The hub and spoke model – from aviation to pharma

Every idea has its place under the sun. Two industries, pharmaceuticals and aviation which are known to be ‘high risk – high gain’ business are strikingly employing similar practices in order to maximize productivity and profits.

Everyone would agree that both aviation and pharmaceutical businesses require ‘deep pockets’ to start and sustain. Both have long periods of gestation but if run properly then returns can be huge eg. Pfizer, Merck, Emirates etc. 

Let us look at the paradigm shift being brought about by the major aviation companies and pharma giants to improve sustainability of their respective businesses.  In aviation, big players like Etihad, Emirates, Singapore airlines utilize their home base airports of Abu Dhabi, Dubai and Singapore respectively as hubs which then is used to improve/increase traffic. Traffic is brought in from various airports around the world and the hubs provide seamless connectivity options to their respective customers – a typical hub and spoke model!

Similar kind of approach is now being utilized by the pharma giants to increase their R&D productivity. R&D is the base on which any pharma company stands. But with increasing drought of blockbuster drugs coming out from the stable of Merck, Pfizer et al., it has become imperative for them to look for other ‘innovative’ means. The answer- ‘reduce expenditure on internal R&D efforts and create smaller hubs to scout for interesting research done in smaller companies/universities’. The companies feel this would help them to maximize R&D productivity and will be better focused on bringing in a stream of new deals. This is another version of ‘hub and spoke model’. 

There are critics of this approach but with increasing cost burden, lack of nimbleness in the big pharma set up it is probably important to decentralize and open up.