Institute of Drug Technology - Managing Operations - Case Study Example

IDT Australia case study Name: College: Course: Tutor: Date: IDT Australia Case Study Introduction The Institute of Drug Technology (IDT) Australia is nonprofit university organization operating as part of Victoria College of Pharmacy. IDT began in 175 as a research, developments and consultant center. In 1988, the company listed in Australian Stock exchange after successful acquiring of its assets by professionals from the Victoria College of Pharmacy. The company shifted from an academic research center towards manufacturing of pharmaceutical products, after listing in Australia Stock exchange. Currently, the company has many manufacturing plants in Melbourne, operating under license from Australian Therapeutic Goods Administration (TGA) and U.S Food and Drug Administration (FDA), where it manufactures pharmaceutical products. IDT is one of the few Australian companies that have approval from FDA, enhancing its access to US market. Currently, IDT is a highly successful company internationally recognized for developing and manufacturing anti cancer drugs. Its profitability has also risen over the years, with an annual growth rate of 47% from 2000-2004. The company’s mission is being a leader in developing and manufacturing of pharmaceutical products1. Question One: Core capabilities of IDT Technological capability Currently, IDT has first class expertise and facilities in anti-cancer and potent drugs research and development. The level of expertise and rise in core competencies gives the company a strong hold in the pharmaceutical field. The company owns and operates modern state of the art laboratories, plants and facilities. Therefore, the company has the capacity and means to meet its demand for their products, while in the meantime continue to develop new innovative products. This has enabled the company to retain and enhance high quality standards of their products. Manufacturing capability Because of their extensive expertise and efficient facilities, IDT has the capacity to specialize in anti-cancer and potent drugs developing and manufacturing. In 2002, the company secured their long term development by expanding their manufacturing capacity and capitalizing on their market opportunities. Capability to partner with others and commercialize The company collaborates with leading pharmaceutical companies such as Pfizer, Wyeth, AstraZeneca, and Johnson & Johnson. This collaboration is helpful in development and manufacturing of pharmaceutical products, as well as provision of a wider market. Additionally, the company is working with large and small companies in developing new drugs for chronic diseases. Such programs research and develop new drugs with high standards for commercial purposes. Drugs developed and manufactured through such programs must pass through two crucial clinical trials. These projects generate a lot of revenue during the development stages and have potential for future growth of the company. Innovation IDT has over 130 highly qualified and experienced engineers and scientists to handle developing and manufacturing of new products. The company also has great leadership of their CEO and board of directors. Through their highly capable team, the company utilizes its scientific expertise to conduct research and meet its customers and market needs. To function smoothly, the company has two arms that work together. The first arm handles research and development for main Australian customers such as Starpharma, Meditech and Amrad. This arm of IDT is also in charge of developing new drugs and products requiring critical process. This helps the company develop highly innovative products that meet the international recognized standards. The other arm of IDT is in charge of manufacturing commercial products. These arm functions in collaboration with leading and small pharmaceutical companies for a fee. The two arms working together has lead to the efficiency of IDT and their high level of innovative products2. Question Two: IDT Strategic Focus According to Business Dictionary, strategic focus is a marketing strategy whereby an organization concentrates all its resources in an industry or small segment of a market. It is viable where the organization understands its market segment and has competitive products to satisfy its customers’ needs3. Additionally, according to createadvantage.com strategic focus; are the organizations mechanisms geared towards achieving competitive advantage over its competitors and in a given market. Such a mechanism helps an organization concentrate on what it can do best and avoid distractions from competitors. Strategic focus incorporates three key elements of business. Passion is one of the key elements of strategic focus. Passion incorporates organization vision, objectives, values, mission and goals. These elements are vital as they inspire and motivate stakeholders in the organization. Organizations with high passion are better focused in their development and growth. Another key element is the value that a customer has on the organization products or services. Customers are extremely vital in business and their value is crucial in driving a company. The final element is what an organization can do best at any given time4. Systems associated with strategic focus include organization structure, process, function and purpose. However, as shown above, strategic focus relates with the three of the systems except structure. IDT’s strategic focus is on charging for services and manufacturing of large scale products for leading as well as small pharmaceutical companies. IDT’s main business, therefore, include productions of drugs and other pharmaceutical products, clinical trials for finished products, and commercial production of such products. It also offers advice to small pharmaceutical companies within Australia and U.S. In order to achieve its strategic goals, IDT has set various goals and visions. One of these goals is to have a highly qualified team of professionals. To achieve this, the company employees more than 130 highly trained and experienced professionals. It also has a vibrant board of directors under the leadership of a highly competent CEO. To aid in functions of the company, IDT has two distinct yet interlinked divisions. The research and development division are in charge of fee for the business section while the other division is in charge of manufacturing commercial products. To achieve their purpose, the company also recognizes the advantage of collaborating with other leading key players in the industry5. Further, has a wide market advantage since it is one of the few Australian pharmaceutical companies licensed by Australian Authorities and U.S FDA. Question Three: How to evaluate IDT’s Capabilities Financially Strategic capability refers to capacity of an organization to develop, prosper and deliver its future visions or goals. An organization capabilities are abilities, skills, and expertise that the company relies on to proper, develop and maintain its market niche. Additionally, strategic capability depends on organization strategies, objectives and vision, progress of achieving set strategies, sensitivity of strategies to future conditions, resources investments, organization strengths and values, and approach to ethical and environmental factors relating to business. Evaluating strategic capability refers to assessing the capacity of an organization to achieve its core values, develop/grow, and sustain profitability. This is possible by analyzing the strategies and strategic capabilities disclosed in the company’s annual report narrative. When analyzing the organization annual report, it is possible to award the strategic value added in comparison with other companies6. According to IDT’s financial report for 2012, the company had a loss of $1.837m, which was an increase in losses from 2011 when it had losses of $0.236m. It is possible to determine the capability of IDT from its financial reports. A thorough analysis of their finances for the last four years shows a sharp decline in their profits, having declared losses for the last three years. The directors’ report attributes the poor performance in 2012 to uncertain market conditions, delays in projects due to additional regulations by customers and an increase in value of Aussie Dollar. The company had to write off $0.841 m in research and development costs for projects postponed to financial year 2013. However, IDT expects to complete a large number of these projects in the year 2013. Because of rationalization of the global pharmaceutical industry, most IDT customers had to sell their business causing the huge postponements of projects. Economic crisis has also affected funding of projects further delaying these projects. Furthermore, an increase in value of the Aussie Dollar due to inflation of the US dollar has had a major impact, reducing IDT profitability and competitiveness against U.S and Asian leading pharmaceutical companies. However, despite the gloomy financial outlook, the company is pessimistic that they will regain profitability in the coming years. According to the Chair report, IDT is currently having an increase in proposals and opportunities for the company7. Question Four: Extent of IDT’s future revenue dependence on Outsourcing and its concern IDT like the global pharmaceutical industry is experiencing changes in their operations. These companies are under a lot of pressure to regulate costs, hence a reduction in research and development (R&D) capacities, production and marketing, leading to out sourcing or collaborating with others for such resources. Currently, most companies form alliances and networks use their intellectual assets. Such alliances allow small companies to enhance their innovations, production and manufacturing of competitive products8. Despite the global shift in outsourcing, IDT do not have main concern with intellectual property, since it charges for its research to its customers. However, clients that pay for such research retain ownership of the academic asset. Also, through its partnerships, IDT charges for research and has long term contracts to supply them with pharmaceutical products. The advantage of IDT charging system for research and development is that, although customers retain ownership of the academic property, the skills, knowledge and expertise gained accumulates within the company, therefore, enhancing the capability and value for future projects. This enables IDT to concentrate on searching or new clients and expand their research capacity without compromise on quality. This gives their customers cost effective solutions, increase the company’s return on investment while maintaining the efficiency of processes. It is vital to differentiate intellectual property and intellectual capital. Intellectual property in IDT as shown above belongs to the paying customers. However, intellectual capital, which is the knowledge and expertise, gained through research and development processes belong to IDT. Such knowledge and expertise is vital for enhancing the capacity and capability of the company to meet its future goals and visions. It also enhances innovation. New employees gain this vast knowledge through interaction and mentorship of senior employees. Low employees’ turnover also enhances accumulation of knowledge in the company. Question Five: What would be the Impact of Dr Black man suddenly leaving the company? Dr Blackman is the current CEO of IDT Australia. For over a decade, the company has greatly expanded under his leadership. Blackman is both a leader and a great entrepreneur, possessing rare blend of business and scientific skills. He has vision and skills to identify opportunities for manufacturing and developing pharmaceutical products. The company owes much of its success to his leadership, guidance and critical eye. Sudden departure of Blackman, therefore, would be a big brow to the company. Though the company has other experienced directors who can take over, it is almost impossible for them to fill in his big shoes. However, the Blackman has created a strong organization culture that would survive even his departure. As the CEO, Blackman believes in hiring the best qualified employees. IDT considers the employee retention as a top priority. Therefore, with highly skilled and experienced workforce, the company would still survive after Blackman’s departure. Apart from low turnover, Blackman also believes in autonomy of project management. Each project is under the supervision of highly qualified manager, which greatly enhances innovation and promotes healthy competitive spirit within the organization. Manages evaluate their projects at various stages to ensure quality management and high level of standards. Therefore, even departure of Blackman would not significantly affect ongoing projects as they are under different managers. IDT has effective board of directors. Board members include Dr Graeme Blackman (Chairman), Alan Blackman, Robert Burnet, Geoffrey Lord (Deputy Chairman), Dr Elliot Robyn (MD), Dr Aston Roger and David Williams. All the board members are highly qualified and experienced. According to the company’s rules, Lord Geoffrey the current deputy chair would take over in interim bases should Blackman suddenly depart from IDT. Though the company structure and culture would cushion any negative effects of sudden departure of Blackman, market trends show that such a move may have dire consequences on the future of the company. Question Six: How to grow the company The current financial reports show that IDT is rapidly declining in its profitability for the last four consecutive years. This is a worrying trend, and the management has to reevaluate their strategies. The company has laid down some key strategic plans for future growth. In the meantime, IDT intends to expand on it research paid by customers (fee for service). This will increase their revenues, expand their customers’ base and enhance their intellectual capital. The company should hire qualified marketing team to market their services for hire, sensitize the public and create attractive and innovative system for attracting and retaining customers. The company has most of its operations in Australia and U.S. To reach more customers the company should expand beyond the two markets and take advantage of globalization. It should also endeavor to expand more in U.S since it is already licensed by FDA than its current operations. The company operates two distinctive yet interlinked divisions. The company should in future attract customers who pay for research and development for commercial supply. This will increase their profits as well as creating easy link between research and development, and supply of products. Additionally, the company is losing a lot of money for clinical trials that do not generate revenue, especially where customers do not translate these tests to supply orders. IDT should endeavor to transform such tests to future supply orders. The entire pharmaceutical industry is undergoing a transformation. Small companies are merging or collaborating with other so as to remain relevant and profitable. IDT should seek reliable firms to merge with or acquire. This will expand their customer base, supply channels, and reduce costs of marketing and R&D. Currently, IDT concentrates on research for hire and production of drugs for cancer and other chronic diseases. Though these drugs are vital for patient’s health, but sometimes they may not be profitable. The company should branch out and create another division that will cater for other highly profitable market such as generic drugs. This way the company will still retain its core values and enhance its profitability. Additionally, the company can branch out and start producing veterinary products. Such products are cost effective and highly profitable than cancer drugs. Further, the company should come up with a way to reduce its operation costs, maximize on its production, and enhance overall efficiency. With dedication, employee willingness and ample leadership, the company can gradually develop and regain their profitability9. Question Seven: Is IDT limiting its options by operating from Australia It is true that operating in Australia to a large extent limits IDT prospects f the global market. Gaining entry into large markets like UK, US, and Germany is extremely challenging. As an Australian company, IDT has to work extra hard to convince such markets of their reliability, standards and accreditation. However, currently, IDT can relax since they have accreditation from U.S FED. Such a license has opened many doors for IDT and created many chances for alliances and collaboration as well as new markets. Another problem facing IDT is the location of production plants in Australia. Most overseas markets are not comfortable dealing with foreign drugs. Such markets prefer dealing with local investors or investors associated with local companies. As a purely Australian owned company with no oversees subsidiaries, IDT have to work very hard to sell their products and services. However, the FDA accreditation is a relief to the company since it gives them an advantage to collaborate and liaison with some of the major global pharmaceutical companies. Australian Taxation system is discouraging for large investors, in comparison with some countries that do not tax high R&D companies such as Singapore. The Australian government taxes pharmaceutical companies on manufactured products. Such tax has to pass down the supply chain to the customers, some who may not have such taxes in their countries. This taxation system is very discouraging and retrogressive especially for exports. The only relief for IDT is that the government exempts them from paying tax on raw materials for exports. The company also loses a lot of money on non refunds when exporting products either half or full finished. The government policies do not cater for such refunds, unlike some markets such as Germany and China. Currently, many pharmaceutical companies prefer, outsourcing their production from countries such as Singapore, China and India, due to cheap labor and favorable tax refunds. All the above challenges have significantly contributed to IDT’s current financial position10. Bibliography BusinessDictionary.com. http://www.businessdictionary.com/definition/focus-strategy.html Charan, Ram, Drotter, Steve, and Noel, Jim. The Leadership Pipeline: How to Build The Leadership Powered Company. John Wiley &Sons, Inc; Hoboken, New Jersey, 2011 Print. Grace, Cheri. The Effect of Changing Intellectual Property on Pharmaceutical Industry prospects in India and China: Consideration of Access to Medicines. June 2004. http://www.who.int/hiv/amds/Grace2China.pdf IDT annual report, for the year ended 30th June, 2012. http://www.idtaus.com.au/pdf/AR_2012.pdf James, Barrie G. Alliance: The new Strategic Focus. Long Range Planning Journal. Volume 18, Issue 3 pp.76-81. June 1985. Keil, Thomas. (2004), Building External Corporate Venturing Capability. Journal of Management Studies, 41: 799–825. doi: 10.1111/j.1467-6486.2004.00454 Moriarty, Dan. Strategic Focus. Jan 30, 2013. http://www.createadvantage.com/glossary/strategic-focus Samson, Danny and Singh, Prakash J. Operations Management: An Integrated Approach. Cambridge University, Australia. Pp.408-419. Zhang, Jim, Ph.D. New Global Pharmaceutical Outsourcing Trends. Viewed at: http://www.pharmaceuticalonline.com/doc.mvc/New-Global-Pharmaceutical- Outsourcing-Trends-0001 Read More