Contemporary Development in Business and Management: Case of Glaxo Smith Kline

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Table of Contents

Introduction
Case of Glaxo Smith Kline
References

Introduction

PESTLE analysis focuses on political, economic, sociological, technological, legal and environmental factors that may impinge upon the existence and performance of an organization. As an organization grows in size and scale it is generally observed that it reaps economies of scale and improves its bottom line. In fact, some organizations resorted to growth option with the sole objective of reaping such economies of scale. In the case of pharma majors like the Glaxo Smith Kline, all such factors come into play; however, the major and core factor is elated to the core realities of the pharmaceutical trade. This relates to technological and legal aspects and it is the R&D activities of the company. An exception to the principle of economies of scale has been presented recently in the R&D activities of large-sized pharmaceutical companies where a large and growing size did not result in economies of scale and forced the concerned corporates to restructure their R&D operations.

Case of Glaxo Smith Kline

Glaxo Smith Kline is a pharmaceutical major which has operations worldwide through its network of franchisees and collaborations. It has political and legal factors affecting its working as it has to seek permissions and approvals to set up its operations and to seek patents in varying jurisdictions. The sociological factors work directly into the day to day operations of the pharma giant as it affects the lives of people which it employs directly or indirectly as well the lives of patients who get treated through its drug formulations. (GSK) has the strongest pipeline in the pharmaceutical industry the globe over. Needless to emphasize that this employment generation, GSK sales in each jurisdiction contribute to the economies of the respective jurisdictions as well. In order to widen its socio-economic and political sphere of influence, GSK has pursued since the 1980s a strategy of vertical integration of its operations. This strategy instead of focusing on one particular segment of the value chain focus instead on expanding the span of operations within the value chain by merger amalgamations, collaborations, acquisitions and tie-ups for manufacturing, distribution and R&D. Technological and legal issues come to the forefront when the most important constrain to GSK expansion i.e. its R&D activities are examined. This R&D pipeline is achieved when out of millions of compounds screened about 250 make it to pre-clinical testing, 10 make it to clinical testing and only one gets approved for patient use. With these astronomical trial efforts involved, R&D activity needs to be brisk and fast at all stages to keep the pipeline growing. GSK’s recent robust performance is threatened substantially by this very patent and pipeline uncertainties. Therefore the period 2004-06 will require the company to devise methods to emerge out of these uncertainties as competition mounts pressure throughout this period. In order to resolve its diseconomies of scale on formal innovation(each commercially released drug is equivalent to an innovation), GSK has restructured the company’s R&D functions into strategic business units, styled Centre of Excellence for Drug Discovery(CEDD), breaking from an organic and holistic structure in order to hasten the process of innovation. GSK appears to be attempting to keep its pipeline filled via this method.GSK followed this restructuring with another round when it introduced Medicine Development centres (MDCs). The main task of MDCs is to streamline decision making and maximize the global development opportunities for each product. The MDCs are responsible for product development from the concept stage to the manufacturing and marketing stages.MDCs enter into collaborations with CEDDs at an early stage thus integrating R&D, manufacturing and marketing functions. Because of the smaller scale of these units, the decision layers in each activity has not only been reduced but has also become transparent and accountable. Intra organization communication is now specialized in competence functions and thus is quick and decisive. A growing pipeline is an indication that this flatter organizational structure is yielding positive results for GSK.

Galbraith has stated that there is no standard and best way to organize, and no structure that fits all the requirements of all organizations (Galbraith, 1977). This presents managers and changes agents with a unique problem viz. to tailor-make an organizational structure to suit the specific need of a particular organization taking the overall context of the organization into account. “Traditionally, large-sized pharmaceutical companies had separate functional units for each stage of the product development (including R&D) and marketing process. It is time that the industry drew inspiration from companies such as Dell and General Electric to assess the possibilities of organization models based on distinct strategic business units. These companies have improved their profitability by pushing responsibility for profits down to such smaller business units. This implies theoretically that companies have moved from a functional to an integrated business organization model. These business units could be organized around in an integrated manner based on therapeutic, customer or scientific areas of focus, resulting in closer coordination, control and faster decision-making. Integrated business units would also ensure P&L accountability, and put in place new metrics that shift the focus from overall product revenues to business-area profitability, return on investment and functional productivity”(Rebuild 2003). GSK seems to be riding its PESTLE factors comfortably along the lines of the above accepted theoretical construct.

References

Galbraith, J.R. Organization Design.Addison-Wesley.1977.
“Rebuilding Big Pharma’s Business Model“, In Vivo: The Business & Medicine Report, pp 73, 2003. Web.

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Contemporary Development in Business and Management: Case of Glaxo Smith Kline

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