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In the last article in AvisenRx View Point, we talked about the importance of Operating Model in converting strategy to success. A key component of a company’s Operating Model is its Organisation Structure, often depicted as a mesh or cascade of boxes and lines where the boxes represent roles and the lines reporting relationships.
Most large biopharmaceutical companies have settled on well-defined internal structures which can, at a high level, be described as functional departments along side a number of mission driven cross-functional teams. The functional departments are generally set up as Research & Development (R&D), Commercial (further divided into the main geographic regions), Manufacturing or Supply Chain and Corporate. Within each of these departments there are a number of further functional sub-departments. In the last 20 - 25 years, most large pharma companies have realised that the siloed nature of the functional organisation is inefficient and set up cross-functional or matrix teams to manage not just programs and projects but also routine tasks. In the past only functional job roles would have been well defined, now it is common to find cross-functional teams similarly well-defined in terms of composition, responsibilities and deliverables. In my experience of working with organisation structures of biopharmaceutical companies over the last 25 years, most large companies now find themselves working with this template in organisation structure with minor variations.
So, is there now scope for transformational organisation structure to be a determinant of success for a pharmaceutical company?
There are two well-publicised recent developments which have brought some attention back to organisation structure. The first is the dramatic and continued success of Novo Nordisk, post the Ozempic launch. My source for the information on the changes in the organisation structure of the company is an article by Steven Desmyter in the Forbes magazine1.
Leading up to 2018, Novo Nordisk was a company dependent on an increasingly commoditised product – insulin - in its primary disease franchise of diabetes. Lars Fruergaard Jorgensen became the CEO in 2017 and set in motion changes in the organisation structure of the company with a focus on R&D. Four Transformational Research Units (TRUs) were set up – 2 at the company’s base in Denmark, 1 in Oxford, UK and 1 in Indianapolis, US. These TRUs were set up to be like biotechs - nimble, innovative and risk-tolerant (but, unlike real botechs, with less worries about funding!). It was in these TRUs that Ozempic and Wegovy were developed. The impact on the company’s fortunes has been dramatic. Its revenues have doubled since 2018 and its share price is now about 5 times what it was in 2018. It is now Europe’s largest company by market cap.
So, is converting a global R&D organisation into smaller, nimbler, biotech-like units a panacea for R&D productivity in large pharmaceutical companies? Interestingly, the idea is not new. More than 20 years ago, GSK (then GlaxoSmithKline, formed by the merger of Glaxo Wellcome and SmithKline Beecham) had created six Centres of Excellence for Drug Discovery (CEDDs), each focused on a therapeutic area. The intent was similarly to emulate biotech R&D by creating smaller, more flexible and entrepreneurial R&D units. While there were some productivity gains, the GSK CEDDs did not yield anything like the success of the Novo Nordisk TRUs. A more rigorous and detailed comparison of the two programs may hold some valuable lessons.
The second highly publicised organisational restructure in the industry has been from Bayer. The trigger for the restructure is also the appointment of a new CEO, Bill Anderson, who commented, “The problem at Bayer is not the culture - it’s the bureaucracy, it’s the layers, it’s the approvals. You can have all the positive culture you want, but if it takes five signatures to replace a pump in the plant, then the culture is not going to save you. This is the phenomenon we face at Bayer.”2
The new model, with the clunky name of ‘Dynamic Shared Ownership’, aims to reduce hierarchies, eliminate bureaucracy, streamline structures and accelerate decision-making processes. The restructure will result in removal of many managerial and coordinating roles, those which are often called middle management and the ranks of which often swell as a business becomes larger and more complex.
The problem may be more acute at Bayer but is not unique to it. Most large pharmaceutical companies, indeed all large companies and organisations, suffer from bloat in the middle management layers. The challenge is that these roles get added slowly over long periods of time and are entrenched in the operating model. Collapsing the hierarchy and removing the layers and the bureaucracy cannot be achieved by just a restructuring program, however bold. It requires a complete rethink of the operating model and the organisation structure, where every role, process and decision stage in the organisation needs to be critically relooked at. Bayer has indicated that thousands of roles will be eliminated, which sounds right relative to its overall size if the new model has to make impact.
Bayer only expects to complete the process by the end of 2025. So we will have to wait for some time to see how successful it is. But what both these examples show is that organisation structure remains an important part of business transformation in pharmaceutical companies.
Shalabh Kumar is the founder of AvisenRx Consultants. In a long strategy consulting career, mostly in life sciences, he has worked with many biopharmaceutical companies advising on operating strategy, organisation design and restructuring, process redesign, post-merger integration, resourcing strategy and performance management.
AvisenRx Consultants, https://avisenrx.com
Previous AvisenRx View Point articles at https://avisenrx.com/news-blogs/
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