Capabilities-driven approach, tough adaptation and entrepreneurial corporate culture have created a

sustainable competitive advantage for Abbott Labs

Abbott started all the way back in 1888, when physician and drug store owner Dr. Wallace C. Abbott started
making his own scientifically formulated medications with the goal of improving patient care. The company
has paid 371 consecutive quarterly dividends, without interruption. That is a 92-year streak of consistent
dividends. The rich history and solid returns garners attention to assess the key assets or capabilities that
Abbott has been utilizing to have such a competitive advantage. Through highlighting key activities or assets,
this article lays down the current situation of pharmaceutical sector and assess Abbott both from historical
and contemporary perspective.

A breakthrough molecule in a pharmas pipeline can bring hope and assure financial results to patients and
shareholders, respectively. But blockbuster era (if drug makes more than $1 B sales) has come to an end due
to patent cliff, which eroded profits through stripping down novel molecules exclusivity from innovator.
Pharma company faces issues surrounding stringent regulatory approvals, organizations pushing down
prescription drug costs and insurer shying away from expensive drugs. This has led to increasing risk to award
ratio and decreasing P/E valuation for both major and mid-size companies. Some companies have diversified
their portfolio by maneuvering to different therapeutic area or sector altogether. Rcent M&A activities tried
to re-vitalize pharma companies but have not led to any fruitful industry-wise outcome. Pharma companies,
in the history of any industry type, have the most divergent strategies right now, which itself has diminished
homogeneity.

Abbotts reverse integration - stochastic era leading to focus on core-competencies

For decades pharma companies followed deterministic strategies (the one that can be predicted) that led to
big returns, but now the companies are entering into a stochastic period (the one hard to predict). Companies
such as Abbott have or are creating strategic bets which aligns with its capabilities. Abbott has created a
mind-set that allows different business units to cross-talk with each other rather function independently (as
seen in most pharma companies). And the activities performed by each business unit is attached to its core
competencies. Firstly, in such a unique business model, Abbott removed its independent business unit
(Abbvie was created) from the core pharma operation to create value for itself. Secondly, Abbott also realized
that disease-management has changed recently, requiring a new model of consumer health care unit. Right
from diagnostics to nutrition, Abbott has focused on its consumer healthcare unit to create ecosystem for
patients. In varied geographic regions, this capabilities-driven approach or co-specialization is helping Abbott
to realize good returns, develop network effects and create better patient outcomes than peers.

Through quick adaptation and responsible accounting mind-set, Abbott created a liable culture
In 1958, when George Cain became CEO, Abbott was not even near the top pharma companies list.
Abbott enjoyed a lot of cash influx due to its successful drug which was erythromycin but its corporate culture
was mediocre. Cain gradually replaced its board and executives seat with people who were passionate and
veterans. Further, in 1960s Abbott realized that they cannot be top pharma company any more as companies
such as Merck had already created a superior research facility. But Abbott realized that it can be a consumer
healthcare company that would make cost-effective healthcare products such as hospital supplies or patient
nutrition. This led Abbott to re-focus from pharmaceuticals to consumer healthcare products. The decision
led Abbott to become a market leader. On the contrary, Upjohn that had similar product portfolio, profits
and revenue, refused to change its top management or shift from pharmaceutical business. And this adamant
nature of Upjohn led to its demise.

Abbott pioneered the concept of Responsible Accounting, wherein the cost attached to investment or capital
expenditure will be evaluated by the person, who is responsible for such activity, in regards to return of
investment (ROI). This led to not just reduce the costs (which was minimum in the industry) but also led to
new product innovation, thus creating new assets for Abbott. Technology also played in creating coherence
in Abbotts different business units. It launched new computer technology to create larger economic
denominator of profit per employee. This enhanced Abbotts strength to capture value from its core
competencies.

Capturing market hopes for its own futuristic goals

Every pharma company is obliged to fulfill market expectations, but Abbott had different strategy. It achieved
long-term internal growth and maintained short-term market expectations at the same time. It devised a
method called as Blue Plans. Every year, Abbott would foresight to various analysts that the growth would
be 10% in fiscal year. But it would set a higher internal growth rate of around 20%. If it achieved higher
growth than market expectations, then it would take the difference between the actual growth and market
growth and use those funds to invest in entrepreneurial projects. This was a finest example of excellent
foresight exploited by Abbott.
Abbott developing a customized-corporate culture in Asia
As majority of pharma companies are working in Asian countries to tap into biggest pool of potential patients,
however except Abbott, all pharma companies are facing high attrition rate. For example, in India on an
average attrition rate can go more than 50%, which is interestingly not unusual. But Abbotts turnover rate
is close to just 15%. This is achieved by Abbotts open mindedness to culture-adoption. Abbott usually put
local managers in charge, the company do not send its American peers to run Indian business units, rather
they appoint someone from same geographies. American counter-parts just visit Indian or Chinese offices as
a consultant in order to train indigenous managers. Abbott also makes sure to create a respectful
environment where anyone can pitch an idea for improvement or potential investment in the company. This
creates a highly coherent atmosphere between employees and the company. Further, Abbott also trains its
managers to be mentors, so that career aspirations can be fulfilled for new upcoming employees. Due to this
corporate culture, Abbott has become a well-known identity in Asian countries.

Conclusion
There was no single step or a moment that made Abbott what it is today, rather it was a blend of innovative-
risky strategic bets that made Abbott a global leader. Even many of these bets seems easily replicable (such
as reverse integration), there are still some that are impossible to re-create at least in a short-term horizon,
especially, an anti-nepotism corporate ladder, historic adaptations and pioneering technologies. Abbott can
easily leverage its stickiness (brand) or operational processes to enhance its outreach or impact, however,
rich repertoire of capabilities or assets with an excellent corporate culture can distinguish a firm, which in
turn attracts best talent, suppliers and shareholders.

References
1) http://www.prnewswire.com/news-releases/abbott-completes-separation-of-research-
based-pharmaceuticals-business-185406542.html
2) http://blogs.wsj.com/cfo/2014/05/30/abbott-cfo-how-and-why-to-spin-off/
3) http://www.prnewswire.com/news-releases/abbott-to-become-no-1-pharmaceutical-
company-in-india-with-acquisition-of-piramals-healthcare-solutions-business-
94558534.html
4) http://www.suredividend.com/dividend-aristocrats-abt/
5) http://www.barrons.com/articles/SB123457619288886731
6) http://www.abbott.com/careers/working-with-us/our-culture.html
7) http://www.abbott.com/about-abbott/our-heritage.html