{"id":4257,"date":"2015-12-08T23:52:59","date_gmt":"2015-12-09T04:52:59","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/gsk-keep-it-simple\/"},"modified":"2015-12-08T23:58:19","modified_gmt":"2015-12-09T04:58:19","slug":"gsk-keep-it-simple","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/gsk-keep-it-simple\/","title":{"rendered":"GSK \u2013 Keep it simple"},"content":{"rendered":"

 <\/p>\n

GSK has the average, simple business model of a large pharmaceutical company. They are a science-led global healthcare company that researches and develops wide range of innovative products in areas of Vaccines, Pharmaceuticals and Consumer Healthcare to commercialize them in more than 150 countries around the world.
\nHowever, what made GSK stand out in the pharma community and get heavy criticism from the investors, was its new strategy to focus on selling \u201clow price-large volume\u201d drugs in emerging markets instead of most common practice of selling \u201chigh price-low volume\u201d products in the US and Europe (2). In an industry where biotech start-ups are the main point of attention and all pharmacos are re-designing their R&D operations to catch-up with new, more complicated level of innovation, GSK Chief Executive Sir Andrew Witty chose to swim against the current by defining his vision as \u201cA simpler, stronger and more balanced platform for long-term growth\u201d (1) One major pillar of this new strategy was simplifying the three components of the operating model in alignment with the new vision. Simplification plan turned out to have further controversial initiatives that challenged many of the accepted truths about the pharmaceutical industry. Highlights of the change in operating model were the following:<\/p>\n


\n<\/a>\"GSK<\/a>
\n<\/a> \u00a0
\n<\/a>R&D<\/strong>
\n– With the objective of simplifying its product portfolio, GlaxoSmithKline entered to an unprecedented $20 billion swap deal with Novartis. (5) GSK received vaccine portfolio from Novartis in exchange of handing its Oncology business to the Swiss company. The two giants also agreed to form a joint venture in Consumer Healthcare. Swap agreement was the first move by GSK to divest its assets in relatively more complex therapeutic areas. It was followed by announcement of job redundancies in R&D of respiratory team
\n– In an unseen manner in a protective industry of pharma, company opened up access to facilities, some of its intellectual property and expertise to collaborate with external organisations on product innovation
\n– As a result, GSK had more medicines approved than any other healthcare company since 2009<\/p>\n

MANUFACTURING<\/strong>
\n– Manufacturing is perceived as key capability of GSK. It owns 14 Vaccines and 43 Pharmaceutical sites in 26 countries. (3) The company is in the process of reviewing its global manufacturing footprint to ensure effectiveness and is considering to reallocate its production needs among facilities given its new geographical focus. This is expected to result with closure of certain facilities
\n– In the new lower margin strategy, streamlining supply chain processes became further critical. GSK launched end-to-end supply chain programme in 2013 to simplify supply chain by firstly re-designing the organization structure to a streamlined simpler governance model. This aims to improve coordination across the value chain from sourcing raw material to more efficient delivery of products to end consumers
\n– In 2014, company introduced the GSK Production System across manufacturing facilities, a standard way of working to identify and eliminate the root causes of accidents, defects and waste. Standardized way of working significantly improved business performance, evidenced by 40% decrease in manufacturing interruptions despite 26% increase in production in Cairo facility
\n– To further bring down the complexity in manufacturing, production of 19% of packs have been discontinued and number of outsource manufacturing partners have been reduced by 8% in 2013-2014 (3)<\/p>\n

\"Simplify<\/a><\/p>\n

COMMERCIAL MODEL<\/strong>
\n– Global commercial structure was streamlined to create a single commercial center in London to support Europe, emerging markets and Asia Pacific Japan markets. GSK also reduced complexity in US operations by creating a single headquarters for the US Pharmaceuticals
\n– GSK has taken two very controversial decisions that caused heated discussions in the industry. Firstly, company decided to evaluate performance of its sales reps solely based on their technical knowledge, quality of information conversed to healthcare professionals, and the company\u2019s overall business performance. New incentive system completely eliminated typical individual sales targets system. Secondly, GSK decided to invest in its full-time employee healthcare professionals to market its products instead of paying to external experts and key opinion leaders for promoting it. GSK positioned both initiatives as signs of its commitment to becoming a more responsible, consumer-centric pharma company that is living up to its values<\/p>\n

With all the heated debates it brought to conservative pharma industry, GSK reduced its annual operating costs by $4,5 billion and announced strong growth of 11% CER in Q3 2015. Financial analysts recently published favorable reports evaluating GSK stock as undervalued in the market now (6). Further data points are needed to make full assessment of drastic strategic change. However, even current positive numbers are solid proof for importance of two points: (1) Re-assessing business model continuously even if the company is central part of industry, (2) Fully re-designing operating model to meet needs of new direction – regardless of the size of change required<\/p>\n

(1) \u201cGlaxoSmithKline : Out of step\u201d, Andrew Ward, Financial Times, http:\/\/www.ft.com\/cms\/s\/2\/3a7f8df0-f7b7-11e4-9beb-00144feab7de.html#axzz3tmY7j8RU
\n(2) \u201cGlaxoSmithKline: A drugs giant that puts the lives of the poor before the money of the rich – could it happen?\u201d, Charlie Cooper, Independent, http:\/\/www.independent.co.uk\/life-style\/health-and-families\/health-news\/glaxosmithkline-a-drugs-giant-that-puts-the-lives-of-the-poor-before-the-money-of-the-rich-could-it-10237538.html
\n(3) GSK 2014 Annual Report, https:\/\/www.gsk.com\/media\/603031\/annual-report-2014.pdf
\n(4) \u201cGSK Changes Its Drug Sales Practices And R&D Suffers\u201d, John LaMattina, Forbes, http:\/\/www.forbes.com\/sites\/johnlamattina\/2014\/12\/10\/gsk-changes-its-drug-sales-practices-and-rd-suffers\/
\n(5) \u201cGSK-Novartis deal is a game changer for M&A\u201d, Ashley Armstrong, Telegraph, http:\/\/www.telegraph.co.uk\/finance\/newsbysector\/pharmaceuticalsandchemicals\/10791444\/GSK-Novartis-deal-is-a-game-changer-for-MandA.html
\n(6) \u201cGlaxoSmithKline: Unfairly Beaten Given Strategic Direction\u201d, Peter Mantas, Logos-LP, http:\/\/seekingalpha.com\/article\/3601886-glaxosmithkline-unfairly-beaten-given-strategic-direction?li_source=LI&li_medium=liftigniter-widget<\/p>\n","protected":false},"excerpt":{"rendered":"

GSK \u2013 The Big Pharma that decided to keep it simple in an industry that is getting more complicated than ever<\/p>\n","protected":false},"author":475,"featured_media":4299,"comment_status":"open","ping_status":"closed","template":"","categories":[449,222],"class_list":["post-4257","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-operating-model","category-pharmaceuticals"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nGSK \u2013 Keep it simple - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/gsk-keep-it-simple\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"GSK \u2013 Keep it simple - 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