About the Author
Michelle Hutchison graduated magna cum laude from the University of California, Davis with a BS in Environmental Design (2004) and was awarded the Master of Science in Leadership (May 2011). Michelle currently serves as an Inside/Outside Enrollment Manager for Grand Canyon University's ground campus, where she expresses her deep appreciation for the principles of servant leadership and strives to blend her Christian faith with her enthusiasm for guiding others.
The global pharmaceuticals market is plagued by a long history of ethical violations as drug companies struggle to balance a duty towards maintaining the public good and ensuring their own profitability. As pharmaceutical companies dabble in the emerging market of specialty drug development, opportunities for socially responsible business practices are coming to the forefront. By incorporating servant leadership methods into business activities and adopting a new operations model, pharmaceutical companies can revolutionize the industry by caring for the needs of diverse stakeholder groups.
Pharmaceutical companies exist in the midst of a grave ethical quandary as they attempt to balance a duty to promote public health while maintaining profitability. In decades past, innovations in this sector have often been driven by profits as industry leaders chose to develop highly marketable "blockbuster" drugs to treat a broad range of patients and ailments (Aspinall & Hamermesh, 2007, p. 110). Though responsible for ensuring public health, some pharmaceutical companies have betrayed the common good with unscrupulous practices such as false drug quality reporting and unsafe production practices in their pursuit of higher profits (Ramesh, 2008). Furthermore, rather than striving to keep costs down for consumers, generics manufacturers have been known to engage in collusion to enhance profits in the marketplace as well (Ranbaxy LTD Settle NHS Claim, 2005).
The landscape of the pharmaceuticals industry is changing as more companies look to take advantage of an emerging specialty drug market and the associated incentives in the United States, Europe, and Asia (Mintz, 2010). Research is shifting away from the costly process of creating the "one size fits all" blockbuster drug to the less expensive and more lucrative specialty and orphan drug market (Mintz, 2010). Generics manufacturers are repositioning themselves as well, diversifying their offerings to include active pharmaceutical ingredients (API) and intermediates which aid in mass scale drug production and delivery (Ranbaxy, 2011).
With new, burgeoning modes of conducting business in the sector, equally dynamic leadership skills are needed to fully take advantage of arising opportunities. Both specialty drug makers and generics manufacturers must reinvent their methods of managing various stakeholder groups to fully capitalize on the possibilities that lie ahead. The principles of servant leadership provide an excellent framework from which even the most seemingly disinterested institution can emerge as a proponent of consumer wellbeing.
Being that the pharmaceuticals industry is characterized by a penchant for the egregious by some, corporations in the sector must reemerge as stalwart protectors of consumer health by embracing Greenleaf's vision of the institution as servant. To develop trust amongst internal and external stakeholders, organizations can act as servant leader entities by adopting organizational structures that focus on collaboration and consensus (Greenleaf, 1977). By developing symbiotic relationships between specialty drug manufacturers and stakeholders, a new business model can emerge in which the consumer receives ultimate benefit of specialty drug therapies at a lower cost.a new ModelCurrent estimates suggest that approximately 17% of spending in the pharmaceuticals industry is devoted to specialty drugs, with roughly 70% of the drugs currently in development possessing a biomarker for a targeted patient population (Martin, 2011).Specialty drug makers have been attracted to this emerging market by the relatively low cost of developing targeted therapies and the comparatively high yield in terms of profits. Innovation of specialty drugs requires fewer clinical trials, offers more governmental incentives, and possesses the advantage of shorter regulatory review periods (Mintz, 2010). The combination of these elements reduces the overall cost of research and development (R & D) for specialty drugs, especially when compared to the development of blockbuster drugs. It is expected that within the next five years specialty drug spending will increase to 40%, making what was once considered to be a niche market into an economy of scale (Martin, 2011).
While previously underserved consumers in these specialty communities are getting much needed attention in the development of these pharmaceuticals, they may also be bracing for the costs of purchasing drugs that can only be used amongst these small subpopulations. However, specialty drug manufacturers can overcome these stakeholder concerns and still maintain profitability by embracing tenets of servant leadership and instituting new operational models.
Collaboration in Business Operations
To emerge as a servant leader entity, corporations must first decide to conduct business in such a way as to promote the wellbeing of stakeholders and provide some benefit, if at least not to further deprive them (Greenleaf, 1977). To advance this agenda, Greenleaf suggested that organizations should adopt internal structures that reduce the focus on a central figurehead and instead rely upon the collaborative efforts of an information network. To further this precept, if servant leadership theory deems collaborative structures appropriate for an organization's inner workings, then the same postulates should hold true in the corporation's efforts to emerge as a servant leader amongst other organizations within the sector.
While there is little data to support the use of servant leadership in large corporations or in collaborative efforts between organizations, research does indicate that utilizing servant leadership principles such as resourcefulness and collaboration increases the overall effectiveness of teams (Irving & Longbotham, 2007). Being that a corporation is a conglomeration of various teams, it's logical to postulate that servant leadership could then be utilized to enhance the effectiveness of such an organization. Furthermore, it's likely that pharmaceutical companies would then benefit from the use of a diversified operations model in which strategic alliances are used to garner necessary resources from external partners. This type of organizational structure encourages collaboration of multiple teams rather than centralized control in seeking successful outcomes, defying the model currently in place (Kureishi, 2011).
Reducing Costs and Maximizing Availability
A collaborative network structure would also serve to tackle the two key hurdles corporations in the specialty drug market face. The first major challenge specialty drug developers face is the relative lack of experience in the field of specialty therapy R & D (Mintz, 2010). To be effective in these markets and maximize the return on investment, drug companies must have the ability to survey the existing markets and use the data to significantly impact the consumer base while simultaneously enhancing profitability. Allying with clinical research firms will allow drug developers to better assess the current market needs, evaluate risk, and create strategies that can ultimately decrease research and development costs (Kureishi, 2011).
Furthermore, utilizing diagnostics in R & D would revolutionize the way drug therapy is practiced in the medical field. Disseminating diagnostic data used in drug research would empower physicians to appropriately prescribe products on the basis of the patient's needs, rather than being forced to resort to costly trial and error methods that typically result in higher insurance costs (Holdford, 2005). By creating strategic networks with specialty research firms, pharmaceutical companies would have the ability to reduce waste in both drug development and therapeutic application, thereby lowering consumer drug costs.
The second key factor in heightened drug costs stems from distribution structures needed to reach smaller subpopulations (Mintz, 2010). However, large companies can overcome these challenges by partnering with smaller distributors to utilize their regional networks to reach patient groups. Furthermore, outsourcing logistics not only reduces cost and overhead, it allows the drug company to focus on a core competency, such as enhancing drug quality (Simonson, 2011).
Marketing costs for specialty drugs can be defrayed in a similar manner. Partnering with non-profit organizations and patient advocacy groups would allow drug companies to leverage resources needed to reach the consumer base on a local level (Mintz, 2010). By serving as a more involved member of these smaller health communities, pharmaceutical companies can build networks to increase consumer confidence and repair damaged reputations.
Involving Generic Drug Manufacturers
Specialty drug makers may also find opportunities to further reduce drug costs through alliances with generics manufacturers. While many off-brand drug makers will continue to mass produce non-exclusive blockbuster drugs, specialty drug companies can solicit generics corporations to make use of their lower cost manufacturing and distribution practices. This could further include specialty companies' usage of lower cost API's and intermediaries in drug production. Such diversification provides generics companies with fiscal opportunities in the specialty drug sector as a supplier, manufacturer, and/or distributor for specialty drug entities. This may further reduce costs for not just targeted drug therapies, but also off brand pharmaceuticals as generics manufacturers discover an unlikely client in the specialty drug corporation.
Nurturing Communities to Reach Stakeholders
While a collaborative spirit is one way to meet stakeholder needs, a servant leader views the greater community as an arena for service and accepts liability for improving the networks of which they are a part (Greenleaf, 1977). If servant leaders as individuals are apt to lead in a multitude of societal settings, drug companies serving as servant leader entities should then also have the ability to emerge as leaders in both the marketplace and society at large.
While consumers and investors are obvious direct recipients of change in the pharmaceuticals industry, governmental regulating bodies, non-profit health organizations, and insurance companies should also be considered powerful stakeholders within the sector (Hillman & Keim, 2001). Each of these entities serves as a component of the overarching pharmaceuticals delivery system. While drug companies rely heavily on these organizations, relationships with these key stakeholders have been mismanaged in the past. Strategically, these stakeholders should be thought of as partners in an expanding marketplace rather than obstacles to profit based enterprise.
However, fostering relationships with diverse stakeholder groups poses a unique challenge to pharmaceutical companies. While it would seem beneficial to donate drugs to developing countries to create a philanthropic reputation, investors tend not to be interested such activities as they do not correlate to their profit based aspirations (Lindquist, 1998). Likewise, consumers are often skeptical that these donations are genuine expressions of goodwill and view such actions as pure acts of self-promotion (Lindquist, 1998).
However, if nurturing communities is the focus of a pharmaceutical servant leader organization, the reduced cost and increased availability of specialty drugs promoted by a new collaborative business model should provide such businesses the opportunity to regain the trust of health organizations and consumer groups once spurned by big pharma. With a renewed sense of confidence, non-profit and governmental agencies may be more apt to publicly sponsor the use of the sponsoring corporation's products to fulfill community health needs (Lindquist, 1998). Campaigning in this fashion brings a drug company's products to new populations without the negative stigma of self-promotion (Lindquist, 1998). Such partnerships ultimately further the reach of the servant leader pharmaceutical organization, thereby appeasing patients and consumer advocates, as well as shareholders who expect the corporation to act prudently with their investment dollars.
Obstacles to Implementation
The pharmaceuticals industry has long faced the dilemma of placing profits before people. Many organizations in this sector have been accused of conducting substandard clinical trials, manipulating insurance providers and patients, providing incomplete data, and producing misleading advertisements (Weber, 2006). Not only will servant leader pharmaceutical companies have to contend with internal struggles to bring about changes in organizationalculture, they will also likely face obstacles in opposing a historically profit-focused and ethically challenged market.
Furthermore, while advancing the ethical standing of the pharmaceuticals industry may be achieved through servant leadership practices such as collaboration, significant hurdles to the successful employment of such tactics exist. One such challenge relates to the diversity amongst partnering organizations. While this does include obvious factors relating to global cultural diversity, this can also include the diversity of opinions and experiences that exist within organizations (Provan, Fish, & Sydow, 2007). Each organization is shaped by its own vision of its past, present, and future and divergent opinions have the potential to derail collaborative efforts if the teams cannot unite under a single, benevolent purpose. Furthermore from a more tactical perspective, the difficulty of ensuring the successful coordination of collaborative teams increases the larger and less centralized the network between work groups becomes (Provan et al., 2007). For both sets of challenges, clusters focused on unique differences between work groups, such as job assignment or geographical proximity, may promote some semblance of organization, particularly if those groups are aware of how their efforts contribute to the success of the whole.
The Fruits of Success
Barriers aside, the team building focus of the servant leader organization provides opportunities for the success of this sort of revolutionary endeavor. It begins first by communicating a clear vision for internal change recipients to develop confidence in the change process so as to improve the chances of success for such an initiative (Kotter, 1996). For example, delineating and successfully executing new processes to ensure quality drug development, manufacturing, and reporting can enhance an organization's culture and garner commitment from employees. To begin the process of such revolutionary change, an organization must definitively outline new procedures to address each of these points while maintaining a focus on the benefits to stakeholders. While this is very crucial step towards implementation, the scope of this process is beyond the focus of this paper.
Building a new operational system focused on the organization's ethical duties can inspire change agents both within the corporation and its partnering organizations to converge on the shared value of serving the public good, but only if that message is explicitly shared. The example of Samuel Truett Cathy, founder of Chick-fil-A restaurants, shows the benefits of outwardly promoting servant leadership principles in all business undertakings. Though Cathy is in the business of chicken sandwiches rather than specialty medications, his dedication to building consumer trust though quality, cleanliness, and service remain relevant as a beacon to potential servant leader organizations (Hattwick, 2003). Cathy's focus on trust has resulted in such high levels of both employee and customer loyalty to the Chick-fil-A brand (McGee & Duncan, 2007) that despite being closed on Sundays, Chick-fil-A has experienced over thirty-nine years of consecutive sales growth as well as an astounding ninety-six percent operator retention rate (Ziglar, 2007). Placing a vision at the center of each component of business operations has brought success to Cathy's restaurant chain and will ensure positive change within the pharmaceuticals sector is sustained despite threats and challenges.
The successful transformation of just a single pharmaceutical company has the potential to revolutionize the sector as competitors take notice of the effects of servant leadership and social responsibility on market share. While many pharmaceutical companies have avoided developing specialty drugs because of their seemingly decreased market potential, companies are being forced to redefine their market strategies in the decline of the blockbuster era (Aspinall & Hamermesh, 2007). This finding creates opportunities for the specialty drug market, especially in cases where a specialty drug can be used to treat a larger than expected subpopulation and exceed the original market potential (Aspinall & Hamermesh, 2007). Furthermore, niche drug developers using the tenets of servant leadership may also increase the likelihood that physicians and patients will seek out their products due to an increased focus on the benefits of the end consumer. Competitors will be forced to take note of the opportunities afforded to organizations that choose this business model and will undoubtedly seek to integrate servant leadership practices as well, revolutionizing the marketplace.
The pharmaceuticals industry is in need of change that can refocus business activities on serving the very patients and practitioners who consume their products. Though Greenleaf (1977) delineated the characteristics of the individual servant leader, the focus here on the intra-organizational potential that exists in the pharmaceuticals industry is an extension of those principles. For change to take hold however, organizations in this industry must seek to create a new model of pharmaceutical based patient care that puts public health ahead of the bottom line.
Michelle Hutchison has worked for various universities over the course of the last five years in both inside and outside sales and management. She currently serves as an Inside/Outside Enrollment Manager for GCU's ground campus, where she expresses her deep appreciation for the principles of servant leadership and strives to blend her Christian faith with her enthusiasm for guiding others. Michelle graduated magna cum laude from the University of California, Davis with a BS in Environmental Design (2004) and was awarded the Master of Science in Leadership (May 2011). Ms. Hutchison can be contacted at firstname.lastname@example.org.
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