A change in pace for pharmaceuticals and consumer business

The themes coming out of our fourth Barometer on Change are reflected emphatically across the pharmaceutical and consumer business sectors, where the pace of change has intensified over recent years, and is only expected to increase further in the short to medium term. The industries are busy grappling with a perfect storm of challenges such as:

  • global demographic and consumption shifts (including stagnation in developed markets);
  • a tougher competitive landscape with downward pressure on margins and increasing constraints in terms of market access;
  • underperformance in research and development (R&D) productivity and product launch execution;
  • a greater regulatory burden with more intense scrutiny from key stakeholder groups; and
  • an increasingly fragmented, demanding and digitally-enabled customer base.

Such challenges are generating packed change agendas, with senior decision-makers facing an ongoing struggle to future-proof the organisation by effectively prioritising and executing the ‘right’ change initiatives, whilst, in parallel running the business to generate positive returns for shareholders - all in the midst of an ever-changing and increasingly competitive environment. 

Re-investing in growth

To compete in these dynamic industries, it is vital that senior leaders ensure agility in their operating models in order to enable them to proactively respond to, and anticipate, the challenges ahead.

It’s no surprise that organisations continue to focus on increasing efficiencies via cost reduction, but the Barometer on Change findings suggest the drivers have shifted. Less and less is it a defensive move to protect profitability in the midst of troubled economic times. Today’s high growth companies are instead targeting operational efficiencies in order to become more agile and free up funds for reinvestment in growth initiatives, whether that be in terms of investing in new products or responding to market changes.

Re-balancing the portfolio and enabling growth via M&A activity

Both the pharmaceutical and consumer business sectors have experienced high levels of deal activity in recent years, such as GSK’s complex transaction with Novartis, and the merger of Heinz and Kraft to create the fifth largest food company worldwide. This is fast becoming the new norm with no visible signs of a slow-down. Indeed, 15% of respondents are expecting major M&A activity in the coming year, in comparison to only 9% this year.

Organisations are focusing their portfolios on areas of strength and leadership in order to succeed in a more fragmented marketplace. At the same time, they are divesting non-core or underperforming business units or brands to fund acquisitions or improve growth prospects. Rather than relying on organic growth, such companies are looking to M&A to access new markets, strengthen their pipelines, re-balance product portfolios and tap into new skills.

While major reconfigurations, like M&A integrations, have become increasingly prevalent, they by no means guarantee the desired outcomes. Only 29% of respondents who have undergone M&A have realised the anticipated benefits ‘to a great extent’ - with the expense and resource associated with such transactions, this a stark figure. As well as ensuring that the deal and subsequent transition are executed successfully (without operations suffering), it is vital to shift focus to delivering and embedding sustainable change to realise the forecast benefits – and people are of course key to this journey.

Building the right capability to address a new reality

It is important that organisations have a clear, well-communicated strategy as well as the right people with the right skills to deliver upon it. However, this is far from straightforward. In 2015, 61% of respondents describe their organisational vision as very or extremely clear – an 8% drop from 2014 and the lowest levels in three years. This drop may reflect the increasing pace of change, with strategic priorities being overtaken by a shifting context. 

While 97% of respondents recognise they require new or additional skills to deliver their strategy, only 30% express real confidence that they will be able to access the skills required – this has fallen significantly over the past three years. There’s little time for in-house development due to increased pace and pressure of change. This means that many companies access the capability, at least in part, from external sources.

With the skills gap hindering growth, it is vital that organisations demonstrate flexibility, and accept that new leadership and change capabilities are required to address them. In addition, successful organisations will be those that leverage data most effectively to understand the customer, generate insights, inform strategic decision making and demonstrate value.

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