Today GoINPHARMA™ meets Lorenzo Formiconi, managing partner and co-founder of execon partners, a swiss-based, global-acting management consulting firm specializing in the pharma and chemicals sectors. Lorenzo is an expert in operations management and business transformation, with over 15 years of professional tenure. Prior to execon partners he worked several years within the operations practices of McKinsey & Company and Management Engineers (now Strategy&). Lorenzo holds a degree in Business Administration from Bocconi University, Milan and a Master of International Affairs from the Institute of International Political Studies, Milan.
GoINPHARMA™: Mr. Formiconi, management consulting firms have experienced many years of double-digit growth but they seem to have recently lost momentum. How does the future look like and which are the most important dynamics and needs?
Mr. L. Formiconi: In a recent article appeared on Harvard Business Review the authors claimed that management consulting is “on the cusp of disruption”. In fact, traditional consulting companies enjoyed a very long period of profitable growth, but never fundamentally challenged their business model or questioned the rules of the game (as they actually teach their clients to), thereby remaining prisoners of their own success. Now: every industry matures – with increasing competition and clients becoming more demanding. Consulting is no exception, and – as in every other industry – only those that are capable to interpret the changes will be successful in the future.
For example: in the last 30 years there has been a rapid increase in business education within the management ranks of corporations (today most staff and managers hold an MBA or an equivalent academic record), with the result that more and more companies prefer to complete their classical strategy projects “in-house” and without consultants. Conversely, there is a growing demand for external advice about how to secure a robust and sustainable strategy execution, which in turn requires more tenured advisors, ideally people with direct experience in the industry of the client, a strong functional spike, and a marked people attitude – profiles that nowadays traditional consulting companies don´t have.
Furthermore: Seeing their consulting spend soaring every year, corporations professionalized the way they source consulting services, becoming cost-conscious and increasingly looking for more transparent returns on investment, alternative staffing models, and variable remuneration schemes; all requests that are quite unwelcome to traditional consulting companies as they just add costs and risks to their books.
GoINPHARMA™: How does execon partners differentiate from traditional consulting companies, and what is the concrete offering to a potential pharma client?
Mr. L. Formiconi: We try to proactively respond to the dynamics mentioned before and differentiate from competition with a clear focus on strategy execution and sustainable transformations. We believe we can yield way better results than traditional consultants in these fields thanks to four ingredients. First, strict senior hire policy. We hire exclusively ex managers or ex consultants with relevant experience in pharma or chemicals. Thereby we increase the efficacy to drive change within our clients´ organizations. Second, proprietary execution toolkit. We adopt a distinct execution approach with high emphasis on pervasive training, communication, and coaching / support, as well as proprietary execution tools that allow us to design and manage an execution project at higher standards. Third, tailored staffing. We tailor our project staffing based on our clients´needs – beyond the standard model “1 partner/1 project manager/2 associates x full-time”, we offer more granular support eg, for workshop moderation, subject matter expertise, project management, coaching, etc. Fourth, execution guarantee and variable remuneration. We guarantee the results of our engagements and – aiming at a long-term partnership with our clients– are keen to share risks and rewards of joint endeavors through variable remuneration schemes.
Our concrete offering in pharma is organized around two practices: One is operations management & costs down, where we address topics in the areas of sourcing (eg, direct and indirect spend reduction, supplier development and management, category management improvement, etc.), manufacturing (eg, network redesign, plant turnaround, productivity / OEE improvements, capex efficiency, technology strategy, etc.), supply chain (eg, inventory reduction, integrated planning, transport cost reduction, SAP enablement, etc.); the other is business transformation, where we address topics that have an impact at corporate level, such as organization redesign, cultural change programs, performance management, post merger integration, overhead efficiency,etc.
GoINPHARMA™: The pharma sector is clearly moving towards consolidation and rationalization. Where do you see opportunities and risks?
Mr. L. Formiconi: while still enjoying good profitability, the pharma sector has been increasingly under pressure in the last decade for the combined effects of the patent cliff, the crisis of the blockbuster model, the price squeeze from regulators, and the economic stagnation in the Eurozone. The pharma sector has entered its maturity phase and needs to take action to protect its margins. The weakest point that needs to be addressed is the sinking R&D productivity, a problem affecting all big pharmacos that increasingly rely upon partnerships and sourced innovation to complement their internal pipeline. While some efforts have been done, there is still a long way to go to improve internal processes and shift the costly attrition from later clinical development stages (phase II and III) to the early ones, while at the same time fostering scientific creativity and opportunism. Furthermore, the industry has a true cost problem, with significant overcapacities, coming from volume shifts to generic manufacturers, outsourcing to low-cost countries, or “political” overinvestments to minimize risks (some estimate that more than 50% of the current asset base could be shutdown while demand would still be met!), heavy overheads, oversized inventory levels, etc.
Clearly, major changes never come for free. The primary barrier that we see is the cultural sclerosis and aversion to change and to risk that is intrinsic to most pharmacos (again, companies that became prisoners of their own success!). Since many pharmacos are still largely profitable, a reaction of denial (“do we have a problem?” “Isn´t it an industry trend?”) is very common. What we often do when we are in charge of a transformation with a high degree of denial is to look at other industries that have already entered the maturity phase and at successful players in these industries, at their KPIs and at their practices. This always offers a good starting point to light up the spark of change that, if well managed, is able to drive the entire transformation.
GoINPHARMA™: At what industries should pharma look at, and what could it learn from them?
Mr. L. Formiconi: The natural industry to look at are the fast moving consumer goods (FMCG), that – especially with regard to the food subsegment – have many commonalities with pharma, but are at least 20 to 30 years ahead in terms of experience in coping with challenges like commoditization, cost management, and time to market. Many players in this industry developed unique capabilities to drive revenues and margins, for example by creating strong and profitable brands that continue to attract and keep customers (like CocaCola, Nescafe, Magnum, Nutella, to name a few, that successfully survived over years the pressure of low-cost competition); or by constantly improving their planning and delivery model and driving up their customer service level (on average at 99% and more, while pharma is at 90-95%). They also managed to keep their costs under control, for example by reducing total inventory days to 70-80 (while pharma is beyond 200!) by means of more accurate forecasts gained through point of sales “big data” analysis; or by reducing manufacturing leadtimes down to 7-10 days (while pharma is at 110-175). As a matter of fact, some pharmacos have understood the power of learning from others, and are increasingly hiring professionals from the FMCG industry to capitalize on their experience. One major pharmaco– in the vision statement for its OTC business – even mentioned its aim to become “the first and best fast moving consumer healthcare company”.
Pharma can obviously learn a lot from further industries, too; such as how high-tech players are sourcing innovation from third parties, or how the automotive industry is keeping complexity under control and systematically managing its suppliers. In general, the key for learning and turning the learning into results is to first overcome the initial denial phase and, after that, to demonstrate concrete and quick improvements by focusing on few, promising levers to be in the position of –as we say – “selling the case for change” within the entire organization.
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execon partners GmbH