The future of pharma: rebooting for new business models
Leandro Herrero, CEO of consulting firm The Chalfont Project, on how the pharmaceutical industry can reinvent itself for the 21st century.
By on Apr 26, 2010Leandro Herrero, CEO of consulting firm The Chalfont Project, on how the pharmaceutical industry can reinvent itself for the 21st century.
When Albert Einstein was a professor at Princeton, a teaching assistant approached the great physicist to express concern about Einsteins latest undergraduate exam. Specifically, the fact that all the questions were the same as the year before.
Einstein, unbothered, famously told the assistant, Ah, the questions are the same, but the answers are different.
Same questions, different answers
Behavioral scientist Leandro Herrero, author of the books Viral Change and Disruptive Ideas and founder and CEO of the global consulting firm The Chalfont Project, says Einsteins wisdom applies nicely to the pharmaceutical industry.
Here we go again, Herrero says. The questions are the same. We keep asking about the same way of being more efficient, better segmentation, understanding the cost of management. The questions are the same, but the answers are going to be different because the world is different.
The world is different and so, too, is the pharmaceutical industry.
Reboot, not retrench
Market access is shrinking, as are sales forces and profit margins. Uptake of generics is swifter and market exclusivity shorter-lived. The BRIC nations have emerged as a vast yet uncertain market.
Meanwhile, the world continues to grow more interconnected, the disparity between wealthy and poor continues to bulge, and the global economy continues to shrink.
Herrero believes that for pharmaceutical companies to be successful in this new environment, they mustnt approach change in a piecemeal fashion, rather completely reboot.
If we do that, we have a chance, says Herrero. We have a chance to do something where Ill be able to look into the eyes of my childrens generation [knowing] that Ive done something thats changed organizations, thats changed healthcare, thats changed access to health.
While such advice is inspiring, its also a bit vague.
Reinvention time
Herrero, therefore, offers companies some concrete steps to reinvent themselves for the 21st century. The first is to adopt beta as a state of being. Always be in the process of changing, adapting, experimenting, implementing.
Try new business models and dont wait for the perfect time to implement them, because the perfect time is always a quarter or two away from today.
Weve gotten very good at trying to homogenize and make everything the same, whether its in account management or sales force effectiveness, says Herrero. And quite frankly, if this new company is unable to cater to all these different business models, they will break up in pieces.
Broader customer base
The second tip is to broaden the scope of ones customer base. One simple way to view the economy is as a head and tail, with the majority of activity, wealth, and connections in the head and then a long tail of unknown and unconnected products dragging behind.
Its an economy of scarcity and abundance; in other words, where popularity resides in the head, while a long line of products languish in the tail.
New companies, however, recognize that to be successful they must unlock the value from the tail, says Herrero. He points to Amazon.com as a prime example.
While Borders caters to the head with a thousand Harry Potters on its shelves, Amazon adopts the approach of selling a single copy of a thousand different books to arrive at the same revenue. Plus, they can still sell all of those Harry Potters.
Heads and tails
Herrero says the same methodology applies to companies internal operations. Our organizations have been built on a head economy, where most of the people are enclosed in a few business concepts, he says, adding that everyone in the head carries an impressive title like manager, VP, and COO, while those in the tail often dont aspire to have a name on a business card but still have something to offer the organization.
I really believe that the new company has to understand the capabilities of catering for the long tail of individuals, where many people inside your organization have a business card with no title, Herrero says.
New companies also recognize that talent is important and that to find it they dont have to embark on a quixotic adventure but rather can nurture it from within.
Forget that McKinsey outdated idea of the war for talent, Herrero says. I call it destructive because it told us that talent was somewhere out there in the jungle and you have to go fight for it. But talent is already in your organization. Talent is in this room. Talent is in your colleagues. Talent is everywhere. Were just not very good at hosting that talent.
Hosting talent
One key to hosting talent is enabling dynamic interactions amongst people, Herrero says.
Dont pigeonhole employees in a narrowly defined, left-brain-skewed, and generally dull occupation. Allow them to interact, challenge, question, and suggestfrom the CEO down to the receptionist.
You need a thousand conversations going at all times, Herrero says. You need to do that in the new company across borders. Dont get me wrong. Im not talking about the little parochial borders of the interdisciplinary cross-functional team. Thats a given. Im talking about picking up the phone and calling people who are remote to you inside and outside the company.
Viral change
Finally, Herrero says its essential that new companies embrace viral change. For years, the pharmaceutical industry has employed the big splash approach, where you devote a bunch of money and resources to introducing a product.
Were very good at big-splash management, where we put everybody in the country house hotel and we tell them what to do, he says. We aim at all of them and hope to get a few. The problem with big splash management is that it can only get bigger. If you do it once, a few people listen. You do it twice, they listen less. So you do it a third time and the people say, Here we go again, another corporate initiative.
Far preferable, Herrero believes, is the viral approach, where you start with a few and let popularity grow organically from there.
Ten percent of people can drive change in the other 40 percent, he says. And dont worry about the other 50 because they will conform.
Thrive to survive
The equation he gives for viral change is as follows: a small number of people multiplied by a small set of behaviors multiplied by their own social networks equals sustainable change.
Homo sapiens is not relevant anymore, Herrero says. Were homo imitans. Were very good at copying things. Look outside. Any of the things we see all the time have been created and developed in a viral way, in a copying model way, with no command and control, with no top-down strategy, with no big splash.
This industry is very good at carrying on doing things as before and pretending that because were pharma, were different, Herrero concludes. Theres often an incredibly high level of complacency.
Those companies that remain complacent will drive themselves to irrelevance, Herrero predicts, while those that adopt a more fluid, collective, creative, disruptive, and viral mentality will thrive.