Novo Nordisk as a Leader in Producing New Drugs - Term Paper Example

Name Institution Course Tutor Date Case Study: NOVO NORDISK Introduction Insulin may sound familiar but Levemir, NovoMix, and NovoRapid are probably strange terminologies to most of you who are unaware of some of the pharmacological purchases made by diabetic patients. Nevertheless, most of us are aware of the escalating trends of diabetes around the world. I got an opportunity to work for Novo Nordisk as a Strategic Management Accountant, and thus bring you the case of the world’s most innovative healthcare company with speciality in diabetes care. Novo Nordisk is a leader in producing new drugs and medical equipment used in the treatment and management of diabetes (www.novonordisk.com). It is with pleasure that I bring to you the reader, Novo Nordisk’s most significant dimensions of organizational strategy as well as discuss the most appropriate management accounting system for the company. The Balance Scorecard has been recommended as most appropriate management accounting strategy for guiding performance. Brief Company Background Novo Nordisk is a global healthcare company established in 1989 after two companies-Novo Industri A/S and Nordisk Gentofte A/S founded in the 1920s experienced a merger (Reuters 2012). Novo Nordisk headquarters are found in Denmark, and has employed about 32,700 employees in 75 countries around the world (www.novonordisk.com). The company markets its products in 190 countries in the world including the developing nations. Novo Nordisk therefore belongs to the Pharmaceuticals and Health Care industry. For nearly 90 years of existence, the firm has integrated the discovery of drugs and use of technology thus using science to provide solutions for patients with diabetic condition. Other areas of speciality and leadership by the company include providing treatments for haemophilic patients, growth hormone deficiency, as well as women with menopausal symptoms. Novo Nordisk’s mission is to leverage its expertise to “make a difference in quality of care”. The brand goes by the tagline ‘changing diabetes (www.novonordisk.com 2012). Novo Nordisk is a fast growing major pharmaceutical company globally, and operates primarily in Europe, Japan, and North America. The company reported revenues of $10,824.2 million during the financial year ended December 2010, which was an increase of 19% from 2009. The company’s operating profit during FY 2010 was $3,364.5 million, a 26.5% increase from 2009. The net profit was $2,565.2 million in FY2010, which is a 33.8% increase from 2009 (Nickisch et al., 2009; Novo Nordisk 2012). The target customers for Novo Nordisk include endocrinologists, or physicians dealing with the hormonal systems in the human body, healthcare professionals providing treatment to patients suffering from diabetes and other hormonal conditions. Novo Nordisk positions itself as a leading healthcare company with almost 90 years of experience in diabetes treatment. It is therefore important to understand both the internal and external influences that have enabled this company to establish itself as a leader in the diabetes business treatment. Analysis of industry and market The health care industry relies upon the health-related services given by professionals to benefit the patients. Insurance companies, medical instrument makers, developers of pharmaceutical drugs, and government institutions are vital players in the provision of treatment services to the sick, injured, or morbid patients. Health Care trading strategy depends on the fact that the health care stocks seem to be less responsive to economic variations. However, factors of biotechnology, employment staffing, and insurance firms may be subdued during recessions from various causes. Thus, government mediation becomes a vital factor in health care investments, considering that government spending in the sector is a tremendous segment of the entire health care utilization. When the government alters its spending strategies, the different subsectors in the industry are significantly impacted as reflected in downward sloping stock charts which show that stocks are being undervalued. Generally, Novo Nordisk is a recognizable industry leader because of its staffing, work experience, and financial strengths. Usually, it is hard to compete against the industry leader thus reducing the business and investor risk. The market is hastily expanding thus lowering the direct competition threat and thus inflates the profits of Novo Nordisk. Strengths of the company The strengths of Novo Nordisk lie upon the company’s deep knowledge about diabetes and extensive experience in its treatment. Furthermore, the company has experienced steady growth by the increasing revenue and profits that its products bring in. Therefore, the free cash flow can be applied for expansion, acquisition, or research and development (R&D). With over 33,000 well-trained professional in 75 countries and a wide global footprint reflected by its presence in 190 countries, the company’s market share increases. Novo Nordisk also has great diversity in its senior management teams of which 22% are women, and thus a requisite for growth. Novo Nordisk has received several accolades including being names the most sustainable company in the world (Bloomberg 2012). Weaknesses On the other hand, Novo Nordisk ever suffered negative brand image as a result of failure to provide adequate and/or transparent information regarding the side effects of one of its products-Victoza. Past legal actions have thus contributed to a negative perception about the company. Opportunities Nevertheless, Novo Nordisk’s opportunities is dependent upon the increasing prevalence of diabetes and other chronic related conditions resulting from urbanization and lifestyles that have reduced life expectancy to average. Another opportunity relies upon the fact that the biosimiler market has strong growth opportunities as research has taken a keen interest in biological methods. The growing number of health conscious people has also provided an opportunity for Novo Nordisk market as it markets its products on safety and efficacy. Threats Despite the many opportunities that can enable Novo Nordisk to expand its market share, threats are present and these could be persistent in the market. There is currently increasing public debt in European countries and this could mean limited sponsorship for R&D as Novo Nordisk is a member of EFPIA (European Federation of Pharmaceutical Industries and Associations). Negative consequences of healthcare reforms in major markets, and stringent healthcare regulations could also be a threat to Novo Nordisk market expansion. Additionally, there is increasing pressure in public spending on healthcare due to economic slowdown in major economies. Novo Nordisk competes with Eli Lily, AstraZeneca, Biocon, and Abbot Laboratories in production of pharmaceuticals based on biotechnological methods (Downing 2012). Salient/Most Significant dimensions of Novo Nordisk Strategy The strategy used by Novo Nordisk is to maintain things in a simple yet precise way. Thus, strategies that are clearly defined assist to lower business risks by maintaining their areas of expertise. Porter’s generic strategy can be used to assist in the understanding of Novo Nordisk’s position and influence in the market. Novo Nordisk uses differentiation strategy by offering uniqueness in its products. Differentiation strategies are targeted to customers who have very specific requirements, in this case the diabetes patients, but with solutions that are difficult to protect. Differentiation also refers to providing the market with a product different from that of competitors regardless of price. Novo Nordisk has taken a unique turn in production of drugs related to the human hormones and hence most preferred for their almost real nature. Being an R&D company, it is difficult for others to imitate its innovations as a result of patent laws, and the very high costs required for R&D (Villiger & Bogdan 2009). According to Novonordisk.com (2012) prices for products are tailored in such a way that even people from developing economies can afford. Thus, it can be said that both the strategies of differentiation and cost domination have been bundled to provide the market with a different but affordable product. Another strategy entails that of position in the market. Novo Nordisk is a leader in diabetes care hence this means that it is the organization that created the market. In this case, product is the reference on the market. Novo Nordisk is also at the maturity stage of the product lifecycle characterized by production and marketing in which its old products are maintained and improved. Also, the company is still doing ongoing research to improve health care and hence R&D for new products is inevitable. Another strategy that seems to help Novo Nordisk out is the involvement with international products. The drugs and equipment are global in that the medication is same worldwide and targeted for the diabetic patient. The Levimir that someone purchases in Denmark is the same one that another person will purchase in let’s say Japan. After looking at the significant dimensions of organizational strategies at Novo Nordisk, my position of Strategic Management Accountant helps me to know what information accounts and worth over space and time as well as what is peculiar to the context of Novo Nordisk. Novo Nordisk has received recognition as a sustainable company showing that what counts is not only money but also its environmental sensitivity. Novo Nordisk strategy is shifted towards adding value to various units including stockholders, public authorities, customers, deliverers and the environment. Novo Nordisk’s annual reports not only contain financial performances but also social and environmental performances (Novo Nordisk, 2011). Novo Nordisk competes strategically in the market and has for long retained a top spot in valuation of stock as far as diabetic care is concerned. The profits and dividends reaped from the sale of drugs and equipment are items of value to the stakeholders. Novo Nordisk’s presence in the market has also offered employment to over 30,000 people who are professionally trained to perform their duties and as a result benefit their lifestyles through working, as well as that of the nation through payment of taxes. The people employed are from diverse backgrounds and include accountants, legal advisors, medical doctors, IT consultants, Human Resource professional, and communicators among others. This is value added to public authorities. Novo Nordisk, through its work has the customer in mind and products are created to satisfy the customer’s needs. Most patients with hormonal illnesses or conditions are benefiting from the innovative products designed specifically to meet their needs. The reduction of complications of diabetes around the world can be attributed to the company’s ability to make insulin available to the growing number of customers that need it. Novo Nordisk has also shown respect for environment and social cohesion and this is of value to the public. Its social performance is achieved in three major ways which are improving care for people whose healthcare needs the company serves; developing its employees to ensure a healthy and safe work environment; and making positive contributions to the communities in which the company operates (Michel et al., 2007; Novo Nordisk 2012). Having positioned itself as a leader, what counts for Novo Nordisk is profit and ROI as seen that these are able to sustain the company and help it open further opportunities for research and development. From a strategic point of view, the customer, quality, and product, are very important working units for Novo Nordisk. Management Accounting System Strategic management accounting innovation is a new way of translating strategy into numbers and processes (Lord 2007). My expertise as a management accountant has enabled me to identify important information for making decisions as far as management accounting system is concerned. Since Novo Nordisk is a global company involving in production of innovative products for a specific market, it has to invest a lot on risk management and ensure that the products are of good and same quality in all its market. The company must also focus in value addition to ensure that existing and upcoming needs of the market are met. The most important strategic issue is sustainability through value creation for all stakeholders, society, and environment. Novo Nordisk’s important strategic issue is sustainability, and as a global health care company has held a business philosophy advocating for balance of financial, social, and environmental factors. The company’s article of association stipulates that Novo Nordisk wishes to conduct business in a way that is financially, socially and environmentally responsible. For this case, I would recommend the implementation of the Balance Scorecard System. Traditionally, this system would contain four perspectives where one should establish objectives and critical success factor measures to analyze performance in line with the company’s strategy (Ax &Bjørnenak 2007). I propose that Novo Nordisk uses these four perspectives for its management accounting system. Fig. 1: Balanced Scorecard Learning and Growth Novo Nordisk has a winning culture that is based on cross-functional and cross-cultural teamwork. In the company, employee involvement is encouraged at all levels, and this helps to encourage development and innovation in the firm. Involvements of employees result in adequate exchange of ideas and concepts which can help the company give more and better to its customer, community, and the society as a whole (Novo Nordisk 2012). Business Process Novo Nordisk’s business perspective is based on sustainability, which has a pragmatic and profound impact on its strategy and operations. In addition to being ethically responsible, the business process proves to be a smart choice. This is because in sustainability, the focus is on eliminating waste and inefficiencies to make simple economic sense and produce real bottom-line impact. The Balance Scorecard system will enable the management to see the value of sustainability through this business process segment. Corporate sustainability contributes directly to business value, and this can be done through cost control, revenue generation, risk management, or long-term value creation. Cost control can be analyzed from perspectives of resource efficiency, waste minimization, and, or lower energy consumption. Revenue generation is through the sale of new products, and identifying new markets, both activities that Novo Nordisk actively involves in. Risk management involves complying with regulations, and /or avoiding safety and environmental incidents. This is an important aspect of analysis for Novo Nordisk as it deals with products for human consumption and uses biotechnological methods that requires high amount of safety to avoid harm. Customer perspective The Balanced Scorecard system will enable Novo Nordisk to monitor the ways in which it interacts with its customers so that they are not neglected and their needs are fulfilled. The company combines clinical research to establish novel products; regulatory efforts to align with requirements of regulatory bodies like FDA and bring products to the market. Sales and marketing helps to convey a strong, clear message to patients and physicians-the customers of Novo Nordisk. Financial Perspective Novo Nordisk, a leader in the global diabetic health care has incorporate integrated reporting in its financial reporting. Integrated reporting involves the combination of data for finance, social, and environmental information. The Balanced Scorecard management accounting strategy can help Novo Nordisk use its sustainability agenda, to bring in the right skills, knowledge and tools to translate the sustainability into figures that impact its financial performance. A financial mindset should be applied in the business process. The financial perspective will also ensure the use of the right metrics in a consistent way. Conclusion The case study of Novo Nordisk has enabled the reader to become more aware of a company that is out there devoted in research and innovation to produce products that will take care of your health needs. Diabetic patients and patients needing hormonal replacement therapy are great beneficiaries of the products provided by the leader Novo Nordisk. The company also serves not only on financial dimensions but has great sensitivity to social and environmental issues. After an analysis of the company, its market, and industry, it dawned on me that the ability to give to customers improved drugs with quality and safety as hall mark characteristics are very important for survival of Novo Nordisk. Novo Nordisk also leans on sustainability as a way to show sensitivity to the society and environment in which it operates as well as improves its financial performance. Therefore, the management accounting system that can help the company sustain its strategic approaches is the balanced scorecard which enables it to factor aspects of business process, customers, finance, and learning and growth for better performances. List of References: Ax, C. &Bjørnenak, T. 2007. Management accounting innovations: Origin and diffusion. in Hopper, T., Northcott, D. & Scapens, R. Issues in Management accounting, pp.357-376. London: Prentice Hall. ‘Bloomberg. 2012. http://www.bloomberg.com/quote/NVO:US Lord, Beverley R. 2007. Chapter 7: Strategic Management Accounting in Hopper, Trevor; Northcott, Deryl and Scapens, Robert (Eds.), Issues in management accounting, London: Prentice Hall, pp.135-153. Novo Nordisk. 2011. Annual Report 2011. Accessed October 16th, 2012 from http://www.novonordisk.com.au/media/novo_nordisk_annual_report_2011_en.pdf Novo Nordisk 2012. http://www.novonordisk.com/ Reuters. Novo Nordisk A/S (NVO). 2012. Accessed October 17, 2012 from http://www.reuters.com/finance/stocks/companyProfile?symbol=NVO Michel R., Nicholas, J. & Ashill, J., 2007. "Pharmaceutical marketing return-on-investment: a European perspective", Emerald 1. Nickisch, K., J., Greuel, J., M., Bode-­Greuel, K., M. 2009. How can pharmaceutical biotechnology companies maintain high  profitability? Journal of Commercial Biotechnology, 15 (4), pp. 309-­‐323. Downing, K. 2012, September. Value Line 600 Stock Screen: Dividend Paying Healthcare Companies - September 5, 2012 Accessed from http://www.valueline.com/ Villiger,R.,& Bogdan, B. 2009. Valuation of complex license contracts, Journal of Commercial Biotechnology,15(4), 301-­‐308 Read More