A life sciences sector perspective

Transcription

1 The DNA of the COO Time to claim the spotlight A life sciences sector perspective

2 The DNA of the COO provides much-needed insight into what it takes to be a chief operating officer (COO) today. It explores the expectations and aspirations of those in the job, along with the skills, capabilities and relationships that they need to master in order to succeed. It is one of a series of EY thought leadership programs that seek to understand what it takes for C-level executives to take control of their evolving roles. This EY report is based on our global analysis of 306 COOs, including 51 from the life sciences sector. A further 43 respondents from across the C-suite were also polled to give their perspective on how the COO is perceived by the rest of the management team. Finally, a program of in-depth interviews with leading COOs and other C-suite peers allowed us to explore the distinctive qualities of this community of professionals. Life sciences: preparing for the patent cliff For a long time, many players within the life sciences industry enjoyed high operating margins and little pressure for a stronger focus on operational excellence. This has clearly changed. Many firms are facing tough challenges on both top-line revenues and bottom-line profits, thanks to stalling demand in mature markets and intense price pressure in rapid-growth markets. Furthermore, although patent protections have helped pharmaceutical firms profit from their past research and development efforts, new blockbuster drugs are in short supply and the volume of patent expirations is now peaking. This is bolstering the already significant competition being faced from rivals selling generics, which is making the shift eastwards in pursuit of growth more difficult. Part of the response has been a long-running wave of mergers and acquisitions (M&A), with large brands snapping up other firms to either gain access to promising new drugs, or else simply acquire a bigger share of key new markets. All of these trends hold clear implications for the sector s COOs. Unlike the relentless pursuit of efficiency seen in sectors such as consumer products, the life sciences industry is only belatedly trying to grapple with the patchwork quilt of back-end systems and processes left behind after years of M&A activity. There has been relatively little consolidation and business transformation, or consideration of lean manufacturing, to start extracting greater efficiencies and economies of scale. The result of all of this has been a significant rise in complexity, which COOs are now being pushed to address. Doing so will require a major change management effort, while not losing sight of ongoing operational challenges, such as ensuring that all regulatory requirements are met. This may all be daunting for the sector s COOs, but it is also an opportunity for them to shine and demonstrate their capabilities.

3 The DNA of the COO The role of the COO rarely conforms to a one-size-fits-all model within the life sciences industry. As with COO roles in other sectors, the job s specific responsibilities are defined closely in tandem with the individual needs and goals of the chief executive officer (CEO), as well as the particular demands and challenges of the overall business. Despite this variability, there are common themes and concerns that cut across everyone in this position. What we find is a breed of executive who combines deep operational knowledge with broad strategic insight, and who is often positioned as a future CEO. Yet we also find a role that is now increasingly coming under the spotlight, given the deep pressures being faced within life sciences.

4 Preparing for complexity Given the changing dynamics of the life sciences industry, it is of little surprise that those COOs polled within the sector see increasing complexity as the single most important shift in the role over the past five years. This manifests itself in a number of ways. Companies are looking far more closely at how to integrate the systems and processes of various acquisitions better, while putting greater internal pressure on cost containment and efficiency as margin pressures rise. They have to fight to defend market share in developed markets, while also finding ways to outmaneuver low-cost rivals in rapid-growth markets that are changing quickly. COOs in the sector are often asked to take the lead in major business transformations or change projects as part of the push to get more efficient and help defend the sector s historically high margins. A desire to influence The operational changes under way in the life sciences industry mean that the future shape and makeup of the organization will likely look very different to what it is today. Helping define this is part of what appeals to the sector s COOs. When asked what makes the job worthwhile to them, 51% pointed to the ability to influence and get things moving internally above the overall average among COOs in general. I don t want to spend my time getting involved in processes that are running perfectly, explains one Operations & Quality Assurance Director from a life sciences company. Life sciences COOs also strongly believe in their ability to complement the CEO s skills, by providing the operational framework to fit the overall vision. About 6 in 10 (59%) strongly agree 1 that their skills complement those of the CEO, well above the overall average of 46%. Their peers clearly agree: 63% of life sciences COOs surveyed for this report are members of the board or executive leadership team, well ahead of other C-suite roles, such as the CIO. 35% proportion of COOs who think their role has become more complex in recent years 51% strongly agree that the business would be materially worse off without a COO position in place 1 Whenever we refer to terms such as strong/strongly or major, we refer to those respondents that chose 9 or 10 on a scale from 1 to 10, where 1 is low and 10 is high.

5 A clear focus on change With the life sciences sector cracking down on operational efficiency, COOs have a clear mandate to pick up the reins on change management and business transformation. When asked about the areas in which they create the most value for the company, this message is clear. Topping the list is their ability to optimize operational performance (selected by 65%), followed closely by executing on change management projects or business transformation initiatives (61%), which is above the overall average. This also reflects in the nature of their engagement with the board: discussing business performance and participating in strategic decision-making are the top two aspects on the agenda for COOs within the sector. Leadership and change management skills vital, but confidence here lags COO responsibilities differ, but one theme remains constant. To perform the role well, 92% of COOs in life sciences say that highly developed leadership qualities and people management skills are the most crucial attributes, above the overall average. Indeed, many admit that soft skills are an essential part of their career development. If you create an environment in which people can thrive, then your job becomes so much easier. Conversely, if I fail to inspire them then that doubles the challenges that I face, says another operations executive. Given the change agenda they are now having to implement, such leadership and change management skills will be in growing demand. But in all this, many COOs polled for this study appear to lack complete confidence in their abilities here. When asked about the areas in which they most need to improve their skills, both change management (43%) and leadership (53%) skills are in the top three. A similar degree of uncertainty in their skills is displayed when asked what are the biggest barriers to their further career development: 33% cite personal weaknesses as the top concern, well above the average among COOs overall. 45% proportion of COOs who are closely engaged in discussing the role of operations in business transformation with the board 9.6/10 the average level of agreement among COOs that leadership skills are key to their performance, above all else

6 A fulfilling career in itself In contrast to their peers in most other sectors, a majority of the COOs within life sciences appear content to consider their position as a desirable final career destination. The higher proportion (37%) indicated satisfaction with this, compared with 3 in 10 (31%) who believe they have what it takes to reach the CEO role within the next five years. Of course, only a select few COOs will make this transition to the top job. Those that do so will need to focus on developing stronger leadership skills, while ensuring a more strategic mindset and input to the rest of the business. This is increasingly becoming part and parcel of the job anyway: 20% of respondents note that their strategic influence on the overall business model has grown over the past five years, above the overall COO average. The COO now has to be very accomplished at understanding what the future will bring, says a Director for Operations Analysis. Few other C-suite roles are as closely linked to the overall leadership of the business as that of the COO. Many have the genuine ability, and aspiration, to do the top job. But to prepare for that transition fully, and to ensure their own relevance within their current job in the meantime, stronger efforts will be needed to bolster specific skills, strengthen core relationships and increase their visibility. This report seeks to provide a toolkit that maps out what needs to be changed, where the stumbling blocks lie and how best to prepare. 35% COOs who are strongly satisfied with their career development potential

7 A snapshot of today s typical life sciences COO Basic characteristics The average life sciences COO is 46 years old, the youngest of all sectors polled. For a role that is typically dominated by males, surprisingly the likelihood of having a female COO is higher. He or she has typically been in the job for just five years, the lowest of all sectors. Given the nature of the industry, it is perhaps unsurprising that COOs here are the most likely of all sectors to hold a PhD-level degree (10% hold this, compared with just 4% on average). Furthermore, 5 in 10 overall hold a master s-level degree or higher, well above the average. 63% hold a board-level position within the company. Skills and focus As with other sectors, leadership and people management skills are seen as crucial for the job: 92% selected this as highly important, above the already high overall average. The ability to communicate and to take responsibility for controls within operations were also rated as highly important. In general, COOs within the life sciences sector feel relatively confident about their skill set. Although over half (53%) felt a need to improve how they communicate and manage people, this was below the overall average (57%). Relationships Operational leaders in life sciences have not developed sufficiently close ties with key C-suite peers, relative to their colleagues in other sectors. For example, while 73% acknowledge that the CEO is key to their future career development, just 55% say they have close links. Across a range of both internal and external relationships, COOs polled acknowledge that their relationships could be stronger. Career Compared with other sectors, life sciences COOs are more likely to consider their current position as a desirable final career destination. Overall, 37% are keen to remain in their existing role, while 31% hold aspirations for the CEO role a reversal of the priorities of their peers elsewhere. For those who do aspire to move further upward, they recognize the need to bolster their strategic input to the business, not least given that their average engagement with the board is typically below that of the average COO respondent overall. For further information about this report please visit ey.com/dna-coo, speak to your EY contact, or send an to coo@ey.com. To learn more about the EY COO program please visit ey.com/coo.

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