specific goals that we find stretching. This effect is amplified by feedback that tells us how we're doing. Like most management science, however, the devil is in the detail. We work less hard if we think the goal is trivial and we give up more easily if we think the task is beyond our capabilities. These negative effects are exacerbated if the task is so complex that it is hard to see if we're succeeding or not. Goal setting theory, as Locke called it, tells us to set goals that are specific, important and stretching, but within our self-perceived abilities.
The third important piece of research to grasp is that which examines what goes on inside our heads when we're given a target to aim at. It turns out that humans are fundamentally self-interested and remarkably sophisticated at evaluating how goals and rewards affect this self interest. In fact, we weigh up three things. Firstly, how attractive is the reward in relation to the effort involved? Second, what are the chances of our achieving the target, even if we work hard? Third, how much do we believe the promise that we will get the reward if we achieve our goal? The fabulously-named Victor Vroom called this "expectancy theory" and it has been shown to explain strategy implementation behaviour in a wide range of contexts. It implies we should set attractive targets that look achievable and ensure we always keep our reward promises.
Like much management theory, the ideas of discretionary activity and carefully set goals and rewards seem obvious. Surely no experienced manager in a well-run company would do anything else? However, our research suggests just the opposite. Much of what is typical management behaviour in a large pharmaceutical company flies in the face of these well-evidenced explanations of human motivation.
Begin, for example, with goal setting for sales teams. We set targets for call rate, prescription levels and other quantitative metrics for the good reason that they can be measured. The problem, though, is that they are often incongruent with strategy, meaning that it may be possible to achieve the targets without following the strategy. For example, a sales person might, in the short term at least, hit target by calling on friendly prescribers and detailing an old positioning. Does this matter if he hits target?
It does if it effectively wastes the HQ effort put into researching the market and developing the strategy. Additionally, in the long term, after the salesperson has moved on, it may have larger effects on sales because it leaves the wrong sort of influence network behind.
A second illustration concerns how we set targets for marketers. For example, we may demand a certain market share or a product launch by a set time. Again, these have the merit of being measurable, but expectancy theory explains why they fail to motivate. Targets like these are the ultimate aim of the strategy, rather than the proximate goal of the marketer. Achieving them is only partly in the hands of the marketer and largely in the hands of other functions or external forces. This is especially true in company cultures that favour collaborative decision making and thrive on meetings. In those situations, the connection between personal effort and outcome is heavily diluted and, as expectancy theory predicts, motivation is subsequently reduced.
A final instance can be seen across many functions and especially at lower and middle management levels. For these people, the rewards are often only partly financial and motivation is driven, in large part, by the promise of promotion, with the status and fulfilment that comes with it. In practice, however, promotion depends only partly on performance. All but the most innocent middle managers recognise that politics, reorganisation, staff turnover and plain luck play a large part. As a result, the "how much do we believe the promise" calculation kicks in and reduces the incentive effect of any promised reward.
Pharmaceutical companies, with their complex business models and turbulent environments, are full of examples, like those described above, of management practices that run counter to management research evidence. Yet, these habits are deeply embedded in our industry culture and, in any case, would need to be replaced with another approach. So what would that be?
Contextual implementation
The answers are not yet completely clear, but our research suggests some guidelines that senior managers can adapt to their particular business context.
The first is to change the sort of goals we set. Ultimate and non-strategy congruent goals should be replaced with proximate goals that can only be achieved by implementing the strategy. Examples of good practice in this area are those firms that set call-rate by needs-based segment or target the recall rate of prescribers of the key points of a new product positioning.
A second idea, which sounds paradoxical, is to reduce collaboration by clarifying decision rights. This isn't the same as encouraging silo thinking. Rather, it means allowing departments to make the decisions in their own area of expertise and placing less importance on "buy in". In the words of one research respondent: "We should play like a team, each occupying our position, not everyone around the ball like a bunch of 7 year olds."
A third new idea emerging is to break the habit of dangling promotion like a carrot, since few people believe it. Instead, good performance can be rewarded with employability, by giving training, development and new, CV-prominent, experience to those who have earned it. This new habit may mean breaking with the tradition of allocating training by need, but it is more realistic in a world where promotion promises come with heavy caveats in an uncertain market.
These new ideas and the many more that are emerging from our work are not panaceas to be universally applied. They apply especially well to discretionary activity. Non-discretionary activity can be managed by more traditional approaches. Hence, they are especially important in non-routine, turbulent contexts such as new product launches, strategy changes and lifecycle transition points. Even then, these ideas need to be applied with what researchers call a "contingent approach", in other words, they need to be tailored carefully to the context of the business unit.
However, none of these caveats and conditions takes away from the fundamental lessons of our research. Increasingly, our 21st century pharmaceutical companies create value not in the manner of 20th century factories, but by the discretionary behaviour of individualistic knowledge workers. As a result, we need to set goals, reward and manage these people in different ways. Ideas for doing this emerge from research, but implementing these new ideas must be careful, context-dependent and will be difficult. As with every activity that creates competitive advantage, however, it is the mastering of something difficult that creates value.
The Author
Dr Brian Smith is a visiting research fellow at the Open University Business School and runs Pragmedic, a specialist strategy consultancy.
To comment on this article, email pm@pmlive.com
