Developing and commercializing innovative products that improve patient health is vital to the life sciences industry. However, when looking for innovative ideas, life sciences companies would be better off turning their attention to a little used source of innovative ideas—their procurement organizations.
Companies should recognize the significance of their procurement organization as an enabler of novel business strategies and innovation. They should not look at procurement as a purely transactional function, but instead, must recognize its importance.
Life sciences companies can often struggle to find new ways to move their new and existing drugs to market faster. If they could, the payoff could be significant. If companies lengthened the exclusivity period for new blockbuster drugs by just one quarter, they could realize, on average, an additional $1.4 billion in annual revenues.
Grow through Procurement Collaborations
Life sciences companies also can realize dramatic top-line growth by having their procurement staff collaborate with both suppliers and internal business partners in an expanded ecosystem focused on innovation. But they must equip procurement with advanced digital technologies and the right talent to help achieve that growth.
One key to success: strategic collaboration among the business, its suppliers and its procurement organization. Here, procurement acts as the bridge between the business and its suppliers, and is exceptionally positioned to capture and help drive revenue-generating ideas.
Life sciences players need to recognize—and encourage—procurement’s strategic potential. It’s no longer viable to think that procurement is purely transactional and narrowly focused on internal objectives, such as reducing costs and mitigating supply risk. Parts of the business cannot continue to view procurement as a necessary evil, but rather as a value-generating partner.
Companies could create more successful business strategies and innovate by taking advantage of procurement staffers’ skill sets, enhancing their talent, and enabling them to collaborate with both suppliers and internal business partners in an expanded ecosystem. And, equipping procurement decision-makers with advanced digital technologies would allow them to unlock significant new value and generate dramatic top-line growth.
Not Realizing Procurement’s Value
Procurement organizations are finding a place as integrated front/middle/back-office structures, which separate the workforce according to the type of work performed. In the front office, strategic thinkers address business partnering and category strategy development, and manage supplier relationships. A middle office sourcing engine supports them with analytics-enabled market intelligence, while back-office resources handle purchase-to-pay transactions and other operational activities.
But this structure shows that most life sciences companies aren’t realizing the full value of their procurement organization’s skill sets because nearly 55 percent of procurement resources remain focused on the transactional and operational sourcing activities performed by either middle- or back-office staff.
Restructure Procurement into Strategic Role
It’s necessary to restructure procurement organizations to give them a significantly more strategic role. Outsourcing back-office activities to third parties, or merging them with other shared services centers, can drive process standardization and efficiency. As operating models continue to evolve, Accenture anticipates that some leading companies may choose to follow the example of the financial services industry and outsource the middle office.
This strategy would leave a thin, front leadership layer of top-talent strategic thinkers—drawn from a variety of backgrounds, not just procurement. Imagine an R&D procurement leader with years of innovation expertise as the former head of a clinical research organization sitting on a life sciences company’s R&D leadership team. This R&D procurement leader would be viewed as a strategic enabler to a business supported by procurement professionals capable of delivering both expert R&D supplier market intelligence and procurement skill sets.
Offering a deep knowledge of leading business practices and supplier capabilities, these strategic thinkers will be functionally aligned with commercial, corporate, R&D and supply chain business areas. By partnering with the internal business and externally with key suppliers, they will create business strategies that foster innovation and growth.
Appreciating Procurement’s Potential
Only recently are companies coming to understand procurement’s potential as a source of revenue-generating ideas. To generate value, life sciences companies should formalize the value creation objective, as well as the business processes through which value is delivered. Adopting a new innovation infrastructure that not only harvests the best ideas from across the enterprise, but which also harnesses a much wider universe of initiatives, is a powerful mechanism.
Using this approach, businesses will actively scour the globe looking for new ideas or for the insights that could advance their own ideas. Leading consumer goods companies employ open innovation to develop new products that can significantly boost their sales. Case in point: Procter & Gamble’s (P&G’s) highly successful Olay® Regenerist anti-aging skincare was developed jointly with one of the company’s suppliers. By 2010, this and other game-changing product launches enabled by open innovation already accounted for 25 percent of P&G’s new annual sales growth, and may account for 60 percent in 2015.
By taking a similar angle, life sciences players could also drive better innovation. Category managers could discuss new product suggestions in each conversation they have with suppliers. The life sciences category strategy development process would soon be humming with ideas. A holistic innovation infrastructure could help prioritize and implement the best of them.
Total Value of Ownership
In this way, cost reduction could be a key component of a more expansive value proposition. Companies need to take not only total cost of ownership (TCO) into consideration, but also total value of ownership (TVO), which represents the additional value to be gained from strategically collaborating with key suppliers and a more open innovation process.
Digital Optimizes Decision-Making
Research shows that companies are not keen on utilizing analytics in procurement, relative to other business areas: only 40 percent, compared with 59 percent that use analytics in finance and 55 percent that deploy analytics in customer service. Yet 60 percent of companies are investing in digital collaboration platforms to stimulate ideas, facilitate idea collection, and foster new partnerships and types of collaboration.
Some insights could drive a deeper understanding of supplier risk and the strategies needed to mitigate it. Eventually, additional life sciences players could leverage digital technologies as enablers of better decision-making—and new value generation and growth.
A Digital Foundation
Four specific digital technologies will form the foundation of the procurement organization’s future digital strategy:
- Cloud computing, which will enable access to more content, and make employees more productive and engaged.
- Real-time analytics, in combination with sensors and embedded software, which will generate deeper, more valuable insights from richer, real-time data, enhancing risk management and improving decision-making.
- Social media, which will greatly strengthen the collaboration platforms that support ideation and innovation.
- Cognitive systems—digital agents integrated into the fabric of procurement—which will eventually handle not only such transactional activities as help desks, but also more strategic pursuits.
Take Action Now
Taking five practical steps could maximize the potential long-term benefits of transforming your procurement organization and moving it to the next level. Here they are:
- Align procurement’s objectives with those of other business areas, and focus resources on identifying and taking advantage of growth, innovation and cost reduction opportunities.
- Build your procurement’s organization and operating model around the skills required for this new focus.
- Implement a talent development program that embeds business partnering and expertise in strategy development in each business area.
- Establish a preferred supplier program that virtually integrates key suppliers that offer a mutually beneficial value proposition into your business.
- Define a digital procurement strategy and future roadmap to leverage supplier analytics and collaboration platforms.
Life sciences companies urgently need more strategic and collaborative procurement organizations—ones that can connect a business and its suppliers, and which drive revenue by generating novel product ideas.
Tom Papa is the managing director and global life sciences procurement leader at Accenture Strategy.
 Accenture analysis based on average revenue in the last year of patent protection for six blockbuster drugs: Plavix, Abilify, Lipitor, Nexium, Seroquel, and Crestor.
 Accenture insight.
 The next digital wave, Accenture 2012.
 4 Analytics in Action: Breakthroughs and Barriers on the Journey to ROI, Accenture Report, 2013.
 Open Innovation: What’s Behind the Buzzword, ESCP Europe & Accenture, 2011.
 Driving unconventional growth through the industrial internet
of things, Accenture 2014.
 Is yours a procurement organization of one? Accenture 2015.