Analysis of the Impact of the Macro Environment on the Pharmaceutical Industry - Assignment Example

Analysis of the Impact of the Macro Environment on the Pharmaceutical Industry This essay provides a brief overview of how the external environment has affected the development of the pharmaceutical industry in the early 21st century, underpinned with appropriate theory. It begins by considering what constitutes the external environment, then analyses the pharmaceutical industry using global tectonics (de Kluyver and Pearce 2009) to identify relevant issues and relate these to the case study to assess their impact. A conclusion is then drawn from the analysis. (73 words) The External Environment Johnson et al (2008, p.54) define the external environment as “broad environmental factors that impact to a greater or lesser extent on almost all organisations” and identifies the PESTEL (Political, Economic, Social, Technological, Environmental and Legal) framework as a tool for its analysis. “Changing market forces and growing public expectations” (Wilson, 2000, p.12) have added business ethics to the mix. The external environment includes both competitive and industry factors. Interestingly, Johnson et al (2008) expect all competitors to be within the same industry, when this might not be the case. Equally, not all industry players compete in the same markets. Thus the diagram reflects the less-than-tidy reality of players who exist within any industry, yet compete across industry boundaries and within different competitive environments, falling outside the rational approach to strategy. The underlying factor is the organisation’s ability to control the external environment. An organisation has influence in the competitive arena, using marketing tools to influence others, but no control over the macro (PESTEL/STEEPLE) factors and must react to changes when they happen. Strategy traditionally focused on rational future planning, what Whittington (2001) calls “classical” and Mintzberg and Waters (1985), “deliberate” strategy. But the effects of changing macro factors fall within Whittington’s (2001) “systemic” and Mintzberg and Waters’ (1985) “emergent” strategy as such changes cannot be predicted and consequently would not feature in any strategic planning. (229 words) Global Tectonics In analysing the external environment, de Kluyver and Pearce (2009 p.59) use global tectonics, defined as “the process by which developing trends in technology, nature and society” change the external environment. Three tectonics are identified: Environmental tectonics, which arise from “the interactions between people and their environment.....[which] impact resource management, health and the quality of life” (ibid) Technological tectonics, which consider the advances made in different technologies and the spread of information, and Societal tectonics, which reflect changes in “governance and political and cultural values” (ibid). The tectonics provide a relevant and appropriate framework for the analysis that reflects the reality of a business environment where influences cannot be neatly categorised under PESTEL/STEEPLE headings. (119 words) Environmental Tectonics Within environmental tectonics, the pharmaceutical industry is affected by the impact of people and environmental interactions relating to health and the quality of life. These provide both opportunities and problems. An ageing world population provides an opportunity for drugs to remedy age-related diseases, however, increasing customer expectations (Johnson et al, 2008, p.610) mean the pharmaceutical industry must deliver high quality, extremely effective solutions to meet customer demands within cost constraints imposed by governments. Expanding operations to the developing world also provides opportunities and problems. The pharmaceutical industry can help alleviate untreated. However, unlike their position in the developed world, they do not have patent protection and a relatively open market (ibid, pp.613-614) for cost recovery, thus negotiate with governments to get the best deal possible. The spread of infectious diseases also represents an opportunity to provide new drugs and healthcare infrastructure, but new diseases, such as HIV/AIDS, are more difficult to treat, with increased costs associated with research and development that are unlikely to be recovered, even with patent protection (ibid, p.614). There are also issues relating to ethics (see Societal Tectonics, below). (185 words) Technological Tectonics Advances in both biotechnology and nanotechnology provide opportunities to develop different drugs for medical use, expanding into agricultural use. Nanotechnology might well replace drug and surgery use with bespoke solutions for individuals, although this is some way off in the future. These will affect how the pharmaceutical industry develops drugs and alternatives, requiring new processes and potentially large capital investment in new facilities to take advantage of the new technologies. It has resulted in many small bio-tech firms being taken over by the larger pharmaceutical companies to facilitate the transition to different technology (ibid, p.612). The advances made with information systems are a double-edged sword. A knowledge economy puts scientific knowledge within the pharmaceutical industry but such knowledge is contained within the heads of scientists, rather than recorded in company processes and procedures. Loss of scientists, increasingly possible with increased competition and an ageing workforce, would result in major problems for R&D teams. The pharmaceutical industry appears not to have done anything about this potential problem. (168 words) Societal Tectonics Between 2000-2006, many countries moved from state provision to individual provision, relying on markets to supply what was required. Yet state control of pharmaceutical companies increased following scandals surrounding non-disclosure of clinical trials data that caused patient deaths (BBC News, 2004 and Batty et al 2008). Such ethical problems run counter to increasing customer expectations (Johnson et al, 2008, p.610). A further ethical dilemma arose in connection with the supply of drugs to the developing world, who were challenged by multiple drug manufacturers when they attempted to create generic versions of extremely expensive proprietary medicines (ibid, p616). The situation was resolved by an agreement reached to supply developing nations at reduced prices, but the pharmaceutical industry did not look good as a result. Such ethical issues are likely to affect recruitment of younger workers, who increasingly consider the ethical position of potential employers. The pharmaceutical industry may find future generations of scientists no longer wish to work for them. Governance reforms, including cost controls and increasing international collaboration regarding drug prices (ibid, p.610), serve to restrict the actions of the pharmaceutical industry further. (185 words) Conclusion The pharmaceutical industry cannot escape the effects of changes in the external environment. Because it operates around the world, different changes will occur in different markets and countries, requiring different responses just to remain in business. No industry operates in a vacuum. Operations take place within different contexts, requiring context-specific strategies that give rise to an apparently paradoxical overall corporate strategy for organisations operating within the pharmaceutical industry. This is the “unusual picture” described by Johnson et al (2008, p.608) within the case study. (85 words) (Total 1,044 words) References Batty, D., Hodgson, M. and Watt, N. (2008) ‘Drug companies must reveal more data after Seroxat results withheld’, The Guardian, 6th March available online at http://www.guardian.co.uk/society/2008/mar/06/health.health [accessed 8th December 2010] BBC News (2004) ‘Negative drug research ‘withheld’’, 23rd April, available online at http://news.bbc.co.uk/1/hi/health/3652185.stm [accessed 8th December 2010] de Kluyver, C. A. and Pearce (II), J. A. (2009) Strategy: A View from the Top (An Executive Perspective) (3rd edn.) Pearson, London Johnson, G., Scholes, K. and Whittington, R. (2008) Exploring Corporate Strategy: Text and Cases (8th edn.) FT Prentice Hall, Harlow Mintzberg, H. and Waters, J. A. (1985) ‘Of Strategies, Deliberate and Emergent’ in Strategic Management Journal Vol. 6 pp.257-272 Whittington, R. (2000) What is Strategy and Does it Matter? (2nd edn.) Thomson, London Wilson, I. (2000) ‘The New Rules: Ethics, Social Responsibility and Strategy’ in Strategy & Leadership Vol. 28 pp.12-16 Read More