Mounting headwinds in recent years have prompted biopharmaceutical companies to redefine how they create and sustain value. Over the past decade, the industry has produced major scientific breakthroughs, leading to improved outcomes for patients and strong shareholder returns of roughly 9 percent annually.1 However, companies are increasingly competing within crowded therapeutic spaces, asset life cycles are compressing, and major patents are expiring—all of which are compounded by stagnant R&D productivity, shifting geopolitical and regulatory landscapes, and increasing expectations to rewire the organization with digital and AI.
In response, pharma leaders have begun exploring fundamental changes to their capabilities, talent, and processes. Our analysis of more than 100 industry announcements reveals widespread simplification efforts that could yield more than $7 billion in cost savings. Top pharma executives have publicly committed to organizational transformations—from “streamlining our ways of working” and “reducing management layers” to what one leader describes as a “complete redesign” of the company’s operating model.
These signals are also reflected in the results of our recent survey of 50 global life sciences leaders.2 Thirty-seven of them expect their organization to pursue a simplification effort over the next 12 months. Thirty-two respondents say they believe they need a significantly different operating model, and nearly half indicate that they must completely abandon their traditional business model to enable innovation, accelerate decision-making, and remain competitive. Thirty-three of them rank accelerating decision-making as one of their top three priorities for simplification (Exhibit 1). Only three respondents believe they have already solved a critical value-diminishing bottleneck: reducing manual workloads that prevent teams from focusing on high-value tasks. The message is clear: Simplification is no longer just a theoretical aspiration; it is now a strategic imperative.
In this article, we explore challenges that are reshaping pharma and propose simplification strategies to move companies toward their next horizon.
Trends reshaping pharma
Among the varying forces that are compelling pharma organizations to rethink their operating models, three trends stand out.
Portfolio diversification, crowding, and life cycle compression
To capture growth opportunities, companies are expanding into new therapeutic areas, but this has led to increasingly crowded markets. In 2020, two-thirds of the portfolios of the top ten global pharma companies targeted areas with significant “herding”—a sharp rise from just 16 percent in 2000.3 Over the same period, the time for three or more competing products to enter the same disease area has shrunk dramatically, from 15 years to just two. Meanwhile, the window to achieve 50 percent of lifetime sales has been reduced by 18 months since 2000, intensifying the urgency for companies to maximize return on investment before competition erodes margins.
Policy pressures and pricing dynamics
Regulatory and policy changes, coupled with payer and health system consolidation, are reshaping industry economics. In the United States, the Inflation Reduction Act has given the Centers for Medicare and Medicaid Services the authority to negotiate drug prices after seven years for small-molecule drugs and 11 years for large-molecule drugs, with an estimated $50 billion to $70 billion EBITDA reduction for pharma companies through 2028.4 Similar pressures exist globally: Germany has halved its free pricing period to six months, while Japan has moved from off-year to annual price revisions. These shifts are forcing companies to propel operational efficiency to offset growing pricing pressures.
Integrating AI and digital
AI is set to transform life sciences, with gen AI alone expected to generate $60 billion to $110 billion in value across the industry. The most significant impact areas include clinical development ($13 billion to $25 billion), research ($15 billion to $28 billion), and commercial operations ($18 billion to $30 billion).5 AI and digital capabilities are no longer confined to data science teams—they are becoming essential capabilities across general and administrative functions, R&D, operations, commercial, and medical affairs. However, as companies race to harness these technologies, they face a critical challenge: acquiring the right talent and integrating AI capabilities at a pace faster than previous industry transformations.
Across these trends, we see challenges and opportunities. Pharma companies are under pressure to adapt as competition intensifies, regulatory policies evolve, and uncertainty lingers. To stay resilient in this environment, companies should be able to make decisions and allocate resources quickly. At the same time, gen AI and other digital tools offer new opportunities for efficiency and innovation, but unlocking their full value will require targeted investment in capabilities, organizational rewiring, and meaningful change management.
Four strategic actions for simplification in pharma
To navigate these challenges and seize the new opportunities, we have outlined four key strategies that pharma companies can take to streamline their operations, enhance productivity, and maintain competitiveness.
1. Identify and build distinctive capabilities
As the industry innovates, companies will need to upgrade their enterprise capabilities to remain competitive (Exhibit 2). Pharma companies should identify the capabilities that are essential for their future portfolios and differentiate between areas where they must excel and those where industry standards suffice. Less than a third of the 50 leaders we surveyed believe their organization currently possesses the talent and capabilities required to support future product portfolios, including those involving new modalities and technologies.
For example, a leading rare-disease pharma company that was expanding into new therapeutic areas performed an analysis to assess the gap between current and anticipated future capabilities. The analysis identified three kinds of capabilities needed to deliver the pipeline: expanding current expertise, new but nondifferentiating capabilities, and critical new areas requiring distinctiveness. This segmentation enabled the executive team to collectively focus on building essential organizational capabilities while allowing individual functions to address their specific business needs in a resource-efficient manner.
To close capability gaps, companies should decide whether to hire, acquire, build, or partner. For example, companies can upgrade their talent base by reshaping teams around current priorities or embed relevant expertise through partnerships. Across functions, from R&D to commercial, teams should weigh whether to build their own custom technology solutions, partner with vendors, or buy solutions and tailor them to their purposes.
More than half of pharma companies now outsource commercial capabilities, a trend expected to continue. A recent McKinsey survey supports this: more than 80 percent of pharma R&D leaders anticipate supplier spending to rise by 10 to 30 percent over the next two to five years. While outsourcing can accelerate the adoption of external technologies, it also introduces complexity. Leading firms balance these trade-offs by investing in internal capability building alongside strategic partnerships.
2. Simplify organizational structures
Overly complex, matrixed organizations present a major barrier to agility. In our survey of life science leaders on simplification, roughly one in five respondents say they believe their current operating model enables timely decision-making at the appropriate organizational levels.
Some organizations have successfully simplified their structures by eliminating duplication between global, regional, and local layers. One biopharma company consolidated its markets into just two regions—international and the United States—transitioning to an above-market versus in-market structure. This shift brought decisions closer to customers, reduced bureaucracy, and provided employees with clearer roles and responsibilities.
Others have focused on flattening hierarchies by expanding the spans of control and reducing management layers. The benefits of these efforts include faster responses to market changes, improved decision-making, and standardized role responsibilities.
3. Streamline burdensome processes
Pharmaceutical organizations often struggle with time-consuming processes that demand excessive involvement across multiple levels of the company, including financial planning, performance management, and business reviews (Exhibit 3). We have observed organizations that have streamlined cumbersome processes across multiple functions, reducing time requirements by 3 to 15 percent and freeing up resources for higher-value activities.
One company described a financial-planning exercise that took more than six months and required input from nearly everyone, from brand teams to the CEO. A better approach that some companies are undertaking is to empower small cross-functional teams to encourage process simplification. A midcap pharma company did just that: it reduced the timeline of its brand planning cycle by eliminating inefficiencies and standardizing outputs, cutting a traditionally eight-month process by two months.
Similarly, a large pharma company struggling with a six-month forecasting process lacked a singular source of truth, leading to inefficiencies and inaccuracies. By convening a cross-functional team to assess best practices, prioritize key metrics, and simplify inputs and communications, the company reduced its planning horizon by 50 percent while improving forecasting accuracy.
4. Rewire with digital-first strategies
Although digital transformations can initially add complexity, the long-term benefits are substantial. Companies that effectively integrate automation and gen AI can drastically simplify access to information, reduce manual workloads, and free up time for high-value tasks.
High-impact digital strategies require new ways of working. For instance, one pharma company deployed a digital-first approach across its 6,000 employees in key corporate functions, generating hundreds of millions of dollars in savings. A major use case involved developing a self-service portal that provided the local presidents of the company’s different country offices, as well as the brand teams, with instant access to more than 50 common finance queries.
Moreover, some digital solutions can deliver immediate value without requiring major organizational rewiring. One pharma company applied AI-driven procurement analytics and uncovered $10 million in value within four weeks, just from analyzing 10 percent of its spending. Similarly, streamlined collaboration among marketing, sales, and tech teams has led to a 10 to 15 percent sales uplift in organizations that embrace digital strategies.
To maximize the benefits of digital-first strategies, companies must establish robust processes for scaling AI and automation. Without a structured approach, digital initiatives often stall at the proof-of-concept stage or introduce new inefficiencies that prevent cost-effective scaling. Leading companies are now adopting machine learning operations to create scalable AI solutions and more reliable deployment of digital tools.
Pharma leaders who act decisively amid mounting industry challenges can build the adaptability they need to thrive. By identifying distinctive capabilities, streamlining processes, and embracing digital-first strategies, they can create more nimble organizations. Success demands a bold commitment to simplification—one that empowers teams to focus on their core mission: accelerating the delivery of life-changing therapies to patients.
