“Because of lack of information, processes, and tools, through 2012, more than 35% of the top 5,000 global companies will fail regularly to make insightful decisions about significant changes in their business and markets.”
Richard E. Kouri cites this recent prediction by the Gartner Group to demonstrate the need for the business model innovation program being developed by CIMS in collaboration with the BioSciences Management Initiative, of which he is executive director, and the Executive Education Program in the College of Management, North Carolina State University.
Business model innovation, explains Prof. Kouri, is synonymous with disruptive innovation. It involves changing the way a business captures value. It emphasizes external collaboration and partnerships, and often requires a company to shed “non-core” business functions and reconfigure its value chain.
The innovation program Kouri and his colleagues are developing is currently aimed at the pharma industry “because their current business model is broken,” he says. However, it applies to other industries as well. Nevertheless, companies need to understand more than which models they must change to — they need to know how to effect such change. And that’s what this program is about, as he explains below.
Reading the Marketplace
Our program’s aim is to read the marketplace: those signals in a company’s environment that will induce change in the company. We will show the company how to convert the signals into actionable business intelligence so that they can be used to move the company from, say, its current business model to one that clearly differentiates the company from its competitors.
We accomplish this with a six-step framework briefly described here. For each of these six steps we provide worksheets that help a company’s representatives make the necessary choices and decisions.
1. Set up internal systems to capture all relevant signals from the outside environment.
Example: By 2020, China will be #2 or #3 healthcare market; both India and Turkey will be in top 10.
We call this a P.E.S.T. analysis, for Political, Economic, Societal, and Technological signals that can be viewed and then categorized so that they’re easier to analyze, and decide which are the most important ones for your company and industry.
We recommend this be performed routinely by the company’s marketing/business analytics division. (We’ve found that most pharma companies are not very good at these types of analyses, but that is grist for another story.)
2. The next step is to determine the inherent benefits of these change signals — i.e., which of them might actually offer opportunities. Most companies view these signals as threats because they change the status quo. And because they do not want the status quo changed, they choose either to ignore these signals or else make excuses that they don’t relate to their company.
3. Prioritize those signals for your company. This means determining what is really important to you. We teach the pharma companies with which we have worked to date to look first for those trends that are going to impact allpharma companies, then look for the trends or signals that are likely to change the way they do business; in other words, that will disrupt their current operations in a major way.
Examples of these major trends are:
• Growing adoption of price restrictions globally.
• Growing economic power and needs of the developing world.
• Declining R&D productivity.
4. Now that we have prioritized the signals and determined which ones are really important for our company, we want to define the impact the signals make at the “business function” level.
A business function is different from an operating area, like sales or marketing. It’s a function that has to be done in order to get a project completed. It’s a complete series of steps. If you’re going to do clinical trials management, for example, you need feedback from R&D, from the clinical trials group itself, from manufacturing, from logistics, and from sales and marketing.
Clinical trials management must make sure that it is actually testing the right compound at the right time. And it has to make sure which endpoints it must have in order to be effective in the marketplace. That requires a whole set of functions that need to be operated harmoniously.If we determine that a business signal likely has an impact on a particular business function, it’s going to change a variety of operating areas. Consequently, we urge people to think of their company in terms of the critical business functions they are carrying out and not the operating areas into which they are organized.
5. The next step is to define exactly how the business function should change in order to take advantage of the opportunities. This business change should enable the company to carry out any or all of the following objectives:
1) differentiate itself from its competitors, 2) provide greater value to its patients and customers, 3) offer significant cost and capital reduction opportunities, and/or, 4) be capable of being executed quickly to help fuel the development of other components.
Again, we provide a series of questions that the company’s business people can use to analyze their own situation. Typical questions address governance, skills, culture, processes, systems, and metrics.
6. The final step is to build what we call a factbased case for change.
To do this we examine the cumulative effect of the changes we have identified to the firm’s business function so as to be able to articulate the logic that connects the new organizational capabilities, benefits and measures with the major market drivers that enable them. These so-called change imperatives, or actionable business intelligence, might number close to 100, all from the 9 or 10 original signals we identified earlier. These change imperatives form the basis for designing and implementing a business plan for making these changes a reality. These steps are a subject for another discussion.
Implementing the Program
The rate-limiting step in this process is the acquisition of the original major market trends. This phase needs to be done competently and routinely. These market signals can change every month. For our project, the initial market research required approximately 300 hours of Ph.D.-level time. We had to read, summarize and edit roughly 250 publications in order to identify 100 market signals. These were discussed with 30 industry representatives and eventually reduced to nine major trends, or market drivers.
Another way to collect and prioritize marketplace signals is to buy market information from third-party vendors. However, this approach is relatively expensive, data are likely at least 18 months old, and the data are presented in formats that are not capable of being modified, which means they are not capable of being interpreted in various ways.
The “T” part of the P.E.S.T. analysis can be analyzed using computer tools. These analyses are relatively easy because of the availability of structured databases such as Web of Science, Medline or EI Compendex. They contain the data from tens of thousands of journals, abstracts, presentations, etc., and are abstracted virtually every day.
What you really want, though, are the data from unstructured databases. It is estimated that 60–80% of actionable business intelligence resides in this form, e.g. web pages, blogs, white papers, emails, and videos. These contain most of the political, economic and societal information. These data are hard to access, and currently only resource-intensive manual methods work efficiently.
So the big question today is how to use software / hardware to read unstructured databases and make them semi-structured so that you can do P.E.S.T. analyses easily, inexpensively and routinely. That’s our Holy Grail.
Fortunately the hardware needs might be solvable fairly easily — one of the world’s largest cloud computing centers is resident here at NC State. We’re also exploring the availability of the necessary processing tools with IBM. We’re collaborating with both the Virtual Computing Lab at NC State and the IBM Corporation right now to try and answer some basic business questions. We call this science and market mapping.
I expect to have some exciting progress to report in a future issue of this newsletter. Meanwhile, I invite readers to contact me and see how we might adapt this program to your own organization, whether you are a pharmaceutical company or not.
Richard E. Kouri, Ph.D.
Executive Director, BioSciences Management Program,
Jenkins Graduate School of Management
Poole College of Management at
North Carolina State University