Preparing for the Future November 15, 2011 Susan M. Snyder, Hay Group Marc Wallace, Hay Group.

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


Our areas of expertise

We help organizations work.

Reward Services Leadership and Talent

Building Effective

Organizations

Hay Group Insight


Our global presence and capability

86Offices in 47 countries

2200Employees worldwide

7000International clients

$450 millionSales


Representative life sciences clients


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


An invitation for you...http://www.haygroup.com/surveys/Best_Companies_2011/

2011 BEST COMPANIES FOR LEADERSHIP SURVEY

http://www.haygroup.com/surveys/Best_Companies_2011/

Increasing R&D effectiveness

02


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


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


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


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


R&D productivity is down…

New drug approvals of major players

Total R&D spend (USDbn) of major playersR&D productivity ratio =


….while R&D expense is up


In 2011, we undertook a study to identify causes of R&D underperformance


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


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


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


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


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


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


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


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


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)


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


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


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


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


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


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


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!”


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


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



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



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 !!


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


$

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?


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


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.


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


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


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?


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


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.


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.


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.


Common Goal-Setting Challenges

Common goal-setting challenges:• High demand volatility• Long selling cycles• Cycling• Variance across channels (heavy lifting)


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


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.


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


Cycling

Cycling occurs when a good performance sets up bad performance and vice-versa.


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.


Variance across channels

Channels are so different that some reps have a windfall, others have an unachievable target.


Critical success factors • Allows for flexibility within a strategic framework.

• Additional administration

Differentiated measures • Best matches heavy lifting • Need to identify other measures.


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]

Preparing for the Future November 15, 2011 Susan M. Snyder, Hay Group Marc Wallace, Hay Group.

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Transcript of Preparing for the Future November 15, 2011 Susan M. Snyder, Hay Group Marc Wallace, Hay Group.