In an interview with PwC, Ajay G Piramal, Chairman of Piramal Healthcare Ltd and Piramal Glass Ltd, talks about his group’s approach to innovation and leadership development. Piramal was one of the 1,258 business leaders who participated in PwC’s 15th Annual Global CEO Survey. Edited excerpts:
What is the outlook for the global economy, as you see it?
In Europe there is definitely some stress but I am optimistic about the US; despite the challenges I feel the US will remain positive. In India, we were expecting growth in the region of 8 to 9 per cent. However, today, I expect growth to be around 6 per cent.
In this environment, how confident are you about growth and why?
We will grow in the long run. Last year, we sold one of our major businesses (Piramal Healthcare’s domestic formulations business was sold off to US-based Abbott Labs in September 2010). Post that, we are still evaluating investment opportunities. This has been a deliberate strategy of not coming to a quick conclusion and we are better off because of it.
Let me explain: compared to a year ago the stock market index is down 25 per cent. Today, company valuations are much more attractive than they were last year. Today, we would pay half or one-third of what we would have paid for these companies last year. So there are several opportunities out there for a cash-rich group like ours.
In what ways has your strategy changed over the past year? Do you anticipate more changes in 2012?
Our strategy has changed significantly: last year, we sold off a large part of our business. Before that sell-off, 55 per cent of our turnover came from the domestic market and our teams went out and met individual doctors. Today 70 per cent of our revenue comes from outside of India.
We are also changing direction in terms of products. Our drug discovery company—Piramal Life Sciences—is being merged with Piramal Healthcare. This will allow Piramal Healthcare to do more work on drug development. So our strategy is changing in a big way. We are moving from generics to patented drugs; and from an India-centric business to becoming a global business.
Have you identified industries or businesses where you want to invest?
We are not planning to invest all that money in pharmaceuticals. We are looking at new businesses and opportunities. For example, we have entered the financial services business with a non-banking financial company and we are also getting into private equity. We are also exploring other areas.
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How has building relationships and partnerships become more important to succeed in new markets?
Relationships play an important role in the pharma business. They have been our key strength. Our joint venture with Allergen in the US is one of the most successful joint ventures in the country and has been going on for the last 15 years. We also have relationships with many universities, global research institutes and hospitals for drug research.
When it comes to managing the enterprise, what are some of the risks you are facing? And how is your approach to managing enterprise-level risk changing?
The business environment is much more risky today. Indian companies have expanded their global footprint. And each country comes with its own set of risks. We have to understand risks in other markets. The other risk emanates from the fact that the (global) economy is now much more volatile. Currency fluctuations are another risk we have to live with.
Is your board becoming more engaged with enterprise risk? How has that affected your planning and operations?
The board is definitely becoming much more involved in understanding the business, the risks and the risk mitigation process. It is raising the levels of governance each year.
How is your approach to innovation changing?
We are moving from generics to patented drugs. And it is innovation that will get us there. The amount of money we are spending on innovation is probably much higher than that invested by other pharma companies (in India).
We spend Rs 1.5 billion each year on research and development and once we merge Piramal Life Sciences with Piramal Healthcare that will increase to Rs 2 billion. Per se, there is a huge risk involved in pharmaceutical research.
In the pharmaceutical industry the approach to innovation is more basic and fundamental. It revolves around discovering a new drug to meet an unmet need. It is a global initiative and we have people from all over the world working on it.
Is your focus changing towards more radical innovations? Is it more important to generate more innovations, produce better innovations or bring innovations to market faster?
The focus in the pharmaceutical industry is always to bring new drugs to the market faster. Research institutes and other pharma companies help us in these efforts. But, of course, drug discovery cannot be done to order.
Are innovations coming from different places—perhaps from different geographies, different parts of the organisation or from outside your organisation?
It’s a combination. A large number of our scientists are based in India and we have teams in Montreal and in the US. Earlier on most of the innovation was coming out of India. But now we are sourcing it from other countries as well.
What about sourcing talent for your innovation needs?
That has not been a challenge for us. The (global) pharmaceutical discovery model is going through some restructuring and companies are cutting down on talent in the area of innovation. So high quality talent is available to us.
How is your talent changing? In what ways has talent become a strategic issue for you?
Talent is more a strategic issue for us now that we are entering different industries, as well as different geographies. That’s why talent is a concern. There is always a war for talent. Good people are always scarce.
Are you confident that you will have the talent needed to deliver your strategy over the next few years?
Yes, I think so. Today the talent available to us is global in nature. In the past not many international managers were willing to come to India and work for an Indian company, and that included people of Indian origin. But today things are very different. People are happy to come and work for us.
Do you have well-formed succession plans for senior leadership positions?
We are not doing it formally but we are starting to think about it. We are developing more and more people within the system to take on senior positions.
Will the leaders of the future look like the leaders of today, from a geographical or cultural perspective? From a gender perspective? What measures are you taking to develop that leadership pipeline?
Looking into the future, I feel that we need more value-based leaders. They have to be much more global. You have to be sensitive to global nuances and also to the business environment in other countries. In terms of competence, you have to be world-class.
Unfortunately, we do not have many women as leaders within the organisation. In research we have more women, but overall the structure is more skewed towards men.
When we talk of leaders of tomorrow, do you see more professionals coming to the fore?
It will be a combination of both promoters and professionals running the show. For long-term shareholder value that is what is needed.