Get Everybody on the Same Page

You might think having everyone aligned on the same goal would be enough. We even have the financial incentives aligned. But often individuals argue, vehemently, on the means toward that goal, even to the point of self-destruction. For example, in the U.S. both Democrats and Republicans sincerely seek life, liberty and the pursuit of happiness for all citizens. Arguments about the means toward that end frequently derail any progress, and the electorate regularly ‘throws out the bums’ hoping for better results with the next election.

As in the above example, there is often enough wiggle-room in any statement of goals to give entrance to a plethora of different means. This is especially true in our blockbuster+ pursuit, which balances efficacy, safety, reputation of the firm (“limp node disorder? no, erectile dysfunction … that’s what we’ll call it!”), strategic direction, etc. Rhoads describes the challenge of reconciling three divergent worldviews, those of the economist, the lawyer and the engineer. Each looks at the same problem through quite different lenses and comes up with quite different solutions. We have a much tougher challenge and a much greater divergence of views during R&D commercialization+. In our case, recall, Greed also has a seat at the table.

We need to get everyone on the same page, and yet, we have already argued we need to respect divergent views, and this includes views as toward the means. We reconcile this contradiction in the way in which we align financial incentives, our common unit of measure. We use financial incentives to build a path toward agreement on the best means. And, we do this without further stoking the fires of greed and poisoning interpersonal relationships.

Financial Incentives

Time-to-Market+ (TTM), predicated on the value of remaining-patent-life for a product, has been designated as one of our Worst Practices+. TTM states that a company loses more than one million U.S. dollars for every day of delay in commercialization of a blockbuster product (1 billion divided by 365 days discounted to today’s dollars). The clock started ticking on patent protection back before graduation+, and there is a fixed end-date for when the patent expires. Readers from outside the pharmaceutical industry may not appreciate the seductiveness of this argument: it induced the pharmaceutical industry to spend several billion dollars for efficiency improvements to commercialization that have now been shown to give zero benefit. Indeed all this sunk cost+ stands smack in the way of acceptance of World Class R&D recommendations. Time-to-Market is a myth, as are most other efficiency plays in commercialization for innovative products.

But the myth persists.

We derail the myth by subsuming it within a concept of Pay-for-Performance+. All participants in the commercialization pursuit get paid based on the value of the prototype+ at the end of commercialization. Performance bonuses are paid based on the end value of the commercial product, called Product Valuation+, and not on the speed or efficiency of activities performed to get to the end.

For example, in the pharmaceutical industry, you will no longer get pay-for-performance merely by recruiting clinical trial patients faster. Faster patient recruitment may contribute to product value, which is partially determined by the number of years remaining on the patent life of a product. But faster recruitment does not of necessity contribute to product value. Faster recruitment of lower quality patients (e.g., suggestibles or hypochondriacs) may instead lead to lower product value, and to lower bonuses under pay-for-performance despite getting to the end of commercialization faster.

Time-to-Market implies a strategic focus on efficiency and speed: its very name evokes images of a race. Pay-for-performance flips that thinking and pushes any focus on efficiencies and speed back down into individual procedures or tasks. Do the task as fast as you can, but don’t come to me complaining that the step in front of you is holding you up or slowing you down. At that moment you unleash the efficiency experts into areas where they should never be allowed. At that moment you risk sacrificing product value and your rewards under pay-for-performance, in exchange for a false sense of achievement.

We usurp the argument of remaining-patent-life for our own purposes in the use of Pay-for-Performance. We respect divergent views even to the point of allowing for divergent means toward the goal. Alternate Competing Hypotheses+ is an expansive enough technique to include both the goal and the means toward that goal. Each alternate has its own Product Valuation, updated continuously, including an estimate of its time-to-completion and impact on the remaining-patent-life. Remaining-patent-life is one of many variables in the calculation of Product Valuation. When we say ACH is a tallest-man-standing approach, this says that the alternate with the highest Product Valuation, and its means, is in the lead. No means is ever summarily dismissed: you merely need to show how your better means out-competes her faster means. We respect divergent views, all of them, but over time certain views will gain and maintain the lead.

Making pay-for-performance work well is tough, and rates a separate discussion. Consider the challenges:

  • The performance measure is unitary: one product valuation rewards all. Individual vendors will chafe at having their rewards tied to the performance of others they either don’t know or don’t trust. And, a unitary measure runs the risk of encouraging short-term thinking and answers.
  • We risk endless discussions on the definition and measure of performance. How do we determine product valuation at the end of commercialization? Millions of U.S. dollars may hang in the balance.
  • We risk not being able to recruit first-tier commercialization vendors who fixate on today’s one-in-ten success rate (even though much of the fault may be due to their own mechanical behaviors+ – leveraging many junior staff under the supervision of a few overworked senior staff). Pay-for-performance only works well when there’s a reasonable rate of success.
  • In the pharmaceutical industry we risk being held hostage+ to payment terms dictated by a few oligarchistic vendors of clinical trial services. The industry has decimated its own capabilities in this area and handed the work over to a collection of shade-tree mechanics.

The challenges of making pay-for-performance work well are daunting. The stakes are high and you risk inflaming the passion of Greed at the moment it is least welcome.

Pay-for-performance keeps all commercialization team members aligned, at least from a financial perspective. There can be a dozen separate legal entities involved. Everyone cares about product valuation, our common unit of measure, and this is updated quarterly, if not monthly. It’s a barometer of how well the commercialization team is performing collectively, and is calculated with enough frequency to allow for timely corrective actions. Product Valuation gives rapid feedback on the quality of our actions and decisions – and there will be many diverse individuals who will passionately care about the consequences of those actions.

Pay-for-performance, by definition, increases performance by tying it to pay. We point out this tautology to reinforce the crucial importance of doing pay-for-performance well: poorly executed it can wreak so much havoc and discord that you’ll wish you had done nothing at all.

Emotional Incentives

You see a bit of yourself reflected in the work-at-hand. You take pride in the product because it’s got your signature on it, and you protect the whole for the sake of your part. This is the emotional incentive. We incent you to greater levels of effectiveness by providing you the chance to mark the product with your own signature.

Whereas financial incentives can operate at the level of the tribe, emotional incentives are at the level of the individual. We seek ways in which individual attribution can be made clear. The parts have to mesh, obviously, but any individual can point to, and take pride in his or her contribution to a major component in the commercial product. The individual takes pride and proclaims their attribution amongst peers in public settings. The product becomes identified with the individual and vice versa.

Franchisee+ team members have an innate emotional attachment to the prototype: it’s their baby. We continue to nurture this attachment, but the greater challenge is to build attachments for the rest of the commercialization team. External team members often first hear of the prototype when their boss tells them they are on the team. We seek deliberate means to build and nurture emotional attachments of these new team members.

Unlike Financial Incentives, there is no common unit of measure (e.g., money) nor any overarching mechanism (e.g. pay-for-performance) for emotional incentives. Individuals may take pride in their work activities, but the opportunities are few and fleeting where they can inject their signature into the physical product. The best we can do is to make sure these few and fleeting moments are not missed. We do this by setting up the work in a way that welcomes new ideas and gives each new idea a chance to compete for the attention of the team. Here are but a few of the ways in which we make this happen:

  • Valuation Change Request+ ...more – You have a way to improve the value of the end product? Submit a request for consideration by the team. We recognize your signature in the VCR process.
  • Free-Format Proposal+ ...more – You (the vendor) propose your work without preconditions. Your proposal is free-format: you tell us the best way to turn this prototype into a blockbuster product (from the viewpoint of your particular specialty). On acceptance, you get to execute to your own best thinking. You sign your own work order.
  • Alternate Competing Hypotheses ...more – There is more than one way to get to the end. ACH gives you an outlet for your passionately held beliefs on the best way to execute the commercialization pursuit. You see your signature in the activities of the team.

New ideas (and a personal sense of ownership) come in the product design, the approach to commercialization (i.e., the means), and in the presentation of the product to the consumer. Recall it’s not mere functionality being purchased by the consumer. It’s the overall subjective experience that sells a product or service, from the moment of product purchase to the moment of product replacement. The chance to add a personal touch spans the tangible (e.g., the prototype and the means toward that prototype) and the intangible (e.g., impressions the product makes in the marketplace).

The franchisee is the common customer for everyone working on commercialization. They are the point of convergence that makes sure everyone is working on the same page. We now understand that when we say ‘on the same page’ we’re referring to an attitude taken toward the work. We welcome dissent and new ideas. We are all looking for ways to allow the individual to make his or her mark on the project. We are not overly beholden to the quickest or least expensive path to the end. Our overarching goal is effectiveness: there is no payout until a blockbuster product is at the finish line – not for the franchisee and not for team members.

Home Page September 2010