Strategic Alternatives of Pfizer Incorporated - Essay Example

?Pfizer Incorporated Introduction Pfizer incorporated is a multinational pharmaceutical company that is based in New York which deals with the drugs of both animals and humans. The company was founded in 1849 and it has headquarters in Midtown Manhattan, in New York City. However, its research headquarters are located in Groton, Connecticut, in USA. The company deals with a number of drugs such as Lipitor, the neuropathic pain or fibromyalgia drug Lyrica, the antibiotic Zithromax, the oral antifungal medication Diflucan, Viagra, and the anti-inflammatory Celebrex. The company has been listed on the New York Stock Exchange, listed on the Dow Jones Industrial Average on April 8, 2004 and appears on the S&P 500 Component. Pfizer revenue for the year ending 2011 amounted to $67.425 billion, while the operating income was $8.739 billion in the same fiscal year. During the same year, the company’s net income amounted to $10.009 billion while the total assets and equity amounted to $188.002 and $82.190 billion respectively. The company employs a great number of employees who totaled to 103,700 by the year 2011. Pfizer Company also has a number of subsidiaries, which include, Agouron Pharmaceuticals, G. D. Searle & Company, Greenstone, Parke-Davis, Pharmacia, Upjohn, Warner Lambert, and Wyeth. However, this giant firm has faced a number of challenges in the last few years. In the year 2009, the company pleaded guilty of health care fraud that was the largest fraud case ever to be heard in the US. It also received the largest criminal penalty ever levied because of illegal marketing of four of its drugs, which included Bextra, Geodon, Zyvox, and Lyrica. The company was called a repeat offender since it was its fourth such settlement with the US department of Justice in the last decade. That year, the company agreed to purchase Wyeth, a large pharmaceutical company, for $US$ 68billion. Cash, shares, and loans financed this deal. The completion of this purchase was finalized in October 15, 2009. These challenges have forced the company to think of strategic decisions that will enable the company achieve its vision, mission, objectives, short-term, and long-term goals. Strategic Uncertainties Facing Pfizer Pfizer Company faces a number of uncertainties, which are also facing various pharmaceutical firms. The modern pharmaceutical market place is characterized by change and uncertainty. Pfizer is facing a tough road ahead in its future markets with some of its major products facing patent rights expiration. Additionally, its new drugs are not replacing the ageing products. The approval by NMEs is declining and the development and commercialization cost continues to increase at a high rate. There is an increasing pressure in the pharmaceutical industry due to the increasing competitive pressure and cutthroat rate of spending. This rate of spending cannot continue at infinitum. Pharmaceutical will linger on being the most cost effective health care intervention initiative and the market for its products will always continue to exist and expand as people and animals increases. Emerging trends in the pharmaceutical industry will persist and others will need to be transformed in order to cope with the modern changes. Some of the strategic uncertainties that the Pfizer are the changing landscape of the pharmaceutical industry. This is happening because the contemporary state of pharmaceutical industry is not good. A recent research has indicated that the current US prescription drug sales indicate growth of only 4% whereas the wholesale grew by only 3.8%. This is low increase compared to the previous years since 1961. It shows a slow growth rate that means, with the increase in the number of pharmaceutical firm, the market will increase more division and therefore, minimal sales. Pfizer has shown these trends by making changes, which will respond to the unfolding pressure in the industry. Pfizer has been forced by this circumstance by resting off workers in order to focus on the therapeutic areas and respond to changing customer demands. Another challenge that Pfizer faces is the increasing public pressure. Due to the increase awareness made to the public, the health awareness among the consumers is increasing at an exponential rate. Consumers continue to demand for fair values and consistently look for greater values for the money that they spend on the drugs. An example can be seen whereby the seniors at the government continue to demand for more generic alternatives to branded drugs. This makes them astute shoppers who look for more innovation. The members of the public expect Pfizer to tackle tough diseases such as diabetes, obesity, and cancer. The third uncertainty is the increasing payer pressure. Likewise, to the public pressure, payers continue to increases pressure on Pfizer. They demand increasing innovation while the ever-tightening budget hinders the increased health outcomes. Tougher cost-containment practices on Pfizer by payers are forcing the company to bring forth innovation and at the same time provide incentives for products with marginal benefits. This makes it harder for the company to develop the ‘me-too’ and the ‘me-better’ medicines. Moreover, the pricing transparency has increased making the payers’ to increase more pressure. The third strategic uncertainty faced by Pfizer is the increasing patent expirations. Abundant drugs that are the backbone of the Pfizer company top-line and more importantly profitable are expected to be eroded by the year 2013. The drugs are expected to be more of generic nature than the current state. Moreover, the company is facing increased competition from its rivals such as the Fosamax, Singulair, and Cozaar, which deal with generic modified medicines. The fourth strategic uncertainty is decreased research and development output. Pfizer has been facing this challenge because of the increasing cost to develop initiative therapies. Due to these costs, Pfizer is increasingly turning to in-licensing to compensate for decreases in research and development production. The company has predicted that in-licensing will increase from its current 17.5% to 34.4% by the end of this year. Companies that seek in-licensing the later stages will only escalate the prices at new heights. These forces will eventually be translated to the final consumer of the drug. Increased focus by the regulators on safety has posed a greater challenge on Pfizer Company. Re-importation of drugs has been practiced by this company for years now and is facing a threat from the legal systems. This is because of the increased demand by the regulators, for safety in the development process. This regulator such as FDA requires even more number of patients to be used in for clinical trials. In relation to this, New Chemical Entities (NCEs) look for comparative safety to already marketed products. The aim is to seek even more apparent by the contemporary enactment by the FDA Amendments Act and the “Safety First” initiative. The other strategic uncertainty is outsourcing. Pfizer has long outsourced clinical studies in order to come up with their drugs. The company has also used contract manufacturing with other drug manufacturing companies since it is a viable source. Outsourcing of sales is popular because it avoids the initial capital outlays and is a more scalable solution. This trend has continued to grow and employed by Pfizer Company in order to expand to areas that are more commercial. More so, this strategy has been used to decouple once traditional mainstays of the organization like human resource, finance, and accounting.  Strategic Alternatives Strategic business alternatives involve strategic business units. This is a business unit which has an independent decision making power within overall corporate strategy of the corporation. This can take strategic decisions like product, market, and technology. A strategic business unit is an independent unit within an organization. The evolution of the strategic management revolves around the management, the board of directors, and analysts’ who work together to frame the strategies of the company. The strategic process involves formulating the strategic intent, mission, and objectives, formulating the core competencies, the study of the environment and preparation of strength, weakness, opportunity and threats analysis, identifying options, finalizing the strategy, evaluating and implementing it and finally reviewing it (Buzzell & Gale 1987). Strategic alternatives are the various options that a company has in the implementation of its strategic processes. Pfizer Company has a number of alternatives that it can implement in order to achieve its goals. Pfizer is exploring strategic alternatives that it can employ to meet its animal health and nutrition business goals. This is based on the company’s recent business portfolio review to determine the optimal mix of business to determine shareholder value. In its strategic alternatives, the company is considering a full or partial separation of these businesses from Pfizer through spin-offs, sale, or other transaction. Having in mind that the businesses are distinct from each other, the company may decide to pursue different strategic alternatives for each business. According to Ian Read, Pfizer’s president and CEO, "Both Animal Health and Nutrition are strong businesses with attractive customer bases and solid fundamentals, but distinct enough from our core businesses that their value may be best maximized outside the company" (Campion, 2011) According to a report they released in 2010, Pfizer says that it will continue to enhance the value of its established products business within the company. The report says that the industry’s fastest growing markets are the emerging markets and within the emerging markets, the fastest growing segment is off patent medicines and their generic equivalents. This will form the foundation of the company’s asset base and the company considers that the conventional product is well positioned to capture the opportunities that are formed by the demographics and rising power within these markets (Bellinghen, 2011). Moreover, basing itself on the resource-based view, Pfizer will continue to enhance the value of its customer health care business. This forms a strong connection with the company’s principal biopharmaceutical businesses, including the prospective occasion to outspread the value of certain Pfizer bequest biopharmaceutical products, and strong connections with emerging markets and pharmacy customers worldwide. In addition, Pfizer has engaged the services of J.P. Morgan Company in order to oversee the implementation of its strategic alternatives, in the animal health business. This strategy has a short duration since it looks to be implemented in the next 12 to 24 months. The company does not anticipate making any other alternatives regarding Animal Health and Nutrition until sometime in 2012. The significance of the resource-based view of the firm to the strategic management in the Pfizer is the notion that it allows the organization to be seen in large. This allows the strengths and weakness of the firm to be examined. Moreover, allows the scanning and analyzing of the external environment for the opportunities and the threats that has been provided inadequately and therefore provides an organizations competitive advantage. The resource based view approach that Pfizer uses are the identification and classification in terms of its strength and weaknesses. Secondly, the company combines the strengths into specific capabilities and more capabilities. Thirdly, it appraises the profit potential of these capabilities and competences in terms of its potential in order to attain sustainable competitive advantage to gain the ability to harvest the profits resulting from their use. Fourthly, the company uses the resource based view approach in order to exploit the firm’s potential and competencies that are relative to its external opportunities. Lastly, the company uses this strategy to identify the resource gaps and invest in the upgrading its weaknesses (Kay, 1993). In order to increase the Pfizer’s customer value as described in their report of 2010, the company will use the values chain model to accomplish these goals. This will enable the company achieve competitive advantage and create shareholder value. To achieve this, the company needs to separate the business system into a series of value-generating activities that are commonly known as value chain. Value chain is in order with the Pfizer’s goal of increasing the value to its customer. The goal of the activities of value chain is to offer the customer with a high level of value that exceeds the cost of the activities, in that way resulting to profit margin. To achieve this, Pfizer basic value chain activities should focus on inbound logistics. This should include receiving and warehousing of their raw materials. It should also include the distribution to their manufacturing as predetermined. Secondly, it should include operations. These include the transforming of inputs or raw materials into finished drugs. Thirdly, the activities should include outbound logistics. This involves the distribution of their manufactured drugs. In addition, it should include marketing and sales. This will incorporate the identification of customer needs and the generation of sales. Lastly, this primary value chain should include services. Pfizer should support the customers in identifying the right products that they sell to them. In order to achieve this, Pfizer company should support their activities through the infrastructure of the firm. This forms the fundamentals of organization structure and culture. The organization structure involves the delegation of duties in various departments of the organization. It is the hierarchical administration of the organization from the top-level management (CEO) to the lower level management (subordinates). Organization culture involves the sequential activities that have been followed routinely, from the time the company began its operations. The company infrastructure also includes the control systems of the company. Moreover, to achieve its strategic alternatives, Pfizer needs support from the human resource management in order to achieve its value chain analysis. The human resource department is responsible for employee recruitment, hiring, training, development, and compensation. Besides, Pfizer should consider technology improvement. This will aid value-creating activities. Lastly, the company should improve its procurement strategies. This involves purchasing inputs such as raw materials, equipment, and supplies. Pfizer profit margin will depend on its effectiveness in performing the above activities in an efficient manner. In doing so, the company will increase the number of customers who are willing to pay for the products at an extra cost. These activities will lead to Pfizer gaining more opportunities to generate superior value. It will enable the company to achieve a competitive advantage. It will be achieved through reconfiguring the value chain to provide lower cost or better differentiations. Through value chain, the company will realize its core competences and the activities that it can undertake to attain a competitive advantage. In order for Pfizer to realize full potential, it should emphasize on cost advantage. This is done by better understanding costs and squeezing them out of the value chain analysis. Secondly, Pfizer can achieve its optimal potential through differentiation. Differentiation involves putting more attention on the activities associated with core competencies and capabilities so that it can perform better than its competitors. Some of the cost benefits of the value chain process that Pfizer has intended to use include, large economies of scale, learning, capacity utilization, linkages among activities, and improved interactions among business units. Some of the drives of according to differentiation include, policies and decisions made by the company, linkages among activities, timing, location, interrelations, learning, and integration. The value chain that the company uses leads to the experience curve. Several advantages and disadvantages are associated with the experience curve. One advantage is that it customizes the product offerings and marketing according with local responsiveness. This mostly will affect Pfizer multi-domestic market. Another advantage is that it will help exploit locational economies and reap the benefits of global learning. This will mostly occur in the local market (Miller, 1992). Among the disadvantage that the company will face is that it will not realize its locational economies. Secondly, the company will fail to exploit the experience curve effects. Thirdly, it will fail to transfer its distinctive competences to the foreign markets. This affects the company’s multi domestic market. In its transactional motive, the company will fail to implement its motive due to organizational problems. Generic Strategy In his theory, Michael porter argued that a firm positions itself depending on its strength. He continues to add that a firm strength ultimately falls under two categories. One of them is the cost advantage and differentiation. Either the use of these strengths in a broad or a narrow scope results to what he calls generic strategies. Generic strategies are divided into three distinctions, cost leadership, differentiation, and focus. Pfizer company strategic alternatives lead them to using these generic strategies, which apply directly to their intentions. The strategies are known as generic since they are not industry or firm dependent (Porter, 1985). Cost Leadership According To Generic Strategy According to this concept, the low cost leader in the market gains control of the market through the competitive advantage. This happens because the company is able to produce many products a relatively low cost and sell it into the market at a lower cost too. This is the level that Pfizer aims to achieving, though, increasing the product value to its customers. The company should train the existing staff in order to deliver the lowest possible cost of production. This translates to the consumer, since they will purchase the drug at a lower price thus making them available to the customers. However, it is not always that the company will realize profits from the use of cost leadership (Parnell, 2006). In the generic strategy, the differentiated goods and services will satisfy the need of the customer through a sustainable competitive advantage. It will allow the companies to pacify prices and focus on value that generates a comparatively higher price and a better margin. In order for Pfizer to attain this level, the company will need to segment the market so that it can target goods and services at specific segments, generating a higher than average price. However, the implementation of this strategy will allow the firm to incur an additional cost so that they can create a competitive advantage. However, this costs will be offset by Pfizer using more revenue that is generated from sales. This means that Pfizer can recover its costs (Dess & Davis, 1984). The third strategy to be used under this generic strategy is the focus also known as niche strategy. Pfizer can implement this strategy because it involves a wide scope cost leadership and a wide scope differentiation strategy. Pfizer will focus its resources and efforts on a narrow defined segment of the market. This will help gain a competitive advantage that will be generated specifically by the newly created niche. However, Pfizer should consider using one strategy in the generic analysis to avoid losing market share at the middle of their transactions (Barwise & Meehan, 2004). Business Strategy Business strategy defines how a specific business anticipates succeeding in its selected market place compared to its challengers. It therefore signifies the best effort that the management can make at defining and securing the future of that business. For Pfizer to be successful in the use of its business strategy it will need to have a correctly scoped, have appropriate documentation strategy, it will need to address the real customers, exploit genuine competencies among its skilled labor force, contribute to competitive advantage, and then lay the bases for the business strategy implementation (Parnell, 1997). Pfizer should also look into the strengths, weaknesses, opportunities, and threats analysis using these business strategies. This will help to prompt actions and responses pertaining to the direction, which the company is headed. If the business is looking for momentous growth, it is imperative to fast-forward and assess strengths, weaknesses, opportunities and threats, as they might exist a year or two hence. This will help certify that strategies are determined and robust and that emerging issues are anticipated (Macmillan & Tampoe, 2000). Some of the basic strategic planning approaches in business strategies that Pfizer should implement include grow fast ahead of most of the competitors, grow in line with the industry. Moreover, it should defend the existing status by assuming a moderately strong starting position, catch up with leaders and then grow with or ahead of them, turnaround from being an under performer, hang in by going with the flow but not expend much effort, and maximize on the opportunity with a view to withdrawal. The favored option is likely to be very influenced by the dynamic forces and forecasts of the sector in which the business operates. For instance, if the sector is under serious long-term threat then the only realistic options might be to hang in or maximize (Lynch, 2003). Conclusion Pfizer Company considered large-scale operations as the most appropriate strategy in enhance its competitive advantage in the US pharmaceutical industry. Although the strategy has proved effective, the company is facing similar challenges as other firms in the US pharmaceutical industry. The current pharmaceutical market growth of 4% in the retail sector and 3.8% in the wholesale sector does not compare with the company’s rate of growth and its anticipated growth resulting into uncertainty. The pharmaceutical industry is also experiencing heavy application of technology in both prescription and management. This has increased pressure in the company since its development timeline does not allow for the rapid technological growth. Pfizer is also experiencing problems with its strategic management since the current system does not adequately differentiate the business and institutional aspect of the firm. To contain or reverse the current situations, the firm is considering a partial or full separation of its business from the organization. The company is also considering separating the human medicine business from its animal medicine business. Currently animal health business seems to be more attractive than human medicine business due to lack of many competitors. The firm is considering concentrating in animal medicine. Increasing its customer’s value by maintaining an active feedback mechanism and improving the firm’s strategic management are some of the positive steps that the company is considering. All these strategies will be indicated by changes in the firm’s profit margin. Works Cited Barwise, P & Meehan, S 2004, Simply Better, Harvard Business School Press, Boston. Bellinghen, D 2011, Pfizer to explore strategic alternatives for its animal health and nutrition businesses, viewed 9 march 2012 Buzzell, D & Gale, T 1987, The PIMS Principles, The Free Press, New York. Campion, J 2011, Pfizer to explore strategic alternatives for its animal health and nutrition businesses, viewed 9 March 2012 Dess, G & Davis, P. 1984, Porter's generic strategies as determinants of strategic group membership and performance, Academy of Management Journal. Kay, J 1993, Foundations of Corporate Success, Oxford University Press, Oxford. Lynch, R. 2003, Corporate Strategy, Prentice Hall, Financial Times. Macmillan, H & Tampoe, M 2000, Strategic Management, Oxford University Press, London. Miller, D 1992, The generic strategy trap, Journal of Business Strategy, Vol. 13. Parnell, A 1997, New evidence in the generic strategy and business performance debate: A research note, British Journal of Management, Vol. 8. Parnell, A. 2006, Generic strategies after two decades: a reconceptualization of competitive strategy, Management Decision, Vol. 44. Porter, M. 1985, Competitive Advantage, The Free Press, New York. Read More