Delicate touch

The pharmaceutical market has changed beyond all recognition over the past decade or two – and continues to change at an alarming rate. So the pharma industry has had to be good at responding to that change, given that the environment in which it operates is in a constant state of flux, driven by political imperatives, technological advances and regulatory strictures. By and large, we have coped well with these constantly shifting sands.

But one area in which the industry does not seem to have kept pace with these changes is the way in which companies organise themselves. Innovation has been the lifeblood of our industry, but with R&D productivity decreasing, we need to look at driving success in other ways. To what extent have we introduced innovation into our business models – or do we tend to favour the 'tinkering at the edges' approach?

Historically, the traditional 'blockbuster' approach, with large salesforces and high promotional spend to achieve a high share of voice throughout the entire product life cycle, worked well and delivered good profits. This led to the growth of 'mega' organisations with ever-increasing promotional muscle, and economies of scale realised through 'mass marketing'. 

However, not even the most nostalgic and change-averse marketer can claim that this model is relevant today. We can now see that organising marketing around product, brand, therapy or franchise marketing teams in silos, supported by specialists in market research, health economics and medicine can lead to ivory-tower thinking, divorced from reality and – worse still – from the customer, as well as a lack of synergy across brands and conflict for limited resources. More importantly, there are pressures which are driving the need for change, forcing companies to re-evaluate their business models.

Pressure for change
The healthcare environment in pretty much every country is going through radical changes due to shifts in the social, economic and political climate, with the UK leading the way in some respects. A major part of this has been the challenge of funding healthcare, which has resulted in the introduction of a number of new stakeholders and hurdles at local, national and supra-national levels, with a shared agenda of driving down prices and controlling costs.

Consequently, the focus on accessing and influencing one type of customer, the prescriber, and influencing their perception of product performance is long gone. Instead, we must work with a wider customer base whose needs are broader and more diverse than having a (marginally) better product.

Within the industry, the productivity of R&D functions continues to decline, with fewer products coming to market. Blockbuster products are increasingly rare: in the 1990s, over 90 per cent of new chemical entities had sales of less than $500m worldwide, and this situation is not likely to improve anytime soon, if ever. Because of this, companies are changing their R&D strategy, with a greater focus on speciality product and niche market sectors such as oncology.

The complex task of building and supporting these specialist franchises in multiple therapy areas, while at the same time maintaining existing product portfolios, is forcing companies to alter significantly their cost bases to maintain profitability. This inevitably means looking at the efficiency of the organisational model.

So what is the alternative to this defunct traditional model? Actually, there is no single solution; the right operating model has to be developed to fit each company's market, portfolio and competitive situation.

Principles of organisational design
If we are to set about redesigning organisations, we must understand two things: the kind of competitive market in which we are operating; and the basic principles of organisational design.

Different parts of an organisation play different roles in the creation of products and services, and their delivery to customers. Mintzberg argued in the ground-breaking paper entitled The Structuring of Organisations that any organisation consists of five basic parts:
1. The Strategic Apex: the people charged with the leadership of the organisation 
2. The Operating Core: the people who perform the day-to-day work which is directly related to the delivery of product/services to customers
3. The Middle Line: the middle managers who direct and supervise the operating core, linking day-to-day operations with the strategic goals as set by the apex
4. Support Staff: functions which support the organisation outside the normal operating flow of activities
5. Technostructures: the specialists/experts who design the systems and processes of the organisation that support the overall workings of the business. Examples include product planning and forecasting experts, IT and R&D.

The organisational designer needs to understand and take into consideration the appropriate interaction of each of these elements when developing an operating model which best 'fits' an organisation's needs. But if our aim is to achieve a customer-focused model, then surely the most important consideration should be the nature of the market in which we are trying to compete.

Customer need at the hub
Many businesses organise themselves in a way which is easiest for HR managers. This can result in cosy, stale environments, when the driving force becomes internal convenience, not innovation.

If your model is going to be truly customer-focused, then commercial and market needs should be at its hub. Organising marketing around product, brand, therapy area or franchise marketing teams, based in silos and supported by functional specialists, inevitably results in people in those functional specialisms leaving the marketing thinking to the marketers in that silo. This suggests that they have nothing to contribute to understanding and meeting customer needs, which is an almost negligent waste of real customer knowledge and expertise.

There is no 'one-size-fits-all' solution to reinventing the organisational model, so the approach you take has to depend on your market environment. Most pharma companies now have to go far beyond influencing prescribers; acceptance must now be gained from a whole range of different stakeholders, such as pharmacoeconomists and bodies responsible for health technology assessment, regional gatekeepers and local care networks. Engaging with each of these stakeholders requires different skills, roles and organisational structures to meet market needs and compete effectively.

I would argue that there are four basic types of market sector, each of which will require a different approach to creating the organisational model – although they all share the imperative that customer needs should be at the centre of things:

1. Blockbuster: Typically centred on brands with a strong value proposition, in relatively uncomplicated and often primary care markets. These are products with therapeutic benefit, patent protection and, in some cases, value-added services. Structurally, this category is typically characterised by large primary care field salesforces and significant promotional expenditures with most focus on driving physicians' adoption.
2. Me too/generic market: This is where the blockbusters give way to an increasing number of generic alternatives. Once the basic requirements for efficacy and safety have been satisfied, the nature of competition focuses on exploiting small advantages, unique niches or segments where the product can differentiate itself from the competition. However, given the relatively slight differences between options, purchasers focus upon minimising the acquisition cost of treatment. Focus is on who can achieve the lowest prices while reassuring customers that all other important factors are at least equal – so managing the cost base is the driving force.
3. Speciality therapy area: Products in this sector are typically prescribed by specialist physicians. Smaller target audiences allow for greater focus, with more targeted sales and marketing activities. The need for large salesforces and significant promotional spend is reduced; it becomes more important to be at the forefront of scientific innovation, generating a steady stream of clinical data. Medical and marketing interactions should be to inform and guide medical opinion. There are often multiple stakeholders in the purchasing and prescribing decision process which requires appropriate market access capability. Competitive advantage comes through 'thought leadership and shaping activities' rather than dominating through advertising and promotion.
4. Rare and orphan disease indications: Drugs in this sector are generally life-saving, address a significant unmet clinical need and may be the only product available to treat a very rare condition. Typically, they are highly priced and are prescribed by a limited number of ultra-specialists. So the model needs to focus on key opinion leaders and patients, along with market access, which is not limited to securing permission to prescribe but importantly includes sourcing the funds for these costly therapies. Commercialisation of these products requires an integrated disease management approach, incorporating sales, marketing, medical and market access. Being first to market is critical. Partnering with key centres to establish best treatment practices, risk-sharing programmes is critical and involves the provision of bespoke solutions.

Common success factors
Each of these categories requires a bespoke approach, as the needs of each market are clearly very different. But there are also some common structural success factors which ensure that customer focus and innovation come to the fore.

One key factor is that marketing cannot just be left to the marketers – all functions need to be involved, which is why true multi-functional teams play a key role in many successful organisational models. By involving non-marketers in the marketing process, you open it up from marketing communications to being more strategic. Multi-functional teams don't even have to be led by a marketer – it could be a medic. A controversial suggestion to make in the pages of Pharmaceutical Marketing, perhaps.

The model organisation is one in which business and marketing plans are developed from a vision for the future that is truly understood from both the corporate and the customer's perspective – not just the marketing 'pigeon-hole'. 

It is one where clinical trial planning and evidence can be used at an early stage to provide segment-specific marketing information, and focus marketing resources where they will be most effective. 

It is one where functional specialists, with their own perspective of the customer, contribute to building the whole picture of the customer and their needs. 

Finally, it is one where everyone who has to implement the strategy is involved in its development – so that the organisation has the flexibility to adapt to those ever-changing market conditions.

The Author
Dr Paul Stuart-Kregor is director of The MSI Consultancy
He can be contacted at pstuartkregor@msi.co.uk

To comment on this article, email pm@pmlive.com