A myth long believed at pharma companies –as well as at other companies — is that by by hiring more salespeople you can proportionately increase sales without limit. Want to double sales? Hire twice as many sales people.
Unfortunately, it doesn’t work. Everyone knows that pharma sales reps are less effective than they used to be (see “A Crisis in Professional Detailing“). The increase in the number of sales calls is not proportionate to the increase in number of sales reps. Although the pharmaceutical sales force has doubled between 1995 and 2000, the number of audited calls has only increased by 10%. Realistically, reps average only 2 quality details per day (quality details includes discussion of features, benefits, and data). The reps have less time per call, are only able to deliver incomplete messages, and aren’t able to really differentiate their product from the competition’s.
Pharma companies should have taken a lesson from the classic book “Mythical Man Month,” which explained why throwing more people at a problem often makes the problem worse.
The book tells the story of how an IBM operating system was developed. When the project got behind schedule, they would add more programmers. They found, however, after a certain point this practice became counterproductive because the amount of communication necessary to coordinate activities between team members — e.g., meetings — made the whole process less efficient.
Although you can measure a project by using “man-months,” which is the number of people times the number of months it takes to complete the project, men (or women) and months (time, units sold) are not equivalent. Hence, if 100 reps can make 10,000 calls on physicians in a given time period, you should not expect to double the number of calls by doubling the number of reps.
The pharma industry may have fallen into the “mythical man-month” trap. For a time, sales force automation may have masked the problem, but now even the use of technology cannot compensate for the bloat. When times were good — lots of patent-protected blockbuster drugs, no backlash against drug prices and pharma industry profits — it did not matter how inefficient the sales force was. Now that market forces are starting to turn negative, the bloat (inefficiency) becomes unsustainable.
Pfizer has recently signaled that it may lay off as much as 30% of its salesforce (see “Pfizer to Slash 30% of its Sales & Marketing Staff“). “What will be interesting will be the responses of Pfizer’s competitors,” said a member of the PHARMA-MKTING online discussion group in a recent post. “Normally one would expect others to move aggressively to capitalize on Pfizer’s unilateral disarmament. I would not be surprised, however, to see other companies doing the same thing.”
Another comment from a PHARMA-MKTING member:
“No-one wants to be the first one to back off, but it shouldn’t surprise anyone that Pfizer has the guts to do it. Let’s hope Wall Street doesn’t beat them up too badly for it.”
Meanwhile, FierceBiotech reports:
“Pfizer has been hammered on Wall Street by critics who contend the drug giant has failed to add new
blockbusters to its pipeline even as research and development spending continues to rise. The drug maker has annual revenue of $53 billion and a big margin with $16 billion in profits. But with new generic competition on the horizon and questions over its Cox-2 inhibitors savaging sales, analysts believe Pfizer will have to restructure in order to maintain profitability.”
Let’s see, $16 billion “profit” from $53 billion in sales. If my math is right, that’s a 30% margin! That’s a great year!
But these Wall Street guys always look on the dark side: “It probably can’t get any better next year,” the analyst says, “so let’s sell the stock!” But Pfizer wants to keep the stock price up, So what do they do? They hint that deep cuts in personnel are on the way. “These cuts will saves oodles of money,” says the analyst, “so let’s buy the stock!” This has the desired effect as far as Pfizer stockholders and executives are concerned — an instant spike in
stock prices. “Let’s keep the rumor going until April,” says Pfizer, “when we can report a good quarter and continue to buoy up the stock price!”
Meanwhile, what are the Pfizer employees feeling right now? They just delivered a terrific year, yet nearly one in three face losing thier job.
O, well! That’s the marketplace for you!
