Despite its complexity and exceptionality, in some ways the life sciences industry is remarkably simple and similar to other business sectors in three respects. First, success depends on capabilities: firms win when they are better than their rivals at doing what the market needs them to do. Second, success is a moving target: as the market changes, so do the capabilities that firms need to succeed.

These first two truisms lead to the third: sustained success is the result of the continuous evolution of a firm’s capabilities. Successful evolution is difficult in any industry, but perhaps especially so in ours, which uses advanced science, is heavily regulated and signed up to an implicit contract with society. For the last 25 years, my research has tried to understand how the best life sciences companies evolve in this exceptional context. In this series of four articles, I paint the big picture of what I have found.

In the first article in this series, I described how each of the industry’s 26 business models is characterised by a distinct collection of capabilities (its capabileome), which are expressed by its unique set of organisational routines (its routineome), with each routine being built on specific microfoundations. In the second article, I described the three kinds of capabilities (hygiene, differentiating and dynamic) that firms need to compete. In this, the third article, I move on to how life sciences firms engineer their routineome and microfoundations to create those new capabilities. In the fourth, I will address how they sustain that evolution over time.

If your future market will be different, so too must be your firm’s future business model and capabileome. For example, if future innovations will only be rewarded when they demonstrate value, then your future business model must be capable of demonstrating customer-perceived value. Equally, if your future market will be more fragmented into specialist niches, your future success depends on finding small patient populations and creating value propositions specific to those niches. In a multitude of ways, your future set of capabilities will be different from those that were sufficient in the past. If you are to compete, it must also be better than your competitors’ capabileome. Building these better capabilities begins with identifying your new business model (see article 1: ‘Capabilities Count’) and the new hygiene, differentiating and dynamic capabilities that are essential to it (see article 2: ‘Choosing Capabilities’). Only once you have clearly envisioned the differences between your firm’s current and future capabilities can you begin to think about how to build that future business model. And that building work begins with the new model’s organisational routines and microfoundations.

Together, these and other routines combine to create a market analysis process that gives you the capability to create important market insights. Other processes, themselves aggregates of other organisational routines, create other capabilities, such as those for designing and executing omnichannel campaigns or demonstrating superior health economic outcomes. Often, these organisational routines are so taken for granted that they become invisible. But when firms want to change their business models and capabilities, this invisibility becomes a problem.

Business processes only create capabilities if they include all the necessary organisational routines. Without a routine to gather unspoken customer needs, business intelligence processes produce information but no insight. Without a routine for creating synergy between channels, omnichannel campaign design processes produce nothing more than an incoherent jumble of activity. Without a routine for understanding how payers perceive value, brand teams offer valueless propositions to the market. So how can we know if a process has all the routines it needs to create a capability?

My research found that effective business processes use knowledge in a cycle of four steps (see Figure 1). If any of these steps is omitted or is weak, the process fails. For example, a business intelligence process that gathered and shared market knowledge but lacked routines for using it by separating the ‘needles of insight’ from the ‘haystack of knowledge’ would be ineffective. In the same way, a value demonstration process that gathered, shared and used health economic data but lacked a good routine for deploying it into payer communications would also be ineffective.

This four-phase perspective enables firms to create new capabilities in two ways. First, it makes the required routines more explicit. Second, it identifies what important routines might be missing. But identifying what routines are needed also creates another question. If we need a new or changed routine, what is it that makes an organisational routine fit for purpose?

When a firm talks about having innovation, patient-centricity, or ethical behaviour ‘as part of its DNA’, the metaphor is closer to the truth than is realises. Its organisational routines act just like genes. They store information and, like genes, routines can be replicated and sometimes captured from outside the organisation. But there’s another important parallel between routines and genes, too. Just as a functioning gene requires a particular sequence of four nucleotides, each functioning routine requires a specific set of four microfoundations, as shown in Box 1.

Understanding these four microfoundational factors enables firms to design more effective routines, which in turn make business processes work and capabilities possible. In the same way, an appreciation of the four microfoundations can explain why an existing routine may not work in the way that the process needs it to and so prevents the expression of a necessary capability.

If you are an experienced manager, you will probably recognise the way that these four microfoundations subtly but significantly impact organisational capabilities. For example, if the team members’ attributes don’t include the skills to synthesise quantitative and qualitative data, the routine for gathering data will not work and the insight creation process it should contribute to will not work. In the same way, knowledge-sharing routines, which are especially important in creating compelling value propositions, demand conflict-management microfoundations. Weaknesses in team structure microfoundations lead to siloed thinking. And when, for example, brand teams lack a group process for understanding the heterogeneity of their market, their marketing planning process creates formulaic, tick-box marketing programmes.

In the course of my research, whenever I found a weak or lacking capability, it was always attributable to a weak or missing organisational routine. And when a routine was weak, it could always be understood in terms of some missing or ineffective microfoundation. As one of my research respondents expressed it, the idea that capabilities have their origins in processes made up of routines and built on microfoundations allows managers to ‘make capability development a science rather than an art’.

Experienced leaders in pharma and medtech already know that their firms’ success depends on being more capable than their competitors. The best also know that sustained success depends on constant capability development. They also understand that new and strong capabilities don’t arise spontaneously from assembling good people and hoping they will gel. However, when I ask them how they create and adapt the capabilities they need, they are less sure. They fall back on intuition and gut feel, sometimes augmented with some crude tools such as job descriptions and standard operating procedures.

In my research, I looked inside the heads of these leaders and tried to make sense of their tacit and subconscious knowledge. This led to the understanding that microfoundations shape routines, which aggregate into processes that then express capabilities. How this happens is analogous to how nucleotides make genes that express proteins because it only takes small errors, analogous to single-nucleotide polymorphisms, to create substantial weaknesses.

Taken as a whole, these findings add up to a leader’s checklist for enabling the evolution of business models in pharma and medtech. This is summarised in Figure 2. Using this checklist guides leaders from the changes in their external market macroenvironment, over which they have little control, to the changes in microenvironments within the firm, which they can change. In other words, it is a map for being market-oriented or, in currently fashionable terms, patient-centric.