4.6. The perspective for the business model and ist competitive advantage für profit growth and a sustainable profitability

According to marketing theory a company generates a competitive advantage to obtain superior profitability for its business either via improved differentiation of its products or via providing (developing, manufacturing, marketing, servicing) these products at lower costs or combining both approaches.⁵⁷ The strategies to pursue a competitive advantage either as a differentiator, or a cost leader or combining both in a broad differentiator strategy, depend on the company’s building blocks of competitive advantage, which themselves are shaped by its distinctive competencies in the value chain functions.

However, regardless whether a company pursues a specialist, niche provider or cost leadership strategy, successful QbD implementation should be able to increase its competitive advantage by both, improved differentiation and lower costs for its value chain functions, thereby generating superior efficiency, superior product quality, superior innovation and superior customer responsiveness as the main building blocks of competitive advantage.⁵⁸

In the expanded model of Porter’s five competitive forces, presented by Hill 59 to include the impact of macro-environmental forces, the impact on the competitive situation of today’s pharmaceutical industry can be outlined as depicted in Figure 7.

Figure 7: Porter's five forces and the role of the marco-environment transcribed to the environment of the pharmaceutical industry⁶⁰

Even though QbD itself does not change these impacts it can substantially improve a company’s position and its ability to deal with all these competitive forces, helping it to positioning itself as a market leader in its business.

Due to the high competitiveness and complexity of the modern pharmaceutical markets superior competitiveness really means being able to demonstrate superior differentiation at superior cost efficiency and doing so sustainably in a constantly changing macro-environment.

While QbD itself can’t impact most of these external factors it definitely does contribute to a company’s ability to compete in this environment efficiently.

ROIC⁶¹ can be expressed as the combination of a company’s net profit and its capital turnover. ROIC will increase when COGS/sales, R&D/sales, SG&A/sales, Working capital/sales and PPE or fixed capital/sales decrease, demonstrating how effectively a company converts its revenues into profits. While capital turnover will be most positively improved when sales increase, the net profit is also impacted by the expenditures a company has to make on COGS, R&D and SG&A for its sales. Thus QbD can positively influence a company’s profitability if it either increases sales due to the improved product quality proposition (a more for more pricing strategy which would also help to improve capital turnover may no longer be applicable as discussed earlier) or by reducing its costs for R&D, manufacturing and administration & sales.

Here the benefit from an increased probability of success and shortened development timelines for CMC activities may be most effective in decreasing R&D costs by a QbD driven development and integration of this philosophy in the company’s organisational structure and strategy.

Profit growth can be achieved most directly by increasing sales either due to market expansion or an increase in market share. And here again QbD can help growing market share by faster development and higher success rates for new drug products and also by superior lifecycle management of its products as facilitated by Continual Improvement helping to expand its markets.

Together, profit growth and profitability generate maximum shareholder value. Therefore, the objective to sustain profitable growth of a pharmaceutical company is the ultimate objective and this can be supported in promoting QbD to a business improvement tool rather than a sole quality instrument.

⁵⁷ Jones; Theory of Strategic Management; p 85-86: building blocks of competitive advantage
⁵⁸ Jones; Theory of Strategic Management; p 86: building blocks of competitive advantage
⁵⁹ Jones; Theory of Strategic Management; p 64: the role of the macro environment
⁶⁰ Source: Jones; Theory of Strategic Management; p 64: the role of the macro environment (author’s own adaptation)
⁶¹ Jones; Theory of Strategic Management; p. 92: ROIC