A Talent to Improve: An Organisation-Wide Approach to Margin Optimisation in Life Sciences
There is an apparent lack of skills within the Life Sciences industry enabling firms to look more strategically at improving margin performance, according to research from the recent Model N / EPP Life Sciences Price and Profit Optimisation Forum in Montreux.
However, although it may be true that as yet there are relatively few specialists with the all-round expertise to drive an end-to-end revenue lifecycle strategy, this by itself will not be enough to deliver effective fundamental change throughout the business.
Simply putting a pricing manager in place without the right infrastructure and support will be doomed to failure. In a sector coming under increasing competitive pressure, C-level commitment is essential to create the necessary momentum, with full cross-functional and cross-business collaboration replacing yesterday’s typically siloed pricing approaches.
“Fewer than one in five (18 per cent) currently incorporate pricing and revenue management as part of their strategic planning process”
Life Sciences businesses have a long way to go here. The survey found that fewer than one in five (18 per cent) currently incorporate pricing and revenue management as part of their strategic planning process. Emphasising this traditionally departmental approach to price and profit management, an overwhelming 94 per cent of pricing teams report into, say, finance, marketing or commercial operations, with only six per cent directly into the CEO.
Yet as the most successful businesses have shown, as part of a shared vision that everyone is responsible for price and margin optimisation, the pricing group can be transformed from an admin function focused on execution to a strategic global commercial support organisation which sits at the heart of the business.
A tiered approach
A snapshot of providers to today’s Life Sciences industry would show an increasing number of companies staring to undertake change initiatives in improving their approach to pricing. Yet too many are doing this in a fragmented way, with no vision of what the end-to-end process of price, profit and revenue lifecycle management should look like. This results in an iterative process, in which progression along the maturity curve is slow, easily delayed and, in the worst cases, derailed by internal resistance.
To overcome this, a three-tiered approach offers the most effective way to provide the necessary momentum in addressing key skills issues around ownership, leadership, management and people.
First, as with any major change initiative, board-level project ownership is crucial, as it reflects corporate commitment and provides the necessary impetus to cascade new ways of working down and across the business – in short, to make it happen.
Second, the pharmaceutical industry is highly global in nature, with very few implementations impacting on single geographies alone. This is particularly true in the area of revenue lifecycle management, with such issues such as tender management and reference pricing, for example, becoming increasingly international in scale and business impact.
This impacts in turn on the skills required, with the need for staff who can take a multi-national, multi-departmental view of revenue management, at both a strategic and operational level.
Finally, much is changing in the sector in the area of pricing and margin control. Not only is revenue lifecycle management a relatively new concept, but aspects of the sales process itself such as tendering have also rapidly increased in importance. The result is that the new skills required to enable the enterprise to take full advantage of the opportunities they offer are in relatively short supply.
Finding the right staff
To be effective, recruitment must always take place in the context of the broader business – and nowhere is this more evident than in looking for staff who are capable of taking an all-encompassing view of revenue and margin performance.
The Life Sciences industry as a whole is going through a period of transformation, in which providers are coming under unprecedented pricing and volume pressures. They are having to learn how to adapt to new commercial realities, with little or no previous experience of this harsher landscape.
At the same time, specialists with these skills are likely to know their own value and will examine carefully any business looking to take advantage of their expertise. It is one thing to recognise new skills are needed: it is quite another to create a structure and provide supporting resources to enable this expertise to deliver best value to the business.
In response, it is very tempting to take a ‘sticking plaster’ approach to the problem as a first step, by deciding to take on one or two pricing managers and have them report into the commercial or finance team. Experience to-date shows that this will have limited success, for a number of reasons.
Without ownership at a senior level and a mandate to drive cross-functional change, the pricing organisation will not have the authority to create and implement sustainable operational enhancement throughout a business which remains essentially siloed in its approach to pricing and profit optimisation. Equally importantly, the newly-appointed specialists will quickly become disillusioned and move on or, if they have done their homework at interview stage, simply not accept the appointment in the first place.
By contrast, those organisations that have successfully put in place revenue lifecycle management initiatives that have led to sustainable revenue and profit performance improvements have typically embraced this challenge. They have recognised the highly transformational nature of breaking down functional and other organisational silos, by making the CFO and CEO directly responsible for sponsoring the required steps, so very visibly prioritising pricing within the business as a strategic, cross-functional and urgent initiative.
Evolutionary change
“Companies should not be scared off by the apparent scale of the challenge of implementing end-to-end revenue management”
Having said that, companies should not be scared off by the apparent scale of the challenge of implementing end-to-end revenue management.
It is true that in newer aspects of business development such as tender management, there is a dearth of skills within the Life Sciences industry. Yet other sectors such as hospitality and airlines, for example, are much more advanced in revenue management and have a wealth of expertise which can readily transfer across operating environments.
Yet in other areas such as reference pricing, the move towards an end-to-end pricing approach is more evolutionary. In many cases there are likely to be skills already in the business that can be honed and adapted to meet the new challenges facing the enterprise’s top and bottom line performance.
The right recipe
As in any recipe, success demands the right ingredients, all of which are essential to some degree to ensure the right result – in this case putting price and profit optimisation and revenue management at the centre of the organisation’s development strategy.
Identifying and putting in place the right talent and resources is one of several key ingredients, which include an appropriate strategy, the right processes and organisational structure, as well as supporting technologies and toolsets.
To achieve this, Life Sciences firms may need to look outside the industry for some specialist skills. Yet with the right top-down vision, impetus and companywide support, there is almost certainly a pool of talent within the existing business capable of embracing a more strategic approach to revenue management.