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ContentsContemporary drivers that changes present day businesses: Novartis.......................................................2

1.1 Introduction.......................................................................................................................................2

1.2 Background of Novartis International AG..........................................................................................2

1.3 Operation of Novartis in open system...............................................................................................3

2. Todays Driver of Change..........................................................................................................................4

2.1 SWOT Analysis Of Novartis................................................................................................................4

2.2 Porter’s five forces model:.................................................................................................................6

3. Mitigate against negative forces of change/responding creativity against turbulent changes................8

Conclusion:..................................................................................................................................................9

References.................................................................................................................................................10

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Contemporary drivers that changes present day businesses: Novartis

1.1 Introduction: This assignment is done only to serve the academic purpose. As a student

of London School of Business & Law, I Md Nurun Nabi has been assigned this paper as a

requirement for the program BA Hons in Business Administration Yr. at UCLan. This

assignment has been conducted under the supervision of B. Marong (BM) for the module

contemporary issues in business. After complete acknowledgement from the assessor, I have

decided to consider Novartis International AG as an exemplary organization. With reference to

the objective of the assignment I have focused on the innovative strategies used by Novartis

International AG is a Swiss multinational pharmaceutical company based in Basel, Switzerland,

which ranks number two in sales (46.806 billion US$) among the world-wide industry in 2010.

1.2 Background of Novartis International AGNovartis was created in 1996 from the merger of Ciba-Geigy and Sandoz Laboratories, both

Swiss companies with long histories. Ciba-Geigy was formed in 1970 by the merger of J. R.

Geigy Ltd (founded in Basel in 1758) and CIBA (founded in Basel in 1859). Combining the

histories of the merger partners, the company's effective history spans 250 years, a summary of

which is show below

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Currently Novartis AG is a Swiss publicly traded holding company that operates through the

Novartis Group; Novartis AG and all the companies worldwide belonging to the Novartis Group.

The businesses of Novartis are divided into six operating divisions: Pharmaceuticals, Alcon (eye

care), Vaccines and Diagnostics, Sandoz (generics), Consumer (divided into two divisions: Over-

the-Counter and Animal Health). Novartis which operates directly and through dozens of

subsidiaries in many countries around the world, each of which fall under one of the divisions,

and that Novartis categorizes as fulfilling one or more of the following functions:

"Holding/Finance: the entity is a holding company and/or performs finance functions for the

Group; Sales: the entity performs sales and marketing activities for the Group; Production: the

entity performs manufacturing and/or production activities for the Group; and Research: the

entity performs research and development activities for the Group."

Presently Novartis Corporation handles administration, sales, and marketing for a vast product

line of prescription drugs, vaccines, consumer medicines, and veterinary products. Moreover

they oversee the Novartis Institutes for Biomedical Research and charged with the job of

discovering new medicines to add to the company's ever-expanding pipeline. Hence to remain

competitive and

1.3 Operation of Novartis in open systemNovartis AG is an organization which is heavily reliant on innovation and research oriented

sector. It primarily deals with medicinal product and hence the very nature of it requires the

company to operate in a open system where the company interacts with environment, by

receiving inputs from and delivering outputs to the outside. The organization possesses

permeable boundaries that permit interaction across its boundary, through which new

information or ideas are readily absorbed, permitting the incorporation and diffusion of viable,

new ideas. With several research lab and the final product which deals with curing diseases to

pesticide a relentless need to interact with the environment is of utmost importance.

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2. Todays Driver of Change Novartis strategy is based on focused diversification. Our uniquely broad business portfolio

focuses on science-based healthcare sectors that are growing, reward innovation and improve the

lives of patients. Innovation is core to their business. In 2012, the company invested $9.1 billion

(USD) across our divisions in R&D and we plan to sustain our high level of investment.

Novartis is consistently rated as having one of the industry’s most respected pharmaceutical

development pipelines with 144 projects in pharmaceutical clinical development.

Novartis has a long-established track record of leadership in pharmaceutical research. They have

also leveraged this core R&D competence across other divisions, sharing research findings and

knowledge throughout our organization.

2.1 SWOT Analysis Of Novartis

Strengths:

An inner strength which is often observed for Novartis is its strong research and development

capability with a highly productive product pipeline that generates safe and effective medicines

for patients of all income groups. This pipeline is one of the strongest in the industry and has

generated in the past highest approval numbers. Furthermore Novartis has created over the years

an attractive healthcare product portfolio which is much diversified. Its portfolio covers patent

protect-pharmaceuticals, generic pharmaceuticals, vaccines and consumer health. After the

acquisition of Alcon, a new part of the portfolio is created in the area of eye care. This made

Novartis a global market leader in this product segment. The company also recognized the

development in emerging markets early on and is already heavily engaged in these markets.

since the emerging markets will be the market of the future. Novartis also has very dedicated

employees who are highly competent in the fields of research and development and sales and

marketing. This is also proven by the high market share which is over 5% of global

pharmaceutical sales. In terms of market share Novartis is among the top five companies

together with Pfizer and GlaxoSmithKline. They are also concerned about continuous

improvement of its operations in order to avoid contentment. Finally, it can be noted that

Novartis has achieved an impressive brand image and reputation around the globe.

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Weaknesses:

Even though Novartis is a successful pharmaceutical company, it also has to deal with certain

weaknesses. One weakness is the fact that the company is vulnerable to exchange rate of

currencies because it operates globally and is doing business in many countries. Even though the

company is trying to hedge this risk, currency fluctuation can have significant impact on its

operation. Another weakness in the past has been the company’s mediocre share performance

despite strong end year results. Even though share price decreased in 2012-13, probably due to

the global economy downturn and financial crisis in several countries, investors are not confident

in investing for pharmaceutical companies. Hence Low share price can often pose as a threat of

external takeover of the company.

Opportunities:

In regards to the external environment, there are a number of aspects that might influence

Novartis positively to acquire new opportunities. One such is changing is the demographics and

lifestyle of the global citizen. As the total population of the world is growing and there is an

increasing number of aging populations, this indicates that the circle of potential patients will

require medicines by Novartis. Furthermore, the deteriorating human lifestyle of less physical

activity combined with an unhealthy diet is increasingly leading to more people having problems

with diabetes or cardiovascular diseases. These people will require effective and advanced

medication hence more potential consumer of medicines. The growing economic wealth of

countries in emerging markets will present opportunities for Novartis because these countries

will be able to afford high quality medical treatment and medicines & at the same time the

overall global economic situation is hinting to stabilize and might eventually improve in the

coming years leading to global economic recovery. Even though medicinal products are

somewhat more independent of economic condition unlike other industries, but global economic

growth will certainly add positive impulses. Further opportunities can be derived from advances

in new technologies that will enable Novartis to develop new medicines more cost effectively.

Moreover the company will be able to develop new drugs that have not been possible up until

today. Lastly opportunities may lie in acquisitions or strategic alliances in order to gain access to

new technologies, markets or to benefit from shared cost burden in research and development.

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Threats:

External threats that Novartis has to face are increasing stringent regulations that the company

has to comply with developing new drugs, which makes it even more expensive and time

consuming, possibly leading to lowered number of drugs being approved. Furthermore,

pharmaceutical companies including Novartis will face increasing pressure in the future from

governments around the world to lower drug prices and increase availability to patients. This

might have significant effect on profit margin & overall sales quantity, hence making it difficult

for Novartis to recover the investments in development of drugs. Illegal copies of drugs in

emerging markets, generics competition and better drugs developed by competitors are also

possible threats that need to be monitored. Furthermore, the number of lawsuit and legal

litigation has also increased over the past possibly leading to a greater loss in brand image than

the cost of legal procedures especially for drugs which might have unwanted side effects.

2.2 Porter’s five forces model:This model assists in understanding the competitive environment of a company which can have

various implications. The goal of the Five Forces Analysis is to investigate how a company can

develop opportunities in its environment while protecting itself against market competition as

well as other threats. These parameters are:

Bargaining power of suppliers

Threats of potential new entrants

Bargaining power of buyers

Threats of substitute products

Rivalry among existing firms

In the following these five key parameters are explained with regard to the pharmaceutical

company like Novartis AG

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Bargaining Power of Suppliers:

Novartis is a very large corporation with operations worldwide which also enables the

company to source necessary suppliers from different parts of the world. Furthermore, the

necessary ingredients for drugs are largely of found in nature where the real competence lies

in the exact chemical composition. All due to these reasons Novartis is estimated to have a

very good bargaining power over its suppliers. However, it should be noted that whenever a

strategic cooperation is made with a supplier, dependence on this supplier eventually

increases and thus the bargaining power of the supplier.

Threat of New Entrants:

The threat of potential new entrants in the pharmaceutical industry is estimated to be small,

Primary reason being high initial costs, especially for research and development and the

years of experience and trust that existing industry participants have on its customers is

difficult to surpass. In the pharmaceutical industry it is important for companies to be

perceived as reliable and trustworthy by patients and establishing such image requires a long

time and a lot of financial expenditure.

Bargaining power of buyers:

Buyers in the pharmaceutical industry are considered to be governmental and public

healthcare institutions of various types and majorly patients as end consumers. Bargaining

power of patients is assessed to be low to medium because if a patient relies on a certain

medicine that is even protected by a patent, bargaining power is relatively low. The only

power the patient has is to express their opinion, in case they are dissatisfied with the product

or the company. However this can affect the brand image of the particular company in the

long run, on whom the allegation has been made. Governmental and public healthcare

institutions have more negotiating power because of the size of their organization and sheer

volume of their purchase. Especially governmental healthcare regulatory institutions put

more pressure on pharmaceutical companies to lower prices and increase product safety and

availability.

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Substitute Products:

The threat posed to Novartis and other industry peers based on substitution by other products

is considerably low. First of all if substitution means product copies, patent laws protect new

pharmaceutical products for extensive periods of time. Furthermore, enforcement of patent

laws throughout the world has become more effective due to agreed treaties between many

countries to protect intellectual property. Secondly, if substitution means to substitute one

medicine for another from a rival company, problems can occur with patient’s tolerance.

Some patients cannot tolerate other equal medicines due to various problems such as side

effects, which make switching of products difficult or impossible.

Rivalry among existing firms:

The pharmaceutical industry has various fields of special expertise, such as pharmaceuticals,

generics, vaccines or over-the-counter medicines that make it impossible to make an overall

assessment of competition. In the vaccines and patent protected pharmaceuticals part of the

industry competition is low to medium because products are much diversified. On the other

hand competition in the generic pharmaceutical industry is very high and intense (Novartis,).

In this segment of the industry competition is mostly based on prices because these products

are considered commodities. Furthermore, efforts to shift more healthcare costs to patients

further intensify competition based on price. In the over-the-counter medicines market,

competition is also high but the organization focuses more on consumer brand acceptance

and loyalty than on price.

3. Mitigate against negative forces of change/responding creativity against turbulent changes. There is several aspects of changes that can affect a pharmaceuticals company like Novartis AG,

mostly on it’s the fresh medicines which are invented after several years of experimentation.

When medicines are made of expensive ingredients then the overall purpose of curing disease is

blunt as few can afford to purchase such medicines and avail the treatment. So Novartis should

always consider in coming up with products that are affordable yet effective.

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There has been a growing tendency of Pharmaceuticals Company to produce medicines for niche

markets, for example some companies has only been focusing on research to find medicine for

cancer or similar diseases. However any company which wants to operate globally should

produce differentiated products of common medicines so that it can attain a greater market share

in emerging countries.

Moreover when a new medicine is tested on animals and later to human beings, proper cautious

measures should be taken by the company just in case there is irreparable damage to health. The

company should make sure such tests are made abiding all the legislative procedure.

Price war among competitors often tend to lower the quality of medicine being sold, which

should strictly be avoided as a very sensitive issue of human health has been considered here.

Many of the ingredients needed to produce medicine are widely available in developing nations

and hence the company can look forward to those suppliers who will provide them with fair

price. Moreover those small suppliers would be more encouraged to work and learn the business

while working with Novartis.

Laws and litigation are only imposed on companies which are absolutely required hence any

company with clear intention to do business will be willing to abide by the law while supplying

the medicines even with slightly added cost. Although companies could take adequate measures

to reduce their cost in other departments of business (for e.g – distributional cost) to remain

competitive.

Conclusion: Novartis is a company which thrives on innovation, in almost every aspect of his business

operation. The company takes ideal steps to attain sustainable growth and expand its business

venture efficiently. Moreover any recent advancement in pharmacology is quickly adopted by

the company. Lastly the company's portfolio across key growth segments in healthcare provides

Novartis a leading position in the respective market segments.

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References

1. Company History Novartis

2. Focused diversification - Novartis

2. Novartis ANNUAL REPORT 2012

3. Stock Price Fluctuation of Novartis AG - Bloomberg