Op-Ed: Pharma Layoffs & Small-Minded Survivors

Op-Ed: Pharma Layoffs & Small-Minded Survivors

September 27th, 2011 // 12:08 pm @ jmpickett

As pipelines shrink and investors demand better yields, the downsizing has caused tens of thousands of pharma employees to lose their jobs over the past several years. These severe cutbacks, however, may yet take their toll on the pharmaceutical industry in another, more pernicious way. In the view of Dan Hoffman, big drugmakers are now left with too many people who are politically savvy and more interested in ‘playing it safe.’ In the end, this could mean the sorts of changes needed to grow and regain scientific and financial strength may not be made.

Downsizing Trend Leaves Pharma Without the Kinds of Employees It Needs:
By Daniel Hoffman, PhD and president of Pharmaceutical Business Research Associates

In addition to disrupting tens of thousands of lives, the substantial downsizing in pharma over the past two-and-a-half years has changed many companies for the worse. I previously wrote that the guidelines handed down from finance to HR have eliminated many of the more knowledgeable and experienced people at each layoff round because people over age 50 are among the first targets for separation packages. But the dysfunctional legacy is even more pernicious. The resulting culture has created a workforce that is almost entirely at odds with what pharma needs now.

The challenges facing pharma today go beyond the global recession and the dearth of new product development. The widespread changes to the industry’s customer base, the declining willingness of payers to reimburse me-too products, pharma’s poor public image, and increasing constraints on the ability to differentiate its products have all contributed to a situation where the entire business model has become obsolete. In such a situation, pharma needs innovative, risk-taking people at all levels across the operations spectrum.

A wide range of advertising gurus, global consultants and self-styled wise men has offered “new paradigmatic approaches,” most of which amount to hollow ambiguities. Their suggestions include admonitions to “listen to your customers” and “lose the obsessive control over messaging,” as well as an array of familiar tactics under new-fangled names. The fact that most of these “new path” suggestions come from large suppliers who are part of the Old Boys club should indicate their worthlessness. The truly necessary reconsiderations, such as how pharma companies can generate a return on capital in the new environment, would likely consign these “preferred,” “value preferred” and “agency of record” suppliers to the recycling bin.

The problem is that the dishonest and unfair approaches the industry has taken to downsizing have left it with many people who are small-minded, politically savvy and safe playing. Gone are the people who acquired the experience to know what doesn’t work after enduring years of self-serving platitudes. Those with sufficient boldness to try something outside the conventional axioms now spend their mornings expanding their Linkedin contacts.

Many of the people remaining in operations deliberately choose not to ask big or important questions, lest their colleagues perceive any fundamental doubt as a threat. The truly adept manage to avoid taking a position on even the most mundane matters, lest someone else equate perceptive questions with disloyalty. Some even find it wise to feign ignorance concerning the elephants in various rooms. The combination of such simulated ignorance, together with the genuine version among the inexperienced survivors, makes the task of determining the smartest guy in the room a purely theoretical exercise.

Of course the approach of making oneself unthreatening, wholly agreeable, blind, deaf and dumb has its limits, too. An operations manager who adopts the cheerful, compliant pose of a good administrative assistant will eventually find that he can be replaced with the real thing at less than half the salary.

Two functions bear the major responsibility for enforcing a culture of deliberate mindlessness. At the top, finance sets the strategic direction. The goal of finance, paramount to everything else, consists of keeping senior management in control of the company. Forget the blather about shareholder value, customers, the community and medicine for the people. Everyone outside the boardroom is the enemy.

To that end, finance seeks to propitiate the short-term interests of shareholders, i.e., Wall Street. They accomplish this by means such as cutting R&D, marketing and other expenses, and then using some of the money to buy off shareholders with dividends and share buy-backs. On the rare occasions when one mentions to a CFO that R&D and marketing define branded pharma, and stinting on those operations will spell its doom, a few may even admit as much during a rare moment of candor. Any such acknowledgement, however, is quickly followed by an impatient effort to “explain the realities.”

Reality for CFOs involves long-term product and business development approaches that would create several quarters of flat or negative earnings. In their doomsday scenario, that would prompt the board to replace management. If one responds by noting that a management change remains unlikely because most boards consist of cronies and pets, the long-term approach still holds no appeal for CFOs. With a dismissive waive of the hand they claim that a hedge fund would then swoop down and “take the company away from us.”

On the more tactical and micro level, lawyers and their minions in compliance boldly suppress innovation and critical thinking. That is because the legal counsel’s number one goal consists of keeping the fiduciary officers away from the deposition table and off the witness stand, where they run the risk of an aggressive litigator pulling down their pants in open court. The fines and civil settlements mean little to these advocates for senior management because shareholders pay those anyway. Some top execs even get bigger compensation packages after the company pays substantial, nine-figure settlements. No, the danger lies with some CEO offering sworn testimony that shows him to be a sleazy dirtbag. In the internet age, his fellows at the country club and his wife’s friends could then read the transcript and, as The Godfather character that awoke with a horse’s head beside him said, someone in that position can’t afford to look ridiculous.

So legal counsel and/or compliance draft and vet every position paper and serve as first among equals on every operating committee. The resulting product consists of typically ambiguous, self-contradictory bombast involving the use of twelve different euphemisms for “layoffs” in a single memo.

If insight and experience can jeopardize earnings and raise liability exposure, the pharmas increasingly seek other qualities in their employees. Many operations directors, knowing full well the shackles in which they must operate, esteem loyalty above all else. Doubt, disagreement and critical thinking among subordinates create weak points that competing directors within the company can exploit. Besides, many operations leaders believe these individual qualities are obsolete anyway, given that “strategic partners” – the 2009-10 buzz term for sole-source suppliers – now perform so much of the work.

Use of the term “partner” for these volume discount arrangements is actually quite misleading because the supplier receives nothing from the pharma other than fees for services, unless one argues that the ability to say that “We’re a one-stop shop for Pfizer” provides an advantage for selling to other clients. In any case, the relationship further increases the company manager’s similarity to an admin.

So in the end, few people in senior and middle management want to make the sorts of changes pharma needs. Fewer still appear capable of doing so even if the inclination came upon them. For example, the reflexes developed from detailing physicians in onesie-twosie practices appear poorly suited for reckoning with a 2,300-physician practice chain that a major insurer will soon own.

The Greek engineer Archimedes once famously said that he could move the world if he were given a place to stand. Pharma requires some substantial movement but any insider pushing on a lever to make changes would likely find himself and his tools sinking into mush.

Source: Pharmalot