You are required to focus on a specific Transnational Corporation (TNC). The organization could be selected from those comprising the latest ‘Fortune 500’, ‘Business Week Global 1000’. Note that the choice of a specific organization should be discussed with your lecturer.
You will need to conduct a detailed research assessment of the chosen organization with respect to its business activities in order to understand the strategies specific to that organization.
For example, you could look at:
Siemens, the German electrical engineering and electronics company United Parcel Services
Before starting your assignment, you should ensure that the company you are researching provides you with information you need.
In your chosen company, identify the mission; vision; strategic intent; objectives; goal; core competencies; strategic architecture; strategic control; strategic thinking: future direction of the competition; needs of customers; gaining and maintaining competitive advantage; Ansoff’s growth-vector matrix; portfolio analysis
Based on a report conducted by a pharmaceutical magazine, Glaxosmithkline plc (Also known as GSK) is the fifth largest pharmaceutical company around the world (Contract Pharma, 2013). And it is also tided at No.112 on the 2013’s Global 2000 list, the list that manifests the 2000 most enormous companies in the world (Forbes, 2013). The researches above have indicated that GSK is one of the largest Transnational Corporation in the world.
Top 10 Pharmaceutical Companies based on 2012 pharma revenues (Contract Pharma, 2013)
Johnson & Johnson
Eli Lilly & Co
Note: In all Top Company profiles, dollar amounts are in millions.
During this assignment, we will focus on GSK current strategic architecture, and analyzing the involved issues for strategic thinking in order to understand the process of strategic planning.
Profile of Glaxosmithkline
Glaxosmithkline is a UK based Multinational pharmaceutical company, established in 2001 following the merger of GlaxoWellcome plc and SmithKline Beecham plc. As a large multinational corporation, Glaxosmithkline might seems that it just ran its operation for a short period of time, but its pharmaceutical history can go back much further than that. According to the official investor relation website of Glaxosmithkline, its pharmaceutical history can go back to 1700s. Glaxosmithkline’s broad experience in pharmaceutical industry successfully facilitate it become one of the best in the industry.
Up to 2013, Glaxosmithkline has a significant global presence with commercial operations in more than 150 countries, a network of 86 manufacturing sites in 36 countries and large R&D centers in the UK, USA, Spain, Belgium and China (GSK, 2013).
Strategic Architecture of Glaxosmithkline
The common proposition in strategic management is to co-align the strategy with the environment. The strategic architecture is a mechanism how corporation allocate and coordinate its resources, and shape its organizational structure to meet strategic objectives in order to co-align the strategy with the environment.
In order to simplify the complexity, strategic architecture can be generally attributed into three hierarchical levels: Corporate Level, Business Units Level and Functional Level.
Generally, the major issue in corporate level of strategy is to determine where the business should be fitted in. To do so, the involved tasks should include identifying the overall goal within the company, the types of businesses in which the corporation should be involved, and the way in which businesses will be integrated and managed.
“ Help people do more, feel better, live longer ” is the ultimate vision of Glaxosmithkline, it drives the corporation to put a high level of effort in developing innovative medicines and products and make them available to as many people who need them as possible.
The value of GSK, inspired by their vision, is to put patient-focus, transparency, integrity and respect for people at the heart of every decision-making. GSK is focused on integrating these values into its culture, decision-making and the way it works. The corporation keeps continue to review and challenge its practices to ensure that its actions meet or exceed the expectations of society.
Business Units Level
In conclusion, the concern of business units level of strategy is focused on tactics to beat the competition. The strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced.
There are three target areas on which GSK has highly focused their resources. Including Pharmaceuticals Market, Vaccines Market and Consumer Healthcare Market.
During 2013, GSK gained 67% of group turnover in Pharmaceuticals Market; 13% in Vaccines Market and 20% in Consumer Healthcare Market (GSK, 2013).
The company is currently focusing on three strategic priorities. In order to increase growth, reduce risk and improve long-term financial performance, these are the priorities that Glaxosmithkline decided to achieve. Including:
– Grow a Diversified Global Business
Glaxosmithkline has been creating a more balanced business and product portfolio, capable of delivering sustainable sales growth. During 2013, GSK has gain a group turnover in £26.5 billion and 39% of this is centered on its three business areas (GSK, 2013). With reference to GSK website, the company intends to grow a diversified global business.
In order to achieve this objective, there are several strategic priorities have been set. Firstly, GSK is seeking for a successful launch and commercialization of new products from its pipeline. Secondly, the company decided to continue investing in key growth businesses including Emerging Markets, Vaccines and Consumer Healthcare. Finally, GSK is looking for further opportunities to increase focus and optimize value of its product portfolio.
– Deliver More Products of Value
GSK has been changing their R&D organization in order to sustain a pipeline of product that can offer valuable improvement in treatment for patient and healthcare provider.
The objective of this priority is primary underpinned by consistently focus on increasing R&D rate of return.
During 2013, GSK has been issued 6 significant new product approvals and put 40 medicines in clinical trial phase ii/ iii development, the phase for well initial developed medicines to be further clinical tested by the large amount of people. This achievement of GSK is encouraging enough while the pharmaceuticals industry is facing a productivity crisis (Scannell et al., 2012).
– Simplify the Operating Model
In order to meet the transformation of pharmaceuticals industry, GSK decided to shape their operating model to reduce complexity and enhance working efficiency. By doing so, GSK will be allowed to free up resources to reinvest elsewhere in business.
This implementation has successfully brought the company £400 million incremental savings and 10 working capital days improvement in 2013, which indicates itself can significantly influence the managerial efficiency (GSK, 2013).
The strategic issue that mainly concerned in functional level is how to operate division and department. This related to allocate resources in order to meet corporate level and business units concern.
The chart above has shown the structure of Corporate Responsibility Committee (CRC), the department of GSK made to ensure the approach taken on corporate responsibility is appropriate. It demonstrates the approach of how GSK shape the structure of CRC to meet the corporate responsibility requirement in functional level planning.
Strategic Thinking for Glaxosmithkline
The issues within strategic thinking aspect are point to the future direction of corporation’s decision. It is all about how to gain superior competitive advantages in the industry at which the corporation is standing. A successful strategic planning should align the strategies with environment. In order to plan the next move, the strategy planner should understand the current situation, including the external and internal environment, and the resources of the corporation in the first place. In this case, GSK current situation can be analyzed in detail by SWOT analysis
GSK has the strong sales pipeline and distinctive marketing infrastructure within the industry. Its commercial operations in more than 150 countries, a network of 86 manufacturing sites in 36 countries and large R&D centers in the UK, USA, Spain, Belgium and China. According to a research, GSK products are most accessible to public in the pharmaceutical industry (Access to Medicine Index, 2012).
GSK also has the industry-leading R&D team. GSK spends £8 million on research and development each day, around more than £300,000 every hour. 15,000 scientists work in its research team to discover new medicines and GSK screens 65 million compounds every year through cutting-edge technologies. (GSK, 2007).
● During 2009, GSK has been convicted of felony-fraud owing to its defective drugs. GSK admitted that it distributed “adulterated drugs Paxil antidepressants; Avandamet, a diabetes drug; Kytril, a drug given to cancer patients; and Bactroban antibacterial ointment.” and $750 million worth products have been seized due to the charge (Lane, 2011). This allegation has also raised safety concern to GSK quality control.
● GSK has involved in several bribery investigation around the globe. During 2013, Chinese Ministry of Public Security announced that they were investigating GSK for bribery and tax-related violations. And recently in 2014, GSK had been suspected in paying bribes to promote drugs in Poland between 2010 and 2012 (BBC, 2013, 2014). Despite there are no evidences found and no charges convicted, the reputation of GSK is negative to public by these allegation.
● The good news for pharmaceutical industry is that the global market for whom they stand still in a steady growth. The World Health Organization (WHO, 2014) state that the current global pharmaceuticals market is worth US$300 billion a year, and estimated to be US$400 billion worth within three years. This growth of the market will provide the space for business extension within the industry.
● Emerge market is a hot topic in pharmaceutical market nowadays. With reference to a research conducted by a business consultation company, Booz & Company (Buente et al, 2013), 52% of interviewed pharmaceutical executives expect more than 30% of their global sales to originate in emerging markets by 2018. And the research also showed that during 2011, the sales of US$191 billion generated by emerge market had taken 20% of global volume, and it was anticipated to be 30% in 2016. This mirrors the future competition in pharmaceutical industry will highly focus on the emerge market like BRICS (Brazil, Russia, India, China and South Africa).
There is a phenomenon occur in the pharmaceutical industry called “Eroom’s Law”. It is used to describe the down-going tendency of productivity in pharmaceutical industry. The researchers believe there are roughly four main reasons that caused the result: the mature in drug invention; the strict regulation in drug approval; the trend of cutting investment in R&D and the wrong idea of R&D methodology in modern pharmaceutical industry (Scannell et al., 2012).
The SWOT analysis has show the situation at which the GSK is facing. To further formulate the strategies that pinpoint the future direction of competition, the Ansoff’s growth-vector matrix can be adopted to evaluate the action that should taken by GSK.
Ansoff’s growth-vector matrix analysis
Professor Ansoff (1957) first proposed the well-known Ansoff matrix in his article for Harvard Business Review. This matrix aligns the market factor and the product factor together in order to integrate the suitable strategy for certain situation.
The table above has given the concrete idea of Ansoff matrix. There are four strategic measures align to different circumstances, including Market Penetration, Product Development, Market Development, and Diversification.
Market Penetration strategy often used by the companies wanted to increase sales without drifting from the original-product market strategy (Ansoff, 1957). Generally, there are three action can be taken to penetrate a existing market: by gaining competitors customers; improving the product quality or level of service; attracting non-users of the products or convincing current customers to use more of the company’s product, with the use of marketing communications tools like advertising etc. (Ansoff, 1989, Lynch, 2003).
Product Development strategy occurs when company develop a new product to catering the current market. The reasons that justify the use of this strategy include one or more of the following: to utilize of excess production capacity, counter competitive entry, maintain the company’s reputation as a product innovator, exploit new technology, and to protect overall market share (Lynch, 2003).
Market Development strategy moves beyond its immediate customer base towards attracting new customers for its existing products. This may entail exploration of new segments of a market, new uses for the company’s products and services, or new geographical areas in order to entice new customers (Lynch, 2003).
Diversification strategy moves out of its current products and markets into new areas. Related diversification may be in the form of backward, forward, and horizontal integration. Backward integration takes place when the company extends its activities towards its inputs such as suppliers of raw materials etc. in the same business. Forward integration differs from backward integration, in that the company extends its activities towards its outputs such as distribution etc. in the same business. Horizontal integration takes place when a company moves into businesses that are related to its existing activities (Lynch, 2003; Macmillan et al, 2000).
Based on the SWOT analysis, the actions that GSK can take in future are probably the Market Penetration and Market Development strategy.
The SWOT analysis shows that the emerging market will be one of the important arenas within the pharmaceutical industry in no longer future. As a consequence of growing prosperity and better nutrition, disease patterns in emerging markets are rapidly changing and shifting toward “lifestyle” diseases that are more common in mature markets (Buente et al, 2013). That opens up the new market for existing products, and it might be a promising breakthrough of current situation in pharmaceutical market. Currently, GSK seems to acknowledge the importance of emerge market and starting to step into it. In 2010, GSK established Developing Countries and Market Access operating unit toward the least developed countries in Sub-Saharan Africa (GSK, 2013). The main issues that GSK should focused on are how to package their existing product to suit the need of emerge market consumer with the right set of market development strategies.
Although emerge markets are growing rapidly, the current markets like the developed countries are still the main focus in global pharmaceutical market. It is predicted that North and South America, Europe and Japan will continue to account for a full 85% of the global pharmaceuticals market well into the 21st century (WHO, 2014). Owing to the tremendous worth of the existed market, GSK would not give it up so easily. GSK should still keep penetrate the market into to seize its current market leading position.
The reason that it is not recommended to take Product Development strategy is due to the Eroom’s law, the phenomenon of progressive productivity decline in pharmaceutical industry (Scannell et al., 2012). The result is attributed to manifold complex reasons, of course, as the enormous market-leading corporation like GSK might have the resources and capacity to against this law by putting effort in increasing productivity of new product development, but it would cost a lot of resources and in the high risk of failure. That is not admirable and no suit for strategic thinking principle: to align strategies with environment.
The Diversification strategy might seem practicable in extending operation segment in pharmaceutical market, but notice that the core concern in pharmaceutical industry focuses on allocating the majority of its resources to the process of drug discovery, whilst processes such as manufacturing, marketing, and logistics are very much complementary (Halliday et al, 1997). Although the difficulties in drug discovery drives GSK to think of commercializing its product as stated on its strategic priorities (GSK, 2013), GSK should not diversify their business into unrelated areas, since they are mostly complementary to significantly improve general business performance.
Conclusion of Strategic Architecture and Strategic Thinking within Glaxosmithkline
GSK has the well structured and clarify strategic architecture within the organization, and that is one of the essential components to become the successful company. Most importantly, GSK can accurately form its strategic architecture to suit the global business environment, and that suit the strategic thinking principles very well.
The current pharmaceutical market is mature and developed, and facing productivity decline period. In order to continuously generate revenues from pharmaceutical market, GSK should seizes its competitive advantage and looking for the opportunity to breakthrough. As emerge market keep rapidly growing, it probably will be the promising way for GSK to outstand the circumstances.
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