Case Analysis – Novartis Pharma: Business Unit Analysis
The introduction of Business Units at Novartis Pharmaceutical has had a significant impact on the ability of the firm to implement its marketing strategies. These impacts tend to both facilitate some aspect of organization’s marketing, as well as, impede marketing role in certain areas. Prior to evaluating the impact of formation of business units on Novartis Pharmaceuticals it is important to understand the intended form of business units which were created at Novartis Pharmaceuticals.
Form of Business Units Created at Novartis Pharmaceuticals – At Novartis Pharmaceuticals, the concept of business units was implemented as an organizational entity that contain almost all the key parameters of an independent company, established for the purpose of doing business. These business units were only loosely related to each other, and all organizational functions operated as stand-alone for these entities. Also, the intention of top management of the organization was to let each business unit to operate in a competitive environment and to try to succeed in the market by devising its own strategy.
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The impact on the marketing performance of Novartis Pharmaceuticals is discussed in ensuing paragraphs:
Creation of Marketing Focus The foremost and immediate impact of formation of business units is the creation of a marketing focus within the organization. Novartis’ marketing strategy was considerably weak prior to the formation of business units because the range of pharmaceutical products in which the firm operates is very wide unlike its competitors. The impact of this wide range of modularity of Novartis was that management of the organization had to look after various diverse markets; while, dynamics of these markets differed widely. For instance, the markets for oncology, transplantation and ophthalmology are complete diverse, rendering a centralized marketing strategy weak.
Formation of a separate business unit for each of these markets implied that an individual and focused marketing strategy will be formed for each business unit of the organization. This will entail a closer fit between the external environment and marketing strategy for each business segment, hence, an improved marketing function of Novartis Pharmaceuticals.
Quick Response to Changes in Market Dynamics Business units are helpful for Novartis Pharmaceuticals for the formation and launch of new medicines in the market. Since the individual head of a business unit may not be required to seek authorization from country head for taking decisions pertaining to new product launches, they can respond much more rapidly to competitors’ actions. In the traditional consolidated hierarchy system of Novartis Pharmaceuticals, it caused long delays for information to flow to country head, and subsequently to the regional head. The case exhibits that the business unit structure of Novartis pharmaceuticals authorizes a business unit manager to form decision pertaining to investing funds in product development. Naturally, quick response translates to improved implementation of marketing strategies
Inculcation of Entrepreneurial Spirit and Motivation of Staff Managers and staff of an organization tend to perform better when they have a sense of ownership of their work. Formation of business unites is likely to result in greater motivation of a business unit’s team since they have a sense of control over their business unit. The new compensation structure which was implemented with business unit structure entailed that eighty percent of performance reward of business unit head is derived from the performance of business unit, rather than the rest of the organization. When there is a direct link between the efforts and rewards, the motivation of managers is high. Consequently, marketing strategy is likely to perform better due to greater involvement of staff members. Also, this decentralized arrangement of business unit imparts managers of Novartis with substantial room to take risks and innovate, which is associated with an entrepreneurial spirit and better implementation of marketing strategies.
Creation of Reporting Conflicts During the initial period of formation of business units at Novartis, marketing managers and country heads are likely to get baffled over reporting lines to management. They need to report to head of business unit in a foreign country, as well as, to the country head within the country. This can lead to reporting conflicts because the desired strategy and evaluation criteria of business unit head and country head may differ. The performance, in such cases, will be impacted negatively because of the lack of a cohesive direction for the local business unit.
Less Focus on Long-Term Research and Development One usefulness of centralized structure of decision making at Novartis was that the top management of the company chose to invest in those research areas which do not have a payback in short-term or medium-term future. Example of such research areas is genetic science. After the formation of individual business unit, emphasis for research in such areas is likely to be low because the head of business units would not be hesitant to invest in such long-term projects because these costs will be too high for an individual business unit to bear. Implementation of long-term marketing vision will get weaker through this approach.
Conclusion After reviewing various impacts on marketing strategy of Novartis Pharmaceuticals of formation of strategic business units, it is concluded that the immediate impact of adoption of this organizational formation is positive for Novartis Pharmaceuticals. However, the longer-term impacts on the organization can impede growth of the organization because research functions are likely to get weaker after creation of business units. Nevertheless, it is anticipated the organization will go through the learning curve and will eventually adjust to the new organizational structure. It can be expected that the net outcome on the marketing and sales functions will be positive. It is concluded that going for SBU structure is the right decision for Novartis.
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