Pharmaceutical Executive Europe - August 2008 - (Page 12)

12 Strategy Fundamentals August 2008 Pharmaceutical Executive Europe Built on Sand Dr Brian D. Smith looks at the value of management science to real-world pharmaceutical executives. built on sand” out at “C athedralsthe transcript ofwas an expression that leapt a senior me from my research interview with executive recently. As I read it, I remembered how he had motioned towards a very thick business plan document. His point was that a strategic plan is, mostly, about how we anticipate and react to market changes and, if our understanding of those changes is weak or flawed, then the plan is too. It was a telling metaphor, equating the elaborate construction of analyses, forecasts and strategy recommendations to a medieval edifice that, however awe-inspiring, was only as strong as the foundations on which it was built. The interviewee, and I suspect most realistic executives, was aware of how weak those foundations sometimes are. Why is this so? Why does much of the work of market analysts and management teams result in so much data but so little understanding? The field of management cognition has, in the past 25 years, emerged from its home in psychology departments to become a thriving area of study in several leading business schools. And what that research tells us is useful to executives seeking to improve their decision making. The first practical lesson to learn from this work is how far realworld executives are from the theoretical, perfectly informed and perfectly rational ‘homo economicus.’ This gap was first illuminated as far back as 1947, with Herbert Simon’s concept of ‘bounded rationality’ — the idea that people were rational but only within the limits of what they know. Simon described how we use heuristics or rules of thumb to allow us to make complex decisions in a practical amount of time. He recognised that executives rarely make the best possible decision. Instead, they make “good enough” decisions, a process he called “satisficing.” In practice, satisficing in strategic decision making is usually necessary and accepting that fact makes executive teams adaptable and effective. The second practical lesson emerges when we look at how executive teams within a firm make sense of their market environment in order to create strategy. Here, the work of a group at Illinois, US, including Anne Huff and Charles Schwenk, is very interesting, as is the work of the UK’s Paul Sparrow and Gerard Hodgkinson. Their studies of how executives frame and categorise knowledge give real insight into the limitations of strategic decision making and how it might be improved by, for example, being aware of the inherent flaws in our cognitive processes. In terms of what we might do differently in light of this knowledge, some important recommendations emerge. Valuing diversity in perspective is one lesson, as is the danger of homogenising executive teams by recruitment, and pressure to confirm with company culture. Other lessons relate to how we value knowledge of different types. Many management cultures, for Why does much of the work of market analysts and management teams result in so much data but so little understanding? example, are strongly ‘positivist’ in that they value hard data above all else. However, effective teams seem to be able to synthesise hard and soft information without relegating one or the other. Diverse teams that weave together knowledge from many different sources are what is needed, this research tells us. Such insights from management research are easily dismissed as nothing new of course, but typical practice in the pharmaceutical industry suggests that not all firms have learnt these lessons. Benchmarking within the industry is still much more common than external-referencing and dampens diversity of thought. Consensus management and strong cultural pressures often ensure that dissenting thoughts are smothered. Even when we seek outside help from consultants, we demand ‘industry knowledge’ and so simply employ more industry insiders. And above all, the scientific ethos of our industry still places, instinctively, higher value on information expressed in numbers than it does on knowledge written in text. As a result, many of the cathedral-like plans we labour to construct, however weighty, are built on sand. About the Author Dr Brian D. Smith is a researcher, author and consultant in the field of competitive strategy and runs PragMedic, a specialist strategy consultancy. He welcomes comments and questions to brian.smith@pragmedic.com. http://www.pragmedic.com

Table of Contents for the Digital Edition of Pharmaceutical Executive Europe - August 2008

Pharmaceutical Executive Europe - August 2008
Contents
From the Editor
News and Analysis
Calendar
The Calm Before the Storm
Steering Pharma in Russia
Built on Sand
Renaissance Man
IT Meets IMI
Send for the Software Specialists
Know Your eMarket
Last Words

Pharmaceutical Executive Europe - August 2008