BUSINESS MODEL INNOVATION IN THE PHARMA INDUSTRY: MANAGERIAL CHALLENGES

Nicolai J FossSMG – CBS

The basic value propositon (”What?”).

The market-segment (”Who?”).

The structure of the value chain that realizes the relevant value proposition (”How?”).

Value appropriation mechanisms (”How much”?).

A business model innovation is a change of [value propositions, market segments, value

chain elements, value appropriation mechanisms] that is new to the industry.

Modular (the Kindle businesss model) vs systemic (Lego’s turnaround).

Radical (Kindle) vs incremental (Lego).

BMIs are prompted by drivers that are internal and external to the industry.

BMIs are embedded in organizational / administrative structures … that may have to

change.

BMI DRIVERS IN THE PHARMA INDUSTRY

The ”payment challenge”, i.e., increased demands that companies demonstrate therapeutic/cost advantages of their products.

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More stringent regulatory environment (approval success rates have been going down since the early 1990s).

BMI DRIVERS – CONT’D

The ”patent cliff”, i.e., the loss of patent protection on many blockbusters.

Many of the ”new” technologies (high-throughput screening, combinatorial chemistry, pharmacogenomics, proteomics, metabolomics .. ) may not (yet) have lived up to promises.

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BMI DRIVERS – CONT’D

New potential/actual entrants with strong downstream asset bases, e.g., Nestlé, Google, Apple, Walmart …

End users increasingly active and critical.

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BUSINESS MODEL INNOVATION / CHANGE

Blurring boundaries: Increased use of contract research

organizations and other service providers. Former ”core areas” increasingly

outsourced Discovery chemistry, manufacturing, data

management . Or, pooled with other pharma players in JVs

(e.g., Johnson & Johnson, Lilly, Merck, Novartis, and Pfizer setting up Enlight Biosciences).

Patient-centricity / ”servitization”.

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MANAGERIAL CHALLENGES OF BMIThe soft underbelly of the BM/BMI literature.

BMI: a major organizational change process.

So far, questions rather than answers.

Major HECTOR research theme.

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Some human capital will be relatively less important.

Hiring and training new human capital, e.g. employees specialized in market-access;

increased need for hybrid profiles, i.e., both a science and business background.

Power and legitimacy issues.

HUMAN RESOURCES CHALLENGES

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Need for new KPIs, metrics, and rewards (e.g., patient satisfaction, # of patients enrolled in service programs, benchmarking of external partners, etc.).

Challenges from handling new partners, e.g., service providers and producers of ”devices” (e.g., Leo and Klox Techn.).

Small-numbers situations. IPR issues. Do the right competencies exist

for managing longer-term partnerships?

FIRM BOUNDARIES

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How should organizational structure adjust to accomodate new business models? E.g., self-managing teams with their

own budgets and missions that are outside the existing structures vs coordination within existing structures.

UCB: Cross-functional teams with specific patient missions.

Or, self-sufficient units as with Chorus and Eli Lilly.

INTERNAL ORGANIZATION

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Culture and identity changes? ”Research-driven” → ”patient centrity-driven.” Requires very different TMT communication

BMIs come in different forms. Some involve massive changes in several

interlocking parts of the business model, others involve changing a single component.

Leadership role depends on the nature of change.

LEADERSHIP CHALLENGES

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