Blog Article

Pharma’s New Network Model: Assessing the new demands on leaders

Posted by Ian Wilcox

Ian Wilcox

The first few months of 2015 have been turbulent for pharma R&D:

  • In February Sanofi laid off 100 R&D staffers in Cambridge.
  • That same month, Pfizer announced plans to lay off R&D staff.
  • AstraZeneca is spinning out its anti-infectives unit to create an independent biotech, which will affect 95 employees.
  • Amgen is closing labs at newly-acquired Onyx in order to bring oncology research under one roof.
  • In December, GSK announced layoffs at its North Carolina R&D site, although half of GSK’s R&D staff will be transferred to Parexel, the CRO, and work in the unit serving GSK.
  • Shire is relocating over 500 commercial and R&D jobs from Chesterbrook, PA to Lexington, MA.
  • Eisai plans to trim over 200 jobs from its US operations. While the cuts will come mainly in regional corporate services and commercial and not R&D, the company’s goal is to more effectively deploy resources to support top-priority late-stage compounds.

While layoffs and restructuring are common in the industry, these latest changes have an added layer of significance. In my view, they’re symptomatic of a broader evolution in the pharma business model that will demand new capabilities from pharma leaders.

The Network Model

As M&A comes to replace research as a development strategy, the pharma company is becoming, in essence, a project management organization. Turning to outside partners for promising new therapies is part of a broader industry trend toward outsourcing key functions ranging from IT to trials to (increasingly) discovery.

Whereas once the spectrum of functions from research to sales fell under one roof, the pharma company today is changing its nature. It is becoming the key node in a flatter, more distributed network. In this new network model, the pharma company cooperates with research partners in discovery, outsources trials to CROs, and hands off manufacturing to CMOs.

New Challenges for Leaders

The transformation to the network model, still in its early stages, requires executives to work effectively with alliance partners in a matrixed environment. For leaders accustomed to the clear lines, established protocols, and vertical hierarchies of the traditional pharma organization, the network model poses significant challenges.

In a networked alliance environment:

  • loyalties are contingent as people shift from one project to another;
  • conflicts sometimes arise between professionals who bring different work cultures to a common project; and
  • influencing alliance partners over whom one has no official authority can pose a significant challenge.

Thriving in the Network Model

In order to overcome these challenges, executives need to generate emotional attachments to projects and foster meaningful connections among team members. They should celebrate successes across the alliance, and share incentives and risks (to the extent practical). To enable integration of the team, alliance partners should interact frequently, in person when possible and via Skype or VC when not.

Vitally, executives must become experts at “soft-shoe persuasion.” While in a hierarchical, vertical organization, one can simply give an order, not so in the new network model. Here, because the lines or authority are unclear or non-existent, the ability to use persuasion instead of commands becomes crucial.

Along these same lines, it’s important to avoid “pulling rank” as a way to resolve issues (and in fact, where formal lines of authority don’t exist, it’s pointless!). In a matrix environment, teams need to sort out differences themselves rather than relying on a paternalistic senior management corps to solve problems. By using empathy and conflict resolution skills, leaders will keep teams focused on the goals of the project.

Becoming better at empathizing—and building skills like conflict management, the ability to influence, and self-awareness—will help leaders master the matrix. Empathy enables leaders to better understand their alliance partners’ perspectives and goals, while the ability to influence and manage conflicts helps leaders build the consensus necessary for collaborative solutions with partners. In the end, a high level of self-awareness helps leaders maintain the personal equanimity necessary to manage alliance relationships.

Pharma’s Future is Horizontal

For pharma, the rules of the game have changed. To manage these new organizational forms, pharma leaders must improve their behavioral skills. Because pharma companies must now successfully integrate a network of partners, new jobs will emerge; as pharma plans for human capital in the future, working in a systems context and improving collaboration will be essential competencies. (In some ways, this shift is comparable to what high-technology firms experienced a generation ago when systems engineers emerged as a critical component of their success.)

Alliance partnerships are transforming not only the nature of drug development but also the function and shape of the pharmaceutical organization. Whether ultimately positive or negative, the shift to the network model shows that the industry is facing up to the 21st century. Indeed, the shift from vertical, self-contained hierarchies to horizontal, interdependent networks is the structural transformation that defines business in our times.

For too long, the industry has been trying to generate the therapies of the future from within the organizational structures of the past. Pharma has had a Industrial Age body and a Digital Era soul, but now, the body is catching up to the soul.


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1 Comment

  1. Cathie Murensky

    Cathie Murensky

    May 11, 2015 at 8:10 pm

    Great article Ian. I am teaching a graduate course in Org Design at the University of Denver this semester. I am posting your article and will discuss it with the class as an evolving design for the industry (and no doubt others). Alliance partnerships are on the horizon for many and leaders need to evolve their skill sets to manage them effectively.

    Thanks for the spark of our conversation. Very timely.

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