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Preparing for the Future
November 15, 2011
Susan M. Snyder, Hay GroupMarc Wallace, Hay Group
2© 2011 Hay Group. All rights reserved
Agenda
1
2
About Hay Group
Increasing R&D effectiveness
Sales force compensation3
About Hay Group
01
4© 2011 Hay Group. All rights reserved
Our areas of expertise
We help organizations work.
Reward Services Leadership and Talent
Building Effective
Organizations
Hay Group Insight
5© 2011 Hay Group. All rights reserved
Our global presence and capability
86Offices in 47 countries
2200Employees worldwide
7000International clients
$450 millionSales
6© 2011 Hay Group. All rights reserved
Representative life sciences clients
7© 2011 Hay Group. All rights reserved
Powerful HR tools to help your people flourish
Putting 60 years of Hay Group expertise at your fingertips
Powerful and intuitive tools
available onlineor electronically
Competitively priced
Created specificallyfor HR professionalsand line managers
Support recurring processes
across theemployee lifecycle
8© 2011 Hay Group. All rights reserved
An invitation for you...http://www.haygroup.com/surveys/Best_Companies_2011/
2011 BEST COMPANIES FOR LEADERSHIP SURVEY
Increasing R&D effectiveness
02
10© 2011 Hay Group. All rights reserved
Game-changing times
Cost to value
Generics
Reduced tolerance
for risk
Greater regulation
Longer lead time for product development
Cost pressure
Pricecontrol
Patent expiration
Decline in R&D productivity
11© 2011 Hay Group. All rights reserved
The market share of biotech drugs is continuously increasing
The share of biotech drug sales is expected to reach almost a quarter of total drug consumption by 2014, compared to less than one-tenth in 2000
9%
91%
Biotech Medicines Conventional Medicines
2000
23%
77%
Biotech Medicines Conventional Medicines
2014E
12© 2011 Hay Group. All rights reserved
Global Biotechnology Employees
2009 2010
0
60,000
120,000
180,000
172,690178,750
Source: Ernst & Young Report 2011
Global Biotechnology Revenues (USD bn)
2009 20100
30
60
90
8% growth
Note: Figures pertain to 622 public companies
The industry appears to have turned the corner, though it has not returned to pre-crisis levels of normalcy
Across the established biotech centers, revenues grew by 8% — identical to growth in 2009 after adjusting for the Genentech acquisition, but well below the 12% seen in 2008 or the high double-digit growth rates the industry was able to deliver in many prior years
Global biotech sector is getting to stabilize
13© 2011 Hay Group. All rights reserved
Large numbers of firms undertook drastic cost-cutting measures to survive. These efforts resulted in a much stronger bottom line, propelling a sector that has bled red ink for most of its history to unprecedented levels of aggregate profitability
But while the focus on operating efficiency has its benefits, it has come at a high cost. In an industry where R&D is by far the biggest expenditure, it was inevitable that deep spending cuts would lead companies to slash R&D expenditures
– R&D expenses, which had plummeted by 21% in 2009, grew by a modest 2% in 2010 — a positive development, but far below the investments that biotech companies have historically made in innovation. In 2009, 64% of US companies and 55% of European companies decreased their R&D spend; in 2010, those numbers fell to 49% and 45%, respectively
Source: Ernst & Young Report 2011
Global Biotechnology R&D Exp. (USD bn)
2009 20100
5
10
15
20
25
2% growth
Global Biotechnology Net Income (USD bn)
2009 20100
1
2
3
4
5
30% growth
Note: Figures pertain to 622 public companies
Biotech is moving towards profitable business model
14© 2011 Hay Group. All rights reserved
R&D productivity is down…
New drug approvals of major players
Total R&D spend (USDbn) of major playersR&D productivity ratio =
15© 2011 Hay Group. All rights reserved
….while R&D expense is up
16© 2011 Hay Group. All rights reserved
In 2011, we undertook a study to identify causes of R&D underperformance
17© 2011 Hay Group. All rights reserved
Our diagnosis
Organizations aren’t leveraging the human talent that they have Scientists are motivated in unique ways, and must be led accordingly
Most R&D leaders do not create engaging climates that energize their teams
While R&D leaders must demonstrate technical expertise, many have not expanded their leadership portfolio to include providing alignment, feedback, and collaboration
Many R&D professionals do not believe that performance is linked to recognition; instead, they think that mediocrity is tolerated
Instead of enabling innovation, organizations are inadvertently putting hurdles in place by allowing slow decision-making, risk-aversion, and lack of collaboration
18© 2011 Hay Group. All rights reserved
Leading scientists isn’t easy
Scientists enjoy solving problems, need recognition, and tend to be loners Avoid anything that puts barriers between scientists, regardless of their title or level of
expertise - Facilitate free flow of information and iterative feedback loops among scientists
Create opportunities for collaboration, both formally and informally
Provide rewards in the form of recognition, reputation and respect (including from top management, peers inside and outside the company, and patients)- Allow the opportunity to present at conferences and to customers to build their own
and the company’s reputation
Clarify and celebrate the link between their work and its practical impact on the business and patients
19© 2011 Hay Group. All rights reserved
Measuring engagement: climate
Climate indicates how energizing the work environment is for employees
It accounts for up to 30 percent of the variance in key performance measures
Up to 70 percent of the variance in climate is driven by how leaders behave
Fully engaged employees are 2.5 times more likely to exceed performance
expectations than their ‘disengaged’ colleagues
Leadership styles
Organizational climate
Aligned and motivated employees
Results
50-70% of variance in organizational climate can be
explained by differences in leadership style
Up to 30% of variance in results can be explained by differences in organizational
climate
20© 2011 Hay Group. All rights reserved
The climate gap in R&D
How does it feel to be in R&D in large life science organizations? 67% report that their current environment is tolerable (15%) or de-motivating (52%)
- These results are worse than those reported by other LS functions except Manufacturing- Research is worse off than Development, and when compared to other industries, ranks
at the bottom of the list
21© 2011 Hay Group. All rights reserved
Digging deeper: organizational climate
Organizational climate drives performance Good working environments – or climates – energize and focus people to do their best.
Mediocre climates dampen motivation and diminish performance
Research shows that these aspects of climate have the biggest impact on performance:
… and of all the things that influence climate, leaders have the biggest influence
Flexibility Responsibility Standards Rewards ClarityTeam
commitment
No unnecessary rules, procedures or policies. New ideas are easily accepted
Employees are given authority to accomplish tasks without constantly checking for approval
Challenging but attainable goals are set for the organization and its employees
Good performance is recognized and rewarded
People know what is expected of them and how they contribute to organization goals
People are proud to belong to the organization
22© 2011 Hay Group. All rights reserved
Digging deeper: climate
Only 17% are in High Performance climates and firing on all cylinders
16% are in Energizing situations, but they are lacking the Clarity that drives business results
15% are getting by in Tolerable climates, but Flexibility (innovation) drops along with Clarity and Team Commitment (collaboration)
52% of the sample are disengaged, struggling across all dimensions, and De-Motivated
23© 2011 Hay Group. All rights reserved
Comparing two organizations: climate
Company 1 Company 2
Products approved, 2007 – July 2011: 4 Products approved, 2007 – July 2011: 9
More leaders creating positive climate correlates with R&D productivity
24© 2011 Hay Group. All rights reserved
Leadership styles drive much of climate
Leadership strength is defined by flexibility Leaders who can tailor their behavior, or leadership styles, to a situation create
positive climates- Those who do not create negative climates
Our research database, containing assessments on over 550,000 individuals from over 4,900 organizations, shows that the following styles have the biggest impact on climate
Achieving immediate compliance
…
Coercive
Providing long term direction and vision
Creating harmony and avoiding conflict
Building commitment and encouraging new ideas
Accomplishing tasks to high standards
Supporting long term development
Authoritative Affiliative Democratic Pacesetting Coaching
25© 2011 Hay Group. All rights reserved
Leadership drives engagement
Leadership differences in R&D Outstanding R&D leaders maintain their technical credibility and go beyond it
- Provide direction and feedback- Engage their teams in problem-solving and collaboration
Leadership Styles in High Performance Climates (feedback from 124 direct reports on 26 leaders)
Leadership Styles in De-Motivating Climates (feedback from 453 direct reports on 77 leaders)
26© 2011 Hay Group. All rights reserved
Comparing two organizations: style
Company 1 Company 2
Leaders who use a broad range of styles create more positive climate…. which correlates with R&D productivity
Products approved, 2007 – July 2011: 4 Products approved, 2007 – July 2011: 9
27© 2011 Hay Group. All rights reserved
Engagement alone is insufficient
Work environments have to turn motivation into productivity
Str
ateg
ic in
tent
Bus
ines
s re
sults
Engagement
Employee effectiveness
Enablement
28© 2011 Hay Group. All rights reserved
The business case for engaging and enabling employees
Increase in employees above performance expectations
Reduction in turnover rates
Customer satisfaction rates
Revenue growth
Employee retention
Employee performance
Customer satisfaction
Financial success
10% -40% 71% x2.5High engagement only
50% -54% 89% x4.5High engagement +high enablement
Based on linkage case studies using Hay Group’s global normative database
29© 2011 Hay Group. All rights reserved
Issue #1
68
73
64
71
57
59
60
65
55
62
49
42
0 20 40 60 80 100
R&D Norm Life Science NormLack of feedback and development
I have a good idea of the possiblecareer paths available to me
Rate your opportunities for learningand development
Rate your immediate supervisor on providing you with clear and regular feedback
Rate your immediate supervisor oncoaching you in your development
Training is available on an ongoingbasis so that I can continue mylearning and development
Rate your company on providingtraining so that you can do yourpresent job well
% Favorable
30© 2011 Hay Group. All rights reserved
Issue #2
60
56
58
47
45
46
0 20 40 60 80 100
R&D Norm Life Science Norm
Lack of focus on – and recognition for – outstanding performance
The better my performance, thebetter my opportunity for careeradvancement
The better my performance, thebetter my pay will be
Poor performance is usually nottolerated at the company
% Favorable
31© 2011 Hay Group. All rights reserved
Issue #3
66
60
78
61
62
58
51
70
48
52
0 20 40 60 80 100
R&D Norm Life Science NormObstacles to innovation and collaboration
Employees are encouraged to takereasonable risks (e.g., try new ideas or newways of doing things) in an attempt toincrease the effectiveness of the
organization Decisions are made without undue delay
Rate cooperation among employees where you work or within your location
This company encourages cooperation andsharing of ideas and resources across thecompany
My work group receives high quality supportfrom other units on which we depend
% Favorable
32© 2011 Hay Group. All rights reserved
Things you can do to improve R&D
Our prescription Clarify the definition of outstanding performance – for individuals and for the function
- Determine the critical few metrics that align to that definition of excellence- Align recognition and reward to those metrics, and give clear feedback about them
on an ongoing basis
Build leadership capability to broaden beyond technical excellence, with special focus on developing the ability to provide feedback and to coach- Differentiate technical leadership from project / program leadership, and establish /
communicate a project leadership career track- Develop matrix leadership skills in program management
Enable innovation- Push decision-making to the lowest capable level- Remove obstacles to collaboration, especially across boundaries
Sales force compensation
03
“I’m from a drug company ... and I’m here to help!”
35© 2011 Hay Group. All rights reserved
Perceived strengths
Focus
ed o
n pe
rform
ance
Creat
es re
sults
for c
usto
mer
s
Strate
gy is
und
erst
ood
Cultur
e is
well m
anag
ed0%
20%
40%
60%
80%
100%
Account Managment Effectiveness
Optimistic Confident Not sure
Per
cen
tag
e o
f R
esp
on
ses
Hay Group Managed Markets SFE research / Pharma Executive article
36© 2011 Hay Group. All rights reserved
False confidence
Preferred Vendor Value Add Trusted Advisor0%
10%
20%
30%
40%
50%
60%
Strength of Payer RelationshipsPlease select the best relationship you have achieved with national and regional payers .
National Payers Regional Payers
Per
ecn
tag
e o
f R
esp
on
ses
Hay Group Managed Markets SFE research / Pharma Executive article
37© 2011 Hay Group. All rights reserved
Limited coverage across thehealthcare ecosystem
Wholesalers / Trade
Retailers
Hospitals
Group Practices
Employers / Unions
0% 25% 50% 75% 100%
Neglecting New Customer RelationshipsPercentage of companies that HAVE NOT at-
tempted a B2B reltionship
Percentage of Responses
Cu
sto
mer
Seg
men
t
Hay Group Managed Markets SFE research / Pharma Executive article
38© 2011 Hay Group. All rights reserved
Role D
efini
tions
Numbe
r of R
esou
rces
Proce
ss Im
prov
emen
ts
Imple
men
tatio
n an
d Exe
cutio
n
Repor
ting
Struct
ure
0%
20%
40%
60%
80%
100%
Gaps in Organizational InvesmentsPlease select the best descriptionof your
priorities and investments.
Priority In-vesments
Important, but No Investments
Low Priority
Per
cen
tag
e o
f R
epo
nse
s
Needed investmentsHay Group Managed Markets SFE research / Pharma Executive article
Critical for B2B partnerships and value creation !!
39© 2011 Hay Group. All rights reserved
Application: a payer’s value-selling process
Identify opportunities
Developsolution
Tailor value proposition
Negotiateand close
Identify client support team
Track ‘promised value’ measures
Conduct account reviews
Contractrenewal tickler
Call centersupport
Analytic and presentation tools
Pricing guardrails and oversight
Roles for sales and customer service
Measures, reminders and cross sells
Integratewith CRM
Brand
Products
Services
People
Processes
Financials
Cost and Quality
Guarantees
Treatment Compliance
Sustain & Grow Mutual Market Share
Integrated Indications &
Offers
Collaborative Research
40© 2011 Hay Group. All rights reserved
$
Mutual economic impact of your investments
Difference(from competitors)
High Impact
Irrelevant
Credible Partner
High
HighLow
Low
Importance(to Customers)
$
Door Openers
Winners
$
$
$Deal Killers
So, what can a business-savvy commercial team do to create real customer value?
42© 2011 Hay Group. All rights reserved
Five actions for creating value
1. Think difference, importance and economic impact
2. Surprise your customers with openness
3. Measure your partnership strength
4. Invest in leadership, teams and processes
5. Cover the healthcare ecosystem
43© 2011 Hay Group. All rights reserved
Top challenges
In 2011, Hay Group observed that clients focused on:• Reflecting roles• Reflecting strategy• Linking pay to organizational performance• Streamlining plans for simplicity
We did NOT see:• Routine updates of the plan• Redesigning to better reflect incumbent impact
This is reflected in the 2011 results as well.
44© 2011 Hay Group. All rights reserved
Expectations for 2012
Based on the 2012 results, we expect that:• Sales compensation cost will be under increasing scrutiny• Trends in solution selling will temper leverage• Reviewing strategy and defining the implications for the sales plan will be emphasized• Traditional challenges will be addressed with broader redesign:
• Goal setting• Long sales cycles• Team sales
2012 will focus on the link between growth
and incentives
45© 2011 Hay Group. All rights reserved
Rule #1: If you haven’t defined your sales roles, you can’t design sales incentives
Familiarfriend
Field Rep
Trustedadvisor
Dealmaker
Transactional Consultative
Farmer
Hunter
46© 2011 Hay Group. All rights reserved
Conduct your own sales incentive and effectiveness audit
Attribute Level One Questions (Triage)
1. Sales Strategy Is the sales strategy clear, consistent and well understood?
2. ProcessDoes the sales process meet business objectives and create customer value?
3. Roles & Competencies
Are sales roles, competency models and job definitions comprehensive and actionable?
4. Size & Structure Is the sales force designed for optimal effectiveness and efficiency?
5. Motivation Are sales people motivated by an appropriate mix of incentives and rewards?
6. Management Is sales management disciplined and focused on performance?
7. Culture Is the required sales culture defined, cultivated and managed?
8. Implementation Is seamless integration achieved within sales and across functions?
47© 2011 Hay Group. All rights reserved
Incentive plans and metrics
Number of different sales incentive plans
Performance metrics
Most organizations use 1-3 metrics.
The number of metrics remained consistent from last year 70% to this year 73%
1 Plans36%
2 Plans14%
3 Plans10%
4 Plans10%
5 Plans6%
6-10 Plans10%
11 +14%
1 metrics15%
2 metrics28%
3 metrics30%
4 metrics13%
5 metrics4% 6 metrics
or more10%
Most organizations have between 1-4 sales incentive plans which are often differentiated by role
48© 2011 Hay Group. All rights reserved
Annual eligibility
Plan type
Eligibility and plan type
ComponentPercent of organizations
offering plans
Sales Representatives 90%
Accounts Managers 73%
Channel Managers 32%
Inside Sales 41%
1st Line Sales Managers 66%
ComponentPercent of organizations
offering plans
Base salary with incentive tied to one or more performance metrics 62%
Base salary with bonus (e.g. discretionary or profit-sharing) 4%
Commission-based incentives (regardless of base salary/draw) 27%
Other 8%
Eligibility for plans remain high. Chemicals and Insurance/ Financial
Services have the highest predominance of Base Salary with incentives than other sectors.
Plans for Account Managers and Sales Reps were similar in components.
49© 2011 Hay Group. All rights reserved
Plan components
Plan Components PrevalenceMedianValue
P75 Value P25 Value
Individual Performance 75% 100% 100% 60%
District Performance 8% 47% 100% 33%
Region Performance 8% 50% 80% 20%
Subsidiary Performance 3% 60% 100% 20%
Division Performance 18% 45% 80% 20%
Corporate Performance 17% 25% 33% 15%
Team Performance 16% 32% 85% 20%
Other 10% 84% 100% 48%
We saw a slight dip in Individual prevalence from 82% to 75% though most organizations still make that a majority of their plan.
Other remains low in prevalence but has a high value in the plan assigned to it.
The splits between the organization level have more to do with the specific industry.
50© 2011 Hay Group. All rights reserved
TTC philosophy and recent payouts
TTC Pay Philosophy for Sales Reps
Below P40 P40-P50 P50-P60 P60-P75 Above P75
0% 5% 76% 17% 2%
Recent fiscal year incentives P50 Value P75 Value P25 Value Average
Below Threshold 5% 12% 0% 11%
Threshold to target 40% 69% 14% 42%
Target to 1.5x target 30% 55% 15% 35%
Outstanding and above 5% 16% 0% 12%
Most organizations target above market performance for sales reps.
The distribution of incentives paid was fairly normal for this past year.
51© 2011 Hay Group. All rights reserved
Common Goal-Setting Challenges
Common goal-setting challenges:• High demand volatility• Long selling cycles• Cycling• Variance across channels (heavy lifting)
52© 2011 Hay Group. All rights reserved
High demand volatility
Many organizations – and industries – struggle with exceedingly high volatility of demand. This can frequently make it a challenge to set quality goals.
Common approach Positives Negatives
Ranking • Removes goal-setting entirely from the process
• Dilutes the link between pay and performance
Strategic objectives • Allows for some common sense
• Common sense is not always that common
Rolling average • Focuses more on the rational trend
• Pay will lag sustained performance – for good and bad
53© 2011 Hay Group. All rights reserved
Long selling cycles
If the time from initiation to close is longer than the performance period of the incentive plan, it is challenging to define a goal.
Common approach Positives Negatives
Milestones • Allows recognition of sales activities
• Potentially pays for activities, not end results.
Corporate Component • Many long selling cycles have significant non-selling activities.
• Measuring at a higher level reflects overall success
• Assumes that the role is less selling and more marketing management
It is important to consider: • The frequency of
opportunities• Where the incumbent
has the most impact on the sales
54© 2011 Hay Group. All rights reserved
Cycling
Cycling occurs when a good performance sets up bad performance and vice-versa.
Common approach Positives Negatives
Rolling average • Smoothes variance • May allow for some coasting
Individual goals • Enforces ownership mentality in the territory or channel
• Requires increased planning and sales administration.
Different measures • Focus on area where there is more impact
• Potential challenge for perceived plan equity.
55© 2011 Hay Group. All rights reserved
Variance across channels
Channels are so different that some reps have a windfall, others have an unachievable target.
Common approach Positives Negatives
Critical success factors • Allows for flexibility within a strategic framework.
• Additional administration
Differentiated measures • Best matches heavy lifting • Need to identify other measures.
56© 2011 Hay Group. All rights reserved
Contact information
Susan M. Snyder, Hay Group Senior Principal and US Director, Leadership & Talent in Life Sciences
- Phone: (914) 659 - 7781 - [email protected]
Marc Wallace, Hay Group Vice President and US Director, Sales Force Compensation
- Phone: (312) 228 - 1816- [email protected]
Thank you!
Susan M. Snyder, Hay GroupSenior Principal & US Director, Life Sciences Leadership &
Talent Phone: (914) 659 - 7781 [email protected]
Marc Wallace, Hay GroupVice President & US Director, Sales Force CompensationPhone: (312) 228 - [email protected]