Innovation has always been near and dear to pharmaceutical heavyweights, such as Pfizer and Eli Lilly, whose very lifeblood depends on minting a steady flow of new drugs for their in-patent pipelines. In the past, as long as they achieved that goal, the industry had little trouble justifying the sprawling campuses, plush salaries and pension plans, and cutting-edge research facilities for which it’s long been known. But a series of body blows—an economic dip and several major blockbuster drugs falling off patent among them—have forced Big Pharma to increasingly rethink its cost-be-damned approach to R&D in favor of hiving off aspects of drug development to contract research organizations (CROs).
CROs like Covance have benefitted from that wave, says Joe Herring, CEO of the $2.8 billion Princeton, N.J.-based company, which focuses on driving cost and time out of the development process. “Even throughout the rough period of 2008, 2009 and 2010, we grew revenue,” he says, noting that efficiency is a big part of the company’s appeal. “We know that we have to do it faster and cheaper every day or we don’t exist. We’re generally 30 to 50 percent faster and 30 to 50 percent less costly, particularly in early drug-development phases.”
However, a lower cost structure alone wouldn’t convince drug companies to trust an outsider with something as precious as its R&D. CROs must also deliver on drug companies’ exacting standards—a tough feat in an industry where turnover averages over 20 percent. “If you have a company growing 15 percent a year with that kind of turnover, about half the staff you’re putting on client projects are new employees,” says Herring. “There’s no way to maintain quality.”
That was exactly the situation at the preclinical trial part of the business Herring presided over in 1999. “That division accounted for almost half the company’s revenues and turnover was 24 percent,” he recounts. To address the issue, Covance set up a series of focus groups with trained third-party facilitators to identify top employee concerns. “When they came back with 100 things we needed to improve on, the first reaction was shock, ‘Wow, this is a long list,’” says Herring. “But we decided to create a web site, list all 100 and provide monthly updates on our progress addressing them. Over 18 months, we tackled all 100 and then we reloaded the gun—went back and got 50 more.”
Ultimately, Herring credits the program with not only reducing turnover to a much healthier range of between 7 and 10 percent but also transforming the company. “As we worked through those lists, employee turnover dropped, employee satisfaction increased and customer satisfaction started increasing. We started swirling up in a vortex in terms of ‘happy employees give you happy clients who give you happy employees who give you happy clients.’ Over a five-year timeframe, we went from slow to no growth to almost 15 to 20 percent growth and low margins to 20+ operating margins. That was all around retaining and expanding talent management.”
When Herring moved into the COO role, he expanded on the initiative company-wide, launching a new employee survey, this time canvassing long-time employees on what they liked about working at Covance. “Far and away, the number one reason for preferring to work here—as opposed to a pharmaceutical company—was the opportunity to bring new medicines around the world,” says Herring. “At Covance, a specialist in cardiovascular medicine can potentially be working on five or six therapies, rather than on making one molecule a success.” Colleagues also factored highly in the equation—respondents cited enjoying exposure to experienced team members with diverse talents. They also valued flexibility—the opportunity to work at any of 30 facilities located around the world or in different divisions.
That knowledge, in turn, informed Covance’s recruiting and talent development efforts. “Once we had those data points, we started focusing more on “career-pathing” employees, championing breakthrough medicines we’ve worked on and on having our employees share stories about what they’ve accomplished at Covance,” says Herring. “We also got better at hiring people who not only have the scientific background we need, but who fit our culture of service, are able to work well with clients, and have the financial discipline to keep a project on track.”
More than a decade into the process, Herring can share a few best practices for CEOs in talent management:
Own It. “No one knows the strategy of the company as much as the CEO, which means you’re uniquely qualified to make strategic hires even in tough times,” says Herring. “You can look one, two, five years down the road at where the company is going and how talent injections can enable your vision.”
Be Visible. “We have 180 VPs in our company and, over the last two years, only two of them were hired or promoted to that position whom I hadn’t interviewed for at least two hours,” says Herring, who also makes a point of visiting with employees as he meets with clients around the world. “I am a visible leader; I am not going to Paris without going by our office and engaging with the staff.”
Push for Improvement. Each year, Covance rates the bottom 6 percent of performers as “improvement needed.” Some end up leaving the company, which creates recruiting opportunities. For others, the ranking serves as a catalyst for improvement. “You need to let people know that you have high standards of performance and they need to continue to better themselves,” says Herring.
Grab Opportunities. “If you really believe talent is a big part of the success equation, you’re always recruiting,” says Herring, who once brought in an executive he met while watching a sports event.
Persevere. “‘People come first’ is easy to say, but hard to do—“and really hard to live day in and day out,” says Herring. “Having it truly become a core part of your strategy is a difficult thing to do. But, if you have best employees aligned around incentives, you can beat every company in the industry in any industry. I believe that at my core, so anything I can do to drive that strategy, I do.”