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Pharma’s coral reef

Who competes with whom has changed, which means how to compete must change too


If you are more than a newcomer to the life science industry, I invite you to try a comparison. At the start of your career, who invented and developed your company’s products? Who made and distributed them? And who sold them? Now ask the same question of your company today. Where are those things done now?

It’s a fair guess that this rumination on the past will reveal one of the biggest shifts in our industry’s structure. Traditionally, most of these value-chain processes used to be done by people who were employed by your company. But today many of them are done by other companies, working in partnership with yours. In short, competition in pharma, medtech and the life science industry generally used to be between companies but now it is between networked alliances of companies. This phenomenon, which in my academic research I refer to as the holobiont shift, is very important. It means that who your competitors are is different and, as a result, the capabilities you need in order to compete are different. In this article, I explain what the holobiont shift is and why it came about. Then I’ll describe what my research suggests about how you should adapt to this changed industry environment.

Let me begin with the explanation. A holobiont is a term coined by the evolutionary biologist Lynn Margulis, who realised that one source of evolutionary innovation was for species to work together symbiotically. It was first applied to coral and the single-celled zooxanthellae, which are mutually dependent on each other for survival. But since the term was coined, we’ve come to realise that many life forms are assemblages of symbiotic species, which is the definition of holobiont. If you need another example, look in the mirror and consider that a large part of the creature facing you is made of other organisms, such as those in your microbiome.

More recently, the term holobiont has been used to describe networks of companies that work together to compete in the market place. They are common in many sectors, but the life science industry is the prime example. When a concept from an academic lab is turned into a therapy by a biotech, that works with big pharma to bring it to market, and then contracts out its manufacture and work with another big pharma to market it across the globe, that is a holobiont. It is different from the more traditional hub and spoke model of a big company with myriad contractors and suppliers. In a holobiont, the relationships between partners is both more balanced and more complex. As your comparison of past and present will have reminded you, holobionts are the principal form of competitor in today’s life science market place. Its ancestor, the fully integrated, self-sufficient company, is becoming a rarity.

Why did this happen? The short answer is that it is an evolutionary adaptation to a changing world. The 20th century, ancestral environment of life science companies was very different from that of today. In the past, the expertise needed to develop, make and market a new product was complex but simple enough that a single company could encompass all the necessary know-how. That historical environment was also restricted to developed western economies that were, by today’s standards, spendthrift. And importantly, information flow and communications between companies were costly and difficult. In that earlier world, the most effective and efficient organisational structure was the fully-integrated pharma or medtech company, doing everything but the most trivial tasks within its organisational boundaries. By contrast, today’s life science market is very different from that ancestral environment. The expertise required to compete is both much deeper and much wider. Firms must now apply that expertise globally to markets where success depends primarily on health economic value. And crucially, we now operate in a world where communication and information flow are much easier, faster and cheaper than ever before. Given these fundamental changes in the market environment, it would be surprising, from an evolutionary perspective, if the optimal organisational structure for the old world - the integrated company - was well suited to the new one. And of course it isn’t. We have seen how the environment selects against the old model, as the holobiont model - far better adapted to the present - emerges to take its place in most parts of the market. The great shift you have seen over your career happened because it made evolutionary sense. Our new market environment favours holobionts over integrated companies.

My description and explanation of the holobiont shift comes from years of my academic research into the evolution of our industry. It’s well founded and robust. But it is not enough for practicing industry executives, who not only need to understand their market but to adapt to it. If company vs company competition is being replaced by a contest between holobionts, what new capabilities do we need to compete in this very different world? My research suggests four vital considerations.

The first of these is strategic lucidity, the capability to understand and articulate where and how to compete. Without this clarity, it is impossible to know how the holobiont should create value and for whom. And without that knowledge, there is no basis on which to design and build the optimal holobiont. Surprisingly, I find many firms lack strategic lucidity, settling instead for a product-oriented, unfocused statement of intent.

The second essential factor is the capability to design a holobiont. In essence, this means deciding which value-adding activities should be done in-house, which should be done by strategic partners and which by mere transactional suppliers. Such decisions are a function of their risk-adjusted cost and their strategic criticality, but many firms lack the ability to assess these factors and make these decisions. Instead, their holobionts are often the result of opportunistic whims or strategic inertia, disguised with grandiose strategic bluster.

The third factor essential to competing as a holobiont is the capability to find symbiotic partners, persuade them to join forces with you and manage the relationship. This is especially important for so-called keystone alliances with those sought-after partners who have distinctive capabilities, such as unique technology or distinctive customer relationships. Many such partners, such as academic centres of excellence, report that large life science companies work through their lawyers and procurement departments, making what should be a trusting relationship into a distrustful transaction.

The final indispensable factor to working as a holobiont is conflict resolution and relationship termination. When each firm has many relationships and when technological and commercial uncertainty is unavoidable, both disagreements and terminations are inevitable. What matters then is the ability to resolve issues or exit the relationship with minimal trauma while preserving future options. Frequently, human nature hinders this capability, personalising business issues, damaging the present relationship and making future association much more difficult.

Strategic lucidity and holobiont design, building and maintenance are all necessary to compete in our changed industry, but they are all common gaps in the competitive capability set of many life science companies. While it may surprise some that great, successful global firms in pharma and medtech have these gaps, it is not unanticipated from an evolutionary perspective. The market changes that favour and require holobiont structures are relatively new, so even our best firms have not needed to respond to them until quite recently. And since new capabilities take time to evolve, it is anything but surprising, when looked at through the lens of Darwin’s great idea, that these holobiont management capabilities are not yet fully formed. For most firms, they are a work in process.

Evolutionary lag explains why these capabilities are not yet universal. But this leaves the question of the actions executives might take to accelerate their firm’s evolution of these four essential capabilities. Here, the Darwinian parallels helps us still further. Just as proteins are the workhorses within organisms, capabilities are the things that do the work within organisations. And, just as proteins are expressed by complex combinations of genes, capabilities are the expression of complex combinations of organisational routines. Genes, of course, are built from the four nucleotides of ACGT. In the same way, there are four microfoundations of organisational routines. These are the attributes of individuals, the structuring of teams, the processes linking groups and the methods used to manage intra-organisational conflict. To develop new capabilities quickly and effectively, executives have to deliberately engineer these four factors just as geneticists purposefully modify DNA sequences. It is beyond the scope of this short article to describe the detail of how that is done but this manipulation of a firm’s ‘capabileome’ is given a detailed treatment in my book Darwin’s Medicine.

So what is the take-home from this research? There are three important things that executives, when tasked with adapting their organisations to a different world, ought to reflect upon. Firstly, it’s time to stop obsessing about how your firm competes with other firms. Instead, you should consider how your holobiont will vie with others. Secondly, this is an evolutionary race. The winners will be those who build their holobionts faster and better than the others. Finally, evolution needn’t be the blind, wasteful process it is in nature. Thoughtful executives can elucidate their strategy clearly and then use it to design their optimal holobiont. That design can guide how it is built and managed. Such a deliberate approach has the same advantages of speed and efficiency over opportunistic organisational development as genetic engineering has over randomly driven biological evolution. In the race to compete, thought will always win over chance.

Article by
Professor Brian D Smith

is a world-recognised authority on the evolution of the life science industry. He welcomes comments and questions at

10th November 2017

Article by
Professor Brian D Smith

is a world-recognised authority on the evolution of the life science industry. He welcomes comments and questions at

10th November 2017

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