Case Study Description of Shanghai Pharmaceuticals
Shanghai Pharmaceuticals (SPH), a vertically integrated Chinese pharmaceutical conglomerate, was considering its strategic options in the context of a rapidly evolving industry, policy, and economic environment. The company-essentially a collection of subsidiaries operating under a unified management structure-was formed through the 2009 merger of several state-owned enterprises, part of a broad policy effort in China to streamline state assets, consolidate the fragmented pharmaceutical sector, and enhance the global competitiveness of domestic firms. As it competed with other large domestic firms to become one of the few national champions that the government hoped to create, SPH was also considering an acquisition in the U.S. or Europe. This case allows students to consider the broad trends sweeping China's pharmaceutical industry and health care sector and assess future opportunities there for domestic and foreign businesses.
Swot Analysis of "Shanghai Pharmaceuticals" written by Regina E. Herzlinger, Natalie Kindred includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Sph Pharmaceutical facing as an external strategic factors. Some of the topics covered in Shanghai Pharmaceuticals case study are - Strategic Management Strategies, Entrepreneurship, Government, Mergers & acquisitions, Strategy execution and Leadership & Managing People.
Some of the macro environment factors that can be used to understand the Shanghai Pharmaceuticals casestudy better are - – increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing energy prices, central banks are concerned over increasing inflation, increasing inequality as vast percentage of new income is going to the top 1%, there is backlash against globalization,
challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Shanghai Pharmaceuticals
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Shanghai Pharmaceuticals case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Sph Pharmaceutical, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Sph Pharmaceutical operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Shanghai Pharmaceuticals can be done for the following purposes –
1. Strategic planning using facts provided in Shanghai Pharmaceuticals case study
2. Improving business portfolio management of Sph Pharmaceutical
3. Assessing feasibility of the new initiative in Leadership & Managing People field.
4. Making a Leadership & Managing People topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Sph Pharmaceutical
Strengths Shanghai Pharmaceuticals | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Sph Pharmaceutical in Shanghai Pharmaceuticals Harvard Business Review case study are -
Ability to recruit top talent
– Sph Pharmaceutical is one of the leading recruiters in the industry. Managers in the Shanghai Pharmaceuticals are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Ability to lead change in Leadership & Managing People field
– Sph Pharmaceutical is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Sph Pharmaceutical in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Innovation driven organization
– Sph Pharmaceutical is one of the most innovative firm in sector. Manager in Shanghai Pharmaceuticals Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High brand equity
– Sph Pharmaceutical has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Sph Pharmaceutical to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Strong track record of project management
– Sph Pharmaceutical is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Training and development
– Sph Pharmaceutical has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Shanghai Pharmaceuticals Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Cross disciplinary teams
– Horizontal connected teams at the Sph Pharmaceutical are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High switching costs
– The high switching costs that Sph Pharmaceutical has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Leadership & Managing People industry
– Shanghai Pharmaceuticals firm has clearly differentiated products in the market place. This has enabled Sph Pharmaceutical to fetch slight price premium compare to the competitors in the Leadership & Managing People industry. The sustainable margins have also helped Sph Pharmaceutical to invest into research and development (R&D) and innovation.
Superior customer experience
– The customer experience strategy of Sph Pharmaceutical in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Operational resilience
– The operational resilience strategy in the Shanghai Pharmaceuticals Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Effective Research and Development (R&D)
– Sph Pharmaceutical has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Shanghai Pharmaceuticals - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Shanghai Pharmaceuticals | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Shanghai Pharmaceuticals are -
Capital Spending Reduction
– Even during the low interest decade, Sph Pharmaceutical has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Lack of clear differentiation of Sph Pharmaceutical products
– To increase the profitability and margins on the products, Sph Pharmaceutical needs to provide more differentiated products than what it is currently offering in the marketplace.
High bargaining power of channel partners
– Because of the regulatory requirements, Regina E. Herzlinger, Natalie Kindred suggests that, Sph Pharmaceutical is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Shanghai Pharmaceuticals HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Sph Pharmaceutical has relatively successful track record of launching new products.
Interest costs
– Compare to the competition, Sph Pharmaceutical has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Shanghai Pharmaceuticals, in the dynamic environment Sph Pharmaceutical has struggled to respond to the nimble upstart competition. Sph Pharmaceutical has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Need for greater diversity
– Sph Pharmaceutical has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Workers concerns about automation
– As automation is fast increasing in the segment, Sph Pharmaceutical needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High cash cycle compare to competitors
Sph Pharmaceutical has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Shanghai Pharmaceuticals, it seems that the employees of Sph Pharmaceutical don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Slow decision making process
– As mentioned earlier in the report, Sph Pharmaceutical has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Sph Pharmaceutical even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Shanghai Pharmaceuticals | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Shanghai Pharmaceuticals are -
Building a culture of innovation
– managers at Sph Pharmaceutical can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Leadership & Managing People segment.
Learning at scale
– Online learning technologies has now opened space for Sph Pharmaceutical to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Loyalty marketing
– Sph Pharmaceutical has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Sph Pharmaceutical to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Sph Pharmaceutical to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Sph Pharmaceutical in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Leadership & Managing People segment, and it will provide faster access to the consumers.
Leveraging digital technologies
– Sph Pharmaceutical can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Buying journey improvements
– Sph Pharmaceutical can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Shanghai Pharmaceuticals suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Sph Pharmaceutical can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Leadership & Managing People industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Sph Pharmaceutical can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Sph Pharmaceutical can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Sph Pharmaceutical can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Sph Pharmaceutical can use these opportunities to build new business models that can help the communities that Sph Pharmaceutical operates in. Secondly it can use opportunities from government spending in Leadership & Managing People sector.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Sph Pharmaceutical is facing challenges because of the dominance of functional experts in the organization. Shanghai Pharmaceuticals case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Sph Pharmaceutical can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Shanghai Pharmaceuticals External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Shanghai Pharmaceuticals are -
Easy access to finance
– Easy access to finance in Leadership & Managing People field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Sph Pharmaceutical can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Sph Pharmaceutical business can come under increasing regulations regarding data privacy, data security, etc.
Consumer confidence and its impact on Sph Pharmaceutical demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Environmental challenges
– Sph Pharmaceutical needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Sph Pharmaceutical can take advantage of this fund but it will also bring new competitors in the Leadership & Managing People industry.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Sph Pharmaceutical can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Shanghai Pharmaceuticals .
Technology acceleration in Forth Industrial Revolution
– Sph Pharmaceutical has witnessed rapid integration of technology during Covid-19 in the Leadership & Managing People industry. As one of the leading players in the industry, Sph Pharmaceutical needs to keep up with the evolution of technology in the Leadership & Managing People sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Sph Pharmaceutical needs to understand the core reasons impacting the Leadership & Managing People industry. This will help it in building a better workplace.
Regulatory challenges
– Sph Pharmaceutical needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Leadership & Managing People industry regulations.
Shortening product life cycle
– it is one of the major threat that Sph Pharmaceutical is facing in Leadership & Managing People sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Sph Pharmaceutical.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Shanghai Pharmaceuticals, Sph Pharmaceutical may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Leadership & Managing People .
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Sph Pharmaceutical with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Weighted SWOT Analysis of Shanghai Pharmaceuticals Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Shanghai Pharmaceuticals needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Shanghai Pharmaceuticals is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Shanghai Pharmaceuticals is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Shanghai Pharmaceuticals is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Sph Pharmaceutical needs to make to build a sustainable competitive advantage.
