Is Your C-Suite Improving or Hindering Your Company Growth? (Part 2)

Andree Bates asks the question that perhaps no one wants to consider – is your CEO building up your company …or dragging it down?



CEOs are charged with finding innovative solutions to the challenges facing their companies. Growth is becoming increasingly difficult for Pharmaceutical companies - despite the increase of many diseases/illnesses. Emerging markets take on renewed and vital significance, as do markets such as Japan, where drugs are still available but are off patent in other countries. However, can these markets make up for the deficit somewhere else?

In Part 1 of this article we examined areas focused on by most CEOs attempting to create improvement in the fortunes of their companies:

  1. Improving R&D and pipelines
  2. Focusing on new market opportunities (e.g. generics, branded generics, portfolio customization, geographic)

 

This month we examine:

  1. Expanding into novel business areas
  2. Focusing on OTC /consumer segment
  3. Multiple concurrent approaches

 

3. Expanding into novel business areas

There are two philosophies on this. The first one - that favors expansion into new, related business areas – is based on the belief that diversification of portfolio spreads the risk, and many companies do this: i.e. Abbott, Boehringer Ingelheim, Johnson & Johnson, Bayer, Taisho, and Kyowa Hakko Kirin. Some of these are expanded in non-Pharma areas, such as chemicals and the like. In fact, for more than a few Pharma companies, this was where they began before they got into Pharma (e.g. Bayer with their Material Sciences and Crop Sciences division, and Kyowa Hakko Kirin with their Chemicals).

You can do both i.e. expand into new businesses and stay true to your Pharma roots

The second philosophy is to stay focused on your core business; these companies are almost pure play Pharma/Biotech and include Astellas, AstraZeneca, Amgen, Bristol-Myers Squibb, Merck, Mitsubishi Tanabe, Daiichi Sankyo, Eisai, Pfizer and Eli Lilly (with a small Animal Health division - 6%).

However, you can do both i.e. expand into new businesses and stay true to your Pharma roots. The most common way to do this is to expand the therapeutic portfolio or to create new disease business units. An example of expanding is Novartis, who bought Alcon to grow their Eye Care brands. Some companies don’t do this to expand existing portfolios but to add portfolios to their business that they feel will be valuable to expand their growth. An example of this is Sanofi-Aventis, who made a hostile bid to acquire Genzyme in order to access their Rare Diseases and Biologics expertise.

Strengths and Weaknesses

Expanding into new business areas offers the potential of gaining revenue untouched by the Pharma Industry environmental challenges, if you are adding separate businesses (such as Chemicals or Nutrition). Adding businesses to already strong portfolios also has the power of augmenting an existing capability. One weakness of adding a non-Pharma business could be lower margins, and sometimes the differences in the needs of the businesses can be a distraction to the company’s core dealings.

4. Focusing on OTC/ Consumer Segment

The OTC/consumer market has had a continued, stable growth and it is dominated by the mature markets. However, the emerging markets are exhibiting faster growth and we are starting to see them outgrow the more mature markets. The largest OTC market is still the US; China is in second place and Japan in third place. Numerous leading OTC companies are pure play OTC, however, some Pharma businesses are also in this space: Bayer, Johnson and Johnson, Novartis, Boehringer Ingelheim, GSK, Sanofi Aventis, Taisho, Takeda, Merck, Nycomed, and Merck AG. In many emerging markets, furthermore, the self-medication rate is significantly high due to health insurance being inadequately serving the population. The OTC segment allows fewer limitations on promotion, which in turn allows greater brand promotion. Companies already taking advantage of this in China are Sanofi Aventis and Novartis. The recently deceased Thomas Kelly, Sanofi Aventis China’s senior VP, said that Sanofi planned to continue to explore the OTC market for China with collaborations and acquisitions.

Strengths and Weaknesses

One strength of this business area focus is the continued steady increase in sales in the OTC/consumer segment globally as well as the concurrent benefits of using these as a means to establish a stronger presence in emerging markets. A weakness is the potential need to obtain or partner with companies in emerging markets to enable this to succeed, and the lower margins that can be expected from these brands.

5. Multiple Concurrent Approaches

Many companies are focusing on multiple strategies simultaneously. For example, GSK are focused on collaborations with scientists on novel targets as well as strengthening R&D via investments in 25 companies. GSK is also acquiring additive therapy areas, companies in generics, doing joint ventures in China, and acquiring additional businesses in OTC and consumer products, to name a few of its strategies.

Strengths and Weaknesses

The strength of concurrent approaches is essentially more opportunity to succeed, while the weakness is spreading oneself too thin and not doing any of them well enough

The advantage of this is there will be more opportunities for growth in various markets; the disadvantage is that there could be a dilution of managerial effort to balance these diverse businesses and additional difficulty for management to keep the overall company on track to achieve its goals. The strength of concurrent approaches is essentially more opportunity to succeed, while the weakness is spreading oneself too thin and not doing any of them well enough.

CEOs must choose which approach will yield the strongest results, but how?

Nothing completely innovative or transforming is being pursued yet but these strategies are better than nothing. However, the key to really knowing what options exist and which will have the optimal chance of succeeding is to apply analytics to all problems as this is a balancing act, with all strategies currently being pursued having strengths as well as weaknesses.

One of our Pharma clients was in position 36 in company size in its ‘emerging’ market and the CEO had a mandate to grow the company to be a ‘top 20’ firm in that market. How did he go about this task? He employed analytics to the problem to understand all aspects of the company and their competitiveness, their products and perceptions around them, as well as the predicted outlook for the firm. The first time he ran the analytics he found the issues in the company to be addressed were widespread, from pipeline to management, to reps, to marketing and sales. He started with the easiest issue to impact: sales and marketing. Once he followed the recommendations of the analytics for all key products, he found the company profit and revenue went up radically, moving the company to position 31 - up 5 places in overall company share. He then reran the analytics.

Although marketing and sales vastly improved, more changes were needed. However, the key issue he wanted to tackle next was management perception issues. These were highlighted and identified in the analytics and recommendations followed. The company continued an upward trajectory. The next focus was on pipeline issues. Some strategic in-licensing deals were made and the company portfolio strengthened. Again, the market position of the company went up. The analytics was rerun on all areas of corporate plus sales and marketing functions annually. Every time this was run, additional areas for improvement were targeted and focused on.

The last lot of analytics was run for that CEO before he left the company and the company was finally in position 5 in the marketplace, attracting top talent, and the outlook was very well worth the impressive retirement package he received. He was an exceptional CEO. He knew the transformative power of analytics and used our analytics to transform his legacy at the company. If only more CEOs realized how they could transform their results using analytics.

The Similarities of Pharmaceutical Companies That Succeed

No matter what approach is used, they tend to have in common a strong understanding of what needs to change

In Pharma companies that seem to have mastered their plans, performance gradually improves each year as a positive cycle of improvement is created and channeled to better performance, and they deliver one successful episode after another. No matter what strategy or combination of strategies are employed, these growing companies are ensuring that they are carefully analyzed using analytics (such as the 94.8 Analytics that has been used successfully in China, USA, Japan, Latin America and Europe) for CEOs to better understand the next move in that market or globally. No matter what approach is used, they tend to have in common a strong understanding of what needs to change, how change can successfully be delivered via testing of options using analytics, and then strong change management to execute the strategy successfully.

Conclusions

Pharmaceutical companies have not been running lean, mean corporate machines for some time – as the sheer number of budget cuts in general suggests - and creating a lean, efficient business is, of course, something that should have been done from the beginning and is to be commended. However, there is a balance between cutting jobs and budgets everywhere, and knowing (yes - knowing!) the right places to cut and the right places not to cut.

We did a project in Japan for a Pharmaceutical company who had just had a top 5 consulting firm in. The firm had told them to cut all sales and marketing activities, which would have been suicide for revenue and profit. There certainly were areas not having impact, but to recommend cuts across the board was madness, especially with no involvement of analytics. We completed an analytics project on all their brands and objectively put the reduced budget into the Budget Allocation Tool to see exactly where cuts could be made to allow continued growth, and where they should not be made. We suggested they cut some areas that would have least impact and suggested specific reallocations of the remaining money. From this money reallocated in a specific manner, we predicted (from our Budget Allocation Tool) that they would be able to generate ¥46 billion in the following 6 months. When we checked in with them 6-7 months later they were now making ¥50 billion on the reduced - but properly allocated - budget.

Imagine if that company had followed the consulting firm’s advice and cut everything in every brand. Disaster! Imagine if they had cut analytics and did not have the level of analytics possible to make these decisions which allowed continued growth? Again, disaster! Knowing where to cut and where not to cut is critical for the C-Suite in making successful choices based on data underpinned with strong mathematics and statistics, rather than based on conjecture.


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