Magazine
Core Workout
Can the Center Hold?
by Gil Y. Roth
In this issue's Preclinical Outsourcing column (starting on page 32), Steve Snyder mentions several rumors he heard at the Society of Toxicology meeting: Pfizer's layoffs and closings in Kalamazoo and Ann Arbor, MI may be "the first step in Pfizer's move toward becoming a virtual large Pharma company," and "[A CRO has] approached Pfizer about managing their preclinical facilities, thereby creating an on-site outsourcing experience for Pfizer."
It put me in mind of something I read in the Harvard Business Review a week earlier. (Hey, I've gotta read something in between issues of All Star Superman, okay?) It was an article entitled, "Finding Your Next Core Business," by Chris Zook, who leads the Global Strategy Practice at Bain & Co. The article, adapted from Mr. Zook's upcoming book, surveys a number of companies' reactions to threats or declines in their core businesses.
Now, I have some reservations about a lot of business articles. For the most part, I find they tend to be vague, or they relate to very specific circumstances that don't apply outside of a particular company and its market. Also, their advice can tend to run along the lines of "make an honest assessment of your business and its market," as though most executives wake up in the morning and say, "Time to get out there and delude myself about the state of my business!"
Fortunately, this article gave a little more substantial advice. In some respects, it still boils down to The Obvious — assess your market, assess your position in it, find hidden assets that can help you build a new core — but there are enough examples of core-decline and right ways (Apple, PerkinElmer) and wrong ways (Bausch & Lomb, Polaroid) to approach it that make the article a worthwhile read.
I'm a catastrophist, so Mr. Zook's article shook me most in its early section that discusses the elements of an "exhausted" business. He contends there are three reasons for one's core business to peter out:
- profit pools — the market you serve is shrinking,
- inherently inferior economics — a new competitor doesn't have the legacy costs you do, and eats your lunch, and
- a growth formula that cannot be sustained — you've run out of space, and/or market penetration can't be increased, and/or your differentiator is no longer unique.
It's pretty clear that all of these factors have come into play when looking at the big players in the drug industry.
This brings me back to Mr. Snyder's comments. Since we started this magazine in 1999, it's been focused on the conversation about what constitutes a core competency for a pharma or biopharma company, and how businesses can learn to outsource strategically, rather than on a tactical basis. (This year's Outsourcing Survey, which begins on page 50, shows we still have a ways to go to get to that point).
In meta-terms, Messers Snyder and Zook got me thinking about this concept of Core. After all, one's core competency may lie in a field that doesn't actually make much money, which renders it worthless. So that meta-question is, what is the core business for a major pharma company?
This spawns a whole bunch of side questions, like
- Does that core vary among large pharmas, depending on their product mix, the strengths of their therapeutic classes, or the geographic regions in which they operate?
- Is the overall business in decline, or are some companies simply having problems with execution?
- What hidden assets can major drug companies exploit to rejuvenate its business?
This isn't a new question (okay, series of questions). As we know, some drug companies branched into "life sciences" in years past, only to sell off their ag businesses when one of the previous gene-revolutions didn't pan out. Some now bulk up their generics arms, or invest in devices and diagnostics, or buy consumer products businesses. Pfizer sold off its consumer group a little while ago, and Novartis followed suit with its baby food unit. Whose strategy will pay off?
Mr. Zook tells us, "The right way forward will lie in assets that are hidden from view — in neglected businesses, unused customer insights, and latent capabilities that, once harnessed, can propel new growth."
Which gets back to what I hate about business articles.
