Analysis of Sanofi-Aventis-Aventis' Strategy - Essay Example

?Q1. Analysts feel the pharmaceutical industry is changing rapidly and undergoing a shift. Critically analyze Sanofi-Aventis-Aventis' strategy to transform itself from a Europe/US-centered pharmaceutical company to a global diversified healthcare company. BACKGROUND OF SANOFI-AVENTIS Sanofi-Aventis is a large pharmaceutical company and has been serving the cause of well being and health since a long time now. It’s one of the leading companies Sanofi-Aventis currently has presence in more than 100 countries of the world with more than 100,000 employees who are working to improve healthcare. Sanofi-Aventis’s global headquarters are located in France and Paris. (Fred Pringle, Brian H. Kleiner. 1997) Sanofi-Aventis’s product portfolio includes in it leading medicines for cancer, diabetes, epilepsy, sleep disorders and other healthcare problems. The main objective of Sanofi-Aventis’s research and development is to provide the patients with efficient medicines at the right time. And for diseases that are difficult to treat, they try to provide real patient benefit by multiplying their scientific approaches. This is also the reason why clinical trials are carried out to treat diseases. (Philippe Hermel, Annie Bartoli. 2001) Sanofi-Aventis makes sure that research doesn’t fail to take into account the complexities of human body. TRENDS OF PHARMACEUTICAL INDUSTRY First of all we need to examine the trends of pharmaceutical industry which include structural changes that have led to important transformations, industry’s very strong dependence on research and development and some significant factors leading a future sales growth. (Fred Pringle, Brian H. Kleiner. 1997) Environmental analysis (PEST) Increasing political attention In the recent years, importance of healthcare as a component of social welfare has increased as a result of which the industry has been receiving increased political attention. One other reason why political interest has increased is the increasing social and financial burden of healthcare. Economic value added The pharmaceutical market has experienced high growth rates in the health care sector.US is the fastest growing market. Other than this UK, Italy, Canada, Brazil are also good markets for pharmaceuticals. The social dimension Pharmaceuticals like Sanofi-Aventis play the role of meeting the society’s need for well being. So, Sanofi-Aventis is playing a very unique role as good health is an essential social and personal requirement. The pharmaceutical companies nowadays are trying hard to maintain good communications with the society because of the increasing media attention. Technological advances The industry players are adapting to the new environments faster than ever. All this is being forced by modern technological and scientific advances in science. These advances have also led to an increased expenditure on R&D by companies to promote further innovation. Legal environment Pharmaceutical industry is a very highly regulated industry. There are a lot of legal and compliance overheads that the company has to bear as a result. Porter’s five forces: Barrier to entry: patent restrictions and really high research and development costs are the major barriers to entry for new entrants. Industry competition: competition in the industry is very high. The advantage is for innovators. Suppliers: the power of suppliers is very low. Buyer: buyer power is also low in the industry. Substitutes: because of patents there are less substitutes but there are more substitutes after patents expire. Increased competition in the industry The competition in this industry is intense. There have been a lot of new entrants in the industry lately also a number of mergers and acquisitions have taken place. Therefore, the changing face of pharmaceutical industry suggests that competitive advantage is being redefined all the time. In order to achieve sustainable growth and maintain presence the key industry players are changing their organizational structures. Structural changes There is a transformation phase going on for the pharmaceutical industry in which majority of the large pharmaceutical companies are generating high returns of profits and hence have excess cash available for further growth. Which is both organic and growth through acquisitions and mergers. In pharmaceutical industry the size of the company matters and does a lot advantages for the company. There are a few reasons to this, It gives the companies economies of scale in manufacturing and also marketing More can be invested in research and development projects. This investment and the resulting innovation will help the company in diversifying the future drugs portfolio and bring more stability for the companies in the long run. As a matter of fact, the largest acquisition in the pharmaceutical industry was the acquiring of pharmaceutical by Pfizer and acquiring of Guidant by Johnson and Johnson. Sanofi-Aventis had also undergone a merger which was the merger of Sanofi-Aventis-Synthelabo and Aventis. There was another type of structural change the pharmaceutical industry had gone through. This was about establishing new joint ventures and strategic alliances. The research and development for drugs and the final approval of these drugs is a long term process and requires investment of both time and finance. As a result, the big pharmaceutical companies are always looking for cooperating with their competitors in order to get synergies. Sanofi-Aventis gave a good example of this in cooperation with Bristol-Mayers Squibb producing Plavix which right now is a top selling product. (Fred Pringle, Brian H. Kleiner. 1997) Finally, Sanofi-Aventis, in trying to maintain a strong sales growth and meet the shareholders profitability expectations could have sold out its low-profitable and non-core businesses. FUTURE GROWTH A number of factors tell us that the sales growth in pharmaceutical industry will continue to be high in the future Firstly, a growing trend in the demand for health care products can be seen. This is because of a advancements taking place in technology and science and healthcare resulting in an increased life expectancy in developed countries. These elderly people make a good market. (Philippe Hermel, Annie Bartoli. 2001) Secondly, research and findings show that a large amount of elderly population usually does not get proper treatment. So the improvement in drugs will increase the access of the people to drugs also resulting in an increase in pharmaceutical sales. (Fred Pringle, Brian H. Kleiner. 1997) Developing countries are emerging markets and have a very strong potential for the future of pharmaceutical industry.ge pharmaceutical company fats growing economies of south America ,Asia, central and eastern Europe show an increasing population and make these make markets very attractive for large pharmaceutical companies. STRONG EMPHASIS ON R&D AT SANOFI-AVENTIS Sanofi-Aventis invests large sums into research and development. It takes a huge sum to develop one new medicine. According to some industry analysis it was found that on one on ten thousand chemical compounds that are discovered by pharmaceutical industry get approved to be safe and effective medicines. KEY CHALLENGES FOR SANOFI-AVENTIS Some of the key challenges that I see for Sanofi-Aventis are firstly that it should make itself capable of dealing with competition. Secondly, they should manage their price controls and dictate different prices from places to places. Thirdly, it needs a constant guard for patent violations and try to get some legal protection in new and growing markets and lastly, they should be able to manage their product pipelines so in the case of their patents expiring, they are left without any protection for them. (Fred Pringle, Brian H. Kleiner. 1997) PRICE CONTROL One of the most important kinds or government regulations for pharmaceutical companies is price regulation. The degree of regulations also depends on the country in which they are producing. In majority of the European countries there are price controls on drugs and also there has been a downward pressure on prices. The governments not just control the prices but makes sure to review them periodically. (Philippe Hermel, Annie Bartoli. 2001) This can result in similar products being charged at different prices in different countries. In terms of global sales Sanofi-Aventis is the world’s third largest pharmaceutical company. In 2008 Christopher A Vaeihbacher took over as the CEO of Sanofi-Aventis. At this time the company was in a difficult situation as it had its patents for a number of expired drugs which was a threat to more than one third of its revenues. At this time, some of the experts had opinions that the way Sanofi-Aventis was being run, it seemed more like France’s national treasure and seemed unable to cope up with the rapidly changing pharmaceutical industry. (Philippe Hermel, Annie Bartoli. 2001) TRANSFORMATION As Vaeihbacher became CEO of the company, his bold initiatives proved to be a good transformation for the company. His bold initiative was to restructure Sanofi-Aventis’s top management and R&D function so that the objective of transforming Sanofi-Aventis from a Europe/US based research pharmaceutical company to a diversified global healthcare leader. A business strategy can be formulated as content which determines which strategy suits the current situation, and as a strategic process which would determine how this strategy could be put in practice. This new strategy of Sanofi-Aventis was all about increasing the company focus on developing and emerging markets and diversifying into other healthcare market segments which included the non-prescription drug segment. Sanofi-Aventis differentiated its strategy from some its rivals by getting into value creating acquisition projects and not opting for mega mergers that were worth multi million dollars. Sanofi-Aventis separated different groups of consumers with different needs and targeted them in various ways. The new CEO helped the company identify its strategic customers and also critical success factors that these customers would appreciate. (Philippe Hermel, Annie Bartoli. 2001) Vaeihbacher leadership and strategy is worthy of appreciation although he faced some problems and challenges later as a result. The most difficult challenge was to create a more sustainable growth and to make the Sanofi-Aventis model adapt to the industry that was rapidly changing. External growth of the company involves making very well planned and matched targeted acquisitions in consumer health care products and later also animal healthcare was in the strategy. This transformation was Sanofi-Aventis’s response to the key challenges that the company was facing. These included the slowing of the US market and declining access to their customers. (Lou Ann Di Nallo, Joachim Schopfel. 2008) Sanofi-Aventis as part of its new approach believes reacting and understanding their customers is more important for them. The old pharmaceutical sales models cannot help in doing this today. The two things done at Sanofi-Aventis US that are in line with their global transformation are that the field sales structure has been changed. And the information being delivered along with the manner in which it’s being delivered have both been tailored by the company. (Lou Ann Di Nallo, Joachim Schopfel. 2008) THE NEW FIELD STRUCTTURE A new field organization has been instituted. This is made sure to adapt to the local needs of the customer also at the same time accommodating their unique individual characteristics and differences. The CEO of Sanofi-Aventis believes that healthcare varies throughout the US. The same type of resources or messages cannot be sent to any two cities. Since the patients themselves, the payers, expectations and physicians are highly different they have created an area based field structure which will give them a better understanding of the local market. Also to mention is the fact that decision making through this is in the hands of those who are themselves in the field and have a daily interaction with the customers. (Lou Ann Di Nallo, Joachim Schopfel. 2008) INFORMATION Sanofi-Aventis has tried to create value as its customers perceive it and think is the solution to their clinical problems. An adaptation of a more holistic approach here was the idea of Sanofi-Aventis as this integrated for them their internal functions like medical with their markets and sales. Some of the expanded approaches of Sanofi-Aventis to reach their customers include e-detailing and e-sampling which will allow the physicians to keep an interaction with the customers at all times. Sanofi-Aventis is aiming to help customers’ achieve their clinical goals as part of its global strategy of transforming their US operations When further analyzing Sanofi-Aventis’s growth strategy and their idea of becoming a broader health solutions company, Sanofi-Aventis has given some importance to partnerships and some of their most famous products have also emerged from successful partnerships. Sanofi-Aventis claims to be committed to the best science.som of its famous partnership products include Plavix, Avapro and Actonel. (Philippe Hermel, Annie Bartoli. 2001) However any rational growth strategy usually is about building on the core strengths of the company. Sanofi-Aventis has a tradition of innovation and discovery and they claim that it will continue to be. So growth is usually about new ventures and partnerships but its more about finding new ways to do what you already know how to do. (London, 2010) Sanofi-Aventis’s transformation program has made progress in these areas: 1) Their new R&D approach has an objective of promoting more innovation and creativity while at the same time as it keeps itself focused on the needs of the patients. a streamlined organizational structure would I think make their R&D much more entrepreneurial and flexible. This way a new culture can be promoted which will be relatively more open to external collaborations. 2) Sanofi-Aventis explored a lot of external growth opportunities. One example of this was their acquisition of Shanta Biotechnics in India. As a result of which their vaccines business in emerging markets received a boost. (Lou Ann Di Nallo, Joachim Schopfel. 2008) 3) Sanfoi adopted a policy of improving its operations to meet future challenges in the industry Vaeighbacher, the new CEO of Sanofi-Aventis was aware that Sanofi-Aventis was doing pretty well in the emerging markets as the emerging markets accounted for about 25% of Sanofi-Aventis’s revenues and 70% of Sanofi-Aventis’s growth. Vaeighbacher realized that growing economies had a potential better than the developed ones in which discovering new medicines was very costly. He believed in emerging markets, the demand for health care is really high and that Sanofi-Aventis needed to pay attention to global healthcare issues. Moreover the traditional European markets were also getting saturated with time. (Philippe Hermel, Annie Bartoli. 2001) So moving out and becoming global was not the only aim of the new CEO but he also believed that they needed to diversify and enter newer market segments of healthcare. The company changed its model to achieve sustainable growth. (Syed Tariq Anwar. 2008) Sanofi-Aventis tried to keep into consideration the highly complex nature of the pharmaceutical industry. The competitor companies are also huge and all their processes and technologies very complex in nature because of which these companies need to learn many management and organizational challenges. And not just the R&D but the management and development of the distribution systems is very costly. (Lynette M. McDonald, 2011) However, Sanofi-Aventis’s excellence in managing all these areas of the industry let it survive globally and made it earn high returns from their drug discoveries for Sanofi-Aventis, the idea of a large number of niche market drugs have worked. Selling a wide range of drugs is better for pharmaceutical companies because then there is less reliance on the discovery of big blockbuster drugs. But it’s important that companies make sure marketing and development costs for small drugs are lower. CONCUSIONS For a company to be successful in the new pharmaceutical landscape requires that they have the ability to predict the future and at times also be able to invent it. Effective positioning themselves for growth is also of immense importance..for this there is a need that these companies have the right goals and if there are any gaps between the existing strategies and future aspirations then they should be bridged s much as possible. (Syed Tariq Anwar. 2008) Redesigning its business models has been a n important strategy for Sanofi-Aventis. A consideration needs to be places on the corporate portfolio, and product strategy also to get a deep understanding market and competition. Q2) Going forward, how should the company utilize its resources in order to create a more sustainable growth in the future? (E.g. with a sustainable competitive advantages) One of the keys to sustainable growth by any business is to strengthen its core competencies and capabilities. By connecting these core values to the customer needs will give the company a strategic advantage. It should make sure in all cases that all their capabilities begin and end with the customer. Pharmaceutical companies need to do a better job at communicating the value of their products to their customers. The traditional methods in which the companies used to make their customers believe that they should use their products have now become less effective. Sanofi-Aventis realized that they needed to meet the changing needs of the pharmaceutical industry not just internally but also externally. So as a result the focus was shifted from an internal to an external one More time is needed to be spent on listening to the customers had to say. The reason behind this is that the customers now themselves want to be able to interact on their own terms therefore an improvement in flexibility and quality of their interactions needs to be achieved through new customer channels and commercial innovation. Secondly, operating effectiveness needs to be improved. This can b achieved in two ways, first is to simplify the internal process and second to simplify the organization in such a way that it would become more flexible. One way this simplification to be achieved is by cutting down the number of layers in the organization and taking the decision making par as close to the customer as possible. Regionalizing of operations can help in achieving these tasks. (Syed Tariq Anwar. 2008) Within the organization it is essential to bring about a genuine performance culture along with giving their employees a new level of empowerment by holding them accountable for the results they were producing.it’s basically called as re energizing and reengaging the employees of the company. (Syed Tariq Anwar. 2008) According to Barney’s theory of competitive advantage, four conditions of sustainability are identified for Sanofi-Avenis. These are: Valuable: for Sanofi-Aventis’s resources to be valuable they should be able to exploit opportunities and neutralize threats for the firm Rare: Sanofi-Aventis should make sure its resources are rare amongst its current and potential competition Imperfectly imitable: this could be achieved by either unique history of the company or social complexity No substitute that is valuable but not rare: Sanofi-Aventis should make sure that the market offers substitutes that are strategically equivalent. To sum up, it’s important that Sanofi-Aventis focuses more of its energy on getting to properly understand their customers and then being able to meet their needs in a way that appeals to them. All this would require them to work much more efficiently than ever and deploying their talents and resources more smartly. In the end empowering their employees is what they need. These concepts are not new to Sanofi-Aventis but what is more important for them to achieve sustainable growth is that how systematically and seriously these concepts are being applied. (Karen S. Cravens, Hubert D. Glover. 1995) According to Peteraf’s theory of sustainable growth we are concerned with the nature of Sanofi-Aventis’s resources and then also how these resources are combined with capabilities. All the things that would lead to sustainable competitive advantage through differentiation are: Heterogeneity: the industry comprises of firms with different skills and resources. And firms with superior resources will earn superior returns Imperfect mobility: the company should have shared specialist knowledge and reputation. Also the marketability of a firm’s capabilities is a part of this Ex-post limits to competition: again an emphasis on specialist knowledge and reputation of the company. These are forces that will limit competition from imitators Ex-ante limits to competition: the company should leverage the potential of its existing technologies The question of achieving sustainable growth is an important one. Sanofi-Aventis as it is has a strong standing in many areas of sustainable growth and is also diversified in a nice way but to be more efficient they need to make sure to have a good market share in emerging markets. The business strategies used by Sanofi-Aventis should be used both as exploitation and exploration. This way Sanofi-Aventis can extend its existing technologies and competencies while at the same time explore new alternatives. In the public health sector vaccines at the moment position Sanofi-Aventis as a major force. Sanofi-Aventis also has the privilege of being a world leader in vaccines. The company has played a major role also by donating about a 100 million doses of a vaccine to world health organization. As discussed earlier building a deeper presence in the emerging markets could be very helpful because there is still a lot of potential and unmet medical needs in the developing world. In order to utilize its resources properly Sanofi-Aventis also needs to explore the potential of social media and other e-commerce strategies to be able to better understand their patients, physicians and other stakeholders. Stakeholders are all the people who are affected by what the organization does or whether it is able to achieve its purpose. These people have a legitimate claim on the firm and are usually depending on the organization to get their own goals achieved. For example political groups, governments, suppliers, competitors, employees, unions, customers and shareholders are all stakeholders of a company. (Philippe Hermel, Annie Bartoli. 2001) . The creation of a whole new executive level innovation group in the United States was a good step taken by Sanofi-Aventis. This group tried to explore new ways of reaching customers and new ways of listening to them. And that innovation group of Sanofi-Aventis uses not just the virtual approaches but also some new kinds of solutions for their patients and physicians. Sanofi-Aventis needs to focus on its employee competencies by improving its performance and leadership standards. Managers who correctly know how to manage need to be hired for the task and they need o have in their tem leaders who can themselves have a vision and are also at the same time capable of communicating the unique vision to their people. Performance and leadership are both very critical because only one team’s performance can also make a huge difference. And the environment is very competitive for Sanofi-Aventis so it’s even harder. (Karen S. Cravens, Hubert D. Glover. 1995) Talking of the employees, Sanofi-Aventis needs to hire its workforce on two core qualities. First of all the employees need to have bread business acumen which means they not only need to have product knowledge but also knowledge of science and business of medicine, payer and patient issues. They need to hire efficient sales representatives and medical people and basically people with a multiple set of skills which complement each other. Employees should have an understanding of different areas like that of pharmaceutical-economics. Only these kinds of employees will be able to make the customers understand that Sanofi-Aventis is a trusted resource and a partner to them. The pharmaceutical industry is under rapid changes and complexities and Sanofi-Aventis should have a staff that matches. (Karen S. Cravens, Hubert D. Glover. 1995) Since right medicines given at the right time to the right patients is important, these knowledgeable employees can help Sanofi-Aventis get their competitive edge .the staff needs to be the sort that is inspired by change and the right kind of attitude. (Syed Tariq Anwar. 2008) For a sustainable growth, Sanofi-Aventis needs to realize that what its desired goal is and undermine its profit mission because the focus is much more on drugs that can generate higher profits than on drugs that can cure .people are shocked by their pharmaceutical bills and especially in poor countries for the treatment of illnesses like HIV/AIDS large sums are demanded. According to the supply side resource based view by wenerfelt, 1984 firm’s have resource heterogeneity because of which other firms cannot take those resources. So, to be successful in the industry, Sanofi needs to exploit the market imperfections which are usually imperfect information or different expectations of prices while at the same time following this formula: Get skills or resources as cheaply as possible Then efficiently use these resources in the production process. Implement the strategy Sell such that value is created To be able to effectively compete in its business arena Sanofi needs to nurture and develop its most valuable capabilities and make sure that it responds to all sorts of environmental changes. The two assumptions that can be used to find out if an organization is able to create a sustainable competitive advantage are of resource immobility and resource diversity. Mata et al, 1995 defines these two as: Resource diversity: whether or not the resource that the firm uses is or can be owned by other competing firms. If other firms also own that resource then it will not give a competitive advantage. Resource immobility: this could a resource that provides competitive advantage because this is the resource that is hard for the competing firms to acquire probably because of its higher cost. Porter also outlines three conditions for sustainable competitive advantage. Firstly, the hierarchy of source according to which advantages like a low labor cost can easily be copied by the competitors whereas advantages like technology, brand reputation or customer relationships are very hard for competitors to copy. Secondly, he talks about the number of distinct sources which are harder to imitate and thirdly, Sanofi should be consistent with improvement and upgrading. Which means the firm creates new advantages as fast as the competitors copy the older ones, Understanding corporate governance and in fact setting high corporate governance standards is highly essential for Sanofi-Aventis. When particularly talking of pharmaceutical companies, there is a need to pursue best practices towards good corporate governance. The policies and procedures of a company should reflect their core values, system of accountability and professionalism in all of their departments. (New indicators for the UK pharmaceutical industry, 2002) In recent years as from what we see, corporations have started claiming to be good citizens as they are now being driven by other higher aspirations and not just profit alone. Other than this, drugs can be provided or sold at lower prices if donors, which could be governments also, subsidize the cost of developing vaccines so the drug makers could sell these medicines at reasonable enough prices. BIBLIOGRAPHY Syed Tariq Anwar. (2008). Creating a national champion or a global pharmaceutical company: a tale of French connection. Journal of Business & Industrial Marketing. 23 (8), 56. Keith Fletcher, Susan J. Hart. (1990). 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