Porter Five-Force Analysis - Case Study Example

?Business strategy is an important part of the functioning of any organization (Saloner, Shepard, and Podolny, 2000). The PHARMAC case study demonstrates the need for stakeholder consultation and power in the strategic decision-making process of an organization. The strategic analysis of any organization is usually focused on the facets of the environment, both internal and external environment. The analysis of the case reveals different external stakeholders and their impact on the business decision-making process of the firm. The first key external environmental issue in the PHARMAC case study is the importance of regulatory agencies and authorities. From the case study, three advisory committees are identified as the key regulatory factors. The Consumer Advisory Committee (CAC), the Pharmacology and Therapeutics Advisory Committee (PTAC), and the Cancer Treatment Sub Committee (CatSop) are all identifies as the key factors (Koster, Erakovic and Smith). These committees are the advisory boards to the various elements of the external environment and the decision-making organs of PHARMAC. The other key environmental factor identified is the political factor in the operations of PHARMAC. The decision that PHARMAC made; approving the nine-week trial Herceptin drug reflects the influence of vested shareholder interests in the decision-making process. The political element is particularly important for this analysis because of the vested interests of the parties. Roche industries can be identified as having some political influence on the analysis and the decision-making process. Porter’s Five-Force Analysis An analysis of the case study can also be done using Porter’s five-force analysis, which is used to determine every facet of the organization ranging from the profitability to the competitive threat and power of the industry (Porter, 1998). The first part of the five-force analysis is the threat of new entrants into the industry, a factor that is deemed to increase the intensity of competition. From the case study, it can be concluded that there is no threat of new entrants into PHARMAC’s industry because it is a government sanctioned advisory agency. An analysis of the second element in Porter’s five-force analysis is focused on the power of suppliers, who, in this case, are identified as the drug company Roche. The case study indicates that the supplier of Herceptin had exceptional power in the market; therefore, the bargaining power was relatively high. The third factor of Potter’s five-force analysis is the bargaining power of buyers, who, in this case, are identified as the New Zealand population and the regulatory and advisory agencies. An analysis of these buyers indicate that they have relatively low power compared to the suppliers, hence the decision to fund the nine-week trial of the drug Herceptin. The threat of substitutes is also considered in the same way as the threat of new entrants. In the funding process of new drugs, the case study indicates that PHARMAC and MedSafe are the primary considerations; therefore, there is no credible threat of substitutes. The competitive rivalry within the industry, the last factor of the industry analysis, indicates that the various factions in the funding and approval industry have different bargaining powers. The drug industry is very costly; therefore, the different competitors in the industry are identified to need massive amounts of funding to succeed. The case study also indicates that the critical success factor in the industry is consultation and good relations between the key players in the industry. The case study reveals that PHARMAC made its decision to fund the limited trial period for Herceptin based on a cost-benefit analysis. The success of the decision-making process could have been varied if the firm had decided to perform prior consultation with the stakeholders. This can also be supported by the success of the drug in other countries and regions. The main critical success factor in the industry is public consultation and reaction. This factor is critical to the drug approval and funding process because of the political ramification of the whole process. Despite the best efforts of PHARMAC to be objective in their relations, the decisions made can still be politicized to influence public reaction. It is, therefore, important that the firm consult the public and make decisions relevant to public interest. The other critical factor identified is the potential cost of the development, testing, and release process of a new drug. The case study identifies that the research costs for new products in the pharmaceutics industry are monumental; therefore, PHARMAC should consider the influence of the potential cost on the political decision-making process. The investment in research and development gives a pharmaceutical company added incentive to influence the decision-making process of PHARMAC and other regulatory agencies. The decision by PHARMAC to uphold their previous decision can be identified as a key strategic decision. Despite the pressure from the government and political agencies, the public, and the competitors, the company decided to continue with their limited funding process. This strategic position implies that the cost position held by the company is not affected by the different stakeholders in the pharmaceutical business. This strategy is also effective because it indicates the firm’s determination to stand by its previous decisions, indicating a faith in the management and board of the company. SWOT Analysis Strengths Autonomy Support of factual evidence Opportunities Availability of resources Weaknesses Lack of power to implement decisions Threats Political influence on the decision-making process A SWOT analysis conducted for PHARMAC will be mainly focused on the political and internal environment because of the lack of credible competition faced by the firm. The main strength that PHARMAC possesses is the autonomic power it enjoys in the industry. This can be explained by the fact that the firm that would provide the most competition, MedSafe, is a part of the regulatory process, therefore, the two firms are, effectively, partners. The other strength that PHARMAC enjoys is the support of factual evidence in their decision-making process. Despite the public and political outburst, the company made a decision based on the cost and medical fact evidence available, a fact that is presented as a major advantage. Despite the strengths identified above, the main weakness faced by PHARMAC is the lack of power to implement their decisions. The decision made by the firm are subject to regulatory approval, therefore, their operations can be used as a political tool. This is exemplified by the decision by the incoming government to use the Herceptin case as political leverage and the subsequent overruling of PHARMAC’s decision. The threats faced by PHARMAC also come from the political influence on pharmaceuticals and regulatory agencies. Since the costs incurred in the industry are of primary importance, there is a big risk of political powerhouses using competition as a bargaining chip. For example, a political power can decide to introduce competition sanctioned by the government as a replacement for PHARMAC. This would be supported by the apparent lack of concern on costs by PHARMAC. The lack of transparency utilized by Roche and other pharmaceuticals can also influence the decision making process of PHARMAC. The case study reveals that the drug, Herceptin, is being used in other countries, and the trial period is set at 12 weeks, as opposed to PHARMAC’s nine-week trial period. Therefore, the main recommendation for PHARMAC is to fund another trial for the drug to determine its viability as a treatment for breast cancer. Some of the information that was not released by Roche can be used in the subsequent study for the approval period, and since the government has already overturned the decision to place a nine-week trial period, it is evident that PHARMAC should try to conform to the government’s decision. Since the original approval process took less than one year, the second trial run would last for a shorter period and cost less than the original study. This would allow PHARMAC the opportunity to test the new information availed by Roche. References Koster, E., Erakovic, L., and Smith, P., Case Study 21: PHARMAC: Keeping Abreast of Stakeholder Interests. The University of Auckland Business School, Auckland, New Zealand. Porter, M., 1998. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press. Saloner, G., Shepard, A., and Podolny, J., 2000. Strategic Management. New York: Wiley. Read More