Value of IT to Richter Pharmaceuticals - Case Study Example

The Richter Case Study of the of the The Richter Case Study Introduction The case of Richters Pharmaceuticals gives an interesting insight into the operations, marketing, sales, distribution and Information Technology aspects of the international pharmaceuticals industry. As a company expands, it becomes more and more complex in its operating and reporting structure and this is what has undoubtedly happened to Richter as well. From its modest beginnings in 1901 as a pharmacy in Budapest, Richter really took off owing to the enterprising spirit and skills of its founder and was able to expand phenomenally right up to the end of the Second World War in 1945. The subsequent change in the political landscape meant that Richter’s market was largely restricted to the countries behind the Iron Curtain and it was only with the breakup of Russia into the newly created CIS states that it has been able to extend its reach to the Western nations and indeed, the rest of the world. Richter has been known for its work in the areas of oral contraception, cerebral oxygenation enhancers and products dealing with schizophrenia. Its success in creating generic drugs as well as APIs for other generic companies has enabled it to expand operations and production, storage and distribution facilities in Poland and Russia. However, the expansion has been putting increasing demands and pressures on the available IT infrastructure, IT support and IT project development teams as well as the direct reports for the affiliate businesses. The company’s CIO, Vince Szucs is faced with bringing up the need for changes in the customary June meeting with senior management that addresses the IT plan and budget for the year. At the same time, the CIO is concerned that the changes should not result in the cost of IT exceeding 1.5 percent of sales for the company. Of course all decisions for the IT plan and initiatives should be considered in the context of the firms strategy, technological infrastructure and existing business systems such as the SAP R/3 modules already implemented in the company. Value of IT to Richter The IT plans to be presented and initiatives that need to be considered by the CIO and senior management will undoubtedly depend on the value that the company attaches to its present MIS under SAP/R3. Any budgeting process in a large organization like Richter would be a selling and negotiation process for resource allocations from the budget that was created out of sales and profits. In any large organization, departments usually compete for resources on the basis of their performance and established needs. It is up to the CIO Vince Szucs to convince the senior management as to the added value the planned initiatives would bring and the need to approve of the cost of these programs. As outlined in the case study, on the point of meeting with the senior management, Vince Szucs is most clearly concerned with whether (a) the current IT structure meets the growing demands of this ever expanding organization and (b) whether or not the IT affiliates should be centrally controlled from the head office of the company. Regarding the value and contributions that Vince and IT has made to the organization like Richter, it is quite evident from the case that he has transformed the MIS and raised the level of knowledge and efficiency of the firm through changes in the hardware, software and systems development initiatives. For example, the storage processes had been created on a Commodore 64 and besides the PCs and laptops that were needed in most laboratory and administrative divisions, there was no concept of networking, LANs and ERP before Vince Szucs entered the firm in 2003. The company was still depending on Excel spreadsheets to manage its financial reporting and MIS requirements. Thus the infrastructure present at the firm was totally out of sync with what would be needed and was most probably in place at other organizations of competing size and complexity in the pharmaceutical industry. Commenting on the traditional ways in which any organization of repute would measure and report the contributions of IT in their firm’s operational setup, it is commonly seen that (i) they have clearly defined strategies and the role played by IT; (ii) they measure and manage the amount they spend on IT and the value they receive; (iii) they design governance practices to maximize benefit from IT; and (iv) they learn from each IT project and get better over time. Vince would do well to use this outline in planning his annual IT budget presentation to Richter’s senior management. Governance Styles in Use at Richter Coming to the all important matter of governance styles at Richter, we see that the firm has three important foreign affiliates in Russia, Romania and Poland besides its Hungarian operations, and this has also necessitated that Richter deal with three very different entities. It is an established fact that the Romanian, Russian and Polish franchises are important contributors to the overall business in terms of both sales and profits. In fact the Russian operation contributed more to the sales and revenues of Richter in 2006 than its counterpart in Poland and Romania, with growth percentages of 117.6 percent, 9.8 percent and 19.2 percent respectively (Mitchell et al, p 18). Since Richter also has collaborations and affiliations in Germany and India, the governance structures, cultures and operations of these countries may also have to be considered in the long term. Looking first at Germany, Poland and Romania, these are traditionally Eastern bloc nations with a Communist history and thus the people and operations here would have been used to the bureaucratic red tape and collective decision making that is the norm in these setups. It would thus take a little time and effort to have these personnel and systems converted to the modern MIS mechanisms so vastly in use in Western and democratized nations. The need to think out of the box both individually and as a team needs to be emphasized. It is very much the need of the hour that a centralized system needs to be considered for the Eastern bloc nations. However India presents another challenge as it is further away. Of course one can also take advantage of the IT expertise that India, especially Bangalore can provide, but cost and speed considerations, as well as incorporation into the current SAP/R3 MIS need to be considered. It is not necessary that the cost of implementation of new systems and procedures be restricted to just 1.5 percent of the total sales for the year, and by restricting himself to this self imposed constraint, the CIO is making it difficult on himself to free his mind and thoughts about what really needs to be implemented in the current scenario. In fact he should concentrate on the best improvements possible, and think long term-at least two or three years down the line. If the changes made really address the needs of the firm, then they will contribute to the sales and profits and senior management should be able to see this as well. Action Plan for Richter and Szucs In the light of all the circumstances presented in the case, I would recommend the following as the main elements of the IT action plan for the year to be presented by the CIO Vince Szucs to the senior management of Richter Pharmaceuticals: 1. The cost of implementing suitable additional modules of the SAP/R3 ERP must be considered. The Russian operations have been repeatedly asking for this to be implemented at their end. Even India and its sales representatives have not been included in the present SAP coverage. Given that this arm of the business has shown the most growth in 2006, some degree of consideration is merited here. Both the Russian and Indian operations have no SAP implementation, and Richter is relying on their local systems and good faith as to the accuracy and timeliness of reporting methods and programs. 2. Regarding whether a mainframe solution is warranted, I would say that at present it is too expensive to implement. Besides SAP/R3 is not cheap either, and Richter’s IT have yet to make full use of the ERP in all its modules. Since the system has already been implemented in the organization, it would be simpler to make use of the remaining or present modules as requited to make full use of the ERP solution. There are also reporting methods to integrate results of operations etc. in SAP/R3 and Richter should be able to take full advantage of these features through its IT department and personnel. 3. Concerning the issue of the IT staff and their dispersion across the business, I believe that the present organizational setup is efficient enough to meet the current needs of Richter. However I would recommend that the 10 executives connected with the international operations be given additional powers to make decisions and recommendations in the light of their proximity and better understanding of the needs of the diversified operations of the business. Does the Current IT Structure Meet the Growing Demands of the Organization? This has been identified as one of the key elements to be addressed in Vince’s upcoming meeting with Richter’s senior management. There is at the moment no previous precedent or instance of major failure on the part of IT operations, infrastructure, technical or software program development and the present processes and procedures have been addressing the business needs to date. However it is clear that the CIO feels that the present IT structure is inadequate for the business in view of its expansion. On his part Vince has been working with IT staff on initiatives such as IP phones, VOIP integration and computerization of inventory at all storage locations. This is not enough as the company continues to expand and grow its operations, distribution outlets, manufacturing and other facilities. For instance as Vince has already commented, the total IT staff comprises of 50 persons and this has been the status quo for the last so many years. Meanwhile the total other staff have been increasing all across the organization as well at the need for further IT implementation and integration of available systems at all business locations. For example the process of documentation in regard to registering a patent for a drug requires a whole lot of documentation as well as search capacities and this in itself is proving difficult to maintain and categorize (Mitchell et al, p 11). Should IT Affiliates Be Centrally Controlled? Regarding the question of whether or not the IT affiliates should be centrally controlled, I have already mentioned above that I feel that there is a need for more power and leeway be given to the ten IT executives comprising the international staff for Richter’s foreign affiliate businesses. Rather if we are to follow the thinking of senior management, I would see that there is a matrix reporting structure whereby the international IT executives were themselves functionally responsible for the overall running of the businesses in their respective locations and could be held accountable for holdups due to hardware, software or programming development modules. However they would also have a direct reporting line to Vince as the CIO for Richter. These IT executives would make the decisions in the light of the realities on the ground and Vince would not have to bother except with problems of integration across the organization (Mitchell et al, p 12). Conclusion We have seen from the Richter case study how the expansion of the pharmaceutical business has made demands on IT infrastructure and technology and how the company is taking actions that blend and integrate the needs of the entire organization at its various locations all over the world. Hopefully Vince will be able to convince the senior management of his plans and secure the required funding to implement them as well. References Mitchell, J.; Drotos, G.; Incze, E. & Vas, G. Richter: Information Technology at Hungary’s Largest Pharma. Richard Ivey School of Business, Ontario, Canada 2007. Read More