McKinsey & Company discuss how pharma company executives need to seize every opportunity to embed productivity in their thinking and incorporate it into every change effort they undertake. As leaders consider their company’s path forward, any improvement program, whether limited and local or broad and far-reaching, should have productivity at its core.
Drawing on recent conversations with a number of pharma CEOs, we have identified six situations that make excellent triggers for executives to drive their productivity agenda (Exhibit 3). Each needs to be handled in a different way. Together the situations represent a full spectrum of possibilities, beginning with functionally focused initiatives at the narrow end of the spectrum and ending with whole-company transformation at the broad end. Our advice to any company facing one of these situations is to make productivity improvement a central plank of its response and to bear in mind lessons learned by other pharma companies as they plan and execute their transformations.
1. Surgical functional intervention
Sometimes companies need to reduce costs or improve productivity in an individual business function such as procurement, clinical operations, supply chain, finance, or HR, with a view to achieving rapid results in a matter of months. These are usually healthy organisations looking to capture incremental benefits from superior clinical operations or back-office functions. For instance, an innovator company may want to optimise its clinical-trial operations by improving its site selection or extending its outsourcing relationships.
To maximise productivity improvement in a functional strike, we recommend executives take several steps:
- Start by creating a clear picture of the function in question. What are its main activities? How does it create value? How does it connect with other functions? How do its practices compare with best practice in other sectors, such as consumer goods or advanced industries? One company we worked with decided to rewire its marketing function to take out 30 percent of the cost base. It started by defining key deliverables and reallocating roles and responsibilities between global, regional, and local marketing to reduce duplication between layers and cut any noncritical activities. The company exceeded its target savings and was able to reinvest in the marketing capabilities it needed for future success.
- Map out which activities are truly mission critical and should be kept in house and which can be outsourced. Similarly, identify which capabilities are needed to carry out these activities, and find ways to ring-fence them. After reorganising, one company added so many reporting and controlling demands that it ended up with a finance function twice the size of its peers’. By challenging the scale and granularity of reporting and delegating preparatory work to a low-cost shared-services centre, the company was able to improve productivity in the function by 30 to 40 percent.
- Ensure that the transformation is run by a capable and dedicated team and is visible enough to senior leadership that it doesn’t disappear into a functional silo. Successful pharma transformations strike a fine balance between making local line leaders accountable for results and providing support from the centre. Senior leaders must have a clear view of performance and support local teams in finding the best path forward. The most successful transformation programs are those that focus on improving efficiency and effectiveness at the same time.
2. Business-unit turnaround
Sometimes a company has broadly successful operations but feels that one of its business units needs improvement. Perhaps its performance is weak in a certain therapeutic area, or its sales force needs to be more responsive to changing market needs. This kind of effort is usually confined to the business unit itself and has little or no effect on the rest of the business. It typically addresses one or two specific objectives over about six months to two years.
In our experience, a few efforts are important for companies tackling such a situation:
- Set ambitious productivity targets, and ensure they’re fully supported by the board or corporate centre. For the best results...
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