Swiss business culture and management at Novartis International AG

Swiss business culture - case study of Novartis International AG

Business culture in Switzerland is formal and focuses on building reputation and respect between business owners and their clients. This aspect of the Swiss makes it necessary to form long lasting relationships with every client they handle. The only way to command respect is through competence, efficiency and good performance. Furthermore, the business environment in Swiss separates personal from public thus learning the business aspect of their business partners is crucial. The Swiss expect their partners to be prepared when negotiating deals and will always appreciate it when decisive and conclusive decisions are made almost instantly.

Despite this, Swiss may care less about formalities compared to German speaking nations but are still keen on punctuality and appearances. There is a significant emphasis on hierarchy observations with bosses being highly respected although they work with colleagues to reach a decision. It is this need for consensus that makes decision making difficult. It forces companies to focus on making unanimous decisions, call for meetings before making a final conclusion on any topic. Switzerland is a combination of regional influences, customs and homogenous etiquettes excluding language nuisance (UK Trade & Investment, 2013).

Swiss business management methods- a case study of Novartis International AG

Corporate background

Novartis, whose Latin origin name means art, is a biotechnology and pharmaceutical company whose headquarters is in Basel, Switzerland (Novartis, 2010) and was formed in 1996 after the merging of pharmaceutical and chemical companies, Ciba-Geiger AG and Sandoz. The merging of these Basel located companies remains the largest in the world to date making Novartis the third largest pharmaceutical in the world having over 100000 employees worldwide and registers a 49 billion U.S. annual revenue.

Furthermore, it is one of the fastest growing companies in the world emphasizing on drug development annually. This explains its second rank in fortune magazine as worlds most admired company. This company has four main business areas including pharmaceuticals, vaccines and diagnostics, Sandoz and consumer health (Reinders, 2010). The fact that all its drugs are protected by patents makes it one of the most notable players in the industry as its solutions are helping the society.

Norvatis is subject to laws of Switzerland especially on securities. It is also subject to the SIX Swiss Exchange rules that include corporate governance directives where it is incorporated in the governance standards. The governance, nomination and corporate responsibility committee regularly reviews principles and standards of good practices in addition to recommending improvements to corporate governance framework for consideration by full board (Norvatis, 2015, p.93).

Dealing with such a company that is subject to a couple of securities and laws makes things more plausible both to consumers and resellers. The Norvatis, which is subject to the rules of the SIX Swiss Exchange rules conforms to all its industry standards. The reviews from authority third body experts will not only force the company to keep to its standards but also ensure that it is punished whenever it operates outside the agreed upon terms.

Financial performance

The sound financial performance registered by Novartis in 2014 is attributed to continued product growth and expansion in emerging markets thus offsetting the effect of generic competition. This led to the achievement of USD 58 billion similar to the 2013 levels in terms of report and 2% up in constant currencies. The group operating income was USD 10.7 billion while the operating income margin 18.5% of the net sales. The group net income rose to USD 10.3 billion while earnings per share rose to USD 4.21 and 2014 cash flow increased by 8% to USD 10.8 billion due to high operating cash flows. Core operating income went up by 3% while the core operating income rose by 0.5% to 25.5% of net sales due to the efforts of enhance productivity and reduce the 0.7% negativity brought about by foreign exchange rates. Core net income rose by 3% to USD 12.8 billion and core earnings rose to 5.23 USD registering a 4% increase (Novartis, 2015, p.22-23).

Group operating income rose by 1% to USD 10.7 billion including a $0.9 billion gain from blood transfusion diagnostic units and a $0.3 billion gain on commercial settlement offset by a $1.1 billion impairment charge related to the divestment to CSL on influenza vaccines business. The negative 6% income resulted from emerging market currencies more so the ruble and yen against the U.S. dollars causing an operating income of 18.5% of the net sales, which is 0.1% reduction, compared to the year before. Furthermore, a 0.8% increase was offset by a 0.9% negative impact in the current year. The IFRS needs depreciation as well as amortization charges on not only tangible but also intangible assets on halting operations of OTC, animal health and vaccines cease as of April in 2014, which was the portfolio transformation declaration date. The overall effect is a positive impact of USD 277 billion for the whole year and a general income margin improvement. There is also the Vaccines of USD 552 million and total expense recognized in corporate discontinuing operations in 2014 of USD 271 million related to the transformation transaction related expenses (Novartis, 2015, p.129-130).

Changing market paradigms

Human population characteristics are influencing major societal changes. Over a billion people are expected to inhabit the world by 2025 majority of them being in developing countries as per UN. People over 50 years also increase by 500 million with health and living standards improvements and this age is expected to register the fastest growth rate accounting for 25% of the world's population by 2025. As a result, illnesses and diseases also shift as chronic illnesses and non-communicable diseases increases accounting for more than 25% of illnesses during the same time rising from 60% in 2010 as revealed in WHO survey and projections (Novartis, 2015, p. 14).

With the changes in demographics and changes in society, there could be chances that the company has to reorient its business plan. The changes in demographics affects more than the type of health services people subscribe to. It will have an impact on the type of drugs that need be purchased. As this changes, the demand for a variety of drugs changes hence the need to manufacture something in line to this.

Medical advancements continue to rise due to cell therapy levels. Better understanding of the diseases affecting human beings means that doctors can do better to improve health and save life. Genetic and cellular mechanisms behind diseases have triggered generation therapies that target the illness-causing agent effectively. The advancements produce breakthroughs including the body's ability to regenerate itself. Smart devices are also making it possible for patients to improve general healthcare due to easy access of information thus empowering consumers to be empowered taking charge of their own medical care due to the options available to them. Health consultants and patients have over 100000 mobile apps to subscribe to.

With more and more people owning smartphones and portable devices, the prospect of working with systems that monitor health remotely is on the rise. This improves on information sharing and how soon health related reports are made. The over 100000 mobile apps could cut down on the report failures and increase on efficiency of service delivery by virtue of getting the information to the experts at the right time.

This advancement is key in monitoring and communicating the progress with physicians thus increasing the need for health care demand in the world. The general expectation is that health expenditure will double by 2025 exceeding USD 15 trillion making a growth impact for patients as healthy lives continued to be promoted (Novartis, 2015, pg.14).

Strategy formulation

The positioning of Novartis is such that it takes advantage of fast changing industry environment to fulfill its curing and caring missions. The next growth phase targets acceleration of execution of science-based strategies to deliver positive outcomes for patients and payers. The priority is to extend innovations and accelerate growth while driving productivity across a diverse portfolio in order to generate profits and shareholder returns. There is a high commitment to integrity, cooperation and open dialogues for stakeholders (business strategy, 2015).

Extending lead in innovation: Novartis puts heavy emphasis on the benefits of dealing with science-based innovation. The mission is to use detailed research processes and focus on working out a clinical approach that will build reliable production lines of different medicines and treatment options. The primal object remains to be the creation of real-life solutions that work to treat real problems in the world.

Faster growth: The goal at Novartis is to increase on the number of products launched per unit time without compromising on the quality of results. These efforts expand the portfolio without necessarily putting the company's reputation and quality of products at risk. The ability to morph and adapt the commercial and business model makes Novartis a true force in the healthcare niche.

Leveraging productivity: By simplifying production processes and encouraging cross-divisional collaboration, Novartis increases on the possibility of global procurement and the creation of worldwide supply chains. These vigorous efforts improve on cash management and the general profitability of all ventures.

All the four strategic enablers are focusing on letting the company improve on its integrity whilst upholding high performance and dependability in the market.

Commitment to the people: The Company focuses on being the best in the world. To achieve this, it has to gather the best audience, and retain it. This is why Novartis focuses on nurturing a diverse team full of experts with high engagement rates.

Quality and compliance. Producing products that are up to par with our compliance of standard guidelines, and those of the market is not always the goal. Creating a product that is the best that there can ever be will always be top on the priority list.

Ethical practice: By adhering to an international code of conduct, the company ensures that it treats all its customers equally and delivers the highest and most reliable code of conduct world-wide.

Corporate responsibility: Our goal is improving on our corporate responsibility. Every medicine's quality is our responsibility and we have the charter to produce the very best medicines without giving any excuse or disappointment to the society and consumers in general (business strategy. 2015).

External analysis

PESTEL analysis

Political factors

Politics plays a major role in the success and profitability of pharmaceutical companies especially in countries with government sponsored health care systems. GDP in most counties continue to increase with the cost of healthcare products hence government-seeking ways to reduce these costs become necessary (Novartis, 2010, p.144). There are different ways through which costs can be reduced including using generic medicines, regulating prices as well as patent protection periods forcing patients to pay higher health care costs (Rheinische post, 2010). The biggest market of pharmaceuticals markets in U.S. consume 70% generic medicines thus limiting the sale of new drugs (Novartis, 2010, p.145).

Irrespective of future decisions the pressure on regulators and insurance companies, political factors will affect the running of Novartis and interfere with its profitability. Continued reduction of prices and lowering of patent periods makes developing of new drugs more challenging and as such, patients will hardly have any new drugs to use (Reinders, 2010).

Economic factors

Economic factors also affect pharmaceutical companies in one way or the other. Maintaining an effective company especially one that produces drugs costs a lot of money. Novartis generates a third of its earnings from developed countries such as U.S., EU and Japan thus strengthening the economies of these states. When it comes to economic vitality these companies are affected by the downturn of economies and recession although in a lower scale. This is because whatever the state of economy patients cannot forgo medication they rely on. Drug dependence is more independent from the economic status compared to other basic needs (Reinders, 2010).

Socio-cultural factors

These factors are fundamental for the growth of Novartis as they affect the future demand for products. Major drivers are demographic and social economic development aspects such as population, changing lifestyles, high life expectancies and increased prosperity. The general expiation is continued expansion in U.S., Japan and EU. Some of the emerging markets include Turkey, Brazil, China, India, Mexico, South Korea and Russia (Novartis, 2010, p.143-145)(Reinders 2010).

Technological factors

Pharmaceutical companies need technological progress especially for those like Novartis that follows strategy differentiation and innovation. Technological progress has been progressing tremendously in the past 20-30 years. This shows an increase tenfold according to Pharma, which is a U.S. industry trade association (Novartis, 2010, p.144) (Reinders, 2010). Technological progress and advancement leads to understanding of disease based on better treatment ways based on genes and human body proteins. This information is expected to ensure that drugs development will continue (Novartis, 2009, p.140). The results take time as research is needed.

Environmental factors

These external factors are important and cannot be ignored. Environmental awareness combined with environmental hazard information is crucial. Consumers are increasingly requesting for high quality products that are safe to both users and environment to reduce the energy needed to break them down.

Due to the weight of the matter, Novartis includes an exclusive environmental issue in its code of ethical business behaviors confounding itself to an ecofriendly production plan that works on using ecofriendly approaches in creating and distributing its products. Using animals to test drugs is inevitable. Despite the fact some people might not find this as ecofriendly, Novartis sticks to strict code of honor that focuses on reducing animal testing and only resorting to it when they are sure that the test will either work or shall not result in adverse effects for the test subjects (Novartis, 2010, p.66).

Legal factors

There are strict legal regulations on pharmaceutical companies all over the world. The local authorities for drug and food regulations FDA and EMEA are using their influences to persuade Novartis to lower prices and reduce drug risks before approval. This leads to a reduced drug approval rate leading to major setbacks and loses in the market (Novartis, 2010, p.145)

Trends and issues of the industry

Trends come with significant opportunities for pharmaceutical industries. The science based innovations are especially crucial for triggering growth and delivering better outcomes which in turn helps keep spending of governments in check (Norvatis, 2015, p. 14). The goal for governments is to find cost effective measures before recommending the use of any drug. Despite this, industrial trends and changes in demographics will always pose a risk to any company. Novartis is not an exception. Changes in different aspects of the market will always have an impact on plans and put strain on the clear outline production and distribution policies (Novartis, 2015, p.14).

A more common trend in the current market is governments and insurance firms focusing on better value off money invested on healthcare services and products. This means that these stakeholders demand that any new drugs or treatment procedures translate into a direct and tangible benefit to the real life society.

With this in mind, government institutions like the National Institute for Health and Care in the UK is actively looking for ways to achieve economical medical care by improving on the cost-effectiveness of active procedures. Combine this with advanced databases and effective mobile measurement applications and you get a treatment system that puts the doctor in control regardless of the patient's location. The trend here is to hold with technology companies like Apple, Google and IBM showing increased interest in creating software solutions to augment the healthcare industry (Novartis, 2015, p.15).