Archives for February 2019

2019 is now really starting in China, with the beginning of the Year of the Pig. Everybody in the China pharma market is focusing on how the new central purchasing pilot will be deployed in the coming months.

At first glance it looks familiar, with convergence with known international practices: strengthening of bidding rules, phasing out of off-patent products, shortening of supply chain etc. Some see the changes as an “extension” of the older bidding system which is aggregating a number of regions (the name of the campaign is misleading: “7 provinces plus 4 cities”). The key is not here. In fact, deep price cuts are expected for a committed volume of products. It is a change of paradigm.

Reshaping Admin

In a typical way, the Authorities have started by reshaping the administrative structure in 2018 with a new leadership and reaching higher in the political hierarchy. Decision-making goes up to the Prime Minister.

At operational level, a new organization is also in place in order to integrate the whole “drug policy”. The new administration integrates medical insurance and pricing under one roof and is managed by a former vice minister of Finance. Even more important, they have decided a new approach (silu): “combination of market and plan”. The products delivered at hospital and reimbursed are considered now as under the direct management of the State and its plan. They have started with oncology which has imported products and the most expensive.

Volume Commitments

There will be commitment of volume purchased by the hospitals. It is the first time that this would be done at the level of province and above. The question will be the quality of the forecast and its consequences.

What will happen when numbers are not met? How to ensure supply if forecast is too low? How to compensate companies if price has been slashed but volume is not reached? How will the Authorities ensure that hospitals strictly implement the policy? There is currently a lot of contradictory news, such as whether the hospitals would keep the right to have a second round of negotiation procurement when they are grouped together.

More than a tendering system

The vision behind this scheme is far more than a new tendering system. It is in fact an integrated way to manage the use and supply of drugs in hospitals. The State is increasing control within the hospitals.

The new system is not limited to purchasing, but also includes prescription and operations in general. Directors of hospitals are no longer the highest authority in the hospitals and final decision-making is done by the Party Secretary.  Often, he or she is a former Director and knows his business, but the nature of the decision making within hospitals is changing and reverting to the past.

The behavior of doctors is also more controlled with guidelines that dictate the prescription of purchased products for at least 70% of their activity. The implementation will be strongly facilitated by the remarkable IT infrastructure developed in China in recent years.

Bottom line. We can foresee three major consequences if the current policies are fully implemented.

1. Impact on Patient Choice

First and most important, patient choice is at stake. Recently, the Authorities have very rightfully standardized procedures, bringing much needed rationalization. This work is not yet finished. But at same time the clinical reality should prevail, and Patients and Doctors need alternative therapeutic solutions. They should be given the choice to adapt their clinical strategy.

2. New Business Models

All companies will need to adjust their business model and P&L to a lower margin. Will international manufacturers still be able to promote innovation in big way? Will local manufacturers be able to raise quality if they have no incentive to do so? The slow-down of the Generic Quality Consistency Evaluation program has disappointed numerous local companies. Distributors too will have to make choices and focus on short-string supply or promote on behalf of the manufacturer.

Maybe most worrying, local start-ups are seeing their business plan and assumptions collapsing. Recent IPOs are almost all trading below their introductory price, in part because there was a bubble but also because investors now understand that pricing assumptions for new products are being slashed. Innovation – both local and international — requires reward.

One consequence of the impact on business models will be a reduction in the number of Medical Representatives employed for primary care products. This will limit the valuable education work that takes place on how to use primary care drugs to maximize healthcare outcomes and improve Chinese Patient Health.

Medical Representatives are major actors in organizing medical education events to share best practices among the healthcare community, creating educational bridges between tier 2/1 hospitals and tier 3 or even county hospital. Reducing their presence might go against one of the goals of the government to improve healthcare across all the hospitals.

3. Access to Talent

Finally, from the talent angle, we see that Market Access has now become the core requirement critical to navigating the policies at both the national level but also at the hospital level to follow detailed deployment. Demand is huge for talent in quality (address the challenges of the new policies and more sophisticated requirements) and at same time in quantity as access is needed at each province/city/hospital level. It is another hot recruitment and development area!

I define Leadership Capacity as the ability to lead more effectively and more efficiently at higher levels of organizational complexity.

That definition assumes that a team member already is leading effectively and efficiently at their current level. The ongoing research in leadership development documents that a leader can continue to enrich, enhance, and expand leadership capacity.

Delegation is one critical pathway to maximize capacity

Delegation is a learned competency answering the who, what, when, and how interrogatives. Leaders have three options: (1) Not delegating, (2) Delegating prematurely, or (3) Delegating developmentally

There are three myths surrounding the first option.  Leaders do not delegate because they tell themselves:

“I need control.”

“I can do it faster.”

“It takes too long to train someone else.”

 

In reality, none are valid.  Leaders who maintain full control of the details in operational work processes make three long-term mistakes:

1. They become the bottleneck to productivity.

Leaders who assume they can do it faster (or better) miss the perspective of the “Future Productivity Potential” (FPP) from other team members who learn the skills needed for new assignments. The result is more people who can produce more work.

2. They hinder the development of emerging leaders.

Not delegating leads to confusion and frustration when team members are given full responsibility but not full authority. The application of new learning in stretch assignments is what contributes to new competencies and greater capacity. Organizations that value development and delegation are solving the attraction, retention, and engagement issues faced by others.

3. They keep themselves busy in operations.

They shy away from the lonely journey to the 30,000-foot perspective needed for strategic leadership.   When they do, no-one else has the assignment

 

The Delegation Matrix

Delegation is not only learned but it is a process of moving a team member from low responsibility and low authority to high responsibility and high authority.

Leadership Debrief

What operational tasks are you hanging onto that someone else could do? Why?

What operational tasks keep you from the strategic leadership needed for greater effectiveness and efficiency at higher levels of organizational complexity?

Identify one task you could delegate and identify the team member you will invest in to the point of full responsibility and full authority. How about now?

 

There is a statistic that sees a lot of use in the executive search business: “40% of executives hired outside fail in the first 18 months.” The number varies. I’ve seen it as high as 64%. Whatever it ends up at, the message is that installing a new leader – we’re talking C-level here – is a very fraught business.

Replacing a leader is a costly process. Not getting it right – watching all that time and money walk out of the door prematurely – is brutally expensive. Estimates vary between multiples of thousands and millions. When CEO John Walter left AT&T after less than a year, he took with him $25M. It took $100M and a shareholder lawsuit for Disney to get rid of Michael Ovitz after 454 days.

Most of the time, this “fail ratio” is cited in defense of “onboarding”, the practice of assigning a coaching program to help the newcomer adapt and begin contributing to the bottom line as quickly as possible.

Makes sense. Most of the members of Cornerstone International Group around the world offer onboarding with a high-level executive search program.

Discounting the token onboarding – “here’s your computer and the coffee’s down the hall” – job-specific coaching is shown to slash the risk of failure. Our colleagues at PrimeGenesis, an onboarding specialist firm, claim reductions from 40% failure at 18 months to 5% or less. So, as an insurance policy, it’s a good buy.

Do it right, not over

But there is another way. As a wise old carpenter once told me, do it right, not over. In other words, take extra care and effort to get the right person to start with. And this is where the headhunting business sharply divides between the drive-by “contingent searchers” and the “retained executive search” community.

If you are unsure of the difference, download our e-book “Retained or Contingency?” Reader’s Digest version: Contingency works for lower-level hires; Retained is essential for executive hires.

This an effect of process. The contingency searcher seeks out anyone who is qualified. The retained searcher only wants the one person who is the best qualified. The time spent by each on your behalf is proportionately different.

Pareto’s rule reversed

Larry Shoemaker, the President of Cornerstone International Group, made the key point in a previous comment on the Pareto Principle, or the 80/20 rule.

The old recruiting model, he wrote, depended 80% on finding the right candidates, and 20% on everything else.

Today, it takes only 20% of the time to find well qualified people. It takes the other 80% to determine which one will be successful in the future in the specific organization relative to its culture, strategy and purpose.

Qualifying an incoming leader is an intricate process unique to the hiring organization. Education, skill sets and experience are reduced to table stakes. Cultural fit has been shown to be biggest single factor in determining the contribution of a new executive

In the next post, we’ll look at ways of making this critical assessment.