Assessment of the Business Environment and the Strategic Challenges Facing GlaxoSmithKline - Case Study Example

Name: Tutor: Title: Human Resources in Organizations Institution: Date: GlахоSmithKlinе – A Меrgеr of Equals: Assessment of the business environment and the strategic challenges facing GlaxoSmithKline Introduction When organizations are faced by challenging times in their business, such as changing markets, inability to compete favourably or to operate sustainably, or have the drive to rise in the market and become the leading force in the business, changes have to be made in the organization and the management has to lay strategies and make decisions that will facilitate this change. Zanoni (2012) stated that strategy is used to identify activities that are directed towards management of relations of the organization with the external environment. The market forms part of the external environment. Glaxo Wellcome has since the late 1980s, rolled out change programmes that are aimed at developing the internal capability of the company to match the changes in the market (Collier et al, 2003). This paper will assess the business environment and the strategic challenges that have faced GlaxoSmithKline. Having dominated the market in the UK in the 1990s, Glaxo faced the threat of external factors that could potentially undermine the competitive position of the company as well as risking its profitability. This was mainly caused by the changing customer demands across the pharmaceuticals’ industry. For instance, reforms were made in the National Health Service and doctors, whose role was merely prescribing drugs to patients, were made to become fund holders and they had to be cost conscious while purchasing drugs. Other government initiatives were put in place and they threatened to shrink the growth of profits for pharmaceuticals companies. In addition, there were internal issues such as arrogance and complacency among staff, slow decision making by the organization’s management and strong functional decisions that contributed more to the slow decision making. PEST Analysis Owing to these behaviours, the organization initiated a cultural change programme called RATIO. This programme purposed to stop the continuation of the status quo. This move by the company was appropriate to it since the company analysed its business and the external environment. This worked according to the PEST analysis model. According to Downey (2007), this model involves scanning of the external macro-environment under which the organization exists. The tool is useful for understanding of the economic, political, technological and the socio-cultural environment that the organization operates from. This tool can be used to evaluate the growth or decline of the market including the current position of the organization, the potential that the organization has and the direction that the organization should take. Therefore, Glaxo’s approach was in line with this model because the organization realized that the market was changing and the organization was bound to face some challenging times in the future. Various factors that the PEST model puts forward were considered by Glaxo. For instance, the influence of political factors like government regulation was purported to be a threat to the business. This seen in the initiatives that were set and they changed the duties of doctors. This move greatly impacted on the market of Glaxo in terms of how the doctors would spend their money. In addition, social factors like the complacence and arrogance of employees were considered by Glaxo, as the PEST Analysis would dictate. Therefore, the strategy of the company to come up with the RATIO that would change the behaviours of employees and management was ideal for the organization. However, the strategy of the RATIO programme did not really account for the slow decision making and would therefore not cover the problem this would call for addition on the behaviours that were covered by the programme. The move by Glaxo to detect the impending threats that were bound to face the organization and to devise ways of preventing the dangers was noble. According to UNEP (2012), use of the Early Warning System requires that timely and effective information is done to allow the organization that is exposed to avoid the risk or to reduce the risk and prepare for to take effective response. Glaxo gathered information regarding the changes that were bound to happen in the market. The company was able to get knowledge on the risk that it was exposed to. In addition, it monitored and predicted that the changes would affect the company and this information was disseminated to the company management for effective action. However, the initial strategy taken by Glaxo, the RATIO programme does not have the capability to influence the behaviour of the market since the strategy only focused on the staff and management of the company. The strategy did not show how the company would reach out to the market and ensure that the doctors continue buying their drugs and ensure retention of other customers. The values that were set as complementary change initiatives were not well recognized by staff and they would therefore not get the full support of the staff (Collier et al, 2003). By the mid 1990s, the company faced other external problems in the prospect of losing the patent of Zantac and consequently losing customers to other generic drugs. In addition, the National Health Service, the prime customer of Glaxo, was fragmented further when hospitals changed and operated as semi-autonomous trusts so as to make the health service appear to be business-like. This would have its effect by shifting the focus on control of costs and the value for money. The jobs of medical representatives were made more difficult. Further, there were developments in biotechnology and this greatly increased the cost of research and development across the pharmaceuticals industry. Value Chain Analysis The reaction by Glaxo to this was to introduce a re-engineering initiative that was called ‘customer focus’. This was meant to make Glaxo flexible and seek new opportunities proactively instead of waiting to react to events. According to Miguel (1996), the Value Chain Analysis entails internal activities that a company performs so as to create value for its customers. The organization effectively evaluates its internal capabilities through identification and examination of the activities so as to ensure each of the activity adds value to the organization’s customers. The company will then design, produce, market, sell and support the product. The value chain for the firm and the manner in which the firm conducts the activities reflect the history of the organization, its strategy, the approach used by the organization in implementing the strategy together with the underlying economics involved in the activities (Miguel, 1996). According to the Value Chain Analysis, Glaxo identified the need to go the extra mile and retain its customers by adding value to the products and services offered. Through this, the company started selling products along with the establishment of complementary services like asthma clinics. In addition, the company also adopted a marketing approach to the main clients and this would increase the relationship with customers. Downey (2007) added that three steps were required to carry out the value chain analysis. These included the separation of the company’s operations to primary and support activities, allocation of cost to each activity and identification of activities that were critical to the satisfaction of customers and the success of the market. Relative to this, the re-engineering process began with analysis of the needs of customers, redesigning of processes, identification of fresh competencies and setting up of a new structure of the organization. Through this, the company would move its focus from individual products to a broader concept of managing diseases. It would also embrace a holistic outset of services and products. Glaxo was therefore getting set to providing value to its customers to ensure that they do not choose their competitors over them (Vaitkevičius et al, 2006). Porter’s five forces analysis The re-engineering move that involved internal merger was effective in the way the sales forces were brought together to give the company strength in its sales. In addition, the external merger with Wellcome was meant to fight off competition. This move worked in line with the Porter’s five forces analysis. The forces were used to determine how effective and attractive the market was. The three external forces that were analysed include the threat of new competition from other companies, the threat of substitute products of generic types and the bargaining powers of buyers since they had a wider option to choose from. In addition, the company analysed the internal forces that would hamper its performance in the market and these included the company’s power to supply drugs and the intensity of competition from rivals. This analysis enabled the company to come with the merger strategy so as to beat the already highly competitive market (Tutor2u, 2012). Restructuring was done on the competency framework, appraisal, rewards and training and development. However, this move did not properly re-structure the appraisal function. In addition, behaviours like self responsibility were not covered and complacency was still evident. The employees were also not involved in the change and this led to a lot of resistance. The new programme also brought a lot of pressure to the employees of Glaxo Wellcome. On the positive, there were greater opportunities for career development among employees. The strengths of the changes lied in the customer approach that was initiated by the re-structuring of operations and introduction of new services that added value to the customers. The changes also ensured the employees assumed more responsibilities and it restructured the functions of the organization that initially slowed down decision making processes. In addition, the changes favoured the development of careers of employees (Riley, 2012). On the contrary, there were weaknesses in the changes that were made. Some of the re-engineering like the merging that occurred increased the work pressure on employees demoralised them and reduced the job security of employees. The change of senior management to encompass a young team made the management remote and inaccessible. The targets set were also demotivating to employees. SWOT analysis Strength: SWOT analysis was effectively utilized by Glaxo. The company effectively analysed the positives and negatives within the organization. Glaxo realized that it could capitalize on its products to get hold of the market. Its reputation in the market had been established through the drugs they produced. The company therefore needed to increase its sales and it did that through the merger with Wellcome. Weakness: In addition, the company had the weakness of laxity among employees. This was effectively curbed using the RATIO model and employees identified their roles in pushing the company forward. Threats and Opportunities: Glaxo also analysed the external environment by looking at the threats that were posed by the market. The market threatened to stop using its products. It is the same market that was used as an opportunity to perform better in terms of sales and this was evidenced by the merger with Wellcome so as to increase the sales and fend off competition. The strategy worked out effectively since it covered all the aspects that were directly related to the company. Mintzberg’s 5 Ps for strategy The company also utilised Mintzberg’s 5 Ps for strategy. The plan by the company to curb laxity in employees was to come up with the RATIO behaviour model. This plan worked out with the employees. However, the plan to instil the values set by RATIO was not effectively done and the employees were not versed with the values. Besides, the company made a ploy to outwit their competitors in the market by merging with Wellcome so that they could capture a wide market, better than their competitors. The strategy as a pattern was also evident in the way employees were trained on the RATIO model. Management as well as workers were taken through a training programme that made them effectively understand the model and deploy it effectively. Glaxo also positioned itself effectively in the market of the UK pharmaceuticals. The company had its market position topping the UK market from the 1980s. By merging with Wellcome, the company positioned itself as a large producer and supplier of drugs and this would give it a boost in the market. Finally, the strategy of choosing to go beyond producing drugs and deciding to offer health services is seen as a perspective; one through which the company discovered it could trap the wider society that requires health care. This strategy was effective because it could give the company an upper hand when their patients required information on drugs. Conclusion The changes made by Glaxo over the years were appropriate for the company since the company analysed its situation, predicted the future and devised strategies that would help it get over the foreseen risks and challenges. While these strategies had a lot of positives to the organization and placed the company in a better competitive position, some of the structures were not favourable to the employees of the organization. The organization should therefore seek to include employees in their plans for changes in the organization. Bibliography Cameron Sheila, 2008, The Business Student’s Handbook: Learning Skills for Study and Employment (4thed), Harlow, Essex, UK: Pearson Education Ltd. Collier et al, 2003, Transforming Glaxo Wellcome Through the 1990s, UK. Downey Jim, 2007, Strategic Analysis Tools.Topic Gateway Series No. 34, CIMA, UK. Miguel G. Joseph, 1996, Value Chain Analysis for Assessing Competitive Advantage, Institute of Management Accountants, Montvale. Riley Jim, 2012, SWOT Analysis, Retrieved on January 4th 2012 from: http://www.tutor2u.net/business/strategy/SWOT_analysis.htm. Tutor2u, 2012, Porter's Five Forces Model: Analyzing industry structure, retrieved on January 12th 2013, from: http://www.tutor2u.net/business/strategy/porter_five_forces.htm. UNEP, 2012, Early Warning Systems: A State of the Art Analysis and Future Directions, Division of Early Warning and Assessment (DEWA), United Nations Environment Programme (UNEP), Nairobi. Vaitkevičius et al, 2006, Model of Strategic Analysis Tools Typology, Engineering Economics, No 2 (47) Commerce of Engineering Decisions, Kaunas. Zanoni B. Andrea, 2012, Strategic Analysis: Processes and Tools, Outledge. UK. Appendix Read More