Sanofi

SANOFI

Strategic Management Report

Strategic Management Report (Spring 2012) MAN405F Submitted To: Sir Abdul Qadir Molvi Submitted By: Muhammad Mohsin Javed (9408) Mehmood Shekhani (8935)

Syed Muhammad Abbas Zia Sabri (8939) 1|Page

Institute ofRaja Business Management Rafay (8856) Year: 2012

Muizz Bawany (9078)

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Strategic Management Report

Contents objectives .............................................................................................................................. 4 INtroduction to sanofi Sanofi pakistan ............................................................................................5 Vision STATEMNT...........................................................................................................................6 Mission STATEMENT ......................................................................................................................6 ANALYSIS OF THE INDUSTRY USING MICHAEL PORTER’S FIVE COMPETITIVE FORCES ...................... 13 External Factor Evaluation............................................................................................................ 19 Competitive Profile Matrix (C.P.M) ............................................................................................... 21 Financial Trends ........................................................................................................................... 22 Interpretation .............................................................................................................................. 26 Value Chain Analysis .................................................................................................................... 29 Support activities ......................................................................................................................... 32 Core Competencies ...................................................................................................................... 34 Strategic Cost Management Process ............................................................................................. 36 Internal Factor Evaluation ............................................................................................................ 37 TOWS Matrix ............................................................................................................................... 40 Grand Strategy Matrix.................................................................................................................. 42 Internal External (IE) Matrix ......................................................................................................... 43 The QSPM Matrix......................................................................................................................... 44

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Executive Summary This report focuses of the strategic analysis of the performance of Sanofi. Sanofi a global name in the pharmaceutical industry holds the 5th position in the Pharmaceutical industry of Pakistan. Sanofi Sanofi works on seven major therapeutic areas; namely: Cardiovascular, Thrombosis, Oncology, Central Nervous System, Metabolic Disorders, Internal Medicine and Vaccines. The report involves understanding of external environmental factors and its impact on the business. The study will look into the strength and weakness of the company in relation to external environment to determine competitive strategic position. It analyzes the current strategy of Sanofi and investigates its short comings. Corrective action and future strategy for Sanofi is also recommended based on its competitive position in the market and its internal activities. The tools used for external environment and industry analysis includes pest analysis, porters 5 force model, SWOT analysis, tows matrix, external factor evaluation, competitive position matrix. The tools used for analysis of internal environment include internal factor evaluation, SPACE matrix, and value chain analysis. Furthermore we have used grand strategy matrix, IE matrix, QSPM to formulate the strategic options for Sanofi.

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OBJECTIVES  Brief explanation about the scope of operations and the environment at Sanofi.

 Analysis of the past and present strategy adopted by Sanofi.

 Devising a future strategy based on the internal and external factors by using various strategic management tools.

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INTRODUCTION TO SANOFI SANOFI PAKISTAN

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VISION STATEMNT To become a diversified healthcare leader, focused on patients’ needs • Valued by patients & healthcare providers • Sought-after as an employer • Respected by the scientific community & our competitors

MISSION STATEMENT Our core strategy is to: • Create value by rapidly launching and successfully marketing innovative pharmaceuticals that satisfy unmet medical needs in large patient populations. • Focus commercial resources on strategic brands to drive sales growth and maximize the value of existing and new global brands. • Aggressively recruit and retain top talent, enhancing our capabilities in drug innovation and commercialization.

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7 MAJORS THERAPEUTIC AREAS Sanofi-Sanofi focuses its activities on 7 major therapeutic areas 1. 2. 3. 4. 5. 6. 7.

Cardiovascular Thrombosis Oncology Central nervous system Metabolic disorders Internal medicine Vaccines

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Field Force The expansion of our field force over the last few quarters as per our plans has increase our customers network both in terms of calls on number of doctors and placing our stocks at retail outlets, We now call on over 25000 doctors; about 3 times the number of doctors on our customer list till very recently. The total numbers of permanent employees, at the end of 2010 were 829. The increase of over 100 persons in our field force since December 2009 has been partially offset by a reduction in the headcount of various support services. Our field-force comprises over 80% of our nonmanufacturing related employees, which gives an indication of our strong headcount controls in non-sales functions. Regular training for newly recruited sales staff and continuing professional/knowledge education for existing persons is part of the company philosophy, Our training programs, conducted by our highly professional training personnel included Cross Product training Advanced Selling Skills, Disease & Product Training etc. Comprehensive 3 Weeks training is imparted to all newly hired sales representative and area managers. Training programs are also done at leading business schools. Performance appraisals for the years were done on a quarterly basis through the scorecards system for the sales force evaluation and on the conventional format for all other employees.

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Industry Structure and MacroEnvironment Analysis ANALYSIS OF THE INDUSTRY USING MICHAEL PORTER’S FIVE COMPETITIVE FORCES Threat of New Entrants

Yes (+) 1) Do large firms have a cost or performance advantage in your 3 segment of the industry 3 2) Are there any established brand identities in your industry? 3) Do your customers incur any significant costs in switching suppliers? 2 4) Is a lot of capital needed to enter your industry? 5) Does the newcomer to your industry face difficulty in accessing distribution channels? 1 6) Does experience help you to continuously lower costs? 7) Does the newcomer have any problems in obtaining the 1 necessary skilled people, materials or supplies? 8) Are there any license, insurance or qualifications that are difficult to obtain? 9) Can the newcomer expect strong retaliation on entering the 1 market? 11 SUB TOTAL +7 TOTAL

No effect

No (-)

2

2

0

4

Entry in Pharmaceutical industry of International standard require high level of market understanding and technological know-how it needs all in one skill, knowledge and abilities of the employees and advanced manufacturing and laboratory system which needs a large sum of

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investment but in Pakistan the situation is quite different because of Government’s inclination towards National pharmaceutical industry and corruption in providing licenses to them. Pharmaceutical industry is the industry that requires large amounts of capital to be invested because of the high cost of the state-of-the art machinery, with high setup costs to be competitive bearing in mind the competition. However producing generic medicines do not require huge initial outlays and that is the reason why a lot of national manufacturers are emerging in Pakistan i.e. market share comprises of 56% to local pharmaceuticals and 44% to MNCs which was reversed a few years back. Currently there is a large number of firms operating in this industry that have cost and performance advantage in the industry, which include multinational firms as well as the local firms, which do not face high threat of entrant, as they do not provide quality products eliminating the high cost of state of the art technology. The biggest barrier is the regulatory body in Pakistan, which requires intense documentation for the registration of the company and the selling the medicine.

Bargaining power of buyers Yes (+) 1) Does the buyer need a lot of important information?

2

2) Your customers are not highly sensitive to price.

2

3) Your product is unique to some degree or has accepted branding? 4) Your customer's (DOCTORS) businesses are profitable.

No effect

No(-)

-3 1

5) You provide incentives to the decision makers (DOCTORS).

-1

SUB TOTAL

5

TOTAL

1

4

The products offered by Sanofi, with the exception of a few, are similar to the products offered by various other companies operating within the industry but, differ in branding. The buyer currently is not aware of the need for information while buying medicines but this trend is changing & Sanofi itself has established a Medical Marketing Department which provides knowledge to the end customers. Overall the bargaining power of the buyers is moderate.

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Threat of substitutes

Yes (+)

No effect

No (-)

1) Substitutes have performance limitations that do not completely offset their lowest price. Or, their performance is not justified by their higher price.

-1

2) The customer will incur costs in switching to a substitute.

-3

3) Your customer has no real substitute.

2

4) Your customer is not likely to substitute.

2

SUB TOTAL

4

TOTAL

4 0

The only reason for the substituting is the difference in the pricing. There are a lot of generic products emerging in the industry lowering the overall profitability of the industry. Availability of the herbal and homeopathic medicines increases competition and the threat of substitutes. Generic products are in rise, as people tend to spend lesser amount on allopathic medications because of slow economy. There is a moderate to strong threat of substitutes because of availability of the herbal and homeopathic medicines and customers’ illiteracy rate. They get the cure from these medicines along with this there has been a failure towards the government’s end to washout fake and smuggled medicines from the market. The other factors that affect the substitutability of the product depend on the prescription of the doctor, area, affordability, price & education.

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Bargaining power of Suppliers

Yes (+) 1) My inputs (materials, labor, supplies, services, etc) are standard rather than unique or differentiated.

No effect

No (-)

3

2) I can switch between suppliers quickly and cheaply.

-2

3) My suppliers would find it difficult to enter my business or my 3 customers would find it difficult to perform my function in-house. 4) I can substitute inputs readily.

-3

5) I have many potential suppliers.

-3

6) My business is important to my suppliers.

3

SUB TOTAL

9

TOTAL

1

8

The bargaining power of suppliers in the industry is moderate. There are many suppliers for chemical compounds for the Pakistani pharmaceutical industry, ranging from suppliers in U.S, with high price compounds to those in China and India that are providing the same at lower costs. The method of a company selecting its supplier goes through a stringent selection process, in order to make sure the quality of inputs match the company specific criteria; this makes it a very cumbersome and costly process for companies, and therefore they intend to stick to limited amount of suppliers who have passed their selection criteria. The stringent process of selection reduces the number of potential suppliers.

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Rivalry among existing competition Yes (+) 1) The industry is growing rapidly.

No effect

No (-)

2

3) The fixed costs of the business are a relatively low portion of 3 total costs. 4) There are significant product differences and brand identities between the competitors.

2

5) The competitors are diversified rather than specialized.

3

6) It would not be hard to get out of this business because there are no specialized skills and facilities or long-term contract commitments, etc.

0

7) My customers would incur significant costs in switching to a competitor. SUB TOTAL

1 5

TOTAL

6 -1

Moderate amount of rivalry exists within the pharmaceutical industry as the pharmaceutical industry is growing at the rate of 8-9% annually while exports are growing by 20% each year. Drugs require understanding of compounds and dosage, etc from the side of the chemists but since manufacturers aim their push efforts towards the chemists, rivalry grows to get shelf space with retailers.

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Conclusion of Porter’s five force model for the industry

Five Forces

Rating

Bargain Power of Suppliers Bargain Power of Buyers Threat of New Entrant Threat of Substitute Rivalry Total

+1 +1 +7 0 -1 +8

+8 show that the Porter’s Five forces are positive impact for Sanofi-Sanofi in Pharmaceutical Industry.

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External Factor Evaluation Key External Factors

Weight

Rating

Weighted Score

1. Pakistan has a population growth rate of 1.6% per annum. 0.2 Higher population growth means that there would be a larger market available for the pharmaceutical industry.

4

0.8

2. Customers interest and preference for buying foreign 0.1 medicines rather than local medicines

3

0.3

3. Emerging diseases

0.08

1

0.08

4. Increased awareness about allopathic mode of medicine

0.1

2

0.2

3

0.45

7. Continued weakening of the PKR & fluid GOP policies will 0.05 put pressure on profit margins & can impede sales i.e. fluctuation in exchange rates

3

0.15

8. The sale of FAKE AND SMUGGLED MEDICINES at low 0.1 prices

3

0.3

10. Use of herbal and homeopathic medicines

0.02

1

0.02

12. Government fixing prices of pharmaceutical products.

0.05

2

0.10

14. Experienced workforce moving from MNCs to national 0.15 pharmaceuticals.

4

0.6

Opportunities

5. Catering to peripheries i.e. market gap in rural and urban 0.15 areas. Threats

Total

1

2.82

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The Total Weighted Score of 2.86 in the External Factor Evaluation (EFE) Matrix denotes that Sanofi is responding well to the existing opportunities and threats in Pharmaceutical Industry. In other words, the strategy Sanofi is implementing is taking advantage of the existing opportunities and minimizing the potential adverse effect of external threats in an appropriate way.

Opportunity Strategies 

Sanofi must take advantage by acquiring the local companies and use their infrastructure and core competencies which can help in producing the remedy for the new and emerging diseases.

Threats Strategies:  

Sanofi-Sanofi should work more to cater to the peripheries as well i.e. filling the rural urban gap in order to fully reap the rewards. Abstain for over-reliance on third party suppliers.

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Competitive Profile Matrix (C.P.M) SANOFI-SANOFI CRITICAL SUCCESS FACTORS Market Share Price Competitiveness Financial Position Product Quality Consumer Loyalty TOTAL

GSK

WEIG HT

RATING

SCORE

0.05

3

0.15

RA TIN G 4

0.15

4

0.6

0.1

3

0.05 0.10 1.0

ABBOTT

SCORE

RATI NG

SCOR E

0.20

3

0.15

4

0.6

4

0.6

0.30

3

0.30

4

0.4

4

0.2

4

0.20

3

0.15

3

0.30

4

0.4

3

1.55

1.65

0.3 1.6

Note: The ratings values are as follows: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 = major strength.

Interpretation:

According to the competitive profile matrix of the pharmaceutical industry in Pakistan, the industry is lead by GSK as being the leader in Pakistan with the score of 1.65 followed by Abbott with 1.6, whereas Sanofi-Sanofi is very close Abbott as it scores 1.55. The rivalry amongst the firms is very high, as the competitive profile matrix values portrays similar scores of all of them. Hence all the areas must be concentrated upon in order to stay inline with the competition.

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INTERNAL COMPANY & VALUE CHAIN ANALYSIS From the internal analysis, we get the strengths and weaknesses of the company. Those are derived from the following four components:    

Financial Trends Value chain Analysis Core Competencies Strategic Costs

FINANCIAL TRENDS Net sale for the year ended December 31, 2011 at Rs.7,619 million comprised of Rs.7,083 (2010: Rs.5,792) million and Rs.536 (2010: Rs.366) million attributable to pharmaceutical and the vaccine products, respectively. Thus our pharmaceutical products recorded a growth of 22.3% (2010: 15.2%) over last year. The sales growth as above is the result of our strategy implemented at the beginning of the year to become “A diversified health-care company with patient centric approach” together with restructuring of the sales and marketing organizations and consistent sales and marketing efforts. The increase as explained above was offset by reduced selling expenses especially commission expenses pertaining to the vaccines tender business. Gross margin for the year ended December 31, 2011 has increased to Rs.2,034 million from Rs.1,754 million in absolute terms whereas as a percentage of net sales, gross margin has declined to 26.69% from 28.48%. The increase in gross margin in absolute terms is attributable to volume growth whereas the decrease in gross margin as a percentage of net sales is primarily due to Pak Rupee depreciation, continued high inflation, increase in cost of utilities, fuel & power due to higher production as well as electricity break down and under supply of water.

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Sanofi works mostly on cash basis because they are subject to the risk of non-payment by their customers which consist principally of distributors, pharmacies, hospitals and government institutions. In order to minimize the credit risk exposure they sell their products on cash basis to the distributors which comprise approximately 89% of their sales. The liquidity position of the company is sound. The company maintains flexibility in funding by maintaining availability under control committed credit lines. Overall the company’s financial position is strong.

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Distribution and marketing expenses have increased both in absolute terms (by 27.86%) as well as a % of net sales from 17.77% to 18.36%. The increase is attributable to both the pharmaceuticals as well as vaccines business activities.

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Ratio

2011

2010

Change

Inventory Turnover Current Ratio

3.38 1.12

3.84 1.41

(0.46) (0.29)

Return on total assets Debt-to-Equity ratio

5.2% 1.75

6.7% 1.29

(1.5%) 0.46

ROIC EPS

14.34% Rs.23.8

15.33% Rs.23.23

(0.99) 0.57

INTERPRETATION Inventory Turnover: Efficiency with which the company is managing its inventory has declined in 2011. Current Ratio: In the case of Sanofi the current ratio shows a decline of 0.29 which indicates that a decline in its ability to meet short term obligations. Debt-to-Equity Ratio: Reliance on debt financing has increased in 2011 as compared to 2010 which shows that the company is unable to meet its expenditures through its equity therefore Sanofi had to borrow additional funds. Return on Total Asset: Efficiency with which the company is managing its Assets has declined in 2011. ROIC: Efficiency with which the company using the Capital funds that it has available for investment has declined in 2011.

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CASH FLOW

Total bank borrowings ( as of Dec 31,2011): Rs.1, 216.1 million (2010: Rs. 738.7 million) comprised of term finance loan and short term borrowing amounting to Rs.300 million (2010: Rs.500 million) and Rs.916.1 million (2010: Rs.238.7 million) respectively. These have increased significantly by Rs.477.4 million mainly due to deduction of with-holding taxes for an amount of Rs.380.6 million, payment of finance cost amounting to Rs.107.9 million, capital expenditure of Rs.385.65 million and Rs.96.02 million representing dividends payments, which is partly offset by positive cash flows from operating activities amounting to Rs.483 million.

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VALUE CHAIN ANALYSIS

Suppliers of Raw Materials Sanofi selects its suppliers after a thorough inspection by a team of the suppliers. Suppliers are selected after inspection and testing their chemicals according to their quality standards and also approved by the FDA. Moreover, the company purchases its packaging material from local manufacturers.

General Administration Sanofi primarily gets its raw material from its own affiliated companies, most of them based in Product Research & Development France. They are called “inter-company suppliers”. Moreover, Sanofi rely on third parties for the of their raw material, active ingredients and Raw manufacturing and supply of a substantial portion Sales & Retail Final medical devices. This exposes them to risk of supply interruption in the event that their suppliers Material Marketing Pharmacist Consumers experience financial difficulties or are unable to manufacture a sufficient supply of their s products. It sometimes also increases the risk of quality issues. The supply chain department at Sanofi is performing under the supervision of highly qualified and experienced staff which caters the supply needs of the local market. The department also

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helps to qualify the suppliers on basis of their previous business practices & market repo which helps Sanofi to select the best suppliers. The management of inventories is handled by experienced staff which starts its action from the moment the raw material is received and is settled in the warehouse. The effective movement of raw materials from warehouse to quality control and production unit is the key to resource flexibility at Sanofi. The warehouse’s location plays a key role in managing the inventories efficiently and the management at Sanofi is fully aware of the long term assurance of material availability for the production that is why the warehouse is situated at the heart of the factory, linking the production processing belts and quality control department.

Operations Operational activities are done at the plant located at Brooks Roundabout, Korangi industrial area, Karachi. Sanofi has recently closed down their plant at Wah and are in the process of transferring their machinery to the plant in Karachi. Sanofi has a sophisticated and productive operations design. The objective of the industrial affairs is to produce, pack and provide the highest standard quality medicines, meeting stringent safety conditions, at competitive costs to its customers. Beside this emphasis is also laid on the health and safety of their workers and protection of the environment. The production plants are clean and every effort is made to produce the best quality medicines. There are warehouses in the facility to keep the boxes of medicine. Moreover, for vaccines, there is a vaccine storage area where the vaccines are kept at the required temperature. In 2009, Sanofi-Sanofi continued to make considerable investment in Pakistan. They completed a new liquid plant in Karachi and the renovation and up gradation of the Quality control lab, etc. The medicines are produced with the precise ingredients to make sure the customers get the best medicine. There are thousands of workers at the plant who check the medicine for any flaws before packaging. The sophisticated machinery helps to nullify any error to the greatest possible extent. Sanofi has an independent quality control system which is strictly in accordance with the world renowned authority regulations. Quality Control department of Sanofi is equipped with top-line branded equipment. In connection with good quality manufacturing facilities it also have well modernized and advanced equipment in its quality control department which is being headed by well qualified, skilled and experienced professionals. Continuous improvement at Sanofi is achieved by applying the standards of sampling and testing of process and quality at different levels of production. This concept of continuous improvement at Sanofi is in line with the concept of Total Quality Management.

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Distributors

DISTRIBUTED CHANNELS

GOODS FLOWS CHART

Sanofi receives stocks from the Karachi warehouse and sells that to Retailers and Wholesalers in local market through their sixteen Regional Distributors. Sale to all Institutions including Government and Private Hospitals all over the country is done directly by the company but supplied through twelve Institutional Agents. There is a risk of non payment by the customers of Sanofi which includes the distributors’ as well. So to tackle this problem, the company sells their products on cash basis to the distributors which comprise approximately 89% of the company’s sales. 31 | P a g e Institute of Business Management Year: 2012

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Sales and Marketing The sales team of Sanofi consists of well trained and educated personnel, which have the skills to inform its customers mainly the doctors about their products and identity its benefits. Sanofi has formulated a sales team by a thorough and refined process which selects the best and most compatible sales force that achieves the objectives of the company. Every year Sanofi conducts various seminars and workshops for its sales people which include:   

The importance of communication in an organization Communication channels Overcoming the communication barriers, etc.

Moreover, one of the strengths of the company is its extensive marketing on which it has capitalized. The marketing expenses of Sanofi have increased primarily due to the selling expenses pertaining to the addition of vaccines business. Many promotional and other activities were held by the company to educate people about disease such as dengue, etc and the use of vaccines to prevent/cure such diseases. Sanofi operates in major therapeutic areas like diabetes, cardiovascular, oncology, urology and many others. Each segment is focused through different medical marketing activities for increasing awareness of disease. Moreover, Sanofi has contracted with doctors, for example a Diabetes doctor, who travels to different cities in Pakistan and sometimes abroad as well to deliver lectures and conduct seminar. This promotes SanofiSanofi’s image and promotes its brands. The cost incurred such as travelling, etc is also marketing expense. International and local scientific medical congresses and workshops are considered to be very valid source of updating the medical knowledge of clinician’s disease area. The company assists the medical community to update their knowledge and skills to help the patient in a better way.

SUPPORT ACTIVITIES Human Resource Management The principal to equal opportunity is central to the HR policies of Sanofi-Sanofi and they are committed to equipping all employees with their job roles and support them to realize their full potential. The company places high regard in grooming talent as it believes that its employees are the sustainable competitive advantage for the future.

Technology Development In line with their continuous endeavors to regularly upgrade information systems Sanofi-Sanofi continued with their policy to invest more and more in IT and upgrade of related infrastructure, thereby enhancing both quantitative and qualitative aspects of management decision making.

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Sanofi-Sanofi has continuously strived to seek excellence in process improvement. The organization has managed to improve various processes across the organization eliminating manual paper work as much as possible. Some of their business process projects have been very successful which include:  Enterprise Resource System (ERP) The corporation upgraded the enterprise ERP solution SAP to its latest version. This required extensive offshore training to their key users.  E-Performance Employee appraisal is a long and challenging process for every company. This new tool was developed to reduce paper based exercise, which improved record keeping, enforced timelines and ensured compliance to the appraisal process.  Electronic Purchase Requisition The EPR system which has now been further improved to integrate directly with SAP and simplifies and automates the purchase process throughout the organization. The system automatically enforces financial controls and manages thresholds simplifying tasks for financial controlling  Employee Self Service ESS has been enhanced and extended to their field force.ESS is a powerful HR system to eliminate manual queries and paperwork for dispensation of personal information, salary slips, leave application and other payroll related services.

Research & Development Disease prevention is the most cost effective health care intervention available. Because immunization helps to inhibit the spread of disease, many people can be protected from illness and death. With tomorrow’s health challenges in view, the R&D team is working both on innovation and improvement of medicine and there is lot of effort towards vaccine delivery, as Sanofi Pasteur, the vaccine division of Sanofi group, is the largest company in the world devoted entirely to human vaccines. Vaccines provide an effective response to major diseases, generally as a preventive measure but sometimes as a therapeutic solution. R&D explores a broad spectrum of innovative approaches, and develops new products in the key areas of therapeutic expertise: Thrombosis, Cardiovascular diseases, Diabetes, Vaccines, Oncology, Central Nervous System disorders and Internal Medicine.

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Management Committee The management committee provides direction and leadership to the organization by:  Setting the strategic objectives  Formulating policies and implementing risk management and internal control procedures.  Ensuring effective management of resources  Monitoring activities to ensure objectives are met in transparent, ethical manner in line with the values of the organization

CORE COMPETENCIES Research and Development A major portion of Sanofi’s budget is allocated for the Research and Development. The mission of Sanofi-Sanofi Research and Development is to address patients' real needs – those that are either poorly covered or completely ignored - and provide them with appropriate therapeutic solutions. To fully achieve this objective, the organization launched a transformation program in 2009 to make R&D an innovation driver operating in a new environment that would stimulate creativity, openness and higher performance. R&D explores a broad spectrum of innovative approaches, and develops new products in the key areas of therapeutic expertise: Thrombosis, Cardiovascular diseases, Diabetes, Vaccines, Oncology, Central Nervous System disorders and Internal Medicine. Sanofi-Sanofi last year conducted a clinical research projects the focus of these was in the fields of diabetes, infectious disease and breast cancer. A large scale study, TAP (Typhoid in Adult Pakistani Population) was conducted to determine the incidence of typhoid fever. This project was of great benefit to the population at large as it offered primary and secondary prevention to patients suspected of typhoid. A research project VISION to determine the prevalence of retinopathy (condition affecting the retina of the eye) in diabetic patients was also undertaken during 2009.This project termed PRESERVING VISION is the first of its kind in Pakistan which should help to avert blindness in diabetic patients.

Producing vaccine Sanofi Pasteur is the vaccine division of the Sanofi group; it is the largest company in the world devoted entirely to produce human vaccines. Vaccines provide an effective response to major diseases, generally as a preventive measure but sometimes as a therapeutic solution.

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To prevent diseases in children, adolescents and adults around the world, the Sanofi Pasteur R and D department is developing new generations of vaccines. Sanofi Pasteur offers the wildest range of vaccines for 20 diseases. With future health challenges in view, the R & D team of Sanofi Pasteur, the group’s vaccines division is working on both innovation and improvement of vaccine delivery and modes of administration. Either alone or in partnership, the research team is attacking such major diseases as dengue, pneumococcal infections, cytomegalovirus, malaria, tuberculoses, Chlamydia and Type B meningitis.

State of the Art manufacturing plant Sanofi-Sanofi has state of the art manufacturing facility and processes. In order to differentiate the quality of the products, the manufacturing processes are continuously improved and stringent quality control standards are maintained. For storing the vaccines, there is a Cold storage facility which stores the vaccines at the ideal temperature.

Marketing and Sales Campaign One of Sanofi’s objectives is to create awareness to the people about the diseases and how should they be cured. For this purpose Sanofi invests a major portion in launching different marketing and sales campaign. The Marketing and sales campaigns held by the company are “Seeing is Believing”, Explore the Potential (Pediatric campaign), Pure water-Pure life campaign, RODD study, local speaker programs, scientific product presentations and intravenous medication programs for health professionals. Sanofi-Sanofi has a tradition of facilitating academic activities for medical practitioners.

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Strategic Management Report

STRATEGIC COST MANAGEMENT PROCESS Strategic costs are recorded through traditional accounting system, done by a team of accountants hired by the company, based on the specific activities being performed and then assigning costs to the appropriate activity responsible for creating the cost. The Strategic costs of Sanofi-Sanofi include the following costs:  Operational Costs (warehousing, manufacturing & workforce) Sanofi- Sanofi has a state of the art plant which is continuously improved and upgraded; the cost incurred for advancement and maintenance is high. The corporation is continuously transforming the business to meet the challenges that lie ahead. Therefore a project for divestment of Wah manufacturing site and shifting its entire production facility to one place – at Karachi was initiated in 2007. Sanofi-Sanofi has a large pool of highly skilled labor force which has to be looked after.  Raw Material Cost As Sanofi-Sanofi outsource the raw materials for production, the cost increases.  Distribution and marketing Cost Sanofi distributes its products all over Pakistan which is done through different channels, of distribution. The organization’s marketing department is active and launches new campaigns to create awareness. It also conducts seminars and workshops. Sanofi controls the transportation, distribution and marketing costs effectively.

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SANOFI

Strategic Management Report

INTERNAL FACTOR EVALUATION Key Internal Factors

Weight

Rating

Weighted Score

1. Strong and recognized brand name

0.2

4

0.8

2. Large investment in R&D

0.15

3

0.45

4. Patent protection

0.05

1

0.05

Strengths

5. Huge and strong product portfolio, catering different 0.1 segments 6. State of the art manufacturing plants. (Only blood plasma 0.1 technology in Asia)

2

0.20

1

0.1

8. Slow decision making process due to elongated hierarchy 0.1 structure.

3

0.30

9. Decreasing market share

0.15

3

0.45

10. Less employee promotion opportunities

0.1

2

0.2

11. Tough Credit Policy (Cash/Credit – 89%/11%)

0.05

1

0.05

Total

1

Weaknesses

2.6

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SANOFI

Strategic Management Report

Interpretation The total weighted score of 2.6 in the Internal Factor Evaluation (IFE) Matrix indicates that Sanofi is above average in its overall internal strength. The major strengths are huge brand name, strong product portfolio and State of the art technology; these strengths should be guarded. The decreasing market share of Sanofi and employee promotion opportunities makes up their weaknesses. Sanofi has a strong research and development department which helps in advancing its business processes. It also has a strong Medical Marketing Department which conducts campaigns, seminars and conferences. Strengths Strategies:  

The company should maintain its strong product portfolio. They should look towards emerging diseases and try to cater to them by extending the product line even further. It should use its strong Research and Development team to introduce new medicines.

Weakness Strategies: 

Just in time stock systems should be maintained so that the cost of inventory decreases. The floor space for maintaining inventory could be used for something more productive, such as setting up additional simpler units for special hand blended tea.

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SANOFI

Strategic Management Report

STRATEGIC ANALYSIS AND RECOMMENDATION

Generic strategy of Sanofi is Overall low-cost Provider Strategy Reasons for Overall low-cost Provider Strategy strategy:        

Sanofi has an 88 year experience in insulin & diabetes & thus leads in the insulin manufacturing field. Additionally it has exclusive distribution rights to insulin in Pakistan; Superior quality and performance characteristics; Large product portfolio, so targets a large market segment Highly experienced professionals; Emphasis on R&D in developed as well as emerging markets; It is the only company to own a liquid blood plasma in Asia; It uses an ERP system for improving its processes; It has a Medical Marketing Department, which held conferences and seminars to aware its customers, doctors, about the new diseases and the cures they have to offer. 39 | P a g e Institute of Business Management Year: 2012

SANOFI

Strategic Management Report

TOWS MATRIX

Opportunities-O

Strengths-S

Weakness-W

S-1 Strong and recognized brand name. S-2Research & development. S-3Socially responsive. S-4Patent Protection S-5Huge and strong product portfolio, catering different segments. S-6 State of the art manufacturing plants. (Only blood plasma technology in Asia) S-7 ERP system being used, to seek improvement in processes.

W-1 Slow decision making process due to elongated hierarchy structure. W-2 Decreasing market share. W-3 Less employee benefits and perks. W-4 Tough Credit Policy (Cash/Credit – 89%/11%)

SO-Strategies

WO-Strategies

O-1Pakistan has a population 1- Leveraging Brand name to 1- Focusing on untapped markets cater high end market (S1, O2) like Cancer, HIV, and new growth rate of 1.6% per annum. 2Conducting seminars and ATL disease to increase market Higher population growth activities to create awareness share. (W2, O2, O3) means that there would be a about emerging diseases. 2Liberalizing credit policy to larger market available for the attract potential customers (S2,S4,O3,O2,O5) pharmaceutical industry. 3- Developing new formulas in (W4,O-1) fields such as Cancer (S2, O2) O-2Customers interest and preference for buying foreign medicines rather than local medicines O-3 Emerging disease O-4 Acquisition companies.

of

local

O-5 Increased awareness about allopathic mode of medicine O-6Allowing of TRIPS to have parallel trade on some generic medicines.

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SANOFI

Strategic Management Report ST-Strategies

Threats-T

WT-Strategies

T-1 Continued weakening of the PKR & fluid GOP policies will 1- By focusing heavily on 1- Empowering employees and personal selling, they can delegating authority to ensure put pressure on profit margins inform potential clients about timely decision making & can impede sales i.e. their superior quality medicine (W5,T5) fluctuation in exchange rates compared to the cheaper local 2- Increase Marketing efforts to medicines. (S1,S4,T3) create awareness about T-2 The sale of FAKE AND on exclusive allopathic medicines (W2,T4) SMUGGLED MEDICINES at 2- Capitalize technology & develop new low prices medicines (Tablet Insulin) (S2,S6, T1, T6) T-3 Financial crisis is becoming an obstacle for development opportunities.

T-4 Use of herbal homeopathic medicines.

and

T-5 Government fixing prices of pharmaceutical products. Difficult to exit the industry. T-6 Experienced workforce fleeing out to other nations for better employment opportunities. T-7 Financial crisis is becoming an obstacle for development opportunities.

Conclusion of TOWS MATRIX  WO Strategy (Proactive Strategy) Because of Sanofi’s decreasing market share, they should focus on untapped markets, increasing employees benefit by giving more opportunities (i.e. promotions, job rotations) and Sanofi should fill the urban-rural market gap to increase its market share.

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SANOFI

Strategic Management Report

GRAND STRATEGY MATRIX

The pharmaceutical industry is growing rapidly which has a positive effect on the industry because the demand for the products is increasing. Due to this factor there is an intense competition in the industry so in order to grow and obtain additional market share, Sanofi is positioned in the 1st quadrant of the grand strategy Matrix and hence can pursue following strategies depending upon the market circumstances.    

Market Development- To find cure for diseases like HIV and to formulate new and better methods to cure Cancer. Product Development- To produce medicines which are effective and have minimum side effects. Market Penetration- To capture the animal health care market share Backward Integration- Sanofi should start raw materials manufacturing in Pakistan which will resolve their weakness for delays in Raw Material delivery.

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SANOFI

Strategic Management Report

INTERNAL EXTERNAL (IE) MATRIX Strong 3.0 to 4.0

Average 2.0 to 2.99

Weak 1.0 to 1.99

High 3.0 to 4.0

1

2

3

Medium 2.0 to 2.99

4

5 (SANOFI)

6

Low 1.0 to 1.99

7

8

9

According to the IE Matrix, Sanofi is placed in the 5th cell, which suggests that the organization should follow the hold and maintain strategy. In this case, the tactical strategies should focus on market penetration and product development. 

  

Market Penetration- Market its existing products filling the urban-rural market gap. MNC’s are not going for rural market, and all national pharmaceutical are catering there, therefore SANOFI has the opportunity to fill this gap. Increase Employees opportunities Loosen the tough credit policy Increase benefits to Doctors (like national pharmaceutical companies do, i.e. holiday trips) so that they prescribe more Sanofi’s medicines to patients.

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SANOFI

Strategic Management Report

THE QSPM MATRIX Strategy 1 - Developing new formulas in fields such as Cancer Strategy 2 - By focusing heavily on personal selling, they can inform potential clients about their superior quality medicine compared to the cheaper local medicines. Strategic Alternatives Critical Success Factors

Weight

Strengths

Developing new Focusing heavily formulas on personal selling

Strong and recognized brand name.

0.15

AS 2.00

TAS 0.30

AS 4.00

TAS 0.60

Research & development.

0.12

4.00

0.48

1.00

0.12

Diversified range of markets.

0.05

3.00

0.15

4.00

0.20

Medical marketing department.

0.09

2.00

0.18

4.00

0.36

Huge and strong product portfolio, catering 0.15 different segments.

3.00

0.45

4.00

0.60

State of the art manufacturing plants. (Only 0.13 blood plasma technology in Asia)

4.00

0.52

1.00

0.13

ERP system being used, to seek improvement 0.06 in processes.

3.00

0.18

2.00

0.12

to 0.04

3.00

0.12

2.00

0.08

Decreasing market share. (2nd to 5th position 0.15 in a space of 2 years)

4.00

0.60

4.00

0.60

Less employee benefits and perks.

0.06

2.00

0.12

3.00

0.18

SUBTOTAL

1.00

Weaknesses Slow decision making process elongated hierarchy structure.

due

3.10

2.99

Strategic Alternatives Critical Success Factors

Weight

Opportunities

Developing new Focusing heavily formulas on personal selling AS

TAS

AS

TAS

High population growth.

0.08

3.00

0.24

4.00

0.32

Emerging diseases.

0.15

4.00

0.60

1.00

0.15

Customer’s preference for medicines produced 0.10 by MNCs.

4.00

0.40

4.00

0.40

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SANOFI

Strategic Management Report

Acquisition of local companies.

0.18

3.00

0.54

1.00

0.18

Increasing awareness of the market about 0.15 various drugs and diseases.

4.00

0.60

3.00

0.45

Slow down of the economic growth of the 0.03 country.

2.00

0.06

3.00

0.09

Heavy reliance on third parties for supplying of 0.08 materials.

1.00

0.08

2.00

0.16

Counterfeit products in the market.

0.05

2.00

0.10

4.00

0.20

Exchange rate fluctuations.

0.05

4.00

0.20

2.00

0.10

Use of herbal and homeopathic medicines.

0.04

3.00

0.12

4.00

0.16

Government fixing prices of pharmaceutical 0.09 products.

4.00

0.36

2.00

0.18

Threats

SUBTOTAL

1.00

SUM TOTAL ATTRACTIVENESS SCORE

3.30

2.39

6.40

5.38

According to the QSPM Matrix, Sanofi should implement Strategy 1 i.e. to develop new formulas to cure cancer. Sanofi has the advantage of having an advanced and strong Research and Development Department and highly skilled scientists, by taking advantage of these strengths Sanofi can formulate new methods to cure Cancer. Sanofi is the only pharmaceutical company in Asia to own a blood plasma plant. All these strengths can be utilized to give the consumers a better and disease free life.

CONCLUSION Sanofi is strong when it comes to the integration of resources, structure and culture required to implement a strategy successfully. It should continue in the positive direction and take advantage of the various opportunities and possible strategies mentioned throughout the report.

PITFALLS OF STRATEGY IMPLEMENTATION The implementation of strategy can fail if the resources, structure and culture are not well blended to overcome the cognitive, motivational, resource and political hurdles that can come into existence any time during the implementation process. Thus, Sanofi should be aware of the consequences that can result because of the above and constantly monitor the internal environment to avoid such circumstances to be able to maintain its current position and grow in the future.

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SANOFI

Strategic Management Report

Special Note: The Internal/External Factors evaluation and Porters Five Forces evaluation are done with the help from Dr. Shakeel Ahmed (Product Manager of OBS)

Bibliography http://www.pharmaceutical-business-review.com/ http://www.sanofi-Sanofi.com.pk/ Annual Report of Sanofi 2011 http://en.wikipedia.org/wiki/Sanofi

46 | P a g e Institute of Business Management Year: 2012