Key questions to ask before embarking on revenue management digital transformation

The life sciences industry has faced unprecedented market pressures in recent years, pressures that have only accelerated due to the COVID-19 pandemic. Manufacturers are being squeezed from multiple directions, and ever-intensifying pipeline concerns, demand and margin pressures are making it harder for organizations to find avenues for both top- and bottom-line growth.

Although investments in market access are essential to eliminate coverage barriers, spending has ballooned at an unsustainable rate. Recent estimates suggest that gross-to-net concessions touched $204 billion in 2021, increasing at an average compound annual growth rate of approximately 6% over the past five years. And of that $204 billion, approximately $15 to $20 billion was wasted on preventable revenue leakage. The scale of the issue is staggering, and as a result, the pharmaceutical industry is now starting to view revenue management as a strategic growth enabler rather than as a back-end cost center, much in line with other industries.

As an increasing number of stakeholders in the pharma industry are recognizing the importance of better revenue management practices, the general consensus is that digital evolution is a necessary catalyst for  optimizing margins. There is still an execution gap though; unlike pharma’s customer engagement model, which over the past decade has seen significant digital transformation (a process only further accelerated by pandemic pressures), revenue management has undergone minimal change. Only a select few manufacturers have embarked on a broad transformation journey focused on leveraging the power of data, building new tools and systems, and applying novel techniques to solve their revenue management problems. The rest are struggling to bring about meaningful change. In this article, we share our observations on key questions foundational to undertaking a successful digital transformation. We hope the ideas presented here give pharma leadership an opportunity to reflect on their own organizations and to identify focus areas for achieving revenue management excellence.

Revenue management can often have different meaning across the organization, resulting in a limited understanding of how a truly integrated revenue and gross-to-net management function should operate. In our view, revenue management should encompass every pre- and post-launch market access decision that has the potential to impact profitability. This ranges from pricing to contracting and ongoing operations. Aligning the organization on a common definition and a central vision (the “north star”) is one of the most important aspects of revenue management transformation—and perhaps the most difficult. The difficulty arises from conflicts between the often-stated goal of gross-to-net optimization and the actual criteria that guide many short- and long-term decisions, which is further exacerbated by a lack of interconnectivity between functions. For example, organizational culture may lean heavily toward achieving access at any cost, effectively neutralizing controls on contract performance. In such situations, leadership pays cursory attention to outputs from pre-deal models and performs limited post-deal tracking. Similarly, pre-launch, many long-term decisions are based on driving top-line forecast, with limited weightage given to the cost of driving such growth. While this tension between topline growth and profitability is an age-old challenge, revenue management leadership could do a better job of recognizing this and balancing competing priorities by establishing clear link in their decision-making processes to maximizing net revenue. 

When thinking of your organizational philosophy and vision, consider the following questions:  

• How does your organization define revenue management? Does the definition align clearly across functions?
• Is your organization’s approach toward revenue management reactive or proactive?
• Does your organization have a clear vision of short-, medium- and long-term revenue management goals? 

Optimizing interconnected revenue management processes is a difficult challenge, as sizable opportunities for improvement often lie at the connection points between functions. Intrafunctional rather than cross-functional assessments, coupled with internal biases and limited availability of an end-to-end perspective can sometimes make it difficult for organizations to get a realistic picture of areas that require attention. It’s therefore imperative for organizations to avoid the pitfall of fake consensus, to develop a true understanding of their revenue management processes and to pressure test that understanding externally before starting discussions on opportunities for change.

To optimize revenue management processes, your organization needs a clear understanding of its current processes, maturity and opportunities for improvement. Ask yourself:

• Has the internal perspective been validated with external due diligence?
• Is there a forum for your teams to be vulnerable and share candid feedback on what’s not working?
• Are their suggestions seriously considered or does innovation take a backseat to the day-to day needs?
• Is there dedicated role to connect the dots and turn this feedback into actionable items? 

Once the organization achieves clarity on its current maturity and future goals, the next step is to align the organizational support system. We find that four core pillars enable change. The first is assigning central accountability via a CEO-sponsored gross-to-net optimization function responsible for tracking and optimizing net revenue across the organization. Next, every level of the organization needs to be convinced of the need for change and motivated to follow through on that need, which can best be accomplished by creating a “sponsorship spine,” a team of leadership representatives who become change champions across the organization. The organization should further demonstrate its seriousness by aligning incentives; change and excellence will be difficult to achieve when incentives are not aligned toward revenue preservation. Finally, because revenue management requires integrated expertise across the individual components of the end-to-end revenue cycle, by evolving the team skill sets the organization can ensure that the functional dots are connected.

In order to identify if the organizational structure is ready for transformation, here are some specific questions that will help you clarify:

• Who holds ultimate accountability for net revenue preservation within the organization? Does the role have CEO support?
• Are the organization’s various teams aligned on gross-to-net optimization as a central vision? Do leaders understand their current and future roles, and are they willing not only to support but to advocate for the change?
• Are the incentives across the organization aligned?
• Does the organization have the right talent profile to support newer ways of working?

Outdated technical infrastructure can pose a significant barrier to enabling the wider adoption of advanced analytics that can provide leverage for revenue optimization. Accelerating cloud migration of revenue management systems and migrating siloed commercial finance data to enterprise data lakes can help to improve common challenges in data governance, quality and accessibility. Extending intelligent automation to open operational capacity, democratizing insight generation through self-service analytics and embracing an experimental mindset can empower teams to unleash creative ideas to proactively monitor and reactively claw back revenue.

Organizations setting themselves on track to succeed will need to consider the following questions in reference to their technology:

• Does the organization pay equal attention to the data and technology needs of its revenue management processes as to those for other commercial functions? If not, why?
• Are the stakeholders educated on new technologies, and do they understand the potential use cases in their areas of expertise?
• What are the stakeholders’ attitudes toward adopting technological innovations? Is the organization risk-averse, or does the culture support experimentation?

Our hope is that these questions provide a framework for thinking about the transformation roadblocks that must be addressed before achieving revenue management excellence. The intent is not to be exhaustive, but rather to encourage self-reflection that can help an organization to proactively drive impact rather than reactively hope for results. Though the journey toward revenue management excellence is long, given the external pressures inaction is not an option, so we encourage starting now to set the foundation for future.