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Dr Ajit Dangi
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Today we all live in a VUCA (Volatility, Uncertainty, Complexity and Ambiguity) world. To succeed in such an ever changing environment, companies not only require to be agile but need to continuously monitor global trends and adapt swiftly. Below are some critical strategic drivers to survive and succeed in the current environment.
Leadership: Over 80 per cent of so called ‘great’ companies slide to mediocrity in a short span of time largely because of poor strategic decision making and tardy execution, often fuelled with complacency. Leadership therefore plays a key role in driving the company to success. A competent and independent management board with domain expertise in finance, marketing, technology and above all corporate governance can make all the difference.
Leveraging based on current and historical cash flows and leverage based on future income are two different things. Many companies today are suffering from the later. World is a market. No longer we can focus our attention only on domestic market and survive. With a global pharma sales touching $980 billion in 2012, it is disappointing that India’s contribution to global sales is less than two per cent in spite of having leadership position in all parameters such as number of US FDA approved manufacturing facilities, ANDAs, DMFs, FTFs etc. outside the US. The reason is we have commoditised our industry to selling generics which is a high volume low margin business. We have also failed to build any global brand. We need to therefore move up the value chain from ‘cost arbitrage’ to ‘intellectual arbitrage’ by investing in innovative delivery systems and processes and leveraging intellectual property not as a defensive but competitive strategy.
While organic growth strategies can give results in the long term, inorganic growth through mergers, acquisitions, JVs, collaborations, tie ups, co- marketing etc. can help in tapping the huge global market. Many MNCs today are exploring hybrid models of selling patented medicines in the developed markets and branded generics in rest of the world by tying up with Indian companies who are low cost, good quality generic manufacturers.
Quality risk mangement: Recent debacles of companies like Ranbaxy, Wockhardt, Fresenious Kabi etc. who were hauled up by the US FDA for non-compliance of GMP and sometimes outright fraud show that quality continues to remain a major concern of developed markets for medicinal products coming from India. The concept of quality by design (QbD) has to be internalised in the organisation with zero tolerance for GMP non compliance and unethical and fraudulent practices.
Cost optimisation: With rigid price controls, cost escalation in utilities, inflationary pressures on wages and compensation, depreciating Indian Rupee, liquidity crunch etc., cost optimisation and productivity improvement not only in manufacturing but also in field force effectiveness and marketing investments are key to maintain profitability. One must continuously benchmark all key activities with successful companies and try to match or surpass them.
Government relations: In a country like India where regulations and government policies are continuously evolving (e.g. DPCO 2013, New Companies Act, Clinical Trials Amendments, Biotechnology Regulatory Bill, Central Drug Authority, GST, transfer pricing, GAAR etc.) it is important to continuously remain engaged with policy makers either through industry associations or through own efforts and anticipate emerging regulations and shape the environment through dialogue and advocacy. Remaining ‘future ready’ is the key.
Product portfolio: It is important to make a critical review of the product portfolio periodically and weed out non-performing products based on analysis of market attractiveness, profitability etc. Gone are the days of cross subsidising loss making products or SBUs with profitable ones. Proliferation of SKUs and pruning them based on current market need are very important.
Talent management: Finally, attracting, developing and retaining good talent will continue to remain key differentiating factor for successful companies. Proactive and progressive HR policies such as performance based competitive compensation, fast track career growth for Hi Potentials (HIPOs), job rotation and exposure to global markets, continuous training and learning, gender diversity (nine CEOs in the Indian banking industry are women. What is our track record?) etc. will create a vibrant and result-oriented organisation.
Many companies today offer their own explanation and justification for underperformance by citing exogenous factors such as government regulations, business cycle, macroeconomic environment etc. Whilst these factors can certainly influence company performance, such explanations do not always cut ice because within the same sector some companies succeed consistently. If one analyses the management strategies of successful companies, most of them follow the above success factors.