Heterosis

Introduction

This study into the leadership challenges facing the healthcare industry was born from our desire to understand the sometimes conflicting messages we have received from both European and global healthcare leaders as they endeavour to build their businesses and sustain shareholder value.

Our starting point was to look at whom leaders consider to be the major stakeholders in the sector. What do these stakeholders demand or expect? Which strategic options can deliver on these expectations?

New stakeholders have emerged with their own respective agendas and expectations—stakeholders who may not be familiar with or well understood by the industry. These new stakeholders present additional strategic challenges across the full business spectrum, affecting all functional and business areas.

We sought to build a clear picture of the challenges of today and the future, the strategic choices being made and their implications for the leadership requirements of the pharmaceutical, biotechnology, and medical devices and diagnostics businesses of the future. In particular, our study addresses the following questions:

Are companies refocusing and reconfiguring their businesses in light of the changing stakeholder dynamic?

Will they be willing or able to evolve the business models and adapt practices and behaviors which, in many cases, have not changed for many years?

What new leadership skills and expertise are required to achieve the above, where will they be grown or found, and will existing cultures and behaviors allow successful integration?

The industry is beginning to face and meet the challenge of developing and attracting leaders who are capable of dealing with the demands of multiple stakeholders whilst delivering and sustaining shareholder value. Our research highlights some of these challenges and provides insights into how to address these issues. For the purposes of this research, we interviewed representatives from pharmaceutical, biotechnology, and medical devices and diagnostics companies.

Executive Summary

Companies in the healthcare industry are facing new challenges and pressures. The climate that shaped traditional business models, ethos, leadership styles and appointment requirements has largely disappeared. Leaders must realign their resources to meet these challenges in order to build a sustainable competitive business model for the future.

The emergence of new stakeholders requires the industry to adopt a more outward-facing focus in order to understand their agendas and expectations. In what often is viewed as a traditionally inward-looking industry, this represents a significant cultural change. The industry must develop further the competencies and culture to relate to and influence these stakeholders.

Government will have overtaken the medical profession as the most influential healthcare industry stakeholder by 2012. Leaders recognise the need for a proactively managed and collaborative relationship, replacing some of the current antagonism and mistrust with a robust dialogue based on an evidence-based and cogently expressed story. This will involve not only the development of health economics expertise and specialist public affairs and advocacy skills but also a new level of understanding and anticipation of government priorities and requirements.

Patients are better informed, increasingly articulate and assertive, and less deferential towards the medical profession. More sophisticated and effective communications, as well as investment in consumer marketing and research, are required to understand and respond to patient needs.

Purchasing and prescription decisions now are taken by multiple contacts across both the medical profession and other new stakeholders. Government directives and the power of patient lobbies are seen as threats to the profession’s historic role as the industry’s main driver.

Margin erosion through increasingly aggressive pricing and reimbursement pressures from government is being exacerbated by generic competition, which calls for a renewed focus on research and development productivity, and operational efficiency issues. The critical need for cost reduction means that day-to-day operations must achieve higher levels of efficiency than ever before in marketing, manufacturing and support function expenditure.

The need for greater productivity means that research and development specialists increasingly will find their traditional approach challenged. The leadership challenge is to create a culture in which marketing, research and development, and operations can form a creative and symbiotic partnership.

There is an increasing dichotomy between the expectations of emerging stakeholders (particularly government) and those of shareholders. The days of rapid returns are disappearing, replaced by a longer-term growth proposition. The strategic long-term vision of the CEO and the effective communication of that vision are key.

There is a wide spectrum of opinion on the causes and effects of consolidation, collaboration and convergence in the industry. Some believe them to be a successful way to alleviate margin pressures through growth. Others see them as the result of a lack of strategic focus. Some commented that when management deficiency drives consolidation by acquisition, the problem simply becomes exacerbated within a larger merged organisation.

A rapidly changing industry, featuring lower margins, larger companies, a changing customer profile and a testing regulatory environment, needs leaders who can address these challenges. Traditional “lead and follow” leadership styles are no longer acceptable within today’s industry. A “coach and counsel” approach is needed to develop teams and individuals in order to avoid succession problems. Healthcare leaders need to demonstrate creativity, and strategic and analytical skills as well as the willingness and ability to move fast, change radically and take risks.

In an industry that traditionally has recruited from within itself, there has been considerable cultural resistance to recruitment from outside the sector, but this is a position robustly challenged by a substantial group of respondents. Some of the top jobs must still be recruited from inside the industry, they assert, but current weaknesses, particularly in marketing, supply chain and specialist areas like communications, can be addressed only by attracting talent from outside. Hybrid vigor, they argue, is the key.

Pressure Points: Changing influences on shareholder value in the healthcare sector 2002-2012

“The absolute mandate of the leader is to create value for shareholders.”

We asked respondents to consider the changing influence of different groups of stakeholders on shareholder value during the last five years and to predict what changes may take place in the future. Each identified and ranked what he or she considered the three most important influences on shareholder value in 2002 and 2007 and then predicted which three groups would have the most influence by 2012. Figure 1 gives a graphic representation of responses to this exercise.

Relative influence of stakeholder groups on shareholder value 2002-2012

Government

“The key strategic priority is government affairs. For me, it is to understand that your customer is the state.”

Ranked as secondary only to competitive pressure five years ago and currently ranked alongside the medical profession as the most influential stakeholder, the majority of respondents predicted that by 2012, government would outrank all other stakeholders in terms of its influence on the industry. Margin erosion as a result of increasingly aggressive pricing and reimbursement pressures is seen as the key and most obvious challenge presented by government. Respondents commented on the risk posed to business models when innovation is not, as they see it, properly rewarded. They linked many of their strategic choices to the need for a radical response to pricing pressures.

Widespread and considerable cynicism was expressed about the motivation and priorities of government. Political expediency and short-term thinking are seen to supersede longer-term health requirements. Some commented that changes of government can mean policy U-turns every four to five years, destabilizing long-term industry planning.

Several of those interviewed highlighted the dichotomy between government spending priorities and the real exigencies of healthcare. Reimbursement for acute care outstrips that for chronic care, regardless of the needs of ageing populations. Preventative care, they assert, is neglected in favor of therapy and intervention.

“By and large, we are still a world where we wait for something to happen, and then we intervene.”

“Our strategic line of sight is creating a better story for government regulators to understand the value that our business and our industry provide to the healthcare system.”

A striking majority of respondents believe that it is vital for the healthcare industry to manage its “lobbying” relationship with government more proactively and to develop a more robust dialogue based on an evidence-based and cogently expressed story. All acknowledged that a cultural transition from mutual antagonism and suspicion to trust and cooperation must take place to ensure efficient collaboration. Healthcare leaders are aware of the need to invest in the development of specialist skills to achieve the correct level of dialogue with government.

“I predict that in 10 years, there will be more people in government affairs than in marketing.”

A number of organizations are investing heavily in clinical trials specifically designed to support an evidence-based story to present to the government. Organizations also are developing health economics expertise with the aim of gathering data that will support their negotiations with the government.

“If you are able to present the value of your products to the government in a way that they perceive the value as a value, not as a cost item, you will be in a very strong position…sitting in the driver's seat instead of waiting for things to happen.”

Patients

“Over time, I see the patient joining the medical profession as a voice at the table. When the doctor says, ‘Just take the little pink tablet, and you will be fine – believe me, I’m a doctor,’ folks are going to say, ‘Well, why the pink one instead of the white one? And I have read about the blue one…’ ”

The Internet and the media have played key roles in creating patients who are better informed about health issues, less deferential towards the medical profession, and increasingly articulate and assertive when it comes to challenging the clinical decisions made on their behalf. Respondents were clear that the healthcare industry must respond to this trend by communicating more directly with the patient as a customer. Some predicted that the European industry will follow America, where investment in consumer research and advertising is substantial and well established.

The identity of the patient as customer is further complicated, some suggest, by the increasing power of relatives. In an aging population, mental health issues become more frequent. As a consequence, the medical profession often is challenged by the relatives of those being treated.

Employees

Respondents recognized that the selection and retention of talent, aligned to current and future business needs, are critical. As the relative influence of stakeholder groups shifts and traditional healthcare business models become unsustainable, the skills required to harness resources to succeed in unfamiliar territory become more important than ever before.

Medical Profession

Discussion on the relationship of the healthcare industry with the medical profession, and particularly the influence of the medical profession on strategic thinking in the industry, attracted a wide spectrum of opinion.

Overall, respondents concurred that the medical profession’s influence is critical, both as a driver of research and development and as a direct customer. The ability of the healthcare industry to communicate with physicians on their own terms, matching scientific understanding and terminology, is, and will continue to be, central to its success.

Some respondents described how selling to the medical profession has increased in complexity during the last five years due to the fact that a multi-layered decision-making process has appeared within hospitals. Thus, a new sales model must be established.

“We have to sell at the infection control level; we have to sell at the nursing level; we have to sell at the doctors’ level; we have to sell to the hospital CEO to make everyone understand the story and the commitment we will give them. It is very different from five years ago when sales reps were selling to a nurse or to a materials management person.”

Government-driven restrictions and the power of patient lobbies, however, are seen as threats to the predominant role of the medical profession as an industry driver. In some cases, for example, brand prescriptions made by doctors have been changed to generics by hospital trusts per government instructions.

Board

Whilst identified by most respondents more relatively less influential in terms of shareholder value than other stakeholder groups, it was recognized that the role of the board has increased during the last five years. Some respondents commented that boards often are more involved with the substance of the business; their role is seen as becoming less abstract.

Investors

Overall, responses from top executives indicate that investors in general will be a relatively less influential stakeholder group in 2012. A number of respondents identified a change in the focus of investors and of their influence on the industry. Eroded margins and patent expiration issues will mean that healthcare investment will become a growth value proposition, attracting those focused on longer-term gain. Respondents indicated that a new set of communication skills will be necessary to educate investors on the rewards that the evolving industry can bring.

“We need to make investors understand that healthcare is still one of the best markets but that the speed of the returns will probably be different in the future.”

Strategic Choices: Standing still is not an option

Based on the challenges and opportunities they had described, we asked respondents to list their three most important strategic priorities for the next five to 10 years. Figure 2 depicts the range of answers we received.

Strategic priorities 5-10 years

Interdependent Priorities: Growth, Efficiency and Innovation

“By focusing on operational effectiveness, you drive the cash flow that funds growth through innovation.”

More than half of those who expressed a view cited the increase of cost efficiency, in a climate of hugely reduced margins, as a key strategic priority for the next five to 10 years. They recognize that whilst the industry, in the days of generous margins, had been less than rigorous in this respect, it no longer can afford the luxury of such an approach. Much can be done in cutting back-office expenditures and in bringing new discipline to manufacturing. Respondents drew parallels with other manufacturing industries operating with comparable operational demands but against lower margins than those formerly expected by the healthcare industry.

“Sometimes when I talk with the manufacturing boys, I say, ‘Well, go and talk with a yogurt manufacturer. He has seven days’ shelf life on multiple stock-keeping units, high bacteriological controls, and high health and cleanliness and regulatory compliance. If he can do it on low margins, then why do we need such long inventories and such long cycles?’ ”

Innovation has moved rapidly up healthcare leaders’ priority list as external pressures continue to erode margins. It is recognized that, although cost cutting is essential, innovation cannot be sacrificed if the company is to survive in an aggressively competitive market. No longer can the healthcare industry rely on the financial cushion of easy growth for survival.

“Whilst driving efficiency, you have to develop creativity. If attention is on cost-cutting and you do not develop a new medicine or get it to the market first and make the most of it, then you are lost. We need to ensure that we have innovation that will meet or exceed customers’ expectations and is better than what our competitors have. Otherwise, we are going to be in a commodity game. And that is not the space in which we like to play.”

Notwithstanding the substantial majority of respondents who are concentrating on organic growth through innovation and improved customer focus, some see acquisition and partnership as a necessary additional part of survival. However, when questioned on the causes and effects of healthcare industry consolidation, collaboration and convergence—and their advantages and disadvantages—a majority of respondents took a negative view. They see a lack of strategic focus as the cause, particularly of large mergers.

“I think the consolidation of the pharmaceutical industry has been mostly driven by weakness.”

Increased instances of consolidation are a response, it was suggested, to continuing margin erosion in the absence of easy profitability, and consolidation has emerged strongly as an alternative growth strategy.

There are dissenters, however, who see value in the leverage gained by consolidation and collaboration. They feel margin pressure can be alleviated by volume through economies of scale in research and development, manufacturing, and sales.

Others see the consolidation process as a way to gather enhanced capabilities, including increased critical mass for lobbying efforts, thus benefiting the organization.

Respondents, however, also highlighted the potential cultural conflicts that can be introduced, damaging both productivity and stakeholder relationships.

“I think big is going to get bigger, no question, and that is going to fuel more consolidation, particularly in the research and development sector.”

A clear majority of respondents, from both schools of thought, concurred that competitive and pricing pressure will ensure continuing consolidation.

“The risk is not being bold enough to make some significant choices for the organization.”

A significant number of respondents have identified a need, in the face of an increasing range of generic options, to find a way to differentiate their organizations from the competition. The primary care business model is seen by many as the most challenging in this respect, and a substantial number of respondents signaled their intention to move away from mass-market products into specialty areas.

“We are going to focus on specialty and de-emphasize primary care. Certainly from a strategic perspective, my story sells better to investors…that is why our stocks stand so well.”

Respondents were quick to point out that this is neither an easy nor a risk-free strategy. For a company that previously has focused on primary care, new specialism’s will bring new challenges, for which some may not be equipped.

Marketing and Research and Development: A Necessary Symbiosis

“The key strategy for us is all around innovation, making sure that we are spending more money today on research and development than we ever did in the past. But we need to make sure that we thoroughly identify the customer requirements up front. This necessitates doing the upstream marketing and doing it well.”

Most respondents pointed to the need for a closer relationship between marketing and research and development functions in order to generate growth in a climate of increasing price pressure. It is not enough to achieve excellence in either field; the two must operate as a symbiotic partnership. In reaching this essential symbiosis, some see an emerging conflict with the traditional research and development culture. Research and development specialists who have come from academia to conduct their research, drawn by the promise of significantly higher scope and facilities, it was argued, will find themselves increasingly constricted by cost reduction. Similarly, it is predicted that those who have developed their careers within, for example, pharmaceutical research and development will find their role subservient to the efficiency demands of marketing and production. The leadership challenge clearly is to create a culture within which marketing and research and development can form a creative partnership.

Sales: Delivering the Strategy

“Marketing tends to be more about the strategy, and sales are more about the execution. A lousy execution of a good strategy is a lousy strategy. So sales have to work.”

Healthcare leaders point out that the role of the sales force is critical if improved marketing and research and development innovation are to make an impact. Changing relationships with customers demand a re-evaluation not only of the size of the team but of the communication skills that are required. An increase in the choice available to customers means that companies in all sectors of the industry must seek to differentiate their product from the others in the market by understanding the way in which customers view and use the product. Several respondents suggested that this approach may encompass support services related to the product, such as hemophilia nurse training programmers.

“I think you have to have a sales force that is better educated, better trained and more seasoned in terms of marketplace understanding.”

The Leadership Challenge: How To Align Talent Requirements With Business Needs

A clear consensus appeared that new demands are emerging as a result of changing stakeholder influence. The skills needed to address these demands currently may not be available within an industry for which scientific and technical expertise traditionally has been the most highly valued.

Skills, Values and Experience

Having examined the changing challenges facing the healthcare industry and the strategies in place to meet those challenges, we asked respondents to consider the skills, values and experience needed to strengthen their leadership teams in order to achieve strategic objectives. There was widespread recognition that the successful implementation of these strategies is dependent on the recruitment, development and retention of the highest-quality people.

The management complexity of global companies, the need for innovation and efficiency, the importance of a symbiotic relationship between marketing and research and development, and the requirement for a proactive approach to government relations all point to the need for a new approach. Leaders must identify, develop and unite the traditional expertise of the industry with a new generation of skills in order to create a business model that can thrive in a climate that no longer bears any resemblance to that of 10 years ago.

Management style: The move to ‘coach and counsel’

There is widespread recognition among healthcare leaders that technical and scientific competence traditionally has driven recruitment in the industry. Inevitably, this has meant that talent is either drawn from within the industry or from academia. Leadership styles have followed this model; one respondent described these as militaristic.

“It is almost the old-fashioned, get the flag out of the trenches, run forward and say, ‘Follow me. ’”

Today’s global organizations require a more “coach and counsel” management style, needing a high level of emotional intelligence and team-building charisma as well as technical competence. This is rare in a highly technically oriented industry, and it is here that the recruitment challenge lies.

“Given the global nature of the healthcare sector…you need a management team that is used to dealing with matrix organizations, is able to handle complex situations, is good in teams, and still has the right emotional intelligence and good intrinsic leadership qualities.”

Specialist communication and negotiation skills

The fast-growing challenge posed by government also demands a new set of communication skills, based on the effective presentation of robust economic data. A significant proportion of respondents reported considerable investment in lobbying and advocacy skills, as well as health economics expertise.

Investors, also, were mentioned as a group with whom specialist communication is necessary in order to ensure that the messages they receive are clear, timely and persuasive.

New challenges in marketing and sales

“What makes the difference between companies…is the ability to attract and to retain excellent people because a lot of the stuff we are doing in the end will be driven by marketing, not by technicality or science as in the past.”

A number of respondents see the development of customer-led marketing expertise as a key element in survival and growth. In a climate where the nature of the customer is changing, where patients are becoming a more powerful voice and the purchasing power of the medical profession is becoming fragmented, it is essential that the healthcare profession adopt marketing strategies based on an anticipation and understanding of customers’ views and requirements.

Some of those interviewed suggested that customer-focused marketing traditionally has not been strong in some areas of the industry.

“Every person who is important in a company should have some vision as to what it is that the customer requires of the company and, as much as possible, should have direct contact with the customer.”

Speed, flexibility and decisiveness

Many of those interviewed were clear in their belief that the new generation of leaders in the healthcare industry must possess, in addition to specific skills and experience, the ability to act fast and decisively and to excel in managing change. In an aggressively competitive environment, innovation and speed to market are critical, as is the need to mould management process to meet customer need.

“I think you need people who are very decisive, people who can make decisions based on far less than complete information, people who are willing to take some risks and people who are willing to experiment.”

Attracting and Retaining Talent

Respondents described a growing challenge in healthcare recruitment, where traditionally most appointments have been made from inside or from academic institutions. The success of growth, innovation and efficiency strategies is dependent on attracting and retaining people who, in skills, experience and quality, are equipped to drive the strategies forward. A number of those interviewed described this as a key improvement area for their organization.

An increasingly results-driven culture was described that has been created by the pressure of reduced margins. Respondents indicated their intention to invest the profits of increased productivity into the development and retention of leadership talent.

“We expect more. We expect greater results. The more profit we can generate, the more money we can pump back into the business to improve our skills, to improve our training, to add resources and to add tools so that people can manage their business better, more effectively and more efficiently.”

There are indications that a more rigorous, evidence-based approach to recruitment is emerging, driven by these expectations.

Similarly, respondents are seeking to develop a more structured, human resources-driven approach to career development and talent retention, particularly in the case of graduate recruitment.

External Recruitment: The Case For Heterocyst

Cultural resistance: The ‘immune reaction’

A clear majority of respondents agreed that the healthcare industry traditionally has followed a policy of internal recruitment, fed from academia. This policy has created, or perhaps has been led by, cultural resistance—an “immune reaction”—to external recruitment based on the belief that the industry is so unique in its technical and scientific requirements that there are no skills that can be successfully transferred from other industries. This is a belief expressed by some but robustly challenged by a significant number of respondents to this survey.

“The industry has…I think a mistaken self-belief that it is something so different that you have to get somebody from the industry to do it.”

It is this cultural resistance, some argue, that makes acceptance of outsiders difficult and has impeded progress in introducing what can be seen as hybrid vigor to the industry.

Responses to questions on changing external pressures, global structures and the strategies needed to achieve growth in the next 10 to 15 years create a picture of an industry facing challenges, not only to growth but also to survival. There is clear recognition that new skills are essential if these challenges are to be met and that they cannot all be found within today’s healthcare industry.

Some respondents go further, believing that external recruitment is unavoidable and that the industry’s ability, particularly in the face of continuing consolidation, to recycle talent internally is finite. Hybrid vigor, in this scenario, is equivalent to survival.

“I think we have to open the thinking significantly to look outside of the sector because…recycling the same people…particularly within countries, is going to start to dry up. Unless we begin looking outside, we are going to hit a brick wall.”

Talent sources: Fast-moving consumer goods and general industrial manufacturing

Clearly, there remain technical and scientific specialties within the healthcare industry where careers must follow a well-defined academic route. But respondents pointed to specific requirements where recruits from other industries may be able to offer valuable and relevant experience.

In process areas, for example, respondents reported positive experiences, where initial resistance has been overcome when it becomes apparent that the skills outsiders bring can outweigh any deficiencies in specific industry experience.

“We have had Six Sigma Master Black Belts join, and that is, on the one hand, utterly shocking for many people, but, at the same time, it is so refreshing …and the ‘immune reaction’ does not happen—because we did not have the expertise, and it is so plainly evident what value these people add.”

A number of respondents are looking at manufacturing industries with short life cycles to bring in an understanding of how better to approach life cycle management in the healthcare industry. Several respondents feel that manufacturing, procurement project management and supply chain positions can be filled by those from fast-moving consumer goods (FMCG) organizations. The challenge, they point out, is to provide sufficient support to ensure rapid acquisition of the skills and knowledge unique to the healthcare industry. The risk is that this acquisition may not happen quickly enough to justify the investment in training.

External recruitment into pillar functions such as human resources and finance also is seen as not only feasible but potentially valuable.

“I would find it very difficult to justify to my shareholders…and also to myself…why I would want to pick somebody who is a finance director of another pharmaceutical company to be a finance director of mine.”

Thinking among some respondents is well developed in terms of their consideration of specific career paths that may introduce new strengths to the industry. Those, for example, who have served an apprenticeship in the FMCG sector are seen by some as an interesting proposition.

“For example, Black & Decker is…a well-managed company financially, very good in terms of customer awareness and a very successful corporation. …If you go back and look at the background of the finance people…they are encouraged in their education and their development to be entrepreneurial, to think of the different approaches. …One who has worked for a plc is likely to have negotiated with people for capital to get funds for development, and you really have to be on your toes as a communicator to be effective in that area. …I think these sorts of skills, for example, are not the ones that are normally taught within the pharmaceutical industry. So you need to look outside.”

Clearly, there are unique specialism’s within the healthcare industry that cannot be acquired in other industries, but respondents pointed out that, as long as a newcomer is supported by people with longer healthcare experience, those recruited from outside into certain functions can learn as they add value.

“In some areas such as production, we should be looking at gleaning people from environments with a lower cost structure who have better distribution expertise—we have enough expertise in terms of our own people to support those without a specific healthcare knowledge base.”

The marketing and sales debate

Among the sample of those interviewed, there remain those who feel that the complexity of the healthcare industry, especially that inherent in regulation issues, is too great to allow the successful integration of sales and marketing recruits from non-healthcare backgrounds.

More respondents expressed the view, however, that a policy of exclusively internal recruitment in marketing nurtures an inward-looking ethos, limiting the development of new skills and clear-thinking customer focus. Marketing emerged as a key area in which hybrid vigor is acutely needed for a discipline that is seen by a number of respondents as currently weak.

“For example, pharmaceutical marketing, generally speaking, is of very poor quality and could really benefit from sharply honed consumer marketing practices, particularly around understanding insight—getting insight into customers’, patients’ and professionals’ needs.”

Financial institutions were identified as a promising source of entrepreneurial marketers who could add value to the healthcare industry.

“I happen to believe that some of the best and most entrepreneurial marketers…would be from the financial community. The City of London, for example, is a place where a lot of entrepreneurial people exist—very smart, analytical, tough, good communicators. They are not bean counters.”

Several respondents also highlighted sales as an area where long-term internal recruitment has led to weakness.

“Seventy-five percent of our people in Europe are in the sales organisation. Yet when we looked at the traditional succession plans of the past, nobody was coming through from the sales side.”

This is an area, some have found, where external recruitment supported by high-quality training can bring real improvement.

“I have done it at the sales level in Canada, and pretty successfully, where we brought people in who were selling photocopiers and screws and nails and stuff. We brought them in and trained them in how to sell medical devices. …They knew how to sell, they just did not know our products. And they have turned out to be some of the best people we have.”

Conclusion

The complexities and challenges created by newly emerged stakeholders

The healthcare industry traditionally has focused on its relationship with prescribers and shareholders. In maintaining this focus, the industry often has neglected the development of relationships with other stakeholders, now emerging as its most powerful influences.

As government and patients take their place amongst the more traditional stakeholders, they bring different agendas and demands that add to the complexity of the challenges and opportunities facing healthcare businesses.

The result is that companies are wrestling with how to work effectively with these stakeholders: How can they listen to and better understand stakeholders’ agendas? How can they work with them, not despite them? In other words, can the industry learn to swim with the tide and not against it? How can businesses develop new ways of engaging, influencing and informing the thinking of these critical stakeholders?

Government today is making significant strategic decisions about which products/solutions should be developed and which should not be. Until recently, the dynamic was the reverse; the healthcare industry would introduce an innovative and effective product or solution, prescribers would prescribe it and governments would pay for it. Those days are over. Government now is an integral part of the development process and must be treated as a strategic partner, not an adversary, thus turning a challenge into an opportunity.

The industry also must engage with patients and their relatives and peers who are better informed and have higher expectations than ever before. Patient lobbies can influence government decisions; they are a potent force to be understood and embraced in the strategic process.

The strategic leadership challenge

The key challenge for leaders in the healthcare sector is to align all aspects of their business to address and embrace the evolving multi-stakeholder environment whilst sustaining and driving shareholder value—this as an evolution not a revolution, optimizing current resources and integrating new solutions. These cultural changes must take place against a background of sustained, continuous operational performance improvement.

The industry’s traditional shareholder value strategy has been led by research and development product innovation and supported by marketing, sales and product life cycle management. The emergence of a new stakeholder dynamic requires greater flexibility and vision to predict, analyze and respond to the business landscape of the future.

Multi-stakeholder management in a multi-channel world will necessitate listening to these stakeholders and proactively managing relationships with government and patients, as well as with the medical profession. Leaders must create “win-win” relationships with stakeholders that are reflected and supported throughout the whole organization.

Marketing is being featured earlier and much more prominently in the production cycle and is requiring a more strategic approach to predict and analyze stakeholder and customer requirements. It must be symbiotic with research and development, bringing new and high levels of customer focus, insight and emotional intelligence to the science. Similarly, the industry’s sales approach is starting to adopt a less transactional mindset and is looking for new channels to communicate with doctors and patients.

In the past, the industry has attracted accusations of arrogance and profiteering; these must be eradicated if reputation is to be an asset, not a liability. Companies and their trade associations, therefore, must introduce more sophisticated and proactive reputation management measures, including implementing robust corporate social responsibility practices, to rebuild trust, credibility and relevance to enhance the freedom to operate and the ability to evolve and change.

New leadership requirements

Our findings in the course of this research indicate the requirement for a number of new leadership capabilities to respond to the evolution of the industry.

The new generation of healthcare leaders must bring real strategic vision—seeing and understanding the changing market landscape—to address the implications of all this change and to seize the resultant opportunities. The senior executives should lead from the front, adopting a “coach and counsel” approach that demonstrates and inculcates the appropriate behaviors to develop a supportive and relationship-focused culture.

Other critical skills will be strategic planning, the implementation of continuous operational improvement and change management. The ability to form and develop true partnerships internally and externally, where mutual understanding is the foundation, will require consensus and compromise as well as good negotiation in order to achieve a “win-win” situation.

Technical and business skills must be complementary; the key will be to understand the continued importance of science whilst recognizing and developing the other skills needed to manage the multi-stakeholder environment. The new generation of leaders must be able to lead and integrate cultures and change behaviors continuously and quickly.

Transparency and openness in relationships and communications will be the foundation of effective business and reputation management, and these attributes will be critical to future success.

Developing and introducing these leadership capabilities

Leaders within the healthcare industry must identify synergies between its emerging requirements and current capabilities and the skills and attributes, developed in other industries, which could add value to its processes and relationships.

Health care

Training and development programmes should focus on building these competencies and skills required to respond effectively to the changing environment. An assessment of the top leadership teams always will offer insights into the skills and competency gaps in an organisation.

From an external perspective, the energy, construction and international airline sectors, for example, operate within a stringent regulatory environment and have a track record of building strategic long-term relationships with government.

Companies within the oil and gas industry have learnt, through bitter experience, to manage better the expectations of a changing stakeholder environment, and some have led the way on corporate reputation management.

Disciplines learnt in low-margin, high product turnover manufacturing and operations could bring new rigor in efficiency and cost management for the healthcare industry. Leaders from fast-moving consumer goods companies can provide insight into life-cycle management and manufacturing and supply chain efficiency, as well as customer-centric strategic marketing.

By working in partnership with the healthcare industry to understand its emerging requirements, executive search firms alongside other advisors can play a lead role in helping healthcare companies to deliver the success born of this hybrid vigour.