& PHARMA BUSINESS NIGERIA SECURITY SECURITY SECURITY C o l a l e v g o e R H s e e a v i l t t h u c c a e r x e E VOLUME 8 Are Prescription Drug Prices High? The Strategic Anchors For Drug Security The Impact Investment Gandhian Economics Of Capital Efficiency WHO Pre-qualification - made in Nigeria for the world MINFLOW NAFDAC Activities - key to ensuring drug security in nigeria DRUG
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& PHARMA
BUSINESS
NIGERIA
SECURITYSECURITYSECURITY
Co la lev go eR
H se ea vil tth uc ca er xe E
VOLUME 8 Are Prescription Drug Prices High?
The Strategic Anchors For Drug Security
The Impact Investment
Gandhian Economics Of Capital Efficiency
WHO Pre-qualification
- made in Nigeria for the world MINFLOW
NAFDAC Activities- key to ensuring drug security in nigeria
DRUG
ROVA
Final
PROMOTING THE QUALITY OF MEDICINES
Factory Address:
: THE STRATEGIC ANCHORS FOR DRUG SECURITY
4848C o n t e n t s
38 42
Healthcare Management Review Vol 8/Page 9
22 34The Strategic
Anchors For
Drug Security
Nafdac Activities
Key To Ensuring Drug Security In Nigeria
Playing
on the
Global Space
BLUE OCEAN philosophy
STRATEGIC IQInnovation. Marketing. Leadership
A transformational experience for result-focused
Pharmaceutical Products, Sales, and Business
Development Managers.
Master Class
Co la lev go eR
H se ea vilt th uc ca er xe E
R o v a C o l l e g e
of Healthcare ExecutivesE x e c u t i v e E d u c a t i o n
Abuja: 9th - 14th November, 2015, 88th Annual National Conference, of PSN
96
106
Healthcare Management Review Vol 8/Page 11
66 92
C o n t e n t s
Are
Prescription
Drug Prices
High?
112
Bank of Industry
The Health Sector: Challenges
& Opportunities
The Capital
Market 98
Gandhian
Economics Of
Capital Efficiency
129120Reverse
Pharmacology
Hands On The Present Eyes On The Future
CREDITS PMG-MAN
Pharmaceutical Society of NigeriaNAFDAC
PharmAccess May & Baker
Standards Organization of NigeriaBank of Industries
CHI Pharmaceuticals Swipha
Ecologistics WHO fact sheet No.278
UNIDO Project: Pharma Sector Profile, Nigeria.M. Mazumba - Performance of Pharma Companies in India
Pharm. David AdonriC.K Prahaled & R.A Mashelka
SENIOR EDITORSGodwin OdemijieMoji Makanjuola
INTERNATIONAL AFFAIRS BUREAU CHIEFVicky Akai Dare
DIRECTOR - EDITORIAL OFFICENkechi D. Abolo
MARKETING MANAGERZubby Onwumere
STAFF GRAPHIC DESIGNERKenneth Ameh
SCRIPT EDITORS
Therie EssienEdidiong Bassey Inyang
RCHE FACULTY ADVISORS
EDITOR IN CHIEFEmmanuel C. Abolo
www.facebook.com/hmrecopy
Prof. Rowland Ndoma-EgbaProf. Femi AdebanjoProf. Okey MbonuDr. Ibrahim Wada
Dr. Emmanuel C. Abolo Jnr.Dr. A Dutse
Dr. Kabiru MustaphaBarr. Charles OkeiMr. Fidel Anyanna
Mst. Chinedu Iroegbulam
S U P P O R T G R O U P S
Thefollowingorganizationhas
demonstratedtheircommitmentto
DrugSecurity&PharmaBusiness
inNigeria.
PMG MANPharmaceutical Manufactures Group of Manufacturers Ass. of Nig. (PMG-MAN)
NA
TIO
NA
LH
EALTH INSURANC
ES
CH
EM
E
CHANCES OF A
BETTER FUTURE
t is an undisputable fact thatmedicines and vaccines are very critical in theIprovision of healthcare in any nation because they provide credibility to the
espite government efforts to promoteDdomestic manufacturing, Nigeria
remains heavily rel iant on imported
pharmaceuticals. TherevisedNationalDrug
Policy(NDP),setatargetfor70%(involume)
ofthecountry's'demandformedicinestobe
met by local drug manufacturers by 2008.
Consequently, government policies were
designed to support local production of
essential medicines in accordance with the
NDP.
The pharmaceutical manufacturing sector
hasexperiencedasteadyannualgrowthof10
–15percentsince2001(IFC).Furthermore,
�ive local drug manufacturers have WHO-
cGMP and many more are upgrading their
fac i l i t i es to comply wi th WHO pre-
quali�icationandWHO-cGMPrequirements.
Thiswillenablethecompaniespromotethe
medicinesmanufacturedlocallyinNigeriato
ECOWAScountriesandbeyond. Inaddition,
once pre-quali�ied, localmanufacturerswill
be able to participate in International
procurementtenderscalledbyInternational
developmentpartners. Consequently,the70
percenttargetsetbytheNationalDrugPolicy
shouldbeachievedby2020.
According to a survey by UNIDO, capacity
utilization within the sector in Nigeria is
about 40 per cent, meaning that there is a
largevolumeofunderutilizedmanufacturing
capacitywhich couldbe applied toproduce
newproductsupondemand.
70%70%
Healthcare Management Review Vol 8/Page 19
OPPORTUNITIES FOR LOCAL PHARMACEUTICAL
PRODUCTION TO ACHIEVE 70% (VOLUME) OF
NIGERIAN MARKET.
- Thestrongdemandandtheneedforimproved
management of infectious disease especially,
HIV/AIDs,Malaria,TB,andNeglectedchildhood
disease.
- Increasedresearchanddevelopmenteffortsat
the National Institute for Pharmaceutical
Research and Development (NIPRD) and
NationalUniversitiescanleadtotheemergence
of new therapeutic agents, nutraceuticals and
phytomedicines from Nigeria's abundant
indigenous biodiversity and traditional
medicines.
- PositiveEconomicgrowth in recentyearsand
macroeconomicstabilityarehelpingtoreduce
povertyandincreasepurchasingpower.
- The increasing visible and active National
AgencyforFoodandDrugAdministrationand
Control (NAFDAC) and, in particular, its
campaignagainstsubstandardhealthproducts
have shown a positive impact on reducing
counterfeitdrugstrade.
- Government Policy aiming to achieve local
productionof70percentofessentialmedicines.
- Governmentbanonimportsofsomeessential
medicinesforwhichthereisadequatedomestic
capacityandtechnicalskills.
- EstablishmentoftheNationalHealthInsurance
Scheme(NHIS)toprovideuniversalhealthcare
coverage, by 2015 will provide funds for the
requiredessentialmedicines.
- The local pharmaceutical industry has a
comparative advantage in providing remedies
forneglectedtropicaldiseases(NTD).
The following milestones when reached, will have a very
positive impact on the pharmaceutical business in Nigeria,
over the next 10 years.
- Improved distribution of medicines.
- Advances in Biotechnology.
- The Harmonization of medicine registration within
ECOWAS.
- WHO certification and prequalification of more
Nigerian pharmaceutical manufacturers.
- Development of pharmaceutical raw materials using
indigenous basic raw materials.
- New phytomedicines developed by NIPRD and
Universities registered by NAFDAC and licensed to
local pharmaceutical companies for commercial
production and global marketing.
The NDP aims at reaching 70 percent local production in drug along with
other goals including the establishment of an effective drug procurement
system, developing an efficient drug distribution system, the
harmonization of drug legislation with ECOWAS sub region and the
commitment to the national use of medicines at all levels of health care.
Healthcare Management Review Vol 8/Page 21
1. The Pharmaceutical Industry be designated a Strategic Sector and Essential Medicines designated Security Items in Nigeria which should be backed by preferential policies.
2. In view of this Special Status, Pharmaceutical Products and inputs be permitted to access foreign exchange from the Retail Dutch Auction System (RDAS) window to prevent prices of medicines spiralling out of the reach of our people.
3. Ministries, Departments and Agencies to patronize local manufacturers in compliance with Presidential Directives, while the Domestic Preference Policy of the Public Procurement Act 2007 be fully implemented and prompt payments effected.
Credit: PMG-MAN
Healthcare Management Review Vol 8/Page 22
THE STRATEGIC
ANCHORS FOR
DRUG SECURITY 4. There is need to encourage investment in the pharmaceutical sector
through the implementation of extant incentives such as Grants, Pioneer Status, Tax Holidays and affordable funding from Developmental Banks.
5. There is need for Special Incentives for Research and Development in the Pharmaceutical Sector as well as Special Tariff Waivers & Concessions for specialized machinery and equipment for quality improvements and upgrades such as Air Handling Units, Clean Room Items and speciality chemicals for flooring.
6. There is an urgent need to protect the Nigerian Pharmaceutical Industry within the implementation of the ECOWAS Common External Tariff (CET) through appropriate levies on products that local Industry produce in sufficient quantities and are therefore placed on Import Prohibition List in Nigeria.
Healthcare Management Review Vol 8/Page 23
Providingadequatehealthcaretotheir
popu l a t i on rema in s a ma jo r
challenge forgovernments inAfricaand
Nigeriainparticular. Unsatisfactoryand
inadequateaccesstoessentialdrugsand
other healthcare commodities is a key
limitationthatimpactsonpeople'shealth
inmost developing and least developed
countries (LDCs). The increased funds
now available for the procurement of
medicines to treat the three pandemics
(HIV/AIDS, Malaria, and Tuberculosis)
areveryvaluabledevelopmentandhave
reduced the suffering and extended the
livesofmillionsofpeople indeveloping
regions.
However, reliance on donor funds is
clearly not sustainable in the long term
and there are many more diseases for
wh i ch pha rmaceu t i c a l s a re key
treatments and which access to quality
medicinesismuchlessadvanced.
Inresponsetotheseconsiderations,local
production of essential drugs is an
important component of a long term
solution to provision of adequate
healthcare in developing countries like
Nigeria.
Adequateaccesstodrugsisdependenton
both theaffordability andqualityof the
products. Unaffordable low quality
products are not the answer either.
Therefore,anindustrythatproduceshigh
qualitydrugsatcompetitivepricesmust
be the target when developing local
manufacturer of pharmaceuticals in
Nigeria.
The pharmaceutical sector is a complex
one, involving many different stake
ho l d e r s s u ch a s manu fa c t u re r s
themselves , Nat iona l regulators ,
governmentministries,wholesalers and
others. Developingtheindustryrequire
concerted actions across these stake
holders to create the environment in
which that industry can �lourish and
realize its full potential as an asset to
economic and social development. An
exampleoftheroleofstakeholderscanbe
seen with regards to the scourge of
counterfeit drugs, which cause huge
health problems and also represent a
threat to legitimate manufacturers who
effectively have to compete with these
substandardproducts.
GOVERNMENT SHOULD
PROVIDE THE ENVIRONMENT
Healthcare Management Review Vol 8/Page 24
UNIDO SUPPORT
Since 2006, UNIDO, with funding from the
Government of Germany, has been
conducting a project on strengthening the
local production of essential generic drugs
in developed countries including Nigeria.
The objective is to help the pharmaceutical
sectors in developing countries realize
their potential role of acting as a pillar of
public health and contributing to the
economic and social development.
Adequate access to drugs is dependent on both
the affordability and quality of the products.
Unaffordable low quality products are not the
answer either. Therefore, an industry that
produces high quality drugs at competitive
prices must be the target when developing local
manufacturer of pharmaceuticals in Nigeria.
“It is important to manufacture
generic medicines in closer proximity
to where they are actually needed.”
Inthefaceofthesituation,andactionsby,
for example, regulators to reduce the
penetrationofthesecounterfeitproducts
would,aswellasbeingimportantfroma
healthperspective,alsobene�itthelocal
pharmaceuticalindustry.
Furthermore, quality requires upgraded
skills and equipment, so how can high
qualitybeproducedataffordableprices?
Th i s cha l l enge requ i res var ious
governmentministriestoworktogether
to establish the support to the industry
thatwillenableef�icientlocalcompanies
toinvestinhighqualityproduction.
However,thosecompaniesthatdoinvest
in upgrading will need some form of
protection from those that wish to
produce products at a lower standard.
Consequently, the establishment and
enforcement of quality standard by
regulatorsisacriticalelementinsolving
theconundrum.
so how can high quality be produced at affordable prices?
Healthcare Management Review Vol 8/Page 25
uringthelastdecade,promotingsustainableDaccess to quality and affordablemedicines
and integrating local production as part of the
overall health system strengthening packaging
has been of signi�icant concern to Nigeria and
Africa in general. A viable pharmaceutical
industry inNigeriashallnotonly impactonthe
Nigeriahealthsystemanditscapacitytoprovide
medical products of priority to diseases of
HIV/Aids, Malaria, TB, and Neglected tropical
disease but will also contribute to the overall
socioeconomicdevelopmentofthesubregion.
The public sector will bene�it from improved
securityofsupplyandrobustregulatoryoversight
(feasibleduetoproximityofproduction)aswell
as providing a bas is f rom which novel
formulationsandnewproductscanbedeveloped
to tackle speci�ic diseases and treatment
challengesthatarepeculiartothenation.Asthe
global�inancedeepens,thesectorwillprovidethe
basis for sustainable treatment programs as
contributionsthatdonorsmakeplateausoreven
beginstodiminish. Thesectorcanalsomakea
contribution to economic growth through
enhanced exports, and reduced reliance on
importsonwhichwehavelimitedregulatoryover
sight.
For this reason, the Federal Government of Nigeria
have to be committed to enhancing one of the set th
targets of the 8 millennium development goals, to
increase the proportion of the population with
access to affordable essential drugs on a
sustainable basis. There is need to galvanize the
necessary political will and provide “Leadership” to
“We pride ourselves in always looking for opportunities in
drug availability in healthcare where there are gaps and
needs to be filled. We have always tried to make products
available in areas where there is scarcity. This Blue Ocean
thinking has been our philosophy all along. Therefore when
we read in the newspapers that the United States
Pharmacopoeia (USP) was asking Nigerian companies to
express interest in producing Chlorhexidine, Digluconate
7.1% Gel, we quickly jumped at it.”
Healthcare Management Review Vol 8/Page 43
CHLORXY-G (Chlorhexidine) Gel
HOW WE DID IT.
In 2014, Drugfield was celebrated for introducing Chlorxy-G
(Chlorhexidine Gel) an innovative low cost product for prevention of
umbilical cord infections in newborn and a drug said to be quite
invaluable in Nigeria's quest to reduce infant mortality.
Before this product which has now helped to save the lives of several
newborn babies was introduced, Nigeria was the number one in Africa
with cases of umbilical cord infection and number four in the world.
We did it for a number of reasons.
One, as at that time, we had four
products in gel form in our portfolio which
we manufactured locally. So we have a lot
of experience in the manufacture of gel.
The second reason is that since the product
was a United Nations (UN) commodity, we
thought “why not give it a shot to show how
exper ienced we are to the global
community?” The third reason is that we
knew that the product could launch us into
the international market and contribute to
maternal and child healthcare in a way that
could be positively effective.
One thing which we never imagined was
that, as simple as the product is, it could put
us in the limelight. By the time the USP
visited Nigeria to look at the companies that
had shown interest, we already had the
packaging materials made. We were
already waiting to clear the raw materials at
the airport. They were pleasantly surprised
that we moved so rapidly. It helped us in a
lot of ways.
We already had TSHIP (Targeted State
High Impact Project's) support. TSHIP is an
NGO financed by the United States Agency
Healthcare Management Review Vol 8/Page 44
for International Development (USAID) and a
few other world bodies working with
Chlorhexidine Gel imported from Nepal in a
few states in the North. They were using it in
Sokoto and Bauchi states in umbilical cord
care. The product was imported from Nepal
which was then the only country in the world
producing it.
We then became a kind of partners to USP and
T S H I P. U S P w a s p r o v i d i n g g o o d
manufacturing practice (GMP) coverage,
looking at what we had on ground, and the
necessary improvement we needed to make
because the product is an international one.
Before they came for their second visit, the
product samples were ready and we sent one
to their office in Washington DC. USP was
happy and TSHIP was also very happy.
Subsequently there was to be a world meeting
of the different partners who were involved in
Chlorhexidine development in May 2014 and
TSHIP said we should come to be part of the
meeting. They got Bill and Melinda Gate
Foundation to co-finance the trip with us and
we took the product along and introduced it at
that meeting, Drugfield Pharmaceuticals was
admitted into the world Chlorhexidine working
group.
We then became the second country in the
world and number one in Africa to produce
Chlorhexidine Gel for umbilical cord care. We
were getting calls from all over the world. Calls
were coming from many of the NGOs and
foundations. Many of them visited us. The
usage of the gel also received a boost in
Nigeria, with states signing on to usage. We
have sent samples to a few other countries like
Kenya, Mali and Haiti based on the request
they made to us.
The Interest of Chlorhexidine Gel, attracted
the visit of Dr. Ado Yoba- a Ghanaian who
works for USAID. After the tour of the Drugfield
facility, he said he would talk to the Ghanaian
government that Nigeria have the capacity to
supply Chlorhexidine Gel for use in Ghana. He
also said if the development of the product had
taken place in Ghana, he was very sure that
the government would have banned the use of
methylated spirit and all manners of life
threatening materials for the treatment of
umbilical cord in newborns, and legislate that
only Chlorhexidine Gel should be used in all
hospital delivery rooms across the country. He
wondered why Nigerian government had not
done that.
Extracts of an interview granted to Pharmanews by the Group Managing Director/CEO of Drugfield Pharmaceuticals Ltd revealed the Blue Ocean Philosophy of their organization.
Healthcare Management Review Vol 8/Page 45
A United Nations global medicines quality
assurance programme managed by WHO
Aim: Increase the availability of quality assured medicines and
building national capacity in technical assistance for
sustainable manufacturing of quality medicines.
WHO pre-quali�ication of medicines is a
service provided by WHO to assess the
quality, safety and ef�icacy of medicinal
products.Originally,in2001,thefocuswas
on medicines for treating HIV/AIDS,
TuberculosisandMalaria.In2006,thiswas
extendedtocovermedicinesandproducts
forreproductivehealthandagainin2008,to
coverpre-quali�icationofZinc,formanaging
acute diarrhoea in children. At the end of
2012, the WHO List of Pre-quali�ied
Medic ina l Products conta ined 316
medicinesforprioritydiseases.
WHOPRE-QUALIFICATION
PROGRAMMEFORMEDICINES
Healthcare Management Review Vol 8/Page 46
Every year, billions of US dollars worth of
medicines are purchased by international
procurement agencies for distribution in
resource-limitedcountries.Pre-quali�icationis
intendedtogivetheseagenciesthechoiceofa
wide range of quality medicines for bulk
purchase.
Inclosecooperationwithnational regulatory
agencies and partner organizations, the pre-
quali�icationprogrammeaimstomakequality
prioritymedicinesavailableforthebene�itof
those in need. This is achieved through its
evaluation and inspection activities, and by
building national capacity for sustainable
manufacturing and monitoring of quality
medicines.
KEY OUTPUT
The list of pre-quali�ied medicinal products
usedforHIV/AIDS,Malaria,Tuberculosisand
for Reproductive health produced by the
programme is used principally by United
Nations agencies including UNAIDS and
UNICEFtoguidetheirprocurementdecisions.
But, the list has become a vital tool for any
agency or organization involved in bulk
purchasing of medicines, be this at country
level,oratinternationallevel,asdemonstrated
bytheGlobalFundtoFightAIDS,Tuberculosis
andMalaria.
KEY FACTS
·Every year, billions of US dollars worth of medicines are purchased by or through
international procurement agencies – such as UNICEF, the Global Fund to Fight AIDS,
THE WHO PRE-QUALIFICATION OF MEDICINES PROCESS:PRE-QUALIF ICATION CONSISTS OF F IVE
COMPONENTS.
1. INVITATION
The WHO Pre-quali�ication of Medicines
Programme (PQP), other UN agencies (UNAIDS
andUNICEF)andUNITAID,issueaninvitationto
manufacturerstosubmitanexpressionofinterest
(EOI) for product evaluation. Only products
includedinanEOIareeligibleforprequali�ication.
TheinclusionofamedicineinanEOIisbasedon
oneormoreofthreecriteria:
·�It is listedontheWHOModelListofEssential
Medicines;
·�AnapplicationforitsadditiontotheModelList
hasbeensubmittedtotherelevantWHOExpert
Committee forassessment,and is likely tomeet
thecriteriaforinclusion(basedonpublichealth
need,comparativeeffectiveness,safetyandcost-
effectiveness);
·� It is recommended for use by a currentWHO
treatmentguideline.
2. DOSSIER SUBMISSION
Themanufacturerprovidesacomprehensiveset
ofdataaboutthequality,safetyandef�icacyofthe
productsubmittedforevaluation.Thisincludes:
·� Data on the purity of all ingredients used in
manufacture;
· Data on the �inished pharmaceutical product
(suchasinformationaboutstability);
·� Results of bioequivalence tests (clinical trials
conductedinhealthyvolunteers),unlesswaived.
3. ASSESSMENT
A team of assessors evaluates all the data
presented.Assessmentteams includeWHOstaff
andexpertsfromnationalregulatoryauthorities
worldwide.
4. INSPECTION
A team o f inspec tors ver i � i e s tha t the
manu f a c t u r i n g s i t e s f o r t h e � i n i s h e d
pharmaceut i ca l produc t and i t s ac t ive
pharmaceutical ingredient(s) complywithWHO
goodmanufacturingpractice.Theyalsoverifythat
anycontractresearchorganizationthatconducted
any clinical studies relating to the submitted
productcomplieswithWHOgoodclinicalpractice
andWHOgoodlaboratorypractice.
5. DECISION
If the product is found to meet the speci�ied
requirements,andtheassociatedmanufacturing
site(s)andcontractresearchorganization(s)are
compliant with WHO standards, the product is
addedto theWHO listofprequali�iedmedicinal
products.
TheWHOprequali�ication ofmedicines process
can take as little as threemonths, provided the
data presented are complete and demonstrate
thattheproductmeetsallrequiredstandards.If
dataareinsuf�icient,however,theprocesscantake
considerablylongersincethemanufacturermust
submitthenecessarydataforreassessment.
Toensurethatprequali�iedproductscontinueto
meet WHO speci�ications, PQP regularly re-
inspects manufacturing sites of prequali�ied
products.Italsoevaluatesanychanges(knownas
" va r i a t i on s " ) made t o s p e c i � i c a t i on s ,
manufacturing processes and quality control of
prequali�ied products, and conducts random
quality control tests on sampled prequali�ied
products.
Healthcare Management Review Vol 8/Page 49
ISSUES, CONCERNS, & SOLUTIONS.
“The Issue of WHO pre-qualification has been one of the major challenges of the Nigerian Local drug industries and is of great concern to government because money/resources are being lost by government for non-WHO pre-qualification of our local manufacturing companies.”
w WithoutWHOpre-quali�icationfortheNigeriandrugmanufacturingcompanies,the
disease can be controlled as a major public health
problem. In theory, river blindness could even be
eradicated, provided it were possible to have every
person harbouring the parasite take Ivermectin
annually for at least 10 years. Merck is committed to
trying.
When Merck management was debating whether
to donate Ivermectin for the control of river
blindness, we considered many factors, including
the loss of potential revenues, the major marketing
challenge involved in getting the medicine to
people in remote areas of the world, and the
question of what impact the donation would have
on research for tropical diseases. Would the
donation be a disincentive to other firms? Since
making the donation decision, we have heard no
criticism.
The innovation-based pharmaceutical industry is
committed to improving the quality of healthcare
through pharmaceut ica l research. That
commitment must extend to keeping prescription
drug prices at reasonable levels, for good new
therapies are useless if patients cannot access
them. If a pharmaceutical company can meet
these demands of the market – innovation and
reasonable pricing – profits will follow.
Razigi was bitten by a blackfly
and developed a disease
called Onchocerciasis, or
river blindness.
SAVING LIVES
& SAVING MONEY
Healthcare Management Review Vol 8/Page 73
What are you selling?...What is your brand purpose?...What are the func�onal, societal, and emo�onal benefit of your product?
What values are people looking for in your
organiza�on, products or services?
Customers always have rela�onships with brands.....in rela�onships, there are boundaries and expecta�ons....how do you iden�fy and manage them?
Why should customers prefer your products?
What are the core values of your organiza�on?
What products do you have absolute advantage?
Healthcare Management Review Vol 8/Page 74
What corporate values do you want to represent?
What brand value will create a stronger brand associa�on in your
organiza�on?
What is your value zone?....the place where value is created for the customer. ...the interface with the customer.
What is the purpose of your organiza�on beyond
manufacturing and sales of pharmaceu�cal products?
Do you have a desire for impact?
...exerting the maximum impact on the society through your products/services?
EXPLOITING THE MARKET SPACE
What are the opportuni�es in this market for pharmaceu�cal companies with the right products offered in the right way and at the right prices?...what is the right product?...what is the right price?...what is the right way?
Healthcare Management Review Vol 8/Page 75
Capable of being continued or maintained with minimal long -term effects on the environment.
S U S T A I N A B L E
Healthcare Management Review Vol 8/Page 76
SUSTAINABLE
MANUFACTURINGThe creation of manufactured products that use
processes that minimize negative environmental
impacts, conserve energy and natural resources, are
safe for employees, communities, and consumers and
are economically sound.
US Department of Commerce –
Sustainable Manufacturing Initiative.
Healthcare Management Review Vol 8/Page 77
Creating Sustainable
Value-based Organization
he current placing of sustainability isTsupportedbythestrategicshiftintheway
organizations'performanceisevaluated.“Doing
well by doing good” has become an index for
measuringhowwellorganizationsaredoingas
cus tomers , employees , inves tors and
stakeholdershavecometoadoptthismindset.
Thisdirectionisresponsiblefortheextensionof
theexpectationsoforganizationsbeyondtheir
expertisetoincludepracticesandactivitiesthat
have become leading forces for creation of
sus t a inab l e va lues i n o rgan i za t i ons .
Consequently, organizations have become
forerunnersandpartnersinsearchofeconomic,
ecological and social solutions to problems
withinandoutsidethedomainofthebusiness.
The strength-based approach to creating
valued-basedorganizationspenetratesthe
organizations from two dimensions: top to
bottom; and bottom-up by engaging cross-
functional task forces, project teams and
building team sessions as prerequisite tools.
This design advocates for leveraging on
collective intelligence of a whole business
system by engaging a much larger group –
leading to involvement of a larger-scale
con�igurationofthewholestakeholders.
Managing operations in an environmentally and
socially responsible manner – sustainable
manufacturing – is no longer just nice–to–have,
but a business imperative. Companies across the
world face increased cost in materials, energy,
and comp l i ance coup led w i th h ighe r
expectations of customers, investors and local
communities.
Sustainable Manufacturing is a concept that’s getting a lot of
attention these days, but what exactly does it mean?
Sustainability is commonly de�ined as meeting the needs of the current
ECONOMICS Production & ResourcingExchange & TransferAccounting & RegulationConsumption & Use Labour & WelfareTechnology & InfrastructureWealth & Distribution
Organization & Governance Law & JusticeCommunication & Movement Representation & Negotiation Security & Accord Dialogue & Reconciliation Ethics & Accountability
POLITICS
Materials & Energy Water & Air
Flora & Fauna Habitat & Food Place & Space
Constructions & Settlements Emission & Waste
ECOLOGY
Engagement & IdentityRecreation & Creativity
Memory & Projection Belief & Meaning
Gender & GenerationsEnquiry & Learning Health & Wellbeing
CULTURE
CIRCLES OF SUSTAINABILITY
Healthcare Management Review Vol 8/Page 79
Manufacturing systems
& competitiveness
The economics of pharmaceutical manufacturing are more
complex than is perhaps generally realized. Key to the
competitiveness of the industry is the efficiency of productionHealthcare Management Review Vol 8
/Page 80
he increased investment andToperatingcostinvolvedinsetting
up and running a GMP compliant
facilitydonotmeanthatinternational
standardproduction inNigeriaor in
Africa cannot be competitive or that
very large manufacturing plants are
required to achieve cost effective
production.
Unpublished research commissioned
by UNIDO indicates that �ixed cost
assoc ia ted wi th upgrades are
generally directly correlated to the
output of the facility such that
technical economies of scale are not
particularlysigni�icantbeyondcertain
fairly low volumes. In fact, it is an
establishedwisdomthatacapacityof
1.5 billion tablets is necessary for
competitiveproductionborneoutby
theanalysis.
Further signi�icance of �ixed costs
means thatcapacityutilizationhasa
crucialimpactonthecostofeachunit
o f product ion . The nature of
pharmaceuticalproductionisthatitis
a batch process where different
products aremanufacturedwith the
same machinery. Change over time
requiredbetweenbatchesofdifferent
products representdown timewhen
assets are not being productively
utilized.
Machine down time can also occur
where a production line is not
balanced. Forexample,onepieceof
equipmentmayhaveagreateroutput
perunitoftimethananotherleading
toabottlenecksituationwherethe
machine with the greater output
remains idle for periods of time.
Downtimecanalsooccurduetobreak
down of equipment but preventive
maintenanceprogramscanminimize
theimpactofthis.
Modern business practices have
evolvedmethodsbywhichdowntime
of equipment can be kept to a
minimum and capacity utilization
optimized. This can for example
involve campaigning batches of the
sameproduct so that limitedchange
overtimeisrequired.
Thedegreetowhichcampaigningcan
take place to achieve ef�iciency of
production is to some extent also a
function of the market (size and
procurement agreements). Another
impo r t an t c omponen t o f t h e
economics of production is working
capital requirements, in which
inventorycarryingcosts(inputs,work
in progress, and retained �inal
products)arecritical.
The above comments refer to the
manufacturingofapprovedproducts.
However, thecostofdevelopingnew
product is signi�icant, particularly if
bioequivalence studies are required.
Companies can buy dossiers on the
open market and go through a
technologytransferprocesstosetup
productionintheirfacility. However,
the cost of high quality dossiers can
runto$100,000andmore.
Healthcare Management Review Vol 8/Page 81
Duringthepastfewdecades,manyindustrial
companies have attempted to achieve
manufacturingexcellence.Theyhavehadat
theirdisposalanynumberofmethodologies
and theories, quality initiatives, and cost-
reducingconcept. Butfewcompanieshave
made much headway. Manufacturing
strategies - decisions related to siting,
designing,andrunningfactories-areoften
thesameas theywere10or20yearsago.
Plantsoften lookandfeelastheydidthen.
Programsintendedtoimproveperformance,
such as "Six Sigma" seem to ebb away,
without producing the desired results.
Sometimes it seems as though the harder
manufacturers try to improve, the worse
theyperform.
They are many such stories in manufacturing
today. Executives do all the right things to
improve operations, but somehow get out
performed on cost, quality, or delivery. They
may turn to bench marking exercises, but
those are rarely meaningful. Low-cost
competitors appear with prices that can't be
completely explained by lower wages.
As a last resort, companies out source
production, and thus erode their own
company's competence in it. Gradually,
manufacturingistreatedmoreandmoreas
anoutcast,andplantcommunitiesbecome
disenfranchised.
We call this condition ‘Manufacturing
Myopia’.Itisakintothe‘MarketingMyopia’-
when companies de�ine their brands too
narrowly. Today, myopia is even more
prevalent anddangerous inmanufacturing
than itwas inmarketing fourdecadesago.
Like marketing myopia, manufacturing
myopia is caused by isolation; it is the
i n e v i t a b l e o u t c o m e o f k e e p i n g
manufacturing strategies contained to the
functionalorevenplantlevel,withlittleor
no connection to the enterprise wise
strategies.
Everybusinessshouldde�ineitselfthrough
the interests of its market, not its own
productionpriorities.
BUILDING AWARENESS
Surprisingly few major multinational or
large-scale manufacturing companies have
beenabletobreakfreeofthistrap.Thecure
formanufacturingmyopiais20/20vision-
that is, the cultivation of awareness about
manufacturingcostsandmeans.Companies
can sharpen their own ability, to see their
operationsmoreclearlyandredesignthem
more �lexibly. For companies that achieve
this kind of manufacturing prowess, the
manufacturing function is no longer seen
primarilyasacostcenter,ripeforcutbacks
or outsourcing. Instead, the ability to
producehigher-qualitygoodsatlowerprices
inamore�lexiblemannerisacomponentof
their long-term competitive strategy and a
central,dependablepartoftheiridentity.
THE EFFICIENCY
OF PRODUCTION
Healthcare Management Review Vol 8/Page 82
Thisinvolvestwomajorcommitments;�irst,
dedication of resources to building
awareness.Leaderscanpeelbackthelayers
oftheirownmanufacturingoperationsand
thoseoftheircompetitorssothatprocesses,
advantages and disadvantages can be
viewedmoreclearly. Thismeansbecoming
more aware of a company's unique
technological capabilities, the unful�illed
potentials of each plant (for reaching the
appropriate markets), and the speci�ic
driversresponsiblefortheircosts.
Many manufacturers look at cost data
primarily as justi�ication and leverage for
continuallytrimmingexpenses,ratherthan
as a sourceof insights about scale, capital
spending, labour deployment, technology,
logistics, and supply chain ef�iciency - all
critical factors in measuring how well a
company's manufacturing processes stack
up against the competition. Toyota's
manufacturingcompetence,widelyadmired
formanyyears,stemsinlargepartfromthe
company's insistence on building �ine-
grained awareness of every facet of
production,atalllevelsofthecompany.
The second commitment is patience,
demonstratedbyinvestinginthetimeand
resources to address manufacturing
productivity as a long-term, organization-
wide strategic imperative and not as an
isolated operational or functional issue.
Plantmanagersareoftenexpectedtoshow
thesamefastpaceofchangeasmarketing,
�inance, and procurement, where 6 to 18
month transformations are feasible. But
thosemetricsdon'tapplytomanufacturing
efforts,whereimprovingresultsrequiresa
verydifferentsetoftimeframes.
At most companies , there are four
dimensions of manufacturing in which
highly visible data and analysis, projected
fartherintothefuture,canyieldbothshort-
term gain and long-term advantage:
technological distinctiveness, network
sophistication, in-plant transformation,and
labourmodernization.
TECHNOLOGICAL DISTINCTIVENESS
Oneofthe�irstplacestoeliminatemyopiais
inthedesign,engineering,orpurchasingof
manufacturing technology. (This is called
the"inherent"dimensionofmanufacturing,
becauseitinvolvesthephysicalnatureofthe
products and the processes that create
them). Thereisastaggeringlevelofunder
investment inbusinessprocess innovation
ascomparedwithproductinnovation.
NETWORK SOPHISTICATION
Mostcompaniesorganizetheirproduction
and supply operations on a project-by-
projectbasis.
Unfortunately,weobservethatthereislittle
cooperationamongcompanieswithina
There is a staggering level of under
investment in business process innovation
as compared with product innovation
Healthcare Management Review Vol 8/Page 83
supply chain to jointly optimize plant
networks, another potentially lucrative
exampleof�lexiblefootprints.Intheoutdoor
equipment industry and inbasic chemicals,
some companies have sharedparts of their
productioncapacity,sometimesspinningoff
manufacturing. But capacity pooling is a
rarityoutsidethosetwoindustries.
IN-PLANT TRANSFORMATION
Itisnowmorethan30yearssincethenotion
of manufacturing excellence - variously
attributed to theToyotaproductionsystem,
s o c i o - t e c h n i c a l s y s t em s , q u a l i t y
management,leanmanufacturing,andhigh-
performancesystems-becamewidelyknown
in Europe and the United States. By now,
particularly every manufacturing manager
cantellyouaboutpokayoke,kanban,orself-
steering teams. But plants that have
successfullyimplementedthemanufacturing
practicesthatproduceef�icientandoptimal
operations are few and far between. And
mostofthesearegreen�ieldsites:previously
undevelopedlocationswhereeliteprocesses
couldbedesigned into the factory fromthe
beginning.
The competitive advantage of process
optimizationremainshigh,inpart,becauseof
t h e w o e f u l l y p o o r r e c o r d o f t h e
manufacturingindustryingeneral.
Inaso-calledbrown�ieldsite(anestablished
factorywithalong-standingworkforce),one
may often �ind high �ixed costs or blatant
overstaf�ing. Installing "intelligent tools,"
"lean solutions," or "high-performance
systems" will not solve these problems. If
therearealreadymoreworkersthanworkto
do , improving product ion speed or
throughput will not lead to higher level of
productivity, in part because overcapacity
breeds"processcreep,"inwhichworkersand
managersmerelyoverlaythenewworkrules
and practices on top of their old routines.
Despite knowing this , a l l too often ,
manufacturers myopically push a "lean"
programthroughplantsthatareoverstaffed
and have a high share of non-value-added
work.
Wecallthisthefatballerinasyndrome:Only
slimmed-downorganizationsstandachance
ofperformingsmartmoves.
Companiesalsoareoftengreedyorformulaic
when it comes to assigning improvement
objectives to plants. It's not atypical for a
factorymanagertobetoldtosave10percent
of �ixed costs, while improving output and
qualityby20percent.
MANUFACTURING
Healthcare Management Review Vol 8/Page 84
A company seeking to overcome its
manufacturing myopia may �ind the task
dauntingat�irst,buteasierovertime. The
goal is not to "�ix" manufacturing, but to
build the capacity for long-term and
medium-termmanufacturingmanagement
among engineers, suppliers, and staff
(buildingunionizedstaff),andtoredesign
the technology to the advantage of these
capabilitiesandaugmentthem.
Therearenouniversalrulesfordoingthis
because each manufacturer has a unique
combination of in-house capabilities,
labourhistories,supplychainrelationships,
market demands, and technological
innovations. A holistic manufacturing
strategyemergesonlyfromananalysisthat
assessesthecriticaloperationaldataburied
in the four dimensions of manufacturing
design: inherent, structural, systemic, and
realized.
Eveninthebestofcircumstances,itistricky
to distinguish the effects of individual
manufacturingdrivers. For instance,how
much advantage does a competitor gain
fromoperatingcontinuousinsteadofbatch
processes, andhowdoes thatbalanceout
thedisadvantageithasmaintainingsmaller
plantswith greater indirect andoverhead
requirements?Manufacturing,�inance,and
researchanddevelopmentexecutivescan't
answersuchquestionsinisolationfromone
another;theyneedregularopportunitiesto
thinkandstrategizetogether.
Companies that are willing to invest in a
long-term change cycle discover that the
learning curve in manufacturing is
nonlinear.Eventhoughtheinvestmentmay
be ready, measurable improvement is
typicallyslowat�irstandacceleratesover
time. It may take �ive years to cross the
initial threshold of a new production
system,butafter that �irstexperience, the
capacity for changing technology grows
rapidly - in part because the technologies
themselves become more �lexible, and in
partbecauseemployeesdeveloptheskills
andknowledge todeploynewproduction
machinesmoreef�iciently.
Over the past 20years,manufacturing
managershavelearnedthateventhemost
effectivesupplychainmanagementwillnot
leadtoresultsunlessthesecapabilitiesare
implemented-notjustwithinthefunction,
butattheleveloftheexecutivesuite. Ina
confrontational competitive environment,
the choice is engaging in manufacturing
competenceas the coreofyour corporate
identity-orcontinuingtopaythepriceof
myopia.
MANIFESTO FOR MANUFACTURERS
Healthcare Management Review Vol 8/Page 85
As already pointed out, the economics of
pharmaceutical manufacturing are more
complex than is perhaps generally realized.
Key to the competitiveness of the industry is
the efficiency of production. Various principles
on achieving efficiency have been developed
in countries like Japan, and the United States of
America over the last few decades (across
industry sectors) and they include approaches
such as lean manufacturing, Total Productive
Maintenance (TPM), six sigma and the Toyota
Production System (TPS).
UNIDO conducted a pilot work with the aim of
understanding how such approaches could
impact on the competitiveness of the
pharmaceutical industry in Africa.
The unpublished report provides evidence
that substantial efficiency gains could be
achieved if Japanese–style production
approaches were to be introduced
Rough estimate based on this analysis
indicate that productivity levels could be
improved by around 30%.
However, the potential improvement will
depend on the starting point of the company.
One organization interviewed in the course of
the research claimed to have been able to
improve output fivefold through optimizing
production scheduling process, instituting a
change management process, and training all
employees on the imperatives for quality and
efficiency of production.
There is then a substantial scope to improve a
competitiveness of production through
implementing approaches such as (TPM).
However, actually realizing the benefits of such
approaches requires expertise, 'buy in' across
the organization from senior management to
production staff and embedding of a culture of
efficient production.
T h e l e a r n i n g c u r v e i n
manufacturing is nonlinear
Healthcare Management Review Vol 8/Page 86
t was the challenge of Buy-Over of Pfizer Plc. It was Ian ac�vity, which didn't have guidance. The
greater challenge was making the company survive
a�er the buy-over. This was a company that
operated in this country for 40 years under
mul�na�onal management and all of a sudden it
became a mono-na�on and you now have a Nigerian
company. Because we were employees at first, we
didn't understand all the challenges that were
involved in taking a company at that level.
I became CEO of Pfizer in 1993 and became
Chairman/CEO in 1994. I was being evaluated in
what they called, “income before alloca�on” they
didn't evaluate me on financial issues, which was
handled by Pfizer Treasury, New York. I didn't realise
it.
We closed this deal on May 4, 1997, and May 5,
Pfizer wrote a le�er to all that it no longer owned
shares, and the next morning all the banks wrote
that they wanted all their facili�es. The company
could have gone bankrupt but it took the grace of
God and goodwill for us to survive and began to
grabble with funding the company and establishing
our own financial credibility, bringing in new
investors and eventually changing the outlook of the
company.
�
While it divested, we remained like a vassal, we were
given licence to produce and market and we were
given exclusive distribu�on rights to market their
products. We had agreement to manufacture some
of their brands. We shall get raw materials from
them and they would fix the price and we shall sell
their products and they would fix royalty. For many,
we were labouring to meet every obliga�on. There
was always something to say that you were not
mee�ng up.
In 2000, I took a decision that I was going to walk out
of those rela�onships, by developing our own
brands that we were not going to depend on Pfizer
brands again. From 2005 to 2010, I invested heavily
in research and development in building up our own
brands. The moment I completed this and brought
the company to be on its feet, having its own brands
and products and no longer paying royalty, buying
materials from open markets, nobody fixing prices
for us, that was when I offered to re�re in 2011.
That was the greatest challenge I have had in my
career being able to make Neimeth dependent and
reliable.
MY GREATEST CHALLENGE Mazi. SAM OHUABUNWA
Fmr. CEO Neimeth
Healthcare Management Review Vol 8/Page 88
DISAPPEARING COMPARISMS
THESE DAYS THERE IS NO WAY TO AVOID THE WORLD... we are all part of the process,
as we all know one another's business
c o n v e r g e n c e a n d c o n n e c t i v i t yHealthcare Management Review Vol 8
/Page 89
belt;andnowitsbacktogrowth-butthistime
withpro�itability.
Executives are raising the bar on themselves,
which is a good thing. To meet their goals,
however,theymust�indwaystodistinguishtheir
offer ings . They are three interre lated
approaches to differentiation:- Innovation,
Deepening of customer relationships, and
Bundlingofproductsandservices.
Innovationhas longbeen theprimarybasisof
advantage, indeed, if you have a unique �irst
moverproductorservices,youcangetfarahead
of the competition.Themost dramatic top-line
growth opportunities come from �inding new
waystomake,doorsell.Butitisgettingharderto
standoutthroughproductinnovationaloneand
theadvantages,whentheyoccur,arebecoming
more ephemeral - so we come to the second
differentiationtactic:sharpeningorganisational
focusoncustomers.
Credit:RajayGulati
usiness people across a wide range ofBindustries have increasingly begun to
identify maturation and commoditization as
emerging challenges. Whether because of
globalization, maturing technologies, ease of
imitation, decreasing barriers to entry, open
standards in technologymarkets, orpressures
from customers who are themselves being
squeezed, more companies are feeling the
intensityofpricecompetition leadingmany to
describetheirbusinessascommoditymarkets.
It is one thing if you have inherent cost
advantage, but most companies don't and for
themcommoditizationisadeadlygame.
When you're constantly scrambling to make
yourmargins,youhavetostraintothinkabout
topline. Everyonewantsto�indwaystogrow,
butrealpowerliesindoingsopro�itably-andit
takesseriouswork.
Ten years ago, everyone talked about top-line
growth;thenthefocusbecametighteningthe
IS COMMODITIZATION
A DEADLY GAME?
Healthcare Management Review Vol 8/Page 90
Thisapproachcanhelpacompanydistinguish
itself inanumberofways, fromcreatingnew
products or services for speci�ic customer
segmentstopersonalizingservice.
Ashiftinemphasisfromproductstocustomers
can be chal lenging, as i t might entai l
fundamentalchangeinacompany’sstructure,
process,andultimately,culture.Nonetheless,
even industries that have relied primarily on
product innovation are discovering the
importance of gearing their organizational
processes more directly to the needs of end
customers. For instance, although the
pharmaceuticalindustryhastraditionallybeen
driven by the development of unique drugs,
marketed primarily to clinicians, companies
suchasElilillyandP�izerhavebeguninvesting
heavilyinconsumeroutreach.Becomingmore
customer oriented is in vogue in other
industriesaswell.
Hospitalsaredescribedasalongunderserved
customersegmentandtheyhavetobetreated
asadistinctmarket.Stemmingfromthisgreater
focus on consumers, the third approach to
differentiation is to blend products and
services,thusproviding"SOLUTIONS" to
concrete customer needs. By providing value
that is more than the sum of its parts, an
integrated offering can de�lect the price
pressure that arise when you compete with
othersonproductorserviceattributealone.
While initiatives to provide solutions are
gainingpopularityinarangeofindustries,the
organizational adjustments required can be
monumental. Foranyof thesedifferentiation
vehicle , execution is crit ical . In many
companies, unfortunately, 'Innovation',
customer focus, and solutions, are rhetorical
claims lacking substance. But organizations
thathavemoved fromrhetoric toactionhave
found that delivering on these claims can be
quiteastretch.Ifyourcompanyisorganizedby
products, for example, how do you reorient
employees to think more broadly about
customerneeds?How do you train a sales force
that's accustomed to selling transactions to
selling bundled products and services?
Itisimportanttorememberthatgrowthcomes
inmanyformsandtakespatience;itisepisodic
innature. Youmaymakeabig jumpforward
throughacquisitionandthengrowslowlyand
steadily through internal innovations or
alliances, the key is to be ready to act on
whatevertypeofopportunitiesthatarise.
They are three interrelated approaches
to di f ferent iat ion:- Innovat ion,
Deepening of customer relationships,
and Bundling of products and services.
Healthcare Management Review Vol 8/Page 91
THE HEALTH SECTOR:
Challenges
Opportunities
and
Many healthcare professionals in Nigeria deal
with the limitations of the healthcare sector on
a daily basis. This affects not only the level of
care they can give their customers, but also
the sustainability of their business. New
developments in the field are providing
opportunities for growth, innovation and
quality improvement in healthcare.Healthcare Management Review Vol 8
/Page 92
igeria's health sector continues toNstruggle to meet the healthcare
Trust and quality are major limiting factors in the Nigerian healthcare market,
....you cannot find a bank willing to lend money to improve healthcare delivery
at the hospital.....“The only financial institutions that would consider providing
credit, charged such a high interest rate that there was no point in going ahead
with it. The low quality of healthcare in the country is also leading to medical
tourism to other countries and loss of revenue for us.”
AccordingtotheIFC's“BusinessofHealthin
A f r i c a Repo r t ”, t h e r e g i on n e ed s
USD25-30billion innew investmentover
ten years. About half of the investment
opportunities are expected to be in
hea l thcare prov is ion , fo l lowed by
distributionandretail,pharmaceuticaland
medicalproductmanufacturing,insurance,
andmedical education. As the investment
riskremainshigh,currentinvestmentsring
inatonlya fractionof that.Andgiventhe
long payback periods for healthcare
infrastructure projects and the low
purchasingpowerof thepopulations they
serve,thecommercialprivatesectorisnot
likelytoaddressthisissuealone,especially
inAfrica'shighinterestrateenvironment.
Whilelackof�inancingisamajorproblem,
governments, donors and investors are
starting to see that the road to universal
healthcoveragebeginswithstrengthening
the healthcare system as a whole. This
means increasing quality, trust and
transparency in the sector. Only thenwill
investorsstarttoseeopportunitiesinstead
ofrisksandwillcostofcapitaldecrease.
1 WHO. The Pursuit of Responsible Use of Medicines: Sharing and Learning from
Country Experiences, Technical Report 2012
2 IMS. Africa: A ripe opportunity, 2011
3 Business Monitor International, 2015
4 1.8 billion USD according to IMS (Africa: A Ripe Opportunity, 2011)
Healthcare Management Review Vol 8/Page 93
he Pfizer Founda�on launched its impact Tinves�ng strategy in fall 2013 with the inten�on to broaden the use of its resources to magnify public health impact. The goal of its impact inves�ng strategy, is to improve healthcare delivery and access for low income popula�ons by suppor�ng healthcare entrepreneurs and enterprises and fostering local innova�on.
To date, the Pfizer Founda�on has implemented this strategy using two approaches: inves�ng in funds that seek to generate social impact, and providing cataly�c grant capital to develop the pipeline of social entrepreneurs and support their growth. It priori�zes partnering with organiza�ons with established experience in delivering impact and demonstrated ability to support entrepreneurs.
PARTNERSHIP
FOR INVESTING
IN HEALTH
Pfizer Foundation support for Africa Health Infrastructure Fund
The Pfizer Founda�on and PharmAccess share a commitment to improving access to affordable, quality health care in Africa. The Founda�on was excited to build on its exis�ng partnership with PharmAccess by suppor�ng the launch of its new fund, the Africa Health Infrastructure Fund.
The Founda�on provided a cataly�c grant to establish and support the ongoing opera�ons of AHIF. The Founda�on sees this as a great opportunity to support organiza�ons l ike PharmAccess which are providing affordable, sustainable capital and technical exper�se to foster local innova�on in health care access and delivery.
Healthcare Management Review Vol 8/Page 94
Oneof theorganizationsdrivingchange in the
healthcare system in Africa is PharmAccess,
which has set up many publ ic -pr ivate
partnershipstodevelopandimplementquality
standards, build trust and attract investments.
ItsawardwinningMedicalCreditFundcombines
loans to small and medium sized healthcare
providerswithsupporttoimprovebusinessand
qualityusingtheinternationallyrecognizedSafe
Carestandards.
Oneofthedifferentiatingfactorsofthisnewfund
isitsabilitytodeploymore�lexibleandlonger
term �inancial instruments in return for social
impact. Healthcare delivery organizations
cannotonlygainaccesstocapital,butwillalso
bene�it from training in good management
practicesandqualitystandards.Inthesameway,
improved manufacturing and distribution
practiceswillhelptheef�iciencyofotherplayers
in the healthcare system, fortifying the supply
chain. By building better businesses and by
increasing investors’ trust in the sector, new
deve l opmen t s l i ke t h e A f r i c a Hea l t h
to innovation, production processes, supplier andcustomer interdependencies, and lifetime productmaintenanceandrepair.Productsandprocesseswillbesustainable,withbuilt-inreuse,remanufacturingandrecyclingforproductsreachingtheendoftheiruseful lives. Closed loop systems will be used toeliminate energy and water waste and to recyclephysicalwaste.
Thesedevelopmentswillfurtheremphasisethekeyroleofphysicalproductioninunlockinginnovativenewrevenuestreams,particularlyas�irmsembrace‘servitisation' andmanufacturersmake use of theincreasing pervasiveness of 'Big Data' to enhancetheircompetitiveness.
Inthepublicsector,policyframeworksthataffectthemanufacturing sector directly and indirectly willneed to recognize the extended nature of valuecreation and the new ways it is being developed.Publicplanningcirclesshouldmatchthetimescalesof�irms'ownlongtermplanningrequirements.Andit will be important that �lows of highly skilledworkers and Patient Capital support to promotecriticalmassinsmallandmediumsizedenterprisesareallinternationallycompetitive.
The implications forpharmaceuticalmanufactures
andtheNigeriangovernmentaresubstantial. Some
businessarealreadyadaptingtoworldclass(with
WHO –cGMP), but many are not positioned to
succeed in a future world where greater
opportunities will be balanced by greater
competition. Nigerianeeds toradicallychange its
approach to providing a constant and consistent
framework within which all �irms aspire and
prosper.
Abusiness–as–usualapproachwillnotdeliverthat
outcome. Othereconomiesarealreadyahead,and
catchingupwillrequireanadaptivecapacitythatthe
Nigerian government is currently demonstrating.
Achieving th is i s essent ia l , as the future
compe t i t iveness and hea l th o f N i ge r i an
pharmaceutical manufacturing will affect many
other parts of the economy through its numerous
linkages.
The key message is that there is no easy or
immediateroutetosuccess,butactionneedstostart
nowtobuildonexistingsupport,andtofocusand
rebalanceit forthefuture.Aboveall,policydesign
willneedtoaddressentiresystemeffects.
Itwillalsobecrucialtoaddressthecurrentimage
associated with manufacturing. Here government
and industry should work together to further
promoteandmarkettheopportunitiesforcareersin
manufacturingindustriesatalllevelsofeducation.
Financialchallengesforthesectorincludeashortage
of risk capital. This is particularly evident as a
funding gap between research and ear ly
developmentand the funding forproofof concept
thatisusuallyrequiredbeforethemarketstepsin.
There is also a shortage of funding for applied
researchanddevelopmentinsomeareas.
Theimportanceofpharmaceuticalmanufacturingto
the Niger ia economy is incontrovert ib le .
Manufacturingisnolongerjustaboutproduction,it
isamuchwidersetofactivitiesthatcreatevaluefor
Nigeriaandbene�itsawidersociety.Pharmaceutical
manufacturing includes signi�icant innovation. It
creates jobs that are both highly skilled and well
paid. It also contributes to the rebalancingof the
economywithitsstrongroleonexportsandimport
substitutions.
MANUFACTURING VALUE CHAIN
Pharmaceut ical manufactur ing is changing
profoundly, creating major new sources of revenue
and value beyond the production and sale of
products.
Manufacturinghastraditionallybeenunderstoodas
theproductionprocessinwhichrawmaterialsare
transformed into physical products through
processesinvolvingpeopleandotherresources.Itis
nowclearthatphysicalproductionisatthecentreof
awidermanufacturingvaluechain.Pharmaceutical
Manufacturesareincreasinglyusingthiswidervalue
chaintogeneratenewandadditionalrevenue,with
productionplayingacentralroleinallowingother
valuecreatingactivitiestooccur.
Healthcare Management Review Vol 8/Page 124
WHAT ARE THE LIKELY CHANGES?
Technology will play a central role in driving
change.Someofthevaluebeingcreatedin2050will
b e d e r ived f rom who l ly unan t i c i p a t ed
breakthroughsbutmanyof the technologies that
will transform manufacturing, such as additive
manufacturing, are already establishedor clearly
emerging. Important pervasive and secondary
technologies including ICT, sensors, advanced
materialsandroboticswhenintegratedintofuture
products and networks will collectively facilitate
fundamentalshiftsinhowproductsaredesigned,
made,offeredandultimatelyusedbyconsumers.
Mass personalisation of low-cost products, on
demand: The historic split between cheap mass
producedproductscreatingvaluefromeconomies
ofscaleandmoreexpensivecustomisedproducts
will be reduced across a wide range of product
types.Technologiessuchasadditive
manufacturing, new materials, computer-
controlled tools, biotechnology, and green
chemistry will enable wholly new forms of
personalisation. Direct customer input to design
will increasingly enable companies to produce
customisedproductswiththeshortercycle-times
and lower costs associated with standardisation
andmassproduction.
Digitised manufacturing value chains: Pervasive
computing, advanced software and sensor
technologies have much further to go in
transforming value chains. They will improve
customer relationship management, process
control, product veri�ication, logistics, product
traceability and safety systems. Theywill enable
greater design freedom through the uses of
simulation,andtheywillcreatenewwaystobring
customersintodesignandsuppliersintocomplex
productionprocesses.
“Looking to the future, we recognise that transformational change is
required and emerging technologies present an opportunity to create a
paradigm shift, allowing us to manufacture medicines faster, greener
and at a lower cost. Manufacturing has become increasingly critical in
the pharmaceutical sector and will require more agility to respond to
patient needs, more flexibility to bring production closer to customers,
as well as increases in efficiency and sustainability. This will underpin
high quality standards and ensure new medicines are affordable for
patients around the world. The prize is significant and it is imperative
that industry and government work together to seize this opportunity
and secure a leading position .” Roger Connor,
President of Global Manufacturing and Supply, GlaxoSmithKline plc
Healthcare Management Review Vol 8/Page 125
Future approaches to policy depend strongly on
recognizing thatpharmaceuticalmanufacturing is
part of an extended system, which requires a
responsefromgovernmentthatcutsacrosspolicy
departments. This requires a system based
approach that takes full account of the linkage
between science, technology, innovation and
industrialpolicies.
The result is the need for more integrated
coordinationbygovernmentacrosspolicydomains
andgovernmentdepartments,thatmakesiteasier
t o an t i c i pa te t he po ten t i a l un in tended
consequences of policies, and to identify where
intervention would achieve the greater impact.
Suchapproachshouldhelptoavoidtheadoptionof
selectivepoliciesbasedonnarrowobjectives that
mightinadvertentlyholdbacksustainablegrowth,
and which are more a feature of the current
approachwhichdevolvespolicymakingtodifferent
governmentdepartmentswithdifferent rolesand
agendas.
Alookoutto2050revealsthetransformationwhich
will occur in the pharmaceutical manufacturing
sector and the environment inwhich it operates.
Thesechangeswillpresentmajoropportunitiesfor
Nigerian pharmaceutical industries to develop
competitivestrengthsinnewandexistingareas,but
will also present considerable challenges and
threats, not least through increases in global
competition.
The Nigerian government needs to act in three
systemicareasto:
- Exploit new forms of intelligence to gain sharper insights
into the sector and where value is being created.
- Take a more targeted approach to supporting
pharmaceutical industries, based on a system wide
understanding of science, technology, innovation and
industrial policies.
- Adapt and build innovative new institutional capability for
the future.
Policiesandmeasuresalsoneedtobedevelopedto
supportpharmaceuticalindustriesasitbecomes:
- Faster, more responsive and closer to customers.
- Exposed to new market opportunities.
- More sustainable.
- Increasingly dependent on highly skilled workers.
Thereisneedtofocuson:
- The role of institutional infrastructures and systems in
supporting industry.
- The need for increasing the availability and quality of long
term, (or patient) capital.
- The role of a national belief in value creation in facilitating
industrial success.
A SYSTEM BASED
APPROACH FOR THE FUTURE
It is essential for government and industry to work together to forge new policy frameworks and develop measures so that Nigerian pharmaceutical manufacturers are able to fulfill their potentials and contribute 70% of required medicines.
Adaptedfrom:ANe ManufacturerswVersionforUK
Healthcare Management Review Vol 8/Page 126
he Idea: Alaix had spent years runningTbusinesses inside large companies. ButwhenP�izerdecidedtospinoffhisdivisioninanIPO, the soon-to-be CEO embarked on anintensivetrainingregimentoprepareforaverydifferentrole.
Formostofmycareer,Ididn'taspiretobetheCEOofaU.S.publiccompany.IwasborninSpainand spent the � irst few decades of myprofessionallifethere.Iwasa�inancespecialist:Iworked as an auditor and a controller. I wasemployed by a bank, and then by TexasInstruments,andthenbyPolaroid.ButIdecidedI wanted to build on my �inance career andbecomemoreof a generalmanager, running abusinesswithinalargecorporation.
At that point Imoved into the pharmaceuticalindustry.FirstIworkedatRhone-PoulencRorer(whichlaterbecamepartofSano�i-Aventis
through a merger), and I was sent to run itsoperation in Belgium. Then I moved toPharmacia as the president of its business inSpain.WhenP�izerboughtPharmacia,in2003,IwasaskedtorelocatetoitsU.S.headquartersasthe president in charge of a large section ofEuropethatstretchedfromPortugaltoRussia.
I enjoyed the broad scope of those generalmanagement jobs. In my �irst role at P�izer, Ilearned to navigate a large organization andadvocate for the opportunities inmy region. Ialso gained suf�icient experience to manage abusiness across different cultures and with ahighlevelofcomplexity.
In2006,whenP�izeraskedmetorunitsanimalhealthdivision,itwasagreatopportunitytotakeonamoreglobalroleandexpandthescopeofmyresponsibilities to new areas such as R&D,business development, and new productmarketing.
Healthcare Management Review Vol 8/Page 128
HANDS ON THE PRESENT
eyes on the future
The CEO of Zoetis on How He Prepared for the Top Job
Juan Ramón Alaix
Case Study:
Every leader has a recipe for success. For me, preparation is most important. I believe in overpreparing, even
though it's time-consuming. Part of preparation is being humble enough to accept feedback. The time I spend
getting ready for a challenge and the openness I have to coaching are investments that always pay me back.
Atthetime,Ididn'tanticipatethatitmightleadtoaCEOjob.But�iveyearslaterP�izerlaunchedastrategicreviewto�indopportunitiestocreatevalue for shareholders, andoneof theoptionswastospinofftheanimalhealthbusinessinanIPO.TheCEOofP�izertoldmethattheIPOwaslikely—andthatIhadbeenselectedtobecomethe future CEO of the new company if ithappened.
We talked about how very different that jobwould be from the ones I'd held before. I'dprovedthatIcouldrunabusiness,butthatdidn'tnecessarilymeanIhadtheskillstobeaCEO.Iwould have to develop them. Because the IPOprocessmighttake18to24months,weagreedthatthiswouldbeacrucialperiodinwhichtocon�irmthatIcouldleadthenewcompany.
As a general manager, I'd had plenty ofexperiencebuilding teamsandcommunicatingwith employees and customers, but as CEO Iwo u l d a l s o h a v e r e s p o n s i b i l i t y f o rcommunicating our strategy to the outsideworld—including the media, analysts, andinvestors. Employees and customers alreadyknowagooddealaboutyourbusiness,butotherconstituencies may know nothing. ThesophisticatedexternalcommunicationskillsthataCEOmusthavewouldbeespeciallyimportantinthemonthsleadinguptotheIPO.Duringourroadshow,Iwouldbetellingthecompany'sstoryto analysts and potential investors, and theiropinion of our strategy would have a directimpactonthevalueofourstockoffering.
Healthcare Management Review Vol 8/Page 129
To prepare for my role at Zoetis, which is the name
we'd chosen for the new company, I started an
aggressive training program that lasted nearly 18
months. I'm a big believer in preparation and the
need for training, no matter where you are in your
career or how high in a corporation you've already
risen. This process was crucial in helping me feel
comfortable by the time the IPO took place.
THE MENTOR
The process began with the HR department,
where I worked to define my development plan.
The first thing we decided was that I would benefit
from mentoring by an experienced CEO from
outside Pfizer. A company called Merryck, which
arranges such mentorships, put me through a
series of tests and assessments to identify skill
gaps. We agreed that the objective of mentoring
wasn't to change my leadership style, which had
proved successful. Nor were we focused on my
general management abilities. Rather, we
intended to identify specific aspects of the CEO
job in which I lacked experience or particular skills
that I wanted to work on.
Merryck proposed several mentor candidates,
and I chose the former CEO of a big European
company. His experience would complement
conversations I would be having throughout my
training with the CEOs of other U.S. companies.
It was also valuable to have an outsider listen to my concerns and
challenge me to think differently. When you're a business leader,
your time is often spent mostly with colleagues and subordinates,
and you miss the challenge of an independent opinion. My mentor
raised issues I hadn't considered. He would ask questions and
challenge me to examine my choices. These structured conversations
forced me to do a disciplined analysis to answer his questions.
He and I began by spending two days on a retreat.
We talked about all the ways that being a CEO was
different from leading a business unit. We talked
about the specific stakeholders who would have
an influence on the future success of Zoetis. Then
we talked about how best to communicate with
each stakeholder group. After the retreat, we
usually spoke at least once a month. Sometimes
we met face-to-face, whether I was in Europe or
he was in the United States. Sometimes we talked
by phone. We typically spent a few hours each
month in conversation.
There was no big aha moment in these
discussions, but I found them really valuable.
Remember that during this time I was still running
the business as I'd always done, and I was also
spending a lot of time figuring out the new
structure for our organization after the IPO. Once
we separated from Pfizer, we would need our own
corporate functions, governance model, culture,
and so forth. Between running the business and
planning for the IPO, I could easily have avoided
the work of preparing for the CEO job on the
grounds that I was too busy. Having regular
appointments with my mentor prevented that.
It was also valuable to have an outsider listen to
my concerns and challenge me to think differently.
When you're a business leader, your time is often
Healthcare Management Review Vol 8/Page 130
spent mostly with colleagues and subordinates,
and you miss the challenge of an independent
opinion. My mentor raised issues I hadn't
considered. He would ask questions and
challenge me to examine my choices. These
structured conversations forced me to do a
disciplined analysis to answer his questions.
THE COMMUNICATIONS TRAINER
The second person who was important in helping
me was a communications expert who'd been
recommended by our internal public relations
team. He and I spent a lot of time discussing the
very different formats in which a CEO needs to
communicate - many of which I had little
experience with. You have to be comfortable
doing both TV interviews and print interviews.
You have to be able to skillfully deliver a keynote
address, talk with a small group, or meet one-on-
one with a key investor. You have to handle both
the scripted and the Q&A parts of an earnings call,
which I'd never done before.
It was hard work. I ended up using two trainers
over the course of my preparation. One of them
joined my team for a while. He watched me in
small meetings and at large town hall style events
and gave me a lot of feedback.
Our work wasn't focused on delivery alone - we
also needed to hone the message I wanted to
convey, to help people understand the strategy
for an animal health business. One of the
challenges of the spinoff was that the analysts who
covered Pfizer and the investors who owned Pfizer
shares knew a great deal about the human health
business but had never paid much attention to the
animal health business. I needed to demonstrate
that the two are very different.
The trainers taught me specific delivery
techniques that I now use regularly, such as
nonverbal communication, speaking simply
about complicated issues, and paying attention to
pacing while speaking. During the training all my
presentations were videotaped; we'd watch the
tapes together and cont inue to make
improvements.
The process of separating from a larger company
is fairly unusual, and during my training I met four
or five CEOs who'd gone through it. One thing I
learned from them is that it can be challenging to
manage the evolving relationship with the
company from which you're separating. In most
cases the former parent company will continue to
be a supplier, a shareholder, or a customer, or
you'll have service agreements with it - and even
though you've been doing business together for a
long time, the relationship and priorities change.
It's an issue I hadn't expected, but those veterans
were right.
A lot of people, when they reach a certain age, are reluctant to accept training. That's not true
for me - I'm very open to it. I'd had communication training over my career, but the preparation
for our IPO was much more intensive. Before I did my first TV interview, for instance, I
probably spent more than eight hours doing mock interviews. I believe that the key to success in
communication is preparation. By the time I gave the first road-show pitch to investors, I'd
rehearsed it at least 40 times.Healthcare Management Review Vol 8
Why does a CEO have to communicate differently from other C-suite executives?
Morethanmostofthem,CEOshavetobemotivators—ofemployees,partners,investors,andcustomers—whichalters the toneofwhat they say.Theyenvisiona futureandmustbepersuasiveenoughtochangepeople'sbeliefsandbehaviortoseethatfuturerealized.ManyCEOsusestoriestocreateastrongemotionalconnectionthatinspiresaction.CEOsarecalledontocommunicatemuchmorefrequentlyandwithawidervarietyofaudiences,andtheirmessagesmustresonatewithalltheirimportantstakeholders.
What mistakes do new CEOs make in communicating?
Iseetwoasthemostcommon.First,CEOsarereallybusy,sosomeskimponthetimetheyspend getting communications right. This mistake manifests in a variety of ways—forinstance,theCEOmaysoundlikehe'sreadingfromascriptifhehasn'tlearnedthematerialwell enough todeliver it conversationally. Failing toprepare adequately is shortsighted,becausecommunicatingbadlyoftencreatesadditionalproblems,andtimemustbespentmanagingthem.
Second, some new CEOs fail to realize that the position requires them to elevate theircommunicationsandleavesomeofthedetailstosubordinates.Forinstance,aCEOwhocameupthrough�inancemayneedto learntopassoncertainquestionseven ifheknowstheanswers,becauseit'sbettertolettheCFOprovidethedetails.Particularlyonearningscalls,CEOssometimeslapseintotheiroldrolesorjumpinwhenitwouldbebettertodefertoasubordinate.
Do new CEOs have trouble finding the right voice?
Somedo.Iseesomenewleaderswhowanttocopythestyleofanotherleaderorspeakertheyadmire. I've lost track of how many CEOs have asked me to help them learn to givepresentations thewaySteve Jobsdid. Ineverycasemyresponsehasbeenthatvery fewpeoplecanpullthatoff,sothey'ddobettertodeveloptheirownstyle.ParticularlyforCEOs,whomayhavelessday-to-daycontactwiththeiraudiencesthanteamleadersorotherlower-levelmanagersdo,it'simportanttobepersonalandauthentic—togivepeopleasenseofwhotheyreallyare.
COMMUNICATING
AS A CEO
Healthcare Management Review Vol 8/Page 132
OVERSHOOTING
CUSTOMERS
“Overshooting occurs when an incremental improvement no
longer provides meaningful benefits to a customer, making
that customer unwilling to pay for that improvement. An
economist would say that the customer receives almost no
marginal utility from that performance improvement.”
Credit: Scott. D. Anthony. et al.
Healthcare Management Review Vol 8/Page 134
t the heart of the Disruptive AInnovation model is the concept of
overshooting, that is providing too much
performance for a given number of
customers.
Overshooting occurs when a product or
service has performance that a customer
does not need, and therefore doesn't value.
An overshot customer is one who cannot
use and does not value further performance
i m p r o v e m e n t s a l o n g p a r t i c u l a r
dimensions.
There are six important aspect to remember
about overshooting:
Overshooting means that a given group of
customers are unwilling to pay premium
prices for further improvements along a
given performance dimension.
Talking to customers; analysing price,
margin, and share; and zeroing in on new
R E F L E C T I O N
Consider a product you use
every day. Are performance
dimension available for
which you would not be
willing to pay higher prices?
Look back at your company's
recent new-product launches.
H a v e t h e y m e t y o u r
expectations? If not, why not?
Sit with a colleague to talk about
those you consider to be your
'worst 'customers. Why are they
your worst customers? Think
about how an entrepreneur
might see opportunity instead of
challenges.
product introductions can be important
ways to spot overshooting.
· In overshot circumstances, companies
should consider investing in overlooked
performance dimensions, consolidating the
market, or introducing a game-changing
business model innovation.
Spotting overshooting requires intuition
and judgement; signs that tend to become
crystal clear only after it is too late to take
action
Be precise about customer group and
performance dimensions. It is rare that all
customers are overshooting along all
dimensions
There are rarely conclusive evidence of
overshooting. Act like a forensic analyst,
analysing multiple pieces of evidence
before coming to a conclusion.
Healthcare Management Review Vol 8/Page 135
OVERSHOOTING
CUSTOMERS
Eli Lilly's failed efforts to create even purer Insulin
demonstrate the impact of overshooting. Many
diabetics use Insulin everyday to help maintain the
appropriate level of blood glucose. Historically,
Insulin was manufactured from the ground-up
pancreases of cows and pigs. For most of the twentieth
century, manufactures focussed on increasing Insulin's
purity. In 1925 impurities stood at fifty thousand parts
per million (ppm), dropping to ten thousand ppm by
1950. By 1980 impurities had dropped to only ten ppm,
primarily as a result of investment and development by
Eli Lilly the world's leading Insulin manufacture.
Despite the purity that Eli Lilly had been able to
achieve, animal Insulins were still slightly different
from human Insulin. A fraction of 1 per cent of diabetic
patients built up a resistance in their immune systems
when treated with animal Insulin, so Lilly contracted
with Genentech to create genetically altered bacteria
that could produce Insulin proteins that were 100 per
cent pure and equivalent to human Insulin. After
investing nearly $1 billion dollars in the effort, Lilly
introduced its ''Humulin'' brand Insulin to the
marketplace at a 25 per cent price premium over other
Insulin products.
The market was not excited about Humulin. Sales
growth was disappointingly slow, and Lilly found it
difficult to sustain a premium price for the product. In
retrospect a Lilly researcher noted, “the market was
not terribly dissatisfied with pork Insulin”. In fact, it
was pretty happy with it. Lilly had spent a significant
sum of money and organizational resources creating a
product that overshot the demand.
Most consumers of Insulin didn't want or need a more
reliable product and therefore weren't willing to pay
more for an Insulin that, while technically superior, had
no meaningful impact on the management of their
condition.
Humulin 7030 3mL
Healthcare Management Review Vol 8/Page 136
Case Study: Insulin
While Humulin sales proved disappointing, a much
smaller Danish Insulin maker, Novo Nordisk,
correctly identified an undershot performance
dimension in the same market: convenience. The
company developed a line of Insulin pens, which
made it much more convenient for diabetic patients to
take their Insulin. Conventionally, people with
diabetes had to carry a syringe, draw a precise amount
of Insulin out of a vial, hold up the needle, and flick
the syringe several times to dislodge air bubbles.
Usually they then had to repeat the process to draw a
second type of Insulin from a different vial. Only at
that point could they inject themselves with the
Insulin.
Novo's pen simplified the process. It held a cartridge
that contained a mixture of the two types of Insulin, so
that users simply had to run a small dial to the amount
of Insulin they needed to inject, put the pen's needle
under the skin, and press a button. The Novo pen
reduced what had been a one-to two- minute process
to ten seconds. For diabetic patients taking Insulin
everyday, or even multiple times a day, this increase
in efficiency represented a meaningful advance.
As is always the case, overshooting create both
opportunities and threats. Specifically, an incumbent in
an overshot situation should seek to invest in different
performance dimensions and consider a consolidation
play to remove increasingly unnecessary industry
capacity. An incumbent or an entrant looking to create
a new growth business should think about changing
the game by developing an innovative business model
that better meets the needs of overshot customer.
NovoPen 5 insulin pen by Novo Nord
Novo was able to command a 30 per cent price
premium per unit of Insulin. The success of the
company's pens and premixed cartridges helped the
company increase its share of the world market
substantially, and do it profitably. The convenience of
the pen brought many more diabetic patients into
Insulin-using market, especially in Europe. Both Eli
Lilly and Novo Nordisk had satisfied the mainstream
market's need for Insulin purity. Regulators assured
the reliability of both brands. When the market's need
for reliability had been satisfied, the basis of
competition shifted to convenience, and the company
that delivered a more convenient product benefited.
Healthcare Management Review Vol 8/Page 137
hen George Fisher took the helm of Kodak in 1993 (having just led a specular Wturnaround of Motorola), he realized that the firm's greatest opportunity was in
digital cameras. He envisioned a radical strategic redirection. The problem was, the
organization held an entrenched view of the photography industry and it's own
position: In photography, there were cameras and there was film.
The organization firmly believed that Kodak was a film company. Thus, even though
Kodak had about the best digital-camera technology available Worldwide, the
organization couldn't make the leap to seeing itself as a camera company.
When Fisher launched his strategy, he probably did not sufficiently appreciate the
distance between his vision and Kodak's sense of itself. The company's Managers,
especially its middle managers, complied significantly but ultimately resisted Fisher's
redirection. As a result, despite his strategic acumen and managerial ability, a frustrated
Fisher left the company a few years after his arrival.
THE POWER OF
ASSOCIATIVE THINKING
George Fisher
WHY DID FISHER
FAIL
?
CASE STUDY
Healthcare Management Review Vol 8/Page 138
Externalstakeholdersare,ifanything,evenmore
reluctant to accept anewconceptualizationof a
company'sidentityorofthestrategicpossibilities
inherent in an industry. Their reluctance often
feedsbackintothecompanyandcausemanagers
t o abandon p rom i s i ng n ew d i re c t i on s
prematurely.Whyisitdif�icultforexternalplayers
toacceptanewstrategiclandscape?
Theproblem,againiswithcognitiveprocess.The
stakeholders have a set way of organizing and
interpretingtheindustry. ResearchbyMIT'sEzra
Zuckerman shows that the further away a new
strategytakesa�irmfromitshistoricalidentity,the
more the strategy is discounted by �inancial
analystsandotherinstitutionalplayers.Andthis
negative reaction from external stakeholders
affects firm's competitive behavior: Research by
the University of Minnosota’s Mary Benner
suggests that when firms meet such resistance,
theytendtoshyawayfromtheirintenttopursue
thenewinitative.
GEORGE FISHER AND KODAK Thefactthatastrategicleaderisabletomakethe
cognit ive leap required to see a distant
opportunity does not mean that the rest of the
organizationisalsoabletomaketheleap.Getting
otherstoseewhatheorshesees-andembraceit-
isextremelydif�icult(Itismucheasiertopersuade
anorganizationtopursueincremental,lessrisky
opportunities, in fact, that's what organizations
aresetupfor)Whenthecognitiveshiftrequiresa
changeina�irm'sidentity,theresistanceiseven
morestubborn,especiallywhentheidentityhasa
longhistoryandisinfusedwithmoralvalue.Inthe
wordsofStanford'sJamesMarch,alivinglegendin
the study of organizations, “ if a leader tries to
march toward s t range des t inat ions , the
organizationislikelytode�lecttheeffort”.
Persuading a workforce that the company's
historicalidentityneedstobereconceptualizedis
themostdif�icultofthemanyhurdlesaleadermay
need to clear in bringing along internal
stakeholders. For instance, a �irmmay have to
acquireunfamiliarcapabilitiesorkeytalent,and
thoseactivities,too,areproblematic.
Healthcare Management Review Vol 8/Page 139
Firmsinanindustrytypicallyclusteraroundafewstrategicpropositions,andtheintensecompetitiononthoseoccupiedmountaintopsmakeithardfor� irms to gain attractive returns. SuperiorOpportunitieslieonunoccupiedmountaintops:Yetbecause those opportunities “Cognitively distant”-far from the status quo- strategists have troublerecognizing and acting on them.Competitionthereforeisweak.
Most Managers are trained to analyze economicfo rces when they want to i den t i f y newopportunities. But that approach usually won'tuncoverthekindsofideasthatoverturnthestatusquo.Recentresearchonhumancognitionsuggeststhat leaders would do better to use associativethinking to spot, act on, and legitimize distanceopportunities.Theyshouldlearntomakeanalogieswithbusinessinotherindustries.Executivesshouldexplorewaystojumpstartassociationthinkingandbringstakeholdersalongonthejourney.
THE POWER OF ASSOCIATIVE THINKING
“Themorethatcognitivescientistsstudyourmentalprocesses, the more evidence they �ind that theprimary way we make sense of the world is bycomparing unfamiliar things with things we havealreadyexperiencedandclassi�iedinourlong-termmemory. Our minds do this intuitively, withoutconsciousprompting”.
Because associations are fundamental to humancognition,managerswhouseassociativethinkinginthe work on Innovation and strategy can gain adif�icult-to-imitate advantage. Developingdisciplined approaches to matters of humancognitionisnoeasytask-we'reonlybeginningtounderstandhowtheyworkinmanagerialsettings.
Butitispossibletostructureexercisesinassociativethinking - for example care-based reasoning,analogy, and pattern recognition - that helpmanagers combine Intuitive associations withrationalanalysis.
“The Best Strategic Opportunities are cognitively distant and thus the
most difficult to spot”.
LIMITATIONS ON STRATEGIC LEADERS
Ability to spot, act on, and legitimize distantopportunities stem from a common root: Thechallenges of managing one's own and otherpeople's mental representations. George Fisherfailed to persuade Kodak employees that theirrepresentationofthecompanyasa�ilmcompanywasoutdated.
In most cases the failure was directly related towhether strategic leader couldmanage theirownand others mental representations. Associativethinkingcanhelpstrategic leadermanagementalrepresentations. When we are faced with a newsituation,ourbrainsautomatically search forandretrievefromlong-termmemorypastexperiencesortypesofexperiencesthathavesomesimilarity.Onceevoked,thesementalstructuresmovetothefrontofourconsciousness.
DouglasHostadter,amajorcontributordescribesitthisway:Thementalstructuremovesfrom“beingasleepintherecessesoflong-termmemorytogailydancing on theminds center-stage. They becomethebasisonwhichwerepresentandinterpretthenew situation. Brain research shows thatassociations are central to thinking- and arein�luencedbybasic,attitudes,andemotionalstate.
Why isAssociations souseful in identifyingdistantopportunit ies? Referring to the two mainperspectivesofstrategicthinking.The�irstistouselocal,deductivereasoning.Porter'sfiveforcesframework exempli�ies this approach: It imposesdisciplineandsimplifiesassumptionsthathelpthestrategist identify likely future scenarios anddeduce an appropriate strategic solution. Thesecondapproachiscenteredonassociations.Here,the strategist compares a business situationwithsomething else she has experienced directly orindirect ly. She then forms a new mentalrepresentationthatrecaststhecurrentsituationintermsoftheolderone.
Healthcare Management Review Vol 8/Page 140
Whereas deductive reasoning is extremelyinformation thirsty, associative thinkingrequiresonlythatthestrategistidentifyafewparallels between two situations. There's asecond,andinmyopinionmoreimportant,reason that associative processes are, incertainsituations,amorepowerfulbasisforidentifyingdistantopportunities.
AnalyticalframeworkslikePorter's,areusedwidelybycorporatestrategistsandstrategicconsultantsalike.Theproblemis,theyresultinsharedmentalrepresentationsthatleadscompanies to the same places: Industryplayers identify and act on the sameopportunities.Tobreakthisequilibrium,thestrategists must cultivate genuinely novelrepresentations of the competitive space, -youcreateadifferentpictureof the reality.Th i s a l lows you to re in terpre t thecompetitive landscape in a new powerfulway.
AssociativeThinkingalsosupportstheworkof persuading an organization or externalstakeholdersthatanewopportunitymakessense.Humanbeingsarewalkingassociativemachines. Employees responding to astrategic leader’s new idea will makeassociationswhethertheyareawareofitornot . Kodak and employees s implycategorizeditas photographybusiness-Forthem,filmwasgood,andcameraswerebad.
Strategists are often exhorted to “thinkoutside the box”. Indeed, a lot of what isstrategically relevant is cognitively distant.Buttheideathatpeoplecansimplydecidetothinkdifferently fromtheway theyhave inthepast,orfromthewaytheircompetitorsdo,isdelusional.Theyneedtoolsthatbringanewdimensionofpsychologicalinsighttothestrategistsrole.Usingstructuralassociativethinking,leaderscanlearnhowtodealwiththe cognit ively distant and developtechniques for reconceptualization's of abusiness.
They can learn how to induce others to make similar reconceptualization's by evoking the right associations with this new psychological concept of strategic leadership, the cognitively distant is within reach.”
All mental processes including associative thinking, are difficult to manage, for several reasons. They're neither visible nor tangible. They usually operate below the threshold of awareness. Repetition makes them habitual, ingrained, and almost hardwired. And it is difficult to make rigorous inferences about outcomes they might cause.
Kodak and employees simply categorized it as a photography
business; For them, film was good, and cameras were bad. Fisher had
a great strategy for Kodak, but his rhetoric- “we're a picture
company, not just a film company”- is likely to have touched the
wrong nerve, evoking the film-camera dichotomy and pushing his