IT Governance at Richter Company

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Richter’s Business Environment

The business environment for Richter can be characterized as favorable yet highly competitive. The pharmaceutical industry remains one of the largest in the world, and further growth can be projected as a result of aging populations in many developed countries. The demand for pharmaceutical products and services can be expected to rise steadily (Compeau et al., 2008). The competition in the industry is also stiff because of many large multinationals, which have significant resource endowments. Richter started as a government entity, but the emergence of the free market in Hungary and other Eastern European countries resulted in its privatization (Compeau et al., 2008).

Such a move allowed the company to make further expansions both domestically and abroad. The political stability of Eastern Europe means that Richter has been able to operate in those countries without political hindrances

The political environment is further improved by the support from the Hungarian government. Additionally, the massive international market for pharmaceuticals can be credited for the global expansion of Richter. The most important aspect of the external environment, however, is the availability of new advanced technologies. Across modern businesses, aspects such as marketing and research and development (R&D) have been revolutionized by IT, which can be manifested in the case of Richter (DiMasi et al., 2016; Zhao & Priporas, 2017). The System Analysis and Software Development (SAP) systems have allowed for centralized IT governance and facilitated the first initial public offering (IPO) of the company.

Internally, the business environment for Richter can be described in similar terms. In other words, the size and technical capacity of the company are key drives of growth. As one of the largest pharmaceuticals in Hungary, Richter was able to take advantage of its reputation and brand to fuel further growth (Compeau et al., 2008). Additionally, Richter has always been an innovator, which means it heavily invests in R&D. Therefore, Richter has developed the capability to create and commercialize new products and efficiently utilize the thousands of patents it has registered. Additionally, the diversification of the business portfolio helps exploit additional revenue streams, including generic drugs. Therefore, favorable market and internal conditions comprise the business environment for Richter.

Richter’s Business and IT Strategy

The IT strategy for Richter lacked before its privatization. In the past, the company used to rely on the traditional approach to managing its supply chain and did not focus on its IT component specifically (Compeau et al.). As a result, Richter’s share value remained at the same level despite the company’s efforts at increasing its value (Compeau et al.). Granted that Richter’s strategy could not be described as a failure since the company still managed to gain quite strong popularity among its target audiences, it still lacked the competitive edge that would give the organization the benefit of controlling the market by managing information precisely.

However, Vince Szücs has been actively pursuing a continuous improvement IT strategy. Currently, the company has been focusing on the inclusion of innovative solutions in its context. Namely, instead of the archaic system used in the past Richter has been focusing on the development of tools that will forward the organization in the global market. Namely, the organization has installed the digital transformation network into its organizational setting to promote change and introduce improvements into its context.

In fact, the suggested approach can lead to the development of an innovation-driven corporate culture, particularly, the promotion of non-incremental innovation as the basis for the corporate strategy and the development of competitive advantage. Presently, by using the prerequisites such as transformation capability and innovation capacity, Richter has been amplifying the performance of its centers of excellence in order to increase the output and quality. As explained in the case study by Compeau et al. (2008), different waves of SAP implementation have taken place, each bringing in new functionalities that the company’s multiple departments have demanded.

The CIO is also keen on a centralized IT strategy for all Richter’s departments and all the affiliates engaged in strategic partnerships with the company. Richter was among the first companies to install SAP systems, which means that the significance of data processing has been growing in the company lately. The identified trend is entirely justified since data is presently deemed das the most valuable resource, which is why establishing a system that will allow managing data flawlessly, is truly priceless.. The different stages of implementation could be viewed as a learning curve for the company where initial efforts provide the necessary knowledge for the next phases. Additionally, the continuous improvement approach means that the company can always fill any gaps in the IT infrastructure. Lastly, an active internal IT department can be viewed as a strategy to provide Richter with the ultimate control of all IT developments.

Richter’s Organizational Structure

The organizational structure of Richter can be described as reasonably horizontal. The CEO is at the top of the chart, below who are all major departments horizontally integrated. The divisions include finance, technical services, commercial services, production and logistics, research, and development. Below the chief financial officer (CFO) is the chief information officer position, which Vince Szücs currently occupies. The heads of departments are in charge of all other personnel under them, both in Hungary and in foreign affiliates (Compeau et al., 2008). However, the inclusion of affiliates in this chart makes the organizational structure of Richter appear more hierarchical. The initial implementation of IT at Richter focuses majorly on the financial division, explaining why the IT department under the CIO falls under the CFO. The horizontal structure of this department is manifested by the fact that all IT heads for all foreign affiliates are under the CIO.

IT Portfolio and Systems

The IT portfolio and systems at Richter comprise the SAP R/3 systems implemented in several waves. Initially, the first initiative by the CIO entailed the installation of financial modules intended to centralize the company’s financial reporting. The system modules included asset management, finance and accounting, and controlling. The second SAP wave comprised two modules for materials management and production planning.

Enterprise resource planning (ERP) was also implemented to add to the IT portfolio. The investments in the IT systems were significant; for example, the production planning modules resulted in an outlay amounting to $2.12 million. The breakdown of these investments shows that $775,000 went to equipment while the remaining $1.35 million catered to external labor expenses (Compeau et al., 2008). Therefore, it is apparent that Richter makes IT one of the company’s strategic investments.

The IT portfolio and systems were further expanded between 2000 and 2006 to integrate several software applications. Examples include a document management system, and SAP business information warehouse (BW), which was implemented as a financial reporting system. Additionally, multiple SAP modules were installed in Hungary, and the SAP was rolled out in Poland and Romania. The additional SAP modules include quality management (QM), human resources (HR), and advanced production optimization (APO) (Compeau et al., 2008). These systems have all been customized to match the needs of Richter.

IT Decision-Making at Richter

As far as the IT decisions of Richter are concerned, one must mention the performance enhancement framework mentioned above as a major development in the company’s adjustment to the new requirements and the setting of the digital market. Specifically, the IT decision-making process at Richter has been shifted toward a more nuanced and detailed financial analysis with a focus on the various needs of the target population,

Value of IT to Richter

IT’s value to Richter can be evaluated in terms of how much it has helped the company develop and succeed in certain aspects. First, IT made it possible for Richter to do an IPO. The argument for this position is that various departments and affiliates used different definitions for the financial measures without a centralized IT system. An IPO could not be possible without clarifications regarding the financial measures, which means that IT was valuable for Richter’s business strategy (Compeau et al., 2008).

Therefore, an integrated IT structure made it possible to achieve alignment across the divisions. Second, IT made Richter a market leader in Hungary because it was associated with advanced systems such as SAP. In such a case, IT can be perceived as building the company’s image in the eyes of the key customers, partners, and other stakeholders such as the general public. All these aspects build on Richter’s business strategy of growth and expansion.

Lastly, it can be argued that the IT system was pivotal in the global expansion of Richter. The CIO was keen to align his IT strategy with international expansion, meaning that he believes that IT can be a key driver of such efforts (Compeau et al., 2008). The systems implemented have helped ease the internal operations of the company and its affiliates. Therefore, the value of IT at Richter is manifested by the fact that it has immensely reshaped the company and made it possible for it to pursue further strategic goals.

Richter Centralization Debate

The main reason for the ongoing debate at Richter regarding centralization versus decentralization of the IT department is that there are serious financial and human costs involved. One side of the debate holds the argument that centralization is demanded by the affiliates seeking Richter’s IT governance and systems (Compeau et al., 2008). Such a move would help the affiliates and partners achieve the same level of efficiency as the parent company and help with the integration efforts. The second side of the debate argues that the growing demand for the systems caused an increased service volume, which would require the company to keep installing new systems and technologies. As a result, the financial and human resources needed to operate the IT systems increase.

Additionally, the debate persists because there are considerations that centralization might make the key organizational tasks and processes particularly easy to implement. Namely, the proponents of centralization claim that the specified notion allows for a more effective standardization of work. In addition, centralization is likely to cause a less biased allocation of responsibilities in the workplace. The identified argument in favor of centralization bears high importance since it points to one of the factors that may affect employee engagement.

In turn, employee engagement rates are directly correlated with the extent of employees’ performance due to the connection to workplace satisfaction, hence the link to the issue of employee engagement and motivation. (Compeau et al., 2008). Such aspects are all desirable, which explains why some points of view express that the current systems’ total costs could be lowered. Therefore, the reason for the debate is that there is an agreement on how centralization affects the company’s costs and resource allocation.

Role of Vince Szücs

Presently, an innovative IT system can be defined as the main reason for Richter’s success in the global market. Defining the key people that have been leading innovation at Richter, one must mention Vince Szücs, who has been insisting on the integration of digital tools into the company’s performance. Namely, Szücs has prompted the integration of digital non-incremental innovation into Richter’s design by changing the course of the selected HRM strategy, particularly, the talent management framework that was adopted at Richter previously. Szücs has altered it from the traditional framework for training employees to the focus on continuous learning as the main value to encourage among employees.

As a result, the described strategy has led to a more natural acceptance of changes within the organizational design and production of processes at Richter. The incorporation of IT governance into the framework has also helped to control product quality more carefully and productively, locating defects in products almost immediately and removing them from the range of items to be distributed among local retailers.

Advice to CIO

The advice for Szűcs in planning for the current year is that he should consider pursuing an alignment of the IT strategies across the company and its affiliates. The debate regarding centralization versus decentralization will potentially become critical. First, the demand for IT services will not be expected to decline. Therefore, the next step for the company would be to consider the concept of incremental innovation as the possible framework for adjusting the current focus on disruptive ones could be advised.

Although Szücs has been denying the ole of incremental progress in an organization, insisting on either long- or short-term initiatives, the use of the strategy that would help the organization to develop a steady framework for economic growth could be seen as important. Namely, Richter could incorporate incremental innovation into its organizational design to move at a steadier pace. In addition, it is recommended that the company should accelerate digital transformation and transfer all of its processes into the digital setting. Thus, the current change cycle within the firm will be complete, and Richter will be able to cement the new approach in further interactions with its stakeholders.

Recommendations

One key recommendation for Richter and the CIO is that the IT governance should be extended to the affiliates. Their demand for IT governance and services is evidence that they find opportunities for financial growth and operational efficiency. Otherwise, the organization may return to the state that was observed before Szücs took charge of the company’s information management and financial issues. In turn, the inclusion of IT governance will allow making financial forecasts with greater accuracy and pinpointing problematic issues with enough precision. The expected results for the affiliates can mirror those of Richter, which means that extensive growth and expansion can be sustained. The performance of the subsidiaries is critical to the financial well-being of Richter and the global expansion strategy.

Therefore, it is recommended that the company should further evaluate the feasibility of enhanced centralization. Lastly, extending the IT governance and services to these businesses will make it possible to align the overall corporate strategy. Therefore, the cooperation across the supply chain can be improved, which will have the effect of helping Richter gain a greater competitive advantage in the pharmaceuticals industry.

References

Compeau, D., Mitchell, J., Drotos, G., Incze, E., & Vas, G. (2008). Richter, Information technology at Hungary’s largest pharma. Ivey Publishing.

DiMasi, J., Grabowski, H., & Hansen, R. (2016). Innovation in the pharmaceutical industry: New estimates of R&D costs. Journal of Health Economics, 47, 20-33. Web.

Zhao, S., & Priporas, C. (2017). Information technology and marketing performance within international market-entry alliances: A review and an integrated conceptual framework. International Marketing Review, 34(1), 5-28. Web.

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