Wyeth Pharmaceuticals in 2009 Operational Transformation Case Solution

2. Summary of the Problems

The case is based in the year 2007 when the organization is facing a number of issues with the change in external environmental variables. Wyeth Pharmaceutical (along with other multinational companies in the industry) is facing several challenges:

• The pressure to discover new effective drugs in short time frames.

• Arrival on the market of growing importance of generic drugs helped by policies to reduce health care costs. These products are created in various developed countries. The generics market is expected to grow annually by a sizeable proportion creating stress for businesses like Wyeth.

• Greater vigilance of health authorities (FDA, EMA European, etc.) towards the approval of new products and their side effects. The authorizations on the market are less numerous.

• The rise of biotechnology is essential in the discovery of new molecules. The current research system of Wyeth is based on the culture of chemical laboratory experiments. The biotechnology sector accounted for 7% of the market in the pharmaceutical industry in 2007 is expected to provide the greatest potential for growth in the industry.

To meet these challenges Wyeth Pharmaceuticals is trying to shorten the discovery and marketing of new medicines while ensuring the quality of its products. The company is struggling towards gaining break-through medicine in key segments – such as diabetes, cardiovascular disease, and cancer vaccines. They are trying to increase the number of high-potential products found in their research portfolio.

The creation of a research portfolio consists of:

• Niche products whose expertise is difficult to replicate by competitors.

• Products aimed at the older crowd of rich and helping to improve their general health (hypertension, bronchitis, asthma, diabetes, cancer, etc.) and therefore their survival.

• New products with the potential to become mass drugs.

In addition, the company is facing the problem of excess capacity. Almost one-third of Wyeth Pharmaceuticals’ production capacity is idle. This is because the shortage of supply in the pharmaceutical industry is much more costly than excess. However, this excess capacity is creating financial problems in the face of constraints on profitability caused by the introduction of a generic for a leading medicine of the company Protonix by a competitor. Two additional drugs of the company are coming off patents in the same year which is projected to increase financial duress for the organization.

The immediate threat to Wyeth Pharmaceuticals is that of maintaining liquidity of funds in the face of the fall in the cash inflows. Also, operational synergies in the organization are quite weak since the production function of the business has very weak coordination with the headquarters. Each production site is managed independently, and in fact, these production sites compete with each other to get production quota from the headquarters.

Lastly, the company faces the tough question of reducing its production capacity, as well as, headcount to cope with the loss in revenues and to keep the organization afloat. In addition, a strategy towards the revival of profitability needs to be formulated from the perspective of the above-mentioned changes taking place in the external environment.

3. Recommendation from Site QH to Wendy Kouba

A diverse set of recommendations should be put forwarded by the Quality Head to Wendy Kouba of Wyeth Pharmaceuticals since bringing about holistic change within the organization needs attention to be paid to numerous variables. These recommendations must relate to operations, management structure, as well as, mind-set and behaviors within employees of Wyeth Pharmaceuticals. Given its situation of loss of projected revenues in three product segments, Wyeth Pharmaceuticals will need to develop its capacity to change in order to respond effectively and quickly to adopt a leaner structure to regain its competitive advantage. The recommendations must also take into account the effective implementation of change based on creating a buy-in of employees

Firstly, employees at ‘Sites’ must be mobilized around projects rather than permanent employment. These projects must be driven with clear objectives; measurable, reportable and Kouba must be attentive to the different interest groups within Wyeth to manage resistance. Only by alleviating fears of the employees regarding their employment prospects, Kouba will be able to persuade and coordinate to ensure customized management of change depending on the profile of individuals. Even though Wyeth’s organizational expenses need to be curtailed, Kouba must allocate funds to train leaders, project managers of change and managers in human resources to prepare them for the complexity and richness that this change in Wyeth requires.  
Kouba must be recommended to pay attention to the following:

i. Trust and communication

Only if Wyeth’s employees trust it, they will tend to be more satisfied and cooperative for bringing about a change in the organizational structure. Kouba will need to establish open relationships based on trust and cooperation by involving Wyeth’s employees through regular contact with them, enable them to participate in planned changes. They will be more inclined to rely on top management’s perspective when it is making changes in the workplace.

ii. Occupational status

The indiscriminate layoff of employees is not recommended even though it is decided that one-third of employees need to be laid off. Rather than seeking consensus of departmental heads on cost-cutting decisions, Kouba must invite employees in planning meetings to integrate them in the cost-cutting decisions. This measure will ensure that the process of change management includes all affected by the cost-cutting decision and layoffs.

iii. Organizational Culture

Kouba must carefully manage the participation of the line and support staff of Wyeth in order to avoid that they no obstacle to change. If a culture of teamwork was established before the implementation of the cost-cutting decision, top management of Wyeth would have a solid foundation on which to base efforts to change. In such a situation, employees used to work as a team and are already showing the attitude necessary for the success of the initiative.

iv. Leadership

Kouba’s role as a leader is of paramount importance for the success of the changes for the implementation of a new system. Changes to the business processes (such as, the proposed Site Transformation Roadmaps) are strategic in nature, and they must be supported by all those who exercise leadership roles within Wyeth.

While removing certain reporting lines from the operations of Wyeth, Kouba will need to redefine certain positions, create new ones, or even restructure teams. It is possible employees fear that they will be unable to acquire new skills or to adapt to the new structure and will consequently resist changes. Kouba must also understand that resistance is a normal phenomenon, especially when employees do not know what to expect and focus on their perceptions of loss.