Brands:looking at the bigger picture

pharmafile | May 3, 2006 | Feature | Sales and Marketing |   

While the prospect of a single-product company might seem attractive – no in-fighting over resource allocation, no conflicts of interest, no trade-offs between products – the reality is that no pharma company is like that. And a good thing too, because such a company would be vulnerable, with all its eggs in one basket, and what's more, a basket with built-in obsolescence.

So therefore the pharmaceutical company must necessarily manage a whole portfolio of products, with all that that entails. And yet many marketers think of each of their products individually, attempting to manage them to maximum effect, whilst in some cases only giving a cursory nod to the wider corporate strategy.

It is inevitable that such an approach will mean failure to maximise the overall potential of the pharma companies. So how do you reconcile the apparently conflicting needs of various elements of your portfolio, balancing the need to achieve corporate goals against the need to maximise the potential of each individual product?

Whose responsibility?

The need for managing the company's entire portfolio may be recognised at board level, but often the structures of pharma companies mean that the reality is somewhat different at the coalface. Individual marketers might understand the theory, but they usually have responsibility for one product – or at best one therapeutic area. Few marketers have responsibility for an entire portfolio, so few are in a position to practice or gain experience of true portfolio management.

In addition, the reality is that brand management structures are often set up to 'compete' for internal resources, with each brand manager fighting for the best resource mix and investment for their product, irrespective of the bigger picture. So individual brand managers may give little thought to maximising anything other than individual elements within it.

This is the traditional model, although we are at last starting to see a change. Some companies are now expecting to see strategies from individual brand managers, which at least take into account the context of the overall company situation.

For individual marketers, this means that they must gain a true understanding of how a portfolio develops, how individual products within it are interdependent, and how to approach resource allocation to ensure that the whole range of products –  rather than just the one they have responsibility for – can maximise performance.

There is a competitive imperative at play here as well: with falling margins, fewer new products, and a closer focus on the value that marketing can add, portfolio management will become an increasingly important skill for the marketer who is striving to achieve 'excellence' (which of course is all of them, isn't it?).

Due to their wider corporate responsibility, the Business Unit manager plays an important role, and may be able to take a more general overview than the product-focused brand manager.

So marketers need to start thinking of their 'own' products not as individual entities, but rather as pieces in a jigsaw puzzle. They need to accept rational assessments of each products strengths and weaknesses. This will allow resources to be allocated, not to those areas whose guardians are best at bidding for them, but to where they are genuinely needed to achieve the company's strategic aims, whether those are maximum profit, sales growth, market share, or whatever.

The classic approach

Every marketer will be familiar with the Boston Consulting Group (BCG) matrix, which was developed to enable a company to start thinking about setting an appropriate strategic objective for each element of its business: building, holding 'harvesting' or divesting. The main thrust was to identify the cash generators and the cash users.

However, much like a company balance sheet, the BCG matrix only represents a snapshot of the situation at any given time. And much like a lot of theory, it can be associated with prescriptive textbook solutions to that situation. And we all know that real life does not pan out like the textbook says it should – at least not always.

The BCG matrix focuses only on market position versus opportunity growth – very limited criteria by which to assess opportunities and capabilities.

The model works on the assumption that being a market leader is what generates cash. Whilst this might be true, it's also true that a strong number two in the marketplace can also be profitable, meaning it's not a 'Problem Child' or 'Question Mark' at all.

The classic BCG model was designed to assist in decision-making at a global level, where the customers, the individual product markets and/or a variety of different scenarios are not considered. But clearly this is very limiting: how can any portfolio management strategy ignore the customer? What about the interaction of several product or therapy-based strategies? This particular approach is therefore not helpful in guiding and assessing the merits of individual product strategies that are developed within the portfolio.

In fact, the task is rather more complicated than that, and cannot be approached with simplistic solutions – inevitably. So we must look elsewhere to find an effective solution.

Defining the portfolio

Perhaps a good starting point is to re-define exactly what a portfolio is. It isn't simply a collection of different products, it represents far more than that. In essence, a portfolio, especially in the pharmaceutical context, is a mix of opportunities and risks. It is only by understanding this concept, that we can develop a meaningful strategy for managing the portfolio.

Any portfolio of products and/or service presents a company with a range of different market-based opportunities. The concept of return on investment is (finally) well understood within our industry, and the portfolio manager needs to look at the revenue likely to be generated relative to the investment required, in order to establish which is the most likely strategy to meet, or exceed, business objectives.

But it's not just about ROI; it's also about managing risk. That risk comes from a number of directions, and it's important to understand and quantify the various risks before such a decision can be taken. The risk can come from the market environment, from competitiveness, and from the companys own capability to meet market needs.

The aim of any portfolio management strategy should be to optimise the investment so that the balance is achieved on the following three scales:

• Risk versus return
• Maintenance versus growth
• Short-term versus long-term

So how do you go about achieving that perfect balance? The key is to look at the total portfolio as a whole, rather than at its constituent parts separately. It's no good planning to spend resources on one element of the portfolio without giving some thought as to when and where resources will be needed elsewhere, otherwise you run the risk that resources will all be needed at the same time.

Inevitably, then, there will be an element of prioritisation, and difficult decisions will have to be made about conflicting priorities. The traditional structure of pharma companies means that this process pits marketers against each other, whereas an approach which focuses on the portfolio as a whole means that marketers will subjugate their own individual product needs to the greater need of the corporate whole (in theory at least).

Looking at the bigger picture means that the portfolio manager can also review different options in a dispassionate way. Clearly it is important that this review is undertaken in the context of individual brands having developed good quality strategic options based on a sound and transparent analytical foundation, using key marketing principles.

Only then can the portfolio manager look at different permutations and combinations of options (by brand) to assess which ones represent the best balance of risk and return over the defined time period, recognising that there may need to be short-term investment for longer-term strength (another advantage of looking at the wider picture: the ability to let the 'Cash Cows' subsidise investment in other products for the longer term).

Things to consider

In developing the portfolio strategy, there are some important considerations to take into account. Thinking through these points should help provide some clarity, and may make what at first sight seems a daunting task appear rather more manageable.

Consider how you can group the portfolio by 'clumping' –  i.e. linking products together to achieve synergies in return on investment. This is classic Ansoff: 'Can we present new products to existing customers we are already calling on?'

Should you follow the 'halo' strategy – allowing weaker parts of the portfolio to feed off the star performers, seeing them as a marginal cost in investment terms?  Or does this weaken the return from a sure-fire profit-maker?

Consider what the criteria should be for forming these clumps – therapeutic area; a particular compound; different technologies, a developed competence? Or even, God forbid, particular unmet market needs!

Assessing the portfolio strategy

So how do you know that any potential portfolio management strategy is going to be effective? What are the criteria for assessing strategies before implementing them, in order to give the best possible chance that they will succeed?

Any such strategy begins with a set of strategic goals; then it is a case of developing potential scenarios to develop and test strategic options to make sure they are going to meet – or exceed – those goals. This approach will enable marketers to compare the business performance characteristics of any potential strategies.

Scenarios are compared using performance (key metrics, timing and magnitude of results), risk (probability of meeting goals), and portfolio composition (synergies and economies). Key elements of each are:

• Performance:
• Consistency with Vision/Mission/Goals
• Sales value/growth
• Profit value/growth
• NPV
• Market Share
• Return on Investment
• Level of risk – chance of success:
• Competitive environmental fit
• Market environment fit (political)
• Capability fit (skills)
• Capacity fit (resources)
• Focus of company resources – synergies
• Synergistic Effects
• Corporate Fit

The successful portfolio strategy

Of course, every pharmaceutical company is different. The mix of products in any one portfolio will be unique, both in terms of the therapeutic areas in which those products operate, and the stage in their lifecycles. Most likely it will be a mixture of everything from pipeline through to patent-expired products.  But there are certain fundamental truths, which can be applied to every portfolio when it comes to planning and managing for success.

First, and most importantly, marketers need to view their individual products as interdependent – different pieces of the same jigsaw – not in an individual way.  As we have seen, this will require new thinking.

Secondly, the strategy must have as its first priority the corporate strategic aims of the company: maximum profit, maximum sales growth, maximum market share, or whatever is the corporate priority.  Not those of individual products and their specific teams. The key is to subjugate the individual product to the good of the corporate whole.

Of course, to achieve this, long-term thinking is required. Given the short-term nature of much of our industry's reward mechanisms, and the rapid turnover of marketing staff, perhaps this will also require new structures and new methods of measuring success, other than immediate profit.

Grouping products within a portfolio makes the whole strategy manageable, and easier to implement.  The first step towards this is a thorough portfolio review, understanding where each product fits, and looking ahead so that pipeline products can be included in the strategy.

Finally, any strategy has to be reactive to market changes, so a degree of flexibility has to be built in – including in planning the allocation of resources to meet the strategy.

We can't be in a world where we can concentrate on one product, where life is simple and there are no conflicting demands on resources.

But by viewing a company's portfolio as a whole, we achieve the next best thing: a strategy where RoI is maximised, and where each product gets the investment it needs within a secure and sustainable corporate environment.