The Effectiveness of GlaxoSmithKline's Strategies for Meeting Challenges to the Pharmaceutical Industry - Case Study Example

Challenges to the Pharmaceutical Industries Blockbuster-driven Business Model Date: Challenges to the Pharmaceutical Industries Blockbuster-driven Business Model Introduction Human health is something that is held with great regard, not only by individuals but also by governments across the world. Governments consider human life important because healthy people have the energy, skill and ability to engage in various activities that are essential for the growth of the economy. In ensuring that people are healthy, the pharmaceutical industry plays an essential role in developing various drugs and related substance used by people for their health and well-being. The pharmaceutical industry is one of those industries that has been growing tremendously, with research on new drugs that can tackle various health challenges, not only in people but also in animals. The main purpose or activities involved in this industry are those aimed at developing, producing and marketing drugs pharmaceuticals that are dully licensed for use in medication purposes (Shimasaki, 2014). Pharmaceutical companies have been given the legal mandate to deal in brand medications and other generic medical devices. Before they are given the licenses to operate, these companies have to undergo a rigorous process vetting, they are often subjected to a various regulations, laws and policies that involve issues of patenting, testing of drugs and ensuring that they meet safety standards because they deal in products that are detrimental towards the life of people. The companies have to prove beyond any reasonable doubt that they can operate efficiently, offering drugs that are safe for use and achieving the expected standards. This paper examines the path of growth that the pharmaceutical industries have used in the past, looking at the challenges that its blockbuster business model has had in the past. It examines how GlaxoSmithKline, a pharmaceutical company is trying to maneuver amidst the challenges that have bedeviled this once highly successful business model. The History of The Growth Of The Pharmaceutical Industry It has been observed that the business environment for the pharmaceutical industry has actually changed drastically in the last five years. In as much as a huge changed has been witnessed, the industry’s business model has matched this growth (Espejo, 2012). The industry has been facing a serious decline in research and development, increasing costs in its commercialization processes, the ever-rising payor influence and exclusively short periods have been essential in driving up the industry’s average costs. It has been projected that mergers, which are becoming common in the industry may not be the strategy to drive up the business’ projects. Instead, many research analysis and professional in this industry have said that the need to have new business models is the solution to the challenges the industry has been facing in its long-held blockbuster model. The new models that can be designed will play an essential role towards driving up the financial outcomes of this industry. The industry needs to redesign its efforts in research and development and other commercial capabilities. It has to make good use of the capability partnerships and products that can offer reliable customer solutions. Instead of having a functional model, the industry needs to establish a business unit that is founded on an effective organisational model. Companies in this industry have a responsibility of finding the building blocks that can effectively utilize the strengths available, improve on the returns and manage the risks in the industry. By so doing, they will manage to break away from the blockbuster mindset. The need to have large opportunities in every kind of diseases as it arises requires the presence of cleverly planned, experimented and aggressive utilization of strategies like partnerships that have far-reaching changes in the way various pharmaceutical companies competes and organizes their work . The Blockbuster Model of The Pharmaceutical Industry Blockbuster, as used in the pharmaceutical industry, refers to some kind of an unusually successful service or product that often brings huge sales to businesses. In the pharmaceutical industry, it expected that the average returns that drug bring is an average of 5%. For a successful drug defined as a blockbuster, the average returns brought are often 10-20 times as large compared to a normal drug. A business that manages to create a blockbuster product or service is often successful since it develops competitive advantages in the environment and increases its market share. Most multinational companies have achieved their success through the creation of blockbuster products and services. It is important to understand that it is hard for one to predict that it will manage to create blockbuster products; for this reason, finding one that achieves this goal is always celebrated by the business. A business is expected to ensure that it develops more than one blockbuster product and service. Having a single product being the blockbuster is risky because when the fortunes start dwindling, the business stands to face huge challenges especially in terms of financial returns. In this case, the business is often finds itself caught up with huge challenges because in most cases, it does not have ready products to sell at the time the fortunes in its blockbuster begin declining. The Pharmaceutical Industry’s Blockbuster Business Model The blockbuster model that that once characterized the success of the pharmaceutical industry, making it achieve trillions of dollars in the in the past has now been broken. The heftier-than-thought process of commercialization of its price tag has fueled this development. Currently, the costs incurred in the process of discovering, developing and the launching of new drugs has risen sharply, reaching more than $1.7 billion dollars. This rise is huge reaching over 55% in its average commercialization in the past five years. It is expected that the rising costs in the development, production and launch of new drugs is bound to reduce investments in the sector. This is because, most investors have been moving away from this industry, owing to the reduction in returns. In this regard, it is expected that one in six drugs developed can bring back the expected returns. This is not a good picture for the industry because, lacking investors means that the process of finding new drugs to cure diseases emerging in life is bound to fail. Challenges To The Industry’s Blockbuster Model Various factors have been given for the decline of the pharmaceutical industry’s blockbuster model. First, the decline in the productivity of research and development ash been thought to be one of the main challenges that has effected this industry (Donghi, 2014). In this process, it is believed that in about 13 discoveries that are made, it is only one that successfully reaches into the market. Additionally, the increasing costs in the commercialization process are also to blame for this development. Initially companies used to spend extremely low in the process of commercialization, something that has almost exceeded the initial costs by huge percentages. Nowadays, companies are spending a lot in the process of developing new drugs and getting extremely low returns from the process. Many companies have been trying to manage these challenges in the process of creating their competitive advantages in an industry that has been thought to be dwindling. One of the companies is GlaxoSmithKline, which has been trying to develop various strategies to establish itself in the competitive industry How Glaxosmithkline Can Restore Its Fortunes In The Dwindling Industry Developing A Customer Driven Approach Historically, it can be concluded that the industry has paid attention to developing drugs aimed at curbing the disease and not necessarily curing it. In this case, the drugs have not been addressing the particular needs of the patients. The profitability of these pills suggests that focus has to be given to maintaining the present brand franchises or simply discovering new blockbusters. What GlaxoSmithKline can do in the process of getting back the fortunes that once characterized the industry is creating new drugs that address the various problems of patients. The company needs to redesign its research and development strategies so that it can develop drugs that meet the specific needs of its patients (Carroll, 2009). The importance of any market research process is to enable business to deliver customer-based strategies of product development and marketing. Developing an Integrated Business Model Traditionally the blockbuster business model was designed around specially developed functional lines in every of the stages in the drug development process and marketing (Andersson & Hallager, 2009). In this case, every function aims at operating efficiently, making use of the scale while building competence and coordinating effectively with each other. What GlaxoSmithKline should do is to focus on some of the companies that have been successful in past because of developing and using various kinds of integrated strategies like Dell. GlaxoSmithKline should then use its effective research and development to analyse the advantages that come with organisational management models, which are highly decentralized, established around discrete business units. Using Reliable Partnerships In Managing Risks And Returns GlaxoSmithKline should look for business partnerships that can enable it to lower the risks in this industry. This involves creating franchises that can reach markets, which the company may not reach effectively (Syrett, & Devine, 2012). Partnerships are also important in managing an effective research and development process towards understanding the business environment. By developing these partnerships, the company can easily share its costs, thus increasing its returns. Going into the business as a lone ranger may not be the best strategy in this highly volatile industry. Partnerships provide a favorable ground upon which they can compete effectively. Creating partnerships can help the company team up to and have financial economies hat can enable the company to enjoy other economies of scale (Buffett & Clark, 2011). It is important to understand that the external business environment keeps on changing; for this reason, teaming with other businesses under favorable agreements is important towards managing the challenges that come along with these changes. Conclusion In conclusion, it is important to understand that the business environment is very dynamic. The strategies that achieved success for the business in the past may not be effective in modern times. Change, ha always be described as an inevitable process; in this case, businesses have to be prepared effectively to manage the change and develop strategies that can enable them maintain their competitive edge amidst the changing times. In this regard, GlaxoSmithKline, in establishing competitive advantages, it has to try invest in effective research and development approaches to maintain its profitability (Biswas, 2013). Across the world, the increasing population means that the demand for drugs to improve people’s health is paramount. This means that the prospects for success in this industry are high, such that businesses are only expected to develop effective and reliable strategies for development and marketing of its products. References Andersson, P., & Hallager, M. (2009). The future of the pharmaceutical R & D process. Hoboken, NJ: John Wiley & Sons. Biswas, K. (2013). Pharmas prescription how the right technology can save the pharmaceutical business. Burlington: Elsevier Science. Buffett, M., & Clark, D. (2011). The Warren Buffett stock portfolio: Warren Buffett stock picks: Why and when he is investing in them. New York: Scribner. Carroll, J. (2009). The pharmaceutical industry. Detroit: Greenhaven Press. Donghi, M. (2014). Patent Strategy in Pharmaceutical Industry. Baden-Baden: Nomos Verlagsgesellschaft. Espejo, R. (2012). The pharmaceutical industry. Farmington Hills, MI: Greenhaven Press. Shimasaki, C. (2014). Biotechnology entrepreneurship: Starting, managing and leading biotech companies. San Diego: Elsevier Academic Press. Syrett, M., & Devine, M. (2012). Managing uncertainty: Strategies for surviving and thriving in turbulent times. Hoboken, NJ: John Wiley & Sons. Read More