By Alex Rumble.
As the life sciences industry looks to manage top and bottom line performance more effectively, there is a common concern among providers about the lack of in-house talent and expertise.
End-to-end revenue lifecycle management has emerged as a powerful methodology that places price and profit maximization firmly on the boardroom agenda. But as a relatively new concept, it is perhaps not surprising that there are few specialists with the all-round expertise to drive the necessary transformational change within most businesses.
However, the issue of identifying the appropriate development and operational skills is just one element in implementing an effective revenue management initiative. Certainly, putting in place a pricing manager without the right infrastructure and support will be doomed to failure.
Life sciences companies sometimes have to look outside the industry for specialist development and implementation expertise. Yet with a clear vision from the C-suite supported by the right systems and processes, there is almost certainly a pool of talent within the existing business capable of embracing a more strategic approach to revenue management.
Skills can be honed and developed: what they need above all is direction.
A long road
The recent EPP Life Sciences Price and Profit Optimization Forum in Montreux, Switzerland, showed how far biopharm, generics and medical device companies have to go in taking an enterprise-wide approach to revenue management. Research undertaken at the Forum showed that almost half of firms surveyed have concerns that their pricing teams are fundamentally reactive and lack clarity in both their roles and objectives.
This is an inevitable outcome of the fact that more than 80 per cent do not include pricing and revenue management as part of their strategic planning process. Similarly, 94 per cent have pricing teams reporting into the finance or commercial department, for example, rather than seeing its importance as a cross-functional activity reporting directly into the CEO.
Everyone in the business is responsible for price and margin optimization. As the best- performing companies have shown, by adopting this shared vision and with the right training, an appropriately-skilled pricing team can be transformed from a departmental admin function to one that provides strategic commercial support at the heart of the business.
Start at the top
A snapshot of providers to today’s life sciences industry would show an increasing number of companies starting to undertake change initiatives in improving their approach to pricing. Yet too many are doing this in a fragmented way, with no vision of what the end-to-end process of price, profit and revenue lifecycle management should look like. They have yet to recognise the importance of developing skills and talent in-house if the business is to move from a narrow siloed approach to a more enterprise-focused commercial view.
A three-tiered approach offers the most effective way to provide the necessary momentum in addressing key skills issues around ownership, leadership, management and people development.
First, as with any major change initiative, board-level project ownership is crucial, as it reflects corporate commitment and provides the necessary impetus to cascade new ways of working down and across the business — in short, to make it happen.
Second, the pharmaceutical industry is highly global in nature, with very few implementations impacting on single geographies alone. This is particularly true in the area of revenue lifecycle management, with such issues such as tender management and reference pricing, for example, becoming increasingly international in scale and business impact. This impacts in turn on the talent and expertise required, with the need for staff who can take a multi-national, multi-departmental view of revenue management, at both a strategic and operational level.
Finally, much is changing in the sector in the area of pricing and margin control. Not only is revenue lifecycle management a relatively new concept, but aspects of the sales process itself such as 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.
A company-wide view
To be effective, recruitment must always take place in the context of the broader business — and nowhere is this more evident than in looking for staff who are capable of taking an all-encompassing view of revenue and margin performance.
The life sciences industry as a whole is going through a period of transformation, in which providers are coming under unprecedented pricing and volume pressures. They are having to learn how to adapt to new commercial realities, with little or no previous experience of this harsher landscape.
At the same time, 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 to recognize new skills are needed: it is quite another to create a structure and provide supporting resources to enable this expertise to deliver best value to the business.
In response, it is very tempting to take a ‘sticking plaster’ approach to the problem as a first step, by deciding to take 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, for a number of reasons.
Without ownership at a senior level and a mandate to drive cross-functional change, the pricing organization will not have the authority to create and implement sustainable operational enhancement throughout a business which remains essentially siloed in its approach to pricing and profit optimization. Equally importantly, the newly-appointed specialists will quickly become disillusioned and move on or, if they have done their homework at interview stage, simply not accept the appointment in the first place.
By contrast, those organizations that have successfully put in place revenue lifecycle management initiatives that have led to sustainable revenue and profit performance improvements have typically embraced this challenge. They have recognized the highly transformational nature of breaking down functional and other organisational silos, by making the CFO and CEO directly responsible for sponsoring the required steps, so very visibly prioritising pricing within the business as a strategic, cross-functional and urgent initiative.
Having said that, companies should not be scared off by the apparent scale of the challenge of developing a skilled team capable of driving end-to-end revenue management throughout the business.
It is true that in newer aspects of business development such as tender management, there is a dearth of skills within the life sciences industry. Yet other sectors such as hospitality and airlines, for example, are much more advanced in revenue management and have a wealth of expertise which can readily transfer across operating environments.
However, in other areas such as reference pricing, the move towards an end-to-end pricing approach is more evolutionary. In many cases there are likely to be skills already in the business that can be honed and adapted to meet the new challenges facing the enterprise’s top and bottom line performance.
The role of training
In a fast-evolving revenue lifecycle management environment, training has a key role to play in developing the skills required, at several levels.
At the point at which the seller meets the buyer, the emergence of tender management, for example, has resulted in major industry-wide change. The days when the representative of a pharmaceutical company would act primarily in an advisory capacity with physicians, supported by a distributor network handling order placement are disappearing fast. These have been replaced by a much more structured and remote tendering process in which the control — and so the power — appears to be decisively in the hands of the procuring organization.
Providers have quickly recognized the major long-term impact that losing tenders can have on regional market share. Some have responded to this by outsourcing their tendering process, but the majority are looking to sales training organizations to help them develop the selling/ negotiation skills and support processes to maximise their chances of success at each point of the multi-stage process.
Once again however, issues around maximizing price and profit performance sit within a much broader context of taking full corporate control of revenue management. As a result, many companies are working with specialist consultancies to develop appropriate revenue strategies which look to define the most effective balance between centralised and local control of the sales process.
In many cases this input focuses on individual elements of a pricing and sales strategy. However, major improvement is best achieved when viewed holistically as a seamless end-to-end process. An initial diagnostic approach of existing price and profit performance will establish where the organisation sits on the revenue management maturity curve and also where the main problems and challenges lie.
This provides the essential visibility and clarity to create a recommended framework for improvement, involving skills, processes and technologies. Critically, it also forms the basis of a pragmatic step-by-step roadmap towards building sustainable competitive advantage in an ever-more competitive commercial landscape.
The right recipe
As in any recipe, success demands the right ingredients, all of which are essential to some degree to ensure the right result — in this case putting price and profit optimization and revenue management at the centre of the organization’s development strategy.
Identifying and putting in place the right talent and resources is one of several key ingredients, which include an appropriate strategy, the right processes and organizational structure, as well as supporting technologies and toolsets.
To achieve this, life sciences firms may need to look outside the industry for some specialist skills. Yet with the right top-down vision, impetus and company-wide support, there is almost certainly a pool of talent within the existing business capable of embracing a more strategic approach to revenue management.
And for those businesses that meet the leadership, recruitment and training challenges involved, the rewards will be immense.
Alex Rumble is Senior Director Europe at Model N.