(Re)Designing the Sales Lifecycle Workforce

to Anticipate Market Consolidation

Scott M. Miller, Senior Vice President, Health Systems

McKesson Pharmaceuticals

Cailin O’Riordan, Sr. Director, Talent Management & Organization Effectiveness

McKesson Human Resources

Organization Design and Diagnostics Conference

December 9, 2015

McKesson

Market

Strategy

Structure

Staffing

Today’s Presentation

McKesson is a global healthcare leader

82,500+ Worldwide

Employees

$179 Billion in Revenues

# 11

Leading position in North American segments

Technology Solutions

Distribution Solutions

Business Units Business Units

#1 pharmaceutical distributor

in U.S. and Canada

#1 generics distributor

#1 in medical-surgical distribution

to alternate care sites

Leader in clinical, revenue-cycle and

resource-management solutions

Leading Connected Care & Analytics claims-

processing and connectivity business

#1 in medical-management software

and services to payers

US Pharmaceutical

Medical Surgical

International (Europe & Canada)

Specialty Health

Pharmacy Systems & Automation

Enterprise Information Systems

Imaging & Workflow Solutions

Health Solutions

Business Performance Services

Connected Care & Analytics

Six key trends continue to shape the landscape

Key Trends

Cost Containment

Definition

Reimbursement reduction and emergence of narrow networks

Pharmaceutical

Mix Shift

Decline in new Generics, and an increasing share of Specialty within the

pharmaceutical pipeline

Consolidation Horizontal and vertical integration among stakeholders

Increasing Volume Increased utilization due to ACA coverage and demographics

Performance Payers rewarding performance based on cost and quality metrics

Consumerism Cost shift to patients increases focus on value

Accelerating in 2015 Continuing as Expected

Health Systems consists of several sub-segments

Channel Partners (GPOs)

Government

Alternate Site

Hospitals and Health Systems

Market Share Leader

LUCK IS THE INTERSECTION WHERE PREPARATION MEETS OPPORTUNITY

The Opportunity: Our BHAG

Executing in a more consistent and systematic way by applying our Health Systems 2.0 behaviors to leverage our position of strength and significantly outpace market growth; thereby improve share 6% in 3 years

HEALTHCARE REFORM

REIMBURSEMENT

CONSOLIDATION

COST & QUALITY

MCKESSON REALITIES

INDUSTRY REALITIES

OPERATIONAL EXCELLENCE

SHARE LEADERSHIP

STRATEGIC INVESTMENTS

PREPARE TO AFFECT CHANGE

22% nonFed

nonOCR

market

share

Understand

Our Opportunity

Leverage

Customer Value

Creation

Capture Customer

Value Creation

Build Our Foundation

Year

0

FY12 Year

1

FY13

$750M

$1.1B

$1.5B

MHS 2.0

28% Market share

26%

24%

22%

Health Systems 3-year growth strategy

Year

2

FY14

Year

3

FY15

$727M

Three year roadmap to operationalize the BHAG

Planfully execute market share destination

Transparency and accountability

Year 3 success on track move toward

organization design

Key highlights: Three year milestones:

We have outgrown the market and won share

MCK

Competitors

FY’15

50.5

FY14

46.1

FY13

46.3

FY12

45.2

Voluntary Market: Non Federal Acute / Non-OCR ASRx

in $Billions

3x market growth fueled by key wins have driven MHS market share up 6 share points to 28%!

Share 22% 23% 25% 28% Average

share gain

per year ~2%

Source: IMS market & FPA reporting

Total

3 year CAGR

3.81%

1.08%

12.50%

We must continue to evolve the go-to-market approach

• Decision-making about wholesaler is dispersed among DoPs, supply chain and C-suite

• The market will be more consolidated, concentrated and complex than it is today

• Cost pressures will drive systems to target drug category as more controllable expense

• Over the last few years, wins have outstripped losses 10:1

• We win based on a few

required components, and a subset of optional offerings

• We are repositioning the VAS

portfolio to increase customer and McKesson value

What’s working Yet we recognize rate of change is accelerating

• Given competitors’ recent share loss, we can expect responses and vulnerabilities exist

• Recent findings from VOC/NP survey’s suggest a trend of emerging apathy to give feedback, with eroding Net Promoter Scores; and an absolute correlation between value creation and NPS

McKesson

Market

Strategy

Structure

Staffing

Today’s Presentation

The project setup was nimble and leader-led

Improve customer retention

Win new business

In scope key customer segments, territory analysis,

organization design, job descriptions, and

compensation design

Out of scope

Existing governance bodies

4 core project members

4 VP GMs = working team

All regions represented

Multiple types of data were collected and analyzed

Organization Assessment ~ 40 people via

interviews, focus groups, and targeted workshops

Deeper dive(s) on sales performance data by role and market:

Survey Results ~ Net promoter,

employee engagement, Voice of Customer

Market Opportunity ~ leverage past external

consulting projects

Gather new data and consolidate existing data:

Analyses informed structure and staffing ideas

Trends Strategy Structure Staffing

• Differentiated experience due to top sales talent

• Value Prop

• Integrated assets w/Mck businesses

• Focus on Top 50 IDNs (65% of NFA total)

• Differentiate by hunter, farmer, and hybrid functionality

• Design Principles by region:

-Density of market -Volume &

complexity -Growth potential -Competitor

presence

• Menu of roles; a la carte option by region

• National Sales Leader for SEs

• Stratify AM role

• “Crossroads”

Career Pathing

1. Consolidation: 400 IDNs

2. Convergence: multi-region or clusters of regions

3. New Buyers: • C-Suite • Director of

Pharmacy • Supply Chain • Executive

Physician

Structural options for “winning new business”

Decentralized structure

“Developer” Scenario

Overview

• “Business as usual”

• No national sales leader

• VPS or VPGM responsible for SE

development

• Supported by Sales Effectiveness

Gain & Give Up

• Decentralized structure, max

region control

• Skill consistency challenge

minimally addressed

• Segment growth very dependent

on people vs systems approach

“Influencer” Scenario

Overview

• “Matrixed Sales Team”

• SE has solid line to regions,

dotted line to NSL

• Sales lead on cross-region oppty

Gain & Give Up

• Budget ownership would be

decentralized (region-owned)

• Coordinated and cross-regional

oversight to win new business

• Support intra-regional key deals

• Tried it before with C-Suite team –

why would it be different this time

“Accountable” Scenario

Overview

• “Consolidated Sales Team”

• SE had dotted line to regions,

solid line to NSL

Gain & Give Up

• SVP’s & GM’s still determine

targets & pricing approvals

• Greater consistency &

improvement in SE performance

• Not as critical if we plan to grow at

Market rate

Region

National Sales Leader

MHS

National Accounts

Sales Executive

Region

National Sales Leader

MHS

National Accounts

Sales Executive

Region MHS

National Accounts

Sales Executive

16

Account Manager (~25 FTE)

“Service” Segmentation: Federal Government, Omnicare, Ascension, Tenet

Territory: Defined boundary calling on each of accounts above

Role: Deliver Foundational Execution to NA commitments

Senior Account Manager (~35 FTE)

“Solutions” Segmentation: NFA (hospital & IDN) & ASRx stand alone entities

Territory: Defined boundary calling on each of multiple accounts

Role: Blend of Service & Solution orientations focused on

c value creation & effective lifecycle management

Key Account Manager (~15 FTE)

“Systems” Segmentation: Our 25 Most Strategic & Complex Voluntary Accts

Territory: Multi Hospital that pans DC or even Region

Role: Orchestrate & Execute Shape Plans that delivers

integrated integrated experience – supported by RAMBO

Combo / Hybrid (~10 FTE)

Special Exception Segmentation: Service & Solution accounts

Territory: when geography & lack of scale merit need

Role: Athletes with orientation to meet requirements of all

Staffing options for 'improved customer retention'

Grow the Core - Sales Track

New Business - Sales Track

Clear career progression and opportunities

Greater flexibility to hire talent based on market need

Greater ability to source the right capability per role

Increased clarity to progress career that benefits employees and customers

AM “service”

Key Account Manager “systems”

Sr. AM “solution”

Entry Level Mid Career Early Career

VPS

Sales Exec

Prime Career

VPNA

Exec Career

DSM

Approach and timing of the AM implementation

7/14 – 7/15:

Conceptualize

Q2:

Plan / Budget

Q3:

Approve

Q4:

Implement

Define business need & Diagnose current state

Establish case for change

Present framework to sales leadership and incorporate feedback

Design AM roles mapped to Customer Segmentation

Receive approval from sales leadership to move forward (RSVPs, VPGMs, VPSs)

Confirm COO & SVP HR support

Secure BU President support

# of roles by type

Finalize Job Criteria & Comp

Develop pro-forma P&L implications

Commence TRP by Regions up to Governance to assess people to fit in to roles needed

Present final plan to ensure financial justification and minimal disruption

Once Approved, Communicate organizational redesign initiative to impacted group (AM’s)

Conduct Interviews

Identify where/if staffing gaps exist

Move AM’s into appropriate stratified roles

Present separation packages to those on the outside

Post & fill remaining open jobs

In conclusion,

Embarked on a leader-led evolution, with “quarantined” thought leadership

support from SMEs, to test a hypothesis around the need to change

Taken a fresh look, with an “align to Customer segment strategy”

perspective, and found some markets are already organizing this way

Aimed to maintain budget neutrality, unless there’s a justifiable alternative

Avoided transformation for the sake of transformation only

Strived for the right balance between the need for standardization, with the

need for market customization and flexibility

We planned to ensure limited distraction to either us or our Customers

Thank You & Stay in Touch

Scott M. Miller, SVP Health Systems

Scottm.miller@mckesson.com

Cailin O’Riordan, Director Talent Management

Cailin.o’riordan@gilead.com

Organization Design and Diagnostics Conference

December 9, 2015