Vas Narasimhan, CEO of Novartis AG
It’s a familiar story. A big, financially successful corporation sees that firms which have mastered digital technology can move more quickly, operate more efficiently, mobilize more resources, attract more talent, win over customers more readily, and enjoy more elevated market capitalizations. But when they invest in digital technology, the initial results are disappointing.
“Many companies struggle to reap the benefits of investments in digital transformation, while others see enormous gains?” say Marco Iansiti and Satya Nadella in their article “Democratizing Transformation” in HBR (May-June 2022). “What do successful firms do differently?”
Digital transformation, the authors say, “requires that executives, managers, and front-line employees work together to rethink how every aspect of the business should operate.” This is not an easy message to digest or implement, especially when the initial results of digital investments are disappointing. A firm that is finding the right path is Novartis, a Swiss firm with over 100,000 employees that researches, develops, manufactures, and markets healthcare products in more than a hundred countries.
The Case Of Novartis
Novartis is the result of a 1996 merger between two pharmaceutical firms, Ciba-Geigy and Sandoz. By traditional standards, it is a successful, well-managed firm. It has a market cap of $188 billion and a net income $23 billion. It has a price-earnings ratio of 14.
It has however underperformed both S&P500 and other health companies in total returns over the last ten years: 106% vs 183% for health sector peers and 261% for the S&P 500. (Figure 1).
Figure 1: Total return 2017-2022: Novartis vs SP 500 vs S&P Health Firms
1. The Starting Place For Novartis
The mission of Novartis is admirably simple and customer-focused: “to discover new ways to improve and extend people's lives.” Over the past decade, Novartis had invested heavily in digital transformation. Yet the results were disappointing. As one analyst explained, The main reasons included the firm’s “lack of focus, comparatively weak profitability and seemingly unending restructuring efforts.”
The CEO since September 2017 is Vasant Narasimhan, a U.S. citizen of Indian descent. He has a bachelor's degree in biological sciences, an M.D. from Harvard Medical School and his master's degree in public policy from the John F. Kennedy School of Government. He joined Novartis in 2005 from McKinsey and rose quickly through the ranks to become chief medical officer and global head of drug development. He became CEO at the young age of 41.
As CEO, Narasimhan inherited a company that his predecessor had spent most of his time restructuring and pruning. He set out to use digital to make more gains.
As the Wall Street Journal reported in 2018, “as CEO, he is pushing a series of tech-based initiatives he says could jump-start the company’s drug pipeline. He wants to introduce artificial-intelligence to find new biomarkers, molecules that can help identify patients most likely to respond to a specific treatment and speed up clinical trials.”
2. First Steps In Digital Transformation
When Novartis began these efforts, digital and technology as in most firms were the province of the IT department. Its investments in technology consisted almost entirely of packaged enterprise applications, implemented by the IT department with the guidance of external consultants, vendors, or systems integrators. Like most firms, technologists and data scientists worked separately in organizational silos.
As Novartis moved its technology infrastructure to the cloud and invested in data platforms and data integration, it invested in staff. It “recruited AI specialists and data scientists to build machine-learning models and deploy them throughout the firm.” But it “did not have larger and more-diverse groups of employees—executives, managers, and front-line workers—coming together to rethink how every aspect of the business should operate.”
3. The First Steps Fail
As a result, the authors report, “even as the technical teams grew, managers from across the business—sales, supply chain, HR, finance, and marketing—weren’t embracing the newly available information, nor were they thinking much about how data could enhance their teams’ work.”
At the same time, the data scientists could not see into the business units and could not integrate data into day-to-day operations. As a result, the investments resulted in few successes.
It wasn’t a money problem. Novartis spent heavily on digital. A study by the HBR authors of 150 firms showed that results “don’t depend on the relative size of IT budgets.” It’s a management mindset problem.
4. Progress in the Pandemic: Pilot Projects Create Bridges
During the Covid pandemic, things began to shift at Novartis when some groups began to break the constraints of the silos.
· Experiments were launched, bridging separate units and developing shareable data and technology to enable innovation.
· The initial focus was on quick wins such as “optimizing advertising, manufacturing, or supply-chain capabilities.”
· The experiments were in effect “piloting not only technology but also a fundamentally different model of innovation in which executives, managers, and front-line workers from the business side work in collaboration with IT and data scientists.”
Managers began to see the possibilities: “they became increasingly excited about opportunities to deploy AI in various parts of the company and began to earnestly champion the efforts.”
Novartis began pairing data scientists and business staff: “Some managers began to realize that technologists and data scientists alone couldn’t bring about the kind of wholesale innovation the business needed, so they began pairing data scientists with business employees who had insight into where improvements in efficiency and performance were needed.”
Novartis began training front-line business employees to use data themselves to drive innovation and adopting agile management practices.
The intensity and impact of transformation thus accelerated rapidly, driving a range of innovation initiatives, including:
· “digitally enabling sales and sales forecasting,
· reconceiving the order and replenishment system for health-care-services customers,
· revamping prescription-fulfillment systems and processes.
· devising models to manage supply-chain disruptions,
· predicting shortages of critical supplies, and
· enabling quick changes to product mix and pricing policies.
· developing analytics to identify patients who were at risk because they were putting off doctor visits.
As the Covid crisis wore on, the value of AI became obvious to managers company-wide.”
5. Towards The End Result: The Platform Stage
The authors report that Novartis is now on a plausible journey towards becoming a digitally enabled firm. The limiting factor at this stage is “the number of business employees with the capability—the know-how and the access—to drive digital innovation.”
If Novartis continues on this path across the whole company, it may generate a comprehensive foundation that enables the rapid deployment of AI applications, including:
· “an operating architecture designed to deploy AI at scale
· a huge, distributed spectrum of applications
· a core of experts driving the effort
· tools that are broadly accessible, easy-to-use tools, even to non-IT staff; and
· investment in training and capability-building across the enterprise.
· comprehensive software that enables the rapid deployment of AI-based applications.
· sophisticated data-engineering capabilities that enable the reuse and integration of machine-learning models.
· analytics-based prediction models are applied across the business, with an increasing focus on the automation of basic operational tasks.”
If Novartis continues on this path, it will begin to function “more like software companies, developing comprehensive capabilities that enable product and program management and rapid experimentation.”
This is a multi-year journey, Microsoft has been at it since 2008. Novartis is still in the early years of its journey.
And read also:
How Microsoft’s Digital Transformation Created A Trillion Dollar Gain
