Speeches & Presentations

Leadership in Uncertain Times
Remarks to Leaders from Lilly Japan Affiliate and Kobe Business Community

John C. Lechleiter, Ph.D.

Chairman, President and Chief Executive Officer — Eli Lilly and Company

January 28, 2013

Kobe, Japan

Thank you.

Let me extend my greetings to my Lilly colleagues and our guests here in Kobe. Thank you for joining us. I arrived in Japan yesterday, and I am happy to be back.

Lilly medicines have been available in Japan for over 100 years, and Lilly has been a part of the Japanese business community for nearly four decades. Lilly Japan was founded in 1975 and today has more than 2,400 employees across all areas of our business.

Lilly Japan is an important part of our company’s future. Japan is the second-largest pharmaceutical market in the world, and Lilly Japan is our largest affiliate outside the United States. We are committed to Japan, to our employees, and to the many patients in Japan who depend on our medicines.

It’s a pleasure to be with all of you today and to speak with so many leading members of the business community in Kobe, including our leaders at Lilly Japan. I would like to take this opportunity to share with you some thoughts on leadership in the turbulent and challenging times we face today around the world.

First, I’ll discuss what I think all this uncertainty means for business leadership … how the leaders here today guide your organizations in today’s environment. We all face the challenge of having to make decisions in volatile conditions with imperfect information, and I hope that my comments will be relevant to your organizations.

Following that, I’ll turn to the demands that these uncertain times place on policy leaders. Although the challenges are common to countries around the world, I’ll focus today on Japan and respectfully suggest some policy approaches that we can support to help our businesses survive and thrive in the current environment.

I hope that my remarks will provide the basis for a good discussion, and I look forward to hearing your perspectives.

Over the past five years, like so many of you, I’ve learned about leading in uncertain times. I assumed the role of CEO at Lilly five years ago in early 2008, shortly before the global economic crisis began to bare its teeth. Even today its effects are still manifest to all of us.

Fortunately, after three decades in the innovative biopharmaceutical industry, I was used to dealing with uncertainty … the uncertainty inherent in the work of discovering and developing a new medicine. It is a long, complex process requiring an investment of hundreds of millions of dollars and lasting a decade or more … with no guarantee of success.

And today, our industry, like many others, is undergoing unprecedented change. We are in the midst of a five-year period when what was $150 billion or so of branded medicine sales will face competition from generics, and innovator company revenues will largely erode. Meanwhile, for now, there are too few new products to step into the breach. R&D output continues to lag, it would seem.

And our own company faces the greatest challenge in its history, a microcosm of the industry’s predicament, as we attempt to navigate through a period when several of our major products face patent expiries in countries around the world, even as we await the full maturation of our own pipeline.

Yet, I must say, I find uncertainty to be a source of opportunity. Maybe it’s because uncertainty is so prominently embedded in our pharmaceutical business model. While uncertainty can be stressful, we know that everyone else is facing the same challenges, and at the end of it all someone is going to find ample opportunity. So I have to think, Why not us?

I’d like to suggest three principles for leading amid uncertainty and turbulence:

  • First, make sense of uncertainty by distinguishing between what won’t change and what must change.
  • Second, control what you can; be prepared for inevitable bad surprises, and be ready to capture unpredictable upside.
  • Third, maintain a long-term perspective … set your sights beyond the current crisis.

Let’s begin with that first principle – to make sense of uncertainty by distinguishing between what won’t change and what must change. This means being ready to learn and adapt in a changing environment, while remaining true to the unchanging vision that defines your organization and guides everything you do.

For our company, this all begins with our Lilly values – integrity, excellence, and respect for people. Every action we take as leaders at Lilly must be evaluated in the light of our values. Adhering to these constant and unchanging principles will keep us on course in the midst of rapid and unpredictable change.

Perhaps the most critical aspect of leadership in every age … but especially in uncertain times … is vision. It’s important for leaders to keep clearly in mind what is constant in the midst of turmoil – and to keep the vision, the ultimate goal, out in front of everyone … to communicate relentlessly … to help people understand and internalize why the effort is worth it.

Our vision at Lilly is to improve health for individual patients all over the world. That’s why our company exists. We need a commitment to that vision, not only from scientists in our labs, but from the people in our manufacturing plants, the people who work with our customers and regulators, and everyone across the organization.

And we need to maintain this commitment even in a period like the one we’re in now, when our revenues are down due to patent expirations on major products, new product launches are still in the future … and, like all of you, we face the pressures of economic uncertainty in markets around the world.

In addition to keeping clearly in sight what won’t change – the vision and values that guide us in uncertain times – good leaders are able to recognize what must change in response to unfolding circumstances. This requires an attribute of leadership that can be summed up as “learning agility.”

The concept of “learning agility,” as developed by leadership development experts Michael Lombardo and Bob Eichenger, describes people who learn readily from their experience and can apply that knowledge in new and difficult situations to perform at a high level. Eichenger and Lombardo found that learning agility is highly correlated with leadership potential.

At Lilly, we’ve distilled 12 factors we think are critical to learning agility. For example, we seek people who are insatiably curious, people with foresight, who can identify root causes and underlying patterns, who draw upon broad sources of knowledge, who can take the heat and lead change.

Among the things we do at Lilly to foster these capabilities is to offer employees assignments in other functions and in other countries; in fact, 75 percent of Lilly’s top 140 leaders have worked in multiple functions across the company. In addition, we encourage involvement on boards, mentoring relationships, and teaching opportunities.

We believe that this is critical to developing leaders who learn to deal with unfamiliar and uncertain situations by applying lessons learned in other experiences. In fact, learning agility is one of the criteria we use in determining an individual’s readiness to take on additional responsibility.

Uncertain times call for leaders who are guided by an unchanging vision, and able to make the changes necessary to adapt to new conditions. These are strengths we can strive to develop in our organizations – and in ourselves.

Now let me turn to a second principle for leadership amid uncertainty: Control what you can. It’s often more than you think.

While it’s tempting to complain about the pressures and uncertainties of the external world, it’s a lot more worthwhile to focus on the factors that are under our control.

At Lilly, we’re responding to the challenge of patent expirations by doing what we’re good at and what we know best – discovering and developing new medicines that meet important medical needs. We’re sticking to our innovation strategy, working to advance our pipeline of potential medicines in order to return to sustained growth.

In his book Great by Choice, Jim Collins contrasts highly successful companies with competitors that fell short, and he asks whether it’s a matter of luck. What he finds is that all the companies experienced a combination of good and bad luck. What made the difference is what they did with it.

Especially in times like this, we have to be prepared for things to be worse than we might have expected, but we should be equally ready to look for unexpected upside and to seize it at the first sign.

At Lilly, as we look back over our own plan performance each year, we see that we achieved certain goals and targets as we established them – but not always in the ways we expected. Typically, we found enough upside to make up for areas where we fell short. That requires innovative thinking on the part of our leaders – and the kind of learning agility I talked about earlier.

In a fluid environment, it’s probably better to make lots of little bets rather than a few big ones. If those little ones don't work, you haven't sacrificed the enterprise.

It’s also important to face challenges and make decisions earlier rather than later, by understanding the possible scenarios that could play out. Look at the data, recognize the trigger points, and use your best judgment so that you can act at a stage where you still have some degree of freedom.

The third principle I would suggest for leadership amidst uncertainty is a long-term perspective. Taking the long view is, of course, a quality closely associated with Japanese culture and business practice, so let me simply share what this means for us at Lilly. Lilly was founded in 1876. We will celebrate our 137th anniversary on May 10 of this year. Our long history has taught us many lessons.

As an organization that makes huge investments in research, we know when budgets are tight, the first temptation is to cut R&D. We also know that our future depends on innovation, so we do our best to resist that temptation!

Today, we have a number of molecules in late-stage development, and we’ve placed a high priority on successful launches of new medicines. At the same time, however, we simply cannot sacrifice earlier stages of discovery and development. Despite the urgency of bringing new products to market, we’re committed to a sustainable flow of innovative molecules through our pipeline for the long-term growth of our company.

Similarly, when it comes to expenditures, our goal is not to slash costs to meet an imminent crisis, but to remake our cost structure for long-term success. The way you go about cost-cutting, and the kinds of costs you take out, are going to be a lot different depending on which approach you take.

I believe that a long-term perspective leads to spending and investment decisions that are not only better for the future of the company, but for right now, particularly in this time of uncertainty. Because they make it very clear to employees, customers, and policy makers that you’re committed to the long run, and you intend to be here tomorrow.

Let me turn briefly to policy leadership for uncertain times. As business leaders, we all have a stake in the policy environment in which we operate. Indeed, one of our roles as leaders is to support policies that will make it possible for our businesses, and our economies, to thrive in uncertainty.

I will explore this issue from the perspective of the innovative pharmaceutical industry, and I look forward to hearing other viewpoints. Let me suggest three principles for policy makers amid uncertainty:

  • Reduce uncertainty to the extent possible,
  • Maintain the long-term perspective I talked about earlier;
  • And maximize the potential of innovation to meet the challenges we face.

First, amid the turmoil of economic and financial markets around the world, it’s vitally important that policy makers do everything they can to reduce uncertainty. As I noted earlier, uncertainty may create opportunities for individual competitors, but it is undoubtedly a drag on the economy as a whole.

While I firmly believe that Lilly can prosper amid uncertainty by following the principles I’ve outlined, we undoubtedly compete best in an environment where everyone can operate with greater certainty about key matters of policy that affect us all.

For a company like ours to make the long-term commitment to developing new medicines requires what I’ve referred to as an “ecosystem” where innovation can flourish. We need a reasonable degree of confidence in a policy environment that includes:

  • solid protection of intellectual property;
  • a fair, rigorous and transparent regulatory system;
  • a predictable tax structure that allows us to plan and invest for the future;
  • and a pricing and reimbursement system that recognizes the value of innovation.

And the kinds of policies I’ve laid out are essential not only for our business, but for any enterprise that requires planning and investment for the future. So maintaining a predictable and supportive legal, regulatory, and tax environment is truly a timeless quality of policy leadership … for good times and bad … but, indeed, we need clear, certain, and sensible policy now more than ever!

A second principle for policy leadership in uncertain times … just as in organizational leadership … is to maintain a long-term perspective.

Amid all the uncertainty in today’s world, what is not uncertain is the long-term demographic future. We have a very good idea of how many people will be of retirement age, and how many of working age, 20 years from now. We can project the costs of providing medical care for aging populations around the world, given current technology – and the potential costs are daunting.

This is certainly true for Japan – where the aging of society has progressed farther than anywhere else the world. For example, when Japan first counted the number of people over the age of 100, back in 1963, there were 153. As of 2011, the number was 48,000. By 2050, according to UN estimates, Japan is expected to have as many as 800,000 to 1 million centenarians … and 40 percent of the Japanese population will be 65 or older.

One major consequence, according to the international consulting firm McKinsey & Co., is that demand for medical care in Japan will triple in the next 25 years.

While similar pressures extend across all sectors of the economy … as you well know … health care offers a stark example of the need for a long-term policy perspective.

Fiscal stress in countries around the world is driving policies on pricing and access to new medicines that threaten our ability to pursue innovation. The budget pressures of growing health care demands are only going to increase, so it’s critical that policy makers take a long-term approach to the problem. At this moment of extraordinary scientific promise, I believe it would be a grave mistake for leaders to sacrifice the long-term benefits of innovation to meet immediate budget pressures.

And that leads to a third principle of policy leadership in uncertain times: Maximize the potential of innovation to meet the challenges we face.

Innovation may not be the panacea for the seemingly insurmountable fiscal and demographic challenges facing our economies and health care systems. But innovation is an indispensable part of meeting human needs here and around the world.

Our best hope of breaking out of the current crisis is through innovation – innovation that truly changes the terms of the trade-offs we must make and expands the scope of what’s possible.

Here is just one example that dates back to my own childhood: In the early 1950s, the cost of polio care in the U.S. was predicted to be $100 billion by the year 2000. And that was in the days when a billion was a billion! Thanks to the advent in 1954 of the polio vaccine … a vaccine, I am proud to add, that Lilly was among the first companies to manufacture … the cost of treating polio in the United States in the year 2000 was in fact about $100 million, so the prediction was way off … by 99.9 percent!

Let me relate this to the challenges facing Japan.

Japan has achieved the world’s highest level of performance across most major health outcomes, even as Japan’s health care spending as a percentage of GDP – 9.5 percent in 2010 – has remained the lowest among G7 countries.

Looking forward, however, pressures on the health care system could create problems for Japan. If economic conditions lead to inadequate health care funding, this could undermine treatment and outcomes for patients. Poorer outcomes, along with an aging population, could, in turn, reduce total labor productivity, which would further slow economic growth.

Yet, just as medical innovation helped create increased demands on health care, I am convinced that medical innovation can also help Japan … and other countries around the world … deal with this challenge. In fact, innovative medicines have proven themselves time and again to be the most effective way to reduce costs and improve quality in health care.

Here in Japan, investment in health care innovation also has a direct and positive impact on economic activity and jobs. In 2009 and 2010, health care generated 240,000 new jobs in Japan, even as a total of 350,000 jobs were lost in all other industries during that same period.

Innovation is a key not only to meeting the needs of the Japanese people, but also to realizing the full potential of Japan’s economy … as this nation builds on its heritage of innovation to play a leading role in the scientific and technological advances that lie ahead.

Let me conclude, then, with perhaps the most essential quality of leadership … in business and in government … in these turbulent times – and that’s optimism. Good leaders find reasons to be optimistic and convey a positive attitude to everyone. It is infectious.

For those of us in biopharmaceuticals, we have to remain optimistic because there’s never been more exciting prospects for scientific advances in medicine – or a time when they are more urgently needed.

Advances in medicine are essential to maintain the dramatic gains in health and longevity in the 20th century and meet the health care demands of aging populations.

And we are on the verge of even greater advances today. I believe that the combination of new insights into human biology, along with the application of new tools and advanced technologies, has the potential to revolutionize our work more in just the next 10 years than in the past 50!

At Lilly, we have a robust pipeline, talented people, and a cause worthy of our best — huge unmet medical needs around the world. That’s certainly enough to keep me motivated. The head of our manufacturing operations recently shared a comment she received from an employee. “In the long run it takes discipline and sustained courage to keep going, but it’s always worth the effort.”

That’s true not just in our work, but for every organization represented in this room today. We live in an age of astonishing economic productivity and technological advances. With the right leadership, we can seize an unprecedented opportunity to improve the lives of people around the world.

That means making sense of uncertainty by recognizing what won’t change and what must change … doing everything we can to shape our own destiny … maintaining a long-term perspective that sees beyond the current crisis … and supporting policies to support growth and capture the promise of innovation for a better tomorrow. Thank you.

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