Life Sciences - Deloitte United States · 2020-05-31 · Life Sciences companies to adhere to...

Save-to-transform as a catalyst for embracing digital disruption Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industry

Global Cost Report 2019-2020 Life Sciences

Contents

Executive summary 4

About the study 8

How is Life Sciences different? 10

Firmographics 14

Life Sciences survey results: Detailed insights 18

Digital and technology solutions applied to cost management in the Life Sciences industry 34

Save-to-transform as a catalyst for embracing digital disruption 40

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Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industry

Digital technology and digital disruption have burst onto the scene as key levers for cost management and business transformation around the world and throughout the Life Sciences industry. In Deloitte’s 2017 Biennial Global Cost Survey,1 digital disruption was identified as an emerging risk by respondents in the United States but was barely visible elsewhere. Now, however, digital risks—including digital disruption and cybersecurity—rank among the top external risks for Life Sciences companies in all regions.

Today’s Life Sciences industry faces a wide range of unique challenges. The era of multi-billion dollar blockbuster drugs is over. Instead, Life Sciences companies are diversifying their portfolios to include a varied mix of products and therapies—including new types of personalized therapies that are potentially lucrative but require new business and operating models that are complex and expensive to deploy. Companies in Life Sciences also face intense pricing pressure, with increasingly savvy payers and providers placing ever-greater emphasis on keeping the cost of drugs and medical devices in check and achieving real patient outcomes. Against this evolving business backdrop, the scale and scope of regulations is growing, with regulators expecting Life Sciences companies to adhere to increasingly strict standards throughout the value chain.

Digital technology is now an essential tool to help Life Sciences companies do more with less—potentially transforming their business strategies and operations and helping to preserve margins in the face of rising costs and downward pricing pressure. However, technology also raises issues such as cyber risk, with recent cyberattacks in the Life Sciences industry sending companies scrambling to protect their operations and infrastructure against cyber threats.

In this challenging environment, cost management remains a strong imperative for nearly all businesses; however, the prevailing mindset seems to be expanding from “save to grow” to “save to transform.” Most Life Sciences companies continue to have very positive expectations for revenue growth, and many are using cost reduction as a tool to help fund their required growth investments. However, in today’s increasingly digital world, more and more companies also recognize the need to transform their operations and capabilities with infrastructure investments in key digital innovations such as robotic process automation, cognitive technologies, business intelligence, and cloud-based ERP systems.

These digital technologies and innovations can deliver dramatic improvements in competitiveness, performance, operating efficiency and, increasingly, cost savings. Equally important, they can strengthen a company’s positioning against adverse future events, including economic downturns and digital disruption.

With digital innovation emerging as a critical enabler for both cost reduction and business transformation, we are delighted to present the results from our latest global cost survey. The study includes responses from 88 executives and senior leaders representing major Pharmaceuticals and Medical Devices companies from around the world.

This report provides an up-to-date view of the cost management practices and trends shaping the future of Life Sciences and global business. It also takes a detailed look at how the latest digital technologies and cost management strategies are acting as a catalyst for transformation in a world being actively redefined by digital disruption.

We hope you find these insights useful and look forward to hearing your thoughts and feedback.

Foreword

1. Thriving in uncertainty in the age of digital disruption: Deloitte’s first biennial global cost survey report, December 2017

Sam Balaji Global Consulting Leader

Omar Aguilar Strategic Cost Transformation Global Market Offering Leader

3


Executive summaryHow is Life Sciences different?

Cost reduction is less prevalent than average in Pharmaceuticals, but more prevalent than average in medical devices. In Pharmaceuticals, 51% of the surveyed companies plan to undertake cost reduction initiatives over the next 24 months, much lower than the global average across industries (71%). In contrast, the percentage of Medical Devices companies with cost reduction targets of 10% or higher is well above the global average (87% in medical devices versus 68% globally across industries).

The save-to-transform mindset is less prevalent in Life Sciences than globally across industries. The save-to-transform mindset is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. According to the survey results, this mindset is less prevalent in Life Sciences than globally across industries—primarily driven by low levels in the Pharmaceuticals sector.

Digital leaders in Life Sciences have a big impact on technology implementation, but less than the global average.

Life Sciences companies with a designated digital leader tend to have much higher levels of technology implementation (+86%); however, the impact is lower than for digital leaders globally across industries (+118%).

Cost program failure rates in Life Sciences are higher than average. According to the survey, 88% of Life Sciences companies failed to fully achieve their cost reduction targets—higher than the global average across industries (81%). The failure rate is higher in Pharmaceuticals (90%) than in medical devices (84%), but both are higher than the global average.

Technology implementation levels in Life Sciences exceed the global averages. In Life Sciences, implementation levels for digital technology over the next 24 months are expected to be higher than the global averages across industries for automation (+24%), cognitive technologies (+21%), business intelligence (+17%), and cloud solutions (+4%).

Life Sciences survey results: Detailed insights

Cost reduction is particularly prevalent among Medical Devices companies.

60%Overall, Life Sciences companies plan to undertake cost reduction initiatives over the next 24 months. Medical device companies are the most likely to pursue cost reduction, much more than Pharmaceuticals companies.

73%Medical Devices

51%Pharmaceuticals

The cost program failure rate is higher in Pharmaceuticals than in medical devices.

90%Pharmaceuticals

84%Medical Devices

According to the survey data, percentage of Pharmaceuticals companies and Medical Devices companies that failed to fully meet their cost reduction targets according to the survey data.

Life Sciences companies tend to have aggressive cost reduction targets.

80%The vast majority of Life Sciences respondents have cost reduction targets of 10% or higher.

87%Medical device companies tend to have more aggressive targets.

74%Pharmaceuticals

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Growth expectations in Life Sciences are very positive. Surveyed Life Sciences companies have a very positive growth outlook:

88%reported revenue growth over the past 24 months

85%expect revenue growth over the next 24 months

Strategic cost actions will be favored in the future. Over the next 24 months, Life Sciences respondents expect to increase their focus on strategic cost actions relative to tactical cost actions.

Cybersecurity and digital disruption are the top external risks.

57%cybersecurity and digital disruption are the top-rated external risks

56%.

macroeconomic concerns and currency fluctuations are tied for second

Information systems and business continuity are the top internal risks.In Life Sciences, the top internal risks are:

25%reliability and functionality of information systems

24%lack of controls, processes, and systems to ensure business continuity

Internal risk ratings by Medical Devices respondents tended to be much higher than those by Pharmaceuticals respondents.

Strategic priorities align with save-to-transform.Top-rated strategic priority over the next 24 months:

69%technology implementation

67%sales growth

67%digital enablement

Life Sciences companies have favored tactical cost actions.According to the survey results, Life Sciences companies favored tactical cost actions over strategic cost actions during the past 24 months. This is directionally aligned with the global trend across industries; however, implementation levels in Life Sciences are significantly lower across the board.

Capability development in Life Sciences resembles the global results.Life Sciences companies had a somewhat greater emphasis on cognitive/AI; global respondents had a slightly greater emphasis on automation.

Pharmaceuticals and Medical Devices companies have very different cost reduction drivers.Also, their cost reduction drivers are expected to evolve significantly over the next 24 months.

This broad set of balanced priorities typifies the save-to-transform mindset.

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Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industry Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industry


Lessons learned.Lessons learned. The top lessons learned in Life Sciences and globally across industries:

No. 1invest in technology improvements to enable data availability, reliability, and decision-making processes

No. 2design a solid tracking and reporting process

No. 3assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase

Cost management maturity is very high in medical devices and very low in Pharmaceuticals.

12%Pharmaceuticals

51%Medical Devices rate themselves high maturity

Cloud leads the pack.In Life Sciences, the most widely implemented technologies covered by the survey are:

43%cloud

27%business intelligence

17%cognitive/AI

Cloud is also the most widely implemented technology globally across industries (49%).

High levels of technology implementation are expected.The technologies expected to be most actively implemented in Life Sciences over the next 24 months.

77%automation

76%cognitive/AI

The technology expected to be least actively implemented is cloud (49%), most likely because current implementation levels for cloud are already very high.

Digital and technology solutions applied to cost management in Life Sciences

Most technology implementations meet or exceed expectations.

81%Life Sciences respondents had their expectations met or exceeded when implementing each of the technologies covered by the survey.

Top reasons for applying digital technologies. In Life Sciences, the top reason for applying both cloud and cognitive is to tighten data security and improve business control. The top reason for applying RPA is to reduce costs and increase productivity.

Implementation challenges are the top barrier both in Life Sciences and globally.Medical device companies generally rated cost reduction barriers much higher than average, while Pharmaceuticals companies generally rated them lower than average.

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Digital issues rise to the top of the agenda. Cybersecurity and digital disruption are now recognized as the top external risks in Life Sciences. Meanwhile, digital enablement has emerged as the industry’s top strategic priority over the next 24 months—a 14% increase over the past 24 months.

Save-to-grow.In the recent past, most Life Sciences companies were operating in save-to-grow mode. Cost and growth were the main business levers, with talent (including capabilities) as another key component. In this mode, cost reduction was a high priority, with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy.

Save-to-grow expands into save-to-transform.Many Life Sciences companies are now shifting into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and implementation of technologies. This shift can transform a company and help it capitalize on digital opportunities, while at the same time positioning the business for potential adversity that may be on the horizon—such as an economic downturn or credit crisis—using digital innovations to unlock new levels of cost savings, efficiency, and financial performance.

Save-to-transform as a catalyst for embracing digital disruption

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Deloitte Consulting LLP (Deloitte or Deloitte Consulting) engaged Dynata to conduct a global cost-management survey to better understand business leaders’ perspectives on current and future cost-reduction initiatives within large companies, multinationals, and other companies that are representative of the industries and regions surveyed.

Study objectives

Understand factors, approaches, actions, and targets related to cost initiatives

Assess the effectiveness of the cost actions, including lessons learned from previous efforts

Understand the drivers and scope of past and future cost initiatives

Provide context on how digital disruption and advanced digital technologies are affecting cost management

Assess industry results, and provide insights on different behaviors related to cost reduction

MethodologyData was collected through detailed online surveys conducted between November and December 2018.

January February March April May June July August September October November December

About the survey

FirmographicsThe global survey of more than 1,200 executives and senior leaders with direct involvement in cost management decisions and actions included 88 respondents from the Pharmaceuticals and Medical Devices sectors.

88



9

How is Life Sciences different?

Most findings from this year’s global cost-management survey are directionally consistent across all industries and geographic regions. However, there are a handful of key differences between the Life Sciences results and the global survey results, which include data from all industries.

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Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industrySave-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences industry

0

10

20

30

40

50

60

70

80

90

100

Likely Neutral Unlikely

71%

60%

51%

73%

20%

28%31%

24%

8%11%

18%

3%

Global Life Sciences Pharmaceuticals Medical Devices

Likelihood

% o

f tot

al r

espo

nden

ts

Only 51% of Pharmaceuticals respondents plan to undertake cost reduction initiatives compared to 71% globally

Lessthan 10%

10% to lessthan 20%

Morethan 20%

Cost targets

0

10

20

30

40

50

60

70

80

90

100

30%

19%24%

14%

37%

49%

37%

65%

31% 31%37%

22%

87% of Medical Devices respondents report targets above 10% compared to 68% globally

0

10

20

30

40

50

60

70

80

90

100

Did not meet goals Met goals Exceeded goals

81%88% 90%

84%

14%9% 6%

14%

5% 3% 4% 3%


% o

f tot

al r

espo

nden

ts

Cost reduction is less prevalent than average in Pharmaceuticals, but more prevalent than average in medical devicesIn Pharmaceuticals, 51% of the surveyed companies plan to undertake cost reduction initiatives over the next 24 months, much lower than the global average across industries (71%). In contrast, the percentage of Medical Devices companies

with cost reduction targets of 10% or higher is well above the global average (87% in medical devices versus 68% globally across industries) (see figure 1).

Figure 1: Likelihood of cost reduction and magnitude of cost targets

Cost program failure rates in Life Sciences are higher than averageAccording to the survey results, 88% of Life Sciences companies failed to fully achieve their cost reduction targets—higher than the global average across industries

(81%). The failure rate is higher in Pharmaceuticals (90%) than in medical devices (84%), but both are higher than the global average (see figure 2).

Figure 2. Cost program success and failure

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Global Life Sciences

% o

f tot

al r

espo

nden

ts

43% 42% 37%

In process of implementationNot implemented but planned

Business intelligence(not including cognitive or AI)

Cloud solutionsAutomation: Robotic process automation

Cognitive technologies: AI and machine learning

+17%

+24%+21%

+4%

38%

24% 24% 20%

14%

20%21% 17%

14%

39% 39%35%

44%39%

35%35%

62% 63%59%

47%

77% 76%69%

49%

0

10

20

30

40

50

60

70

80

Sales growth

Cost reduction

Balance sheet management

Productprofitability

Organization and talent

Technology implementation

Digitalenablement

% o

f tot

al r

espo

nden

ts

72%67%65%

70% 68%63%

76%

53%

61%

50% 49%51%

73%

65%59%

73%68%

76%

66%

59%

73%68%69%71% 69% 67%

63%

73%


The save-to-transform mindset is less prevalent in Life Sciences than globally across industriesThe survey results show the save-to-transform mindset is less prevalent in Life Sciences than globally across industries. This cost management philosophy is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. Relative to the global averages, Life Sciences respondents report lower priority levels in all of

those areas: profitability (-8 percentage points), sales (-5 percentage points), cost (-5 percentage points), technology (-4 percentage points), and digital enablement (-2 percentage points). However, those below-average levels are primarily driven by low levels in Pharmaceuticals, not medical devices (see figure 3).

Figure 3. Strategic priorities (next 24 months)

Technology implementation levels in Life Sciences exceed the global averages In Life Sciences, implementation levels for digital technology over the next 24 months are expected to be higher than the global averages across industries for automation (+24%),

cognitive technologies (+21%), business intelligence (+17%), and cloud solutions (+4%) (see figure 4).

Figure 4. Technology implementation levels (next 24 months)

12


0

10

20

30

40

50

60

0

10

20

30

40

50

60

Automation: Robotics Process Automation

Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions

14%

26%

17%

37%

9%29

%

0% 10%

29%

39%

20%

28%

48%53

%

17%

30%

24%

24%

118%

86%

222%

NA

190%

233%

129%

17%

77%

100%

No designated leader

Designated leader


8%

6%

% o

f tot

al r

espo

nden

ts%

of t

otal

res

pond

ents

Digital leaders in Life Sciences have a big impact on technology implementation, but less than the global averageOn average, Life Sciences respondents with a designated digital leader have a much higher level of technology implementation (+86%); however, that highly positive impact

is lower than the impact of digital leaders globally across industries (+118%) (see figure 5).

Figure 5. Impact of a designated digital leader*

*Averages calculated for global and Life Sciences results are weighted averages

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FirmographicsGlobal information was collected to provide meaningful insights across regions and industries. Within Life Sciences and healthcare (LS&HC), the Pharmaceuticals sector had the largest number of respondents (51), followed by the Medical Devices sector (37) (see figure 6).

Figure 6. Respondents’ breakdown by industry and sector

Industry breakdown:Total respondents (%)

LSHC sector breakdown:Number of responses by sector and region

27%

13%

7%2%

12%

18%

21%

Life Sciences – Pharmaceuticals

Health Care Providers

Life Sciences – Medical Devices

Health Care Plans

Other

Consumer and Industrial Products

Financial Services

Technology, Media and Telecommunications

Life Science and Health Care

Energy and Resources

Public Sector

Other

Total

41

20

45

39

1

10

156

Canada

South Africa

APAC

Europe

LATAM

USA 10

5

18

14

3 321 1

1

13 7 5

12 7 5 3

10 4 1

11 18 2

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Management-level breakdown(% of respondents by level)

Management-level breakdown(% of respondents by level and region)

16%

44%

13%

27%

Executive Management (enabling functions)*Executive Management (business units)**President, CEO CFO, COO

Medical DevicesPharmaceuticalsLife Sciences

16%

27%

13%

44%

22%

14%

53%

22%12%

32%

35%

11%

44% of responseswere from executive

management positions, followed by 16% from

President or CEO roles, 27% from CFO and COO roles and

the rest from business unit executive management.

Only leaders and executives with direct involvement in cost-management decisions were included in the survey; 57% of Life Sciences respondents were executive management, 27% were CFOs and COOs, and the remaining 16% were Presidents and CEOs (see figure 7).

Figure 7. Respondents’ breakdown by management level

* Executives Management (enabling functions): VP or above in finance, logistics, IT, HR, marketing, etc.** Executives Management (business functions): VP or above business units, regions, or countries

15

More than 50% of Life Sciences respondents reported revenues of $1 billion or more, and 33% had revenues of $5 billion or more (see figure 8).

Figure 8. Respondents’ annual revenue (US dollars)

$200M toless than $500M

Life Sciences Pharmaceuticals Medical Devices

0

10

20

30

40

50

$500M toless than $1B

$1B toless than $5B

$5B toless than $20B

$20B toless than $60B

Over $60B

19%17%

20%19%

14%

22%

31%

35%

24%

17%

12%

24%

8% 8% 8% 8%

12%

3%

Note: The survey was conducted in local currencies. For analysis purposes they have been converted to US dollars.

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Lessthan 1,000

0

10

20

30

40

50

1,000to 2, 499

2,500to 4,900

5,000 to 9,999

10,000to 24,000

25,000to 49,999

50,000to 99,999

Morethan 100,000

2%4%

0%

9% 10%8% 8%

4%

14%

29%

35%

43%

17%20%

14%

20%

16%18%

1% 0%2%

9%12%

5%

Life Sciences Pharmaceuticals Medical Devices

The vast majority of Life Sciences companies surveyed (86%) had at least 5,000 employees. In Pharmaceuticals, 54% of respondents had at least 10,000 employees (see figure 9).

Figure 9: Respondents’ employee headcount

17



18

Likely Neutral Unlikely


71%

60%

% o

f tot

al r

espo

nden

ts

0

10

20

30

40

50

60

70

80

51%

73%

20%

28%31%

11%

18%

3%

24%

8%

60% of Life Sciences respondents plan to undertake cost reduction initiatives

1

2

1

2

2

3

3

Survey findings1 On average, 60% of Life Sciences respondents plan to undertake cost reduction initiatives, significantly lower than the

global results across industries (71%).2 Medical device companies are the most likely to undertake cost reduction (73%), higher than the Life Sciences average

(60%) and global average across industries (71%).3 In Pharmaceuticals, 18% of respondents are unlikely to undertake cost reduction initiatives, six times more than the

percentage for Medical Devices respondents (3%).

Cost reduction is particularly prevalent among Medical Devices companiesOverall, 60% of Life Sciences companies plan to undertake cost reduction initiatives over the next 24 months. Medical device companies are the most likely to pursue

cost reduction (73%), much more than Pharmaceuticals companies (51%) (see figure 10).

Figure 10: Likelihood of cost reduction over the next 24 months

19


Survey findings1 On average, 80% of Life Sciences companies have cost reduction targets of 10% or more, much higher than the global average

across industries (68%).2 The percentage of Life Sciences companies with targets above 20% is higher in Pharmaceuticals (37%) than the overall Life

Sciences average (31%) and global average across industries (31%).3 Medical device companies have the lowest percentage of respondents (14%) with targets below 10%, much lower than the

global average (30%) and overall Life Sciences average (19%).

10% to less than 20% More than 20%

30%

% o

f tot

al r

espo

nden

ts

0

10

20

30

40

50

60

70

Less than 10%

24%

37%

49%

37%

65%

31%22%

37%

Most Life Sciences respondents (80%) reported targets above 10%

Note: Respondents that selected “no specific targets were established” were not plotted in the graph

31%

14%19%

1

1

1

2

1

2

2

23

33


Life Sciences companies tend to have aggressive cost reduction targetsThe vast majority of Life Sciences respondents (80%) have cost reduction targets of 10% or higher. Medical device companies tend to have more aggressive targets, with 87%

pursuing cost reduction of 10% or higher versus 74% for Pharmaceuticals (see figure 11).

Figure 11. Cost targets

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Survey findings• Among the 88% of Life Sciences companies that failed to meet their savings targets, 76% were able to realize more than 50%

of their target, 8 percentage points higher than global average.

• The percentage of Life Sciences companies that achieved 75%–99% of their savings target was slightly higher (36%) than the global average across industries (34%).

Met goals Exceeded goals0

10

20

30

40

50

60

70

80

90

100

Did not meet goals

5% 3%

14%

81%88% 90%

84%

4% 3%

14%9% 6%%

of t

otal

res

pond

ents


1–24% 25–49%

50–74% 75–99% None

Global LifeSciences

11%

34% 40%

2%6%

17%

19%36%34%

% of targetsavings realized

90% of Pharmaceuticals respondents and 84% of Medical Devices respondentsfailed to fully meet their targets compared to 81% globally across industries

68% 76%

The cost program failure rate is higher in Pharmaceuticals than in medical devicesThe failure rate for Life Sciences cost programs is higher than the global average across industries, with 90% of Pharmaceuticals companies and 84% of Medical Devices companies failing to fully meet their cost reduction targets (versus 81% globally). However,

among the survey respondents that failed to fully achieve their targets, a larger than average percentage of Life Sciences companies (76%) were able to achieve at least 50% of their targeted savings (see figure 12).

Figure 12. Cost program success and failure analysis

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Survey findings1 Over the past 24 months, Medical Devices companies had a higher percentage of positive revenue results (92%) than did

Pharmaceuticals companies (84%). 2 Over the next 24 months, 8% of Medical Devices companies expect a decline in revenue, twice the percentage for

Pharmaceuticals (4%)3 Similarly, expectations for future revenue growth among Medical Devices companies is 6 percentage points lower than

past growth performance.

0

10

20

30

40

50

60

70

80

90

100

86% 88%84%

92%

7%2% 4%

0%7% 10% 12%

8%

0

10

20

30

40

50

60

70

80

90

100

Past 24 months

% o

f tot

al r

espo

nden

ts%

of t

otal

res

pond

ents

Next 24 months

Increased Remained the same Decreased

Increase Anticipate flat top line Decrease

11

3


86% 85% 84% 86%

8% 9%12%

5% 6% 6% 4%8%

22

3

Growth expectations in Life Sciences are very positiveLife Sciences companies have a very positive growth outlook, with 88% reporting revenue growth over the past 24 months and 85% expecting revenue growth over the next 24 months. Those numbers are similar to the global averages across

industries (past and future, both at 86%). Medical device companies had the most positive revenue results over the past 24 months (92%) (see figure 13).

Figure 13. Revenue performance and expectations for growth

22


Survey findings1 Cybersecurity (57%) and digital disruption (57%) are the top external risks in Life Sciences.2 Cybersecurity (62%) and digital disruption (61%) are also the top risks globally across industries.3 Commodity price fluctuations are seen as a bigger risk globally (59%) than in Life Sciences (47%).

Sector-specific findingsA Pharmaceuticals – Political climate (53%) and cybersecurity concerns (53%) are the top-rated external risks in

Pharmaceuticals; credit risk (37%) is the lowest-rated.B Medical Devices – On average, Medical Devices companies rate all external risks higher than do their counterparts in

Pharmaceuticals. Macroeconomic concerns are the top risk for Medical Devices respondents (73%); political climate is the lowest (51%).

Cybersecurity and digital disruption are the top external risksIn Life Sciences, cybersecurity and digital disruption are the top-rated external risks (both at 57%). Macroeconomic

concerns and currency fluctuations are tied for second at 56% each (see figure 14).

Figure 14. Top external risks

Political climate Macroeconomic concerns Currency fluctuations Commodity price fluctuationsCredit risks Cyber security concerns New market entrants Digital disruption

0

10

20

30

40

50

60

70

80


% o

f tot

al r

espo

nden

ts

2 2

2

1 1A

A

A B

B

359% 59% 58% 59% 57%

62%57%

61%

52%56% 56%

47%50%

57%53%

57%53%

43%47%

41%37%

53%

45% 47%51%

73%68%

54%

68%

62%65%

70%

23


Lack of strategic plans or execution to provide clear direction to the business

Liquidity and financial position to support business plans

Recruitment, development and retention of required talent to support business initiatives

Reliability and functionality of information systems to support business processes and decisions

Lack of controls, processes and systems to ensure business continuity

Lack of regulatory, legal and/or management controls

0

10

20

30

40


% o

f tot

al r

espo

nden

ts

B

B B

A A A

A

1 123% 23%

25% 26%24%

22%

17%

22%20%

25% 24%

19% 18%

14%

18% 18%16%

12%

16%

32%

24%

35% 35%

30%

22

Survey findings1 Information systems (25%) and business continuity (24%) are the two top-rated internal risks for Life Sciences.2 Those same two risks are among the three top-rated internal risks globally across industries.3 For all internal risks, overall ratings by Life Sciences companies are the same or lower than the global averages

across industries.

Sector-specific findingsA Pharmaceuticals – The three top-rated internal risks are lack of strategic plans (18%), talent (18%), and reliability/

functionality of information systems (18%). The lowest-rated is lack of regulatory, legal, and/or management controls (12%).B Medical Devices – Reliability/functionality of information systems (35%) and business continuity (35%) are the top internal

risks in medical devices; lack of strategic plans (16%) is lowest.

Information systems and business continuity are the top internal risksIn Life Sciences, the top internal risks are reliability and functionality of information systems (25%) and lack of controls, processes, and systems to ensure business

continuity (24%). Internal risk ratings by Medical Devices respondents tended to be much higher than those by Pharmaceuticals respondents (see figure 15).

Figure 15. Top internal risks

24


Survey findings1 The three top-rated strategic priorities in Life Sciences and globally across

industries over the past 24 months were product profitability, technology implementation, and sales growth.

2 Over the next 24 months, the three top-rated strategic priorities in Life Sciences are technology implementation (69%), sales growth (67%) and digital enablement (67%). Globally, product profitability (73%), technology implementation (73%), and sales growth (72%) top the list.

3 In Life Sciences, the rating for digital enablement increases significantly from the past 24 months to the next 24 months (+8 percentage points).

Sector-specific findings over the next 24 monthsA Pharmaceuticals – The top-rated strategic priority is technology

implementation (71%); balance sheet management is the lowest (49%). This is similar to the overall results in Life Sciences and globally across industries.

B Medical Devices – The top-rated priorities are cost reduction (76%) and organization and talent (76%); balance sheet management ranks lowest (51%).

Strategic priorities align with save-to-transformThe save-to-transform cost management approach uses cost reduction to fund investments in growth and transformational digital technologies, while in turn using many of those same digital technologies to boost the efficiency and effectiveness of cost reduction programs. In

Life Sciences, the top-rated strategic priority over the next 24 months is technology implementation (69%), followed very closely by sales growth (67%) and digital enablement (67%). This broad set of balanced priorities typifies the save-to-transform mindset (see figure 16).

Figure 16. Strategic priorities

% of total respondents

Sales growth Cost reduction Balance sheet management Product profitability

Organization and talent Technology implementation Digital enablement

Glo

bal

Next 24 monthsPast 24 months


Phar

mac

eutic

als69%

61%73%

69%73%

69%

73%49%

43%65%

53%69%

59%

61%53%

49%59%

59%71%

63%

65%68%

61%

73%

68%73%

69%

72%


Life

Sci

ence

s

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

Med

ical

Dev

ices

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

57%47%

70%

58%70%

59%

66%68%

51%78%

65%73%

59%

73%76%

51%73%

76%68%

73%

70%63%

50%65%

66%69%

67%

67%

+14%

+24%

+17%

1

1

1

1

1

3 3

2

2

2

2

2

2

C

D

D

A

A

BB

B

Comparison to the past 24 months

C Pharmaceuticals – The focus on balance sheet management is expected to increase by 14%.

D Medical Devices – The focus on digital enablement and organization and talent are expected to increase by 24% and 17% respectively.

25


Pharmaceuticals and Medical Devices companies have very different cost reduction driversIn Life Sciences, cost reduction drivers vary widely between Pharmaceuticals and medical devices; also, they are

expected to evolve significantly over the next 24 months (see figure 17).

Figure 17. Cost reduction drivers

Survey findings1 In Life Sciences and globally across industries, the four top-rated cost

reduction drivers over the past 24 months were intensified competition, investment in growth areas, changed regulatory structure, and international growth opportunities.

2 In Life Sciences and globally across industries, the four top-rated cost reduction drivers over the next 24 months are expected to remain the same.

3 In Life Sciences, the focus on competition is expected to decrease by 6 percentage points moving from the past 24 months to the next 24 months.

Sector-specific findings over the next 24 monthsA Pharmaceuticals –The top-rated cost reduction driver is international

growth opportunities (63%); the lowest is decrease in liquidity (37%).B Medical Devices – The top-rated cost reduction driver is changed

regulatory structure (76%); the lowest is reduction in consumer demand (43%).

Comparison to the past 24 months

C Pharmaceuticals – In the Pharmaceuticals sector, reduction in consumer demand and international growth opportunities are expected to increase as cost reduction drivers by 30% and 24% respectively.

D Medical Devices – Conversely, in the Medical Devices sector reduction in consumer demand and international growth opportunities are expected to decrease as cost reduction drivers by 20% and 16% respectively.




52%56%59%

66%65%

63%

52%37%

41%51%

61%57%

51%

33%37%39%

47%49%

49%53%

43%53%

57%61%

67%66%65%

55%


+30%

-20%

+24%

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 900

10 20 30 40 50 60 70 80 90

45%

53%59%63%65%

59%

42%57%

70%70%

65%76%

70%

54%

62%

62%76%

73%73%

69%

43%48%

49%59%

59%59%

61%

43%

Significant reduction in consumer demandDecrease in liquidity and tighter creditUnfavorable cost position relative to peer group

Change regulatory structureRequired investment in growth areasIntensified competition among peer group

Increased international growth opportunities

A

A

B

B

Glo

bal

Phar

mac

eutic

als

Life

Sci

ence

s

Med

ical

Dev

ices

-20%

-16%

1

11

1

111

13 3

C

C

D

D

2222

22

22

26


Survey findings1 In Life Sciences, the most commonly developed capabilities were cognitive/AI (50%) and automation (45%).2 Globally across industries, the most commonly developed capabilities were automation (48%) and cognitive/AI (42%). 3 Zero-based budgeting (ZBB) was the least developed capability in Life Sciences (7%), even lower than the global average

across industries (12%).

Sector-specific findingsA Pharmaceuticals –The most commonly developed capability was improved processes for forecasting (45%); ZBB was the

least developed capability (8%).B Medical Devices – The most commonly developed capabilities were automation (59%) and cognitive/AI (59%), both higher

than the overall averages for Life Sciences and the global averages across industries.

Capability development in Life Sciences resembles the global resultsDevelopment of cost management capabilities in Life Sciences resembles the global pattern across all industries. Life Sciences companies had a somewhat greater emphasis on cognitive/AI (50% versus 42% globally across industries).

Global respondents had a slightly greater emphasis on automation (48% across industries versus 45% in Life Sciences) (see figure 18).

Figure 18. Capabilities developed over the past 24 months

Created a new executive position and/or full-time positions to drive cost management

Set-up or improved ERP infrastructure

Developed or implemented automation technologies

Developed or implemented cognitive and artificial intelligence technologies

Implemented new policies and procedures and strengthened the compliance mechanisms

Improved processes for forecasting, budgeting, and reporting to enable effective cost management

Implemented zero-based budgeting or process

0

10

20

30

40

50

60


2

2

2

1

1

3

A

A

B B

34%

41%

48%

42% 41%

34%

12%

16%

39%

45%

50%

39%

35%

7%10%

33%35%

43%

35%

45%

8%

24%

46%

59% 59%

43%

22%

5%

% o

f tot

al r

espo

nden

ts

27


Life Sciences companies have favored tactical cost actionsAccording to the survey results, Life Sciences companies favored tactical cost actions over strategic cost actions during the past 24 months. This is directionally aligned with the global trend across industries; however, implementation levels in Life Sciences are significantly lower across the board (see figure 19).

Tactical actions tend to produce incremental improvements and relatively small cost savings, whereas strategic actions have a much broader and deeper impact. Examples of strategic actions include: centralizing business activities (action 1 in the chart); structurally reconfiguring the business (action 2); and outsourcing/offshoring (action 3).

Figure 19. Implemented cost reduction actions over the past 24 months

Survey findings1 The three top-rated cost reduction actions implemented in Life Sciences over the past 24 months were improved policy

compliance (30%), streamlined business processes (27%), and increased centralization (25%).2 Similar to Life Sciences, the two top-rated actions implemented globally across industries were improved policy compliance

(37%) and streamlined business processes (37%).3 Respondents in Life Sciences focused more on tactical cost actions than strategic cost actions; this was similar to the

global pattern across industries, but with lower levels of implementation.

Sector-specific findingsA Pharmaceuticals – Similar to the overall Life Sciences and global results, the most implemented cost action in

Pharmaceuticals was improved policy compliance (29%); the least implemented was aligned incentives (14%).B Medical Devices – The most implemented action for Medical Devices companies was streamlined business process

(32%); the least implemented was outsourced business processes (14%).

Averages

Global PharmaceuticalsLife Sciences Medical Devices

32% 34% 24% 23% 25%20% 20% 21%

% o

f tot

al r

espo

nden

ts

3 3

2 2

1 11 A

A B

B35%31% 31%

36% 37% 37%

32% 32%30%

25%

20%

15%

24% 24% 24%

29%

14% 14%

22%

32%30%

27%

22%

16%

27%30%

22%

16%

25%22% 22%

15%

25%

18%

24% 24%

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2 Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7 Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

Action 9 Aligned incentives of executives or employees to cost reduction objectives

28


Strategic cost actions will be favored in the futureLooking ahead, Life Sciences respondents expect to shift their focus from tactical to strategic cost actions over the next 24 months. Change business configuration (action 2) is the top expected action both in Life Sciences (76% in-process or planned) and globally across industries (65% in-process or planned).

Figure 20. Expected cost reduction actions over the next 24 months

Survey findings1 In Life Sciences, the most expected cost actions over the next 24 months are change business configuration (76%

in-process or planned), increase centralization (71% in-process or planned), and automation/cognitive technologies (71% in-process or planned).

1 Globally across industries, change business configuration is also the top cost action (65% in-process or planned). 1 In the future, Life Sciences respondents expect to increase their focus on strategic cost actions relative to tactical

cost actions.

Sector-specific findingsA Pharmaceuticals – The two top-rated cost actions to be implemented over the next 24 months are increase

centralization (77% in-process or planned) and reduce external spend (77% in-process or planned); the lowest-rated is outsource business processes (55% in-process or planned).

B Medical Devices – Similar to the overall Life Sciences and global results, the top-rated cost action for Medical Devices respondents is change business configuration (86% in-process or planned); the lowest-rated is reducing external spend (54% in-process or planned).

Averages

62% 62% 69% 67% 67% 70% 74% 63%3

StrategicIn process of implementationNot implemented but planned35

%

% o

f tot

al r

espo

nden

ts

51%

53%

43% 47

%

49%

39% 48

%

47%

20%

42%

19%

23%

44%

21%

18%

43%

16% 20

%

42%

18% 18

%

46%

16% 26

%

40%

19% 19

%

43%

18%

24%

41%

22%

57%

49%

33%

47%

43%

31%

55%

43%

20%

20%

22%

20% 27

%

33%

22%

39%

43%

59%

57%

46%

57%

49%

38%

51%

22%

27%

14%

22% 5%

16%

16%

16%

Global PharmaceuticalsLife Sciences Medical Devices

21

11

A

A

AB

B

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2 Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7 Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

29


Implementation challenges are the top barrierImplementation challenges are the top barrier to successful cost reduction both in Life Sciences (65%) and globally across industries (65%). Medical device companies generally rated

cost reduction barriers much higher than average, while Pharmaceuticals companies generally rated them lower than average (see figure 21).

Figure 21. Barriers to successful cost reduction

Survey findings1 In Life Sciences, the three top-rated barriers to successful cost reduction are implementation challenges (65%), lack of an

effective ERP system (63%), and erosion of savings due to infeasible target setting (59%).2 Those same three barriers top the list globally across industries.3 Poorly designed reporting/tracking is seen as much less of a barrier in Life Sciences than globally across industries (-7

percentage points).

Sector-specific findingsA Pharmaceuticals – Similar to the overall results for Life Sciences and globally across industries, the top-rated barrier for

Pharmaceuticals companies is implementation challenges (61%); the lowest-rated barrier is poorly designed reporting/tracking (39%).

B Medical Devices – On average, Medical Devices respondents rate the barriers to cost reduction much higher than do their counterparts in Pharmaceuticals. The highest-rated barriers are lack of understanding/acceptance of the solution (70%) and implementation challenges (70%); the lowest-rated are weak/unclear business case (65%) and erosion of savings due to infeasible target setting (65%).

Lack of understanding/acceptance of the solution by the audience

Erosion of savings due to infeasible target setting

Weak/ unclear business case for cost improvement

Poorly designed reporting and tracking

Lack of an effective ERP system to enable date availability, decision-making, process improvement, performance management

Management challenges in implementing initiatives

0

10

20

30

40

50

60

70

80


57% 57% 58% 61% 62% 65%

55% 53% 51%59% 63% 65%

47%41% 39%

55%59% 61% 65%

70% 68% 65% 68% 70%

A

A BB

BB

11 1

2 2 23

3

% o

f tot

al r

espo

nden

ts

30


Lessons learnedThe top lessons learned in Life Sciences and globally across industries are: (1) invest in technology improvements to enable data availability, reliability, and decision-making processes, (2) design a solid tracking and reporting process,

and (3) assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase (see figure 22).

Figure 22. Lessons learned for effective cost management

Survey findings1 The top lessons learned in Life Sciences are: invest in technology improvements (73%), adjust targets to reflect reality

(66%), and design a solid tracking/reporting process (59%).2 Those same three lessons top the list globally across industries.3 “Design a solid tracking/reporting process” is rated significantly lower in Life Sciences than globally across industries (-11

percentage points).

Sector-specific findingsA Pharmaceuticals – The top-rated lesson is to adjust targets to reflect reality (67%); the lowest-rated lesson is to deploy

change management (45%).B Medical Devices – The top-rated lesson is to invest in technology improvements (86%); the lowest-rated lessons are to

develop a clear business case (65%) and adjust targets to reflect reality (65%).

Designate a full-time position to drive efficiency and cost improvement initiatives

Develop, validate and sponsor a clear business case for cost improvement

Deploy change management activities to raise awareness, acceptance, and benefits of initiatives

Design a solid tracking and reporting process

Assess, validate, and adjust targets reasonably according to the reality throughout the implementation phase

Invest in technology improvements to enable data availability, reliability, and decision-making process

0

10

20

30

40

50

60

70

80

11

12 2 2

3

3 A

A B B

B


61%65% 66%

70% 69% 72%

58% 57% 57% 59%66%

73%

51% 51%45%

49%

67%63%

68% 65%73% 73%

65%

86%

% o

f tot

al r

espo

nden

ts

31


Cost management maturity is very high in medical devices and much lower in PharmaceuticalsOverall, the percentage of Life Sciences companies that rate themselves high maturity (28%) is lower than the global average (35%). However, maturity ratings vary widely by sector. Only 12% of Pharmaceuticals companies

rate themselves high maturity, much lower than the 51% of Medical Devices companies that rate themselves high maturity (see figure23).

Figure 23. Cost management maturity levels

Survey findings1 In Life Sciences overall, 28% of respondents rate themselves high maturity and 52% rate themselves

intermediate maturity.2 Globally, 35% of companies across industries rate themselves high maturity.3 However, only 9% of Life Sciences respondents rate themselves at the lowest maturity level, compared to

15% globally across industries.

Sector-specific findingsA Pharmaceuticals – The percentage of Pharmaceuticals companies that consider themselves high maturity (12%) is much

lower than the overall averages in Life Sciences (28%) and globally across industries (35%).B Medical Devices – The percentage of Medical Devices companies that consider themselves high maturity (51%) is much

higher than the overall averages in Life Sciences and globally. Also, the Medical Devices sector has the lowest percentage of respondents that rate their companies at the lowest level of maturity (3%).

% o

f res

pond

ents

Lowest High

High

Intermediate

Low

Lowest

Cost policies and procedures are continually reviewed and examined to ensure best practices around efficiency and cost management

Relevant cost policies and procedures are typically well known, and personnel are trained and generally comply

There may be written cost policies and procedures documented but not readily available and essentially not followed

Few or no formal cost policies or procedures are employed or documented, or they are significantly fragmented

35%

34%

31%20%15%

52%34%9%

33%41%14%

22%24%3%

28%

51%

12%

Medical Devices

Pharmaceuticals

Global

Life Sciences

2

1

BB

A

3

3

32


33


Digital technologies are having a major impact on all aspects of business in Life Sciences—including cost management. Breakthrough innovations made possible by digital technology are enabling Pharmaceuticals and Medical Devices companies to operate and compete more effectively in an increasingly digital world. They also have the potential to enable new levels of cost savings.

Digital and technology solutions applied to cost management in Life Sciences

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in Latin America

34

Global Life Sciences Pharmaceuticals Medical Devices0

10

20

30

40

50

% o

f tot

al r

espo

nden

ts


Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

25% 25%

35%

49%

7%

17%

27%

43%

6%

18%

27%

47%

8%

16%

27%

38%

1

1

A

A

B

B

2

2

3

3

Survey findings1 In Life Sciences, cloud was the most widely implemented technology covered by the survey (43%); automation was the

least widely implemented (7%).2 Cloud was also the most implemented technology globally across industries (49%), followed by business intelligence (35%).3 Implementation of cloud is slightly higher globally across industries than in Life Sciences (+6 percentage points).

Region-specific findingsA Pharmaceuticals – Similar to the overall Life Sciences and global results, the most widely implemented technology among

Pharmaceuticals companies was cloud (47%); the least widely implemented was automation (6%).B Medical Devices – The most widely implemented technology among Medical Devices companies was cloud (38%); the

least widely implemented was automation (8%).

Cloud leads the packAmong the technologies covered by the survey, the most widely implemented in Life Sciences over the past 24 months was cloud (43%), followed by business intelligence (27%) and

cognitive (17%). Cloud was also the most widely implemented technology globally across industries (49%) (see figure 24).

Figure 24. Technology implementation levels (past 24 months)

35


Cloud

0

10

20 30 40 50 60 70 80 90 100

Life

Sci

ence

sG

loba

l

63%

43%

48%

64%

56%

33%

46%

69%

RPA Cognitive & AI

Reduce Costs and Increase Productivity

Increase revenue Enhance product/service capabilities Tighten data security and Improve business control

1

1

0

10

20 30 40 50 60 70 80 90 100

80%

57%

53%

69%

86%

43%

57%

71%

0

10

20 30 40 50 60 70 80 90 100

73%

56%

59%

68%

63%

38%

56%

81%

2

2

3

3

% o

f tot

al r

espo

nden

ts

Survey findings1 The top reason for applying cloud in Life Sciences and globally across industries is to tighten data security and improve

business control.2 The top reason for applying RPA, both in Life Sciences and globally, is to reduce costs and increase productivity.3 The top reason for applying cognitive/AI in Life Sciences is to tighten data security and improve business control; globally

across industries, the top reason is to reduce costs and increase productivity.

Top reasons for applying digital technologiesIn Life Sciences, tightening data security and improving business control is the top reason for applying both cloud (69%) and cognitive (81%). The top reason for applying RPA is to reduce costs and increase productivity (86%) (see figure 25).

Figure 25. Reasons for applying technologies

36


Unable to assess results at this point

Results according to expectations

Results below expectations

Results above expectations

Global

Cloud

29%

56%

13%

2%

Global

35%

41%

23%

1%

Global

36%

47%

16%

1%

Life Sciences

13%

68%

16%

3%

Life Sciences

17%

83%

Life Sciences

13%

74%

13%

RPA Cognitive & AI

1

2

2

3

3

Survey findings1 When implementing cloud, 68% of Life Sciences respondents had their expectations met and 13% had

their expectations exceeded.2 When implementing RPA, 83% of Life Sciences respondents had their expectations met and 17% had their

expectations exceeded.3 When implementing cognitive/AI, 74% of Life Sciences respondents had their expectations met and 13%

had their expectations exceeded.

Most technology implementations meet or exceed expectationsWhen implementing each of the technologies covered by the survey, more than 81% of Life Sciences respondents had their expectations met or exceeded (see figure 26).

Figure 26. Results of implementing technologies

37


0

10

20

30

40

50

60

70

80

Medical DevicesPharmaceuticalsLife SciencesGlobal

In process of implementationNot implemented but planned

38% 39

%

39%

33%

24%

20%

62%

47%

59%

24%

14%

63%

45%

34%

44%

39%

32%

25%

77%

49%

69%42%

10%

76%

35%

35%

43%

37%

35%

25%

71%

41%

69%

47%

4%

82%

59%

32%

46%

41%

27%

24%

86%

59%

70%

35%

19%

68%


Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

2 2

3

3

1 1

1

A

A

B

B

% o

f tot

al r

espo

nden

ts

Survey findings1 In Life Sciences, the most actively implemented technologies are expected to be automation (77%) and cognitive (76%); the

technology expected to be least actively implemented is cloud (49%).1 As in Life Sciences, the technologies expected to be most actively implemented globally across industries are automation

(62%) and cognitive (63%). 1 Implementation expectations for automation are 15 percentage points higher in Life Sciences than globally across industries.

Sector-specific findings1 Pharmaceuticals – The technology expected to be most actively implemented over the next 24 months in Pharmaceuticals

is cognitive (82%); the least actively implemented technology is expected to be cloud (41%).1 Medical Devices – Similar to the overall Life Sciences and global results, the most actively implemented technology in

medical devices is expected to be automation (86%); the least actively implemented technology is expected to be cloud (59%).

High levels of technology implementation are expectedConsistent with the global pattern across industries, the technologies expected to be most actively implemented in Life Sciences over the next 24 months are automation (77%) and cognitive (76%). The technology expected to be least

actively implemented is cloud (49%), most likely because current implementation levels for cloud are already very high. Implementation expectations in Life Sciences tend to be significantly higher than the global averages (see figure 27).

Figure 27. Technology implementation levels (next 24 months)

38


0

10

20

30

40

50

60



Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions0

10

20

30

40

50

60

No designated leader

9%

17%

37%

26%29%

8%

29%

20%

39%

28%

53%

48%

14%10%

6%

17%

24%

30%

24%

0%

118%

86%

190%

223%

222%

N/A

129%

17%

77%

100%

Designated leader

1

2

3

% o

f tot

al r

espo

nden

ts%

of t

otal

res

pond

ents

Survey findings1 Life Sciences companies with a designated digital leader tend to have much higher levels of technology implementation (+86%).2 Globally across industries, the impact of a designated digital leader on technology implementation levels is very high (+118%),

even higher than in Life Sciences.3 Business intelligence is the technology with the greatest difference in digital leader impact between Life Sciences and the

global average (+17% in Life Sciences versus +129% globally across industries).

Digital leaders make a differenceIn Life Sciences, companies with a designated digital leader tend to have much higher levels of technology implementation; however, the impact in Life Sciences is lower than globally across industries (see figure 28).

Figure 28. Impact of a designated digital leader

39


Cost management practices and approaches have grown increasingly sophisticated over time, with digital solutions—although still maturing—now representing the most advanced level of cost management. Companies that relied on more traditional cost management methods in the past are now finding that digital solutions can open the door to a whole new level of savings—as well as enable new and more innovative business models.

The rise of digital technologies and innovations is also contributing to a shift in how Life Sciences companies around the world approach cost management, with the save-to-grow mindset from 2017 steadily expanding into a save-to-transform mindset where investments in digital enablement and transformational technologies play a key role.

Save-to-transform as a catalyst for embracing digital disruption

40

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the banking sector

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

52%56% 56%

47%50%

57%53%

57%

69% 69%

59%

67%

Cybersecurity Digital disruption Other Past 24 months Next 24 months

Cybersecurity concerns (57%) and digital disruption (57%) as perceived as the top external risks in life sciences

Digital enablement has the largest increase from past to next 24 months in life sciences

Life SciencesGlobal

+14%

External risks

% o

f tot

al r

espo

nden

ts

% o

f tot

al r

espo

nden

ts

1

2

A A

A Cybersecurity and digital disruption were identified as the top external risks by respondents in Life Sciences (both at 57%).

1 Over the next 24 months, digital enablement is the top strategic priority for Life Sciences (67%), similar to the global average (69%).

2 Digital enablement is expected to increase by 14% as a strategic priority compared to the past 24 months.

Digital issues rise to the top of the agendaCybersecurity and digital disruption are now recognized as the top external risks in Life Sciences (both at 57%). Meanwhile, digital enablement has emerged as the

industry’s top strategic priority (67%) over the next 24 months—a 14% increase over the past 24 months (see figure 29).

Figure 29. Digital issues are top-of-mind in Life Sciences

41


TurnaroundSave-to-turnaround. Focus on immediate actions to reduce costs, maximize liquidity, achieve stability, and capture savings to avoid further deterioration of the business.

FundSave-to-fund. Focus on actions that help improve cost and competitive position; avoid cuts that might inhibit future growth rebalance costs to fund investment in business strategy enablers.

GrowSave-to-grow. Enable or develop a scalable cost/business platform to fuel growth and investment in core capabilities while supporting a differentiated business strategy.

TransformSave-to-transform. Invest in digital technologies and technology infrastructure to make operations more efficient and effective, enabling new and more agile business models to prosper in a digitally disrupted market.

Turnaround Fund Grow Transform

Cost levers

Liquidity Cost Growth Growth

Cost Growth Cost Cost

Talent Talent Talent Talent

Growth Liquidity Liquidity Liquidity

Prio

rity

+

-

Save-to-growIn the recent past, most Life Sciences companies were operating in save-to-grow mode. Cost and growth were the main business levers, with talent (including capabilities) as another key component (see figure 30). In this mode, cost

reduction was a high priority, with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy.

Figure 30. The continuum of cost management approaches

42


1. Save-to-turnaround 2. Save-to-fund 3. Save-to-grow 4. Save-to-transform

Scope Narrow Broad

Competitive situation

• Losing market share • Structural operating flaws • Liquidity concerns • Flat profit growth

• Adjusting to demand levels • Growth concerns • Healthy balance sheet • Excess cash flow/reserves • High growth potential

Playbook

Defense-oriented playbook

• Short-term tactics to improve balance sheet • Cash flows • Stabilize business through any cost and/or liquidity

improvements • Compensate sales decline

Growth-oriented playbook

• Achieving profitable and sustainable growth through structural cost efficiencies and improvements

• IT investments • Innovation • Actions to strengthen performance and competitive position

Cost levers priority

Save-to-turnaround Save-to-fund Save-to-transform levers

Growth Talent Cost Liquidity Growth Talent Liquidity Cost Growth

Technology

Talent CostLiquidity

New

Low Low HighHigh Low High

Save-to-grow expands into save-to-transformMany Life Sciences companies are now shifting into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and implementation of technologies that can transform a

business and help it capitalize on the vast opportunities of an increasingly digital world. Shifting into save-to-transform mode means that in addition to cost, growth, talent, and liquidity, technology is also a high priority (see figure 31).

Figure 31. Save-to-grow expands into save-to-transform

Save-to-transform not only helps a company capitalize on digital opportunities, it can also position the business to withstand potential adversity that may be on the horizon—such as an economic downturn or credit crisis—by using the power of digital solutions as the key to unlock new levels of cost savings, efficiency, and financial performance.

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Save-to-transform can not only help a company capitalize on digital opportunities, it can also position the company to withstand potential adversity that may be on the horizon by using the power of digital solutions as the key to unlock new levels of cost savings.

Looking ahead

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ConclusionThe survey findings—consistent with our direct experience working with leading Life Sciences companies around the world—highlight the continued importance of effective cost management throughout the industry. Based on survey data, Medical Devices companies appear to be under the greatest pressure to protect their margins through aggressive cost reduction. However, cost management is prevalent throughout the Life Sciences industry, not just as a way to preserve margins but, more importantly, as a way to fund investments in technology and transformation that can help companies position themselves for long-term success in a Life Sciences marketplace that is very different from the past.

Although many Life Sciences companies are struggling to fully achieve their cost reduction goals, this should not deter their efforts. Ultimately, the larger goal of save-to-transform is to more strategically position the company for a digitally-disrupted future. Keeping that larger transformation objective front-of-mind is helpful to achieving sustained cost management success.

Also, there are valuable cost management lessons to be learned from other industries and regions. While Pharmaceuticals and Medical Devices companies face unique challenges, the survey data shows that many of the challenges of cost reduction and digital transformation are common globally across industries. Applying those external insights to cost management in Life Sciences can flatten the learning curve and help companies achieve their savings and transformation goals more quickly and easily.

AuthorsOmar Aguilar PrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP USA +1 215 870 0464 International +1 267 226 [email protected]

David Izquierdo SánchezSenior Consultant Monitor Deloitte Deloitte Consulting [email protected]

Sakshi Kastiya Consultant Strategy & Operations Deloitte Consulting India Private Limited [email protected]

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US Contacts

US Strategic Cost Transformation(MarginPLUS™) Leaders

Caleb LongenbergerPrincipal Strategy & AnalyticsMarginPLUS Co-LeadDeloitte Consulting LLP +1 513 560 3407 [email protected]

Faisal ShaikhPrincipal Mergers & AcquisitionsMarginPLUS Co-LeadDeloitte Consulting LLP+1 484 885 4699 [email protected]

US Life Sciences Leaders

Doug BeaudoinPrincipalUS Life Sciences & Health Care Industry LeaderDeloitte Consulting LLP +1 617 901 [email protected]

Mike DeLonePrincipal US Life Sciences Sector LeaderDeloitte Consulting LLP+1 215 299 [email protected]

Tom FezzaPrincipal US Biopharmaceutical Segment LeaderDeloitte Consulting LLP+1 917 539 [email protected]

Glenn SnyderPrincipal US Medical Technology Segment LeaderDeloitte Consulting LLP+1 415 699 [email protected]

MarginPLUS™ Life Sciences Team

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the Life Sciences sector

Laks PernenkilPrincipal Enterprise PerformanceDeloitte Consulting LLP +1 415 203 1981 [email protected]

Will EngelbrechtPrincipal Mergers & AcquisitionsDeloitte Consulting LLP +1 646 645 [email protected]

Varun Budhiraja Principal Mergers & AcquisitionsDeloitte Consulting LLP +1 818 441 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]


Doug BeaudoinPartnerLife Sciences & Health Care | Global Consulting LeaderDeloitte Consulting LLP +1 617 901 4783 [email protected]

John HaugheyPartnerLife Sciences | Global Consulting LeaderDeloitte Touche Tohmatsu Limited +44 7786 111477 [email protected]

AMERICAS

BrazilHeloisa MontesPartnerStrategy, Analytics and M&A LeaderDeloitte Consultores+55 11 5186 [email protected]

Caroline YokomizoPartnerStrategic Cost Transformation | Brazil Leader Deloitte Consultores+55 11 99258 [email protected]

Enrico de VettoriPartnerCore Business Operations | Life Sciences and Health Care Country LeaderDeloitte Consultores+55 11 99981 [email protected]

CanadaSimon KingSenior ManagerStrategic Cost Transformation | Operations & Organization LeadDeloitte Canada+1 437 993 4087 [email protected]

ChilePablo TipicPartnerStrategic Cost Transformation| Operations Transformation Chile LeaderDeloitte Advisory SPA+569 6844 [email protected]

Daniel OrtegaDirectorStrategic Cost Transformation| Offering LeaderDeloitte Advisory SPA+569 9649 [email protected]

Antonio MartinezSenior ManagerHealth Care | Consulting LeaderDeloitte Advisory SPA+562 2729 [email protected]

MexicoEduardo PachecoPartnerStrategic Cost Transformation | Mexico Strategy, Analytics and M&A LeaderDeloitte Consulting Mexico+52 55 5080 [email protected]

Monica GuisaSenior ManagerStrategic Cost Transformation | Operations TransformationDeloitte Consulting Mexico+52 55 4441 6054 [email protected]

ASIA PACIFIC

AustraliaTony O’DonnellPartnerFinancial Services | Operations TransformationDeloitte ToucheTohmatsu+613 9671 [email protected]

China – Hong KongDavid Wai Kit WuPartnerFinancial Services | Operations TransformationDeloitte Advisory (Hong Kong)Limited+86 21 [email protected]

IndiaGaurav GuptaPartnerBusiness Model Transformation | Operations TransformationDeloitte Touche Tohmatsu IndiaLLP+91 12 4679 [email protected]

JapanYusuke KamiyamaPartnerMergers & Acquisitions (M&A) | Strategy, Analytics and M&A Deloitte Tohmatsu ConsultingLLC+81 8 [email protected]

Tetsuo TakasagoPartnerStrategic Cost Transformation | Operations Transformation LeaderDeloitte Tohmatsu ConsultingLLC+81 7 [email protected]

New ZealandPaul ShallardPartnerOperations Transformation | Core Business Operations LeaderDeloitte Limited+64 21 645 [email protected]

SingaporeWendy LaiPartnerBanking and Capital Markets (FS) | SEA Core Business Operations LeaderDeloitte Consulting PteLtd+65 6232 [email protected]

Global Contacts


Global Contacts

Jean-Michel PintoDirectorStrategic Cost Transformation| Strategy and Business Design Deloitte [email protected]

Guillaume PicqDirectorStrategy & Business Design | Monitor DeloitteDeloitte [email protected]

Germany

Uemit AydinPartnerStrategy & Operations | Operations TransformationDeloitte Consulting GmbH+49 151 5807 [email protected]

Michael DohrmannPartnerLife Sciences and Health Care| Industry LeadDeloitte Consulting GmbH+49 151 5800 2460 [email protected]

Netherlands

Willem Christiaan van Manen PartnerOperations Transformation | Business Model Transformation LeaderDeloitte Consulting B.V.+31 6 1004 2582 [email protected]

Nordics

Tore Christian Jensen (Denmark)PartnerOperations Transformation| Nordic LeadDeloitte Denmark+45 22 20 28 [email protected]

Thomas Andersen (Denmark)PartnerLife Sciences | Industry LeaderDeloitte Denmark+45 22 20 27 [email protected]

Anders Harritz Lund (Denmark)Senior ManagerStrategic Cost Transformation | Offering LeaderDeloitte Denmark+45 30 93 69 [email protected]

Tuomo Saari (Finland)PartnerStrategy, Analytics, M&A| Finland offering LeaderDeloitte Finland+35 84 0505 9159 [email protected]

Bjorn Grenman (Norway)PartnerStrategic CostTransformation| Norway offering LeaderDeloitte AS+47 911 61 [email protected]

Fredrik Gillebo (Norway)Senior ManagerStrategic Cost Transformation | Operations TransformationDeloitte AS+47 917 84 055 [email protected]

Jonas Malmlund (Sweden)PartnerDeloitte Sweden+46 75 246 33 [email protected]

Ireland

Alan FlanaganPartnerFinance Transformation | Enterprise Technology and Performance LeaderDeloitte Ireland+35 314 172 [email protected]

Italy

Umberto MazzuccoEquity PartnerBusiness Model Transformation | Mergers and AcquisitionsDeloitte Consulting SRL+39 02 8332 [email protected]

Spain

Gorka BrionesPartnerStrategic Cost Transformation | Strategy and Business Design Deloitte Consulting, S.L.+34 9 1443 [email protected]

Jorge BagánPartnerLife Sciences & Health Care | Consulting Industry LeadDeloitte Consulting, [email protected]

SwitzerlandAntonio RussoPartnerAnalytics and Cognitive | Consulting Offering LeaderDeloitte Consulting AG+41 7 9102 4673 [email protected]

Patrik SpillerPartnerMonitor Deloitte | Strategy and Business Design LeaderDeloitte Consulting AG+41 7 8649 5605 [email protected]

United Kingdom

Lorraine BarnesPartnerCore Business Operations | UK LeaderDeloitte MCS Limited+44 77 6589 [email protected]

EUROPE

Austria

Alexander KainerPartnerStrategy, Analytics and M&A | Austria offering LeaderDeloitte Services Wirtschaftsprüfungs GmbH+43 664 805 372 [email protected]

Belgium

Catherine HannossetPartnerStrategy & Business Design | Strategic Cost Transformation offering lead + 32 494 56 68 [email protected]

Ben Desmet DirectorStrategic Cost Transformation| Strategy & Business Design Deloitte Belgium+32 496 72 77 [email protected]

Croatia

Zlatko BazianecPartnerStrategy and Business Design | Consulting Country LeadDeloitte Croatia+385 1 2351 [email protected]

France

Olivier PerrinPartnerBusiness Transformation | Monitor Deloitte Deloitte France+33 6 87 14 17 [email protected]

Alexandre KuzmanovicDirectorStrategic Cost Transformation| Business Transformation Deloitte [email protected]


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This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms or their related entities (collectively, the “Deloitte Network”), is, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances, or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

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