Heal thyself: Curing pharma quality

If quality is doing it right when no one is around, acid test for top team is when there's no crisis

Global and Indian manufacturing companies with strong brands and reputations have suffered more than a few damaging quality related shocks in recent years. Yet, companies continue to underestimate the risk and costs associated with poor quality. Real costs are often higher than is commonly believed.
 
Quality processes are important in every industry, but more so in pharmaceuticals where scrutiny and standards are high. The problems are rarely accidental, and a deep-rooted transformation approach is essential to address them. In the last few years, like their global peers, Indian pharma companies have faced an increasing number of quality related issues, especially in the US market. Globally, between 2008 and 2014, the number of product recalls and warning letters to pharma companies tripled. In India too, the number of warning letters from US FDA to Indian manufacturing sites increased from an average of five letters between 2011 and 2014 to 10 in 2016.

 
A global benchmarking study shows that pharma companies suffering from quality problems can lose significant market value. In India, companies have seen up to 20 per cent drop after major regulatory action. The difficulties are compounded by delayed launches, loss of market share and long-term reputation risk.
 

Some companies have been remarkably successful in emerging from the glitches in nine to 15 months, while others have languished in endless cycles of remediation lasting many years with no resolution in sight. It took one global pharmaceutical company 17 years to fully resolve challenges at its site in the United States, yet another had to shut down a site after two years of futile efforts costing over $300 million.

 
When faced with complex and large-scale quality challenges, many companies try to do just enough and use a Band-Aid approach to solve only the visible problems. We believe this aggravates the situation.
 
Building the habit and sustaining change
 
Resolving quality problems is and will always be expensive, and this is true of all industries. How organisations approach remediation can determine the outcome. Fully acknowledging the problem is the first step.
 
CEOs and senior managements need to demonstrate the balance between quality, cost and delivery deadlines. In one company, for example, quality was the focus for one review a month, while productivity and cost were the focus every week! Even if well-intentioned, this sent the wrong implicit message as day-to-day decisions and actions tend to be driven by the urgency of the weekly review.

 
A few pharma companies have found ways to implement focused and time-sensitive fixes to quality problems. Some guiding principles are:

• During a quality crisis the board, CEO and top management need to lead the effort actively, not simply communicate support. They have to acknowledge the full extent of the problem, find ways to align and commit the whole organisation to remediation.
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• Track execution of remediation activities and strengthen quality governance to avoid surprises. One pharmaceutical company which had implemented these mechanisms found that a number of critical initiatives, earlier thought to be complete, were still pending.
•  Invest in getting to the root cause and take actions that will prevent recurrence. A McKinsey & Company study of quality mishaps in seven industries found that one-third of the quality problems were because of below par performance by suppliers. Addressing root causes is possible only when there is improved measurement and engagement through the chain. 
• Ensure that business choices and strategy are tightly linked to the remediation effort.

 

At one company, the management quickly rationalised the number of items being manufactured. They shut down production of a number of high-risk legacy products, freeing up resources as well as reducing demand for remediation work. They also delayed some marketing plans in order to free up space in plants. This was possible only because they were fully aware of the trade-off in value, and used their judgement to distinguish between the short-term gains and the long-term success of the organisation.
 
Building a quality habit is in many ways the key to sustaining the improvements in an organisation. It is possible, and indeed necessary, to build this into an organisation’s operations as well as its management and people systems. Successful companies are able to build it into every process.

 
If quality means doing it right when no one is looking, then perhaps the acid test for the top team is when there is no crisis. Great leaders set high aspirations and constantly raise the bar. One useful practice is to hit reset if remedial practices constantly fail to improve standards.
 
A quality crisis can be stressful for companies — there is additional work, uncertainty and sometimes even fear of job losses. At such times, the rank and file would typically look to the CEO for direction. One CEO pulled in executives from other businesses to help lead some initiatives. Empowering the head of quality to do what it takes to go to the root cause helps.

 
While lapses can have far-reaching negative consequences, outstanding quality can be very profitable. By adopting the right approaches, an organisation that gets remediation right can emerge stronger.
 
(Series concluded)
  Vikas Bhadoria is senior partner; Jaidev Rajpal is partner; and Kartik Reddy is expert associate partner of McKinsey & Company