Novartis – An Internal Scanning of a Pharmaceutical Company

von: Fatma Torun

Table of contents

I. Introduction 1

II. Company Background 1

2.1 Current Performance and Results 3

2.1.1 Results 1998-2003 3
2.1.2 Key financial developments in 2003 (nine month results) vs. 2002 4

2.2. Strategic Posture 5

2.2.1. Mission 5
2.2.2 Objectives and Strategies 5

III. Internal Scanning 7

3.1 Structure analysis: Corporate structure 7
3.2 Culture analysis: Corporate culture 8
3.3 Internal Analysis of Resources and Functions 9

3.3.1. Internal Resource Analysis 9

3.3.1.1. Financial Resources 9
3.3.1.2. Human Resources 10
3.3.1.3. Intangible Resources: Knowledge Networking 12

3.3.2 Analysis of functional areas 12

3.3.2.1. Marketing 13
3.3.2.2. Research and Development 13

3.4 Competitive advantages of Novartis 15

IV. Conclusion 16

V. Bibliography 17

"If you don’t know where you’ve been,
then it’s hard to figure out where you are.
If you don’t know where you are,
how can you decide where you want to go?
If you don’t know where you’re going,
any road will get you there.”
(Norton, 2002, p.1)

I. Introduction

There is great value in reviewing the road an organization has travelled to get it to the place it is today. Accordingly, the process of identifying where you have been is both a qualitative and quantitative process. This study will analyse the background of the company and determine in detail the internal resources.

II. Company Background

The company Novartis was formed from the merger of the Swiss companies Ciba-Geigy and Sandoz in 1996. Today, it engages in the research and development of products to protect and improve health and well-being. Novartis’ businesses are organized into two divisions: Novartis Pharmaceuticals and Novartis Consumer Health. Novartis Pharmaceuticals engages in the discovery, development manufacture and marketing of prescription drugs (c.f. appendix 1). The Consumer Health division of Novartis focuses on a variety of differentiated drugs that restore, maintain or improve consumer or animal health and well being (c.f. appendix 2). Some of the most successful products are shown in figure 1.

Figure 1: Performance of top ten products [Abbildung in der Downloaddatei vorhanden]

The organisation operates though 360 independent affiliates in 140 countries and employs approximately 74,000 people worldwide. According to Fortune (2003) Novartis is one of the ten best companies to work for in Europe. Fortune, as the Financial Times, publishes several ranking lists to business issues. Novartis is one of the top 5 companies in the healthcare sector (Med Ad News, 2003), where the main competitors are among others Merck & Co., Johnson & Johnson, GlaxoSmithKline and Pfizer (c.f. figure 2 and appendix 3).

Figure 2: World-wide Market Shares of the 9 largest pharmaceutical companies [Abbildung in der Downloaddatei vorhanden]

Daniel Vasella is Chairman as well as CEO of Novartis, which show that the company does not follow the European norm of separating these roles (Morningstar, 2003). It is the view of the board of directors that this dual role ensures effective leadership and communication between the shareholders, the board and the management (Novartis, 2003a).

2.1 Current Performance and Results

2.1.1 Results 1998-2003

In the following an overview of the financial development of Novartis, from 1998 to 2002 including also the nine months figure of 2003 (01/03 – 09/03).

Figure 3: Novartis Financial Development 1998 – 2002 (in United States Dollars (USD)) [Abbildung in der Downloaddatei vorhanden]

Novartis divests its agri and industry business in 2000 due to its focus on pharmaceuticals as its core business. For this reason, the number of employees went down from 81,854 in 1999 to 67,653 in 2000. Furthermore, Novartis increased its Operation Income Rate by 4.6 % within five years time. It seems that Novartis has taken the right decision to separate from non-profitable parts of the business or parts, which are not according to their definition of their core businesses.

2.1.2 Key financial developments in 2003 (nine month results) vs. 2002

To get a better understanding of the business and the markets where Novartis operates in, it is useful to take a look to the key financial developments on a short time period. Pharmaceuticals accounted 65% of the total sales and Consumer Health 35%. The two divisions generated 78% and 22% of divisional operating income, respectively.

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