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... and scale Domain SmithKline Beecham was at first oriented at the Human Healthcare and the Animal Healthcare. During the 90 's the international pharmaceutical market penetrated fast, with the help of large mergers on vertical and horizontal aspects. Which markets Which target groups Human Genome Science (HGS); vitamins, minerals and supplements; high throughput screening technology (LJL Biosystems); genomics biotech / bioinformatics; venture capital. governments; doctors; hospitals; pharmacies; c onsumers. Which needs to fulfil Which activities PreventionDiagnosisTreatmentCureDivisions of SB as of 1992 SB Pharmaceuticals; SB Consumer Brands; SB Animal Health; SB Clinical Laboratories; Divisions of SB as of 1996 SB Pharmaceuticals SB Health services SB Consumer Health Care Economies of scale "Streamlining procedures of regulatory approval in different countries. " Scale advantages Trough scale it is possible to reduce cost and gain a bigger margin.
Trough mergers and acquisitions it is possible to gain scale and due to synergy create a larger knowledge base and also reduce cost. The cost reduction is mainly due to the fact that sales forces, R& D and marketing departments can be joint. Another advantage of mergers and acquisitions is the globalisation effect. Now companies can sell there products at both sides of the ocean. Scale disadvantages A disadvantage of scale enlargement is that it will be increasingly difficult to manage. Also there is a big change of a company culture clash.
Globalisation Because of the huge R& D cost associated with developing new drugs and the shorter period in witch this investment has to be earn back, it is imperative for companies to aim for globalisation. This is possible in the medicine and OTC market because drugs work the same on everybody. Because rules and regulations and prescription habits differ from country to country there is a possibility for SB to take in to account those rules and regulations when designing drugs for the OTC and prescription market. Because of SB's presence in the global medicine market it is well positioned to introduce it's OTC versions of medicines. A few companies (3) dominate the healthcare market globally. A few other competitive advantages of globalisation are the larger R& D and marketing budgets.
SB also has more market power due to its global presence. OTC products are sold globally by branding the products. Brands become more and more differentiated. The use of new sales channels and other forms of marketing (for instance DB marketing) also give SB a competitive advantage. Partnerships Pro Con Globalisation Manageability Sales channel Job loss Shared knowledge base New technology Partner of choice Forward integration "Vertical integration into managed care has competitive advantages. " superior information about market conditions; direct access to customers; opportunities to meet patients needs with new products; cartel like behaviour "New vertical relationships have led to accusations of abuse of market power. " Alliances also create advantages: better network (sales, R& D, distribution etc. ); partner of choice. Economies of scope Certain types of drug are particular likely to be successful as a OTC drug.
As mentioned above rules and regulations and prescription habits differ from country to country so SB must be aware of this when designing an OTC drug. More and more of SB's R& D efforts are geared towards the creation of OTC drugs because they believe this will be there future. Inline with this reasoning is the development of new distribution and sales channels such as internet and mail order. Also the greater efforts in direct to consumer marketing are a clear sign of this. Synergy A stated above SB has a clear drive to create synergy trough mergers, acquisitions, partnerships and alliances.
These actions create the need for business integration and restructuring. This in turn will save cost by streamlining the company's infrastructure (inter) nationally. When a merger or a takeover takes place there is a need for a culture change within the "new" company. Synergy creates job loss. 7. Stakeholders (power, drive, legitimate claim) Smithkline Beecham Stakeholder theory Stakeholders Legitimate claimWillingnessPower Smithkline Beecham Shareholders Suppliers++++ Insurance companies Food & Drug administration++ 0 ++ Competitors++ 0 Pharmacies+ 0 + Hospitals+ 0 + Direct customers (OTC) ++ 0 ++ Alliances Mergers Joint venture (HGS, Rite Aid) ++++ Government 00 ++ 8. Organization Smithkline Beecham was formed out of a merger of Smithkline Beckman, an American pharmaceutical firm, and Beecham, a British pharmaceutical firm.
It was the first merge in the pharmaceutical industry of two companies and many followed. Therefore this company ranked fourth on the world pharmaceutical sales ranking and slipped down, when other companies merged as well. The internal reorganisation that followed lead to three integrated businesses, SB Pharmaceuticals, SB Healthcare Services and SB Consumer Healthcare. SB's goals was to globalize the company and sell their products all over the world.
Also a good and strong R& D department was one of the reasons SB merged and alliances with more companies to get a good integrated network. It work on its vertical as well as its horizontal integration network. The total pharmaceutical industry went through a change from a prescription to an OTC (over-the-counter) status, that lead to a lot of changes in the formulation of drugs and a lot of research for the R& D department of the company. Problem statement, solutions and conclusion SB has a relative small market share compared to its competitors. The 10 largest pharmaceutical companies have only a market share of 25 % together, whereas the largest one has a share of not more than 4 %.
One of the problems is also the changing cultures because of the merging companies all with their own culture. This results in a lack of synergy. Another problem is the long approval process, mainly because of the bureaucratic nature of the organisation that approves the medications. The time for the approval is getting shorter, because of new developed techniques of researching the medication.
There is also a short profitable lifetime after the approval period, because of the patent that expires after 20 years. Solution 1 One of the solutions is to change the prescription medication to OTC (over-the-counter) medication. As customers nowadays more easily can find out what kind of disease or problem they have, they know what kind of medication they need and buy these products rather over-the-counter then get a prescription for it. With this information SB might focus more on OTC products, and start a mail-order company for example on the internet or merge with a company, that is working similar to their idea. It is important to use a good marketing strategy to make the sales via the internet known by potential customers. Solution 2 Another solution is to hang on to the idea to merge with Glaxo Wellcome and get a strong and good market share.
Glaxo has one successful product already selling and SB has 4 probably successful products in the pipeline, not selling yet. After the merge with this company, it is important to invest in human resource management to improve the bad synergy between the companies as a result of different internal approaches. Also a result of the merger will be a cost reduction in the development and production of drugs. Solution 3 To invest in its brand awareness is another solution for SB.
Especially in the OTC market margins are low because consumers do not have a special brand preference for their drugs. By invest in communication towards the consumer about advantages of SB drugs over the competition. SB should try to create a reliable and a trustful image so it will receive a premium status. In this case margin will be recovered. SB should use new ways of marketing like database marketing. Conclusions Feasibility Solution 2 is a feasible solution, because the merge conversations already started and will be finished after some issues are clarified.
By an investment in human resource management, there will be a positive culture of the new company, arise from both companies together. SB's strategy of 'designing a winning culture', called Simply Better Way, is regarded as one of the industry models of successfully instilling a culture of change. Economic benefit The value of the merger, what have been the largest in the world in the pharmaceutical industry and would make the combination a number one player in its market. The merger will, combined with investment in HRM, give rise to the benefits of synergy.
The merger will also increase economies of scale, which will reduce cost of development and production of drugs. Competitiveness Due to the number one position in the market the new company will be able to shape the future rather than adopt the future. Also the better and more effective use of the R& D budget will give the new company competitive advantage. So our choice recommendation will be solution two. Visioning and creating future Especially in the pharmaceutical industry there is a lot of uncertainty. However, pharmaceutical companies can anticipate actively towards the market.
So, we can conclude that the basic level of uncertainty is ' Currently unknown, but knowable information', which means that pharmaceutical companies can analyze the market and try to fulfill the found needs of customers. The residual uncertainty that SB is facing can be seen at the level of Alternate futures. In the pharmaceutical branch there are a lot of determining factors, such as R& D capital, amount of people that suffer from a disease, the influence of the government, the patents, etc. , but the two factors that determine the uncertainty mostly are the research results and the medicine price. SB's posture depends on the different area's within the branch. For SB invests lots of capital in the gen-technology and can be seen as playing a leadership role, its' posture is 'shape the future', but as it also follows the market to fulfill the customers needs by capturing opportunities and being flexible, its posture is 'adapt to the future'. Also can be said that SB never that the position of 'reserve the right to play'.
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