8/2016

Trust: The ultimate competitive advantage

In the life sciences market, trust is emerging as a key differentiator

By Professor Brian D. Smith

Brian D Smith

Professor Brian D Smith, of Bocconi and Hertfordshire Universities, is the world’s leading authority on the evolution of the life sciences market. Following 20 years in the industry, he has spent two decades studying how its firms are adapting to a changing environment and advising many of its leading firms.

Never has what we consume been more important to us. From our growing interest in healthy diets, to our preference for food of known provenance, to our fears about the safety of our medicines, modern society is characterised by a strong need to trust what we put into our bodies.

We see examples of this heightened concern in increased regulation, in consumer behaviour, such as preference for trusted brands, and in market dynamics, such as price premiums for organic foods. In addition, consumers have become more discerning about who they award their trust to. Individuals and the media demand that firms keep their brand promises and punish those that fail to do so. Why trust should emerge as such a crucial factor is an interesting story of industry evolution, one that has strategic implications for the companies that supply our food, drink and medicines.

Darwin’s ubiquitous Idea

To be trusted is a greater compliment than being loved

George MacDonald

Novelist

Darwin’s insight about natural selection revolutionised our understanding of the natural world. Today, researchers also use it to explain other complex phenomena. Languages, financial markets and, my field of research, industries are now studied through an evolutionary lens. This is because industries, like rain forests or coral reefs, are complex adaptive systems; they consist of many different entities that constantly adapt to each other and their environment. When used to understand the life sciences industry, which broadly interpreted includes food, drink and medical products and services, evolutionary concepts explain the emergence – or more accurately resurgence - of trust as a key characteristic of this market.

In evolutionary terms, trust is a selection pressure. Firms that win trust thrive, those that don’t, die. Historically, trust was the first recorded example of differentiation in the food market. Preserved loaves found at Pompeii bear their baker’s mark as evidence of quality and provenance. Later, as societies industrialised, branded products became dominant in the food, drink and medicine markets.

The trust that brands embodied allowed companies such as Unilever and Bayer to dominate their categories with iconic names like Colman’s mustard and Aspirin analgesics. Parallel to this, concerns about adulteration led to the setting up of bodies such as the US Food and Drug Administration in 1906. Later, the thalidomide disaster led to the regulatory systems that now characterise the pharmaceutical and medical technology industries. Together, trusted brands and regulatory compliance became an essential “licence to operate” and source of competitive advantage in these markets. From an evolutionary perspective, this growth of capabilities in branding and regulatory compliance can be seen as 19th and 20th century adaptations to customers’ need to trust what they consume in a world where products were no longer made by a friendly face within walking distance of home.

Inevitable evolution

Of course, industries never stop evolving and, in the 21st century, changes in both the technological and social environments are constantly shaping all markets. Evolutionary scientists like me look for ways in which such changes drive markets and, when an evolutionary lens is applied to the life sciences sector, this research reveals two complementary sets of industry-shaping forces.

The first is a trio of societal factors that shape customer concerns:

  • Longer life spans: As living standards and medical technology make it easier to cure illness and prolong life, the diseases of middle and old age become more prevalent and more important to us.
  • Higher living standards. As we become wealthier across the globe, our attention shifts from merely getting enough to eat and staying alive to eating well and staying healthy.
  • More informed consumers. As we become better educated and more easily connected to the world’s information, we become more discerning and better able to make informed decisions.

These societal factors combine to increase our need to trust what we consume, creating an opportunity for suppliers who can meet that newly resurgent need and a threat to those who cannot. At the same time, a complementary trio of industry factors influence how consumers and other stakeholders view suppliers:

  • Global supply chains. As supply chains become longer, more global and more complex, they become opaque to consumers, eroding traditional indicators of provenance and so undermining confidence in what we consume.
  • Industry consolidation: As regulation, technology and economies of scale increasingly favour large, global companies and disfavour smaller, local companies, the personal connection with historically trusted brands and firms is weakened.
  • Media amplification: As the power of old and new media grows stronger and more pervasive, negative incidents are amplified disproportionately. Consequently, consumers’ fears are stoked and investor reactions are amplified, often irrationally.

Acting in concert, these societal and industry trends both increase consumers’ need for trust and make them more sceptical of suppliers. This makes it both more essential and more difficult for firms to meet those needs. We see examples of this in everything from the demand for craft beers and locally produced foods to labelling regulations and supply chain audits. The failure to adapt to these changes is evidenced in recent, massively expensive product recalls, such as plastic-containing Mars chocolate bars, and brand-damaging scandals, such as that around the sustainability of John West tuna. In pharmaceuticals, Operation Pangea, an anti-counterfeiting operation involving 115 countries, is an indication of consumer concerns and episodes such as the PIP breast implant recall substantiate their fears. Even global companies such as Merck and Pfizer cannot be complacent, as shown by the FDA’s revocation of manufacturing approvals at some Indian contract manufacturers who were found to have forged their data.

Through the eyes of an evolutionary scientist, these trends and incidents are signals that the market environment has changed and that the 19th and 20th century adaptations of brand management and regulatory compliance have become merely necessary but insufficient conditions to compete in the food, drink and medicines markets. In the complex, globalised 21st century, some other adaptation will be needed to meet the customers’ increased need for trust.

Evolution’s convergence

An evolutionary perspective helps us to see how disparate, complex forces, from longer lives to social media, shape industries. In the case of the life sciences industry, the resurgence of the consumers’ need for trust, beyond that provided by brand reputation and regulatory compliance, is an interesting illustration of environmental changes creating an increased selection pressure to which firms must adapt.

Another aspect of Darwin’s theory helps us to see how such adaptation can be achieved. In a phenomenon known as convergent evolution, unrelated animals develop similar traits to address comparable environmental challenges. The classic example of this is echo-location in both bats and whales. In the resurgence of trust needs in the life science industry, we see the need for adaptation that is closely analogous to that already seen in other industries such as the maritime or energy. Like life sciences, these industries are technologically complex, globalized and constrained by political demands and the consequences of risk. Consequently, they have long faced their stakeholders’ increasing needs for trust. To meet those needs required assets, capabilities that were not inherent in their business models so, interestingly, these industries evolved an effective mechanism to do so. Just as symbiotic creatures work together to survive, maritime and energy companies routinely partner with assurance providers, firms whose expertise lies in understanding and managing risk in a holistic, knowledge-based manner. The fundamental mechanism of this symbiosis is essentially one of pooling and extracting value from information to a degree that is impossible for individual companies. It is the competencies of the assurance providers in this area that enables firms to create and sustain trust in projects as risk-intensive as trans-continental pipelines, deep-water rigs and global fleets.

Although differing in many details, the selection pressure for trust is the same across maritime, energy and life science industries. As a result, the concept of convergent evolution makes it inevitable that life science companies will develop similar relationships with assurance providers. Indeed, in the examples of some healthcare providers and food manufacturers, we see early signs of this.

Natural partners

This environmentally-driven convergence of different industries towards the same needs creates the opportunity for what Donald Schön called “the displacement of concepts”. In other words, knowledge, lessons and processes from those industries where assurance partnerships are established, such as shipping or oil and gas, can be transferred into the life sciences sector, allowing them to meet their customers’ and patients’ need for trust more effectively than if they had to develop those capabilities from scratch. This is becoming truer still as maintaining trust becomes ever more dependent on technology, from the internet of things to complex algorithmic analysis of “big data”. The heavy investments of the assurance providers in these assets, and their ability to transfer lessons between industries, gives them distinctive capabilities that their partners can access much easier than they can copy. This means that, from the perspective of life sciences companies, whether in food, drink or medical markets, the existing leaders in assurance, such as DNV GL, are natural partners. Together, they will evolve to meet this important industry’s need to be trusted.  

Building Stakeholder Trust

The need for new and existing assurance roles

Supply chains within the life sciences industries are becoming more complex and ever-more dependent on large-scale data and digitalization. This in turn is driving a heightened need for competent, digitally smart and independent third parties to help assure quality, safety, security, reliability, integrity and ethics. 

DNV GL’s strategy focuses on leading assurances roles in the two core segments of life sciences: preserving health and providing food.

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BOLD MOVES IN THE WINGS FROM DNV GL

Life sciences in our DNA

An Interview with Jahn Henry Løvaas, DNV GL’s Executive Director – Life Sciences

DNV GL is well known as a classification society. What are your other offerings?

The time has now come for DNV GL to focus on probably the most complex "systems" on Earth — us human beings.

Jahn Henry Løvaas

DNV GL’s Executive Director – Life Sciences

DNV GL’s legacy is strongly linked to our role as a classification society; we have been serving the maritime industry for the last 152 years, and today DNV GL is the world leader in this role. Based on that legacy— the recognition, independence and trust that come with it as well as the many competencies we have developed— DNV GL has diversified into a range of other risk-intensive industries. 

Some fifty years ago we entered the offshore oil exploration industry, making significant contributions to the establishment and operations of that industry’s safety regimes – a role which also brought us into wider quality assurance roles for the many supply chains within oil & gas exploration and production. Over the last two decades, we have expanded into the wider energy value chain, including renewables and energy-efficiency, providing advisory and testing as well as certification e.g. of wind turbines. 

As many of these engagements involve good management practices, DNV GL made an early entry into the role of certifying management systems and is today one of the three leading global certification bodies.

What is the relevance of DNV GL to life sciences?

A decade ago, DNV GL decided to make Food & Beverage a prioritized industry for our certification practice, with a particular focus on food safety. The fundamental value we provide in this role is assurance to food manufactures and brand owners that their supply chains are delivering safe food products, thus helping them to keep their promise to us as consumers. In this role we leverage our legacy as an independent and trusted body, and that is complemented by our sound technical knowledge of the food industry. In more recent years, we have taken up similar roles with healthcare providers – typically hospitals – focussing on services aimed to promote patient safety.

On the basis of these proven roles, and in recognition of the accelerating need for trust in the wider food and healthcare industries, DNV GL is ready to make bold moves in the life sciences space. We see many forces creating a strong need for trust-enabling assurance services. These include the continued globalization of food supply chains; new challenges posed by growing concerns about food authenticity and food fraud; and the coming technological revolution in the healthcare industry, including the impact of introducing genomics into clinical practices and the rise of the so-called Internet-of-People (IoP), as more and more data coalesces around us as individuals. Thus, it may seem that ships are very far removed from microbes and DNA, but in fact the risk-based approach and highly advanced and digitalized infrastructure that gives us a clear leadership position in a number of risk-intensive industries makes DNV GL exactly the sort of partner needed in the life sciences.

How is the life sciences industry converging with other industries and what can DNV GL contribute?

Tackling complexity, especially from a technological and process perspective, is what DNV GL excels at – and has a deep track record of doing – in other complex, risk-intensive industries. Offshore installations and the vessels that serve them are amongst the most complex feats of engineering; electricity grids are the largest man-made systems and are becoming exponentially more complex with the ongoing energy transition. We have a proven record of serving these industries in trust-enabling roles, taking a systems approach to the technology and man-machine interfaces involved, and applying a risk-based approach to manage and prioritise the most important risk factors.

The time has now come for DNV GL to focus on probably the most complex “systems” on Earth — us human beings. DNV GL needs to leverage all its competencies and heritage to ensure that the practices and technologies aimed at food provision and health preservation are safe, sustainable and equitable. 

Focusing on the systems that sustain and preserve human life is a visible and tangible way of giving effect to our vision: “Global impact for a safe and sustainable future”.



Note from the Editor: 

This feature article is part of a regular series of insights, surveys and interviews that DNV GL commissions from its own experts and from other influential thinkers and writers. We have discontinued our corporate publication, Forum, and readers can subscribe instead to these online updates which will cover a range of topics of cross-industry relevance.