The Pharmaceutical Industry Paper essay
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Both the macro and micro aspects of an environment play a significant role in shaping the operations of industries (Scholes & Whittington 2011). Thus, understanding the environment is a critical step in the pursuit of success. Conducting a PESTEL analysis is instrumental towards achieving that end since such a conduct guides in strategy formulation and implementation. It is evident that the external environment largely influences corporate success.
The macro environment has long-term effects which necessitate carrying out extensive research. However, most businesses are underfunded, which complicates the pursuit for success (Barnett, Greve & Park 1994). Here below the PESTEL analysis of the pharmaceutical industry is considered.
Industry PESTEL Analysis
It is clear that there is a growing focus and pressure on healthcare providers from political institutions across the globe. This implication is that governments are interested in savings. The increased government interventions/regulations could continue to pose a number of issues on the industry (Prahalad 1993). For instance, governments would first of all regulate pricing of pharmaceutical products (Mathew, Rapopor, Saper et al. 2001). Secondly, government’s spending on healthcare could be adjusted. Another concern would be based on whether governments approve the same drugs as in the past. Moreover, government policy on healthcare may continue to change as illustrated by the Obama care (Steinbrook 2009). In light of this, the political landscape is a serious aspect that influences the industry.
Another crucial attribute to be considered is economic. The global economy is highly intertwined. Thus, a crisis in one part undermines other parts. For instance, the 2008 economic crisis had far-reaching effects on every industry. With economic downturns, governments cut their spending on aspects such as healthcare (Steinbrook 2009). Another concern is that economic downturns influence government policies on healthcare. Economic performance effects the amount of disposable income, an aspect that influences healthcare choices. Hence, the economy is an influential factor in the pharmaceutical industry. In the face of economic crises, pharmaceutical organizations might merge or engineer acquisitions. This would have consequential outcomes on the industry.
Another critical aspect of the PESTEL tool is based on culture. When focusing on the cultural or social aspects, considering the age of a population is critical (Snow and Hrebiniak 1980). It is worth mentioning that the aging population is on the increase. This development presents both opportunities and threats to the industry. The most ideal option would centre on capitalizing on the opportunities while considering the appropriate mechanisms to mitigate the threats. There is also another concern that arises out of the increasing health issues that are connected to lifestyles. Such issues as obesity incidences are cases in point. It is also notable that home care givers and patients have become more enlightened. This is reflected in their changing expectations as well as demands. In addition, public activism continues to increase as the social network extends meeting platforms. With the new social networking culture, the pharmaceutical industry has an opportunity to adjust its strategy in order to meet emerging challenges.
The technological facet is as critical as any of the elements considered. Advancements in technology continue to flood the globe (Teece 1980). Technological developments contribute towards the creation of new business opportunities in reference to new therapies as well as service extension. With the expansion of the Internet technology, the following opportunities would expand:
- New communications and information technologies
- Customized treatments
- Social media
- Direct patient communication
- Direct advertising
Legislation is also considered as an integral element in PESTEL analysis. Any industry is a subject to regulations and restrictions (Prahalad 1993). Legal restrictions, guidelines and regulations are significant in the industry. In addition, there is a growing tendency of litigation among various countries. With the Internet revolution, the legislative boundaries are being stretched as patients increase their call for the recognition of their rights. Thus, healthcare programs are becoming to be under more legal scrutiny than ever before. It is clear that the pharmaceutical industry is affected by the legal framework. Thus, when strategizing, taking into account legal concerns is paramount.
In the recent times, environmental issues have dominated the world agenda. Environmental issues span all the industries. Thus, stakeholders in the pharmaceutical industry now recognize the need to be more proactive in protecting the environment. Specifically, pharmaceutical companies are required to consider how their plans link with environmental concerns. The most appropriate approach is to incorporate these issues in the corporate social responsibilities of the companies. In addition, industry players find it necessary to spot eco-friendly opportunities for promotion. Evidently, environmental concerns influence strategy formulation and implementation within the pharmaceutical industry.
Pfizer Inc. Evaluation
According to Steinman, Bero, Chren and Landefeld (2006), Pfizer Inc. is the top ranking pharmaceutical company in reference to the level of sales across the world. The company is based in New York although its research headquarters is in Groton. The company produces and sells a wide range of products.
Being on the edge of business is a primary cog in the industry. The industry is so dynamic that observing trends is not enough (Bloomfield, et al. 1991). Each player needs to invest in research and development heavily to be competitive. Moreover, deploying the new technologies requires vast investments. The company is currently suffering because the socio-politico-economic aspects are too restricting. Despite the wide range of available products, many people care little about emerging products. Put in economic terms, the industry is experiencing a flat demand. The fact that the industry is dominated by few firms further complicates the scenario. Pfizer Inc. has invested in different countries. Investing in different countries is significant as it allows for various outcomes in terms of government regulation as well as economic proceeds. This approach is useful in mitigating economic downturns.
In reference to the social attribute, Pfizer Inc. recognizes that despite changes, the demand for quality drugs and other healthcare products continues to rise. In this regard, the company has continued to invest in research and innovation to guarantee the sustenance of the production of quality products. Regarding technological changes, Pfizer Inc. embraces the creation of new products. The intention is to help people suffering from debilitating illnesses. With the advent of new technology, creating better quality products has become easier.
Key Drivers for Change
The key drivers for change are found in the PESTEL analysis. In regard to politics, the governmental policies are the key drivers. Secondly, regarding economics, economic forces are crucial in reference to operations of any industry player. Switching focus to the cultural issues, changing societal patters could be critical in driving change. Perhaps, technology is a factor that plays the most critical role in change. With new technologies, the industry would change significantly. The environment also plays a role since, industries operate within environments. Thus, they have to change to meet the expectations of various stakeholders within the environment. Finally, the legal aspect is a critical one. Legal matters are subject to political forces in reference to policy formulation. This could also drive change within the industry.
It is notable that the pharmaceutical industry is aptly reflective of the supplier power force. In the industry, there are few suppliers. The products also have fewer substitutes which are also expensive. Moreover, the products are very critical. Based on this account, the power of suppliers force is among the most influential in the industry. Controlling the supply line gives industry players much power.
Another force that I consider to be very critical is the availability of substitutes. As explained earlier, the chances that a consumer would switch to another product are significant. The chances of switching between or among products rest on the cost of switching. Switching product usage could affect profitability. When the cost of switching is low, there is a serious threat. Few factors are known to affect substitutes. The primary issue is comparability. The presence of a similar product could be viewed as a new entrant into the industry.
Threat of New Entrants
The danger posed by the appearance of new entrants remains relatively low in the industry. This is due to the barriers to entry such as high costs associated with capital, economies of scale, proprietary technologies, distribution channels, geopolitical factors, etc. In brief, new entrants require large sums of money to join the industry. Thus, it is extremely hard for new players to enter the market.
Business rivalry centres on the nature and extent of competition (Porter1996). The business is commodity-based, an aspect that heightens the levels of competition. Other industry players such as those that supply generic products pose a danger to the Pfizer Group. However, the growth rate of the industry is high implying that there are no threats to opportunity. Furthermore, in a commodity-based market, industry players derive a competitive edge by producing at lower rates.
The company sources its inputs directly from various industry players. As shown, the company acquires organisations it deems useful to its business. Thus, its suppliers do not have much power to influence the business. Focusing on its supply value chain, it is recognisable that the company is in control of supply activities.
There are two main consumers of the company's products. They include organisational and individual consumers. Organisational consumers have low power. Similarly, individual power is low based on the high levels of demand for health products. Projections also reflect that the demand for such products would continue to rise (Karnitschnig and Rockoff 2009).
Threat of Substitutes
Substitutes pose a threat in any industry. However, in the pharmaceutical industry, such threats are limited since they only come from herbal products which producers are few. These sources of health products do not present a major threat to the industry for now. However, developments in processing of such products may present a major challenge to the industry.
The pharmaceutical industry is highly attractive owing to the opportunities that exist. For instance, the opportunity to earn huge profits makes the industry highly lucrative. However, the emergence of generic products could pose a challenge to the long-term profitability of the industry. It is also notable that the industry is dominated by few players. The implication of the small number of players is that entering the industry is promising in regard to creating a market niche. However, the small number of players could be a stumbling block because it enhances product differentiation. With product differentiation, customers are aware of products, an aspect that compromises the entry of new players. However, through ensuring the provision of quality products, a new player would easily cut a niche for itself. Another crucial aspect is that health concerns continue to rise. Hence, the industry would remain attractive as far as humanity exists.
Value Chain and Core Competences
The organization in question employs a supply chain based on the Accenture Academy solutions (Karnitschnig and Rockoff 2009). The approach has enabled the organization to improve its personnel in regard to skill development. The approach has also contributed towards the improvement of the supply and chain operations of the company. It is critical to note that the approach is instrumental in the way the company deals with emerging pressures in the market. It is also worth noting that the supply chain is a critical success factor.
As already demonstrated, Pfizer is an international organization that has a large portfolio as exemplified by the range of products it offers. The acquisition of Wyeth Pharmaceuticals saw the organization emerge as one of the most diversified pharmaceutical companies across the world. Before the acquisition, Wyeth Pharmaceuticals was using the Accenture Supply Chain Academy in designing its supply capabilities in European, Africa and Middle East regions. Supply teams were carefully selected using the approach. The Accenture solutions offered courses on proven supply tools that the company used to remain on top of its business. Through the courses, the organization was able to enhance its supply chain roles. The programs also helped in bridging the competency gaps displayed by its employees. This paves the way for increased job satisfaction. Hence, when Pfizer Company acquired Wyeth Group it was able to take advantage of well functioning supply chains. The supply chain of Pfizer proved critical in the development of leaders through the advancement of skills in supply management.
From the statement in the appendix, it is evident that Pfizer Company is doing well in financial terms, although elements of instability are discernable. For instance, its inventory turnover improved between 2010 and 2011, although it declined in the subsequent year. Regarding the receivables turnover, the company registered an improvement during the period, 2010/11 before declining between 2011 and 2012. The same trend seemed to continue in reference to the turnover on working capital as it rose in 2010 before falling in 2012. The same trend was reflected on the average inventory processing period.
The corporate culture of the company rests on the pursuit of quality healthcare services provision. The company has been involved in lobbying the US Congress in a bid to influence legislation. This was especially in regard to the position of banning generic products entering the US market. Similarly, the diversity aspect is visible in the company’s operations. For instance, it recruits people from all races, regions, religious backgrounds, among other differentials. The company also pays attention to corporate social responsibility by promoting pro-environmental conservation initiatives. It is also recognisable that the company’s culture is ingrained in research and development given the attention it assigns the department.
Strengths, Weaknesses and Resources (Human and Physical)
The company sells branded in addition to other products, it is also involved in manufacturing and selling of generic products. The company has subsidiaries across the globe which eases its work. Moreover, it has a critical strength in regard to research and development. The company has two research divisions namely: the Development Group and PharmaTherapeutics Research. In reference to human capital, the company has often received accolades for being among the best. In 2004, the Corporate Quality Index gave the company 100 percent rating. In 2007, its Canadian subsidiary was named atop in the list of Canada's Top 100 Employers.
The SWOT analysis offers a useful tool that guides in understanding strengths and weaknesses, and identifying opportunities as well as threats that a business faces.
The Pfizer’s SWOT is summarised below.
The company has a famous brand name. In addition, the company focuses on production of high quality and unique products.
The company uses the acquisition strategy which could be harmful to the business in terms of complicated control.
It is notable that the market or demand for health products is rising. As such, the company has an opportunity to expand its production capacity in order to earn more revenue.
Some of the threats that the company faces include economic crises, policy changes, societal shifts, etc. Competition from other pharmaceutical manufacturers also poses a threat.