The pressure to control and reduce costs is one of the biggest challenges currently facing the pharmaceutical industry. Successfully stripping out cost from a business is notoriously difficult – for example, can you release staff or cut training and yet still retain the skills needed to drive the business forward? In Pharma, the challenge is made even more so because the industry has, until recently, been focused on growth and so there needs to be a cultural change to help companies and employees face the new reality. Such an environment requires an approach that reduces costs in a strategic, disciplined and sustainable manner, delivered at pace.

Cutting costs is a demanding, high-risk activity that, executed badly, can at the very least fail to deliver and at the worst significantly undermine an organisation's business goals and service integrity. It should be more than a loose aggregation of individual, local activities and should not be restricted to just finance or operational tasks – two common mistakes many organisations make. It is also important to avoid indiscriminate, arbitrary reductions, typically in headcount and high visibility projects, just to be seen to be doing something. Concentrate instead on activities that don't contribute to achieving strategic goals. Cutting costs requires a programme management approach, managed in full alignment with the corporate strategy, across all areas of the business.

For the programme to be successful there must be sufficient input, involvement and buy in from staff throughout the organisation who are best placed to identify savings and will certainly be required to deliver them. Many companies have successfully used working groups or task forces comprising staff from across the organisation with different skills and experience or company-wide consultation exercises to identify significant cost savings and build commitment to the programme.

When setting up a cost reduction programme, there are five critical areas that an organisation needs to get right. We examine these further below:

Step 1. Designing the cost reduction programme
When designing the cost reduction programme it is important that there is the right balance of initiatives. Too few and there is a high risk of failure or obsolescence, too many and there is a danger of mixed messages which lead to poor delivery or a significant detrimental impact on business as usual activities. However, the temptation to over analyse the opportunities should also be avoided; analysis should be advanced to the point where the decision is clear, not to the point where there is no further analysis that could possibly be done.

Step 2. Agreeing the desired outcomes
Care must also be taken to specify the appropriate outcome from the programme. The reductions should not threaten the core capabilities of the organisation and therefore put the delivery of the business strategy at risk. Equally, the reductions should not be so loosely defined that a lack of clarity means that the net reductions realised are less than the sum of reductions promised by the programme.

Step 3. The approach to take
Delivering sustainable, strategic cost reduction requires controlled and managed change delivered through a central team working to a clear process. The central team must have the authority, independence and experience to drive the programme. It should be primarily an internal team supported by external expertise to bring in good practice from other organisations and also to test the thinking and ensure it is sufficiently challenging. It should also have a good functional spread to ensure an integrated approach across the organisation.

The process must encompass the entire delivery of cost savings from establishing the links into those elements of the corporate strategy that are relevant to the cost reduction programme to ensuring that the benefits have been delivered and are seen to be sustainable.

It is important for the longer term benefit to the organisation that the cost reductions are sustained; this means that the organisation needs to learn from the cost reduction programme and adjust its future behaviours so that the lower cost base is maintained. Training that offers staff the opportunity to continually improve on what they are doing should also be allowed for within the programme.

Step 4. Ensuring realism
By working with a reliable, detailed cost dataset and associated metrics derived from the cost drivers for the company, insightful analysis can deliver meaningful and realistic targets. Supporting this analysis with internal debate, external benchmarking and identification of best practice will deliver a list of the current and potential initiatives that could be included in the programme. This list can then be filtered, refined and prioritised based on value, timescale and delivery risk to establish an optimised cost reduction programme that meets the requirements for cost reduction, is feasible with reference to the actual cost base of the organization and can realistically be managed by the organisation.

Step 5. Helping people face the new reality
Changing culture is one of the hardest things for a management team to achieve. To help employees face the new reality they need to understand why change is necessary and then be motivated to help make the change. Sometimes this means encouraging them to accept the harsh realities of business, for example seeing a comparison between drug development pipelines today and ten years ago. It is also important to recognise that you can't change the entire organisation in a single go. However, forward thinking organisations will identify individuals with a disproportionate influence in the organisation, highlight their achievements and use them as 'champions' for the change, This approach really helps the change gather momentum. Reinforcing achievements and early successes with publicity will also help accelerate the new ways of working and deliver the cost reductions required.

Conclusion
In summary, a poorly thought through or incoherent programme has the potential to take the organisation backwards. A programmatic approach to cost reduction that includes the right approach and lifecycle management is critical and will ensure your cost reduction programme generates permanent improvements in operating efficiency, rather than damaging your business. Adherence to a disciplined approach will enable pharmaceutical companies to position themselves not only to meet the imperative of near term cost reduction but also to emerge as more efficient, responsive organisations ready to meet the future challenges of a rapidly changing healthcare industry.