Procurement has a key role to play in solving the costs up: revenue down equation in pharma

A new event - ProcureCon Pharma - which took place in Zurich last week - has been added to the ProcureCon series of global procurement conferences. The event is timely, as not only does purchasing in pharma have its own unique challenges but, more importantly, procurement enterprises are in a unique position to drive innovation and value in the industry through dynamic procurement.

Cost up
For those of us that have been in and around the pharmaceutical industry for a while it doesn’t seem that long since the quoted costs for developing a new drug were a few hundred million dollars. In the mid-noughties they cut through the billion mark. But now, according to some research, the cost to bring a new drug to market can exceed a truly staggering $10bn.

Productivity down
This figure takes into account another indicator that weighs heavily on pharma – not only are costs going up but pre-market failure rates are increasing too. For example, a 2011 study showed phase II success rates declined from 28% in 2006/7 to just 18% in 2008/9. Considering that the chance of a drug subsequently progressing through phase III is 50%, the attrition rate is unsustainably high.

Market fragmentation
It’s been well documented that the biopharmaceutical industry is undergoing unprecedented change. The blockbuster era – where a single drug addressed a large market over a sustained period of time is ending. New medicines are more complex, address smaller markets and treatments increasingly personalised.

Price sensitivity
With costs escalating, the operators of healthcare systems globally are also looking to reduce spending. The same buyers of pharmaceuticals are also asking more questions about the value of the products they buy. Unfortunately, the sellers aren’t always coming up with convincing answers. So whilst the industry is still making the decisions on which drugs come to market and their pricing, price sensitivity will be an increasing factor.

Grappling with increasing failure rates and increasing costs has meant that productivity has become a major focus in the pharma sector. In R&D a significant trend over the last 2 decades has been to blend in-house developed candidates with a pipeline from biotech firms. Companies in the biotech space have a lower legacy cost base and a vaunted innovative culture that sparks new ideas for therapies.

Balanced supply chains
However, pharma companies are also looking to reduce costs by simplifying supply chains. In some cases this is leading them to bring work back in house to drive out cost and increase control.

The pharmaceutical supply chain of the future will therefore comprise a balance of insourced and outsourced capabilities. Those activities requiring local control, that are key drivers of competitive advantage or where offshore costs no longer drive a numerical benefit will be conducted in-house. On the other hand, those activities that require specialist resources or are non-differentiating will continue to be outsourced.

Dynamic procurement
All of this points to an increasing requirement for dynamic procurement where the procurement department plays three essential roles – as innovator, collaborator and strategist. Some examples of how procurement will create value in each of these areas include:

- Innovator – driving more productive outsource/insource structures to deliver more effective supply chains.

- Collaborator – effectively leveraging supplier relationships to capture increased value and drive greater innovation.

- Strategist - SRM has always been a core component of the procurement enterprise; recognising and leveraging sources of competitive advantage in these relationships will be a key source of competitive advantage in future.

With its unique position at the nexus of finance, operations and suppliers, procurement is in a key position to recognise and exploit key sources of competitive advantage in pharma.

Jonathan Betts is Sales & Marketing Director at procurement technology provider Science Warehouse.

The life sciences cloud

When a group of life science companies gathered in Cambridge recently to discuss cloud computing, a question on many people’s lips was: “What is it?”

The session, ‘Cloud computing in life sciences’ hosted by ERBI, the industry body for international biotech and healthcare companies, shed some light on this question.

Below I summarise the discussion and highlight some examples of cloud in life sciences.

Defining cloud
According to @IanMcKendrick, life science IT strategist, put simply, cloud is about outsourcing computing. But as Microsoft’s Andy Davies emphasised, cloud solutions have two important features: they are scalable and elastic. This allows computing resource to be acquired and released very quickly.

Low cost computing
The ‘pay-per-use’ model also defines cloud. It means there are no worries about over-provisioning (wasting investment) or under-provisioning (resulting in poor performance).

Overall, the total cost of ownership for a cloud-based application should be less than building in-house resource. From his experience as IT operations manager at the Wellcome Trust, Richard Gough (@chopsm) projected the 3 year costs of running their databases in the cloud being 75% less than in-house.

Discovery on demand
The ability to access computing resource on demand is seen as one of the most powerful benefits of cloud. Eli Lilly & Co. has capitalised on this to cope with ‘spikiness’ of demand. Using Amazon’s Elastic Compute Cloud (EC2) Lilly was able to launch a 64-machine cluster, complete a bioinformatics analysis and shutdown in 20 minutes. The cost was just a few dollars and replaced a process that would have taken 12 weeks internally.

Other pharmaceutical companies have also speeded up their computational drug design processes using the cloud. Also using Amazon Web Services (AWS) protein engineers and informaticians at Pfizer’s Biotherapeutics and Bioinnovation Centre can carry out antibody docking modelling that previously took 2-3 months overnight.

Enquiring into the mind
Understanding how the brain works is a major scientific challenge. It requires knowledge of how information is encoded, accessed, analysed, archived and decoded by networks of neurons. The CARMEN e-science project is designing a cloud system to allow neuroscientists to share, integrate and analyse data. Globally, over 100,000 neuroscientists are working on this problem. Solving it could revolutionise biology, medicine and computer science.

Processing power on tap
Proteomics is the field of large scale study of protein structures and functions and is key to understanding disease processes and designing interventions. One of the main obstacles to starting proteomics programs is setting up computational resource to cope with major data processing requirements. However, a team at the Medical College of Wisconsin used Amazon’s cloud services for low cost, scalable proteomics analysis. This approach allows users to have large scale computational resources on tap at very low cost per run.

Indiana University is also exploring the use of cloud computing for analysing next-generation sequencing data. This is expected to be generated in volumes "one to two orders of magnitude larger" than possible with current computational capabilities.

Trusting the cloud
No discussion on cloud would be complete without raising the aspect of security. However, given the dedicated nature of cloud providers security is high on the agenda and should be class-leading. There is every chance that capability in this respect is ahead of in-house resources; it’s just that if things do go wrong, it tends to get high profile coverage.

Richard Gough also noted that just because an organisation is using the cloud it doesn’t negate the need for it to be managed rigorously. In the acquisition phase strong procurement processes are vital and security people should be involved from day one of the procurement cycle.

Evolving models
Over the last year Microsoft’s Simon Davies has been working with early adopters of Windows Azure, its cloud-based platform. He says whilst the cloud enables users to achieve lots of things they couldn’t before, it’s “not a panacea for everything.” This is not to say that Microsoft is not committed to cloud, rather they believe that ‘software plus services’ is a better and more flexible approach.

Moving forward, there will be a number of models that businesses can choose from to suit their requirements. This is an evolving ecosystem that ranges from the raw computing power provided by the likes of Amazon through platforms that allow others to develop (Windows Azure, Google App Engine) to web-based services (Science Warehouse, Salesforce.com) and the wealth of consumer-oriented online offerings like Facebook and Twitter.

At whatever level organisations engage with the cloud the future is all about being able to do more for less.

Links to additional information quoted in this article:

Eli Lilly bioinformatics
Pfizer antibody docking
CARMEN brain research project
Wisconsin proteomics
Indiana sequencing
Economist mag debate on cloud computing (pits Salesforce.com's Marc Benioff against Microsoft's Stephen Elop)
A great series of articles on Cloud Computing in Life Sciences published by BioITWorld is also available here.

This post is an edited and updated version of my post on the Science Warehouse site: http://bit.ly/8h0RQT

Loving the low end

I've had a bee in my bonnet for some time now about the challenges facing established brands in targeting low end markets. Scott D. Anthony's recent article on the Harvard Business site therefore (literally) struck a chord. In it he notes how a premium brand guitar maker - C.F. Martin & Co. - responded to the recessionary environment by cutting production costs and introducing a cheaper model. This wins applause from Anthony who believes every business should have a “love the low end” model. The argument is that it’s better to own budget conscious consumers than ceding this ground to low cost competitors.

Traditionally, marketers are trained to aim their sites on the higher end of the market whether it be blue chip clients in B2B environments or deeper-pocketed consumers in B2C. After all it makes sense to go where the money is. However, the airline industry has amply demonstrated how difficult it can be for incumbents to respond to low cost competition (cf. BA vs Ryanair, et al).

This suggests that even if you’re lucky enough to be playing in the high end of the market you do need that low end offering. Assuming that your business has the capability to deliver a cheaper product profitably then one of the key questions for marketers is how do you stop yourself competing with yourself? This can be both existing customers who perceive they can get the same product for less or prospects that might otherwise have invested more.

The answer, or course, is in effective differentiation and segmentation. Customers need to be clear what the differences are between the high and low end offerings and then the appropriate target groups directed towards purchasing the right one for their needs.

A low end offering can be a great way for customers you would never have had to develop a relationship with your brand. Tread with care however as the path is littered with examples where brands have got it all wrong. First of all cutting cost to create a low end offering mustn’t mean cheap as it can damage the entire brand (e.g. Mercedes A class circa. 2000). Secondly, if your offering is all about exclusivity you can't credibly offer a slice to everyone.

I know in business we like to focus on success but it would be informative and fun (in a morbid way) to gather people's examples of brand over stretch for a future discussion...

Community building: principles of mass collaboration

A recent post by Beth Harte: "Organic vs Inorganic Communities" looked at the characteristics of top down groups created for a specific reason - such as promoting a brand - and those that evolve organically around the interests of their participants. In my last blog post, I grappled with the question of how to create a community that allows a brand to promote itself effectively. Beth's post was very timely in this respect, not only in its helpful classification, but in highlighting that people know then they're "in a controlled and constructed environment".

This set me thinking about one of the case studies in Tapscott and Williams' "Wikinomics". In it they describe how IBM joined the open source community. A great example of how a major corporate brand entered into and built trust and credibility in a collaborative environment. IBM made a significant investment in integrating its activities within this organic community - ultimately to its substantial financial benefit.

By studying this example and several others the authors identified a number of "principles of mass collaboration". I've replicated these below and consider their relevance in the context of effective community building.

1. Take cues from your lead users - these are your opinion formers that others will follow. However, in the same way as listening to your customers is a good thing the art is in assessing these cues and seamlessly integrating with your business strategy (rather than being led down unprofitable paths).


2. Build critical mass - successful communities have a core group of participants that contribute their energies and enthusiasm to keep it motoring. This contribution of social capital creates the momentum that draws others in.


3. Supply an infrastructure for collaboration - there is plenty of infrastructure in social media whether it be Facebook, LinkedIn, Twitter or others. The decision is really in selecting the appropriate platforms to participate on.


4. Take time to get structures and governance right - in Wikinomics this is written in the context of managing intellectual property, investment of resource, etc. However, the governance part is particularly important in the community context.


5. Make sure all participants can harvest some value - this is interesting the context of social networks comprising professionals. There will be partipants with non-commercial objectives (e.g. there to learn, develop their professional standing) and others that are looking to pick up business. Unresolvable tensions could evolve between these participants.


6. Abide by community norms and create conditions for trust - understanding these norms and thinking about ways in which you can genuinely add value to the community builds trust.


7. Let the process evolve - this highlights the fact that it is very difficult to engineer a community. Back to the point that people know when the're in a constructed environment.


8. Don't lose sight of your business objectives - these should probably be carved on the frame of your computer screen.


9. Collaboration starts internally - creating vibrant and multiway collaboration within organisations is good practice before heading outside the walls of the enterprise.


10. Finding internal leadership for change - even the most innovative of organisations can be very conservative when it comes to breaking down barriers between themselves and the outside world. "Are we going to lose our competitive advantage by disclosing our thoughts to the outside world?" will be a typical questions for many executives.


11. Hone your collaborative mind - this may mean shutting off the "compete at all costs" mindset to work for the common good. For brands that have historically operated on a "command and control" basis this can be a significant shift.

In summarising these points it's notable that a number of them are worthy of expansion and further discussion. What do people think?

Using Social Media to Build Brand Awareness

One of my current marketing objectives is building brand awareness. This to make sure that folks in our target markets know to turn to us when they have a problem we can present a relevant solution to. Social networking sites offer a means to achieving this. There are a lot of channels but to get going the basic starting points are:

1. Find and join existing groups with interests related to our subject area
2. Add value to these by following discussions and blogs and actively commenting on them.

The natural progression from this, assuming I want to create a focus around my own particular subject area and build more visibility, would to start my own group(s). To make such a group credible and attractive then it must:

1. Incorporate powerful value-added content to build respect and credibility (not just be more top 10 lists for success!)
2. Have liquidity: in other words, there must be enough participants with enough goodwill to want to contribute their time and knowledge to the community
3. Be open with a willingness to take the good hits with the bad (but have a “listen and respond” strategy for dealing with the latter)
4. Have balance and not be perceived as a promotional tool for my products or services.

Experience shows that folks are willing to take a pinch of promotion with a main meal of value-adding content but any over-seasoning and the whole lot goes in the bin.

So here’s to my question, assuming I don’t want to brazenly promote my brand but do want to associate it with thought leadership, in creating my new community do I give it:

1. My existing (company) identity
2. A distinct but related sub-identity
3. A de novo identity
4. None of the above?

A community of individuals is a living, breathing thing that moves and shifts with time. It creates its own identity – its own brand based on its values. Arguably, therefore it shouldn’t (or even can't) have one imposed on it. On the other hand, there has to be some sort of identity for people to aggregate around in the first place. What's more, we all like to attach to certain identities – as long as it helps to take us to where we want to be.

The sequence of events in catalysing a community could therefore be:

1. Give it a label
2. Seed the community with quality content
3. Invite in proactive participants with relevant interests
4. The community builds its own values
5. The values in 4 become inextricably linked with the initial label.

If enough of a buzz is created around the first few steps then the bees should be attracted to the pot (or do bees just go to flowers and wasps and flies go to pots?).

Of course, there's no reason why web-based social networks should be any different from face-to-face ones in all of this. The National Slugwatchers Association might have an annual Slugfest meet and an online Slugfest community. Slime-All, a marketer of slug-related products, would want to be a participant in these communities.

So, before we get any more insecty (okay, slugs aren't insects), what are the experiences of B2B brands in this area? Am I being too obsessed with the whole branding of the community when the focus should really be on the value of the community itself? After all, we're all given names at birth but all the evidence is that it's our parents and peers and not our names that affect what we become (read Freakonomics Chapter 6 for the gen on this).

Please leave your comments so we can develop this dialogue. Cheers!

The Mystery of the Marketing-Resistant CEO

Over on the Marketing Misfit blog Mayra Ruiz highlights the case of the marketing-resistant CEO. Whilst this mindset may be a real mystery to many marketers it is a very common one and not just in the small owner/operator type business. What it demonstrates is the need for marketing to market itself effectively and clearly communicate the value it creates for the business. I've noted a few of my own thoughts on this below.

Customer-relevant brand positioning
For a company that is marketing software it would seem a tragedy to discard the opportunity offered by web 2.0 tools. They could be used to support a company's positioning as dynamic, innovative, tech-savvy and responsive. All attributes that most customers would value in a software vendor.

Show the money
This also demonstrates the importance of being able to demonstrate return on investment. I suspect the sales cycle here is relatively long so this is something that is very difficult to show in the short term. Referencabillity is key here - showing results from similar businesses or ones that the CEO relates to and respects would help.

Peer-to-peer
With all due respect to the marketing manager there seems to be an issue with the CEO accepting his position. They agree in the meeting but the next day the CEO's mind is changed. Get the CEO talking to the CEO of another client - they speak the same language and identify with the same issues. You never know, they might even get some business out of it.

Write a 3 minute guide
Does the CEO really understand what web 2.0 is really about? Let's face it, there are still plenty of marketing professionals out there that haven't taken the plunge. As has been pointed out elsewhere, up to now, the social media "market" has been characterised by hype and fragmentation. This doesn't present a clear picture to your average business person. A "3 minute guide to social media" to give non-marketing execs a snapshot of what's going on would be worthwhile.

Understand the plan
This story is not just about investment in web 2.0. The CEO is resistant to investing in marketing and sales. We need to get under the skin of the company's business plan here - are they targeting new business, existing customers? Clearly new business won't come without the investment and over time revenues from existing relationships are also likely to decline. Marketing investment needs to be integrated with the business plan and the links between that investment and cash generation shown. If the investment's taken away, show the impact on revenues.

Implement incrementally
Implement new channels incrementally rather than going for a big bang/all-or-nothing approach. Starting with a blog requires little or no cash outlay. The results from this will then support further investment decisions.

Brand building
If the CEO's involved in sales he will know the difference between calling a prospect that's never heard of his company and one that has. This should convince him that investing in brand awareness is worthwhile. Awareness builds trust and a desire to learn more if the brand is relevant to the prospect's business.

In summary, as in all marketing, the currency is relevancy. The customer here is the CEO and there is a need to understand his drivers and deliver messages that are relevant. For many, particluarly in smaller businesses in the current environment, immediacy and tangibility are key.

B2B marketing: catching the social media wave

Some recent opinion has posited that we as a profession (in B2B marketing at least) are being slow to adopt new social media channels. The inference is that we should do away with the tried and trusted and dive headlong into the deep, rewarding azure of social media.

For those of us that have been around a few (but actually not that many) years this is disconcertingly similar to the technology bubble of just under ten years ago. A very fragmented market, loads of hype, lots of confusion, a new dotcom pitching up every day. No one really knew where to put their money but there was loads of it so it got sprayed pretty much everywhere. With a highly inefficient allocation of capital many of these investments vaporised.

Arguably, however, social media has now entered a stabilised phase. There are a number of well established platforms and models. Until very recently this wasn’t the case and many marketers could be forgiven for sitting back and waiting for the froth to come off the market. With limited marketing budgets only so much can be devoted to the new and untested.

Some commentators have gone as far as to say you don’t need an ROI for social media. Again, this is reminiscent of the dotcom days when otherwise serious people were running around asking questions like: “What’s your business model?” as if the "old" rules didn't apply. Michael Porter struck a chord with me at the time when he sagely observed (and I’m paraphrasing) – there is only one business model: you buy something and then sell it for more than you bought it for. The questions for marketers now shouldn’t be: “What social media channels are you using?” but “Which channels deliver the most valuable dialogue with your customers?” The latter may or may not include social media sites.

Anyways, all this is sounding a little on the negative side. It shouldn’t sound do so because I’m a big fan. Why else would I be sitting here blogging when I should be tucked up in bed? No marketing professional would resist new channels if they are demonstrated to generate a return. To target them, marketers need to find out where on the web their customers are aggregating; how they can then engage with them effectively whilst still promoting true (and revealing) dialogue and have a strategy to deal with the results of that dialogue – both negative and positive. All this must be done in a measurable way whilst integrating with existing channels.

The good news is that this is an exciting time to be a marketer. There is a tsunami of new and innervating stuff out there for us to get to grips with. Amongst all this it’s also important not to forget the basics of brand building programs – the requirements for:

• Access to multiple media
• Integrated communications
• Measurement of results.

Finally, returning to the issue of speed of adoption of social media channels by B2B marketers it’s worth looking at the classic Rogers’ adoption curve. With just under a third of B2B marketers using blogs that puts us firmly in "early majority" territory. This may mean that we have some way to go to achieve truly community-focused marketing but think about the rate of diffusion of previous innovations (e.g. telephone, PC, internet) in the business environment and you might say we’re not doing too bad.