Coping with transformational change – the key to winning

pharmafile | October 22, 2012 | Feature | Business Services, Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing |  Moorhouse 

Imagine you are investing £3.4 billion in changing your business, half of it in business-critical projects such as drug supply chain transformation or the integration of a strategic acquisition, and:

• you don’t engage key stakeholders very well or put the right resources on to the job;

• you don’t measure whether you are getting anything for your money;

• you expect things to change, but you don’t expect to cope very well with the changes;

• you are resigned to the fact that you are unlikely to have the capability to deliver the change;

• to top it all, the Board and delivery teams have different views on how things are going and the likelihood of success.

These are the findings of Moorhouse’s 2012 ‘Barometer on Change’ survey, which reveals the opinions of 200 UK Board members and their direct reports, on the factors influencing change and how effective change management programmes are.

The ability to deliver change effectively has never been more important. Huge changes are sweeping through the pharma industry – from  the patent cliff to R&D productivity, the Barometer on Change suggests there is a storm brewing for big pharma companies who are not abiding by the five golden rules underscored by the survey:

1. set your programmes off on the right footing;

2. measure the benefits of what you are doing;

3. be proactive and agile throughout the delivery of the programme;

4. foster the capability to deliver continuous change; and

5. understand the gap between how the board and delivery teams perceive project status.

In response to the macro industry challenges, pharma companies have been initiating large-scale programmes to re-organise, identify new opportunities for revenue generation, and produce cost savings across the business.

Our insight into supporting global pharmaceutical companies to deliver such programmes reinforces the survey findings. Instituting change begins by disposing of the old mantra ‘change is the new norm’ and adopting today’s mantra: ‘change is reality’.

Effective change management, with less financial investment, is more important than ever because of the increasing pressure to perform in the market. Almost three-quarters (72%) of our survey respondents feel that the pressure for change has increased over the past two to three years, and over two-thirds (67%) feel it will continue to increase over the next year or so.

Given the limited resources of pharma companies to respond to changes in demand, these organisations need to focus resources in the right areas. Change programmes can no longer be seen as one-off activities.

Rather, organisations need to manage continuous change as a core competence – this will be fundamental to future success.

This includes three primary elements:

• a commitment to fostering people’s ability to deliver change as a core capability;

• the ability to adapt your portfolio of change programmes proactively to changes in their corporate environment; and

• an unyielding focus on measurement and realisation of benefits that are the reason for  the transformational change.

A core capability

The Barometer survey revealed that confidence in programme teams’ ability to achieve change successfully is not high – over 40% of respondents are not confident that the people who undertake the day-to-day running of the project are capable of making critical decisions, and the Board have a more negative view of their ability to make decisions than their direct reports do.

This may be down to the fact that, as per our example, staff are often handed responsibility for transformation as a leadership role, despite not having had experience of managing change on a regular basis. “We just don’t seem to be particularly good at judging the resource we are going to need and when we’re going to need it” – senior manager, Pharmaceutical firm.

Many organisations will point to the fact that project management skills are in short supply. It’s true that creating more experienced and skilled project teams is not something that is easily achieved. Furthermore, it is easy to focus on individual skills without thinking about what is required to drive reliable, repeatable results. The organisation’s inability to quickly identify when change is failing and take the necessary corrective actions compounds this.

However, the importance of continuously delivering effective change means organisations need to treat their ability to deliver change as a strategic capability – and foster it accordingly. In our experience, organisations that are able to deliver change consistently well excel in three distinct areas:

(i) the strength, skills and behaviours of the community of change practitioners within the organisation; (ii) the quality of the organisation’s ‘one best way’ for change – i.e., its repeatable methods that balance project management rigour with simplicity, pragmatism and accessibility; and (iii) the governance, decision-making and assurance mechanisms that select and oversee the delivery of change.

By way of illustration, in recent work we did with a leading healthcare company we highlighted a significant risk that the anticipated benefits of an ambitious global collaboration programme would not be realised.

This was because the Board intended to delegate responsibility for the programme to commercially focused teams within the emerging markets, who had limited project management expertise. Secondly, they had not planned to increase the capacity of the management team responsible for providing information to programme decision-makers and tracking ROI.

Applying the lessons from the survey to this situation, confidence in successful execution would be enhanced if each new collaboration initiative was clearly defined and the resource responsible for delivery confirmed at the outset.

Likewise, management interventions that focus on providing common and core project management skills would significantly improve the chances of realising the intended benefits. Enhancing this capability will be an enduring success factor, with the effects permeating through the organisation and benefiting other key change initiatives.

Stay flexible

As investment budgets become squeezed, managerial effort must focus on selecting which programmes and projects will deliver the greatest return. It is surprising then, that relatively few large pharma companies have embraced portfolio management practices across the enterprise.

When implemented well, this approach provides a consistent framework. It provides processes that support decision-makers to optimise spending with the best return on investment and strategic alignment, and to balance delivery risk across the holistic portfolio.

Effective planning ensures the organisation can control resource requirements rather than be controlled and drawn into fire-fighting situations. In the pharma industry, portfolio management decisions are crucial to the viability and success of a company, especially within their R&D functions where decisions made involve huge investment commitments, the possibility of failure, and uncertainty with regards to commercial success.

With well-managed portfolio management practices in place, an Executive Board can monitor the full suite of transformation programmes to understand the complete landscape of change. This approach supports leaders and helps them prioritise resources, based on the success criteria of the overall change and in response to internal and external pressures.

The ability to do this is crucial, when you consider that almost all (92%) of our respondents found that objectives altered over the course of their programme, with this change being significant in two-thirds of cases.

Over their lifecycle, transformational programmes hit unanticipated problems that lead to schedule overruns and/or significant overspend. This is particularly true in the ‘cash-rich’ pharma industry, which has a track record of significant overspend and overrun on major programmes.

The underlying causes of this are similar to other sectors, principally: a lack of clarity on scope and objectives; lack of a clear vision; insufficient attention paid to quantifying costs of delivery; and, perhaps the most prevalent of all, weak benefits realisation management – which we’ll come back to later.

A portfolio management approach ensures that when new projects are commissioned, they are anchored to the overarching business strategy. The contribution they make to realising that strategy is balanced alongside all other projects in the portfolio. A further test is to ensure that programme objectives are aligned to strategic priorities (as opposed to tactical ones).

Many organisations seem unable to get this one right. In fairness, it is not a straightforward exercise, as many leading pharma companies have found. It relies on consistent data capture, smart aggregation and sophisticated analysis in order to generate the right information for decision-makers.

But the potential rewards are huge, not least in eroding behaviours that champion ‘pet projects’ that do not have a transparent benefits case and in instilling greater discipline at stopping planned or in-flight projects that will not deliver value to shareholders.

Closely guarded budgets held at a business unit or functional level encourage parochial behaviour, and can lead to duplication across organisational boundaries. Hence ‘pooled’ investment – with risk exposure balanced against customer value across the whole portfolio – tends to result in the biggest return on investment (ROI) for the organisation.

If objectives are found to be unrealistic, the organisation is able to change them and decide whether a programme remains viable. And in the current environment a change in scope for major programmes is virtually inevitable.

Measure and realise benefits

Our survey covered £3.4 billion worth of investment being made by UK organisations on major change. While some efforts are being made to track benefits, only 54% said they are measuring benefits fully during the course of a project, with less than a quarter properly measuring benefits after the project has ended. This is the equivalent of £2.5 billion being invested without proper evaluation of the investment’s success.

Historically, the tracking of benefits has been poorly implemented in large programmes in the pharma industry, due to the surplus of resources available in the days of the blockbuster.

But increased costs pressures mean the ROI of transformation programmes is under increasing scrutiny, so being able to track and measure benefits is vital. To do this, it is important to establish a baseline position at the start of the project and maintain an unyielding focus on realising benefits throughout delivery.

This is something that senior stakeholders need to feel they have responsibility for and visibility of throughout the course of the project. Benefits should be an integral part of status reporting, with mechanisms in place to ensure their measurement, and management, on an ongoing basis. This in turn enables the effective control of a large number of parallel transformation programmes – a typical challenge for the modern pharmaceutical company.

We recently worked with one leading healthcare organisation that had to balance global programmes focused on organisational restructuring, changes to the product development processes, the divestment of non-core brands and the integration of a new acquisition bringing with it a whole new market offering – all within the same financial year.

Once this is in place clear communication and a common understanding of benefits and aims is needed to achieve buy-in from across the organisation, and to ensure their context and importance is understood against ongoing ‘business as usual’ activities. Many large organisations fail to provide this understanding to all stakeholders; however for the implementation of effective change this has proved to be critical.

By aligning programmes to a single vision, and ensuring the transformation direction is made clear to all stakeholders can be the difference between success and failure. For example, the cost reduction agenda for many pharma companies and the subsequent reduction in staff levels can create an uncertain atmosphere.

As a result, transparent decision-making and clear, consistent communication with stakeholders is required. This can help everyone involved to understand and commit to the change.

The Barometer on Change shows that more organisations are beginning to see that ‘change is reality’, but many are still struggling to hit objectives – despite 50% of change programmes being business critical.

There are key differentiators that can support organisations in successful complex change programmes, we have outlined three that they must get right.

Increasing pressure to change in fiercely competitive markets, means those pharma companies that heed the lessons and achieve their changes most effectively will be the ones that leave their competitors behind.

Scott Ellis is a manager at Moorhouse.