Explaining the behavioral economics context of culture of quality

Culture of Quality:
Explaining the
Behavioral Economics
& Econometric
Context
Ajaz@ajazhussain.com
8/23/2014 © AJAZ S. HUSSAIN | INSIGHT ADVICE & SOLUTIONS LLC 1
http://www.psychologytoday.com/blog/markets-in-mind/201401/dilbert-does-behavioral-
economics
WWW.dilbert.com

Some viewers of my presentations on Slideshare asked
for additional information to understand the context of
Behavioral Economics & Econometrics in
Pharmaceutical Culture of Quality …..
http://www.slideshare.net/a2zpharmsci/pharmaceutical-culture-of-quality-38207722

Key Features of this Course
• Focused differently; complement mainstream GXP training already
conducted
• Framework to integrate CoQ, QMS and GXP; connected to regulatory
requirements
• Easy to understand and remember; ‘Connect the Dots’
• Rational discussion on deviant behaviors; No negative cultural overtones
• Opportunity to reflect and seed the idea of life-long learning.

Based on the wisdom and evidence on what it takes to
build and sustain Culture of Quality (CoQ)
W. Edwards Deming - Out of the Crisis, MIT Press (2000).
James T. Reason - Concepts such error models/management and safety culture.
Daniel Kahneman - Decision making under risk and concepts from behavioral economics.

Other important concepts and sources of
information
• Creating a Culture of Quality: Financial Incentives Don’t Reduce Errors. Employees must be
passionate about eliminating mistakes. Ashwin Srinivasan and Bryan Kurey. Harvard Business
Review, April 2014.
• Distinguishing Control from Learning in Total Quality Management: A contingency perspective. S.
B. Sitkin, K. M. Sutcliffe, and R. G. Schroeder. Academy of Management Review: 19, 537-564
(1994).
• Putting Errors to Good Use: Error management culture in organizations. C. van Dyck. (2000).
Doctoral Dissertation. Faculty of Social and Behavioural Sciences. The University of Amsterdam.
• The theory of planned behavior. Ajen, I. Organizational Behavior and Human Decision Processes.
50, 179-211 (1991)

Other important concepts and sources of
information
• Predictably Irrational: The Hidden Forces That Shape Our Decisions. Dan Ariely, (2010).
HarperCollins Publishers.
• The Honest Truth about Dishonesty: How We Lie to Everyone--Especially Ourselves. Dan Ariely,
(2012). HarperCollins Publishers.
• The Power of Habit: Why We Do What We Do in Life and Business. Charles Duhigg, (2012).
Random House Publishing Group.

One can be judged irrational .........
• The psychological principles that govern the perception of decision problems and
the evaluation of probabilities and outcomes produce predictable shifts of
preference when the same problem is framed in different ways.
• Reversals of preference are demonstrated in choices regarding monetary outcomes, both hypothetical and real, and
in questions pertaining to the loss of human lives.
• … A man [or woman] could be judged irrational either because his [her] preferences are
contradictory or because his desires and aversions do not reflect his/her pleasures and
pains.
• Amos Tversky and Daniel Kahneman (1981)
• Insanity: doing the same thing over and over again and expecting different results. Albert Einstein, (attributed).

“The End of Rational Economics.”Dan Ariely. Harvard Business Review, July 2009.
• “[Allen Greenspan] made a mistake in presuming that the
self-interest of organizations, specifically banks and others,
was such that they were best capable of protecting their own
shareholders.”
• Dan Ariely. Harvard Business Review, July 2009.

“We’re painfully blinking awake to the falsity
of standard economic theory….”
• ….that human beings are capable of always making rational decisions and that markets and
institutions, in the aggregate, are healthily self-regulating.
• Unlike the FDA, for example, which forces medical practitioners and pharmaceutical companies to test
their assumptions before sending treatments into the marketplace, no entity requires business (and
also the public sector) to get at the truth of things.
• Dan Ariely Harvard Business Review July 2009
• But what does this have to do with pharmaceutical sector – which (as Dan Ariely
wrote, above) is regulated by FDA?
• Dan was primarily referring to the pre-approval process; post-approval the system is under a
episodic inspectional domain – which can be plagued with ‘heterogeneity and
information asymmetry gaps’

Chemometric, Pharmacometrics &
Econometrics: Three Dimensions of QbD
Chemometrics
Econometrics
Review & Approval
Business Decisions:
Commercial operations,
profitability & availability.
Periodic Regulatory Inspections
Three Econometric Papers on Quality
Decay, Shock, and Renewal: Operational
Routines and Process Entropy in the
Pharmaceutical Industry.
Regulator Heterogeneity and Endogenous
Efforts to Close the Information Asymmetry
Gap: Evidence from FDA regulation.
Quality Risk in Offshore Manufacturing:
Evidence from the Pharmaceutical Industry
How do people really make decisions?
Prospect Theory: An Analysis of Decision under
Risk. Daniel Kahneman and Amos Tversky
Econometrica. 47: 263-291 (1979)
The Framing of Decisions and the Psychology of
Choice. Amos Tversky and Daniel Kahneman
Science. 211, pp. 453-458 (1981)
The End of Rational Economics. Dan Ariely.
Harvard Business Review, July 2009.
Ajaz S. Hussain. SWISS PHARMA 34 (2012) Nr. 6.

CoQ: Pre-approval, Approval & Post-approval
Development
& Application
Commercial
Operations
Pharmacovigilance
Inspections – 483, WL,…
Marketing,….
Manufacturing
Marketing Authorization
Pre-Approval Inspection
Review
Application
Development
Prone to ‘process entropy’ without FDA Inspections!
http://www.nike.com/us/en_us/c/justdoit
“Throw-over the wall”
“Satisfy Reviewer Requirements”

Decay, Shock, and Renewal: Operational Routines and
Process Entropy in the Pharmaceutical Industry
……the tendency of operational routines to decay is widespread. Our
results also illustrate that FDA inspections act as external renewals that
halt decay in adherence to routines…..
Gopesh Anand, John Gray, and Enno Siemsen. Organization Science. 23:1700-1716 (2012)

Regulator Heterogeneity and Endogenous Efforts
to Close the Information Asymmetry Gap:
Evidence from FDA regulation
….considerable evidence that regulators are actively aware of
information asymmetries ….. Our results also reveal marked
heterogeneity among individual regulators
Jeffrey T. Macher, John W. Mayo and Jack A. Nickerson. Journal of Law and Economics. 54: 25 – 54 (2011)

Quality Risk in Offshore Manufacturing: Evidence
from the Pharmaceutical Industry
...transfer and maintenance of the knowledge required to operate
with a low quality risk across non-geographic distance are left as the
most plausible explanatory factors.
John Gray, Aleda Roth, and Michael Leiblein. Journal of Operations Management. 29: 737–752 (2011)

Behaviors: Rational & Irrational
The Framing of Decisions and the Psychology of Choice. Amos Tversky and Daniel Kahneman.
Science. 211, pp. 453-458 (1981)

“How Honest People Cheat”
Harvard Business Review, February 2008
Most individuals, operating on their own and
given the opportunity, will cheat—but just a little
bit, all the while indulging in rationalization that
allows them to live with themselves.
Human fallibility अविश्िसनीय
• Error गलती
• Malicious दुर्भािपूर्ा
• Beyond ‘cheating’ - Many
biases – leading to wrong
decision
The Honest Truth about Dishonesty: How We Lie to
Everyone--Especially Ourselves. Dan Ariely, (2012).
HarperCollins Publishers.

“Four years after the scandals of the financial crisis
prompted deans and faculty to re-examine how they
teach ethics..”
• Does an 'A' in Ethics Have Any Value? B-Schools Step Up Efforts to Tie Moral
Principles to Their Business Programs, but Quantifying Those Virtues Is Tough.
By MELISSA KORN. THE WALL STREET JOURNAL. Feb. 6, 2013
• "Business schools have been giving students some education in ethics for at least the past 25
or 30 years, and we still have these problems," such as irresponsibly risky bets or
manipulation of the London interbank offered rate, says John Delaney, dean of University of
Pittsburgh's College of Business Administration and Katz Graduate School of Business.
• Stand-alone ethics courses are a start, but they "compartmentalize" the issue for students, as
if ethical questions aren't applicable to all business disciplines, says David Ikenberry, dean of
University of Colorado's Leeds School.

The Behavioral Economics Context
An Alternate Approach to a Discussion Based in Ethics/Morality
A means to discuss
behaviors in the context of
human (rational and
irrational) decision-making
• A majority of people in the pharma sector have the right intentions – duty of
care; yet some of their decisions fall under the irrational category
• Certain cognitive biases hinder them to test certain assumptions when
making decisions; and/or
• Their frame of reference & understanding is not aligned with the legal and
regulatory requirements in the USA
• There will always be a segment which will bend or break the rules – when no
one is looking;
• Their frame of reference (prevailing norms in an environment) provides
them with a basis to rationalize that their bending/braking of rules does ‘no
harm’
Then there are the
habitual criminals – who
have no place in the
legitimate world of health
care
• It should be recognized that the line separating Cheating by Design and
Quality by Design is very thin

Why Culture of Quality?
FDA inspections are periodic, of
limited duration, face information
asymmetry, are heterogeneous,..
• CoQ shapes the environment -
ideally to facilitates human behavior
to do the right thing when no one is
looking
• Effective QMS
• Compliance to GXP
CoQ is a Safeguard to Pre-conditions
for Malice or Disregard when the
Regulator is Not Inspecting or
Reviewing
• Attitude/Rationalization
• Pressure/Incentive
• Opportunity – “holes” in QMS,
supervision, policies,…

Preconditions to malice or disregard
Rationalization &
Attitude
Pressure &
Incentive
Opportunity –
‘holes in the QMS”

Challenge of a ‘cluster’ of poor data
integrity practices
Many pharma companies in
India have state-of-art quality
systems
However, a ‘cluster’ of
poor data integrity
practices have been
noted..
There is a serious and
lingering concern that there
may be a set of common
factors and that such practices
may be more widespread
The size of this cluster
is increasing as rigor
and frequency of US
FDA inspections have
increased
Suspects are cultural
attitudes, human hardships in
an emerging economy, and/or
growth ambition beyond what
current systems can support
Effective intervention
needs a deeper
understanding of root
cause(s); to strengthen
Culture of Quality.

Clustering Illusion – this is not.
The Gold Sheet. 28 March 2014.
Bowman Cox
Four Viewpoints

At the individual level, in QC function– how
often does this occur?
attitude
toward
performing the
behavior
Process
validation is
done so quality
is good;
test prone to
error
“Batch failure
means I made
a mistake”
subjective
norm
documentation
not critical;
Compendial
testing
sufficient
Indian
regulators
collect & test
samples – no
issue there!
“Testing into compliance”
In general – low empowerment
is a significant challenge (low
perceived behavioral control);
plus reasons to rationalize….

Systems Approach for Error/Deviation
Management
Organization
(Policies & Sr.
Mgmt.)
Technology
(Constraints & Controls)
Individual
(Training & Certification)
Team & Supervisor
(Soft Defenses)
Defenses
(Quality Management System)
Error
Latent अप्रकट conditions Goal conflicts & mixed messages
Design flaws
Production pressures
Fear of error
Human error: models and
management. J. Reason. BMJ. 320:
768–770 (2000).

Quality is everyone's responsibility
Lack of
knowledge... that is
the problem.
If you do not know
how to ask the
right question, you
discover nothing.
If you can't
describe what you
are doing as a
process, you don't
know what you're
doing.
Rational behavior
requires theory.
Reactive behavior
requires only reflex
action.
Whenever there is
fear, you will get
wrong figures.
Learning is not compulsory... neither is survival.
Selected quotes, W. Edwards Deming

Intentions and Behaviors: Pre-approval,
Approval & Post-approval
• Process Entropy, decisions here at risk of only focused on economic
factors (as opposed to consciously balancing interest of patients)Post-Approval
• Process validation – the old way “three batches and done for life”
• Controls and Specifications – sources of variability adequately
understood and controlled in the interest of patients?
Approval
• Time to file – is the only goal in mind. The quality of review at FDA
matters a lot – it often is in need for improvement (currently – for
example, Question based Review for CMC)
Pre-Approval

Framework which connects
• CoQ: Environment that facilitates individuals
to guide their behavior to work in the
interest of patients and to continually
improve this ability
• An organization is a complex system which
makes many thousands of decisions each day
– writing a SOP for each decision is not always
practical.
• A systems approach to quality is essential!
• It should recognize that the weakest link in
the system is often human fallibility – variable
capacity to act consciously – when no one is
looking.

Connecting- the- Dots
GXPs – rational behaviors
How proactive compliance is achieved? X, Y, Z
Quality Management System
What makes a QMS reliable? A, B, C, D
Culture of Quality
Why people change their behavior: 1, 2, 3
Human Behaviors Beyond GXPs
Predictors of Culture of Quality

Predictors of CoQ: Act consciously in the
interest of patients – when no one is looking.
Only four
attributes
actually predict
a culture of
quality:
Leadership
Emphasis
Message
Credibility
Peer
Involvement
Employee
Empowerment
People will
change their
behavior if they
see the new
behavior as
Normal (1)
Rewarding (2)
Easy (3)

Dots and Connections
CoQ
1
2
3
QMS
A
B
C
D
GXP
Behaviors
X
Y
X

Integrated Framework
Culture
of
Quality
Normal
Rewarding
Easy
QMS
System
Knowledge
Variation
Behavior
Behavior
- GXPs
Fear
Removed
Mastery
Awareness
Environment Leadership Emphasis Message Credibility Peer Involvement Employee Empowerment
Connect to CoQConnect to GXPs

CoQ Manifests in the Organization's
Environment by Design
Different functions connected directly or
indirectly to the two products (medicine
and evidence) – their outputs impacts
quality of these products
•Each function within its environment should be
working to ensure the two products are consistently
linked [directly or via the chain of evidence to the
clinical trial product that established the pivotal
evidence of benefit and risk that allows the product
to be sold]
•Multitude of individuals from various disciplines of
science, engineering, management .. Each expected
to be disciplined within their disciplinary
methodologies; a proportion of staff may not have
formal training in any disciplinary methodology
The phrase by design in
Quality by Design – is
therefore, a foundation of
CoQ.
• In this course CoQ – QMS- GXP and
QbD – are viewed and discussed in
the most basic elements – intention
and behavior
• “Features of Quality by Design:
Doing things consciously”

Quality by Design – What is it?
Doing things consciously – stuck in my mind!
FDA’s ACPS Meeting October 2005
Topic - Achieving and demonstrating “Quality by Design” with respect to drug release/dissolution
performance for conventional or immediate release solid oral dosage forms
A PhRMA Perspective – presented by C. Sinko and R. Reed.
“Features of Quality by Design: Doing things consciously”

Culture of Quality
Summary
We do our best to develop our medicine and the evidence that meets the needs of patients –
we develop these products consciously recognizing quality cannot be tested into our products.
We recognize that nothing is perfect and there will be some errors in our design, systems and
procedures, or we may make mistakes in following set procedures.
It is normal, easy and rewarding to work within our quality management system, without fear,
to detect, correct and to learn from our mistakes.
In doing so we act consciously in the interest of patients – specially when no one is looking, and
continually improve our quality by design and aim for right first time.

The Behavioral Economics Context
An Alternate Approach to a Discussion Based in Ethics/Morality
A means to discuss
behaviors in the context of
human (rational and
irrational) decision-making
• A majority of people in the pharma sector have the right intentions – duty of
care; yet some of their decisions fall under the irrational category
• Certain cognitive biases hinder them to test certain assumptions when
making decisions; and/or
• Their frame of reference & understanding is not aligned with the legal and
regulatory requirements in the USA
• There will always be a segment which will bend or break the rules – when no
one is looking;
• Their frame of reference (prevailing norms in an environment) provides
them with a basis to rationalize that their bending/braking of rules does ‘no
harm’
Then there are the
habitual criminals – who
have no place in the
legitimate world of health
care
• It should be recognized that the line separating Cheating by Design and
Quality by Design is very thin

Explaining the behavioral economics context of culture of quality

More Related Content

What's hot (20)

Viewers also liked (20)

Similar to Explaining the behavioral economics context of culture of quality (20)

More from Ajaz Hussain (20)

Recently uploaded (20)

Explaining the behavioral economics context of culture of quality