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Battle plan

Instead of camouflage, pharma should adopt the strategies of industries that take recession in their stride

Illustration of pharma solider This is not funny. There is no joke here. Things are getting very tricky. It is easy to think that the credit crunch is going to affect everyone but you – us. Pharma, being cash-rich, with a borrowing-to-turnover ratio to die for and the health service it supplies having pretty well guaranteed funding for the foreseeable future, must surely be OK? Not true.

Pharma is already responding to the crisis with more mergers, takeovers and staff reductions, in the pursuit of better share value. Are these tactics camouflage for poor pipeline and soft management?

In the NHS, there is little doubt that nurses will be disappointed when their pay rise aspirations are not met. The Royal College of Nursing is noble enough to see the real issues. The health workers' union, Unison, is much more likely to use its leverage to try to get rid of a Prime Minister who seems more unpopular within his party than he is in the country, if that's possible. The unions will be on the streets by Christmas.

Demand for health services will rocket. It always does in a recession. A one per cent rise in unemployment means a seven per cent increase in the numbers of patients using primary care. Budgets will be busted. The pressure will be on staff, many of whom could end up as the only breadwinner in the household. Expect higher sickness levels.

By using the excuse of "going green", public sector procurement will leverage the carbon footprint of supplies into a cost-reduction programme.
And then there is the annual up-lift. The NHS has benefited enormously from the good times. It has got fat and lazy. For nearly 15 years, NHS managers have had solid annual budget increases. Few of them will know what to do in the bad times, because recession-management takes talent and experience.

What is the solution?
Look outside the introspective, myopic world of the NHS. What are other people doing?

On the BBC's business news website, I came across a story about Hewlett Packard (HP), one of the world's largest technology companies. It has embarked upon a major reorganisation of research efforts to help it survive the downturn and secure the future.

These efforts go back to 2008, when the company hit upon something it described as 'groundbreaking'. Actually it wasn't; it was smart and clever, but I'm not sure about groundbreaking – more 'common sense' really.

It announced a move to align the work done in HP laboratories more closely with business goals.

HP Labs' director, Prith Banerjee, said, "Our approach has positioned us well to innovate in today's economy.R&D is the pipeline for future growth of the company."

The smart bit was a major change in how the labs operated. Instead of them being the "bobble-hat community", locked away in a remote laboratory, they were included in the company's business unit, giving input on which research projects to fund.

"This approach, which we took before the recession hit, has positioned us well to innovate in today's economy," said Banerjee.

Now, is this confidence, good sense or hubris? You judge. Prith Banerjee said, "We are not looking at the recession. We are looking at investment in technology for the long term so that HP is fully prepared to provide its customers with a variety of choices when we get out of the recession. Innovation is not for the next quarter, it is for the next two years, five years from now. The key is to invest in innovation that truly matters."

This is a company that walks the talk. HP Labs was formed more than 40 years ago by company founders Bill Hewlett and David Packard to focus on the future and not get stuck in the day-to-day business concerns. We all know HP for their printers and photocopiers, but over the years, as the BBC reported, HP has been responsible for the atomic clock, light-emitting diodes (LED), DNA analysis and computational fluid dynamics.

In addition, HP's scientists helped to make the movies Shrek 2 and Madagascar for the film studio, DreamWorks.

Today, the business has been refocused on eight main areas, including analytics, cloud computing, information management and sustainability. It is moving into high-end video conferencing equipment, a high-speed wireless memory chip and a cloud-based publishing service.

Different tack
What is even more interesting is the fact that most companies keep their most valuable research projects under wraps; HP has taken a different tack.

"Open innovation is a very key approach to our work. We can't build everything ourselves," said Mr Banerjee.

Rich Friedrich, who develops research partnerships with universities and government agencies and is also the director of the Open Innovation Office told the BBC, "We want to tap into the best ideas from around the globe and to bring those ideas to market faster."

You can probably tell that I'm something of a fan of HP, whose corporate style is based firmly in the West Coast business model first described by Tom Peters in his book, Liberation Management. This is a weighty lump of a book, but well worth the effort.

Contrast this approach with the recent moves made by pharma. Once again we seem to be in merge, buy-out and acquire mode. Pharma is founded in the Rhineland business model – vertical, and far from nimble.

It is difficult, and probably dangerous, to compare one business sector with another. Computers and IT are not the same as developing molecules and bringing life-saving drugs to market, but is there a lesson to be learned? Is there something that might be taken from the IT industry and transplanted into pharma? Or, is buying the company next door still pharma's best answer to the credit crunch and the demands of a changing world?

The Author
Roy Lilley is a (sometimes controversial) healthcare author and broadcaster.
To comment on this article, email pm@pmlive.com

20th April 2009

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