Creating A Culture Of Trust And Innovation In Pharma
By Dr. Bart Sayle, is CEO and Nick Hawker, principal consultant, at the The Breakthrough Group
There is an urgent need for the pharma industry to redefine itself in the minds of stakeholders following the disappointing business and share price performance of recent years. Pharma companies must also win back trust; they have created the perception that they put their commercial goals above the interests of governments, payers, prescribers and patients.
According to PWC’s Report From Vision to Decision Pharma 2020, the pharma industry faces three fundamental challenges. First, rising customer expectations. The commercial environment is getting harsher. Healthcare payers are imposing new cost constraints on providers and are scrutinizing the value of medicines more carefully. They want new therapies that are clinically and economically better than the existing alternatives, together with hard, real-world outcomes data to back any claims about a medicine’s superiority. Secondly, low scientific productivity. Pharma’s output has flatlined for the past decade. Yet the processes it uses to discover and develop new products remain much the same. And thirdly, cultural sclerosis. The prevailing management culture, mental models, and strategies on which the industry relies are the same ones it’s traditionally relied on, even though they’ve been eclipsed by new ways of doing business.
Life sciences venture capitalist Bruce Booth argues that pharma’s performance decline is largely a cultural problem. “The Big Pharma culture has been homogenized, purified, sterilized, whipped, stirred, filtered, etc. and lost its ability to ferment the good stuff required to innovate. This isn’t covered in most reviews of the productivity challenge facing our industry because it’s nearly impossible to quantify, but it’s well known and a huge issue.” He cites three hallmark traits of the culture crisis facing pharma from his vantage point: tyranny of the committee, stagnation through risk avoidance, and the negative impact of megamergers and reorganizations.
Booth isn’t alone in blaming the industry’s declining scientific productivity on cultural influences. In a recent survey of 150 R&D executives by Heidrick & Struggles, 54 percent cited lack of creativity as a key organizational issue, while 53 percent cited lack of coordination between the R&D and commercial functions.
In fairness to pharma, it has been working hard to improve in these areas, and there are some great success stories. But it is time for the industry to redouble its efforts, and a good place to start is by focusing on culture as the most critical driver of breakthrough innovation and business success.
The importance of culture
The strategy your company employs will only succeed when it is powerfully aligned to your culture. As Peter Drucker so famously stated, “Culture eats strategy for breakfast.” However, it is an area that is often neglected or poorly managed.
According to 84 percent of the more than 2,200 global participants in the 2013 Culture and Change Management Survey by Booz & Company, culture is critically important to business success. However, there is a clear disparity between the way companies view culture and the way they treat it. Less than half of participants saw their companies effectively managing culture, and more than half said a major cultural overhaul was needed.
Interestingly, 60 percent of C-suite executives see culture as a bigger success factor than either strategy or operating models.
In his latest book The Culture Cycle, professor James L. Heskett of Harvard Business School concludes that effective culture can account for 20-30 percent of the differential in corporate performance when compared with “culturally unremarkable” competitors.
Even more remarkable were the findings of Kotter and Heskett’s landmark study. It documented results for 207 large U.S. companies in 22 different industries over an eleven-year period. They reported that companies that managed their cultures well saw revenue increases of 682 percent versus 166 percent for the companies that did not manage their cultures well – stock price increases of 901 percent versus 74 percent – and net income increases of 756 percent versus 1 percent. These results are staggering and highlight the impact of culture on performance and the bottom-line.
Culture, innovation and performance
Innovation is a by-product of culture. Therefore, you need to create a culture that will foster innovation. Apple’s late co-founder, Steve Jobs sums it up: “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”
The elements that make up a truly innovative company include a focused innovation strategy, a winning overall business strategy, deep customer insight, great talent, and the right set of capabilities to achieve successful execution. More important than any of the individual elements, however, is the role played by corporate culture, which can be viewed as the glue that bonds them all together. Yet according to the results of the Global Innovation 1000 study, only about half of all companies say their culture robustly supports their innovation strategy. Moreover, about the same proportion say their innovation strategy is inadequately aligned with their overall corporate strategy.
The study also found that companies with both highly aligned cultures and highly aligned innovation strategies have 30 percent higher enterprise value growth and 17 percent higher profit growth than companies with low degrees of alignment.
While innovation is often associated with new products, people are the most important drivers of breakthrough innovation. That is why your major focus should be on the development of your people.
Dr. Eirum Chaudhri, Merck’s Global Director of Scientific Affairs says “Beyond the compound, it's the people and their passion that actually drive progress and innovation. Whether they are working in R&D, medical affairs, marketing, or any other area, there is a culture of focus and commitment to literally making lives better. It is a collective vision, working closely together to cross the finish line, to bring new medicines to market, to make them a reality.”
For innovation to thrive it must exist in a culture that energizes and ensures that creative thinking is constantly occurring. Creativity, curiosity, and a genuine openness are essential for breakthrough innovation. Creating a culture of trust where risks can be taken without a culture of blame and perceived failure is valuable as long as the people benefit through learning and discovery.
Roche chief executive Severin Schwan likes to crack open the champagne with his drug research teams at the end of a big project -- especially when they are unsuccessful. As the boss of one of the world's most successful pharmaceutical companies, whose leading position in cancer treatments has propelled its market value to more than $250 billion, it might seem a strange response. But a celebration to mark the lessons learned from an unsuccessful experiment are an important component of Schwan's drive to encourage risk-taking in an intrinsically risky business, where nine out of 10 potential new drugs turn out to be flops. "We need a culture where people take risks because if you don't take risks, you won't have breakthrough innovation," he says.
Schwan likes to empower his people to encourage creativity. “If you continuously tell people what they have to do, there won’t be any innovations. I believe in a decentralized management approach and small headquarters. You have to allow sufficient latitude, especially for creative scientists.”
What motivates employees is feeling connected to an authentic company ethos. Creating products, providing services, or serving causes that add value in the world help employees derive a sense of meaning from their work and feel good about their company. A true vision for a business rests on foundations of both purpose and values. Without a clear foundation, a business will never be truly strategic. So it is better to stand for something beyond simply increasing profits.
To demonstrate the impact of their work, Astellas invite patients who have undergone transplant surgery to come into their offices and share their story with employees. Ken Jones, CEO of Astellas Pharma EMEA recalls, “One patient spoke very movingly about how before surgery she remembers smelling her child’s hair and wondering would that be the last time they'd be together. [These patient visits] are a powerful medium to demonstrate to [our staff] the incredible work we do and the results of their combined efforts and galvanizes their commitment in terms of what we are trying to achieve as a company.”
The most important factor driving culture, innovation, and performance is positive and effective leadership behavior. Transformational leaders create new futures that are not constrained by past performance or even current circumstance, and which inspire others to build those futures with them.
Former Lilly executive Bernard Munos has analyzed industry data to ascertain which pharma R&D operations have been most productive, and why. His analysis confirms Novartis has been one of the best performers over the last 15 years, and he believes the company’s leadership and culture was instrumental in this success.
2002 was a pivotal year for Novartis. The company’s chief executive at the time, Daniel Vasella, took a handful of bold decisions that helped shape its approach to R&D over the following decade. Vasella made a multimillion dollar bet by establishing a global research center in Cambridge, MA drawing on the research and academic talent from MIT, Harvard, and other institutions in the area and internationally. It has become the industry standard for open innovation and developing great people and new compounds. Vasella appointed Mark Fishman, M.D., who came from academic research at Harvard, to run the center and gave him freedom to determine the R&D strategy. Vasella also insisted that the Novartis Institute for Biomedical Research should have complete independence from the firm’s marketing department.
Munos wrote in Forbes: “Ten years ago, as uninspired CEOs unleashed six sigma onto their scientists, Novartis was the only company to denounce the ineptitude of regimenting science and basing R&D investment on bogus forecasts and NPV calculations. It broke ranks with its peers, and returned to its scientists the freedom to pursue unfettered breakthrough innovation. It is now the company that derives by far the greatest percentage of its sales from new products.”
Drawing on the physician role models of his youth and his vision to build a great global healthcare company that could help people through lifesaving new drugs, Vasella built a company culture centered on compassion, competence, and competition. He told Fortune, “It may sound trite, but I truly believe my ability to keep shareholders’ faith in our company depends not on whether I make the quarter but on who I am, what my guiding principles in life are, and my behavior.”
Another leader who understands the impact of culture is Pascal Soriot who has overseen an increase in AstraZeneca’s share price by nearly 60 percent since he took over as chief executive. In his words "We have fostered a culture of innovation where science is at the heart of what we do. We are continuing to create significant shareholder value from our independent strategy.” Susan Galbraith, head of oncology discovery and early development at Astra Zeneca says that the company has become more science focused since Mr Soriot took over the helm. “There has been a big change of culture,” she says, adding that Mr Soriot’s staunch defense against Pfizer’s takeover approach boosted morale and increased the sense of urgency within the company.
Ian Read, chairman of the board and CEO at Pfizer believes that “Shaping and supporting a clearly defined culture is some of the hardest work any organization can take on, but it’s also the most important. What makes it so tough is that it’s less finite and more subjective than most of the work we do. What makes culture so important is that it’s unique; it’s something that no one can copy.”
“Your company can have great strategies, ready access to capital and terrific people, but turning these and your other assets into results depends ultimately on a strong culture that enables your employees to perform at their fullest.”
He adds “That’s why when we set the company’s business imperatives a few years ago, we put culture at the core of everything we were doing to transform our approach to research and development, how we used our capital resources and the work we undertook to build our reputation. Since then, we have worked continuously to firmly establish what we call an ’ownership’ culture across the company. Pfizer colleagues understand that our ownership culture can differentiate us within our industry. They also understand it requires a willingness to take prudent risks, be accountable for their decisions and results, and understand how their work contributes to the company’s performance.”
“By clearly defining the behaviors that comprise the culture you envision, effectively engaging your front-line managers and fostering an environment built on trust, culture can become one of your organization’s greatest competitive advantages.”
The upshot: A culture can make or break a company. If, as a business leader, managing your culture isn’t already at the top of your priorities, it should be. As Edgar Schein, author of Organizational Culture and Leadership put it “The only thing of real importance that leaders do is to create and manage culture. If you do not manage culture, it manages you, and you may not even be aware of the extent to which this is happening.” Breakthrough discovery comes from a breakthrough culture. Getting the corporate culture right can transform businesses and unleash explosive breakthrough innovation and growth of the enterprise.
Bio:
Dr. Bart Sayle, is CEO and Nick Hawker, principal consultant, at the The Breakthrough Group (www.breakthroughglobal.com). Sayle is the author of Riding the Blue Train: A Leadership Plan for Explosive Growth.