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The life science sector’s ability to innovate is restricted by outdated incentives structures

The life science sector’s ability to innovate is restricted by outdated incentives structures

The life science sector’s ability to innovate is restricted by outdated incentives structures

This feature story was written by Anders Krag, Managing Director at Nodes, and published in the Danish medical magazine MedWatch 02.17.20.

The life science sector has to discover the cure against outdated business logic if Denmark is to remain a global source of innovation within medicine and medical equipment. The ability to innovate is inhibited by harmful structural incentives and misplaced decision mandates. This begs the question: why limit innovation to R&D when the entire business model needs a health examination?

In this feature article, Anders Krag explains how

  • Counterproductive incentive structures run through life science companies
  • Life science companies will benefit by empowering knowledge workers
  • Consultancies should embrace new forms of partnerships

Denmark is doing well. Especially if you take a closer look at the life science sector. According to the Secretary of State, the industry has experienced a value increment of 88 % over the past seven years and in 2018 Denmark was chosen as the best country in Europe for biotech and research development.

The strong data could suggest that Denmark is doing everything they can to develop the best possible structure for the industry as a whole. But beauty is in the eye of the beholder. While other countries have a keen focus on attracting research talent and investments, which can have a negative impact on our leadership position, Denmark can cement its leading position by re-thinking the business logic to support agile development within companies as well as digital consultancies.

The Danish life science sector can unlock valuable quantities of innovation if incentive structures, decision mandates and external counselling comes under close scrutiny.

Counterproductive incentive structures in life science companies

Life science companies articulate and encourage a fail-fast culture among its employees but the reality is quite different when taking closer look at the engine rooms. People are being evaluated on the success of their projects. Obviously, that is how it should be; unless it is holding back innovation, which, unfortunately, is the case. In other words, an employee is less likely to point out challenges with a product or service because it will no longer be considered a success. This discrepancy undermines the innovation capabilities in life science companies and it encourages a reactive rather than a proactive culture in the workplace.

Decision mandates are misplaced

This counterproductive incentive structure affects the entire organisation all the way up to the top management. The ambition with a fail-fast culture is to identify challenges and issues quickly and act upon them, accordingly. The reality, however, is very different. Even though employees call attention to challenges and issues, the status of the projects will be communicated greener and greener up through the system. The cost of identifying these challenges and issues further up the value chain can be enormous and it can lead to ill-considered actions, which in itself holds back innovation.

For this reason there exists a gap between the information communicated to the decision-makers and the actual state the company is in.

My claim is that innovation will flourish if the decision mandate is placed with the knowledge worker rather than the management. Errors will be identified faster and solved by people with the right skills. Companies will experience an increased agile approach to problem-solving and the management will be presented with better solutions faster.

Consultancies should explore new forms of partnerships

One could argue that the above mentioned points are a side effect of an outdated business model that for some reason is still alive and well in life science companies. This is where the raison d’étre of consultancies lie because they can affect how the life science companies perceive themselves.

But a business model where consultants need to be billable the incitements to optimise life science companies are difficult to spot if it has a negative impact on the consultancies’ bottom line. A consultant looking at a company with an outside-in mindset has little to no reason for pointing out that a process can be optimised if it affects his or her ability to be billable. During my ten years in the industry, I’ve seen – on multiple occasions – incidents that cast long shadows of mistrust between consultancies and companies.

The diagnosis is that the possibilities of boosting innovation in life science companies exist. Those who can push the development in the right direction need to revisit the internal business logic while consultancies should take a hard look in the mirror and prepare to accommodate new forms of partnerships. A new way of collaborating could very well be outcome-based instead of hourly-based. We will be in a much better position to innovate the industry as a whole if we as trusted advisors can create value by rethinking, optimising and streamlining products and processes and be rewarded accordingly.

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