EXECUTIVE SUMMARY
Allergan also referred as AGN has been a successful organization since the inception. Company was established in 1948 and had a wide history of success. Company has been trying to stabilize in the current scenario. David E.I. Pyott, who is the CEO of the company, is trying to build the company strong enough to resist takeover or merger by Valeant Pharmaceutical. Company has adopted innovation strategy to operate in the current competitive environment. It has company structure and culture that encourages innovation in each and every employee of the organization. David E.I. Pyott believes in returns from intensive research and development which is why company has been investing heavily in the area which is also helping it to stay in the competition.
INTRODUCTION
Allergan started as small pharmaceutical company and grew to become a multinational innovator in the field of specialty medicine. Company adopted several strategies to grow financially and achieve its target. This paper will give good idea of the culture of Allergan and the driving force for the current Culture. This paper also discusses company leadership and how the company is governed by the CEO and top management.
Company had seen many difficulties and as well as good times. From a small pharmaceutical company, it grew to an innovator in the field of health and medicine. The company diversified time to time, and when things went out of hand, it focused strategy and closed down operations that were not generating much revenue. Company has acquired several companies in the past to keep the innovation integral part of the organization. Allergan was also acquired by a company named SmithKline but during the long years of company one thing that it never left out in the process of growing is research and innovation. From the time to time, it has collaborated with companies to have a distinctive knowledge in certain areas of research.
Allergan has grown from a small company and has seen the downfall as well. The time when company was publicized second time it had faced difficulty in every aspect. SmithKline spins off the company to shareholders. There was a decline in not just growth percentage but also in the overall operations and efficiency in every area. At this time, CEO Shepherd reshaped the company and the operations to stabilize the condition of the company. The CEO focused on three basic strategies; first was to focus on research and development. Second was to contain cost, and third strategy was to provide and improve the quality. This helped the organization to get back to the feet and have a strong base. Organization kept on growing after that point, and it has reached the level when it is ranked to be the 21st organization of the world that is considerate reliable in terms of return. It is considered reliable to pay good dividends to the shareholders of the company. If the company had not continuously altered the strategy then, it would have been shut down by now. Allergan is paying attention to the internal and external environment and altering the strategy to have greater competitive advantage in the market.
CURRENT STRATEGY
Allergan is using innovation strategy in order to cope up with the competitors in such a highly competitive market. Innovation helps Allergan to have differentiation in the market. Due to this focus of the company on research and development, Allergan can use the differentiation strategy. This strategy not only helps the company in growing in monetary terms, but it also helps it in penetrating the market easily. All products are developed and researched thoroughly, and after much-detailed work company launches the new innovative product in the market that becomes a new success and growth factor for the company.
Organization receives many advantages and becomes capable of retaining the customers with the help of new innovative products. This strategy has been the oldest strategy of the company that has kept it alive over almost 66 years. Though the company diversified successfully in many fields but when things got difficult to handle, company narrowed area of focus to have a better grip over the different factors of running the organization successfully. When company felt that certain products were not adding much to the bottom line, the company seeks buyers to sell those products with wrote-off. All the related assets and liabilities related to those products no matter how big was the financial setback of the company.
HELP IN ACHIEVING STRATEGIC AND FINANCIAL GOALS
The current focus on the differentiation strategy has helped the organization in achieving all the strategic and, as well as financial goals. Company has grown stronger in markets like Russia. Company has achieved a very strong presence in countries like China and Russia. Company has also grown three times in terms of revenue for the eye care products. Company has also reached significant place in Botox cosmetic in china along with the existing eye care products. Company has covered products from many important sectors like dermatology, ophthalmology, neurological disorder and aesthetic. There are a total of 39 products of the company that are being produced by the company and are available in different markets including local and international markets.
As seen in the table 2 in appendix, Allergan’s healthcare company has seen a very good growth in financial year 2010 to 2011. A percentage growth of 7.2 has been observed from the last period of 2010. The table shared in appendix shows the net sales of all products that have also experienced a strong growth of 15.9% and increased to the value of $1827.3 million.
These strong financial figures show that the strategy employed by the company currently is working well for it. In such a competitive environment and world financial crisis, company is growing by leaps and bounds. 15.9% of the increase in net product sale is a huge figure and cannot be achieved with the differentiation strategy. This strategy has given the company edge over other competitor companies. It has also reached 21st rank of a reliable company for investment that means it has built up goodwill with the shareholders by giving good payoff in the form of dividends. It depicts that the financial and strategic goals of the company are met at the moment. Company is also working well in terms of market capitalization. The current rate of market capitalization of the company is 36.93 billion dollars.
ALLERGAN CULTURE
Allergan culture is very rich in every way. The company provides growth opportunities and reward people for achieving innovation in any way. This does not mean that company is only sizing intelligence of people; instead it is also providing training opportunities to people who have an average set of skills in the beginning. The company helps in polishing those skills in order to reach the personal and professional targets. This way the company and employees grow together in terms of knowledge, career, and monetary value. Company also gives reward so as to inspire people to think creative and innovate. This helps the company in research and development and it also inspires the other employees to work hard towards innovation.
In one word, the culture of the organization is nurturing. It is not only nurturing for the employees but also nurturing for the stakeholders of the company. It has also been rewarded as the America’s most shareholder friendly company. This clearly means it also passes on the benefits to people who are the investing by returning favorable monetary values. Compensation to employees in the form of salaries is also very good at Allergan. The company identifies the fact that research and development is only possible by keeping the company culture nurturing and by inspiring the employees for innovation.
Considering the industry nature, the culture of the company is appropriate. Training is highly valued in the company that is very appropriate for the field of medicine. Many times company has invented new products and given customers the solution to the daily problems. Company culture values people, and it values the talent in them which is why there are several rewards given to employees to encourage these employees to think out of the box. This encouragement has helped Allergan achieve the goals. Company is famous in the market for quality, efficiency, ethics and values. The company has balanced the social, economic and environmental factors very well due to which it has a very balanced culture. Company has never compromised on health of the customer just to gain monetary benefits. Diversity of the employees is respected, and the company provides an environment to the employee that is safe and pleasant to work in along with the challenging and rewarding aspect incorporated in it. Team work is encouraged in the organization. Following are the main aspect of the Allergan culture. World class talent is hired and retained. Company provides equal opportunities to employees to grow. Employees are rewarded upon achieving individual goals and innovation. It is ensured that the individual reward system does not hinder the team work in any way. At the time of achieving the goals, teams are also rewarded so that people do not get encouraged to hide information or hinder the proper workflow. Business strategy is communicated well to the stakeholders so that everyone is informed to make better decisions for work. The overall pay scale of the employees is 6% higher than the industry standards which results in employee retention. This way company can hire extraordinary talent and retain the employees with good compensation plan. The company has general good employee retention since the time it was established, but there has been seen layoff of employees in time of the crisis. Recently Valeant Pharmaceuticals is trying to overtake Allergan pharmaceuticals. The company is trying to adopt strategies to overcome and limit this overtake so that the company can cut cost and can maintain a share in the stock market. Allergan announced in July that it would lay off 13% of employees that is almost 1500 employees globally. Allergan has adopted the layoff strategy to cut down cost only twice in 66 years of span. This does not often happen but only when it is the last option for the company to stabilize. Recently layoff announcement resulted in a remedy strategy to improve the stockholder value so that the stockholders do not give in for the Valeant pharmaceutical offer of takeover. These however create a little job insecurity concerns for the employees. As a result of the layoff, there will be additional 250 vacant positions for the new employees to maintain the workflow.
GOOD PLACE TO WORK
Company is a success focus organization due to which hard work and talent are encouraged. This not only help employees to get rewards and good compensations, but it also help employees to grow professionally and personally. The knowledge gained at the workplace is always a strong addition to the work experience of an individual. Top management and leaders are respect, and people find it a good organization to work.
ALLERGAN’S LEADERSHIP
David E.I. Pyott is the CEO of the company and joined Allergan in the year 1998. At the time when David E.I. Pyott started working at Allergan the company was a small eye care products company. Today Allergan has become a leader in many specialties. In the year 1998, company was spending 100 million in Research and development. In 2013, it was reported to spend 1 billion on R&D because David E.I. Pyott realizes the value of research in an industry like pharmaceutical. This is why Pyott has been an effective CEO for the company. Pyott will not be an effective CEO if the strategic direction of the firm is changed. David E.I. Pyott does have a good track record, and Pyott has been a board of director in several other companies.
Recently there have been many concerns of stakeholders that why the offer of the Valeant was pharmaceutical rejected without major consideration or even a meeting. Many stakeholders raised questions on David E.I. Pyott leadership skills. There was also news about suspicion of stakeholders on the conflict of interest of David E.I. Pyott. According to stakeholders, why was the offer turned down without even discussing it in a proper meeting and without evaluating the monetary value of the offer. Since then David E.I. Pyott is trying hard to focus the strategy of the firm. There has been news about layoff to cut down the cost and increase shareholder’s value. David E.I. Pyott also resigned from the Edwards Lifesciences Corporation from the position of board of director. This resignation was made by the David E.I. Pyott so that Pyott can focus his effort in the Allergan Company.
TRACK RECORD OF DAVID E.I. PYOTT
David E.I. Pyott has a clean record and before joining Allergan in 1998, David was working in Novartis. Pyott was head of the nutrition division, and Mr. Pyott worked in many other departments like marketing, general management and strategic planning. David E.I. Pyott holds position of director in many organizations like Avery Dennison Corporation and Paul Merage School of Business.
POSITIVE AND NEGATIVE TRAITS
Positive trait of David E.I. Pyott is that he invests in the Research and development and realizes the value of the research in this industry. On the other hand, it is of high importance that Pyott must not over invest in things and later have to cut back to stabilize the organization in the stock market. It is important to pass on the benefit to the shareholders as well.
ETHICAL PRACTICES
Allergan has ethical practices in all areas of the work. Company has ethics statement that describes improving life of patients as the core responsibility of Allergan. Ryan Brown is the chief compliance officer of the firm for ethical practices. Company has ethical statement describing the fact that the company will never compromise the health of patients for monetary and organizational advantages.
- Waste Prevention and Minimization
Allergan Company focuses on the fact that the operations should not affect the external environment. Company is keeping the waste minimization and reduction goal at forefront. All the process that increase the wastage are avoided and if needed are completely eliminated even if the alternative is not feasible in monetary terms. Production scrap, rejection and packaging are reduced to a minimum.
- Biodiversity
Allergan works to preserve biodiversity in the areas of all the operations and stays in compliance with the local, national and international standards for the preservation of the biodiversity.
- Health and Safety
Allergan also focuses the efforts to structure and maintain a system that provides safe working environment to the employees. Health of the employees is monitored, and risk assessment is done to avoid any accident on the facility and offices. The entire ethical framework is followed for every stakeholder of the company. Employees, shareholders, stakeholders and customers are kept in consideration, and a different ethical framework is followed for each accordingly.
CORPORATE GOVERNANCE
There are 9 members in the team of board of directors in the company. Company is not an ownership structure company, rather it has investor setup. There are major shareholders in the company who have say in matters. David E.I. Pyott is the CEO and is also a member of the board of directors. It favors CEO, and this had been experienced in the Valeant case when CEO held meetings with many shareholders and other members of the board did not have direct communication.
ORGANIZATIONAL STRUCTURE
Organizational structure of Allergan has 9 directors and CEO David handles the internal matters mostly through the top management. Jim Hindman is the CFO and handles the remaining matters. Other Top management does not have any other work line connection with each other. See notes for structure.
Value chain analysis
Value chain analysis is critical for every organization as value chain helps the organization to add value to the product or service offered. Allergan is highly committed to improve the supply chain process. For this purpose, the organization assesses the suppliers and then includes them in the supply chain. Moreover, the organization not only assesses them initially but the performance of the suppliers is evaluated regularly. These suppliers are review on different standards, performance targets and objectives to make sure that Allergan is able to add value to its supply chain.
FINANCIAL ANALYSIS
Company has been trying to stabilize against the takeover of Valeant. There is still space for improvement, and this is only possible by adopting the right strategy at the moment. Sudden or miscalculated decisions will not lend company in favorable circumstances. The current ratio for the Allergan is 4.28. Quick ratio is 4.05 and cash ratio is 2.93. See Table 3.
Allergan Company has the competitive advantage of research and development. The highest portion of the sales is generated from Botox and company keeps on finding problems that can be cured with this product. However the company has a wide portfolio, this is done to make sure that if one portion of portfolio lags then other can pick up. Allergan makes a specialty product in weird and smaller areas. Company differentiates with the help of higher research and development. Company avoids patent cliff by researching and developing products that are special and differentiate the company product line from others. Gross profit margin of Allergan for 2nd quarter of 2014 is 87.59% in comparison to 87.16% in 2013.ROA is 11.71%, ROI is 13.79% (AGN ROI 2014), Net margin is 19.40% and ROE is 18.97%.
The figures in table 4 indicate that firm has improved the strategy to improve returns for shareholders and to resist the takeover of Valeant pharmaceutical.
COMPETITORs ANALYSIS
There are three main competitors of the Allergan, namely Teva, Novartis AG and Johnson & Johnson. Teva is a big company in terms of size and is growing aggressively. It has the size advantage over Allergan. Teva is planning on growing through mergers and acquisitions. This will increase its presence in the market which is a threat to Allergan as Allergan has limited presence and it has not a very wide portfolio in comparison to Teva. Allergan needs to reduce its dependency on the European and American market. Allergan also needs to increase its reach by expanding globally and diversifying.
Teva also has research and development stronger than Allergan. Allergan is focusing is on differentiating and is not getting efficient return on research despite the fact that it is investing more than Johnson & Johnson and Novartis. Novartis is at 8.4% and Johnson & Johnson is on 8.2% in comparison to Allergan’s 8.0%.
Johnson & Johnson is trying to get approval for the anti-wrinkle product which will break Botox monopoly which is the biggest chunk of Allergan product portfolio. Allergan needs to find innovative ways of Botox in order to stay in the competition.
Another area where Allergan is lacking is the marketing of products and brands. Johnson & Johnson has a very strong marketing capability and network of distribution.
Company needs to grow to compete with the competitors. Strategic partnership can be beneficial at this point but company needs to be careful when considering a company for it.
Core competency analysis and Competitive advantage
Competitive advantage that Allergan has right now is the innovation in the field through better research and development. It differentiates itself on the basis of different products which are rare and innovative which is the core competency of the company. Botox products generate the highest revenue among the other products of company. Allergan keeps on innovating ways how Botox can be used different for treating different problems of patients.
CONCLUSION
Allergan is trying to create a stable environment for it to grow and pass on the benefit to the shareholders and stakeholders. There are some improvements in the strategy of Allergan that were not adopted initially, but are being incorporated now. The leadership of the company is in safe hands with David E.I. Pyott. Company is known to be on the 21st rank in the list of organizations that provide a good result to the investors.
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