An analysis of the pharmaceutical industry


Previous market leaders like Gerard Le Fur ran the French pharmaceutical company, Sanofi Aventis within an inflexible manner with tactical decisions being manufactured in adherence to the traditional culture of the company. However, as the effectiveness of this strategy seems to be declining, a fresh addition by the name of Viehbacher could be regarded as the changing drive in the company as he strives to promote flexibility and adaptability to the ever before changing environment through the campaign of international strategies, joining of emerging market segments and restructuring of the business's R&D model which seemed to impede the firm's effective responsiveness to the environment.

Industry Analysis

An evaluation of the pharmaceutical industry would have helped SA to find its current proper position with regards to its rivals and helps the company to decide how and where to make strategic changes. As described by Huff (1982), the industry tends to have a sizable effect on the formulating and restructuring of strategy. Environmental analysis, such as that provided by an evaluation of Michael Porter's (1980) five pushes, is used to find out SA's opportunities and hazards and therefore directs the business towards strategies possibly available to the organization (appendix).

PESTEL evaluation explains how evolving technology power pharmaceutical industry players to change swiftly to the evolving environments. Each pharmaceutical company aims at using the most advanced technology for R&D to benefit from the competitive advantages achieved from being the first to have the patent. This emphasises how strong the competitive rivalry is in the industry hence being one of the strongest forces. Mega mergers on the market were on a growth and these created strong competition as, two companies merging creates a company which includes many opportunities to spend less and create a variety of drugs.

In addition to the, generics which become substitutes for the products pose some hazard to industry players. Although this alternative electric power may be low consequently of patent safety, it increases as time passes as the patent of the product gets to its expiration particular date. In addition to this the recent campaign of a healthy lifestyle has induced many consumers to opt for natural alternatives hence posing threats to the income of existing companies.

Furthermore the buyer power is another strong pressure as it was increasing. The customers in this industry include patients, private hospitals and pharmacies. The large number of buyers and the advanced of competition between them explains why buyer power is relatively low. However, the pharmaceutical industry will contain a great deal of players and hence, buyers have the ability to choose among many similar undifferentiated products, increasing their electricity as switching costs are low.

The threat of entry affects the profitability of the industry. Medication R&D is an expensive and a time consuming process in conditions of scientific time and the need to invest in large financial resources in order to contend, creates a higher barrier to entrance. In addition to this, the lifestyle of patent privileges which protect product know-how are not replicable and are seen as a barrier to entry. Linking this to PESTEL research, the patents (legal factors) is seen as key factors that impact the industry as this is a major form of cover from potential threats.

The weakest makes on the market are those of dealer power as many pharmaceutical companies acquired their own developing crops. Furthermore, in terms of PESTEL examination, the economical factors such as increasing economic progress rates which contributes to an increase in demand for health care in emerging marketplaces, can be seen to have an impact on the strategy carried out. In addition to this the slowing down of progress in the expanding countries has led to saturation in those market segments.

This environmental evaluation is useful in figuring out the opportunities and threats in the environment which will impact on the strategy SA implements. In conditions of SA, the risks realised were with regards to their patents that have been due to expire by the year 2013. Their remaining drugs were at a threat of being substituted by generics and few product launches provided competitors an possibility to overtake them. In addition to this opponents were becoming stronger as they merged with other companies to generate large cost slicing companies which produced large numbers of drugs. Lastly, the increasing buyer ability saw the necessity for a change from the 'blockbuster model' to the creation of products that satisfied customers needs to be able to identify their products of their competition and increase turning costs. Around the other hand, the increasing monetary growth in appearing marketplaces provided opportunities for SA to increase their market by fulfilling the unmet needs of the clients in these markets. The industry examination has verified the need for creating a defendable position over time and outperforming its competitors.

Internal Strategic Examination

Porter's (1980) Composition Conduct and Performance model emphasises how the firm sometimes appears as a dark-colored box whose interior procedures are of little interest because the link between them and performance is not important. However, Barney (1991) believes that the firm's inside operations are important to the performance of the company. An internal research is important when formulating a strategy as factors including the competencies and resources available, fulfillment of stakeholders passions and interior culture of the firm will affect the decision of strategy available to the company and the implementation of the strategy.

Within its inside evaluation, SA need to analyse its competencies and resources as the strategic capability to addresses the challenges in the surroundings depends upon these (Johnson et al. , 2008). It is because the conception and execution of strategies utilizes various solid resources (Wernerfelt, 1984). The industry research has emphasised that threshold degrees of capabilities (minimum amount levels necessary to contend), change as 'critical success factors' change or through the actions of competitiors or new entrants. Therefore SA need to reconfigure their functions with the change in environment to triumph over the threats seen in the industry research (above). For instance, SA's R&D model may have worked in the past however in current times as the client needs change and value is perceived as important, the R&D model needs to adjust to these changes to add value with their drugs.

In order to adjust to the changing environment, SA needed to change the inner culture of the company. It is because the effectiveness of any proper decision taken will be afflicted by way of a company's interior culture. The changing environment called for an alteration in SA's culture as they needed to move out of the traditional mindset to create a culture which could adjust easily to the new environmental conditions. Schein's (1968) three levels of culture model perhaps points out that the rigid and traditional culture of SA is linked to the deepest level ; the fundamental assumptions of the company. Past market leaders have attempted to maintain this culture and therefore any strategy executed is based around these past assumptions, a term often referred to as strategic drift. This sort of leadership is exactly what led to the inability to keep tempo using its changing environment. To go out of the notion of tactical drift, it was realised that there has to be an attempt to improve the power set ups of the company. Kleiner (2003) expresses that "one way of changing the culture of the company is by changing the prominent group of the organisation, the energy buildings- the group who really matters. " Sanofi Aventis by attracting Viehbacher has targeted at changing the key power framework. He subsequently has changed the organisational structure of the company by means of reorganising the most notable management team and those involved in R&D directly into customer focused groups, in order to improve the ethnic paradigm of the company (See appendix). Cultural change has its benefits to strategy however, its major downside is the amount of resistance from within the company evident in Sanofi as the chairman remained absent at the newly introduced british press conferences (Johnson, 1992).

Resistance like this is always predicted however cannot be ignored as SA needs to take in to bank account the interests of all the stakeholders when formulating future strategies. Blair (1999) stresses the necessity to use strategies that are consistent with pursuing the interests of the important stakeholders. SA's stakeholder map has improved as their customer-base is becoming more diverse and now includes new market sections. Furthermore the inner stakeholders have also evolved as partnerships with other entities, companies and corporations have become hence the strategy used needs be able to fulfill almost all their interests. In the past, SA does not seem to have done this asinvestors reduced their stake in the company as their needs was not met yet, in fulfilling the customers (external stakeholders) needs and creating profits for shareholders, SA will be rewarding the traders (interior stakeholders) needs in turn. Therefore, the strategy applied must be a bargain between all stakeholders.

New tactical direction

SA, in going after strategies that fulfill the interests of the stakeholders, specifically their customers, will try to develop strategies good needs and needs of different market segments (Kotler, 1976). Over a business product level, using Bowman's strategy clock (appendix) SA can understand the varying requirements of these current marketplaces and the emerging markets they plan to venture in to and hence understand the choices they have to make about placement and competitive edge. Alternatively the current marketplaces SA managed in, saw the need for differentiation as the customers recognized value as important. Furthermore SA aimed at keeping costs low hence deciding on a 'hybrid' strategy. This option of increasing value while reinvesting in keeping their prices low and minimising costs will increase their market talk about hence obtaining competitive advantages.

The strategy clock permits the potential to employ a combination of both strategies however Porter's (1980) common forces, based on environment analysis, promises that we now have only two possible strategies: cost leadership and differentiation, that can be undertaken by a company in order to attain competitive advantages (Appendix). He emphasises however, that both cannot be used together to become economically successful. Moreover, he stresses that "achieving cost leadership and differentiation are usually inconsistent, because differentiation is usually costly" (Porter, 1985). Critiquing this are authors like Peters and Austin (1985) who dispute that "despite pursuing differentiation, most sectors seem to provide opportunities to exploit economies of range or cost lowering opportunities at some point in their value string". Furthermore, it's quite common for firms to acquire similar minimum-cost set ups. Among such companies, those that successfully focus on both low costs and differentiation will be rewarded by superior economic performance (Hill, 1988). SA's tactical position is exactly what Porter would have defined as being 'caught in the middle' as, the business attempts to identify in conditions of the merchandise and markets they serve and at the same time keep costs to a minimum. The industry five makes analysis has led SA to appreciate that in order to save themselves from competition from general substitutes and keep up with their competitive competitors in a speedily changing environment, they have to produce differentiated products of value. This has therefore led SA to go away from the blockbuster style of mass development and concentrate on business healthcare segments such as vaccines, consumer health, generics and biologics.

Value (and cost) string analysis is critical when restructuring their production models to either produce goods with an increase of value or minimise costs. When wanting to add value through differentiation, SA analysed its R&D model and scrapped any tasks which were not of value. Furthermore, external partnerships were created with biotech companies, academic institutions and private companies to provide an alternative source of innovative technology. Furthermore, these partnerships for example, the main one with BiPar allowed them usage of drugs which had recently been through a number of studies hence lowering lead times and therefore costs. Further research of the worthiness chain showed other areas such as marketing and sales(appendix) which could do with a reduction, which resulted in Viebacher cutting 10% off this activity.

At a corporate and business level the PESTEL evaluation of the strategic environment identifies monetary growth in emerging market segments as an monetary factor influencing SA's strategy. Therefore, SA opt to use a global strategy in order to fuel profits and take benefit of this expansion that international marketplaces had to offer. This also results from saturation in the current market segments that SA operate in. Capitalising on the first mover advantages and leadership position that the firm currently have got in emerging markets is an effective strategic direction to follow. SA intend to produce new drugs to new marketplaces such as India and China which is a form of diversification as seen in Ansoff's (1957) product- market expansion matrix (Appendix). To be able to outperform their competition, SA aimed to create drugs that achieved the critical success factors of the rising markets. For instance, producing cheaper general drugs in growing markets will be respected by customers who've less money. SA dealt with the issues of joining new emerging markets by deciding on bolt on acquisitions of local firms in these markets as a setting of access. At a countrywide level, SA aimed at producing new goods of value to the existing customers. This form of product development is also defined in Ansoff's matrix (Appendix) as a proper direction to take.

Viehbacher's new strategy serves as a an supposed (prepared) strategy (Mintzberg and Waters, 1985); whereby the strategy, being a set of targets intend to be achieved through formal control under the perspective of a strategic leader (appendix). -PG 400 Viehbacher got into the business with a couple of intended strategies at heart and it was his job as the sole innovator of strategy in SA to restructure the company in order to accomplish them. In proper terms, this is referred to as strategy leadership as design.


An analysis of the environment in which SA was working demonstrated the increasing durability of their competition and the increasing threat of generic substitutes as their patents were shutting in on the expiration dates. The necessity to change their proper course was critical, at this time, to stay competitive on the market. SA needed to analyse interior factors that influenced their future strategy as well as the environment. Viehbacher's strategy included the exploitation with their leadership position in appearing markets, in addition to the reorganisation of the R&D model which marketed a customer orientated differentiation strategy while minimising costs. The success of the strategies is seen by the increase in sales and the 9. 8% gain in stocks between your years 2008 and 2009.

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