WE Europe 2015: Innovating in disruptive ecosystems: lessons from the life sciences industry

© 2015 IBM Corporation
Innovating in disruptive ecosystems:
Lessons from the life sciences industry
IBM Institute for Business Value
Society of Women Engineers - May 7th, 2015

© 2015 IBM CorporationIBM Institute for Business Value2
Innovation: New ideas that create value
in•no•va•tion ˌi-nə-ˈvā-shən Noun
Origin: Latin, 1548
Derives from the Latin word innovatus,
past participle of innovare, ”to make
changes; do something in a new way,”
from in- + novus—"new“1
Innovation = Invention + Execution

Innovative companies outpace the overall market in value creation
2528.9
1628.7
2335.2
2578.3
2967.5
3046.7
3544.0
1557.07
1093.62
1389.30 1580.75 1538.38
1842.24
2078.66
0
1000
2000
3000
4000
5000
6000
0
500
1000
1500
2000
2500
3000
3500
4000
2008 2009 2010 2011 2012 2013 2014
Mkt Cap of Top25 S&P 1200
Market capitalization growth
25 Most Innovative Companies vs S&P Global 1200
S&P1200(Index)
Mkt.Cap.($Bn)
Year
13.7
%
6Y CAGR
16.8
%
6Y CAGR

Despite the disruption experienced by the life sciences industry over
the last decade returns for its shareholders have been positive
0
200
400
600
2005 2007 2009 2011 2013 2015
Pharma Biotech S&P 500
Financial
Crisis
Patent Cliff
Regulatory reforms including
quality & safety
*Indexed to 100 for1-13-2005

But today there are further issues such as untamable development
cost growth, disruptive technologies, and shifting expectations
Cost to develop new products the traditional way has risen to levels that inhibit
innovation
Emergence of personalized medicine, enabled by new technologies, forces a
convergence of industry players
Increased focus on treatment outcomes pushes organizations to prove efficacy of
their products
Pricing pressure from payers and regulatory reform drives the use of
generic products and biosimilars
Demand from new geographic markets creates new opportunities and
creates new unique challenges
Sources: See speaker notes

And the life sciences industry, once notably innovative, struggles with
the speed and effectiveness of innovation today
“I think that innovation is hampered in the pharmaceutical sector
and we need to do something about it”
Executive Vice President of Pharmaceutical company
Only 25% of executives in the industry
believe their organization is effective at
generating successful innovations

IBM Institute for Business Value surveyed 750 executives globally to
look at innovation in life sciences companies
10%
15%
15%
10%15%
15%
20%
Geographic
(% of respondents)
Belgium
China
Germany
Japan
Switzerland
United Kingdom
United States
34%
21%
20%
14%
5%
4%
Industry
(% of respondents)
Pharmaceutical
Biotechnology
Academia
Medical Device
Medical Services
Diagnostic
manufacturer

New technologies are driving radical disruption, value chains are
fragmenting, industries are converging…
Traditional value chains in the life sciences industry are fragmenting…
…and new entrants from other industries are blurring the traditional definition of life sciences
Wearables
Social media
Life
Sciences
Healthcare
Information
Technology
Consumer
Electronics
Generics/
biosimilars
Personalized
Medicine

…and ecosystems emerging
An ecosystem is a complex web of interdependent enterprises and relationships
aimed to create and allocate business value.
The life sciences ecosystem will span multiple activities, geographies and
industries, including public and private institutions as well as patients.

Life sciences ecosystems will be collaborative, open and cross
traditional boundaries
The life sciences ecosystem will be characterized by…
1. Boundary transcendence - the life science ecosystem will be
able to work across traditional industry borders, expand into
new geographic locations, provide novel solutions
2. Openness - organizations will benefit from sharing information,
knowledge and data with other ecosystem participants
3. Collaboration - ecosystem participants will form partnerships
as part of ongoing relationships to discover new treatments and
combination therapies

Contract Research
Organization
Organizations will need to develop an 8-stage operating model which
provides the vision for innovation in this new ecosystem
Healthcare
Providers
Pharmaceuticals
Research
Patients
Payers
Academia
Medical Technology
Retailers
Regulators
Target
Innovation
Model
Strategy
Collaboration
&
Connectivity
Tools
&
Assets
Skills
&
Capabilities
Culture
Performance
Metrics
Organization
&
Governance
Processes

1. Today, most life sciences organizations do not have an integrated
approach to innovation across their business…
Industry recognizes a rift between research
and the prevailing strategy of the organization
22% of executives in the life sciences industry
completely agree that their research is not aligned
with the strategy of their organization
55% strongly agree that there is misalignment
between research and strategy in their organization
And of the remaining 23%, all of them agree that
there is some degree of misalignment
Moderately
Agree
Strongly
Agree
Completely
Agree

…some life sciences organizations have started to align their
strategies
Steps can be taken to ensure alignment of strategy to drive innovation
1. Appoint a head of innovation at the board level to ensure oversight of the entire innovation portfolio
and fit with the business strategy
2. Review the innovation profile of all businesses in your company and consider alternatives for those
that do not fit the innovation strategy
3. Develop an inclusive innovation strategy driven from the top which covers all business and areas
across the value chain from research through clinical & pharmaceutical development through tech
transfer and production into sales and marketing

2. Creating a supportive culture and environment is key paramount
for repeatable innovation…
70% of leaders in life sciences agree that the
culture of their organization makes it difficult to
be innovative
19%
19%
42%
37%
Trust
Tolerance of failure
Embrace radical innovation
Empowerment of individuals
Cultural elements that are crucial to innovation
are undervalued by life sciences executives
Executives agree that culture impedes innovation and neglects important attitudes

… and to be successful the support needs to reach across and
beyond the organization
Steps to build a culture that supports innovation
1. Demonstrate that innovation is not just the domain of the R&D scientists by building a culture of
innovation around the patient’s needs rather than focused around the drug
2. Build innovation into the day-to-day activities of the work-force, giving the time, space, environment
and tools to collaborate and share new ideas
3. Encourage employees to reach outside the four-walls to experience other innovative culture and
bring the best parts back into the organization (e.g. innovation clubs; secondments to other
industries)

3. Formal processes and a structured approach to innovation will
direct and develop ideas without stifling creativity…
Industry players lack the structured avenues to
guide innovations
27% of executives say that their organization does
not have any formal innovation process
Only 51% say they view innovation as an overall
portfolio instead of a series of one-off projects
39% of life sciences executives say not creating a
business case for projects is an innovation barrier
27% 73%
51% 49%
39% 61%

Steps can be taken today to create a shared innovation mandate across the organization
1. Develop creative ways of sourcing new ideas both across and from outside the company (e.g. using
social media; attending conferences outside the life sciences industry)
2. Ensure that innovation processes are transparent and consistent and take a birds-eye view of ALL
ideation projects across the organization
3. Implement processes that ensure new ideas fit with the direction of the business and evaluate the
probability of financial return
… and organizations should implement processes to provide
consistency and transparency for turning ideas into innovation projects

4. Today, there is a problem with support for innovation projects at
the highest organization level…
Executives believe that their innovation projects struggle to generate momentum
within their organizations
37% of life sciences executives say that innovation projects suffer from organizational
inertia providing resistance to innovation
Organizational inertia ranks 3rd out of 12 barriers to innovation in the life sciences
industry according to executives

…revising the innovation organization and implementing a
governance structure can have profound effects on success
Steps can be taken to create a leadership group
1. Build structure that looks within and beyond the organization for innovation ideas and opportunities
that fits with innovation portfolio
2. Analyze what skills are required for governing innovation projects - financial, creative, operational -
and how to get representation from both inside and outside the organization
3. Evaluate between organizational approaches at the start (e.g. incubator / “side” organization vs.
fully integrated innovation /ecosystem model)

5. Open collaboration across and between organizations is a critical
element of innovating…
Collaborating across organization is a barrier to
innovation
64% of executives feels that their organization
struggles to establish partnering relationships

…and companies need to prepare for a new era of partnering within
ecosystems
How do companies prepare for collaborating in an ecosystem?
1. Get to know how new players to the ecosystem work and partner (e.g. electronics companies for
medical devices) including what can they teach life sciences about their innovations methods
2. Initiate innovation advisory groups which include all ecosystem players including the end-user –
the patient
3. Ensure that goals of new innovation projects are shared, understood and agreed amongst the
collaborators before kick-off

6. Organizations struggle in connecting with the right individuals to
have access to the complementary skills/capabilities …
Life sciences is known for its brilliant scientists,
but organizations lack innovators
39% of executives feel that they have insufficient
skilled human resources or the wrong skills
portfolio for innovation1

…and finding the right skills and capabilities to drive innovation involves
connecting with people both inside and outside an organization
How do life sciences companies ensure their workforce is fit for innovative purpose?
1. Recruit and plant 'innovation seeds' from outside the life sciences industry (e.g. bring best practice
thinking from the auto industry to innovate the tech transfer process)
2. Recognize the level of support and training needed to convert ideas into results - not everyone is an
innovator but everyone can have a good idea!
3. Cross pollinate skills across the organization – for example, bring together teams of scientists from the
research labs; process engineers from manufacturing and sales reps who are interacting with the
doctor to drive innovation focused at the end user

7.Providing the necessary tools and assets to employees will help to
facilitate and support innovation efforts…
Life sciences executives have underestimated
the value of tools that help their employees
innovate
Only 40% believe that using social media as a tool
to identify and evaluate ideas is very important to
their innovation efforts today
Only 34% believe that big data and analytics is
very important to successful innovation today

… including the provision of a common innovation platform and
supporting collaboration tools
There are many different tools that can support innovation, all of which aid in different ways
 Data analysis tools help extract insights from available information
 Experimentation spaces and rapid prototyping tools speed up early stage development
 Fully integrated cloud system to enable tools
 Health and patient information exchanges
 Physical spaces for working with teams
 Scientific social networking tools connect individuals
 Virtual platforms for collaboration and knowledge sharing enable rapid and reliable transfers of
information

8. Innovation projects should be monitored as any project would,
including the use of metrics…
32%
39%
37%
51%
47%
Gaining market share by revenue
Gaining market share by volume
Quality of care for patients
Patient sentiments
Efficacy of products compared to existing
products
Across the industry, organizations use various
ways to measure success of innovations
Only 31% of executives believe that having a clear
focus on performance is crucial to the success of
innovation
Sources: [1] [2] See speaker notes
Executives miss the significance of common metrics and clear performance focus

…identifying and tracking performance of projects with metrics
should be started immediately
Steps can be taken to create a leadership group
1. Create a balanced mix of financial and qualitative metrics to evaluate innovation across various
stage-gates
2. Develop a shared set of metrics that is acceptable and achievable by all ecosystem partners
3. Demonstrate how and where value has been created across the entire life-cycle of the project
providing real-time feedback to other projects in the innovation portfolio

Organizations that transform their innovation approach stand to thrive
within the ecosystem
Contract Research
Organization
Healthcare
Providers
Pharmaceuticals
Research
Patients
Payers
Academia
Medical Technology
Retailers
Regulators
Target
Innovation
Model
Strategy
Collaboration
&
Connectivity
Tools
&
Assets
Skills
&
Capabilities
Culture
Performance
Metrics
Organization
&
Governance
Processes

As a first step, consider the following questions on how you would
plan to collaborate to innovate in an ecosystem
1. Do you have an integrated approach to
innovation across your organization today?
2. What role does your organization plan to
play in the ecosystem?
3. Have you formalized how you will operate
to innovate in a future ecosystem?
4. Do you have the skills and capabilities
within your workforce for innovating
effectively in converged ecosystem?
5. Are your innovation processes and tools fit
for purpose in the era of ecosystems?

Heather Fraser
 IBM Institute for Business Value
 Global lead - Life Sciences and Healthcare
 Tel: +44 7734325459
 e-mail: hfraser@uk.ibm.com
 IBM Institute for Business Value
For more information…
http://www-935.ibm.com/services/us/gbs/thoughtleadership/reinventingls/

WE Europe 2015: Innovating in disruptive ecosystems: lessons from the life sciences industry

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