System-Level Competition

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Strategic Differentiation

Core Concepts in System-Level CompetitionPresented at Cambridge University, October 12, 2012

a new grammar of strategy®



A Structurally Different World

BUSINESS DAY!May 1, 2012

Pfizer Races to Reinvent Itself

Drug executives are asking themselves: “What is it that wenow face, given that in the past decade --

when everything was going right -- we

didn’t build with this future in mind?” saidJeremy Levin, who oversaw a similar re-organization of Bristol-MyersSquibb and is about to takeover as chief executive at TevaPharmaceuticals.



TECHNOLOGY

BEGETS TECHNOLOGY

BEGETS TECHNOLOGY

BEGETS TECHNOLOGY

GLOBALIZATION ERASES BOUNDARIES

Future of

Complexity and

Information Glut

Old Era

New Era

?

The Breakdown of Industrial Age Ideas



- Strategy and Management at a System Level-Singer, John. "What Strategy is Not." MIT Sloan Management Review . 49.2 (2008): 96.

-Singer, John. "Strategically Thinking About the Subject of Strategy." Business Strategy

Series. 9.4 (2008): 211-212.

-Singer, John. "Framing Brand Management for Marketing Ecosystems." Journal of

Business Strategy . 27.5 (2006): 50-57.

- Ecosystem-Centered Business Models-Singer, John. "Systems Marketing for the Information Age." MIT Sloan Management

Review . 48.1 (2006): 96-97.

-Singer, John. "Systems Marketing: A New Operating Model for Pharmaceutical

Marketing." Journal of Consumer Behaviour . 4.6 (2005): 480-495.

-Parise, Salvatore, Patricia Guinan, and Bruce Weinberg. "The Secrets of Marketing in a

Web 2.0 World." Wall Street Journal 15 Dec. 2008: B2.-Singer, J.G. (2009). Ecosystem-centered business strategy. Proceedings of the 3rd IEEE

International Conference on Digital Ecosystems and Technologies (pp. 686-691). Istanbul:

IEEE. 0.1109/DEST.2009.5276680

www.bluespoonconsulting.com

Framework Research Over Seven Years



- More Than 15 Years ‘In the Trenches’ of Big Pharma Marketing

- Interpublic Group/Omnicom Group Marketing Agencies- Policy, Advertising, Public Relations, Medical Education- Phase II, Phase III, Clinical Studies, Pharmacoeconomic Studies, Launches- Managed Positioning for Regulatory Approval of Lipitor (Pfizer)- Launched First of New Class of Drugs for Obesity (Xenical/Roche)

- Senior Principal at IMS Health

- A Strategic Innovation Consultancy

- Unique Approach Based on a “Whole” of Systems Ideas- General Behavior of Systems Independent of Content- Strategy is a Creative Act, Not an Analytical One

- Innovation is Concept-Driven

www.bluespoonconsulting.com

About Blue Spoon Consulting



The Center of Gravity for Competition

vs.

“Right Doctor, Right Message, Right Time”



1Gagnon M-A, Lexchin J (2008) The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States. PLoS Med 5(1):e1. doi:10.1371/journal.pmed.0050001

2IMS Health: “The Use of Medicines in the United States: Review of 2011” (2009: -1.2%; 2010: - 7.2%; 2011: -5.6%)

Despite Spending Somewhere Between $30-60 Billion Annually on Promotion,Pharmaceutical Market Growth is at Historical Lows

and Generics Made Up 80 Percent of All Prescriptions Filled in 2011.1,2

Change in number of prescriptions dispensed

YEAR-OVER-YEAR PERCENTAGE CHANGE+10%

+ 8%

+ 6%

+ 4%

+ 2%

0

-- 2%

QUARTERLY MONTHLY

!96 !98 !00 !02 !04 !06 !08

August

- 0.7%

Source: IMS National Prescription Audit The New York Times

“Everything Going Right” In the Past Decade



Sources: Forbes , “A snapshot of the cholesterol market”,6.01.2011; and MedAdNews

In 2009, Lipitor was the mostadvertised pharma brandto consumers, spending$244.2 million on DTC.

In 2006, the Lipitor brand teamspent $138.2 million onadvertising directly toconsumers.

In 2010, Lipitor was spending$275 million annually on DTC.

Lipitor and Strategic Collapse at Pfizer3

3Singer, J. (2012, January 05). Lipitor andstrategic collapse at Pfizer. The PharmaLetter ,

Retrieved fromhttp://www.thepharmaletter.com/file/110021/lipitor

-and-strategic-collapse-at-pfizer.html



A Massive System of Systems Pegged to this Organizational Context

Financial Services Industry Drug Development Industry Marketing Services Industry

Regulatory Bodies Health Services Industry

Kinetically Trapped in a System of Thought

thought

actionexperience



The Button Marked “Publish”

The strategic effect of 4 billion

amateurs as producers.



Assumption 5: I Can Control My Message

Proactive, Automated

EHR Studies:

- FDA"s Sentinel Initiative linking

and analyzing safety data from 126million patient records.

- Medco PBM connects 60,000

pharmacies and 65 million patientrecords.

- GE Healthcare !Centricity MedicalRecord" links and analyzes safetydata from 30 million patient records.

J&J’s Risperdal Consta No Better Than Cheaper Drugs, Study Says -- March 2, 2011

“Today’s findings undercut what has been the injection’s main selling point…”(in other words, the technical performance of drugs is not a sustainable competitive advantage)

Comparative Effectiveness

Research:A Patient-Centered Outcomes ResearchInstitute has been created by the Health

Reform Bill. Will establish an agenda for

CER that will include clinical trials andsystematic review of studies.

Publication

of Meta-Analyses:Real, potential, or imagined safetyrisks generates news flow through

entire media ecosystems.



MFR/Suppliers

17 AmbulatorySurgery Centers

1 Pharmacy

8 Group PracticeSites

9 BehavioralHealth Centers

8 CardiacCenters

Distributor –McKesson Corp.

18 ResidentialHome Health

4 IndependentPractice

Associations

3 ExpressCare Clinics

25 Acute CareHospitals

11 Neonatal ICUs

4 Trauma Centers

5 Rehab Hospitals

5 ResearchInstitutes

Power Shift: Integrated Delivery Networks and

system-wide formularies (a system of systems)

Peripheral Components with Complementary Value Propositions (shared marketspace):- Decision-support and treatment plans (e.g., McKesson)

- Solutions that unify therapeutic interventions (e.g., Cerner Cardiovascular)- Patient flow modeling (e.g., Sage Software)

- Treatment algorithms and new standards of care (e.g., NextGen)

10 CancerCenters

5 Long TermCare sites

- Accounts for 25% of admissions in Bay Area

- Went live with EHR in 2008

- Kaiser sets market standards

- “If we don’t emulate [Kaiser’s strategy]

quickly, we’ll lose market share”

702 Integrated Delivery Networks dominate US

healthcare and are the pharmaceutical market share

movers. They account for greater than 80 percent of the

U.S. hospital pharmaceutical business regardless of therapeutic categories [Source: IMS Health].



“Instead of taking the particle as the fundamental reality,

start with the field.”

-- David Bohm

Science, Order, and Creativity

(1987)

Strategy and Management at a System Level



“Organization” Looking Out onto the World

The SWOT Analysis

Originated in corporate

America in the 1950s



Creating New Wholes: Strategy That Raises

Cohesion from a Mob of Direction-Less Parts



Provider

Partner

Partner

Partner

Market Market

Market

Platform

Solution Shared

Marketspace

“Ecosystem”

Solution

“Isolation”

Product Market

Conventional View of Market Strategy System-Level View

Ecosystems as New Units of Selection



Changing the Nature of Competition

Piece

VS.

New System of Health

AstraZeneca Expands Study of Brilinta Against PlavixBy Allison Connolly - Jul 17, 2012 3:44 AM ET



Customer, Competitor or Collaborator?



New Concepts of Operation

Pieces and Parts

VS.

Marketing Ecosystem



Novel Linkages Create New Value Propositions

How Could This Linkage Make Sense?



Merck

Coca-Cola

Shell Oil

Microsoft Corp.

Design Management Team:Shared Vision, Planning,

and Implementation Strategy

Ecosystem Management& Marketspace Awareness

CollaborativeCommerce Network

< 25 users

Joint Data Network< 500 users

Information & Sensor Network

> 1000 users

Information

Timeliness:MonthsWeeksDays

(E.g., Orkin, MMV, World Bank, Clinton Foundation, McKesson, GE Healthcare, Health Ministries)

Keystone Players

Niche Players

Ecosystem Design& Coordination

perpetual innovation aligned within

ecosystem boundaries

World Economic Forum

International Council for Science

A Closed Circuit of Self-Making and Self-Control

Capable of Generating

Open-Ended Growth

Steady Exchange of Information

A New Economic System (Malaria):

Raising Cohesion from a Mob of Directionless Parts

Institutional Components That Set System-Level Rules of Play: Government, Public Health, Science Mediators



System-Level Performance Measures

- Health outcomes (population level)- Resource utilization (direct and indirect)

- Economic performance (state and country)

- Market dynamics (ecosystem components)

- Emergence (innovation and ideas)

A Globally Superior StandardEconomic Rewards Go to Those Able to Play

the System as a Unified Whole



- Cultivate Increasing Returns. The future of system design is indevising reliable processes to birthself-organizing structures. Keep addingplayers -- the more they areconnected, the more valuable thesystem becomes.-Don!t Aim for Optimization.Aim for good enough. Social systems

are in a constant state of flux andreinvention.-Charles Darwin and Adam Smithare Related. Natural selection andthe wealth of nations are both guidedby an invisible hand.

There is No Central “I” toAppeal to: No Beginning,No Center, No End…

The Logic of the Internet: A New Way of Steering

Documents

System-Level Competition