In this issue:
Pharma Company Turns to Cognitus and iThink to Plan a High-Value Future
Cognitus (Note to reader: VetCo is a fictional name for a real company. Names of VetCo executives are also fictionalized as is VetCo’s parent company ChemCo at the request of the companies.)
When Jurgen Schmidt became Strategy Planning Director of VetCo, a $2 billion per annum veterinary pharmaceutical company, he quickly assessed its current operations and the research and development efforts that would fuel its future. While the business numbers described a healthy five-year future, Jurgen sensed that something wasn’t quite right.
It wasn’t an unreasonable feeling. All pharmaceutical companies face the same challenge: product development pipelines must include future winners that will support revenue growth as current patents retire and revenue streams are cannibalized by generic competitors.
Developing new drugs is risky business: testing cycles are long and complex, the approval process is increasingly rigorous and failure rates are rising. That all adds up to huge expense and risk that can be somewhat mitigated by strong branding and distribution channels that increase a viable product’s market potential.
VetCo had the additional challenge of being a relatively small subsidiary of ChemCo, a huge European conglomerate.
Having heard of Barry Richmond and read some of Peter Senge’s work, Jurgen was hopeful that Systems Thinking could give him a way to explore VetCo’s future and to plan product strategy. He found his way to Cognitus, a consultancy that specializes in applying Systems Thinking to support strategic thinking and value analysis.
Jurgen attended a Cognitus training workshop where hands-on work with Systems Thinking and iThink convinced him that both could help him explore how to position VetCo for continued growth. “Jurgen then invited me to spend a day on-site with him to understand the situation,” says Richard Stevenson, Cognitus Managing Director. “We concluded that that best way to move forward was to engage VetCo’s directors of marketing, R&D and finance. Together we’d first articulate the specific problem — then simulate the viability and potential value of candidate strategies.”
Richard points out that “as a strategy consultant it’s critical to quickly gain the hearts and minds of senior managers. They have big problems to solve and just don’t want unnecessary technical overhead. iThink is a powerful bridge that allows them to build simple models quickly. It makes it easy to learn and apply the concepts of stocks, flows, and feedback loops — and iThink’s underlying simulation engine is as powerful as any business manager needs or wants it to be.”
Aside from Jurgen, none of the other VetCo managers had any background in Systems Thinking. “There was initially some skepticism and arms folded across chests,” remembers Richard.
Richard guided the group through problem definition. While VetCo’s five-year plan looked strong, product development efforts were weak. It takes 8-12 years to bring a veterinary product to market and VetCo’s existing product portfolio was old and already in decline. Consequently, older products needed to be quickly replaced by new ones, simply for VetCo to stand still.
The parent ChemCo was demanding long-term revenue growth of 5% per annum. But beyond just growing revenue, products at market would have to add value by supporting the product development process itself. VetCo was caught in the classic “limits to growth” archetype now confronting all pharmaceutical companies — the bigger you grow, the harder it is to continue to grow and to create value at the same time.
With the problem defined, the next step was to express it in simple stock/flow and feedback structures in iThink. The group began to build a model to help them simulate possible solutions. “The initial model was small and very transparent,” says Richard. “It helped VetCo develop a new way of thinking about the product pipeline. There was a lot of feedback to consider.” The group fleshed out the model progressively over a couple of months, using VetCo’s internal business data.
The model was applied to test three product portfolio development strategies: internally developed products, licensed/acquired products, and generic products. Scenarios were based on each strategy in isolation and in combinations – and tested for operational reality, growth potential and financial value creation.
“The model followed individual projects and products over the complete 20-year product life cycle,” says Richard. “It included probability success rates and timings of each development stage under available resource constraints.” The model also included marketing, distribution, and government approval processes and costs. All scenarios were tested at extreme limits of controllable variables”.
Each director’s operational perspectives were progressively built into the model, with vigorous cross-boundary discussion. As the group tested the three basic development strategies they gradually developed and “bought into” the conclusions. “There was a great deal of heat generated in the process, but ultimately no major conflicts remained,” reports Richard.
This was particularly impressive given their conclusion. None of three strategies was likely to work. To meet the growth targets, VetCo would have to invest massively in speculative programs that would actually destroy financial value. Instead, what the company needed was to be acquired itself. “VetCo needed a larger partner with an established product development pipeline to fit VetCo’s established distribution and marketing infrastructure. “ChemCo was just not the right fit. Veterinary pharmaceuticals wasn’t part of its core business,” explains Richard.
It’s difficult to realize and accept that your company should be sold. But having come to this undeniable conclusion the VetCo directors were then able to use the iThink model and simulations to present their ideas to the VetCo Board (including ChemCo), to test the potential suitability of prospective acquirers — and then to support the negotiation process itself.
The ultimate result was a deal that provided a three-way win. “ChemCo got more value from the sale than it would have gained from keeping VetCo long-term,” reports Richard. “The acquiring company got existing products and infrastructure that fit its own strategy and added value to its business. And most VetCo managers and employees emerged with more secure jobs.”
ALCES Landscape Model Informs Land Use Policies
Dr. Brad Stelfox,
ALCES Group Brad Stelfox is distinguished among STELLA users. First, he’s been using STELLA for more than 20 years; since he was an undergraduate at the University of Alberta, Edmonton. Second, he’s used STELLA to build ALCES, A Landscape Cumulative Effects Simulator; one of the largest models ever in use.
Brad began building ALCES 12 years ago. “I’d been working for the government and decided it was time for a change,” remembers Stelfox. “I got a contract with a forestry company in northern Alberta. They wanted to determine how the landscape was being changed by oil extraction and agriculture. We needed a model that would consider multiple land uses at once.”
Brad found many models that handled single land uses but none that could accommodate his need to explore land uses in combination with one another. His college experience with STELLA led him directly back to the software. The next two and a half years were spent developing the first version of ALCES.
“ALCES I considered forestry, energy, agriculture, tourism, mining, livestock grazing, and residential land uses,” says Brad. “Now, with ALCES III, we can track every square meter of landscape, every land use in play, and every person in a city, suburb, or open acreage. We can start with a current view of the landscape and land uses and identify changes over time as the simulation continues and land uses shift.”
To date, ALCES has been used for over 100 projects in Canada, the United States, and Paraguay. It provides the foundation for work conducted by Brad’s consulting company, also called ALCES, that grew out of his first contract with the forestry company. “Now that the model is able to consider all types of land use and all landscapes,” says Brad, “we’re able to apply it to use it for projects in any location.”ALCES is currently being used to develop the Alberta Land Use Management Framework, an effort that will, according to Brad, “plan a province that is acceptable to our children and grandchildren.”
“Alberta is beautiful and dynamic,” says Brad. “Because of its energy and forestry resources, its economy is growing quickly. That’s good on one hand but a real challenge for a province that also wants to preserve its natural resources. ALCES will show us where we are now, where we’re going given our current land use activities, how we should adjust priorities, and how we can manage risk.”
The stakeholders in the Framework project are the citizens of Alberta. The project was mandated through a popular vote that called for a plan that covers the next 100 years. Population growth, species preservation, air and water quality and other important variables are all represented along with every major land use including agriculture, forestry, wildlife, fire risk and management, transportation, residential development, and business development. “All those people are at the table providing input and discussing the model and simulations,” reports Brad.
Brad and ALCES step the group through a progression that:
“With ALCES, we don’t have to wait 50 years to see the impact of our plans,” explains Brad. “The probability that the model is 100% perfect is 0% but the scenarios we simulate are plausible. We look at social, economic, and environmental indicators that simulations present and decide what the quality of each area should be.”
- defines the current landscape throughout Alberta
- looks at landscape changes over the preceding 100 years
- requires land use and special interest representatives to put their business plans on the table
- creates a “business as usual model” that shows how business plans will change the landscape
Using ALCES to simulate the outcome of plans that are currently on the table allows the group to move forward and test tradeoffs. “That forces everyone to understand that there is no win-win-win situation,” says Brad. “Moving forward, everyone is going to have to make adjustments to preserve the province as a whole.”
Its ability to consider so many inputs at one time and present simulation outcomes in a way that can be used in high stakes, political environments where stakeholders are passionate is testimony to the power of ALCES. It’s also a strong indication of how masterful Brad has become in using STELLA to create a powerful model.
Brad’s long and in-depth experience with STELLA has made him an invaluable isee systems customer. “The ALCES group worked extensively as beta-testers for STELLA 9.1. This collaborative relationship with isee systems helped to round out new features that have significantly increased our productivity. One of the most exciting additions to STELLA in recent years has been the incorporation of modules with models. Modules allowed the ALCES model to greatly expand in terms of the number and complexity of relationships tracked within the simulator.”
ALCES’ continual expansion has been key to its success in modeling increasingly complex landscape systems. At this point, there’s nothing small about the model. It consumes large amounts of data that describe large landscapes that are of concern to many, many people. It understands the details of a long list of complicated land uses with intricate relationships to one another. And it can describe how landscapes will change under varying land use conditions 100 years into the future. That’s much better than waiting to experience the bad decisions that had been made.
Sometimes, bigger is better.
isee Blog Keeps Dialog Flowing
isee systems We all know somebody who has been dragging their feet when it comes to the world of blogs. One of the fastest growing trends in electronic interactive communication, blogging is catching on like wildfire. And one only needs to chat with isee’s Lead Software Development Engineer, Jeremy Merritt to be quickly convinced that they owe it to themselves to pull their head out of the sand and jump on this magic carpet of immediate dialog.
Jeremy’s enthusiasm is infectious as he describes how isee’s blog site has seamlessly opened fascinating conversations with people who share his passion for Systems Thinking and its many applications in the world. Here’s a snippet of our blog conversation to whet your appetite. And, of course, there is plenty more Systems Thinking info at blog.iseesystems.com.
So, why start an isee blog?
Jeremy: A few months ago, I was reading a blog post regarding the current financial crisis. The author used many Systems Thinking terms, such as feedback loops, flows, delays, etc. But there was absolutely no mention of Systems Thinking itself. I felt the need to respond and actively participate in this blog conversation, but realized that in doing so, I’d like to reference links to an isee systems blog so that others could easily visit our comments and position on this issue. I met with Joanne Egner, isee’s Managing Director, that afternoon and she wholeheartedly supported my starting an isee blog ASAP.
What is the advantage of a blog over, say, simply visiting your web site, or reading The Connector?
Jeremy: Basically, there are two advantages:
The main reason isee started its blog was to provide another venue of letting more people know what Systems Thinking is all about. The technology allows that to happen easily, with comments and trackbacks.
- The technology is now available for anybody to easily tap into the information stream and to syndicate. Blogs are built for sharing information immediately, and to keep a dialog flowing by any and all who wish to participate.
- Blogs have a human voice and conversational tone, vs. the corporate messages stated on web sites and written for newsletters. Blog posts are conversations started by people, not just corporate press releases or newsletters. Yet, at the same time, blogging can provide a direct conversation linking the two.
How are you addressing the varying range of System Thinkers in your blog?
Jeremy: We feel it’s important to have blog posts covering subjects for beginners, intermediate and advanced Systems Thinkers. "Thinking in Systems", Donella Meadows’ book post has had many hits from beginners wondering just what this Systems Thinking is all about. Sarah Davie, isee’s Customer Support contact, has been posting modeling tips which come directly from questions she’s been asked by our customers. And the latest advanced-user posting from Director of Product Development, Karim Chichakly, is on Spatial Mapping techniques.
We’re focused on providing something for everybody on our blog. But, just as importantly, we are finding great value ourselves in reading and joining in on the comments and conversations sprouting from our readers. That’s the beauty of blogs—anybody can post on any blog. Questions, comments, suggestions … they are all welcomed and encouraged.
If you feel like tapping into Jeremy’s blog enthusiasm for yourself (or for your blog-challenged friend), you now know where and how to reach him. Hey, before you know it, we’ll all be Digging and Tweeting!
Upcoming Modeling Workshop, August 5-7th
Introduction to Dynamic Modeling with STELLA and iThink