Strategic Management - Home Pharmaceuticals - Case Study Example

STRATEGIC MANAGEMEBNT: CASE OF HOME PHARMACEUTICALS Table of Contents Table of Contents 2 Gap Analysis I: 3 1 Capability Gap Analysis Table: 3 2 Rating Capability by Resource: 4 1.3 Capability Narrative 7 1.4 Collect Evidence: 9 2. Gap Analysis II 11 2.1 Match Capabilities Identified with KSF’s 11 2.2 Capability rating for taking advantage of the KSF 12 2.3 Ranking Narrative 13 3 Gap Analysis III 16 3.1 Five Strategies for business development and growth 16 3.2 Matrix implementation for Business and Corporate Level Strategy 18 3.3 The 5 questions: 19 Reference List: 22 1. Gap Analysis I: 1.1 Capability Gap Analysis Table: Functional Area 1 Capability 2 Home Pharma Description of Home’s capability 3 Average the Capabilities of Closest two (2) Competitors Describe capabilities 4 Research and Development Innovation Innovation is mostly relied on Malaysian context. Hovid Berhad: Leading innovation based manufacturer in Malaysian industry. Kotra: Mainly related to health supplements and vitamin products. Manufacturing Technological superiority Highly skilled and trained employee base enhancing product quality CCM Duopharma: High experience supporting production process growth. Hovid Berhad: Innovation based work culture enhancing technological adaptations. Product Diversity Extensive diversity in product base Expanded product base to OTC and HFS. Also experienced success with some niche market products for short-term Pharmaniaga Berhad: Unrelated diversity spreading into multiple industries CCM Duopharma: High diversity in related product base Employee Base Innovative, dedicated and focused Employee base loyal and skilled however, general managers lacking experience in context of international management Pharmaniaga Berhad: Adaptive employee base supporting the business diversity process. Hovid Berhad: Committed work force Management Shifting from domestic to international context General managers lack experience in international management Pfizer: Leading the industry and entering the Malaysian market. Novartis: 2nd in position after Pfizer, also targeting the Malaysian industry. Financial Performance Medium market growth in Malaysia contradicting to the high growth in international market Two SBUs are not performing in the desired manner reducing revenue generation where as OTC (core product) has increased expenses for managing competitive advantage in market. Pfizer: Strong financial position and leading market shareholder. Novartis: 2nd in position after Pfizer, in context of revenue generation. 1.2 Rating Capability by Resource: Capability -5 -4 -3 -2 -1 0 1 2 3 4 5 Tangible resources Manufacturing facility Production Process Research & Development Product Diversity Financial Performance -2 3 3 4 Intangible resources Human Resource Base level employees General Managers Top Management 1 2 4 Processes & systems Strategic Decisions Top Management General Managers -3 2 Organisation culture Innovative Culture 3 Employee Commitment 4 1.3 Capability Narrative Research and Development: The research and development is the spearhead of the functional aspects of the pharmaceutical industry. The research and development process of a pharmaceutical company helps in generating ideas for new product development and also informs the company regarding the market response to their products. In context of Home, their R&D processes are mainly associated with the process of product development. The company pushes its R&D segments towards innovation; however the innovation needs and processes are mostly related to the Malaysian market. This is reducing the global expansion scope for Home. However, based on the diversity in the product base, this capability has been ranked 4 in the rating process. Manufacturing Process: The manufacturing systems of the pharmaceutical companies are mostly designed in an adaptive manner so as to include the changes in the production needs in accordance to the guidelines of the R&D segment (Moutinho, 2010). The challenges faced by the companies in the manufacturing process are mainly associated with the alignment of production with the market demand. Also constant changes in technological segment are increasing the cost of production for the companies. Home has a well established manufacturing unit situated at an appropriate location which enhances the transportation between the suppliers and the markets. However, traffic jams are often halts the transportation process. The commitment of the employees is also an added factor for increasing the performance of the manufacturing unit (Parker, 2011). Product Diversity: The nature of the pharmaceutical industry is such that companies have to engage in production of different types of products in order to increase their market scope and competitive advantage (Ander and Kapoor, 2010). The business development process of Home is also based on expansion of their product base and inclusion of new products in their product base. The present product base of Homes can be related to three primary segments namely, over the counter drugs (OTC), Health food supplements (HFS) (also includes biomedical drugs) and the hearing devices (HD). Home has also momentarily engaged in production of niche market products in order to push their revenue generation and brand development in the local markets. Employee Base: The human resource of an organisation is the primary factor which defines the ability of the organisation to achieve its business objectives (Brusoni and Prencipe, 2009). The nature and approach of the employees of a business is based on the organisational culture and structure of work. In case of Home, the company has a flat structure in order to easily monitor the business activities and the performance of their workforce. The employee base can be segmented intro three primary groups including the top management. The first level is the top management which includes the owners and the CEO of the business, the middle management includes the general managers and the bottom level is formed of the operational managers and the base level employees (Paley, 2009). The general managers of the company have limited knowledge regarding international management which is reducing the ability of the firm to expand to the international market. Meanwhile in the top management, there seems to be lots of disagreements between the CEO, PK and Miss Sati, daughter of the owner and is resulting in appropriate strategic decision making. However, the base level employees are skilled and trained and have high level of commitment towards the organisation which is the primary strength of Home. Management: As suggested in the employee base segment, the managerial differences in the top level is reducing the strategic performance and the competitive advantage of the business in the market. On the other hand, the general managers are not able to design a strategy for increasing the market scope of Home in the international market. Financial Performance: Home’s problem with the financial performance is mainly associated with the process of increasing the competitiveness of the company in the market. The CEO estimated that around $70million is required for maintaining in the competitiveness of the company in the local market in the year 2014. Apart from this the primary product segment of OTC is also pulling in huge funds related to competitive issues. Apart from this the growth of the market in relation to the SBUs of the company is also dropping as SBU1 and SBU 3 have reflected only marginal growth trends. 1.4 Collect Evidence: Research and Development: “While HP relies on a highly innovative approach, this has mostly been within the Malaysian context.” (Murray, n.d, p-1). Manufacturing: “There is only one major manufacturing facility near Kota Damansara situated in Sungoi Buloh Industrial Park in Kuala Lumpur and this centre facilitates all manufacturing for each division and product distribution. The centralised Head Office is also located here. The company has its own fleet of transport.” (Murray, n.d, p-4). Product Diversity: “...... largely focused strategy of producing over-the-counter (OTC) drugs. During the last decade however, the company has progressed its research into new products including bio-medical and health food supplements (HFS) including more recently radical innovations in hearing devices (HD)” (Murray, n.d, p-1). Employee Base: “While much of the company’s staff is highly trained and skilled, general management staff are not globally experienced.” (Murray, n.d, p-1). Management: “While much of the company’s staff is highly trained and skilled, general management staff are not globally experienced.” (Murray, n.d, p-1). Financial Performance: “After reviewing Figure 1, PK was concerned about SBU 1 and 3 marginal rates of growth going forward even though these SBUs in the past have carved off 5% market share for Home.” (Murray, n.d, p-5). 2. Gap Analysis II 2.1 Match Capabilities Identified with KSF’s Key Success Factors 1 Capabilities 2 Research and Development The research and development is mainly fuelled by the innovation based approached of Home Pharma Manufacturing Technological resource base of Home and the skilled employee base are the key strengths of the manufacturing process Product Diversity Product diversity is in three different medical fields however the performance of OTC and HD have slowed in terms of market generation Employee Base Structural benefit for monitoring employee performance. Skilled and loyal employee base for boosting production quality. Management Misaligned production and development process in top management. Limited international management knowledge of managers Financial Performance The financial performance of the SBUs have slowed down in the market and too much money being invested for maintaining market competitiveness 2.2 Capability rating for taking advantage of the KSF Capabilities KSFs (From Table 2.1 above) 1 2 3 4 5 6 7 8 9 10 Research and Development Manufacturing Product Diversity Employee Base Management Financial Performance TOTAL Add each column to complete the exercise 0 0 0 0 5 6 7 16 9 0 2.3 Ranking Narrative Research and Development: The research and development has been ranked 8th in the above chart mainly because of the ability of Home to integrate its needs and requirements in the product innovation process. As suggested in the above segments related to capability, the R&D process of the business firm has been focused towards the growth and development of the organisational resources so that they can enhance the relativity of the products to the market requirements. Apart from this the research and development segment of Home has helped extensively by identifying new market scopes in the international and the domestic markets. Hence, it has been ranked ahead of the manufacturing and management at 8. Manufacturing: The manufacturing system of Home is largely dependent on their technological superiority. The company has not only designed an effective operational process but with a properly placed manufacturing unit, has aligned it with the entire supply chain system. The location of the manufacturing unit is at one of the central hubs which increases the facilities related to transportation and business development of the organisation. However, traffic is also a problem associated with the business approach of the organisation. One of the most effective changes in the manufacturing system can be included by creating a properly segmented operational team who can identify the key gaps in the systems. It has been ranked at 7 in the rating chart. Product Diversity: The product diversity of Home is related to their three different sub units of the business i.e. OTC, HD and HSF. All these product bases have already been launched in the market but are facing problems for establishing a competitive market against the competitors. It was noted that OTC is the best performing SBU of the company where as HD and HSF are reflecting only marginal growth in revenues which does not reflect their historical performance of over 5% market share. However, the product base often has to be fuelled in with additional funds in order for Home to remain competitive in the market. The failure of the SBU’s is the reason that product diversity is ranked behind the employee performance. Employee Base: The employee base of Home is exceptionally if the base level and operational employees are considered. The employee base is skilled and committed towards the organisational cause and performs to the best of their abilities. However, because of limited alignment between the top management of the company, there can be some disarrangement between the employee performances. It can be reflected that the aspect of innovation is only being implemented in context of Malaysian market which signifies underutilisation of the employee skills. Management: The management of the company has been ranked all other capabilities except financial performance. The primary reason for this ranking is the inability of the managers to enhance their performance and focus on the strategic implications of the decision making process. One of the key aspects related with the managerial functions is the lack of international market and management experience and knowledge among the general managers of the company. This has also influenced the performance of the lower level employees and the other capabilities identified in the report. Considering the individual roles, responsibilities and performance of the organisation in the business management process, the management has not been able to perform at the optimal level. Financial Performance: The aspect of financial performance has received the poorest rating in the charts. It can be noted from the given case that the Home has extensively engaged in managing the level of competitiveness of the brands in the market against the rival firms. However, despite of continuous injection of funds in their various SBUs, they have not been able to retrieve a healthy revenue generation process for the company. The performance of SBU1 and SBU3 are dropping rapidly whereas the primary product base of OTC is utilising too much funds to remain competitive in the market. Apart from this, international expansion scope of the company is also reducing mainly because of the mis-directional funding process. 3 Gap Analysis III 3.1 Five Strategies for business development and growth The strategies that can be implemented by Home Pharmaceuticals in their business development process have been reflected below: Strategy 1: Alignment of Strategic Decisions It was noted that the decisions and perceptions of Miss Sati and PK were not aligned which is hampering the strategic objectives and decision making process of Home Pharma. The business decisions of the company were taken in a decentralised manner which increased the gap in the strategic thought process. As suggested by Analoui and Karami (2009), it is essential to maintain a streamlined approach in the business decision making process so that a steady work process can be designed for following the objectives of the company. On the other hand, some of level of differences among managers is necessary to ensure a diversified and open growth opportunity for a company (Dobson, 2009). In context of Home, the strategy suggested is to resolve the differences between the top management. Strategy 2: Knowledge Enhancement of Managers The general managers of Home Pharma have limited information, knowledge and experience regarding the management process in the international market. Most of the business development decisions are being taken in context of the Malaysian market only. In the words of Tarplett et.al (2009), the knowledge base of a manager must be related to the business needs so that the set strategic objectives can be achieved. Elango, Houghton and Savelli (2010) also added that managers have to design and frame the operational culture of the organisation in a manner which can help them in adjusting the changes taking place in the internal business environment. Thus, during the process of internationalisation, the general managers of Home Pharma should be able to initiate new policies and manage the changes in the operational process. Strategy 3: Reduction of Operational Cost It has been noted that the expenses of Home is mostly related with the process of maintaining their competitive level with their rivals in the market. Huge funds are being directed towards the above stated cause and hence the revenues earned by the SBU’s are not able to boost their performance. The reduction of the operational cost helps an organisation in enhancing the scope of profit margin in the business management process (Gary, Wood and Pillinger, 2012, Rhyne, 2009). The operational processes should ensure that optimal resource utilisation and limited resource wastage are among the primary focus on the managers to reduce the cost of production. Also disowning non-performing assets is an additional process for cost reduction for the business. Strategy 4: Identification of New Markets in International Level Home Pharma is facing trouble in handling the pressure arising in the domestic market place, Malaysia. They need to assess the opportunities that lie in other international markets for the company to regain its competitive stature in the markets. The requirements for the business in the contemporary market are to thus look for new markets in international aspect. However, as the company is already facing financial trouble, the product base of the company will be same in the new markets which signify the strategy of market development. McEvily, Eisenhard and Prescott (2009) opined that market development processes are efficient strategy for business expansion as it reduces the risks of the company by reducing the related expenditure. Market development for Home Pharma can begin with neighbouring countries such as China where the pharmaceutical segment is rapidly growing. Strategy 5: Product Diversification The product diversification strategy of Home Pharma is already well established as they have successfully developed three different segments of product related to their relevant industry of operations. However, the market performance of these products is dropping and the company is failing to maintain its level of competitiveness in the market as a result, the organisational process of the company should focus on developing new products with related or unrelated diversification strategies. Product diversification always offers the opportunity to enhance the organisational growth of a firm in terms of gaining markets, consumers and also brand development (Hall, 2011). However, the route selection for the diversification strategy must be associated with the organisational objectives and market conditions. 3.2 Matrix implementation for Business and Corporate Level Strategy Corporate Level Strategy Products/services Existing New Markets Existing Market penetration New products/services New Market development Diversification Business Level Strategy Competitive advantage Lower Cost Differentiation Competitive Scope Broad Target Cost Leadership Differentiation Narrow Target Cost Focus Differentiation Focus 3.3 The 5 questions: Does the organisation plan to grow? Home Pharma are facing a critical condition in their domestic market as the domestic competitors are gaining market competitiveness as well as big international players such as Pfizer and Novartis are trying to enter the market place. Considering this condition, Home Pharma is trying to improve their performance in the local market and also trying to identify suitable opportunities in the international market. This suggests that the company wants to grow in terms of market and competitiveness (Goerzen and Beamish, 2008). The corporate level of strategy suggested for Home is market development through which the firm can enhance its market activities by entering new markets with the existing product base of the company. What product & services does it plan to produce? In relation to the suggested corporate and business level strategies, Home Pharma at the moment will not engage in any product or service development processes. The production process of the company will mainly relate to the method of designing the operational culture so as to handle the changes which will take place after business expansion with market development technique. Also the fact that the current financial performance of the company is not able to support the organisational objectives, it is wiser to cut down the operational expenses and the expenses related to the research and development process of the firm (Porter, 2010). Moreover, in alignment with the business level strategy the cost leadership process of the company can be upheld by preventing additional costs in the non-performing segments of the company. What customers does it plan to service? The new strategies have not considered diversification of products or services or the industry base and hence the primary customer group will be same. The products to be launched in the new markets will also be within the pharmaceutical industry. As observed from the case, the company has a good brand value in Australian markets and also in some Asian countries. The brand equity of the firm will be leveraged in the new market selected for market development strategy. The customer base will differ in terms of demographics and geographical changes. However, these changes can also influence the behaviour and response of the customers towards the existing product base of Home Pharma unless the brand positioning can be effectively performed by the company. Which generic strategies will it follow? The generic strategies to be followed by the company in terms of business and corporate level strategies will be cost leadership and market development. The corporate strategy of market development has been selected considering the current financial position of Home Pharma where most of the funds are being directed towards the development of the competitive aspects in the overcrowded domestic market. The pharmaceutical market of Malaysia is facing competition from both local and international business houses which has narrowed down the scope of revenue generation. Thus, Home will focus on designing their competitive strategy by entering new markets with market development technique. On the other hand, the business level strategy of the company has been selected as cost leadership wherein the company will try to regain its competitive strategy b y reducing the cost of operations and increasing the profit margin for the products and services of the firm. The cost leadership strategy will also allow Home Pharma in planning and supporting their internationalisation process by saving adequate funds from the cost reducing in the production system of the firm. What position in the industry will it occupy? The position of Home Pharma in the current situation of the Malaysian pharmaceutical industry is not desirable. The firm is facing challenges related to their competitiveness, product innovation, financial performance and internationalisation process. Conspiring all these aspects, the current position of Home Pharma in domestic market will be at the lower ranks of the chart. On the other hand, in context of the new strategies for business and corporate growth the positioning of Home will be basically that of existing brand and new market. They cannot be considered as new entrants in the industry but they will be new entrants in the selected market. Reference List: Analoui, F. and Karami, A., 2009. Strategic management in small and medium enterprises - Page 74, London: Thomson learning Ander, R. and Kapoor, R., 2010. Value Creation in Innovation Ecosystems: How the structure of technological interdependence affects firm performance in new technology generation, Strategic management Journal, 31, pp. 306-333 Brusoni, S. and Prencipe, A., 2009. Strategic dynamics in industry architecture and the challenge of knowledge integration, European Management Review, 6(4), pp. 209-216 Dobson, P., 2009. 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