SFE - the industry's lifeline

Although many experts say R&D productivity is beginning to bounce back, Adkins says it will be six to ten years before a commercial effect will be seen.

By Editor on May 16, 2006

Although many experts say R&D productivity is beginning to bounce back, Adkins says it will be six to ten years before a commercial effect will be seen. And he stresses that with current attrition rates, his group still doubts whether enough drugs are entering the pipeline to sustain the kind of growth rates investors have come to expect.

Pipeline problems, coupled with patent expiries and pricing pressures, Adkins says, put SFE center stage as the industry's lifeline for the foreseeable future.

Sales and marketing, he points out, is the single largest cost driver and clocks in at one and one-half times the average industry spend on R&D. For an R&D-based industry, Adkins says, that's backwards.

Companies typically invest 25% of sales in their sales and marketing activities, he says, but rarely is zero budgeting pursued. And although the industry uses benchmarking for measuring efficiencies, it is not good at measuring effectiveness, Adkins says.

Sales forces are directed to apply an intended strategy and yet the realized strategy in the field is often very different, he says.

Companies, Adkins says, must improve their ability to determine the relative effect of promotional activities.

You must be able to calculate the return on investment of each thing you decide you want to do in order to facilitate more effective planning of future investments, understand the pattern of investment and maximize ROI, he says. By identifying the low hanging fruit within your sales force, you can concentrate spend on high return activities and improve the realized strategy within your sales force.

Adkins says if companies can cut 25-40% of their selling expenses (given they are 25% of total sales), they could add 6-10% to their bottom lines and bring sales expenditures in line with R&D.

That's much more sustainable for the future of an R&D-driven industry, he adds.

Adkins says companies should know what they are spending on each sales and marketing activity and be able to calculate the contribution each of these activities has on sales. This, he says, allows companies to either eliminate activities that cost more than they return in sales or reduce investments in those activities to bring them in line with their sales return.

Companies will often see that the contribution to sales of their various activities can add up to more than 100% because of combination effects.

If you can understand your promotional model understand the sequence of events and which combinations of services work together you can eliminate the contributions to sales that are overlapping and you can develop a simple and effective promotional model, he says.

Adkins stresses the importance of assessing the contribution to sales regularly because, he says, it will change from product to product, from category to category and throughout the product cycle.

He also emphasizes the importance of identifying the realized strategies employed throughout the sales force versus the ideal strategies so that sales teams can be migrated toward the most optimal strategies. His groups's research suggests that there may be as many as eight realized strategies, which are different from the ideal, employed in the field.

If we don'st understand that, we can'st use our sales management skills to migrate realized strategies toward the ideal, Adkins says.

As an example, he suggests, looking at targeting.

We all know the relevance of targeting, he says. We know the costs and we can calculate the contribution to sales based on call or meeting type and whether it is to a targeted or non-targeted physician. If you find that a higher proportion of your sales contribution is beginning to come from non-targeted doctors, it means your targets are wearing out and may no longer be the right ones.

If you can identify the individual contribution each sales force activity makes to sales, and therefore to profit, Adkins says, you can identify the combinations of activities that are synergistic.

You can do the things that are effective and remove the things that are ineffective, he says. You can do the things that are high return and remove the things that are low return. This is about doing things right and is a way of saving money.

The most effective strategies he says are usually twice as effective as the one that is most commonly pursued.

If we can identify the winning strategy and migrate to it, we can boost sales, he says. There are usually several viable strategies, but one ultimate one. And although there will be barriers, if you can even migrate part of the way toward the ultimate one, you will have a huge impact on sales.

Improving SFE, Adkins says, is probably the single biggest driver of profitability in the industry until the next product cycle.