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Drug companies need a transformation

Summary: This article will take the example of the pharmaceutical industry in the United States and discuss (1) What has it done wrong? (2) What are its option to get back on track? (3) What can other industries learn from this experience?



Problems afflicting the US pharmaceutical industry

  1. Disconnect with its core customer base. In a recent Gallup poll, not only was the pharmaceutical industry at the bottom of the pile, it was in the company of other hated businesses like oil/gas and attorneys. No industry has ever prospered by alienating its core customer.
  2. Working against the interests of its customers and that too very openly. By its strong opposition to lowering drug prices in America (by strongly opposing drug imports from Canada), no one wants to do business with a pharmaceutical firm unless they have to.
  3. Use of unethical business practices and abusing the drug approval process (of course, with the connivance of its friends at the FDA)

How can the pharmaceutical industry achieve its lost glory?

  1. Remember the iProceed's list for creating shareholder value: (a) customers (b) employees, and finally (c) shareholders. So go back to the basics of value creation.
  2. Do what is right rather than focusing on short-term impact on earnings. Indeed, lower drug prices will make it tough for a while but a business model transformation is long overdue in the pharmaceutical industry. It is much better to retain the goodwill of your customers and transform your business model at the same time than to reach a point where Merck is.
  3. NEVER assume that the customer is stupid, no matter how smart you think you are. If you think the customer doesn't get it, the problem is not the customer; the problem is you. So stop being arrogant and redo your strategy.

What can business leaders in other industries learn from the maladies of the pharma sector?

  1. Don't waste the goodwill of your customers. If you have earned, do whatever it takes to retain it by doing everything that creates value for your customers every day. You don't exist without your customers.
  2. While CEOs keep talking about speed and flexibility, we still don't have enough of it in our corporations. Paraphrasing the words of Jack Welch, the message is to "destroy your business" and build a new one that does not rely on outdated organization structures that tie your feet to the ground.
  3. Always do the right thing. You will be the winner in the end.

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