Pharma Reform

A clear “vision” for what the company or business is about, how it will function, and how it will make money in the market is essential for developing organizational focus and determining the need for critical mass.   This may be a unique concept for large pharmaceutical companies that have developed broad therapeutic product lines, ever expanding areas of research interest, and diverse, expansive infrastructures over time.  The debate continues, for example, as to whether large pharmaceutical companies are really commercialization machines or research driven businesses.  Over the past several decades one could certainly argue that commercialization success has far exceeded the productivity of R & D.  Commercialization, in some ways, has financially salvaged mediocre R & D results.  And, despite the increasing investment in R & D,  the organizational focus of large pharmaceutical companies has been more on marketing and sales success than delivering innovative new products.  Clarity of corporate “vision”  and business imperative is critical to determining the need for “critical mass.”   “Critical mass” decisions should not be made merely to establish brute force competitive advantage.  So how should we look at the need for ” critical mass?”

The corporate” vision” must:

• reflect a sustainable business imperative
• stay aligned with evolving market needs over time
• be supported by “expertise” to develop or deliver the products needed by the market
• have a base of “core competencies” to efficiently exploit the “expertise”
• assumes having the “critical mass” to execute the vision

Note that the need for “critical mass” is driven by the “vision”.  This seems like a relatively simplistic approach to describing the relationships between “vision”, “expertise”, “core competencies”, and “critical mass” but they are very hard to get right in large, diverse, complex organizations like pharmaceutical companies.  There are plenty of market, operational, and, regulatory/legal distractions to derail this logical process.  Getting this right also garners less executive kudos, may seem too philosophical for investors and analysts, and is less newsworthy than “doing something.”  Management, investors, and analysts either take it for granted or view getting this strategic alignment right as less important than delivering on near-term “action” items.  The process is subsequently undermined by simply adding resources to (achieve “critical mass”) resolve problems or to meet challenges.

In the next post we’ll look at some “critical mass” decisions in the context of options and choices for pharmaceutical company “visions” in an era of healthcare reform.

mike@pharmareform.com

Unless it supports a strategic corporate “vision”, building  “critical mass” is costly, leads to organizational, and operational inefficiencies, and in most cases, satisfies relatively short lived objectives.  The dramatic ramp up of R & D infrastructures and the now infamous “sales arms race” of the pharmaceutical industry are good examples of how critical mass thinking can lead to implied superiority by virtue of size but in reality masks misdirected strategic imperative, diminished productivity, and marginal operational performance.

So why is critical mass rationale so frequently used to support increased investment (think marketing or R & D budgets), organizational growth (think sales force), and operational expansion (think facilities and information systems)?

Because it is easy to execute (you write a check) and seems logical in the context of large and complex business environments.  It is also a costly, but easy way to try and create a competitive advantage.  More importantly, it makes executives and managers feel like they are doing something…growing the organization.  Over the past several decades, with the healthy cash troves of pharmaceutical companies, the seemingly logical way to grow revenues was to throw more money at whatever problem you had or opportunity you might have thought you could exploit.  This was the case whether it was in marketing,  sales,  or R & D.  More would always be better and often was proposed as “necessary”.

And don’t forget the ego- boosting “bragging rights” to the “biggest sales force”, “largest R & D team” , most R & D projects in the pipeline”, “biggest facility in the world”, “most employees”, etc.

Unfortunately, more, bigger, and larger are not always better.  In the next post we’ll discuss the foundation for making good “critical mass” decisions.

mike@pharmareform.com

For years pharmaceutical company executives and managers have argued the need for “critical mass” in virtually every aspect of their business (e.g., larger sales forces, increased marketing “share of voice”, and more R & D resources).  This continues with the recent justification of mega-mergers based on the premise that with healthcare reform, “critical mass” will be essential.

Big banks and financial institutions and the major US automobile manufacturers, with trillions of dollars in assets, a global presence, and thousands of branches and dealerships, for some reason could not muster their “critical mass” to avert financial disaster.  Interestingly, the lack of “critical mass” was not the reason for failure and building “critical mass” was not the solution for fixing any of these organizations.  In fact, for banks, financial institutions, and auto manufacturers it was quite the opposite; downsize and focus.

With such recent examples of “big failures”, and with their own “critical mass” failures including R & D, where tens of thousands of research scientists still find themselves in a drug discovery drought, it is surprising to hear pharmaceutical executives espouse “critical mass” as their solution to a healthcare reformed market.

So, why has “critical mass” let these industries and their companies down? Why might “critical mass” be detrimental to pharmaceutical companies with the advent of healthcare reform?

Over the next several posts we will explore this “critical mass” rationale for growth and expansion and provide a better alternative for pharmaceutical companies looking to succeed in the era of healthcare reform.

mike@pharmareform.com