The Art & Science of Decision Making - Key Note Speech

1

Surya P. Chitra

AstraZeneca LP

Delaware, USA

The Art and Science of Decision-Making:

Industry Perspective

International Conference on Operational Quantitative Management04 August 2006

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Change is Inevitable

Decision Making Needs to be Dynamic

Blend of Experience & Calculated Decisions

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Transition to New Global Economy

Operational/ Business Model


Drivers/ Influencers for Change

Technology&

Information

Transparency- Product- Price- Value- Services- Supply

Reach- Product- Geographic- Easily- Supply Chain


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Drivers & Business Model Changes

19701970 200020001990199019801980 20102010

Oil/ Petrochemicals

Automotive

Electronics

Chemical/ Specialties

Personal Care

Pharmaceuticals

BUSINESS MODEL CHANGES/ STRATEGIES

Cost Management Emerging Market Strategy Geographic Leveraging Differentiation Model All to Segmented Targets Customer/Value Management

DRIVERS/ INFLUENCERS

Cost Inefficiencies Cost of Capital Competitive Products Price Pressures Long Development Cycles Low entry Barriers


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In a moment of decision, the best thing you can do

is the right thing to do. The worst thing you can do is nothing.

Theodore Roosevelt


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“To survive & sustain growth in the

dynamically changing global markets,

companies and organizations need to make

flexible and actionable decisions”

The Challenge


WE SHOULD MANAGE RISKS TO BALANCE DECISIONS

INDUSTRY’SSUSTAINED

GROWTH

CUSTOMERS- Value- Speed- Long Life

PRODUCERS- Innovation- Efficiency- Low Cost

INNOVATION- Novel- Quality- Lasting

INCREMENTAL- Extensions- Formulation- Delivery


Growth Risks/Decisions

Balance Risks

Weighted Decisions

REVOLUTIONARY CHANGES NEED RADICAL DECISIONS

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TRADITIONAL

Brand ExtensionsFormulation ChangesGeographic ExpansionMergers & AcquisitionsVertical IntegrationRe-engineering CostsOut Sourcing

TransformationRADICAL

1. True Innovation2. Risk & Uncertainty

Management3. Simpler Structure/

Effective Decisions4. Value Chain Leverage5. Adaptive Flexibility


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INNOVATION

PHARMACEUTICAL RADICAL INNOVATION“Optimum Medical and Economic Value to Patients”


RADICAL DECISIONS CAN BE MADE BY CALCULATED RISKS

NOT INCREMENTAL INNOVATION“Marginal Benefit to Patients but

Boost Short-term Corporate Profit”

Individualized Medicine Disease Management

Biologics Biomarkers/ Diagnostics

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23Aug05 25Aug05

27Aug05 29Aug05

RISK: CALCULATING UNCERTAINTY

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TargetEarly Late

Mo

reF

ewer

Target

Product Launch

Rev

enu

e P

ote

ntia

l

25%

55%

85%

TargetEarly Late

Mo

reF

ewer

Target

Product Launch

Rev

enu

e P

ote

ntia

l

55%

85%

EarlyStage

LateStage

RISK: PRODUCT DEVELOPMENT

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Drug

Discovery

Clinical

Development

Formulation

& Manufacture

Marketing

& Sales

Distribution

R & D PRODUCTION PRODUCT LAUNCH

PROGRAM RISK

Project Risk

Execution Risk

Regulatory Risk

PRODUCT RISK

Launch Risk

Competitive Risk

Regulatory Risk

RISK: PHARMACEUTICAL VALUE CHAIN

Decisions Based on More Past Experience Than Risk Models

Decisions Based on Statistical Risk Models


STRUCTURE REDESIGN

M & A Created Complex Organizations

Information Motivation

Decisions Structure•Rules•Processes

•Technology•Knowledge Share

•Simple•Flexible

•Speed•Adaptation

Building Blocks for Change

Drug

Discovery

Clinical

Development

Formulation

& Manufacture

Marketing

& Sales

Distribution

R & D PRODUCTION PRODUCT LAUNCH

VALUE CHAIN RESTRUCTURE

R&D16%

COGS16%

Admin7%Sales

35%

Op. Profit26%

2005 Expenditures

Which parts of Each Function is Crucial to Company’s Value Chain?

24% 76%

ADAPTIVE FLEXIBILITY

• ADAPTATION• External Dynamics• Technology• Globalization• Uncertainty

• FLEXIBITY• Operations• Strategies• Structure• Innovation

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"Change is the law of life and those who look only to the past or the

present are certain to miss the future."

- John F. Kennedy


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“To sustain the growth for better living

globally, we need to prepare and plan our

decisions with adaptive flexibility and

scientific rigor”

Need For Change


SUMMARY• Incremental & Radical Innovation

• Balancing the Decisions• Managing Risk & Uncertainty

• Risk Models and Forecast• Simpler/ Effective Organizations

• Speedy & Adaptive Decisions• Value Chain Management

• Prioritized Decisions

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CONCLUSIONS


Change is Inevitable in The Industry

Decision Making Needs to be Dynamic

Blend of Experience & Calculated Decisions

It’s Not the Science, It’s What Science Forces one to Decide