The cultural shift of key account management
pharmafile | June 19, 2008 | Feature | Sales and Marketing |Â Â key account management, salesÂ
Key account management is a relatively new development in the pharmaceutical industry, but it is now being widely adopted as a way to reduce costs, increase efficiencies and generate long-term value for companies that invest in it. It is also seen as the way to truly align pharmaceutical companies with their customers.
Nevertheless, pharma companies are realising that a number of barriers to implementation must be overcome if the new approach is to pay off.
So what is key account management and is it necessary for pharma? Well, remember Pareto optimisation: 80% of your sales come from 20% of your clients. So best practice would be to identify your big spenders and do everything you can to keep them onside.
David Wright, director and senior partner at Imonic, who have specialised in KAM since 1990, explains: "Key account management is a methodology and set of processes to manage high value or strategically important customers more effectively. The methodology and processes utilised as part of an organisation's KAM strategy mainly depends on the way its customers are structured, their market and what they are trying to achieve.
"So, for example if you look at the facilities support sector, KAM is about 'owning the customer' so a whole array of products and services – from telecoms, to building maintenance, to reception and car parks – are supplied and continually widened to 'own' a greater slice of the customer's spend, and decrease the customer's ability to easily go elsewhere. By contrast, KAM for pharma will be more like the aerospace sector, where there is a narrower set of offerings backed up with regulatory approvals and a high level of specialist expertise."
Key account management for pharma
Pharma has come to key account management fairly late but it is becoming a key weapon in the battle between companies for sales. Research carried out by Archstone and eyeforpharma, ahead of the 2007 conference Responding to the Changing Healthcare Environment, pointed to sales force structure and training as the two areas most likely to undergo major change in pharma, with half of respondents expecting to make significant adjustment for the new NHS environment. At the conference, Alistair Mackintosh of Archstone said many responses reflected a 'business as usual' approach: continuing focus on physicians and detailing model, continuing functional hierarchies and product/franchise focused business units, and maintaining strong country boundaries.
Any novel responses have essentially been 'point solutions' prompted by technology advances and changed business practices, rather than a considered strategic response. customer relationship management (CRM) and other technologies offer an expanded view of the customer, while the web offers new means of customer interaction. New business practices like integrated account management, outcome based reimbursement, cross functional team working, pan European business units, and integrated medical marketing and sales initiatives, have all played their part.
So what is blocking more innovation in the sales force? Alistair Mackintosh thinks the industry has been a victim of its own success, making it reluctant to change a winning formula. Another problem is scaling up successful pilots, which presents a major implementation challenge.
The sheer complexity of existing pharma company organisations is another obstacle. Not only are they hard to change, but they are under constant pressure to deliver financial results every year. The other problem is a lack of corporate role models to inspire change: unlike other industries, pharma has not seen significant new entrants reinvent the business model.
The birth of a sales model
All in all, the sales model is undergoing radical change, and despite major obstacles along the way, the changing nature of the customer make the KAM model likely to become the rule rather than the exception in future. As David Wright points out, it is not just a UK issue: "The need for KAM in pharma is being driven at different rates in countries across Europe, which are reorganising healthcare systems on a limited and highly politicised budget. To do this they need value for money and greater control across all their major expenditure, not least in drug purchasing."
So who should key account managers target, and how is this different from the sales rep model? Increasingly the market is being directed by payers, as doctors have less and less choice over what to prescribe. This means that the sales strategy is switching its focus onto the payer. Alistair Mackintosh argues this will inevitably lead towards key account managers focused on government and payers.
Success in the new regime requires a remapping of the stakeholder landscape in line with the classical key account management model. Archstone identify six types of influencer on the buying, all of which were previously in the gift of the physician. They are: authoriser, (PCT), decision-maker, (formulary committee and NICE), technical buyer (commissioning practice manager), user (patient), key influencers (key opinion leaders, patient associations), and coach (pharmacy advisor).
This switch from sales model to stakeholder model means that future relations between pharma and its customers will work in a completely different way. As Alistair Mackintosh puts it: "In the new environment, managing sales is about orchestrating interactions with the key stakeholders."
David Wright agrees: "Prescribers and influencers are no longer solely GPs. Contact strategy will need to be aligned to the local health economy, within which there will be a mix of influencers and specifiers, with a varying degree of power."
Pharma companies will increasingly need to build networks of healthcare professionals and identify which contacts are relevant to their specific objectives, such as getting a drug on formulary or increasing usage and demand. Once they have identified the Decision Making Unit (DMU) they will need to manage it. "The DMU becomes the micro-organisation you are selling to," says David Wright. "It may well contain individuals of various seniorities, from a mix of local healthcare establishments. The title or position of an individual does not necessarily reflect their importance in the DMU."
The difficulty is that pharma's current networks are often not managed holistically, so different people in different departments (often working to different objectives) may be treading all over an important DMU. If current separate structures are to continue, then they must learn to work as an account team, to join up the individual interactions.
Another deeper issue is that a KAM culture and a typical sales culture will be significantly different, as Dr Brian Smith of Pragmedic points out:
"A typical sales culture depends on three important cultural assumptions: people are driven by accountability and autonomy, profit is the most important thing, and markets are turbulent. It will build cultural values on those assumptions, in particular: 'we value independence, initiative and self-motivation, we value financial performance and we're suspicious of long-term plans and pay-offs'.
"There are three cultural artefacts flowing from those values: reps get lots of freedom and are held accountable, 'In God we trust, all others bring numbers' and planning cycles beyond one year are treated with caution."
KAM culture
A KAM culture is in many ways the mirror image of this typical sales culture. It assumes that value is created in the linkages between functions, that risk adjusted ROI is what matters, and that markets are superficially turbulent but fundamentally stable. The KAM company builds three cultural values on those assumptions. They are: 'we value cross-functional team working, we value risk reduction and overall returns, and we value long term plans'.
The cultural artefacts flowing from those values are that truly cross-functional working is implemented, companies use 'sat nav' metrics, and short and medium term plans are fully integrated. So whereas a sales model is, in many ways, a 'them and us' mentality, a KAM relationship is win/win/win for pharma, prescriber and patient, or as Brian Smith puts it, "KAM is the management of multifunctional interfaces between buyer and seller in order to achieve long-term, mutual and multi-dimensional value". In short: partnership between buyer and seller for mutual benefit.
In many ways, KAM represents the holy grail of selling: relationship sales between organisations which, in many cases, are too big to ignore each other. Big pharma is focused on large sales forces providing saturation coverage of prescribers, but the NHS changes may well be providing opportunities for smaller companies to exploit their competitive advantages, particularly if they can demonstrate greater efficacy or cost-effectiveness.
Pharma's pipelines are now producing fewer generalist medicines and more specialist medicines for smaller patient populations. This means that one size no longer fits all, as Nina Felton, country principal of IMS, noted at the eyeforpharma conference. Products in development are increasingly aimed at specialist care rather than primary care, so the massive advantage that big pharma sales forces offered in the blockbuster era is beginning to be eroded.
Nina Felton suggested at the eyeforpharma conference that three main business models are emerging: maximising the primary care franchise, which is similar to the old rep-centric 'arms race' model, management of mature products focussed on improved productivity, and leveraging the specialist segment using key account managers to work with local networks.
Local knowledge is supplanting the old 'one size fits all' model. Nina Felton produced a range of statistics which show that regional UK markets are diverging, and that local knowledge is becoming crucial. For instance, more sophisticated PCTs are more likely to prescribe generic simvastatins while less sophisticated ones prescribe branded atorvastatin.
The same applies to regions where prescribing patterns vary according to local preferences and drivers. The Midlands and Eastern region of England are almost twice as likely to prescribe new diabetes products as the Isle of Man or the Channel Islands. Equally, England and Wales are aggressive on simvastatin substitution while Scotland and Northern Ireland lag some way behind. So key account management, tailoring the product offering to different regional needs, must come to the fore.
It is notable that the most prominent example of KAM in UK pharma is Takeda, a medium-sized company with a small, successful portfolio of just two drugs and less than 10 years' presence in the UK.
There is evidence that the new structure kicked off pretty quickly. Certainly the people most directly affected by it, the RADs themselves, seem to like it.
The benefits for pharma
So what other advantages have pharma companies practising key account management seen? David Wright of Imonic points to five major benefits: "The first is simply increased sales. Look at Takeda's growth – since it moved to its regional account director structure in 2004, it has been among the fastest growing medium-sized pharmas (sales of £25 million plus), and the fifth fastest growing pharma of any size. Second is more respect from their customers and networks, as the pharma is sending out fewer confusing and conflicting messages.
"Third will be greater productivity from their sales teams, because they are working to common goals. Fourth, companies that practice KAM get more opportunities through by better understanding of the aims and challenges of the healthcare professionals in their networks.
"Finally, companies need to have the insight and credibility to sometimes say 'no' to the customer. This is often overlooked, but pharma companies who are really practising KAM will be close enough to help their contacts 'design' the collaboration needed and structure it to mutual advantage. They will also have processes to evaluate a collaboration opportunity to determine if it will give improved access, insights, data and outcomes to make it stack up."
So if the industry is tentatively taking steps towards KAM, best practice hasn't really emerged yet, says David Wright, "Imonic undertakes 'fit for KAM' audits which give an overall benchmark and a best-practice benchmark for both external (multi sector) and pharma. The pharma best-practicebenchmark focuses on some of the key 'change areas' such as organisation structure, customer centricity, network management, account planning etc but as KAM is in its infancy, the highest pharma benchmark score we have audited is only 41%, compared to 89% in other industries."
John Hosken is principal consultant at Information Advisers and a qualified business coach. E-mail: jhosken@hotmail.com
Related Content
Exscientia buys Austrian cancer cell screening company for €50 million
UK-based AI pioneers Exscientia has announced the purchase of rival AI firm Allcyte for €50 …
Deloitte acquires Iperion Life Sciences Consultancy
Deloitte have announced the acquisition of Iperion Life Sciences Consultancy, a globally-operating firm working to …
Novartis CEO sets aside $700 million to settle bribery lawsuit
Vas Narasimhan, Novartis’ CEO, has set aside $700 million to settle a bribery lawsuit in …
