Creating Value Through Innovation

John MacDonald
It is time for the pharmaceutical industry to ‘look down the opposite end of the telescope’ and view value as the output from innovation.

Whilst the pharmaceutical industry is in its very nature innovative - globally, the world’s leading 30 pharmaceutical companies are collectively spending over £76bn a year on research and development - this does not often cascade down to construction contracts and activities on site where innovation is typically viewed with cynicism as a cost reduction exercise. It is time for the industry to ‘look down the opposite end of the telescope’ and view value as the output from innovation.

A typical approach within the sector is to challenge suppliers to deliver innovation immediately and throughout the life of the contract; yet this ignores one of the cornerstones of creating value through innovation; “it takes two to tango”.

Understanding the best approach:

  1. Where are you starting from? Conducting project health checks which can review current structures, risks and opportunities together with an assessment of how well the project is performing against its objectives and how well it adheres to organisational processes and standards, is a good starting point.
  2. Where are you trying to get to and why? This seems a simple question but can often be overlooked. It requires market intelligence and experience to understand the benefits and risks which are inherent with value through innovation delivery. 
  3. Is there appetite for change? Negative value will occur where effort is wasted on trying something which cannot be adopted and/or supported.

Value can then be determined and captured based on short, medium and long-term business drivers, and can include:

  • Time adherence/reduction
  • Quality improvement
  • Safety improvement
  • Risk Management
  • Life Cycle Asset Management (LCAM)
  • Return on Investment (ROI)
  • Service Levels
  • Process improvement
  • Reputational improvement
  • Resource reduction
  • Spend reduction (Savings/Cost Avoidance)

A source of innovation can stem from collaboration with suppliers via robust and structured relationship management and development. And, sometimes a change of suppliers can bring those fresh ideas and innovations i.e. through tendering of contracts. Creating the right environment, encouraging the right behaviours and implementing the right processes (including how to measure success and who takes the value) is key; and creating a fair model to support promotion of innovation throughout the life of the contract is vital.

Innovation is frequently cited to be a ‘value added’ service from suppliers, and often they ‘hold back’ innovation due to nervousness of disclosing areas of competitive advantage. Whilst there may be no incentive to encourage the supplier to bring innovation to a client, the ability to propose innovations is seen as a strong indicator of position in the marketplace and evidence of proactivity, both of which can be decision points for further contracts.

Delivery of success in innovation is based on the ‘what’ and the ‘how’; a mixture of process and behaviours. Getting the right balance will optimise relationships and the opportunity to create true value.

Financial incentives can be utilised to encourage, recognise and support the frequency, appropriateness and benefit from identified innovations. Financial incentivisation has been seen to work best where the supplier receives an opportunity to gain additional revenue; ‘Gain Share’ – a % of validated savings. On those occasions where a particular innovation holds no financial value, a discretionary ‘bonus’ payment could be awarded to the supplier (corporately), to the supplier’s team members or individuals. By rewarding non-financial innovations to a supplier’s personnel, it can help to unlock further added value due to the wider engagement it achieves.

Problems can occur in recognising who-brought-what to-the-table, particularly where there are multiple suppliers working on a project/site. Maintaining a shared innovation log which is reviewed jointly can avoid risks. A shared approach across suppliers can unlock synergy benefits which cannot be realised with a supplier-by-supplier approach.

Problems can also be realised where a supplier offers up innovations which a customer cannot adopt – whilst this should not be a blocker for suppliers to offer up ideas, it should be recognised that suppliers are expending effort for which they potentially receive no direct return. It can also be an opportunity to ‘hold a mirror up to’ the client and ask a thought-provoking question: ‘Why can’t we adopt this innovation?’, which can lead you back to one of the original key questions: ‘Is there an appetite for change?’.

In summary, critical enablers to innovation are:

  1. The facilitation/leadership of the approach to identifying true value
  2. Creating the right environment for innovation
  3. Creating a fair model to support promotion of innovation throughout the life of the contract

Delivery of success in innovation is based on the ‘what’ and the ‘how’; a mixture of process and behaviours. Getting the right balance will optimise relationships and the opportunity to create true value.

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