Using appropriate theory, critically analyse the macro-environmental factors that have influenced the development of the global pharmaceutical industry during the period covered by the case study. Macro environmental factors upon which the Pharmaceutical industry has endured are in their very nature extensive and wide-ranging; they exist in the wider environment in which varying elements are subject to constant change, which in turn creates extensive challenges for organaisations.
The context of the macro environment can be understood in terms of key factors such as political, economic, societal, and technological, environmental and legal. (Burt et al., 2006). This creation of the PESTLE taxonomy allows for contextualisation of the macro environment (Thomas 2007). Changes in these factors effectively force organisations to react and review their strategy whilst ineptness can lead to loss of creative competitive advantage (Walsh 2005). "A company can outperform rivals only if it can establish?a difference that it can preserve" (Porter 2006).
The Pharmaceutical industry, specifically with large global firms has in the past based itself around what is referred to as a "Blockbuster business model" in which discovering genuine advances in healthcare created rapid growth and market penetration (Johnson et. al. 2010. p5467). This model is heavily reliant on high rates innovation, whilst a distinctive capability, managing it is costly and risky. (Kay 1995, p101-102). The rewards of creating a "Blockbuster" drug were immense, the initial risk involved places a huge burden on R&D departments within Pharmaceuticals perform. Andrew Witty CEO of GSK related this to "finding a needle in a haystack right when you need it" (Johnson et. al. 2010. p553). More recently the industry has found itself in a time of "declining R&D productivity" (Johnson et. al. 2010. p5467). This difficulty to discover such drugs can be likened to the miracle features as the drugs themselves.
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The model impeded by legislation enacted to set a fixed period on the Patent Protection of these drugs; typically 20 years from the initial filing (Johnson et. al. 2010. p547). Upon expiry of such patents organisations faced the ever-imposing threat of substitutes. Substitutes can rapidly erode the sales an organisation; effectively rendering the product redundant (Lynch 2007, p96). Launch of generics, exacting copies of drugs, constrain profits within the industry through fierce competition driving down prices (Lynch 2007, p97). This was vividly demonstrated by "Allegra, a treatment for hay fever, lost 84% in just 12 weeks following patent expiry" (Johnson et. al. 2010. p548). This profound impact places implications on organisations R&D planning as they must ensure they can gain the costs of R&D back within 20 years; As Johnson et. Al (2010, p297) claims "Generous R&D budgets are crucial to making innovation happen".
The ramifications of such factors pushed organisations to diversify and pursue other paths and opportunities; biologics presented such an opportunity. One major biologic, vaccines, have a higher redevelopment success rate and lower risk of generic entry than conventional medicine in turn they offer Blockbuster sales potential (Johnson et. al. 2010. 551). In fact Mintzburg (1993, p73) lists a diversification as a key strategy for expansion and growth. The readiness in which the industry pounced to exploit the multitude of opportunities created by molecular biology and genetic engineering indicated such adaptability can overcome such macro enviomental factors (Johnson et. al. 2010. 550).
The main vehicle for diversification was Pharmaceuticals acquiring biologic capabilities (Johnson et. al. 2010. 554). More Pharmaceuticals moved to integrate their resources through mergers and acquisitions; combining companies with a strong pipeline but weak sales and marketing with its opposite (Johnson et. al. 2010. 555). Such integration arguably breeds synergy; the overriding reasoning behind such consolidation. (Campbell et al. 2008, p217).
Amongst the shift in focus for the industry governments were becomingly increasingly engaged with wanting to battle the Pharmaceutical industry. Ageining populations and recessions placed greater burden on health budgets. This in turn lead to governments seeing targeting pharmaceuticals as an easy to control costs (Johnson et. al. 2010. 548). Rumelt et al. (1994 p455) views government as a key entity, which can improve or impede organisations competitive advantage. The industry was required to act and work with, what in many counties was, an all-powerful sole purchaser. (Johnson et. al. 2010. 548).
Whilst an aging population was in fact a result from the advances the industry created there was a surprising inherent lack of trust from the public. (Johnson et. al. 2010. 554). As Wit and de Meyer (2010, p16) point out organisations are presented with a "profitability vs. responsibly paradox". The industry was perceived as greedy and exposed to sensationalist newspaper headlines and consumer backlash when price disparities between countries emerged. (Johnson et. al. 2010. 554). The corporate social responsibilities of Pharmaceuticals have a great weight placed upon it as the products sold have such an emotional involvement.
The industry has faced many challenges, it has appears to react very aptly to most situations. An overriding element, which encompasses all the macro environmental factors posed upon the industry, is a push for innovation; the industry is founded upon it. This ability to innovate not just with products but strategic approaches seems to create competitive advantage and ensure growth for the sector. The industry however, must remain wary of how governments and society perceive them.
- Burt. G., Wright. G., Bradfield. R. and van der Heijden. K., (2006). The Role of Scenario Planning in Exploring the Environment in View of the Limitations of PEST and its Derivatives. International Studies of Management and Organisation. 36 (3) 50-76.
- Campbell, D., Stonehouse, G. and Houston, B., (2002). Business Strategy: An Introduction, 2nd ed. United Kingdom: Elseiver Butterworth-Heinemann.
- Johnson, G. Scholes, K. and Whittington, R., (2010). Exploring Corporate Strategy: Texts and Cases, 9th ed. United Kingdom: FT-Prentice Hall.
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