Budgeting CI for Value, Not Cost

Budgeting CI for Value,
Not Cost

How you spend your CI budget is as important as how much you are spending; therefore, it is vital to assess the upfront value associated with each potential project in order to ensure your money goes where it should and that the management team is happy. 

NOVEMBER 23, 2020

Dr. Mark Little, Senior Vice President

Introduction

No one in a corporation wants to just exist and function inside a cost center. This especially applies to the decision support function personnel for market research, forecasting and competitive intelligence (CI). CI is particularly challenged, as it is the “new (but an important!) kid on the block”. As CI is an integral part of any company’s strategy, one can and should try to imagine an alternate universe in which CI professionals are intricately linked to the value of an asset, brand or franchise. But even then, the question remains, how can we make this happen?

In this blog post, we will walk through a typical workshop program that places CI organizations closer to that promising alternate universe. We will use a pipeline asset as our example, but a brand or a franchise portfolio would work as well. While the methodology is simple, the implications have an impact on how we are perceived and respected in the organization and, of course, how much budget or investment dollars we are allocated.

CI: Building a Value-Based Intelligence Program (VIP)

To begin, it is important to understand the transformation in mindset that is required to move from a perceived cost center to a perceived value center. To truly maximize the value of your asset(s) and to apply CI optimally, you should ask yourself some questions about your asset(s) of interest. The Prescient approach is to work with clients in a workshop setting that combines your unique understanding of the asset(s) of interest with our industry insights – a high level of therapy and scientific knowledge and expertise, unaffected by “home team” bias. Combining these elements provides our clients with an outcome that cannot be reached by internal intelligence teams alone.

As we walk through a typical workshop structure, we will look at the key questions that drive the exercises for achieving both optimal use of CI and this shift in mindset.

BEFORE THE WORKSHOP

Listing Asset Valuations and Drivers

As part of the key preparation for a workshop, it is essential to understand the assets that will drive your company’s future value.

CI professionals do not naturally gravitate toward quantitative research. Our profession likes to tell stories about future scenarios and the impact – both positive and negative – that those scenarios will have on a brand or businesses. The big “however” is that our C-suite, and our CFO in particular, love numbers. This affects our ability to manage up and to garner the resources necessary to carry out our job effectively. The solution to this complication is practically staring each of us in the face: Buddy up with a future-oriented, quantitatively focused individual who also has an asset, brand or franchise value front and center. Forecasters, for example, own a numbers-driven valuation of a company, and underneath that forecast on valuation are assumptions (i.e., stories about the future). Bingo. Now what you do becomes inextricably linked to the future valuation of the company, and nobody can argue against that point.

Which asset(s) of interest is/are driving your future value and how? 

The answer to this should be relatively clear and does not depend on whether or not you have a friend within the forecasting group. Listen in on your next earnings call. What questions are the analysts asking? They, like your C-suite, are or may be worried about the future valuation of your company and will be asking very relevant questions about that future. Like their financial counterparts inside your company, financial analysts must also translate future-oriented stories into quantitative outputs. Obviously, you will know about other potential assets at your company that are projected to add value. Combine the two sets to generate a list of value-driving pipeline assets (again, to keep it simple) and, if needed, pull in help from a friendly forecaster to stack rank that list of assets.

DURING THE WORKSHOP

Associating External Events with Drivers and Characterizing the
External Events of Interest

During the workshop itself, the conversation should broaden out to the wider team to think about the asset(s) of interest, and how it/they will compete in the marketplace, its/their impact on the standard of care, and its/their differentiation vis-à-vis current and/or future brands.  As previously stated, Prescient is especially capable of providing a big picture healthcare view and is able to further guide this discussion with a broad and objective perspective.

Is every aspect of the value something you control completely? 

Once you have your list of value drivers, you can then begin the process of building your CI value center. It is important to separate intrinsic value drivers (related to the asset or your own internal operations) from extrinsic value drivers. A large contribution of intrinsic value assigned to an asset in our industry comes from clinical data (e.g., did we meet the primary and/or secondary endpoints?). As you might imagine, these data are what they are, and are not directly apart of your CI value center make-up.

If, however, external factors can be foreseen to add or take away value from your asset(s) of interest, then these become more relevant to the CI group.

What external events and/or actions influence extrinsic value drivers?

It is crucial to understand the external factors and their likely impact on your asset(s).

To achieve a meaningful picture of these external factors, you will first need to work out what they are; remember to ask difficult questions so that, in addition to the usual direct competitive brands and assets, you are also considering and specifically naming other external events, such as changes inflicted by regulations, biomarker developments, new science, new deliveries, geographies or perhaps even force majeures (i.e., a pandemic). 

For each event, you should also have an idea of the impact it will have: Will it have a major or minor effect on the market, and how much is it going to change the valuation of your asset or group of assets? 

AFTER THE WORKSHOP

Developing KITs and KIQs, Sourcing and Estimating the Feasibility and Cost of an Outside Partner, and Establishing Above-the-Line and Below-the-Line Budgeting

The final part of the process is bringing together the insights from the workshop to build a response to external factors that will maximize the value of your asset(s) with new knowledge and confidence in the approach. To achieve this, the leadership team, in partnership with Prescient, must address the final few questions and pull together a CI strategy that budgets for value.

Are you confident in your understanding of the future events affecting value? Are you certain about the likelihood and impact of future market events?

Look at your list of events and consider how confident you are in the likelihood of them occurring. If you are confident that certain events will take place, then mark them as such. These will be “baked into” future valuations with a high degree of certainty. Those that you feel less confident in will become the fodder for a CI list of projects. These projects define your key intelligence topic (KIT) list, from which a list of key intelligence questions (KIQs) naturally spins out. It is important to resist the temptation of being overly confident with your future projections. Taking this to its extreme, if you are sure how each event will play out, then there is no real need to develop a CI plan. As a cross check, you might consider asking – even if you may have a great deal of confidence – “How bad would it be if I am wrong?”  

You will then be able to move to the final stage of putting your value-based CI plan together. 

What are the KITs and KIQs we must address? 

To complete the final step, it is important to establish a more granular understanding of the specific informational needs that drive value. These needs define your KITs and you KIQs within each KIT. Said another way, the answers to these questions – whether they are answerable at this point or not – are those that will add a greater certainty to the value of your asset(s) of interest. KIQs would include directly competitive activity, such as similar or newer MOA product launches or new deliveries, or market changes brought on by regulators, payers or new science and/or technologies.

Are your KITs and KIQs feasible?  

You must also balance the likelihood of a CI project providing greater certainty in decision making against the cost of doing so. Following the workshop, Prescient will conduct a feasibility and costing exercise on the KITs and KIQs identified and will prepare a value-based CI program. This assessment will be based on our extensive experience in the space. There will always be more to do than what can be budgeted, but the exercise provides a transparency of what results can be expected at what cost. This document is critical to budget discussions and allows budget allocators to better understand and provide input into the “above-the-line, below-the-line” CI projects for funding.   

Once you have answered these six questions, you should be in a better position to decide how much to spend on CI, as well as the areas in which to spend; as a result, you will also have a greater sense of control over your ability to budget for the greatest impact per dollar invested. As one seasoned CI executive put it: 

“Please keep in mind that all the a priori planning in the world cannot predict the exact returns, but [it] definitely reduces the risk of poorly investing, and – again in my experience – there will be a surprising upside that cannot be foreseen.”

Conclusion

CI is a value center, not a cost center, the can be set up, budgeted and executed to deliver a demonstrative ROI. Companies that go through the workshop process emerge with a greater understanding of how the value of an asset, brand or franchise can be maximized within a competitive market, avoiding unseen pitfalls and meeting challenges with clear strategies. Our methodology can be summarized by the decision tree below.

The Prescient approach is to partner with pharmaceutical companies so that the best of internal knowledge is combined with trusted industry knowledge from an outside perspective.

To learn more about how we can work together, contact Prescient to begin the process of transforming CI into a genuine and integral value center for your asset, brand and franchise.

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