This paper provides a case analysis of the changes facing the structure of the pharmaceutical industry that resulted from a new science and untenable cost structures of the Eli Lilly Company. Broadly, this analysis looks into the aspect of the company that is being considered to alter its business model to capitalize on the suggested changes. In the case study, it is evident that Eli Lilly is one of the major American multinational pharmaceutical companies. It is based in Indianapolis in Indiana. Since its inception, the company has gained tremendous experience regarding the increased profitability, competitive advantage, and considerable success in other aspects. The company currently operates in more than 17 countries with well-established plants that have achieved worldwide recognition. The company is honored to have the ability and status of being the pioneer of developing human insulin through DNA recombinant technology (Attridge, 2006). Additionally, it is currently the largest manufacturer and seller of psychiatric medicine. Revenue of nearly $23 billion was generated. The success that Eli Lilly boasts also has not come without challenges (Attridge, 2006). The case offers some of the challenges that the company underwent as part of the process of achieving its success. Based on these, this paper offers strategic analysis of the organization. Through the use of Eli Lilly’s Project Resilience: Anticipating the Future of the Pharmaceutical Industry, it will be possible to carry out a detailed analysis of the company.
General Environmental Analysis
From the case study, it is evident that Eli Lilly is one of the major players within the pharmaceutical industries. Ideally, the company has been tremendously focused on various initiatives that have greatly influenced its operation. Eli Lilly continues to be one of the top-performing pharmaceutical companies that have reinvested their percentage of sales for research and development. In 2001, for instance, the company played a critical role in launching a new product and submitted fur new drugs approvals into the FDA. In reality, this was a tremendous achievement for the company. The company later released more drug products afterward. Eli Lilly is planning to release more drugs by 2023, and this is anticipated to be a major step towards achieving global competitiveness (Attridge, 2006). Through effective collaboration with other companies and gaining more investments and recognition, Eli Lilly has been able to expand its research and development efforts. Worth to note is the fact that these efforts have enabled it to capitalize on the issues that need to be resolved within the realms of biotechnology, medicine as well as health. Its performance in the past few years has been considerably strong compared with its competitors.
The company has its discount cards, which the majority of the companies are still pursuing currently. The move to pursue this kind of investment in the early 20000 and almost is one of the major competitive advantages of the company, and which has continued to offer its resilience its efforts to achieve the best from the projects. The company’s human pharmaceutical products compete globally with the products of numerous companies in a significant competitive advantage (Henderson, 2007). Additionally, its animal products compete globally with the products of other animal health care companies, in addition to those that are involved within the chemical and animal health businesses. The critical competitive factors for the use of both human and pharmaceutical and animal health products include the effectiveness, safety, the price, and the ease of use. Others include the effectiveness associated with marketing, research and development, and the products and processes. The majority of the products the company is involved in production compete with other branded or generic products that have already been introduced within the market (Henderson, 2007).
Other environmental factors are comprehensively reported in the case given. For instance, the presence of unprecedented Turmoil in the Pharmaceutical Industry greatly affected the company. The management of the company was unable to figure out the company’s ability to compete under different scenarios regarding the recommendations that the task force team had described (Henderson, 2007). The team was struggling with figuring out some of the things that the company ought to do. This situation required them to come with decisive actions for Lilly’s senior management regarding the kind of business that the firm should explore, in addition to how it should develop its new capabilities to position the firm for the future (Attridge, 2006). At the same time, the industry was being subjected to massive pressure on a variety of fronts. Most noticeably, there is evidence that the research productivity of the industry was reducing drastically. In this sense, measuring pharmaceutical research productivity becomes notoriously difficult. Based on the fact that it is time-consuming to bring a new drug into the market, usually 10-12 years, the quantity of the drugs released offers a reflection of the investments and actions made over many years (Henderson, 2007). It further as if that while research spending in the industry was steadily increasing, the output was failing. This constituted a major challenge.
To have a better understanding of the kind of industry that Eli Lilly is operating in, it is important to conduct an industry analysis using Porter’s Five Forces. The Porter Five Forces Analysis refers to a strategic management tool that can be used to analyze the industry and understand the existing levers of profitability within a given industry (Attridge, 2006). The Porter’s Five Forces can be used by the management of the company to understand the forces within the industry that influence its profitability and develop a strategy for enhancing its competitive advantage as well as long profitability within the Drug Manufacturers (Rosen, 2005).
Threats of New Entrants
The new entrants within the pharmaceutical industry are one of the major factors that Lilly is experiencing within the industry in which it operates. Such entrants bring major innovations, new ways of doing things and put pressure on Eli Lilly through reduced pricing strategy, reduced costs as well as providing a new value proposition to bring customers. Thus, Lilly must be able to manage all these challenges and establish effective barriers to safeguard its competitive edge.
Bargaining Powers of Suppliers
It is critical to note that nearly all companies within the pharmaceutical industry acquire their raw materials from numerous suppliers. The suppliers within the dominant position that can increase the margins that the company can earn in the market. The powerful suppliers within the market can utilize their negotiating powers to extract higher prices from the companies within the pharmaceutical industry. The entire impact of the higher bargaining power of the supplier within this market is that it reduces the overall profitability of the player within the industries.
It is critical to note that the buyers may sometimes exert more demands (Attridge, 2006). They desire to buy more offerings available by paying the minimum price as possible. This is likely to exert pressure on Lilly’s profitability in the long run. It is important to understand that the Lilly dominates the smaller and more powerful customer base. In this way, it increases the bargaining power of the customer. Thus, the higher ability to seek discounts increases the discounts as well as the offers. Notably, the pharmaceutical industry has one unique feature that the buyer is different from the influencer, who is a doctor. In this sense, the consumer has no option but to buy drugs as prescribed by the doctor. Therefore, the bargaining power of the patient is very low within the market in which Lilly operates.
Threats of Substitute Products and Services
Finally, this is one of the major challenges that Lilly’s faces in its industry. Most commonly, new products or services can meet similar customer needs and preferences in different ways. Under these circumstances, the profitability of the industry is likely to suffer (Attridge, 2006). The generic manufacturers do not incur the high cost that is involved in research and development, as well as the regulatory activities such as the FDA approval and clinical trials.
Competition forms an integral component of the environment where Lilly operates. Some of the major players within this industry include Pfizer, Sanofi, AstraZeneca, GlaxoSmithKline, Merck & Co Inc., Roche Holding, and Bristol Myers Squibb. Through innovation, Lilly’s competitors are striving to create a customer-centric experience that seamlessly integrates their e-commerce and retail stores within am omnichannel offering that saves time for our customers. Because of the increasing demand for high-quality drugs, the low-to-moderate entry barrier to the new entrant, the presence of several large and small firms, this market is highly competitive.
Lilly is one of the leading companies within the pharmaceutical industries in the US. Ideally, the substantial strengths have critically helped it to thrive in the market place. These strengths have not only helped it protect the market share within the existing markets but also assisted it in penetrating the new markets. For example, the company has a good Returns on Capital Expenditure. Eli Lilly relatively successful at the implementation of the new projects and obtain good returns on capital expenditure through the establishment of new revenue streams.
In the same way, the automation of the activities enabled the company to achieve considerable consistency of the quality to Eli Lilly products (Attridge, 2006). This factor has enabled the company to perform an upward scale and a down-based scale on demand conditions in the market. The strong dealer team and community that has been established through the culture of effective distribution, where the employees do not only promote the company’s products but also invest within the training the sales team. As such, its sales team can promote the customer’s how they can extract the maximum benefits out of the products. Finally, the company boasts of a highly skilled workforce through successful training and learning programs. Eli Lilly is investing tremendous resources in the training and development of its employees. Such a workforce is also highly skilled and motivated to achieve more.
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