WE Europe 2015: Innovating in disruptive ecosystems: lessons from the life sciences industry

© 2015 IBM Corporation

Innovating in disruptive ecosystems:

Lessons from the life sciences industry

IBM Institute for Business Value

Society of Women Engineers - May 7th, 2015

© 2015 IBM CorporationIBM Institute for Business Value2

Innovation: New ideas that create value

in•no•va•tion \ˌi-nə-ˈvā-shən\ Noun

Origin: Latin, 1548

Derives from the Latin word innovatus,

past participle of innovare, ”to make

changes; do something in a new way,”

from in- + novus—"new“1

Innovation = Invention + Execution


Innovative companies outpace the overall market in value creation

2528.9

1628.7

2335.2

2578.3

2967.5

3046.7

3544.0

1557.07

1093.62

1389.30 1580.75 1538.381842.24

2078.66

0

1000

2000

3000

4000

5000

6000

0

500

1000

1500

2000

2500

3000

3500

4000

2008 2009 2010 2011 2012 2013 2014

Mkt Cap of Top25 S&P 1200

Market capitalization growth25 Most Innovative Companies vs S&P Global 1200

S&

P 1

200 (

Ind

ex)

Mkt.

Cap

. ($

Bn

)

Year

13.7%

6Y CAGR

16.8%

6Y CAGR


Despite the disruption experienced by the life sciences industry over the last decade returns for its shareholders have been positive

0

200

400

600

2005 2007 2009 2011 2013 2015

Pharma Biotech S&P 500

Financial Crisis

Patent Cliff

Regulatory reforms including quality & safety

*Indexed to 100 for1-13-2005


But today there are further issues such as untamable development cost growth, disruptive technologies, and shifting expectations

Cost to develop new products the traditional way has risen to levels that inhibit

innovation

Emergence of personalized medicine, enabled by new technologies, forces a

convergence of industry players

Increased focus on treatment outcomes pushes organizations to prove efficacy of

their products

Pricing pressure from payers and regulatory reform drives the use of

generic products and biosimilars

Demand from new geographic markets creates new opportunities and

creates new unique challenges

Sources: See speaker notes


And the life sciences industry, once notably innovative, struggles with the speed and effectiveness of innovation today

“I think that innovation is hampered in the pharmaceutical sector

and we need to do something about it”

Executive Vice President of Pharmaceutical company

Only 25% of executives in the industry

believe their organization is effective at

generating successful innovations


IBM Institute for Business Value surveyed 750 executives globally to look at innovation in life sciences companies

10%

15%

15%

10%15%

15%

20%

Geographic(% of respondents)

Belgium

China

Germany

Japan

Switzerland

United Kingdom

United States

34%

21%

20%

14%

5%

4%

Industry(% of respondents)

Pharmaceutical

Biotechnology

Academia

Medical Device

Medical Services

Diagnosticmanufacturer


New technologies are driving radical disruption, value chains are fragmenting, industries are converging…

Traditional value chains in the life sciences industry are fragmenting…

…and new entrants from other industries are blurring the traditional definition of life sciences

Wearables

Social media

Life Sciences

Healthcare

Information Technology

Consumer Electronics

Generics/

biosimilars

Personalized

Medicine


…and ecosystems emerging

An ecosystem is a complex web of interdependent enterprises and relationships

aimed to create and allocate business value.

The life sciences ecosystem will span multiple activities, geographies and

industries, including public and private institutions as well as patients.


Life sciences ecosystems will be collaborative, open and cross traditional boundaries

The life sciences ecosystem will be characterized by…

1. Boundary transcendence - the life science ecosystem will be

able to work across traditional industry borders, expand into

new geographic locations, provide novel solutions

2. Openness - organizations will benefit from sharing information,

knowledge and data with other ecosystem participants

3. Collaboration - ecosystem participants will form partnerships

as part of ongoing relationships to discover new treatments and

combination therapies


Contract Research

Organization

Organizations will need to develop an 8-stage operating model which provides the vision for innovation in this new ecosystem

Healthcare

Providers

Pharmaceuticals

Research

Patients

Payers

Academia

Medical TechnologyRetailers

Regulators

Target

Innovation

Model

Strategy

Collaboration

&

Connectivity

Tools

&

Assets

Skills

&

Capabilities

CulturePerformance

Metrics

Organization

&

Governance

Processes


1. Today, most life sciences organizations do not have an integrated approach to innovation across their business…

Industry recognizes a rift between research

and the prevailing strategy of the organization

22% of executives in the life sciences industry

completely agree that their research is not aligned

with the strategy of their organization

55% strongly agree that there is misalignment

between research and strategy in their organization

And of the remaining 23%, all of them agree that

there is some degree of misalignment

Moderately

Agree

Strongly

Agree

Completely

Agree


…some life sciences organizations have started to align their strategies

Steps can be taken to ensure alignment of strategy to drive innovation

1. Appoint a head of innovation at the board level to ensure oversight of the entire innovation portfolio

and fit with the business strategy

2. Review the innovation profile of all businesses in your company and consider alternatives for those

that do not fit the innovation strategy

3. Develop an inclusive innovation strategy driven from the top which covers all business and areas

across the value chain from research through clinical & pharmaceutical development through tech

transfer and production into sales and marketing


2. Creating a supportive culture and environment is key paramount for repeatable innovation…

70% of leaders in life sciences agree that the

culture of their organization makes it difficult to

be innovative

19%

19%

42%

37%

Trust

Tolerance of failure

Embrace radical innovation

Empowerment of individuals

Cultural elements that are crucial to innovation

are undervalued by life sciences executives

Executives agree that culture impedes innovation and neglects important attitudes


… and to be successful the support needs to reach across and beyond the organization

Steps to build a culture that supports innovation

1. Demonstrate that innovation is not just the domain of the R&D scientists by building a culture of

innovation around the patient’s needs rather than focused around the drug

2. Build innovation into the day-to-day activities of the work-force, giving the time, space, environment

and tools to collaborate and share new ideas

3. Encourage employees to reach outside the four-walls to experience other innovative culture and

bring the best parts back into the organization (e.g. innovation clubs; secondments to other

industries)


3. Formal processes and a structured approach to innovation will direct and develop ideas without stifling creativity…

Industry players lack the structured avenues to

guide innovations

27% of executives say that their organization does

not have any formal innovation process

Only 51% say they view innovation as an overall

portfolio instead of a series of one-off projects

39% of life sciences executives say not creating a

business case for projects is an innovation barrier

27% 73%

51% 49%

39% 61%


Steps can be taken today to create a shared innovation mandate across the organization

1. Develop creative ways of sourcing new ideas both across and from outside the company (e.g. using

social media; attending conferences outside the life sciences industry)

2. Ensure that innovation processes are transparent and consistent and take a birds-eye view of ALL

ideation projects across the organization

3. Implement processes that ensure new ideas fit with the direction of the business and evaluate the

probability of financial return

… and organizations should implement processes to provide consistency and transparency for turning ideas into innovation projects


4. Today, there is a problem with support for innovation projects at the highest organization level…

Executives believe that their innovation projects struggle to generate momentum

within their organizations

37% of life sciences executives say that innovation projects suffer from organizational

inertia providing resistance to innovation

Organizational inertia ranks 3rd out of 12 barriers to innovation in the life sciences

industry according to executives


…revising the innovation organization and implementing a governance structure can have profound effects on success

Steps can be taken to create a leadership group

1. Build structure that looks within and beyond the organization for innovation ideas and opportunities

that fits with innovation portfolio

2. Analyze what skills are required for governing innovation projects - financial, creative, operational -

and how to get representation from both inside and outside the organization

3. Evaluate between organizational approaches at the start (e.g. incubator / “side” organization vs.

fully integrated innovation /ecosystem model)


5. Open collaboration across and between organizations is a critical element of innovating…

Collaborating across organization is a barrier to

innovation

64% of executives feels that their organization

struggles to establish partnering relationships


…and companies need to prepare for a new era of partnering within ecosystems

How do companies prepare for collaborating in an ecosystem?

1. Get to know how new players to the ecosystem work and partner (e.g. electronics companies for

medical devices) including what can they teach life sciences about their innovations methods

2. Initiate innovation advisory groups which include all ecosystem players including the end-user –

the patient

3. Ensure that goals of new innovation projects are shared, understood and agreed amongst the

collaborators before kick-off


6. Organizations struggle in connecting with the right individuals to have access to the complementary skills/capabilities …

Life sciences is known for its brilliant scientists,

but organizations lack innovators

39% of executives feel that they have insufficient

skilled human resources or the wrong skills

portfolio for innovation1


…and finding the right skills and capabilities to drive innovation involves connecting with people both inside and outside an organization

How do life sciences companies ensure their workforce is fit for innovative purpose?

1. Recruit and plant 'innovation seeds' from outside the life sciences industry (e.g. bring best practice

thinking from the auto industry to innovate the tech transfer process)

2. Recognize the level of support and training needed to convert ideas into results - not everyone is an

innovator but everyone can have a good idea!

3. Cross pollinate skills across the organization – for example, bring together teams of scientists from the

research labs; process engineers from manufacturing and sales reps who are interacting with the

doctor to drive innovation focused at the end user


7.Providing the necessary tools and assets to employees will help to facilitate and support innovation efforts…

Life sciences executives have underestimated

the value of tools that help their employees

innovate

Only 40% believe that using social media as a tool

to identify and evaluate ideas is very important to

their innovation efforts today

Only 34% believe that big data and analytics is

very important to successful innovation today


… including the provision of a common innovation platform and supporting collaboration tools

There are many different tools that can support innovation, all of which aid in different ways

Data analysis tools help extract insights from available information

Experimentation spaces and rapid prototyping tools speed up early stage development

Fully integrated cloud system to enable tools

Health and patient information exchanges

Physical spaces for working with teams

Scientific social networking tools connect individuals

Virtual platforms for collaboration and knowledge sharing enable rapid and reliable transfers of

information


8. Innovation projects should be monitored as any project would, including the use of metrics…

32%

39%

37%

51%

47%

Gaining market share by revenue

Gaining market share by volume

Quality of care for patients

Patient sentiments

Efficacy of products compared to existingproducts

Across the industry, organizations use various

ways to measure success of innovationsOnly 31% of executives believe that having a clear

focus on performance is crucial to the success of

innovation

Sources: [1] [2] See speaker notes

Executives miss the significance of common metrics and clear performance focus


…identifying and tracking performance of projects with metrics should be started immediately

Steps can be taken to create a leadership group

1. Create a balanced mix of financial and qualitative metrics to evaluate innovation across various

stage-gates

2. Develop a shared set of metrics that is acceptable and achievable by all ecosystem partners

3. Demonstrate how and where value has been created across the entire life-cycle of the project

providing real-time feedback to other projects in the innovation portfolio


Organizations that transform their innovation approach stand to thrive within the ecosystem

Contract Research

Organization

Healthcare

Providers

Pharmaceuticals

Research

Patients

Payers

Academia

Medical TechnologyRetailers

Regulators

Target

Innovation

Model

Strategy

Collaboration

&

Connectivity

Tools

&

Assets

Skills

&

Capabilities

CulturePerformance

Metrics

Organization

&

Governance

Processes


As a first step, consider the following questions on how you would plan to collaborate to innovate in an ecosystem

1. Do you have an integrated approach to

innovation across your organization today?

2. What role does your organization plan to

play in the ecosystem?

3. Have you formalized how you will operate

to innovate in a future ecosystem?

4. Do you have the skills and capabilities

within your workforce for innovating

effectively in converged ecosystem?

5. Are your innovation processes and tools fit

for purpose in the era of ecosystems?


Heather Fraser


Global lead - Life Sciences and Healthcare

Tel: +44 7734325459

e-mail: [email protected]


For more information…

http://www-935.ibm.com/services/us/gbs/thoughtleadership/reinventingls/

mailto:[email protected]

http://www-935.ibm.com/services/us/gbs/thoughtleadership/

https://twitter.com/HeatherEFraser

https://twitter.com/HeatherEFraser

https://uk.linkedin.com/pub/heather-fraser/1/38a/168/

https://uk.linkedin.com/pub/heather-fraser/1/38a/168/

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WE Europe 2015: Innovating in disruptive ecosystems: lessons from the life sciences industry

Engineering