Culture of innovation has a sales value, study says
One yardstick for measuring a biotech company's value is its product innovation. But what made Genzyme a takeover target for Sanofi, to cite one recent example, was not just the smaller firm's orphan drug portfolio or pipeline but its “culture,” a heretofore fuzzy attribute that didn't necessarily lend itself to hard measurement.
A new study by Temple's Fox School of Business, with funding and benchmarking data from TGaS Advisors, offers for the first time, according to researchers, empirical evidence of the link between culture from a commercial-operations standpoint and revenue performance.
“If you acquire one of these companies, this study would say…the culture is what makes [it] productive,” says George Chressanthis, PhD, who led the study team.
Just how important is culture in driving business performance? Chressanthis, a Fox professor of healthcare management and marketing, along with assistant professor Eric Eisenstein, PhD, and doctoral student Patrick Barbro, found that the average company that lifts its cultural innovation by a 0.5 standard deviation of improvement yields an increase in sales-per-rep of $314,000, or a 17% improvement.
Based on the same 0.5 improvement, revenue-per-rep is forecast to go up by 49%, or $900,000, for the company that's already above-average, while for the below-average company the effect works in the reverse.
Researchers identify two dimensions of culture—innovation (coming up with cool ways to beat the competition) and responsiveness (being able to execute with a sense of urgency and alignment). These qualitative measures are just as important as the quantitative ones—like spending on Sales Operations (marketing research, marketing sciences, etc.)—in realizing the full gains from an investment. However, “These two things [innovation and responsiveness] have to work in tandem…to drive performance,” said Chressanthis.
By his description, the results are “preliminary” until he and colleagues work through some of the limitations. For instance, the study didn't take into account the role of product differentiation at the company level, which could be a reason behind differences in sales-per-rep.
Their analysis—“What is the Role of Commercial Operations Effectiveness on Improving Pharmaceutical Company Business Performance?”—was presented at the Pharmaceutical Management Science Association (PMSA) 2013 annual meeting in early May. The work has been accepted for presentation at three other peer-reviewed venues: the 9th World Congress of the International Health Economics Association (July 7-10, 2013, Sydney, Australia), the 35th ISMS Marketing Science Conference (July 11-13, 2013, Istanbul, Turkey), and the American Marketing Association Summer Marketing Educator Conference 2013 (August 9-11, 2013, Boston, MA).
“This will help us understand what, if any, changes we need to make in our analysis before submission of our work to an academic peer-reviewed journal for publication consideration,” noted Chressanthis.
He added that the results have implications for biopharma companies on the hunt for acquisitions to make up for productivity challenges and revenue lost to expiring patents. Execs evaluating potential targets should check for their underlying culture of innovation in commercial operations, in order to allow a quantitative investment to realize its full return.And if they do witness a unique culture, says Chressanthis, “What you don't want to do is disturb that.”