A recent piece in the New York Times talked about how Research in Motion (RIM) the maker of Blackberry is struggling to offer new ideas relevant in an iPad world where just being able to get your email on a handheld device is hardly something exciting enough to constantly excite customers. It reflects a pattern. When a company discovers something that is truly exciting, others copy and follow. This happens to the point that what was once the object of technical differentiation (and therefore competitive) becomes a non-negotiable prerequisite.
This was a trend that was once thought true of only the technology sector. Unfortunately it is now true of the healthcare sector as well. Hospitals that focus only on delivering healthcare are no longer considered as the best in the sector. The ones that have the most caring staff who seem to “understand’ the patients’ problems and “listen” to them are far more valued. No wonder hospitals have begun to hire Chief Listening Officers too!
Similarly, pharmaceutical companies that once were valued for merely bringing out medicines to market, through R&D, are no longer thought of as valuable. Investors seem to constantly pressurizing pharma CEOs to control costs and do more to get results from the billions of dollars they pour into their research labs. Especially since the past decade has brought heightened scrutiny of drug safety, government probes of sales and marketing practices, and greater pricing pressure through both policy reform and generic competition.
The quickest to react was GlaxoSmithKline PLC CEO Andrew Witty. He has been changing the company from a pure pharmaceutical business to a diverse healthcare conglomerate, a strategy most rivals must pursue to drive growth. Most pharma companies today are pushing to sell more products in fast-growing ’emerging markets’ such as Brazil, Russia, India and China. Witty is also increasing efforts to bring medicines for tropical diseases to the poorest countries, at minimum profit. Yet, these are all variations of the same strategy. To bring products [medicines] to market.
Why is pharma not exploring other areas that can create more value for patients? Probably because the industry thinks of them as patients and not as consumers. Could that be the essential difference? Are companies doomed to repeat this cycle over and over again? I would argue they are not, but it takes real strategic vision and an ability to combat the internal power dynamics that always favor a profitable core business over an uncertain and failure-prone new one. The critical question executives must ask themselves is, whether they are making enough investments that would allow them to be well prepared to face a scenario when they begin to serve consumers and not patients.
Today executives are working endlessly to polish or perfect their business plans. The same is true of innovation. Workshops, workshops and even more workshops. But what most people miss is that the plan isn’t the thing. The business is the thing. Clever plans that can’t be commercialized are nothing more than wasted reams of paper.
Pharma companies must change! They will change! But they wont make that change very successful if they continue to think in the same way that they’ve thought for the last few decades. This time they must think as if they are creating a new business. There are different roles in the creation of a new business. One mistake executives make is thinking that new businesses must start small and that they are just small additions to the ‘existing core business’. They aren’t. When companies work at building capabilities and a new business model they must treat that phase of uncertainty as a temporary search for a repeatable and scalable business model.
The lesson? Pharmaceutical companies are faced with stiff competition from both within the industry as well as from non-traditional players. While business model innovation is just waiting to happen, it is sad that most executives today do not feel the need to prepare for the challenges that the industry will face later in this decade. While there have been some signs of change creeping into the system, there is a concerted need to disrupt and reinvent existing business models that will keep the industry relevant to consumer demand. How else will pharma be the preferred partner as consumers prefer to move from health outlays to better health outcomes?