Overview Of Company And Pharmaceutical Market Commerce Essay

GSK is one of the leading pharmaceutical players in the world whose operations span 117 countries globally and it markets to 140 countries around the world. (Source: www.gsk.com) It is primarily organised along product and regional divisions, including Prescription Medicines, Vaccines and Consumer Healthcare. In recent times it has undergone a major streamlining of its operations in order to better respond to the environments in which it operates. Clearly, its environment is characterized by a great deal of change and uncertainty and hence it is extremely important that the structure in place is one which allows for information flow and knowledge exchange between subsidiaries and operations throughout the world in order to achieve its objectives and also to “anticipate change and turn it to its advantage as a Marketing opportunity, rather than be surprised by it when it occurs and perceive it as a threat”. (Baker, 1992) It is primarily structured on a regional basis covering Europe, North America, Central and South America, Caribbean, Asia and Australasia, Southeast Asia, Africa and the Middle East. The nature of the industry and the varying legal and regulatory environments which govern the industry makes this necessary as the environments are highly variable with different stakeholders and interest groups participating at different levels with varying degrees of authority and influence, though convergence is increasingly evident. Although primarily involved in pharmaceuticals and healthcare, the company also produces a variety of consumer products with some leading brands such as Lucozade, Aquafresh and Ribena. This implies that the company is rather varied in terms of its product portfolio and thus, the structure needs to be adapted according to the markets it serves which are clearly varied on a global basis.

In recent times, the pharmaceutical sector became increasingly consolidated on a global level as a number of notable mergers took place throughout the latter part of the 20th Century as companies sought to gain competitive advantage by combining skills and assets and to achieve scale economies in research, development and production. One of the main characteristics of the industry is that it is intensely competitive and the overriding goal of the majority of players is to provide innovative and speedy responses to market. The industry has also come under the spotlight for certain unethical practices, reflective of the nature of the industry as a whole and particularly the fact that its success is very much dependent on the purchasing power of nations. Hence, there has also been much criticism voiced, especially in developing and poorer countries where access to medication and treatment is clearly not as available as in the developed West. As a result, recent years have seen many of the larger players becoming much more involved in issues of Corporate Social Responsibility, integrating the concept into the overall strategic framework of the company. (Katsoulakos & Katsoulacos, 2007)

The pharmaceuticals sector has been affected by the enormous speed of change in its operating environment, one of the principal being that of the development of the Internet and other communications technologies. In the past 20 years or so, the industry has undergone major upheaval and consolidation has been prevalent. In order to survive, business models and organisational structures have had to be adapted to cope with the wider external forces or contingencies and the complexities which exist within the industry. The high number of mergers and acquisitions which have take place has also clearly impacted on the subsequent structures in place, especially relevant in the case of cross border deals where cultures vary at both organisational and national level. This has been a major factor in the development of the structure within GSK as the company has had to deal with 2 major mergers within a relatively short space of time and has massive implications for the management of the various cultures, both at organisational and at national level, which it subsequently had to deal with. Hence, the creation of a uniform GSK culture across its many divisions became of paramount importance for the leadership of the company. This is obviously a major area of concern, especially in post-merger management as the correct structures and cultures need to be put in place if synergies are to be realised and was a problem area initially for the Greek subsidiary.

If we look back to the 1960s as the time when the Pharmaceuticals Industry began to evolve, the business models adopted by companies then were primarily based on innovation and the creation of new and effective drugs. Many were organised along functional lines, which arguably, were appropriate at the time. Much in line with the Contingency theorists, particularly Burns and Stalker (1961), environmental factors have had an astounding impact on the way organisations in the sector are structured and subsequently managed. The 1960s were characterised by rapid growth in economic terms in most developed countries, and this new prosperity clearly brought advantages to many market sectors, the pharmaceutical industry being one such benefactor. At the same time, the regulatory environment was considered to be much less rigid than that we know today and consequently it was easier for drugs companies to bring products to market and secure patents to ensure sole distribution. Differentiation became a key strategy which thus affected the structures in place (Lawrence & Lorsch, 1967) which tended to focus on the distinct competencies and specialisations within the firm.

Up until the 1980s, research and development was still an integral part of the value chain and the product offering, but costs were continually rising and the returns were gradually being eroded. Some might say that consolidation was inevitable, but this alone was not enough. Companies had to rationalize their manufacturing procedures and many opted to locate operations in just several markets around the world, to gain both financial savings and create hubs of specialists who would contribute to the continued drive for innovation in the market. The structures in place were no longer fitting to the environmental factors at play nor did they facilitate the execution nor realization of objectives, which had also altered radically. In the case of GSK, it was able, due to its sheer size and consequently, resources, to take advantage of technology so as to create competitive advantage in its market, much in line with the resource dependency view as advocated by Pfeffer and Salancik (1978) as opposed to the view of Hannan and Freeman (1977) who tended to see the environment as being constraining to organizations, rather than looking at how companies can benefit or exploit what others may view as contingent factors.

One of the most significant developments affecting all players in the industry was the development of the Internet. This ultimately offered up choice to the end user, increased distribution efforts as well as facilitating negotiations and alliances between suppliers in the market, but ultimately, it made consumers more informed and automatically made them part of the purchasing process. This ultimately called for new structures to be put in place which could satisfy all stakeholders in the chain while still retaining and concentrating on core competencies of research and development, though the pressure to innovate has become much more intense.

“All of the top 15 pharmaceutical companies have undergone senior executive-level changes within the last two years, bringing in an influx of new C-suite talent that includes many individuals from industries that have successfully tackled the challenges now confronting Pharma,…These leadership changes should help innovative companies to transform their finance function, organizational design, and business models in ways that enable them to continue to prosper in a challenging time.”

(Carolyn Buck Lane, Global Pharmaceutical Leader, Ernst & Young, available at http://www.pharmaceuticalonline.com/article.mvc/Pharmaceutical-Industry-Needs-To-Speed-Up-0001?VNETCOOKIE=NO)

Organizational Structure

“For most companies, organization design is neither a science nor an art; it’s an oxymoron. Organizational structures rarely result from systematic, methodical planning. Rather, they evolve over time, in fits and starts, shaped more by politics than by policies.” (Goold & Campbell, 2002)

Globally, the company is organised along regional and product lines and also involves a structure which encompasses the different functions of the company. As research and development is so high on the priority of the organisation, and the industry in general, this part of the company appears to operate almost independently, though with links to the other areas of the business.

As the company has evolved over time, and obviously as a result of its merger with Smithkline in the 1990s, the power structures within the company have also changed somewhat and is much more widespread and less centralised. It is evident that the company has attempted to capture the essence of Drucker’s “information-based organisation” (1988) recognising that information must be distributed throughout in order to capitalise on the existing expertise within the company and to promote further learning and development of individuals within, promoting cross-collaboration and knowledge exchange which shall in turn produce creativity and innovation, much in line with Quinn’s theory of the “learning Organization” (1980) . This is viewed as a key to achieving competitive advantage and obviously, the quest for finding new and innovative solutions for the market at all levels. It also recognises how distinct and separate functions must work together so that there is cross-collaboration, communication and knowledge exchange as propagated by the likes of Drucker (1988) and Handy’s notion of federalism (1992), “The states of federation stick together because they need one another as much as they need the center.” (Pg. 65)

One of the major problems for GSK in terms of structure is that it not only operates across different and unique functional lines, but also across various national environments. Contingency factors are therefore also varied across legal, political, economic and social spectrums, requiring different approaches to different environments. Bartlett and Ghoshal (1990) looked to the matrix structure as a response to this problem which essentially required a degree of centralised control but also national responsiveness to the different contingency factors at play. In theory, the matrix structure should have been able to deal with the complexities, but as argued by Bartlett and Ghoshal (1990), the failure of such a structure was due to the fact it had not been created in the minds of management and they had continued to operate at local or national level. This was evident within the Greek operations as well as evident in other operations worldwide, who essentially felt isolated and independent of HQ at the end of the 1990s, and much was done to overcome this problem through improved communication networks and attempts at promoting an organisational-wide philosophy and mission which ultimately translated into a more uniform culture, while still retaining a degree of local responsiveness. The requirement for the effectiveness of the matrix structure is that it required a specific mindset and a major shift in organisational culture and values. Trans-nationality was a new management mentality; one that essentially attempted to recognise and deal with complexity rather than attempt to remove it. Within such an organisation, the anatomical structure of the organisation itself matters less, and the psychological element, the people element has become the most important factor of doing business globally, hence the quest to shape organisational culture and mindset. In line with the overall evolution of strategic management, the people element and the organisational culture element, became more important in subsequently shaping both strategy and structure within organisations and has been the path pursued by GSK.

Within the GSK, combining control and responsiveness has been problematic as employees are geographically dispersed, such as with the Greek subsidiary, operating within different socio-economic environments, whereby it is impossible and inadvisable to assume that they will share common values and be motivated by the same things. “Consistency” was highlighted by Bartlett and Ghoshal who saw that many corporate objectives were not being achieved as individual country subsidiaries were too concerned with the attainment of national targets, rather than overall global company objectives. Subsequently, advances in technology have facilitated and improved communication and reporting lines overcoming some of the obstacles and hurdles, yet psychological barriers remain the most difficult to deal with and shall undoubtedly be a major hurdle. The analysis has shown that GSK chose this as a suitable structure as it allowed, “concentration on specific projects or special efforts” and essentially it allowed for a “combination of the previously presented functional and product structure” (Held et al, 2009, Pg.58) while still retaining responsiveness to specific situations or markets as required.

Although some principal functions are still essentially centralised from the company HQ in the UK – Finance, HR, Legal, Communications, Ethics and Compliance and IT, they work closely and in unison with the company’s various divisions and regions across the globe, including Greece. It is deemed necessary to have these areas to be centralised to a certain degree in order to exert a degree of control and allow for consistency. However, there is also a great deal of emphasis on autonomy of the various units while still allowing for a unified vision and the pursuit of common objectives. As Huczynski and Buchanan described, “By having a power structure, the group avoids continued power struggles which can disrupt its functioning” (1991). This is much in line with Handy’s view of the Federalist Organisation, and the subsequent structure which has been created is simultaneously a reaction to the environments as well as being predetermined by individual opinions and the objectives of the company, as the Strategic Choice perspective of organisations advocated and reinforces Chandler’s notion that structure follows strategy. One of the difficulties for GSK is the expanse of its operations globally which makes control and co-ordination difficult, but necessary. As Bartlett and Goshal argued in the 1990s,

“top-level managers … are losing control of their companies. The problem is not that they have misjudged the demands created by an increasingly complex environment…nor even that they have failed to develop strategies appropriate to the new challenges. The problem is that their companies are organisationally incapable of carrying out the sophisticated strategies they have developed.”

GSK have attempted to create a structure which is in part evolutionary, a reaction to its environment and markets, thus following a contingency view of the organisation, and has also been predetermined by management, as highlighted by Thompson and McHugh (2002) . As later commentators observed, the contingency theorists did not take into account the fact that organisations as entities could actually alter the contingency factors deliberately or unintentionally through their actions. Introducing new products or new ways of doing business, can actually alter and in many instances shape their environment, as argued by Moss Kanter (2002). GSK wanted to push accountability to all levels of the organisation, seeing this as necessary to capitalise on the internal assets available to them as well as recognising the diversity of its divisions, its markets and its employees. There is a great sense of urgency surrounding the notion of a common and unified vision and the creation of a structure which allows a positive and unified culture throughout the company, while still allowing for a degree of autonomy throughout the different divisions and functions regionally.

For so long structures had been very mechanistic with clear reporting lines and lines of authority in place. Such organisations are now generally referred to as bureaucracies. It is now recognised that power must also be coordinated and integrated in some way and GSK recognised that by pulling together the overall power of the organisation is increased at a global level. They have attempted to apportion the same degree of power to different divisions, recognising that they all have a valuable and strategic role to play in the organisation’s overall success. Again, in line with Handy and Drucker’s predictions, employees are now viewed as assets, and although technology has taken on an extremely dominant role in all organisations, in essence, it is viewed as a facilitator to fully take advantage of the skills and assets a company may have in its possession, that is its people. Hence GSK fosters a learning approach, investing substantially in its people at both a functional and personal level and recognises that without them, it shall not achieve its objectives.

Organisational Goals and Mission – Strategic Fit

Prahalad and Hamel’s (1989) view of “strategic intent” being the necessary ingredient of success is highly relevant to GSK. The authors saw that the “Empowerment of the Strategic Intent” was key to the effectiveness of strategy process and that it was,

“a matter that involves everybody…..to challenge the traditional downward communication style to an upward communication stream of new ideas coming from all the organization.” (Source:http://www.valuebasedmanagement.net/methods_hamel_prahalad_strategic_intent.html, accessed 11/11/09)

The fostering of an open communication system while still maintaining central control and direction should facilitate the exchange of ideas across the company, thus enhancing knowledge as well as market insight from specific customer markets, and thus promoting and inciting creativity and innovation which is one of the most important goals of the company. At the same time, it develops not only a sense of common purpose across the organisation but makes employees feel part of the overall strategic plan, thereby increasing motivation and productivity levels which have knock on effects across the board as employees feel empowered (Kotter, 1995). GSK has realised that much more important than the anatomical structure in place, there is a sense of common purpose across the company and its divisions which are characterised by diversity in functional, people and cultural terms.

The important element of the new structure is that it revolves around the markets it serves rather than around functional areas, though these are still of great importance, especially the R&D function. There are much fewer reporting lines to allow for the free flow of information and communication throughout the company. Flexibility and 360 degree feedback are built into the system and an open network of communication is encouraged to aid in the innovation process. As Barr (2005) concedes, “According to Tidd, Bessant and Pavitt, (2005), innovative organisations are those that are flexible, adoptive, learning, characterised by “organic culture”, with capabilities of networking and team-working.” (pg.1)

Although the overall objectives have remained largely the same over the years, there has clearly been a shift in emphasis, particularly a renewed importance placed on innovation, in light of increasing competitive intensity as well as the expiration of many patents globally. In addition, there has also been a greater importance attached to the notion of people as assets and the recognition of the diversity of its workforce, its operations and the differing needs of its markets. This is particularly relevant given the emphasis on new and emerging economies of China and India who shall become increasingly important strategically in the very near future, as well as the concerns surrounding access to medication and healthcare in developing countries. In this respect, the environment and the external drivers which impact upon it, have an overriding influence on the strategy and structure adopted by the company. It could, however, also be argued that the companies themselves have also had an amazing impact on the environmental landscape due to the sheer size of some of the big players as well as the innovations they have brought to market which have ultimately shaped the industry, particularly with respect to consolidation. This is likely to continue, so structures and strategies shall be part evolutionary in line with external developments, but also determined by individual organisations through their activities.

In summary, the main objectives of the company are as follows:

Grow a diversified global business

Deliver more products of value and

Simplify the operating model.

The mission is:

“We have a challenging and inspiring mission to improve the quality of human life by enabling people to do more, feel better and live longer. By focusing our business around our strategic priorities, we’re confident that we can fulfil this promise.”

Source: GSK Annual report, 2008

Conclusion and Recommendations

“The dictum ”Structure follows strategy” refers specifically to the historical shift in the strategy and structure of large firms, first documented in the development of American industry (Chandler 1962). This shift involved the transition in strategy from single to multiple product lines and the concomitant structural innovation, the introduction of divisional structure, which made it possible to overcome the inefficiencies of functional structure (in particular, decision overload at the top of the organizational hierarchy).” (Source: www.le.ac.uk/ulsm/doc/suhomlinova_organizational.pdf, accessed, 02/07/09)

GSK have worked extremely hard at creating an organisation which is responsive to its environments and also one which allows it to shape the environments in which it operates. While many view the opinions of Burns and Stalker as being outmoded for business in the 21st Century, the analysis has shown that many of their assumptions still hold true today according to both firm and industry context and are particularly relevant to the pharmaceuticals industry and GSK in particular. The overriding thrust of the analysis undertaken in light of looking at the company from the perspective of the contingencies affecting it, is that an overwhelming emphasis of the structure which it has created is one that is fluid enough to facilitate innovation and the exchange of knowledge, and also one which recognises the diversity of its workforce, its markets and its operations, thus it essentially takes the best elements from the contingency school and the resource dependency theory which ultimately translates into the strategic choice perspective . In this respect, it is attempting to achieve an “organic” structure which is flexible enough to respond to the uncertainty and unpredictability of the sector while simultaneously actually taking action which ultimately shapes the environment in which it operates. It appears that diversity is now a challenge of all business today, particularly those involved in global operations, and it appears that GSK has attempted to use this diversity as a key to its competitive advantage rather than seeing it as a problem which has to be overcome. Simultaneously, although it recognises that a certain degree of flexibility is required in its structure, it is also extremely important for the organisation to exert control and power, particularly given the intensity of competition and the fact that much of its business is of a particularly sensitive nature, both socially and politically. Power is dispersed throughout the organisation so that individuals, units and functions, can be exploited to their full potential. As Moss Kanter (1989) highlighted, “to add value, managers think and work across boundaries…every manager must think cross-functionally because every department has to play a strategic role.” Hierarchies appear no longer to be a source of power in terms of both expertise, knowledge and success in the marketplace.

GSK appears to be in an excellent position to capitalise on the opportunities available to it in the markets it serves globally. Its continued investment in learning and its support of staff, should allow it to recruit and retain the best skills available to it in its market. Clearly, more work and undoubtedly, changes to structure may be needed as the market changes further, particularly with regard to emerging economies, but its recognition that it is both a product of its environment as well as a shaper of its environment, should allow it to make the best possible strategic decisions going forward. Organisational structures are no longer used as a means to exert control and no longer operate in the same mode as political systems. This would be too rigid and would be at odds with the increasingly dynamic nature of the global business environment we know today. There shall be a continued emphasis on alliances and networks, internally and externally and the structure in place should be one which facilitates the pursuit of objectives but not be too rigid as to make changes, when required, impossible to achieve. As objectives change over time, the structure which accompanies it, may need to be altered as a result. As Kim and Mauborgne (2009) concede, “There are three factors that determine the right approach: the structural conditions in which an organization operates, its resources and capabilities, and its strategic mind-set…Even in a not-so-attractive industry, the structuralist approach can work well if a company has the resources and capabilities to beat out the competition. In either case, the focus of strategy is to leverage the organization’s core strengths to achieve acceptable risk-adjusted returns in an existing market.”

In summary, our analysis of the industry has highlighted the importance and relevance of external events on a company’s business model and strategic offering to the market. The nature of the industry across the value chain has changed substantially, with new entrants to the market and new and more demanding consumers of the end product. Differentiation strategies are much more difficult to create and certainly, even more difficult to maintain, hence many have formed partnerships or mergers in a bid to improve their competitive position. Price is extremely important, as we have seen from the success of the generic companies, but this alone will not suffice in such a competitive environment where stakeholders’ demands and expectations are constantly increasing, and the quest for innovation will continue to be important. As Daft and Marcic (2007) contend, “The right structure is designed to “fit” the contingency factors of strategy, environment, and production technology.” (Pg. 273) The challenge is to define a business model which permits research and development to continue and succeed, while ensuring that returns are adequate and the market accepts a fair price. Over time, business models have also changed to become more focused on key competencies and strategic capabilities of the firm, much in line with the post-entrepreneurial model advocated by Kanter (2002), with many non core functions being outsourced in a quest to obtain a sustainable competitive advantage, others have opted for strategic partnership, seeing collaboration with apparent competitors as a viable option to outstripping the competition and obtaining market leadership. The contingency School of Thought, many argue, was a response to these new demands being placed on companies. Additionally, many also argued that it was in essence an extension of the Systems School, which focused more on the internal subsystems and interdependent functions within organizations. The challenge now, was to find a new and improved organization that fitted with its environment, which arguably calls for elements of each school of thought according to both external factors and internal capabilities (resource view). The important point is that there is no uniform answer to this problem as different industries and different companies need different responses. What may work well in one company will not necessarily translate across industry or organizational boundaries. What has become more important is that if strategy changes, for whatever reason, (internal or external), organizations must revisit structure to ensure that there is a fit between the two.