New commercial models for new market realities

By Chris Nickum, VP and Global Practice Leader, Commercial Effectiveness IMS Health Management Consulting

Maximizing the efficiency of commercial operations is standard fare for companies operating in a difficult economy and with budget constraints. Yet, because the pharmaceutical world is moving towards heavier commoditization, with 75-80 percent of mature markets expected to be undifferentiated by 2015, creating commercial efficiencies is no longer simply about managing costs – it’s about devising a New Commercial Model (NCM) that better leverages available or yet-to- be-discovered approaches to suit new market realities. This requires fundamental change that ranges anywhere from incremental to substantial.

“Bringing all the pieces together involves taking action on the broader strategic plan.”
-Chris Nickum

The good news is that as a very experienced industry addresses these issues, some of the fog is beginning to lift.  IMS has been on the forefront in helping the industry define, quantify and address these new challenges.  However, based on IMS research conducted with 500 industry executives, over 90 percent of respondents have not implemented any major, ground breaking changes to their go-to-market approaches.

A Marked Departure from the Past

By 2015, pharmaceutical manufacturers in the mature markets will be pressed to evolve their commercial practices in fundamental ways.  Two circumstances will shape both how pharmaceutical manufacturers go to market and what they market:
1.    In just five years, the world’s leading pharmaceutical markets will be dominated by products that are largely undifferentiated from their competitors.  As seen in Figure 1, the degree and timing of commoditization is not uniform across the mature markets; the fact that each country is different dictates a country-level approach to model development.  For the US, in the near term, price increases will be the primary tactic used to maintain market value.  By 2020, however,  increases in market value will also come from the launch/uptake of pipeline products, albeit not like the growth we are accustomed.  Alternatively, the EU will see changes in market value driven by volume, not price, in the short term.

Currently, the commoditized market represents 45 percent of all promotional spending (based on an analysis of eight major countries).  Compared to the peak in the industry’s field force seen in 2005, more than 40 percent of the industry’s representatives could be displaced, and one in six of those remaining will be assigned new responsibilities.

2.    Robust health economics and outcomes research (HEOR) arguments promoting the cost savings of a new drug are not the only way to measure progress.  Varied stakeholders will continue to look to the industry for improvement in the holistic treatment of disease –improvements that extend beyond the benefits of a chemical compound.  Relationships formed in cyberspace between the extended healthcare delivery mechanism and patients will allow companies to better match their treatments, programs, and investments to patient needs, driving improved individual outcomes.

 Figure 1:    Growth in Commodity Segments, 2007-2015

In order to thrive within this environment, what strategies and tactics should companies adopt?  How must they transform their commercial operations?  Should the $15B in excess promotional spending, identified by IMS, in 2009 be reallocated, or suppressed?  At what rate and pace must change occur?  All of these and other critical questions can be answered by applying one or more of five key building blocks, based on each individual company’s current state and needs.

Figure 2:    IMS New Commercial Model Framework

5 Key Building Blocks
1.  Landscape Assessments:  Understand the Market Landscape of the Future
Companies that have not yet fully determined their future direction should develop a common point of view on how the healthcare environment will change over the short- and long-term.  Essential to this is recognizing how power will shift among the stakeholders for a given therapeutic class in a given geography.  More precisely, what aspects of demand will be driven by the stakeholder versus the healthcare environment, key market events, or other factors?  What will each group require over time?  Who will influence whom and in what way?

Extensive research and analysis of industry information to spot key trends and estimate timelines is paramount to developing this picture of the future.  Accordingly, adequate time and attention must be given to this phase for the information to be properly assembled and assessed.  Misinterpreting information or making uninformed decisions could levy substantial errors in the work performed during the succeeding steps. 

Best Practices
Companies are most successful in performing this analysis when they properly plan and fund the collection of information, maintain corporate or best-in-class frameworks across geographies, and execute in parallel with local market resources.  To be accurate, the analysis must have full participation from therapeutic and functional experts and across business functions.  In most cases, this means a good deal of pre-work, teamwork, and execution within each local market.

2.  Strategic Planning:  Articulate the Implications for the Business
Companies that have already established the commercial context in which they will operate need to assess the timing and importance of various trends and events.  Which developments will have the most impact on the company’s capabilities, franchise, or portfolio?  What are the new requirements, and what response is required?  At the end of this phase, a company will have a clear idea of how its commercial model is – or is not – prepared to meet the demands of the future. 

The fundamental decisions that must be made at this point can become overwhelming without the discipline of a tested approach for evaluating the options.  In an IMS NCM Special Report published in 2009, the company found it helpful to divide the strategic response into three iterative levers:  those that address the “how” of sales and marketing through efficiency and effectiveness improvements, those that address the “who” within the market with tactics for improving relationships with stakeholders, and those that address the “what” is taken to market with tactics that expand the value proposition.  Each lever in the commercial model can be employed simultaneously but to varying degrees to suit the circumstances within each geography, therapeutic area, and organization.

Best Practices
The ideal method of devising a commercial strategy is to hold a series of organized and integrated planning sessions with representatives from all disciplines across the commercial organization.  Conducting smaller meetings between representative disciplines and stakeholders can result in a better solution and a stronger roadmap as the group comes back together.  The group should follow a pre-defined process that includes reading and reacting to prepared materials and thinking outside the “box” imposed by current roles, capabilities, and other organizational barriers.

3.  Capability Assessment:  Support the New Strategy
Any change in a company’s commercial strategy also directly affects a wide range of capabilities within the organization.  Depending upon the types of changes implemented, companies may need to build or amend their marketing, technical, motivational, knowledge repository, reporting, and analytical capabilities, among others.

Additionally, the capabilities required for executing the new strategy need to be measured, so new or evolved key performance indicators (KPIs) must be developed.  As such, not only do the capabilities themselves require attention – so too do the systems, processes, and approaches that assess them.

Best Practices
Rather than tackling drastic, sweeping changes all at once, companies are finding it more manageable and ultimately more successful to make incremental changes to their commercial capabilities.  Once the supporting capabilities are in place, they can gradually evolve their traditional approaches to deliver a return on their investment.  A well structured commercial blueprint with logical priorities, coupled with a roadmap to the future and proper KPIs, is at the core of many of the success examples we have witnessed.

4.  Organizational Design:  Organize to Support the Strategy
For companies that have designed their blueprint and envisioned the required capabilities, the task at hand is to organize the change required to support the implementation of the new strategy.  They must consider the structural implications (the organization, roles, and responsibilities) as well as non-structural implications (processes, tools, skills, and knowledge).  Are there new roles that need to be created to support the new requirements?  Are sufficient resources allocated internally and externally to meet new priorities?  Do the current resources possess the right job skills?  Can they be trained?  Are vendors and partners capable of executing the new requirements?  Companies often underestimate the effort required to drive even step-wise evolutionary change.  The real focus – and the fundamental objective – should be in making it work. 

Best Practices
IMS sees companies make the most progress planning their new organization and supporting processes when they bring together people from geographical management, brand leadership (sometimes with emerging P&L responsibilities), and those in charge of new service strategies. In the end, most strategies will cross all of these stakeholders in different contexts.  Examples of some successes IMS has witnessed include:

•  Regionalization.  Moving accountability and decision making closer to the customers by dividing responsibilities across the field force and HQ.

•  Key account management.  Organization of new internal and external teams to service established stakeholders with new needs.

•  Evolving brand teams.  At both the global and local levels, brand teams are being given full P&L (and therefore operating income) responsibilities.  Increasingly, the brand manager is the operational architect responsible for executing the go-to-market strategy, making decisions on how to invest, what channels to use, and how resources will be allocated.

•  Employee satisfaction as a key performance indicator.  Employee morale can be a good barometer of how well the NCM is being implemented and received, both internally and externally.

5.  Execution and Performance Management:  Make Changes and Track Progress
The argument of whether to affect an evolution or a revolution is still raging in the industry – with some even questioning the need to change at all.  At the end of all the good work and effort described above, it only counts if you use and maintain it until there is an impact.  For many companies, this is where the strategy meets its doom, for as the roadmap is sent down the line to be implemented, it is quickly dismantled due to budget limitations, technological deficits, and other “unnatural” boundaries.

The ideal pace of change will depend, in some part, on the company’s culture and current state.  For example, those firms with well run and tightly integrated technological enterprises that underpin a culture of transformation and change should be able to move more quickly to capture competitive advantage.  It is also a hypothesis in the market that smaller or more specialized companies should be able to move faster.  The key is that each company should make a rational decision based on how much it can take on, considering both the risks and of course, the rewards.

Best Practices
•  Implement and support a thoughtful, change-management program not only for the macro transformation, but for the smaller components as well.

•  Rely on change agents at the regional and local level.

•  Follow the overarching plan, but do not be afraid to move slowly when needed – in many cases this is new “turf,” and speed can cause derailment.

•  Assess progress often.  Managing expectations is critical while pilots and other implementation aspects take place. 

•  Realize that there is no such thing as “over communicating.”  Communication is a primary tool for ensuring alignment and inspiring acceptance throughout the organization.

On the Brink
To date, most change that IMS has observed has been to augment existing approaches or to make incremental moves, such as to regionalization or a different channel mix.  However, today IMS sees a couple of pioneering companies poised to make large scale change, and IMS believes the industry is on the brink of putting it all together.

Bringing all the pieces together involves taking action on the broader strategic plan.  This will include, but is not limited to, changing commercial strategies, redeveloping commercial partnerships, aligning the organization and staff to new objectives and measurement, and then layering this on top of new infrastructure.  This of course will take time, and we will see if as an industry we can go further than “toe deep.”  IMS believes that since the pharmaceutical industry is now armed with proven approaches to define the future, a view past the patent cliff, and many solid examples of innovation and transformation, it will soon take the next steps as an industry.