People in Organization Assignment Week 3

Novartis Pharma : The Besiness Unit Model

Case Summary
This case study is about restructuring of an organization called Novartis Pharma,
one of the best pharmacy company in the world. Daniel Vasella, Chairman and CEO
of Novartis AG, announced a new organization within the companys pharmaceutical
business on July 10, 2000. He claims that this new structure would help company
close to the customers, create positions to attract and retain talented people, at the
time when the company was in the midst of launching five potential blockbusters
drugs. Thus, Thomas Ebeling, the CEO of Novartis Pharma send a letter to 36,700
Pharma employees to explain that the business would be restructured into five
business units (BU), which are :
1.
2.
3.
4.
5.

Oncology (based in the U.S)

Transplantation (Basel, Switzerland)
Ophthalmology (Bulach, Switzerland)
Mature Products (Basel, Switzerland)
Primary Care, including the General Practitioner (GP) products (Basel)

Why They Create New BUs?

There are some reasons why the executives want to restructuring the organizations
into several business units, these are :
1. Novartis senior management believed that Bus offered a number of
competitive advantages that would make the position of company better.
2. According to Vasella, the decision to create Bus was founded in the
philosophy of big and small, while small focused units would increase speed
and competence yet having a big scale that had obvious benefits.
3. Delayered management structure would enable the business to move more
quickly. Smaller, distinct units would be able to focus and could get closer to
the customer as quick as possible since they can understand what customers
needs.
4. By focus on certain area, those Bus could become a leader in the specific
market. For example, in Oncology, Epstein and his colleagues can focus
entirely in oncology. With this focused oncology, Epstein has the potential to
drive the business to a leading position in the oncology area, when at the
same time creating excitement and attracting best talent in the world.

But What Are the Issues By Creating BUs?

There are also issues that need to be addressed by management regarding this
creating of BUs, these are :
1. There was some debate around about accountability. This BUs still not
specifically determine what would distinguish between global development
and development between BUs itself. Even this matrix structure itself would
create accountability issues since it diffuses accountability.
2. The structure still not determine how they keep well-defined roles among the
BUs while at the same time exploiting synergies.
3. The structure still does not give clear explanation how the various global
functions and BUs would interact with one another and how much autonomy
BUs actually had because it seems there was a little differentiation between
them
4. The CSO could change the terms of the agreement due to unexpected market
shifts if implementing this new structure.
5. The restructured organization could fragmented Novartis R&D efforts. Vasella
stated, We aim to create a powerful new structure for research that will
allow us to share large, best-in class technology platforms, while at the same
time gaining the focus advantages of units that concentrate on distinct
disease areas. This will have a great impact on our productivity, speed, and
innovation that meets the market needs.
6. There is a risk that BUs structure could slowed down the company because
the country managers lost the ownership of the product lines. One of many
reasons that they implement this BUs was because they had a lot of new
products and wanted to invigorate sales from these new products. But since
the product lines were owned centrally by BUs, the confusion would happen
and everything got left behind
7. There is a risk to not balancing the efficiency of BUs. In previous structure,
they have been a very efficient company, but they cannot ensure the BUs will
have the same level of efficiency.
8. There is a risk of losing some flexibility in the market since they need to shift
the resources to create BUs and cannot exploit the products to their full
potential.