Read The Early Warning Signs

Long-term success in today’s business environment requires influential executives to think like chess grand masters or, in their case, business risk masters. They must anticipate events several years in advance and then choose the right moves to stay one step ahead of their competition. This expectation of increased business risk in the next two to three years was recognized by 77% of pharma company managers in a recent global survey on preparedness in the pharmaceutical industry conducted by the Fuld-Gilad-Herring Academy of Competitive Intelligence. The survey results, however, also found that 37% of those pharma company managers report having no process in place to address those challenges, while 56% say they have only some components in place.

According to one of the survey’s authors, Leonard Fuld, writing in Pharmaceutical Executive Magazine, pharmaceutical companies have not anticipated many recent industry upheavals. For example, he says, during the 1990s companies producing AIDS drugs failed to foresee the negative press and moral backlash surrounding the provision of low-cost drugs to Africa.

Today a number of similar threats have appeared or are looming on the horizon, including the incursion of generics, a reduction in Medicare reimbursements, price controls and advances in technology and genomic lead discovery that may replace the need for many biotech solutions.

Fuld suggests that rather than merely hoping everything works out for the best, pharma company executives should develop early warning strategies that anticipate multiple potential outcomes and then map out what each outcome would mean for their company’s bottom line and plan strategies to account for each outcome.

Drivers, the building blocks companies should use to define potential changes to the competitive playing field, are key elements of the early warning process, says Fuld. For example, one driver might be: Government enacts stricter price controls. Taking this as a given, what are some potential outcomes? Fuld lists two: first, a new scenario of giant managed care and, second, the pharma industry might contract dramatically as shrunken R&D budgets steer substantially more business away from brand-name manufacturers and toward generics or biogenerics.

Realistically, how much affect can an early warning system have on a company’s prospects for handling ominous threats to profitability and growth? Fuld cites the example of Visa International, which a few years ago became concerned about the growth of peer-to-peer (P2P) alternative payment systems on the Internet. These emerging Web-based payment options were considered an alternative to traditional credit card companies.

In addition to developing scenarios surrounding the growth of P2P payment systems, Visa identified signals to watch for that would indicate just how rapidly P2P was being adopted in the marketplace, such as advertising expenditures, the number of merchants signed up for the service and the volume of venture capital being invested in various P2P startups. By tracking the markers from quarter to quarter, Visa determined that the threat from P2P was not as pressing as first imagined. With this information, it also was able to roll out a sensible strategy to hold onto customers and even increase market share.

Fuld says similar early warning approaches also helped Shell predict a drop in the price of crude oil and enabled Fuji to beat Kodak to the punch in the $12.7 billion consumer digital-camera market. With the monster challenges on the horizon for the pharmaceutical industry, $12.7 billion might be small potatoes. To protect current investments and take advantage of upcoming market opportunities, pharma may need to begin comprehensive planning, including the development of early warning strategies – today.