Human resources operations at Ganga Pharmaceuticals: C-Pharma acquisition analysis

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).

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).

Another example of the all-or-nothing/ethnocentric approach to merger management, Budhwar et al. point out that the company's performance appraisal approach to establishing pay was implemented without the requisite preparation for the transition, and the UK employee backlash here was especially severe. For example, Budhwar et al. report that the company's performance appraisal scheme "linked pay to performance and involved the setting of quarterly goals for all employees at the junior, middle, and senior management levels. The goal setting was to be done in agreement with the employees' immediate boss as part of the monthly review meetings. This system of performance-related pay was new to the C-Pharma employees and they refused to accept it" (2009, p. 90). There were some other failures on the part of the Ganga HR team during the C-Pharma acquisition that are worthy of note as well. For example, in sharp contrast to the workforce in the UK, Budhwar et al. characterize the relationship between the company and its workforce in India thusly: "Ganga commanded an extremely competitive workforce that was willing to put in extra working hours. Here, it is worth noting that India's national culture is rather high on power distance and is masculine and collectivistic. In comparison, the UK is low on power distance and is highly individualistic, which led to cultural discomfort experienced by Indian expatriates and C-Pharma employees at the integration stage" (p. 90). Given the opportunity for the enthnocentric approach to operate over time, it is conceivable that even the most reluctant employees may be persuaded to change their minds, but it is apparent that they must understand the "what's-in-it-for-them" aspects that are involved from the outset in order for this approach to achieve its optimal effectiveness. In this regard, Budhwar et al. note that, "Somewhat surprisingly, neither the expatriates from Ganga nor the employees at C-Pharma were given any kind of cross-cultural training at the pre-combination and integration stages" (emphasis added) (2009, p. 90). These findings are congruent with Brewster and Harris (1999) who report, "National culture creates distinct patterns of human resource management because of its influence on rewards behaviour" (p. 103).

Taken together, the foregoing issues provide the basis for the following recommendations for pharmaceutical companies contemplating transnational operations:

1. Perform cultural due-diligence early on;

2. Select appropriate communication channels to ensure "the word gets out" to all stakeholders;

3. Ensure that employees at each and every stage of the acquisition process are kept informed of the process and how it affects them in order to avoid resistance to change; and,

4. Take advantage of the cross-cultural expertise available in expatriate staff members who can facilitate the transition in numerous ways. In fact, Budhwar et al. conclude that, "The role played by expatriates (e.g., the CEO of Ganga-UK) was critical in the ultimate success of Ganga's plan to merge C-Pharma fully with the parent company" (2009, p. 91).

On a final note, it is reasonable to conclude that Ganga has gained a great deal of experience in the transnational merger management area, and despite its disadvantages and other controversial aspects, the ethnocentric approach to transnational merger management does have some advantages that can outweigh these constraints. For instance, Wall and Wall (2000) report that, "As with a shared vision, common goals can help to drive the integration process, uniting people in the pursuit of clear results. Adapting a common goal-setting and performance-management process is a key step in the integration of two companies after an acquisition" (p. 200). Savvy human resource managers, though, should take a hard look at their failures during the post-acquisition process, and even be sufficiently flexible to adapt their operations to include those of the acquired firm. In this regard, Wall and Wall (2000) cite the example of a pharmaceutical company that did just that: "For example, a large pharmaceutical company used its acquisition of another firm and the subsequent restructuring of the research and development division as an opportunity to revisit the entire performance-management process. The integration brought with it an opportunity for change that might not have been present otherwise" (2000, p. 200). In the final analysis, the competitive advantages that can be achieved through a strategic management approach are fleeting, and must be supported and reinforced by an informed human resource management function.