Ganga Pharmaceuticals Is a Multinational Indian Corporation

Ganga Pharmaceuticals is a multinational Indian corporation that competes in the manufacturing of pharmaceuticals and related research and development with annual revenues of about $285 million. The company features one of the largest biotechnology parks in India and currently employs around 7,000 employees globally. In recent years, Ganga has acquired a number of companies in Europe and the United States, including C-Pharma, which was acquired in 2003 for approximately $17.2 million. As part of this acquisition, the human resources division at Ganga sought to align the newly acquired C-Pharma with the parent company, but met with mixed success due to some missteps in its administration of the transition. To determine where the company went wrong and what steps could have been taken to avoid these adverse outcomes, this study provides a review of the relevant literature in two parts. The first part provides an overview of Ganga, its operations strategy, performance objectives, and its operations resource capability. Part two of the study presents a series of recommendations and supporting rationale are provided concerning improvements to the human resource operations at Ganga, including proposed changes and corresponding challenges to implementation, including an overview of the costs and benefits, as well as the anticipated risks associated with the recommended changes.

Operational Management in the Pharmaceutical Industry

Introduction

Today, Ganga Pharmaceuticals (hereinafter alternatively "Ganga" or "the company") is a multinational Indian corporation that competes in the manufacturing of pharmaceuticals and related research and development. Based on its estimated market capitalization of more than $1 billion, Ganga's yearly revenues are approximately $285 million. The company maintains a separate hospital division and features one of the largest biotechnology parks in India and currently employs around 7,000 employees globally. In addition, Ganga has heavily invested in research and development activities that have resulted in a number of innovative biotechnology products including more than 250 patent applications. In recent years, the company has acquired five companies in Europe and the United States, including C-Pharma, which was acquired in 2003 for about $17.2 million (Budhwar, Katou & Narayan, 2009). The company's operation selected for this analysis was its human resource division and how it operates in aligning Ganga's corporate goals with its day-to-day operations and activities. In Part I: Analysis and Audit, this paper presents a review of the relevant literature to determine the operations strategy at Ganga, its performance objectives, and its operations resource capability. In Part II: Recommendations, a series of recommendations and supporting rationale are provided concerning improvements to the human resource operations at Ganga, including proposed changes and corresponding challenges to implementation, including an overview of the costs, benefits and risks that the recommended changes are expected to provide.

Part I: Analysis and Audit

Operations Strategy

The operational strategy of Ganga is summed up by the company's human resources director thusly: "Ganga believes in rapid growth and expansion through acquisitions" (quoted in Budhwar et al., 2009, p. 89). The company has gone on to demonstrate this commitment to rapid growth and expansion through a series of acquisitions of other organizations, not all of which were in complete harmony with Ganga's corporate philosophy, culture or operations strategy. Therefore, the importance of the human resource function in helping overcome the challenges that are typically associated with such corporate mergers has been especially salient at Ganga in recent years. For instance, following their acquisition of C-Pharma, Ganga has since acquired a number of other organizations in Germany, Ireland, and France (Budhwar et al., 2009). The company's operations strategy was applied to the acquisition of C -Pharma, which was losing money at the time of acquisition, in order to develop improved economies of scale through the manufacture of bulk pharmaceutical at its Indian facilities where labor was less expensive and by performing the more expensive research and development needed in its UK-based C-Pharma plant (Budhwar et al., 2009). As a result of the acquisition, the company expected to enjoy high technology support from its UK acquisition while retaining inexpensive human resources at its Indian facilities (Budhwar et al., 2009). In this regard, Budhwar and his associates report that the company sough to "thus benefit from both cheap labour and better technology" (p. 90).

The operations strategy involved in the C-Pharma acquisition related to Ganga's need to increase its product lines by incorporating C-Pharma's manufactured drugs using the Ganga brand as well as its strategic goal to expand its market into the UK as part of an overall larger initiative to gain access to the African and Middle Eastern markets as well (Budhwar et al., 2009). According to Budhwar et al., "C-Pharma has 225 UK marketing authorizations and 258 foreign market authorizations, which could make it extremely easy for Ganga to enter these markets" (2009, p. 90). Preparatory to the acquisition, the leadership team at Ganga identified three primary problems at the targeted C-Pharma (which also related to the same reasons why the enterprise was for sale in the first place) were as follows:

1. Extremely high production costs;

2. Failure to keep up with competitors; and,

3. An ineffective management team.

In fact, the C-Pharma operations were bloated with a 300-excess-employee workforce, and the Ganga management team determined that C-Pharma's generous pension policies had created an unsustainable fiscal situation (Budhwar et al., 2009). Moreover, C-Pharma inordinately high production costs resulted in higher product costs, and C-Pharma's range of manufactured drugs was small when compared to its main competitors. In this regard, Budhwar et al. report that, "The company primarily relied on the sales of animal insulin for its revenue stream. However, advances in research allowed its competitors to replace this with biotechnology insulin, thus leading to a significant drop in sales and profitability at C-Pharma" (p. 90). Consequently, these innovations meant that C-Pharma was not able to produce competitively priced drugs and the company experienced significant losses as a result (Budhwar et al., 2009). The management team at C-Pharma either failed to discern these trends or were otherwise unable to resolve them, resulting in the acquisition by Ganga (Budhwar et al., 2009).

Performance Objectives

The performance objectives of Ganga's human resource division related to its need to minimize the problems associated with the integration of the newly acquired C-Pharma operations in order to better align this new acquisition with the company's larger corporate goals. To this end, Baghwar and his associates report that, "Ganga adopted the 'takeover' strategy by completely absorbing C-Pharma's operations and erasing its culture for the most part. The mission of Ganga was to create value by combining the needs of the customer with an uncompromising drive for excellence" (Baghwar et al., 2009, p. 90). The performance objectives for this "all-or-nothing" approach included:

1. Facilitating the post-C-Pharma acquisition process;

2. Overcoming resistance to the new performance management policies;

3. Educating UK employees concerning these and other issues as necessary.

The overarching priority of these approaches was to bring the core competencies of the newly acquired C-Pharma to bear on Ganga's bottom line as quickly as possible by adding value along the entire supply chain in innovative ways, a process that is congruent with industry best practices (Wall & Wall, 2000). Immediately following the acquisition of C-Pharma, there was a backlash among the acquired staff that adversely affected the transition. In this regard, Baghwar et al. report that, "After their acquisition, there was an outbreak of the 'merger syndrome' amongst the C-Pharma employees attributed this to the downsizing of C-Pharma by 300 employees and the sudden changes brought about in the top management ranks, as well as the implementation of the performance management policy without sufficient communication and employee participation" (2009, p. 91). The outcome of this situation was predictable enough, and the employees at C-Pharma began leaving the company in droves based on a loss of confidence and trust of the company's leadership team and the imagined fears of the new Indian owners (Baghwar et al., 2009). According to these analysts, the reasons for these adverse outcomes are apparent: "It is not difficult to trace the reasons behind this exodus, which was due to the failure of HR to communicate and involve employees on the above-mentioned key decisions at the pre-combination and integration stages" (Bahgwar et al., 2009, p. 91).

The new CEO took it upon himself to help change the employee mindset at C-Pharma by acting as a change leader and building strong "personal contact" with employees by involving them in his decision making. As the HR President at Ganga noted: "Post-acquisition, the HR team was extremely active in tackling the resistance to change from the employees and the cultural discomfort they were experiencing. They started by adopting the strategy of 'selling' the logic for change to employees and effectively communicating the benefits that the employees would derive from the new performance management and other such schemes. Further, HR also provided counseling sessions for stress management and repeated training to employees regarding their new roles. Finally, HR undertook cross-cultural training and training on setting clear-cut goals and objectives after the performance appraisal. However, given that these efforts came late in the acquisition process, it took almost a year of intense HR efforts before the company felt that the acquisition would succeed." Indeed, the executives we interviewed specifically noted that erstwhile C-Pharma employees now feel proud of the fact that they are part of the Ganga family (Budhwar et al., 2009, p. 91).

Operations Resource Capabilities

The company's resource capabilities are highly aligned with its performance objectives, and remain sufficiently flexible to respond to a dynamic and increasingly globalized marketplace. For instance, by taking advantage of the cheaper labor costs in its Indian facilities and the high-tech R&D resources of its UK acquisition in C-Pharma, Ganga has gained a competitive advantage. This competitive advantage, though, is based on continuous improvement. For instance, according to Ncube and Wasburn (2008), "Beyond survival, success in competition demands continuous improvement of both business performance and quality of product" (p. 15). Here, the company appears well positioned to leverage its human resource capabilities with its organizational goals, but there have been some constraints, oversights and missteps that could be avoided in the future. For example, during the post-C-Pharma acquisition, Budhwar and his colleagues report, "The HR team failed to 'educate and delegate' to help the employees understand the need for change and then communicate it to other employees. As a result, employees did not know what role they were expected to play in facilitating change" (2009, p. 90).

With respect to risk management, Ganga's HR team was actively involved in the acquisition process from the outset where they performed the requisite due diligence involved, include an assessment concerning of the value of the existing human resources function in the C-Pharma operation, the identification of key employees to be retained, and steps to ensure that the company was in compliance with all legal and trade union issues (Budhwar et al., 2009). In addition, to help promote commitment and loyalty to the parent organization, the company's HR division encouraged all of the identified key employees at C-Pharma to sign retention agreements. As Budhwar et al. put it, "In other words, the HR team at Ganga had a clear understanding of the objectives and plans, and they clearly aligned their HRM strategy with the acquisition archetype by adopting the 'ethnocentric approach'" (2009, p. 89). This approach was demonstrated in substantive ways during the integration phase of the acquisition via the implementation of new human resource policies and procedures that were tailored to C-Pharma but which were comparable the content of the parent company's policies and procedures. From a strictly pragmatic perspective, this approach was effective. According to Budhwar et al., "As a result, the performance appraisal system and the recruitment and selection methods of Ganga India were fully implemented in the acquired company" (2009, p. 90). Beyond the foregoing steps, the HR team at Ganga also:

1. Used the existing performance appraisal scheme to identify unproductive labor at C-Pharma, thereby reducing manufacturing costs.

2. Introduced a competency-based framework for recruitment, selection, and training purposes that recognized eleven key areas of personal development, each with its own sets of skills and capabilities including areas such as domain knowledge, system orientation, and drive for achievement.

3. Replaced the incumbents of numerous leadership positions at C-Pharma by recruiting expatriates from Ganga India, a step that is highly congruent with the "ethnocentric" approach. Indeed, the HR team consciously decided to change the culture and values of employees at C-Pharma by focusing on productivity, quality, cost, and speed - values that were less emphasized prior to the acquisition; however, the HR department at C-Pharma did not undergo major restructuring, except for a few internal promotions within the department (Budhwar et al., 2009, p. 91).

Part 2: Recommendations

In retrospect, although Ganga did a number of things right in its acquisition of C-Pharma, it is apparent that there could have come some things done differently, or in some cases, some things done that were not done, that could have made a substantive difference in the achievement of the performance objectives outlined above. For instance, Baghwar and his associates (2009) report that, "Interestingly, the HR department did not conduct cultural due diligence at the pre-combination stage, which resulted in serious cultural clashes" (p. 91). Given the importance of the so-called psychic distance and obvious relevance of cross-cultural differences in such transnational mergers, this oversight is not easily understandable. Indeed, the Ganga human resources team did not even try to "pave the way" for a seamless transition by communicating more openly with the acquired staff concerning management policies and procedures, a failure that was further exacerbated by preconceptions on the part of the UK staff concerning Indian management styles. For instance, Budhwar et al. note that, "Employees were not helped to prepare themselves for changes like downsizing, accepting new leadership, and the new performance management system. The employees had preconceived notions about the Indian style of management, assuming it to be extremely directive and bureaucratic and viewed Ganga as being against employee welfare" (2009, p. 90). The company does appear to have learned its lessons from these experiences, though, and Ganga has taken steps to include these steps in future expansion efforts, particularly when there are substantive cross-cultural differences involved (Budhwar et al., 2009).