Schering-Plough Implements a New Global Strategy and Structure
One global company that found itself in trouble in the 2000s because of the way its structure and control systems were working was pharmaceutical maker Schering- Plough. In 2003, Schering was under pressures from many fronts. The Food and Drug Administration (FDA) was demanding a complete overhaul of its global manufacturing plants to increase and protect drug quality, and the patent on Claritin, its best-selling drug, was running out and it had few new products in the pipeline. Thus on both the quality and innovation dimensions, major sources of a differentiation advantage, the company’s strategy was in trouble.
Schering-Plough’s board of directors recruited Fred Hassan, a Pakistan-born Harvard MBA, to turn the company around. After meeting with hundreds of groups of managers and scientists, and visiting the company’s operations around the globe, Hassan began to realize that the company’s main problems stemmed from its global strategy and structure.49
Over time, the company had developed a multidomestic approach to planning its global value-chain activities and it had divided its activities up into world regions, where essentially each world region acted as the product group that made decisions inside its world region/group. The problem was that each of the heads of the regional groups had gained a near total control of their operations, so each world region was doing things such as manufacturing and marketing and sales in its own unique way. As a result, managers at corporate headquarters, and especially its top-management team, were not getting accurate information about the way each region, and especially the country operations within each region, were performing. And major drug quality problems had arisen because the corporate center didn’t find out about the problems at the country level until a long time after they had occurred because of all the bureaucracy that had emerged at the level of the regional groups.
Schering only makes one major type of product drugs so Hassan decided it did not need separate worldwide product groups or separate regional groups. He decided to slash the number of levels in the company’s global corporate hierarchy, eliminating all the layers between the country managers and him. The heads of each international division now report directly to him or one of his top-management team members, so it is much easier to observe and evaluate their performance and that of their divisions. It is also easier to standardize issues such as quality and sales practices around the world. He has also worked to expand the range of products each international division sells to achieve economies of scale. In 2007, for example, Hassan engaged in related diversification when he bought a major Dutch pharmaceutical company that is a leader in producing vaccines for animals and pets, as well as possessing a pipeline of potentially best- selling new drugs it has five drugs in late trials, including an important new treatment for schizophrenia and bipolar disorder.
His new global organizational structure worked so well and sales and profits increased so much that by 2010 it was bought by and became part of Merck, one of its major competitors. Hassan is now the chairman of Bausch & Lomb, an optical products company, where he is applying the same kinds of organizational structure changes to help increase that company’s global competitive position.50
Discussion Questions
1. What kinds of problems was Schering-Plough experiencing with its global strategy and structure?
2. How did Schering Plough change its global structure to solve these problems?