New Commercial Realities – Part 4 Key implications of this changing industry landscape for pharmaceutical commercial operations – governance
Faced with a changing healthcare environment and the prospect of diminishing commercial returns, the pharmaceutical industry has recognised that traditional commercial models based on sales force arms races are no longer viable. In order to adapt to new commercial realities that require more complex decision-making processes and involve a greater number of stakeholders influencing at a range different levels, pharmaceutical companies must undertake a fundamental and systemic rethink of their commercial operations.
This article is part 4 of a 4-part series. Part 1 described the key drivers of the evolving pharmaceutical commercial landscape and part 2 considered how key stakeholders in the changing healthcare environment are evolving. Part 3 discussed in detail the key implications of the changing industry landscape for pharmaceutical commercial operations – with a particular emphasis on roles and organisational scale. In this final article of the series we continue to discuss in detail the key implications of this changing industry landscape for pharmaceutical commercial operations – this time, with an emphasis on governance. We also describe an actionable approach for implementation of new commercial models.
The changing healthcare environment demands new organisational realities
Governance structure and accountabilities
To mirror the evolution towards patient-centred healthcare provision and the provision of value at the treatment pathway level we advocate organisational structures that are aligned around therapy areas, with all functions having reporting lines, direct or dotted, to the heads of therapy area business units.
Many pharmaceutical commercial organisations have suffered to a greater or lesser extent from siloing, with individual functions operating almost independently driven by distinct and misaligned sets of incentives. This is a particularly common accusation levelled at Sales and Marketing functions.
To remedy this problem requires a single function with full accountability for developing integrated commercial strategies for therapy areas and their brands across payers, providers and patients, and for ensuring consistent implementation across customers and channels. Obvious candidates for this role are existing Therapy Area/Brand Managers, although such a role would involve a shift from traditional marketing in many respects:
- Whilst Marketing is often in charge of developing marketing strategy and the marketing mix, there is much less input into sales resource allocation discussions. As owner of the integrated commercial plans Marketing would be expected to assume responsibility for the overall investment decisions.
- At present there tend to be recognised hand over points between Marketing and Sales functions with respect to design (Marketing) and implementation (Sales) of tactics, messages and campaigns, with few interactions and feedback loops in between. In the future, with accountability for execution of the integrated commercial plans, Marketing would be expected to assume responsibility for tracking and monitoring overall performance and for use of outcomes to adjust and adapt as appropriate.
- Whilst Sales personnel are routinely incentivised on the basis of results, this reward structure is currently considered less relevant for Marketing staff. However, as owner of the integrated commercial plans, the future reward structures for Marketing could be more closely linked to commercial performance than at present.
Supporting functions, reporting and synergies across therapy areas
Organising on the basis of therapy area/treatment pathway will require specialisation across several dimensions, to achieve sufficient understanding of the underlying science, health economics and the specific needs of relevant stakeholders. This makes it difficult to create individual customer facing roles that can be shared across different business units. However, even if there is a need for dedicated specialist roles for each therapy area, it may be beneficial to house analogous roles directly or indirectly within a dedicated unit. For example, in the case of dotted line reporting this could take the form of Centres of Excellence, which are effective means of ensuring standardisation and consistency in methodologies and approaches, and of sharing best practices across business units. Several of the large pharmaceuticals have implemented such structures on regional and even global bases.
The decision of how to structure supporting functions will depend to some extent on the degree of technical expertise required. For disciplines which involve in-depth technical or methodological elements such as HEOR, there is often a stronger case for having a central team acting as champion and expert in the process, with specific expertise in the different areas and with clear interfaces with the business units. Having a central team also provides greater flexibility to the wider organisation, as it allows resources to be reallocated more easily in response to changes in customer demand (external and internal).
Whilst different options exist for organisation of supporting functions (Figures 4 and 5 present two examples), it is essential that the objectives and activities of all supporting functions are clearly linked to- and aligned with- the overall objectives of the business unit. Scorecards and incentives can be effective tools to align behaviours and encourage all disciplines to work together towards common goals.
Across most countries, there is a clear trend towards regionalisation of healthcare. Whilst policies are formulated and agreed at national- or supra-national level, the responsibility for implementation is increasingly being devolved to the regional level.
In the UK, PCTs/GPs consortia are expecting to be set dedicated budgets for specialty care; in Germany budget and authority is shifting to community care centres (Ambulatory care centres, MVZs); in France ARS (Agences Régionales de Santé) are being established with dedicated budgets assigned to each region.
For pharmaceutical companies, this provides increasing rationale for customer facing roles (or at least those interacting with payers and authorities) to be regionally aligned. Takeda pioneered this structure through introduction of the RADs (Regional Account Directors) organisation in the UK in 2004. Many others have since followed suit; for example Pfizer subsequently introduced field based Sales Managers. Increasing regionalisation will also place greater emphasis on the ability of supporting functions to meet local customer needs, for example by supporting local Primary Care units and practice physicians with budgetary and expenditure planning and meeting quality of care local targets.
Global versus local organisations
With a growing emphasis on cost reductions, pharmaceutical companies are increasingly seeking opportunities to create organisational synergies. The interfaces between global, regional and local entities represent significant opportunities in this regard.
Far too often, functions and responsibilities are replicated across global, regional and local layers, and sub-optimal communication and lack of information sharing invariably results in replication of effort instead of leveraging common templates. Corporate culture often has a significant role here, especially in the case of decentralised organisations where the power tends to reside with largely autonomous affiliates, fighting for their turf and local resources.
However, this situation is gradually changing to more of a top-down approach, with the accepted wisdom being to ‘think global and act local’. We believe that there are many opportunities to centralise supporting functions at regional and global levels, with some estimates of savings in the range of 50% being achievable. Examples include:
- Marketing: market research; production of educational and promotional materials etc.
- Analytics: market assessments; forecasting; commercial analytics etc.
- Medical affairs: scientific communications; publication support; editorial services etc.
- Training: creation of disease and product training programmes etc.
- HEOR: global dossier production; epidemiologic assessment; burden of disease evaluation; cost-effectiveness modelling etc.
Different solutions exist for implementing global functions in support of regional and local structures. Two of the more popular that we have encountered are Centres of Excellence and Function Champions (see Figure 6 and Figure 7).
In the Centre of Excellence (CoE) structure, the central hub is responsible for developing best-in-class methodologies and capturing and sharing best practice. Affiliates maintain their own field-based resources to manage key stakeholders; but the content for their campaigns is developed by the CoE. The CoE ensures no conflicting messages are given by the different affiliates; this is becoming increasingly important as market access stakeholders interact at a regional level. CoE can also interface with other dependent functions (such as public affairs in the case of HEOR).
Global Function Champions play a similar role as the CoE, but are typically more accountable for devising overall strategies as well as developing the methodologies and templates for local implementation across business units, countries and regions.
Embracing the new commercial realities
In contrast to other industries such as FMCG (Fast Moving Consumer Goods) and financial services, the pharmaceutical industry is typically reactive to change. Change is often forced and triggered by external market events, rather than pro-actively engineered.
Whilst the pharmaceutical industry has historically defended this position on the basis of somehow being different to other industries, continuing to adopt such an attitude is likely to have damaging consequences. Customers and the healthcare environment are moving rapidly towards a new commercial reality. Ignoring this and failing to adapt will have deep repercussions on performance (e.g. sub-optimal product launches, new products not being approved, restricted labels, etc.).
Many companies have begun to ‘play around the edges’, changing and adapting parts of the system (e.g. functional/departmental approaches) as opposed to engineering transformational change. In many cases this ‘evolutionary’ approach to change can be explained by the perception that transforming an entire organisation is complex and risky, and raises concerns over disruption to business as usual. Nevertheless, the industry cannot hide from the fact that increased collaboration and teamwork will be the key to future commercial success. This will invariably necessitate greater cross-business unit and cross-functional activity, which has fundamental implications at the organisational level.
A few companies have already begun the transformation process. We suggest that now is the time for all organisations to engage at the very least in a comprehensive review of their commercial models. From our experience this review should be approached as a structured, three-stage plan (which mirrors to some extent the previous discussion):
1. Healthcare environment review
This stage is about building on current strategic/market planning work to really flesh out the key market trends which are forecast over the next few years (3 to 5 years). This stage should describe funding and care provision flows, decision-making processes and the relevant influencing networks. The outcomes should enable a deep understanding of the key stakeholder groups and their requirements.
2. Organisational implications (roles, skills and competencies)
This should be a natural continuation of the previous stage where customers’ requirements are translated and articulated into required commercial and technical capabilities. These key competencies should then be reviewed against the current organisational footprint to understand gaps. Finally, discussions should focus around determining which roles should ‘host’ these new competencies and role descriptions developed accordingly.
3. Commercial organisation (structure and size)
The final stage of the process is to shape the new roles into an organisational model and to define the appropriate structure and size. This is possibly the most difficult step as it involves a detailed consideration of a variety of different factors in order to ensure that the model developed is fit-for-purpose.
In our experience the duration of this commercial model review is typically around six months, more or less equally divided across the three phases, although the exact timeline will depend on the scale of change (scope of business and number of affiliates). However, this is not the end of the process. Following the review and design phase, an equally important follow-on phase will be necessary to drive implementation of the new structure. This will require significant and ongoing investment in change management to ensure successful transformation. For such a complex programme it is critical that key representatives from the commercial organisation are engaged and involved from the outset, in order to i) gain their buy-in and commitment during the design phase, and ii) employ them as change champion/agent during the subsequent implementation phase.
Transforming commercial models to operate within the new healthcare environment is not an option for pharmaceutical companies; it is an imperative.
Neither is it a tactical or fine-tuning exercise, but rather a fundamental shift to build a platform for future growth. Successful implementation will require a carefully planned and comprehensive review of the organisation and the involvement of a variety of different stakeholders at all levels throughout the organisation.
This article – part 4 of a 4-part series – has discussed in detail the key implications of the changing industry landscape for pharmaceutical commercial operations – with a particular emphasis on governance. The article also describes an actionable approach for implementation of new commercial models.
We have written this series of articles from a practical as well as a conceptual perspective, and would welcome comments, feedback and ongoing dialogue with all stakeholders to develop further thinking and pragmatic insights into the industry’s evolving commercial realities. The full series of articles is available as a complete White Paper or can be accessed via our website at www.kinapse.com.
About the Authors
Jean-Francois Delas is a Vice President at Kinapse Ltd. and leads the Marketing & Sales Consulting Practice.
Stephen Mayhew is a Manager in the Consulting Practice at Kinapse Ltd. He consults to the life sciences industry in valuation, deal-making and asset and portfolio management.
Kinapse provides consulting and outsourcing services to the life sciences industries, globally.
Our mission statement is: ‘Collaborating with our clients to innovate for exceptional results’. Kinapse clients include many of the world’s leading pharmaceutical, biotechnology, medical device and specialty pharmaceutical companies, government organisations and life sciences service providers.
For more information please visit www.kinapse.com.
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