A shock awaited me this Sunday morning – the news that Coimbatore Krishnarao Prahalad, known across the world as Prof C.K. Prahalad – had died. What a great loss to the business and academic world! As the hours passed, friends (or should I say contacts) on Twitter and Facebook joined me to pay tribute to this great man, who had left an indelible global, yet distinctly Indian, footprint.
Prof. Prahalad’s research specialized in corporate strategy and the role of top management in large, diversified, multinational corporations (MNCs). Amongst a number of well known works in corporate strategy, one – The Core Competence of the Corporation, when published in the Harvard Business Review, in 1990, was considered path-breaking. This concept is particularly striking in its relevance today, at least in the pharmaceutical industry.
Prof. Prahalad described core competency as a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:
- It provides consumer benefits
- It is not easy for competitors to imitate
- It can be leveraged widely to many products and markets.
What is particularly interesting is that core competencies are the collective learning in organizations, and involve how to co-ordinate diverse production skills and integrate multiple streams of technologies. It is communication, an involvement and a deep commitment to working across organizational boundaries. Few companies are likely to build world leadership in more than five or six fundamental competencies.
Lets consider the fundamental competencies that pharmaceutical companies consider as their own.
- Innovative research base – to throw up products that plug therapeutic gaps and meet unmet needs of doctors
- Knowledge based marketing system – to bolster an indirect marketing method that works with deciders (doctors) and not consumers (patients)
- Structured cost management – Pharma has always been a highly profitable industry, and has historically been among the best performing industrial sectors in terms of investor returns
In the recent past, macro-environmental changes have forced pharma executives to redefine their business models. However, most executives assume that creating a sustainable business model entails simply rethinking the customer value proposition and figuring out how to deliver a new one. This is not so easy.
What does all this mean for the industry’s future? A lack of product innovation and increasing margin pressures have led pharma companies to reduce costs. But how can they do this without damaging long-term company performance, and how can they mitigate against potential risks from their actions?
This is where a redefinition of the business model is required. It is time that the industry moves from an independent vertically integrated firm to a complex, interdependent ecosystem of networked firms. Pharma must move from a drug development ecosystem to one based on healthy outcomes. This is an exciting time when pharma must explore opportunities – not just through collaboration with traditional players such as biotech, diagnostics & device manufacturers, CROs/CMOs and other pharma companies – but look truly “outside the box” to non-traditional players and collaborate with IT companies, phone companies and large retailers.
As Prof. Prahalad described it, a core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture. After all, core competency is a specific factor that a business sees as being central to the way it works.
When that central factor – for pharmaceutical companies – ceases to be the company or its product and shifts to the customer or patient – that is when Prof. C. K. Prahalad’s soul will truly rest in peace.