This paper presents a comprehensive business case analysis of GlaxoSmithKline (GSK), one of the world's largest pharmaceutical companies. The analysis addresses three core case issues: consumers purchasing drugs from abroad at lower prices, product development concerns related to drug side effects, and GSK's strategy for expanding access to medicines in developing countries. The paper examines GSK's current performance and strategic posture, corporate governance structure, external and internal environments through a SWOT framework, Porter's Five Forces, key financial ratios, and human resource practices. It concludes with strategic alternatives and a recommended pricing strategy, alongside an implementation and evaluation plan.
Case Issue 1: Abroad Purchase. GlaxoSmithKline faces lower sales revenues within the United States as consumers prefer to purchase their drugs from abroad at lower prices.
Case Issue 2: Product Development. GlaxoSmithKline has been criticized for the side effects of some of its medicines and therefore needs to invest more in product research and development.
Case Issue 3: International Expansion. Although GlaxoSmithKline already operates in 150 countries around the globe, the company seeks to penetrate the markets of developing and less-developed countries in order to increase patients' access to medicines.
GlaxoSmithKline is the world's most renowned pharmaceutical company, with annually increasing turnovers, investments, and profits. It plays a significant role in both national and international healthcare industries.
GlaxoSmithKline's profitability for 2006 is measured with the aid of five profitability ratios: gross margin, operating margin, pre-tax margin, net profit margin, and effective tax rate.
The profit after taxes for 2006 was £5,498 million, 14% higher than the profit recorded for 2005 (GSK 2006 Annual Report). The 7% turnover growth in fiscal year 2006 compared to 2005 is explained by increased sales of the company's main products. Specifically:
The market share by value in the anti-asthma and COPD class registered 29% in European countries and 33% in the United States. The market share for 2006 within Europe registered a 2% increase compared to fiscal year 2005, but within the United States the market share was stagnant. The lack of growth in the U.S. market is due to lower prescriptions generated by "a label change in early 2006 that restricted GSK's ability to promote the product, offset by favourable pricing changes" (GSK Website, 2007).
During fiscal year 2006, GlaxoSmithKline recorded a 29.66% return on investment, compared to an industry average of 13.56% (Reuters, 2007).
Mission. GSK's mission is clearly stated on its website, banners, posters, and annual reports, and is visible throughout its campaigns and actions. The company's mission is to improve the quality of human life by enabling people to do more, feel better, and live longer (GSK Website, 2007). Directly connected to this mission is the company's spirit: GSK describes itself as a group of enthusiastic entrepreneurs dedicated to innovation, valuing integrity, high performance, and fair employee treatment, with the ultimate goal of becoming a successful world-class global leader (GSK 2006 Annual Report).
Objectives. The company's objectives are not explicitly stated, but are implied through actions, performances, and statistics. From these sources, GSK's objectives can be structured as follows:
Increase both national and international market share (CI#3); sustain growth in Europe and promote growth in the U.S.; increase turnover, sales revenues, and profits; value employees and increase their commitment to the company; invest in Research and Development in order to discover new medicines and improve existing ones (CI#2); and produce the best and most competitive products.
Strategies (GSK 2006 Annual Report):
1) Optimizing the performance of key products (CI#2). This strategy is implemented to increase sales of the corporation's major products. Activities developed toward this goal include excelling as an international sales force; excelling in marketing pharmaceutical and consumer healthcare products and services; promoting and maintaining the highest professional and ethical standards; and balancing the cost-benefit relationship.
2) Delivering the product pipeline for patients. This strategy involves developing a system to support and manage GSK's product pipeline throughout each product's complete life cycle. It is primarily based on innovations made by the Research and Development Department and aims to satisfy the unmet needs of customers.
3) Being the best place for the best people to do their best work. This strategy is based on the desire to register the highest organizational performance and is implemented through four actions: recruitment and training of the best-qualified personnel; promotion of a culture based on adequate rewards and motivating incentives; implementation of effective communication and employee involvement in organizational goals; and hiring qualified, diverse, and healthy personnel.
4) Improving access to medicines (CI#3). This strategy was developed to give more individuals the opportunity to purchase medical products and services. GlaxoSmithKline takes pride in its efforts to improve access to drugs by penetrating neglected markets and developing medicines to treat neglected diseases.
Policies. GSK has developed its policies in full accordance with social, economic, political, and legal contexts, using them as guiding elements in achieving its mission. The most prominent policies cover the company's code of conduct, clinical trials, sales and marketing ethics, informed consent, animals in research, genetic research, drug safety, and the reporting of safety data (GSK Website, 2007).
The GlaxoSmithKline Board of Directors is composed of fourteen directors, eleven of whom are non-executive directors; the remaining three are the CEO, the CFO, and the R&D Chairman. The board members are as follows (GSK Website, 2007):
1. Sir Christopher Gent — Non-Executive Chairman of GSK plc and Chairman of the Nominations and Corporate Responsibility Committees since June 1, 2004. Prior to GSK, Gent served as CEO and board member at Vodafone, Chairman of the Supervisory Board of Mannesmann AG, a non-executive director of China Mobile Limited, and a member of the Verizon Wireless management board.
2. Dr. Jean-Pierre Garnier — Chief Executive Officer since 2001. He has held various senior management positions and holds a PhD in pharmacology and an MS in pharmaceutical science from the University of Louis Pasteur in France.
3. Roy Anderson — Independent Non-Executive Director and Professor of Infectious Disease Epidemiology in the Faculty of Medicine, Imperial College London. He is the former Chief Scientific Adviser at the UK Ministry of Defence.
4. Dr. Stephanie Burns — Independent Non-Executive Director at GSK and Chairman, President, and CEO of Dow Corning. She holds a PhD in organic chemistry.
5. Lawrence Culp — Independent Non-Executive Director at GSK and President and CEO of Danaher Corporation.
6. Sir Crispin Davis — Independent Non-Executive Director and CEO of Reed Elsevier plc. Former CEO and board member at Aegis Group plc; knighted for his services to the information industry.
7. Julian Heslop — Chief Financial Officer since April 2005. He is the former Senior Vice President and Operations Controller.
8. Sir Deryck Maughan — Independent Non-Executive Director, Managing Director of Kohlberg Kravis Roberts and Co., Chairman of KKR Asia, and Non-Executive Director of Reuters Group. Former CEO and Chairman of Citigroup International and Salomon Brothers Inc.; former Vice Chairman of the New York Stock Exchange.
9. Dr. Daniel Podolsky — Independent Non-Executive Director, Mallinkrodt Professor of Medicine and Chief of Gastroenterology at Massachusetts General Hospital and Harvard Medical School, and Chief Academic Officer of Partners HealthCare System. He specializes in innate immunity, gastrointestinal disorders, and trefoil proteins.
10. Sir Ian Prosser — Senior Independent Non-Executive Director, Non-Executive Deputy Chairman of BP plc, Non-Executive Director of Sara Lee Corporation, and member of the CBI President's Committee. Former Non-Executive Director of SmithKline Beecham plc; former Chairman of Six Continents PLC and the World Travel and Tourism Council.
11. Dr. Ronaldo Schmitz — Independent Non-Executive Director of Legal and General Group plc and a member of the boards of Rohm and Haas Company and Cabot Corporation.
12. Moncef Slaoui — Chairman of the Research and Development Department and member of the Corporate Executive Team and the Board of GlaxoSmithKline plc. He holds a PhD in molecular biology and immunology and completed postdoctoral studies at Harvard.
13. Tom de Swaan — Independent Non-Executive Director, member of the Supervisory Board of Van Lanschot, and board member of the Institute of International Finance. He is a former board member and CFO at ABN AMRO, former board member of Dutch Central Bank, and former Chairman of the Basel Committee.
14. Sir Robert Wilson — Independent Non-Executive Director at GSK; Independent Non-Executive Director of BG Group and the Economist Group. He was Executive Chairman of Rio Tinto plc.
The GlaxoSmithKline top management team is composed of the following fifteen members (GSK Website, 2007):
1. Jean-Pierre Garnier — Chief Executive Officer. His efforts are focused on lowering drug prices for less-developed countries, provided that doing so does not negatively impact the overall company. He has stated that if prices remain too high, the UN should offer subsidies (Boseley, 2003).
2. Rupert Bondy — Senior Vice President and General Counsel. He played a key role in the merger between Glaxo Wellcome and SmithKline, and subsequently developed an efficient post-merger legal department while ensuring legal representation across all organizational departments (Practical Law Company, 2003).
3. John Clarke — President, Consumer Healthcare. Clarke leads the company's Consumer Healthcare market and is largely responsible for the promotion of oral hygiene, over-the-counter, and nutritional healthcare products (Forbes Magazine, 2007).
4. Marc Dunoyer — President, Pharmaceuticals Japan. He has extensively promoted anti-allergy Zyrtec drugs in Japan and internationally.
5. Russell Greig — President, Pharmaceuticals International. Greig oversees GSK operations outside the United States, primarily in Japan and Europe, covering more than one hundred countries (Forbes, 2007). His primary focus is on developing drugs that combat HIV.
6. Julian Heslop — Chief Financial Officer. As CFO, Heslop is responsible for "financial reporting and control, tax and treasury, finance systems, internal audit, insurance and real estate" (Forbes, 2007).
7. Bob Ingram — Vice Chairman, Pharmaceuticals. Robert Ingram facilitated the successful merger between Glaxo and SmithKline, was responsible for operations in Latin and North America, and in 1997, when he became Vice Chairman, his responsibilities expanded to an international scope.
8. Duncan Learmouth — Senior Vice President, Corporate Communications and Community Partnership. He oversees "investor relations, internal and external communications, the GSK's image and its partnerships with global communities" (Forbes, 2007).
9. Bill Louv — Senior Vice President, Information Technology and Chief Information Officer. Louv has held several IT positions within the corporation and today is responsible for "information technology, a global function that enables key business processes across all parts of the Group" (Forbes, 2007).
10. Dan Phelan — Senior Vice President, Human Resources. A former lawyer, Phelan is responsible for "benefits, compensation, recruitment, organisation development, leadership development and succession planning, human resource information systems and employee health management" (GlaxoSmithKline Annual Review for 2006).
11. David Pulman — President, Global Manufacturing and Supply. Prior to his current role, Pulman oversaw supply chain and network management, manufacturing strategy, and logistics within North America (GlaxoSmithKline Annual Review for 2006).
12. Moncef Slaoui — Chairman, Research and Development. The Chairman of the R&D Department leads GSK's "complex drug discovery and development activities" and has "engineered the development of a robust vaccines pipeline" (Forbes, 2007).
13. David Stout — President, Pharmaceutical Operations. He is "responsible for all pharmaceuticals and vaccines operations worldwide, including the U.S., Europe, International, Japan and Global Manufacturing and Supply" (GlaxoSmithKline Annual Review for 2006).
14. Chris Viehbacher — President, U.S. Pharmaceuticals. He represents the company within the United States and aims to present the population with products that can effectively prevent, cure, or alleviate diseases. Viehbacher also supports efforts to address healthcare challenges in developing countries (CI#3).
15. Andrew Witty — President, Pharmaceuticals Europe. Witty has been elected to succeed CEO Jean-Pierre Garnier upon his retirement in May 2008. According to the GSK Website (2007): "Andrew's appointment follows a rigorous selection process by the Board of Directors. The fact that we have been able to select a successor to JP from three strong internal candidates is a testament to the quality of management at GSK."
1. Economic factor — increased prices. High prices offer GSK the opportunity to increase sales revenue; however, they simultaneously pose the threat of customer dissatisfaction. The United States healthcare sector is a multi-billion-dollar industry, accounting for 14.1% of the country's gross domestic product (Shull and Morris, 2003). Consumers nonetheless complain about unjustifiably high prices (CI#1).
2. Socio-cultural opportunity. A significant development opportunity arises from a demographic factor: the aging generation of Baby Boomers. This generation, which had the highest birthrate, is now composed of senior citizens who purchase pharmaceutical products worth billions of dollars each year. The combination of high prices and an aging population drives consumers to seek cheaper medicines, often purchased abroad — particularly from Canada and several European countries (Shull and Morris, 2003) (CI#1).
3. Technological threat. Developing technologies pose a threat to the U.S. healthcare sector because they enable buyers to purchase drugs online. Whereas in the past only a limited number of citizens could travel abroad to buy medicine, today the internet allows anyone to purchase drugs from abroad at prices up to 80% lower than those in the U.S. (Shull and Morris, 2003) (CI#1).
4. Political-legal opportunity. Because legislation on the matter of abroad drug purchases was inconclusive, GlaxoSmithKline found a way to limit the volume of drugs purchased from Canada by ceasing shipments to pharmaceutical companies in that country. Although the U.S. Congress sought to legalize personal importation of prescribed medicines from Canada — particularly for senior citizens — the bill was never implemented (Shull and Morris, 2003).
These threats and opportunities stem from past events and carry present and future implications for both GlaxoSmithKline and the broader U.S. healthcare system. The forces exist in all countries but manifest with different intensities depending on regional characteristics such as economic status, political and legal context, GDP, and living standards.
Six forces affect the healthcare industry in each country: new entrants, buyers, substitute products, suppliers, competitors, and environmental powers (Mind Tools, 2007). Their influence on GlaxoSmithKline and the U.S. healthcare system is summarized below:
Threat of new entrants — low: GlaxoSmithKline is the second-largest medicines producer in the world, so new entrants do not pose a significant threat.
Bargaining power of buyers — high: Consumers vocally protest restrictions on drug shipments to Canada, boycott the company, and pressure the government to reverse its decisions.
Threat of substitute products or services — low: Although alternatives to drugs exist (such as nature-based treatments or acupuncture), prescribed drugs remain consumers' first choice.
Bargaining power of suppliers — high: Suppliers can readily affect the company by modifying their prices and contractual conditions.
Rivalry among competing firms — medium: As the second-largest producer in the industry, GSK faces reduced competition from smaller companies.
Relative power of unions, governments, and special interest groups — high: Special interest groups may influence the government to implement laws requiring GlaxoSmithKline to resume drug shipments to Canada.
Current threats include consumer demands that may force GSK to resume Canadian shipments and congressional intentions to enact legislation that conflicts with GSK's current practices. You can read more about Porter's Five Forces framework and its application to industry analysis.
Among the most relevant forces currently influencing GlaxoSmithKline and the U.S. healthcare system is consumer discontent with high prices and the resulting search for cheaper alternatives (CI#1). Looking ahead, the industry is expected to be shaped by legislative rulings and technological developments that make it easier for consumers to re-import drugs from abroad.
"Corporate structure, culture, finance, R&D, and HR"
"Consolidated SWOT and mission alignment review"
"Pricing strategy recommended to address abroad purchases"
"Dual-channel rollout and government oversight plan"
Always verify citation format against your institution’s current style guide requirements.