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FEATURE
AUGUST 2016
TRUST:
THE ULTIMATE
COMPETITIVE
ADVANTAGE
In the life sciences market, trust is
emerging as a key differentiator
By Professor Brian D Smith
ever 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 characterized by a strong need
to trust what we put into our bodies.
Professor Brian D Smith
TO BE TRUSTED
IS A GREATER
COMPLIMENT THAN
BEING LOVED.
GEORGE MACDONALD
NOVELIST
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
Darwin’s insight about natural selection revolutionized 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.
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.
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
industrialized, 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 characterize 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.
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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.
NEW LEVELS OF
TRUST NEEDS IN
THE 21ST CENTURY:
TWO TRIOS OF
FACTORS
SOCIETY
INDUSTRY
LONGER
LIFE SPANS
GLOBAL SUPPLY
CHAINS
HIGHER LIVING
STANDARDS
MORE
INFORMED
CUSTOMERS
INDUSTRY
CONSOLIDATION
MEDIA
AMPLIFICATION
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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.
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 plasticcontaining 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,
globalized 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 riskintensive 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.
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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
BUILDING
STAKEHOLDER
TRUST
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.
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. www.dnvgl.com
Need for existing and new assurance roles
DNV GL's strategy
As the supply chain within the life sciences
industries becomes more complex and the use
of large scale data and digitalization is gaining
speed, the need for independent third parties
to help assure quality, safety, security, reliability,
integrity, ethics and more is increasing.
Focus on
two core
segments
of life
sciences:
PRESERVING
HEALTH
FOOD & BEVERAGE
PROVIDING
FOOD
HEALTHCARE
A CHANGING WORLD POPULATION
USD
ACCESS TO SAFE AND
SUSTAINABLE FOOD
10% of the
food in supermarkets is
adulterated
60%
growth in
reported
incidents
2010 to 2013
THE NEED TO TACKLE
FOOD
FRAUD
Adulteration
USD
10–20 bn
Costs of food
fraud to the
industry
per year
Substitution
9
+/–
billion people
by 2050
ACCESS TO TO
HEALTH SERVICES
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Life expectancy has
grown over the past
two decades.
milk, olive oil, honey,
saffron, fish, coffee,
orange juice, apple juice,
black pepper, tea.
684%
THE FUTURE OF
HEALTH
CARE
Misrepresentation
TARGETED CATEGORIES:
savings to global
healthcare budget
due to wearables over
the next 25 years
YEARS LONGER
Dilution
Mislabeling
200 bn
70%
400,000
70%
more food
needed
globally
mid-century
100 year-olds in
the US by 2050
because of better
healthcare
growth in
global wearable market
first half
of 2014
By 2018, 70%
of healthcare
organizations
worldwide will
invest in consumerfacing technology.
Source: DNV GL Annual Report 2015. www.dnvgl.com
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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?
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 riskintensive 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 prioritize
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”.
Copyright DNV GL 2016. www.dnvgl.com. Design: Fasett.no Photos: Shutterstock (page 1, top, page 3). iStockphoto (page 1, bottom, page 5).
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