The Art and Science of
Decision-Making:
Industry Perspective
Surya P. Chitra
AstraZeneca LP
Delaware, USA
International Conference on Operational Quantitative Management
04 August 2006
1

Change is Inevitable
Decision Making Needs to be Dynamic
Blend of Experience & Calculated Decisions
International Conference on Operational Quantitative Management
04 August 2006
2

Transition to New Global Economy
Operational/ Business Model
International Conference on Operational Quantitative Management
04 August 2006
3

Drivers/ Influencers for Change
Transparency
Reach - Product
Technology
- Product - Price
&
- Geographic - Value
Information
- Easily - Services
- Supply Chain - Supply
International Conference on Operational Quantitative Management
04 August 2006

Drivers & Business Model Changes
DRIVERS/ INFLUENCERS
Cost Inefficiencies Cost of Capital Competitive Products
Price Pressures Long Development Cycles Low entry Barriers
Oil/ Petrochemicals Electronics
Personal Care
Chemical/ Pharmaceuticals
Automotive Specialties
1970 1980 1990 2000 2010
BUSINESS MODEL CHANGES/ STRATEGIES
Cost Management Emerging Market Strategy Geographic Leveraging
Differentiation Model All to Segmented Targets Customer/Value Management
International Conference on Operational Quantitative Management
04 August 2006
5

In a moment of decision,
the best thing you can do
is the right thing to do.
The worst thing you can do is nothing.
Theodore Roosevelt
International Conference on Operational Quantitative Management
04 August 2006
6

The Challenge
“To survive & sustain growth in the
dynamically changing global markets,
companies and organizations need to make
flexible and actionable decisions”
WE SHOULD MANAGE RISKS TO BALANCE DECISIONS
International Conference on Operational Quantitative Management
04 August 2006
7

Growth Risks/Decisions
PRODUCERS
CUSTOMERS Balance Risks - Innovation
- Value
- Efficiency
- Speed
- Low Cost
- Long Life
INDUSTRY’S
SUSTAINED
GROWTH
INNOVATION INCREMENTAL
- Novel - Extensions
- Quality - Formulation
Weighted
- Lasting - Delivery
Decisions
REVOLUTIONARY CHANGES NEED RADICAL DECISIONS
International Conference on Operational Quantitative Management
04 August 2006

Transformation
RADICAL
TRADITIONAL
1. True Innovation
Brand Extensions
2. Risk & Uncertainty
Formulation Changes
Management
Geographic Expansion
3. Simpler Structure/
Mergers & Acquisitions
Effective Decisions
Vertical Integration
4. Value Chain Leverage
Re-engineering Costs
5. Adaptive Flexibility
Out Sourcing
International Conference on Operational Quantitative Management
04 August 2006
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INNOVATION
NOT INCREMENTAL INNOVATION
“Marginal Benefit to Patients but
Boost Short-term Corporate Profit”
PHARMACEUTICAL RADICAL INNOVATION
“Optimum Medical and Economic Value to Patients”
Individualized Medicine Disease Management
Biologics Biomarkers/ Diagnostics
RADICAL DECISIONS CAN BE MADE BY CALCULATED RISKS
International Conference on Operational Quantitative Management
04 August 2006
10

RISK: CALCULATING UNCERTAINTY
23Aug05 25Aug05
29Aug05
27Aug05
International Conference on Operational Quantitative Management
04 August 2006
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RISK: PRODUCT DEVELOPMENT
Revenue Potential
More
Early
Stage
25%
Target
55%
Fewer
85%
Early Late
Target
Product Launch
Revenue Potential
More
Late
Target
Stage
55%
Fewer
85%
Early Late
Target
Product Launch
International Conference on Operational Quantitative Management
04 August 2006
12

RISK: PHARMACEUTICAL VALUE CHAIN
PRODUCTION PRODUCT LAUNCH
R&D
Drug Clinical Formulation Marketing Distribution
Discovery & Manufacture & Sales
Development
PROGRAM RISK PRODUCT RISK
Project Risk Launch Risk
Execution Risk Competitive Risk
Regulatory Risk Regulatory Risk
Decisions Based on More Past Decisions Based on
Experience Than Risk Models Statistical Risk Models
International Conference on Operational Quantitative Management
04 August 2006
13

STRUCTURE REDESIGN
M & A Created Complex Organizations
Building Blocks for Change
•Rules •Simple
•Processes •Flexible
Decisions Structure
•Speed
Information Motivation •Adaptation
•Technology
•Knowledge Share

VALUE CHAIN RESTRUCTURE
PRODUCTION PRODUCT LAUNCH
R&D
Drug Clinical Formulation Marketing Distribution
Discovery & Manufacture & Sales
Development
24% 76% 2005 Expenditures
R&D
16%
Op. Profit
26%
Which parts of Each COGS
Function is Crucial to 16%
Company’s Value Admin
Chain? 7%
Sales
35%

ADAPTIVE FLEXIBILITY
• ADAPTATION
• External Dynamics
• Technology
• Globalization
• Uncertainty
• FLEXIBITY
• Operations
• Strategies
• Structure
• Innovation

\"Change is the law of life and those
who look only to the past or the
present are certain to miss the future.\"
- John F. Kennedy
International Conference on Operational Quantitative Management
04 August 2006
17

Need For Change
“To sustain the growth for better living
globally, we need to prepare and plan our
decisions with adaptive flexibility and
scientific rigor”
International Conference on Operational Quantitative Management
04 August 2006
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SUMMARY
• Incremental & Radical Innovation
• Balancing the Decisions
• Managing Risk & Uncertainty
• Risk Models and Forecast
• Simpler/ Effective Organizations
• Speedy & Adaptive Decisions
• Value Chain Management
• Prioritized Decisions

CONCLUSIONS
Change is Inevitable in The Industry
Decision Making Needs to be Dynamic
Blend of Experience & Calculated Decisions
It’s Not the Science,
It’s What Science Forces one to Decide
International Conference on Operational Quantitative Management
04 August 2006
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