Question 1

Introduction

According to analysts, the pharmaceutical industry is changing rapidly and

undergoing a shift. Sanofi-Aventis are therefore changing its strategy to help

transform itself from a Europe/US-centred pharmaceutical company to a

global diversified healthcare company. These changes include a change in its

products, markets, top management and its capabilities. This essay aims to

discuss the environment within which Sanofi-Aventis is operating, identifying

the reasons why the company need to change its strategy and how it will

achieve this.  Harrigan (1980) and D'Aveni (1989) showed that when

performance is declining or poor, organisations tend to principally alter their

activities. This is the case with Sanofi-Aventis, it is running like a French

national treasure and performance is declining in the rapidly changing

pharmaceutical industry.

The Strategic position of Sanofi-Aventis

Porter's five forces framework (1980) can help to identify the attractiveness

of an industry for a firm by drawing attention to the external pressures it

may face. Figure 1 shows that buyers in the industry have a low bargaining

power. The major consumers of the industry include doctors, hospitals,

patients and pharmacists. Buyer power is dependent on factors such as the

number of buyers, switching costs and buyer competition threat. The

industry has many buyers and the competition usually takes place between

them. Thus the power of buyers in terms of the number of buyers is

reasonably small. However buyers are able to choose from other similar

products. To avoid this problem organisations within the industry usually

spend most of their research and development on new patent drugs to keep

up competition. The suppliers within the industry have a certain level of

power but it is not such a high threat. The suppliers could include providers

of raw materials and intermediates, the manufacturing and production plants

and labour. The suppliers provide different levels of threat and cannot easily

be changed in this industry, even if suppliers refuse to supply. Thus there are

high switching costs for companies within this industry. However, the threat

from suppliers in this industry is not much bigger than that in other

industries. In the pharmaceutical industry, there is a high barrier to entry.

This is due to the high costs which are required to enter the industry. There

are high R&D costs because the research and development of new drugs is

time consuming and costly. There is also heavy regulation of the industry

where drugs need to be approved, as well as patent restrictions. Patents are

a high barrier for organisations who are trying to enter the market.

Organisations already existing within this market have already established a

strong brand name with loyal customers and have a large budget to spend

on marketing to continuously support their brand. New companies therefore

find it difficult to build up a brand name. The main substitutes for products in

the pharmaceutical industry are generic brands of medication. The price of

brand name medicines is kept competitive with generic brands. However,

there is not always a generic medicine available as a substitute due to

patents. Other substitutes include methods such as Ayurveda, traditional

Chinese medicine, hypnosis, diet-based therapies, chiropractic care and

Reiki. In terms of competition, the industry is very competitive. With high

R&D cost, strict government regulations and extremely competitive products

in the market, companies are constantly trying to release the next best

product so that they can stay ahead. Advances in technology are also

another factor affecting competition because it opens new avenues for

research. Companies are dependent on the long run success of their ideas

which puts a lot of pressure on them to find drugs which have high pay-offs.

It is common for firms in the industry to merge together to gain competitive

strength so that it can take on the leaders of the industry. In this industry the

competition is such that only the strongest firms will survive. 

By analysing the five forces for this industry, it can help to determine what

problems Sanofi-Aventis may incur. The barrier to entry into the industry will

be high which works in the favour of Sanofi-Aventis. In terms of buyers and

suppliers, these are low. The substitutes are also fairly low until the patents

expire between 2009 and 2013. The power of substitutes will then increase

along with rivalry and the bargaining power of buyers as buyers will switch to

generic drugs. This will result in a reduction of costs of the drugs and

profitability. In terms of PESTEL analysis, this legal factor of the patents is a

key driver for change because it is enforcing a threat on the company.

Companies within this industry have opted for mega-mergers. This could be

another threat to the company as these companies have more competitive

strength. Sanofi-Aventis need to overcome these problems by differentiating

its products and the company itself for the existing markets as well as for

new markets. This suggests that a transformation of the company's strategy

is required for them to exist in the changing industry which will align them

with the changing environment. The company have already a #1 position in

emerging markets, so they have an opportunity to exploit this in order to

overcome some of these threats and gain a sustainable competitive

advantage.

The company also need to take into account the other main influences on its

strategy. These influences can help determine what threats the company has

and how the strategy should be changed so that it can overcome some of

these issues. The culture of the company can have a major impact because

the company can be confined by that culture making it difficult to change

outside the bounds of it. Sanofi-Aventis was being run like a French national

treasure. This shows that the company is too rigid and too traditional.

Johnson (1992) suggests that changes going on within or without the

organisation will affect organisational performance. However, even if

managers, as individuals, perceive such changes they may not necessarily

acknowledge them as impinging on the strategy or performance of the

organisation. Sanofi-Aventis had this problem as the management had

acknowledged that the environment was changing but were not changing its

strategy greatly to be in line with this. To rise above this issue the company

have brought in a non-french manager Christopher A. Viehbacher, which has

helped to show analysts and investors that the company will not be run like a

French national treasure and that the company have changed their attitude.

This suggests that the company will not be based on its past ways of doing

things and the lessons learnt from the evolving environment of the

organisation, as this has not been successful in the rapidly changing

pharmaceutical industry. This shows that Sanofi-Aventis have tried to change

its culture so that it avoids the problem of strategic drift resulting from

focusing on the existing culture when dealing with the changing

environment. This is a change in the company's power structure. The

company have also changed its organisational structure by changing the

management team and by creating customer-focused teams. Looking at

Johnson's (1987) cultural web, it can be seen that the company are changing

two factors (Appendix 1), which will help Sanofi-Aventis to transform its

strategy more easily.

The strategic capabilities of the company provide a view of the internal

influences on strategic choices for the future. The competences and

resources which are distinctive or superior relative to those of rivals may

become the basis for competitive advantage if they are matched

appropriately to environmental opportunities (Andrews, 1971; Thompson and

Strickland, 1990). In terms of Sanofi-Aventis, the threshold level has changed

over time and so the company need to invest in its resource base so that it

can stay in this industry and gain a competitive advantage. They have an

opportunity to exploit its #1 position in emerging markets, so they are

creating new strategic capabilities to achieve this by having a better position

in emerging markets, adapting its R&D efforts to new regulatory and

economic constraints and making disciplined decisions about how the

company should grow and through what activities for example diversifying

into vaccines, OTCs and biologics and not to opt in mega-mergers like all the

other companies within the industry. Instead they are going ahead with bolt-

on acquisitions as this will add more value to the company. This shows that

Sanofi-Aventis have acknowledged that for them to survive they need to

differentiate itself from other organisations within the industry and this can

be achieved by exploiting its opportunities.

The stakeholders play an important role as the strategy of the company

needs to take into consideration their interests. Sanofi-Aventis have failed to

do this, which has resulted in investors reducing their stake in the company.

Sanofi-Aventis need to adapt its strategy so that it takes into consideration

the interests of its stakeholders. However the company's stakeholders are

changing as they enter into new partnerships and change its management

team. These stakeholders will be focused on the external stakeholders (the

customers) and so the company need to fulfil the customers' needs in order

to take into consideration the internal stakeholders' interests.

The strategic choices and actions Sanofi-Aventis are taking

Sanofi-Aventis are responding to these pressures by making choices about

the company's future. At a corporate level, Sanofi-Aventis are launching new

products such as vaccines, OTCs, diabetes drugs and branded generics and

offering them to emerging markets as well as existing markets. This in terms

of Ansoff's Matrix (1957) can be seen as diversification at an international

level and product development at a national level (Appendix 2). Although the

company is providing the existing market with new products such as

vaccines to give them a pre-eminent position, major rivals such as Novartis,

GSK and Pfizer are closing the gap. Sanofi-Aventis therefore need to continue

to focus on the R&D of its products to sustain this position. By producing new

drugs, the company are trying to fulfil its external stakeholders' needs, which

in turn takes into consideration the internal stakeholders.

At a business level, Porter (1985) provides a framework of generic strategies

and suggests that they are distinct mutually exclusive alternatives. However

the idea that the generic strategies are mutually exclusive has been

criticized (Hill, 1988; Murray, 1988), and studies have shown that mixed or

hybrid strategies may be profitable (Miller & Dess, 1993). By looking at

Bowman's strategy clock (1996), it can be seen that the company are going

against Porter and are taking up a hybrid strategy in its existing markets

which involves having a low cost base and differentiating its products

(Appendix 3). They are trying to develop products that are better than that of

its competitors by posing the question ‘why is the drug better than what

they've already got?' If this question cannot be answered then the product

does not add any extra value for the customer compared to its competitors'

products and the product does not become a part of the company's product

portfolio. In new markets that have fewer economic resources the company

are taking up a low frills strategy which involves producing cheap goods with

low added value. In terms of Porter's generic strategies, the choice of taking

up a hybrid strategy can be seen as a differentiation strategy as well as a

cost leadership strategy (Appendix 4). By differentiating its products, the

company are trying to produce goods which its customers will value so that it

can overcome the threat that is enforced from the patent expiries. The way

in which differentiation is achieved can be seen by Porter's (1985) value

chain (Appendix 5). Value is built on the activities that are a part of creating

the product, whilst sometimes reducing costs in these activities. For

example, the company are trying to achieve this by restructuring its R&D as

it was costly and unproductive and reduce its operating costs. This makes

the product unique compared to those of competitors. These value added

products can be charged at premium prices to help achieve higher

profitability. This will help make up for the loss of revenues from the patent

expiries.

The company have chosen to pursue its strategy through organic

development, which has also led to the decision of pursuing its strategy

through acquisitions. The company are strengthening its capabilities, one of

which is the ability to make effective decision which has therefore led to the

company taking on acquisitions.  The reason behind these choices is because

it will allow the company to add value to its products. These are carefully

thought out decisions that the company are undertaking so that they have a

competitive advantage.

When observing how Sanofi-Aventis are changing its strategy to help it to

become a global diversified healthcare company, it can be seen that the

strategy is an intended one. This is because Viehbacher entered the

company having ideas about how the strategy would be changed. The design

lens can be used to explain this strategy because Viehbacher has been in

charge of making all the strategic decisions, ‘Dehecq, who had long been

considered as the driving force behind Sanofi-Aventis, was conspicuous by

his absence at these meets. This led to analysts opining that Viehbacher was

in sole charge of strategy'. The change that the company are seeing is a

result of implementing the planned strategy that Viehbacher had when he

joined the company. 

Conclusion

Sanofi-Aventis are under-going a transformational change in a short period of

time. They have been able to achieve this by first considering the influences

on the company's strategy such as its environment, its culture, its strategic

capabilities and its stakeholders. These create opportunities and threats for

the company and so by looking at these the company have been able to

make strategic choices to help them to decide which direction to move their

strategy towards and the methods by which this is to be done to help them

to overcome some of the problems that they are facing.

Question 2

Introduction

In the future, the company needs to create a more sustainable growth.

Sanofi-Aventis are changing its strategy to deal with the market pressures

and demands while focusing on its main activities and developing strategic

capabilities. The company need to utilise its resources and competences in

such a way so that it can sustain growth and gain a competitive advantage

over other key players in the pharmaceutical industry. Viehbacher was aware

of this when he first joined the company and questioned ‘How can we change

the model? How can we create more sustainable growth?' For Viehbacher to

be successful in achieving this he had to first identify the resources and

competencies the company would need to grow and then decide how these

would be developed and utilised efficiently.

The resource-based model states that the competitive advantage and

superior performance of an organisation is explained by the distinctiveness

of its capabilities. Peteraf (1993) explains that the resource-based model can

help to understand the long-lasting differences in the profitability of the firm,

which cannot be attributed to variations in industry conditions. Wernerfelt

(1984) states the model shows that the competitive advantage of a firm lies

primarily in the application of the bundle of valuable resources at the firm's

disposal. Barney (1991) suggests that the resources have to be valuable,

rare, inimitable and non-substitutable because then the competitors will not

be able to mimic the company's strategy. This can help to explain the

heterogeneity or firm-level differences among companies that allow them to

sustain competitive advantage. Sanofi-Aventis is in the exploration stage and

so during the transformation they are experimenting with new alternatives

that will help the company to gain this competitive advantage. One of the

major reasons why the company have to do this is because the main

resource that they rely on; the patents, are soon to expire. Also in an

emerging market the company needs better, more refined resources to

compete with.

Johnson et al (2008) suggest that for a company to have strategic

capabilities and competitive advantage they need to have the necessary

resources and threshold competences, which competitors may have or can

easily imitate, as well as unique resources and core competences which are

better than the competitors or difficult for the competitors to imitate

(appendix 6). Viehbacher became CEO of Sanofi-Aventis in December 2008.

The experience of working at GSK for 20 years and the knowledge that he

has brought to the company is unique and difficult for competitors to gain.

His way of thinking and style of leadership is helping the company to

transform itself because it varies from the company's old leadership which

was like a French national treasure. Thus it can be seen that Viehbacher is

developing a new culture for the company by changing the power structure.

This will allow any new CEO joining the company, if Viehbacher leaves, to be

able to continuously align the company's strategy with the changing

environment through incremental change by building on the familiar. The

company will also be able to develop dynamic capabilities if the

environments changes which is mostly likely to be the case.

The rapid changes in the industry have meant that for Sanofi-Aventis to be a

more competitive organisation, a change in the company's structure is

needed. Thus Viehbacher has put a new team in place after joining the

company. Only Jean-Francois Dehecq remains chairman and two of the top

management team, namely, Marc Cluzel (head of R&D) and Hanspeter Spek

(head of pharma operations) continue to hold their positions. Laurence

Debroux has been promoted as chief strategic officer (in charge of M&As)

and Jean-Pierre Lehner as chief medical officer (in charge of drug safety).

Elias Zerhouni has been brought in as scientific advisor, Jerome Contamine

as the CFO and Paul Chew as chief medical/science officer. By making this

change in structure, Viehbacher is further developing the culture of the

organisation. His team together have the knowledge and expertise in

different areas, which will allow the company to grow as they will be adding

value to the different activities of the company. With a stronger

management team, the company's future can be and will continue to be

shaped allowing it to be more customer orientated. However the team will

need to bring new ideas to the company in order for this to happen.

The company were the third's largest pharmaceutical company as of 2009

but it had a costly and unproductive R&D pipeline. The transformation of the

company's strategy entails restructuring the R&D organisation so that it is

productive and in sync with patient's needs. The company are changing to a

company that is based on biotech and specialist-driven therapies research.

The R&D of the company is a core competence that Viehbacher is creating. It

is helping the company to meet the demands of the rapidly changing

pharmaceutical environment by shifting its efforts to new regulatory and

economic constraints. By moving away from blockbuster drugs, the company

can concentrate on medicines that add value for the customers. It is

important for Sanofi-Aventis to keep the customers in mind as they will have

a major effect on the success of the business. By meeting their needs, the

company can create customer loyalty which will provide the company with a

steady income. The new approach to R&D is allowing the company to enter

into new partnerships to boost its base business. This is an opportunity for

the company to try to overcome to some extent the threats that will occur

from the patents expiring. These threats include the increase in substitutes

and rivalry. If they can achieve this through their new R&D approach, this will

help the company to achieve growth in the future.

Viehbacher was quick to note that Sanofi-Aventis was the #1 pharmaceutical

company in emerging markets. This is because they have the ability to make

efficient and effective decisions, as well as being able to move quick,

‘everybody says they want to go there, but we're already there. We're in

business while other companies are still trying to find their way from the

airport to the hotel.' This is a core competence that the company has, thus

as new markets emerge in the future the company need to uphold this

status. This is possible for the company to accomplish if they continue to

focus on global public health issues and not the traditional markets that are

becoming saturated. They also need to continue to act fast as they have

done when moving into emerging markets such as Africa, India and China.

The market the company was catering to was diverse, so they are moving

towards branded generics, consumer healthcare and vaccines to create the

basis for more sustainable growth. Viehbacher pointed out that the company

was in a strong financial position generating €4 billion in cash each year. This

capital can be used to invest in R&D, which will help the company to grow

and strengthen its position in emerging markets as it finds new healthcare

businesses and products to diversify into. Using the company's finance,

respectable reputation and ability to expand into emerging markets, it will

allow the company to compensate from the patent expiries of its top-selling

drugs and make larger capital gains in the future.

Sanofi-Aventis have the ability to make logical decisions with the help of

their CEO. For example they have decided not to be part of any mega-

mergers as this would sap the organisation's creativity and productivity. By

opting for a mega-merger, the company would not be adding to shareholder

value, so Viehbacher felt it was not necessary to do so. The capability to

make these decisions has come from Viehbacher's experience where he has

been a part of two mega-mergers in the past. Instead of the mega-mergers

Viehbacher has decided to go ahead with bolt-on acquisitions. The five

acquisitions the company have taken up has given the company

opportunities to tap markets such as the Central and Eastern markets, boost

its presences in countries and the OTC business and provided it with a

launching pad for the Asia-Pacific region. It has also given a push to its

vaccines segment. These acquisitions are helping to fuel its growth in

emerging markets whilst reducing its risk profile. In the future, the company

need to maintain making disciplined decisions about the acquisitions that it

takes on, only investing in those that add value. The company should be able

to maintain this because Sanofi-Synthélabo acquired Aventis and both

companies had a history of mergers and acquisitions. By taking on

acquisitions, the company can also increase its customer base quicker than

with mergers because the company can take on more than one acquisition at

a time.

Conclusion

Sanofi-Aventis are carefully designing their strategy to allow them to have a

competitive advantage. They are creating core competences and resources

to aid them to survive and compete in the emerging pharmaceutical market.

The resource-based model has facilitated the understanding of how Sanofi-

Aventis is able to enter the new market and how it can in the future

strengthen its position in this market. It is possible for the company to have

sustainable growth and a competitive advantage, but they need to utilise its

resources successfully in order to achieve this. However if in the future the

needs of the environment change, Sanofi-Aventis will need dynamic

capabilities to achieve a competitive advantage. Although Viehbacher is

creating resources and core competences when transforming the company's

strategy, these may need to be renewed and recreated because in more

dynamic conditions competitive advantage is achieved when there is a

capacity for change, learning and innovation.

http://www.pharma-share.com/a-look-at-sanofi-aventis-ma-strategy

Since his appointment in 2008, Sanofi-Aventis CEO Christopher Viehbacher has sought to implement a

strategy of diversification at the French pharmaceutical giant, using a series of smaller ‘bolt-on’

acquisitions to enhance its position in the vaccine, consumer healthcare, generics and animal health

markets. Any move to acquire Genzyme can be viewed as an acceleration of this strategy as Mr

Viehbacher seeks to both develop Sanofi-Aventis’s core prescription pharmaceutical offering and move

into segments where market exclusivity is not singularly controlled by intellectual property. Genzyme’s

specialist focus on ultra niche markets where it has developed a number of products that benefit from

Orphan Drug status would therefore provide a suitable fit.

Following the announcement on 29th August 2010 by Sanofi-Aventis that it had made an all cash offer

worth $18.5 billion to acquire Genzyme—an offer that was rejected by the US biotech but which looks

certain to be followed by further negotiations between the two companies—Datamonitor analyzes the

strategic motivations for Sanofi-Aventis’s proposed acquisition and how the integration of Genzyme

would enhance its existing prescription pharmaceutical business.