Improving margin performance in Life Sciences: closing the skills gap
In addressing the three pillars of any successful change programme, there is a substantial difference in how different pharmaceutical companies view the relative importance of the challenges presented by people, processes and technology. Alex Rumble discusses these differences in this article.
In a recent poll of 700 senior managers we undertook, nearly two-thirds (62 per cent) of respondents highlighted the need to ramp up existing skills and competencies as their greatest priority in building a global pricing improvement programme. This compared to only eight per cent who cited the need to put in place long-term viable technology as the basis of sustainable improvement.
In linking pricing strategy and execution, firms are right to recognise the need for skilled and fully-informed teams to drive aspects of revenue and margin improvement. Yet the poll results also highlight a lack of understanding of the role technology must also play in delivering effective change.
The reality is that each is critical. Whether ensuring clear processes and governance or enhancing people skills across the business, an end-to-end pricing solution is essential in reducing revenue leakages, margin erosion and other aspects of price optimisation throughout the lifecycle of any product.
“Simply putting a pricing manager in place without the right technology infrastructure and process support will not deliver”
PwC has described the pharmaceutical industry as “undergoing a period of intense transformation…creating uncertainty in what has traditionally been considered a stable and highly profitable business…[resulting in] pricing pressures and shrinking margins.”
In response to this, in further research from the Price and Profit Optimisation Forum in Montreux earlier this year, respondents confirmed an apparent lack of skills required to help firms take a more strategic approach to margin improvement.
It may be true that there are as yet relatively few specialists with the all-round expertise to drive an end-to-end revenue lifecycle strategy. However, this by itself will not be enough to drive effective fundamental change required in a sector experiencing a dramatic shift in the relationship between buyer and seller.
Simply putting a pricing manager in place without the right technology infrastructure and process support will not deliver the desired level of improvement. Equally, board-level commitment is essential to create the momentum needed, with full enterprise-wide collaboration replacing previously siloed, tactical pricing responses.
Yet most firms have yet to embrace this broader, more strategic approach. The earlier survey found that only18 per cent have incorporated pricing and revenue management as part of their broader planning process. Reinforcing this departmental approach, an almost universal 94 per cent of pricing teams report into finance, marketing or commercial functions within the business, with only six per cent directly into the CEO.
It is critical that that everyone is responsible for price and margin optimisation, as part of a shared vision throughout the business. Only by doing this can revenue management be transformed from a reactive admin function focused on execution to one which can provide strategic global support.
The pharmaceutical industry is highly global in nature, with very few implementations impacting on single geographies alone and this is especially true in all aspects of revenue management. This impacts in turn on the skills required, with the need for staff who can take a multi-national, multi-departmental view of pricing and margin management, at both a strategic and operational level.
“Providers to the Life Sciences sector are having to learn how to adapt to new commercial realities”
This presents a challenge to firms looking to create effective cross-functional pricing teams. Not only is revenue lifecycle management a relatively new concept, but aspects of the sales process itself such as global pricing management and tendering have also rapidly increased in importance. The result is that the new skills required to enable the enterprise to take full advantage of the opportunities they offer are in relatively short supply.
Finding the right staff
Providers to the Life Sciences sector are having to learn how to adapt to new commercial realities, with little or no previous experience of this tougher commercial landscape.
One result of this is that specialists with these skills are likely to know their own value and will examine carefully any business looking to take advantage of their expertise. It is one thing for the business to recognise new skills are needed: it is quite another to create a structure and provide support and resources to enable this expertise to deliver best value to the business.
As a first step, many firms will be tempted to take a ‘sticking plaster’ approach to the problem, by taking on one or two pricing managers and have them report into the commercial or finance team. Experience to-date shows that this will have limited success, as without the authority and supporting structure to implement sustainable operational improvement across the business, the newly-appointed specialists will quickly become disillusioned and move on or simply not accept the appointment in the first place.
“Successful firms, by contrast, have recognised the highly transformational nature of breaking down functional and other organisational silos.”
Successful firms, by contrast, have recognised the highly transformational nature of breaking down functional and other organisational silos. In response, they have typically made the CFO and CEO directly responsible for sponsoring the required step-by-step change, so very visibly prioritising pricing within the business as a strategic, cross-functional and urgent initiative.
Identifying and putting in place the right talent and resources is just one of several key elements in implementing successful change, including an appropriate strategy, the right processes and supporting technologies and toolsets.
It may well be that firms may need to look outside the Life Sciences sector for some specialist skills to achieve the degree of change required. Yet in most cases there is also likely to be a pool of talent within the existing business which, with the right leadership and nurturing, will be capable of putting revenue lifecycle management where it needs to be – at the heart of the business.
About the author:
Alex Rumble has been a longstanding contributor to thought leadership throughout her career; currently Senior Director of Industry Marketing & Product Marketing at Model N, a leading revenue management solutions provider. Alex’s previous roles include Senior Vice President Marketing & Business Development EMEA & APJ at Software AG, Global Marketing & product Marketing Director at TXT e-solutions and SCM analyst at AMR research; these roles have given Alex a unique cross functional and cross industry perspective on what enables a business to perform and the role of technology within that.
Closing thought: How can the pharma industry optimise pricing strategies?