The life sciences industry is in the midst of serious transformation and disruption that is changing the way organizations recruit and develop talent. To better understand these dynamics, OnPoint Consulting’s Darleen DeRosa posed a few questions about the industry to Rebecca H. New, the Managing Director and Head of Human Capital and Healthcare Practices at RSR Partners.
What are the biggest trends that you’re seeing in the life sciences industry and how are they affecting the ways companies approach talent development?
There are four big industry-level trends that really stand out and have major implications for talent. In the first place, there’s increased drug pricing scrutiny. There isn’t a lot of margin for error when it comes to finding a profitable price point that the market will bear.
Price pressure is then leading to a continued focus on optimizing cash flow and returns on investment. We see large companies investing less in R&D and focusing instead on internal partnerships, investments, licensing, and M&A. The presence of angel investors, private equity, and venture capital is also impacting the industry because they’re putting more money into startups (primarily biotech) and holding onto those investments longer to maximize returns. Collaborations are more common than ever, and academia continues to contribute primarily to research and development.
Outsourcing continues to be a major trend as well. Most of the decisions on this front are a function of speed-to-market. We see external service providers bringing more differentiated value (planning, project management, speed, quality, supply chain planning) that helps companies get products to market faster and saves them cash in the process.
Finally, we’re seeing regulators collaborating and sharing information more frequently.
All of these trends have led life sciences companies to rethink their approach to talent development. They’re focusing a lot on strategic leadership and change management. It’s important to have leaders in place who have the ability to influence and possess the negotiation skills necessary to handle challenges like optimizing supply chain relationships. Fundraising capabilities are important for the C-suite level, and it’s important that leadership understands how to facilitate organic growth by differentiating in the market and focusing on customer service value propositions. Of course, they still need to be able to optimize M&A, minimize business disruption, and deliver positive ROI on strategic initiatives.
It’s a highly competitive environment for talent. Finding ways to attract and develop talent, promote succession, and drive diversity of thought is critical. People have a lot of options, and management is still the number one reason why they stay or leave an organization. Employees want to feel connected to the strategy and purpose of the company, so it’s incumbent upon leaders to be change agents in terms of driving sustainable and effective organizational cultures.
What are life sciences companies doing to ensure a pipeline of senior leaders who have skills to lead?
Primarily, they’re focusing on development and retention while also determining “critical position” succession. Corporate boards are seeing succession as a business risk to mitigate and they’re building proactive target/succession lists to ensure continuity. They’re beginning to see cultural fit as an important factor. Lack of cultural fit is the #1 reason why leaders fail at their new roles, so companies are looking more closely at how well a candidate fits with the organizational culture and aligns with company values than they have in the past. Of course, factors like IQ and EQ are still considered important when making a hiring decision.
Despite that, a lot of companies still have a long way to go. Just over 50 percent of organizations don’t have a formal succession planning process in place and about half of talent managers and executives predict talent shortages in executive leadership in the near future. Those talent shortages impact a company’s ability to meet customer needs. We know that companies with very effective talent management are six times more likely to report higher total returns to shareholders than their competitors.
What leadership characteristics are life sciences companies looking for in C-suite roles?
Historically, leaders in large companies had siloed functional accountability. Decisions were made on a top-down basis, so leaders weren’t incentivized or empowered to make decisions. Their exposure to different departments was generally limited, so that created some serious uphill learning curves in terms of succession opportunities to reach C-suite status. For example, most leaders didn’t have a grasp on how customer satisfaction or quality impacted their business because they’d never really been exposed to that area. If you don’t understand the total cost of quality, it’s hard to appreciate how it impacts revenue and retention.
As we look at the number of CEO and COO opportunities for small and mid-sized companies, a lot of them are looking for candidates who have more than “big pharma” experience. Adaptability, influence, and understanding fit in terms of culture and experience are all big focuses. Savvy leaders are also differentiating their skills and their business through more advanced analytics to determine trends and opportunities that provide value to their clients and customers.
Why do some candidates not meet expectations when selected for a C-suite position?
We’ve been hearing for years about the importance of focusing on EQ, not just IQ, and if you look at the trends in the industry right now, it’s easy to see why. As regulations continue to increase, social media shines a spotlight on pricing and ethics while the traditional media continues to emphasize social responsibility. It’s important to ensure that your leaders align not only with your culture, but also your organizational ethics, sense of corporate responsibility, and social expectations.
When you’re assessing talent, you have to consider the candidate’s values. Evaluating moral decisions, ethics, and using behavioral interviews or case studies provides you with data that can help you predict how someone will behave or respond to future situations. The goal is to ensure that you have alignment with culture to improve the probability that the person will be retained over time. Making the wrong hire doesn’t just impact your bottom line; it can damage your brand.
What are the greatest internal challenges facing senior executives in this industry? How about external challenges?
In terms of internal challenges, it always comes down to a question of resources. Regardless of the size of your company, you only have a set amount of cash. Generally, the goal is to maximize the return on your investment. This means you need to make trade-off decisions while also competing to get your products or services to market as quickly as possible. Leaders are faced with a delicate balance of investing in organic vs. inorganic growth, both of which often require investments with varied levels of risk and return.
Talent depth and availability will continue to plague most companies as the job market improves and the strongest candidates have options to choose from. Investment in talent isn’t cheap, so you have to evaluate decisions carefully to ensure business continuity. Companies should continue to use all the options at their disposal, which may include outsourcing when they don’t have scale, the cost or time to build would be too high, or when a function can be adequately performed externally. Focusing on adaptable candidates who can play multiple positions and bring a breadth and depth of experience to the company is important as well.
External pressures come in a variety of forms. For public companies, activist pressure is always a concern. The increased social and regulatory pressure on pricing and access to medicine forces companies to make a lot of difficult trade-offs, especially when there’s so much uncertainty in the market affecting debt and investment strategies. All companies have to balance between the demands long-term sustainability and short-term growth, which affects how much money is available for investments in their succession pipeline, employee development, supply chain, and infrastructure. The competition for talent makes the best leaders in an organization targets for poaching, which makes it even harder to keep effective leadership in place to deal with global challenges like rising Chinese competition and potential economic risks like Brexit.