Collateral Damage of Downsizing in the Pharmaceutical Industry

Many pharmaceutical companies have been divesting assets and downsizing operations as they try to accommodate the impending patent cliff, disappointing research productivity, diminishing impact of traditional commercial tactics, and the slowing revenue growth.   Given the state of the industry and in light of the market changes taking place,   I also recommend in Pharmaplasia™  that pharmaceutical companies downsize their operations.   Despite being painful to employees (and their families)  and as disruptive as it might be for the company, it in many cases is the absolute right thing to do,  but how you go about doing it matters.

Criteria used to assess what gets divested or downsized include things like poor or mediocre past performance, lack of perceived need, and the magnitude of the potential expense savings.  In the spirit of fairness (especially when it comes to employee relations issues) and to satisfy the quantitative justification needs of management, numbers often drive the decision making process.  As strategic as companies might try to be,  a numbers-based decision making process will lead to collateral damage with unintended consequences including:

  • Loss of  expertise
  • Loss of management experience
  • Disruption of business relationships

Unfortunately, these are the very business assets pharmaceutical companies need and can least afford to jeopardize as they prepare for the evolving new healthcare market.

But you might be thinking that companies and management are smart enough to avoid these pitfalls by being analytical about their choices, right?  Well, let’s take a look at a few examples of where the process may not yield the results expected and could be detrimental to the company.

  • Early retirement packages often accommodate employees with years of experience, including seasoned managers, scientists with expertise, and employees (including sales) with valuable long standing business relationships.  How many of your best people can’t resist the offer and walk out the door?  Remember, your best people are not afraid of being unemployed for too long if they take your offer.
  • How about when the numbers  suggest eliminating sales representatives and territories with lagging sales and diminishing physician access.    Are less effective and even poorer performers being protected by having better sales numbers because their territories are in a less managed market…today?  Are your sales numbers a real reflection of the experience, expertise, and effectiveness of your sales representatives and managers?
  • What about a manufacturing operation with a perfect track record for production that has comparatively higher costs driven mostly by the expenses associated with a larger, more experienced quality staff and more operational training.  Is this staffing and training perceived to be quantitatively excessive and unnecessary in the context of downsizing expectations?  Have you factored the complexity of their manufacturing and the impact (and expense) of a recall compared to the other production facilities? If so, do you eliminate the management experience, the staff (operational expertise), or the training?  What numbers do you use for that decision?

The point is that divestitures and downsizing while necessary in the current business environment for most large pharmaceutical companies will have collateral damage that goes well beyond the personal impact such decisions have on employees and their families.  Also,  a company’s assets may not be accurately reflected in the numbers used for the analysis of what to keep and what to let go.  Companies that are aware of potentially losing these hidden assets may ultimately make the same decisions but they also might look to find ways to avoid the loss or at least mitigate the impact rather than just accepting collateral damage as a part of the process.

  • Scott Brzygot

    Once again Mike you bring up a great topic of discussion within the pharma community. Lagging/exceeding sales territories do not reflect the abilities of the salesperson within pharmaceuticals. As more and more companies instill a regional marketing and sales approach more tailored to each region they are seeing that there are so many factors that go into every very different area of the country that affect brand performance. To best qualify/quantify performance across the US each company needs to employ strategies that measure there reps on equal footing before making terrible business decisions.