A Successful Implementation of the Strategy-Focused Excellence In DarouPakhsh Holding (DPH) by Combination of EFQM and BSC

Transcription

1 A Successful Implementation of the Strategy-Focused Excellence In DarouPakhsh Holding (DPH) by Combination of EFQM and BSC Dr. Gholamhossein Farzandi 1, Mohammad Reza Sakaki 2, Meisam Saffarinejad 3 ABSTRACT This article presents the process of applying EFQM and BSC to create strategy-focused excellence in Darupakhsh holding and its 13 affiliated companies in the field of production and distribution of pharmaceutical products in Iran. The idea of running this project is mainly derived by the competitive environment in pharmaceutical market, as the country is negotiating to join WTO and implement the world class trade regulations. Around 25% of the generic EFQM statements were modified in order to adapt the model with the requirements of the pharmaceutical industry. The results of EFQM were later analysed and distributed within the four prospects of financial, customer, internal business and innovation and learning based on BSC and considering the strategic initiatives of the holding company. The idea of combining EFQM and BSC to conclude the strategy map for parent and affiliated companies is among the distinctive features of this study. Running this project resulted in starting several improvement projects within and between the companies. For example a strong IT solution was required to support data collection and information transactions throughout the companies. 1 Managing Director, Daroupakhsh Holding, farzandigh@cf.ac.uk, Farzandi@dpholding.com 2 sakaki@rahjoosystem.com 3 saffari@dpholding.com

2 Introduction A fast changing business environment and increasing competition has revolutionised the way of thinking and management in all organisations. In the past, directing the businesses and companies by following pre-determined rules and paradigms may have had unpleasant outcomes but at the current turbulent situation it will unquestionably destroy entirely the businesses. This is why the managers should overcome their internal concerns and challenges and establish outlooking, monitoring and adaptive approaches and ascertain a strategy-oriented culture within the organisations. In fact this is the concept of strategic thinking which is based on defining the goals and designing the ways to reach the goals with regard to the financial and strategic aspirations. An applicable method to follow this way is turning the organisation into a strategy-focused system and sharing all strategic elements with all organisational levels. A strategy-focused organisation needs to concentrate on the following 5 key rules to be successful: Translate the strategy into the operational terms Integrate the organisation towards the strategy direction Make the strategy as a daily concern of everybody Consider the strategy as a continuous process Drive the changing through the top management leadership Iran pharmaceutical market Iran is one of the fast growing markets in the Middle East. The value of the pharmaceutical market in 2009 was around 3 billion USD with an average growth of more than 20 percent in the last five years. The local industry produces about 50% of the total market value. This market is characterised by low price of copied generics, high importation tariff for competitive products, lack of protection for patents, governmental price control policies and steady increase of the importation. The companies have not been successful in exporting to the regional markets and the exportation volume has been less than 60 million USD in The most consumed medicines have been antibiotics, analgesics and central nervous system agents. The market is mostly supplied by UK, Italy, France, Japan, china and India. The country is about to be acceded to the WTO and enforce a world class trade and intellectual property rights which has caused opportunities and challenges for the industry. The country will not maintain high importation tariffs which are about 60% at the present. This will trigger a free flow of the imported medicines especially from low price countries such as India and china. A strong patent protection law will prohibit the industry from manufacturing patented drugs without the consent of the innovator companies. This will add more pressure on the revenues of the companies which have not been sufficient for renovation of the plants and investing on R&D even in the current situation.

3 Daroupakhsh Holding This company has a history of more than 50 years and since 1998 has been restructured as a holding company which is now the largest holding company in production, distribution and importation of the human and veterinary products in Iranian pharmaceutical market. The company has more than 12 subsidiaries and affiliated companies with 30% market share in the production and 25% in distribution in The company is accepted in Tehran stock exchange market since more than 17 years ago and the main shareholder of the company is Social Security Organisation. According to the Goold and Campbell, the main rational for the role of the holding companies is creating synergy by allocating the resources in the affiliated companies in order to create value and competitive advantage which cannot be carried out by single companies. Studies in developing countries show this role of parent companies has not been fulfilled and in some cases the results have been contradictory. In DPH the lack of mechanisms for creating synergy, allocating the resource and product development integrity along with the challenges in the national and international environment have dictated the need for dramatic changes in the way of management. In order to tackle with the future challenges, the management of the company started to study the models for setting up a new way of management throughout the parent and affiliated companies. The main strategic concerns of the management can be presented in the following topics: How to create the synergy among the companies How to ensure the synergy is created How to ensure the companies have developed efficient strategies If the strategies are aligned with the holding company strategies(vertical integration) If the there is horizontal integration within the strategic plans What should be monitored by the holding and how this control should be executed These concerns in the operational level can be translated as: Product development policies are not aligned with the business strategies and the companies compete with each other in the market while the total market share of the group is decreasing The line extension plans are not centrally evaluated to ensure overall integrity in the development plans The improvement plans are not properly followed due to deficits in project management systems

4 There is no systematic approach towards the concerns of the main stakeholders of the companies such as human resources, managers, customers, shareholders, health officials, etc There are deep concerns about the strategic balance between the short term profitability and long term viability of the development plans The infrastructures of the companies such as plant renovation, IT, quality systems, and have not been properly developed The outcomes of the above problems can be summarised as losing market share, decreasing exportation, decreasing profit margins and high financial expenses. There are several managerial tools and models for answering to the above mentioned questions. TQM can involve all organisational levels in developing quality systems, ISO can help to define and document the processes, EFQM (European Foundation for Quality Management) is strong for balanced development and learning from the best, BSC (Balanced Score Cards) is helpful for defining control and monitoring models. This article is focused on explaining the development of the new way of management for Daroupakhsh holding, using the most common applied managerial models with regards to their applicability and efficiency considering the present condition within this group. Methods Balanced Scorecard (BSC) Balanced Score Card was first introduced by R. Kaplan and D. Norton in 1992 as a tool for development and improvement of the organisations performance. They explained more about this concept later in 2000 as a visualised plan to present the goals and interrelations between the required actions in a strategic plan. The reasons for applying the BSC are as follow: selecting goals and objectives agreement on required actions agreement on the ways to reach the goals drawing the pathways time and resources planning acting according to the plans keeping the pathway In other words, using the BSC Enables the organizations to remove the barriers of successful implementation of their strategies. The strategies are not translated into the operational terms

5 The management focus is on the lag and not lead indicators There is not internal consistency between different departments especially headquarters and other parts Strategy is not communicated throughout the organisation and is not linked into the individual careers and salary or remuneration policies There is no integrity between the strategy and the organisation task units BSC can be defined as a conceptual framework which translates the corporate strategies into the measurable indicators and then crates a balanced distribution between the key organisational aspects. In this way, it can be defined as a powerful and integrated tool for controlling the key areas of financial, customer, processes and growth & learning. The four perspectives of the BSC are presented in the figure 2: Figure 2. Four perspectives of the BSC Financial Perspective: Is there integrity between the financial performance and the strategies? Internal Processes Perspective: Are the internal processes integrated with the strategies? Balanced Scorecards Perspectives CUSTOMER Perspective: Is the performance for increasing customer satisfaction integrated with the strategies? Learning &Growth Perspective: Does the company performance for innovation &learning comply with the strategy?

6 BSC has been reported to be used in many pharmaceutical companies such as Novartis, Novo Nordisk and Bristol Mayer Squibb (Francesco G.G.Zingales, 2003). EFQM is one of the models which deal with the assessment of performance of an organization, using a self-assessment method for measuring 9 criteria and 32 sub-criteria throughout the organization. The self assessment procedure needs properly trained auditors from the company and the questionnaire is developed in a manner to quantify all relevant performances. This model has five key elements including; 1-Fundamental concepts: Eight fundamental concepts are; being result & customer oriented, leadership and consistency in goals, management by facts and processes, human resources development and participation, continuous learning and innovation, development of partnerships and corporate responsibility. 2-Criteria and sub-criteria: The criteria of the model are presented in the figure 3: Figure 3. EFQM model 3- Self-assessment framework: questionnaire, pro-forma, workshop and prize method are the main self-assessment techniques. It is also possible to use combination of these methods.

7 4- RADAR: is the method for scoring when using the Excellence Model - Results, Approach, Deployment, Assessment and Review. 5- Scoring model: is a rating scale for asking the importance and agreement with each question enabling measuring the gap between the present and desired situation. In DarouPakhsh holding a combination of EFQM and BSC was used in order to: Assess and compare the performance of the companies in all important aspects (not only financial) by a specific questionnaire based on EFQM Evaluate the trend of the changes in the performance of the companies on a yearly basis Candidate the prepared companies for National Excellence Award Group the required strategies in the four perspectives of BSC Study the cause and effect relationships between the strategies and identify lead and lag indicators Draw the strategy map based on the above results Cascade down the strategic goals of the holding into the affiliated companies Design inter-related management dashboard for the holding and the affiliated companies In fact, EFQM has been used as a health check tool and BSC for regular monitoring of the performances in order to reach the goals and objectives. A comparison between EFQM and BSC and the reasons for using combined method is presented in the figure4:

8 Criteria Monitoring organisational performance Figure 4. A comparison between BSC and EFQM Managing the Organisation on a day-to-day basis Involving people in improvement Benchmarking capability Communicating business priorities Looking forward (medium to long term) Identifying good practice Identifying improvement opportunities Prioritising improvements EFQM Excellence Model Strong Weak Balanced Scorecard Strong Weak Framework for other initiatives Results Integrating all companies in this program was a huge and complicated task and a pre-requisite for its success was creating a widespread idea generation mechanism throughout the companies. This concern was answered by forming strategy committees by attending representatives for all companies in 10 major areas including: strategy, Business Development, Marketing, product Development, IT, financial, Exportation, trade & Commerce, Production & operations, human Resources and strategy. The role of these committees are mainly assessing the situation, proposing suggestions and monitoring the execution of action and initiative plans. In the first step, the vision, mission and corporate values were defined by participation of the managers and experts from the holding and affiliated companies. Vision reflects the future aspirations, mission presents the rationale for the existence of the company and values are the code of ethics which without them the organisation cannot reach its vision. Figure 5 illustrates the vision and mission of the company:

9 Figure4. Vision and mission DPH (Daroupakhsh Diamond) The second step was the modification of the EFQM generic questionnaire to fit the requirements of the pharmaceutical industry the quality concerns and Good Manufacturing Practices (GMP) guidelines. It was also necessary to incorporate the strategies of the social security organisation in the pharmaceutical sector. This process resulted in modification of around 25% of the EFQM instructions. The assessment was carried out by a joint team from DPH and the assessing company with a combined questionnaire-workshop method. The results of the assessment of the companies are presented in the table2: Table 2. The EFQM assessment results for DPH companies Criteria Razak Labs. Damloran Aburaihan DP Man. Exir Caspian DP Dist. DPTD Zahravi Leadership Strategy People Resources Processes Customer Result People Result Society Results Key Results Total

10 According to the assessment results, the following improvement projects were defined in all companies. The following projects were decided to be done by DPH to obtain financial and technical advantages for the entire group: 1- Dashboard system for Strategic Control and Initiative Management 2- Benchmarking 3- Strategic planning deployment in affiliated companies 4- Assessment Centre 5- IT Master Plan 6- Customers Satisfaction Survey The third step was defining the strategic themes and drawing strategy map for DPH by using the assessment results and experts opinions. The strategic themes were finalised as follow: Increasing the sales of the current products Increasing the sales of the new products Improving international businesses Increasing productivity Fulfilling social and environmental responsibilities For all strategic themes, the goals and objectives in four BSC perspectives were defined and by combining the five strategic themes, it resulted in the strategy map of the DPH as follows in figure 5.

11 Figure 5. Strategy map for DPH Learning And Innovation Perspective Internal Processes Perspective Customer Perspective Financial Perspective Based on the above strategy map, a scorecard was developed for all committees specifying the strategies, initiative plans and the role of the committee in executing the plans. The scorecard for the product development committee is presented in the figure6 as an example:

12 Discussion Tough competition and complexities in the current business environment requires strategic thinking and new ways of management in order to tackle with the challenges and grasp the opportunities. Having a strategic approach cannot lead the organisations to maximum efficiency but, combining the strategic thinking with commitment to permanent improvement and organisational excellence enables the organisations to get better results. Self assessment results can illustrate the situation of all single companies from the view of the EFQM criteria and sub-criter criteria. The score of the company can be compared with companies inside and outside of the group and the companies may be motivated for applying national award based on EFQM named National Productivity and Organisational Excellence Award. These scores can also prepare a basis for study the trend of changes in the future years. During this program, DPH with a score of 270 received national excellence certificate and Exir pharmaceutical company received national award with the total score 326. Assessment scores may also have a collective application; the average of the scores of all companies will illustrate the overall picture of the group and suggest the areas for more consideration, especially from the view of resource allocation and assessment of the managers. The average of the scores of the group is presented in the table3: Table 3. Average of the assessment scores for DPH companies

13 Strategic plan is based on EFQM assessment and provides a basis for cascading down the corporate strategy into the companies and controlling the strategic indicators of all single companies. The deployment of the software such as corporate is also studied for development of management dashboards in the holding and affiliated companies. The immediate results of the strategy-focused excellence are: Atmosphere of strategic cooperation among the companies Strategic control of the companies Integration between the companies and between the companies and DPH Identification of the significant weaknesses in the companies More efficient policy-making due to better understanding of the companies It should be underlined that the DPH management information system prepared a strong infrastructure that efficiently supported the execution of this program. The necessity for this system was explored in the strategy committee and was developed by participation of the IT experts from all companies (apps.dpholding.com). During the first year of this program, the total sales of DPH companies reached 1.2billion USD which presents a growth of about 30%. Increased gross profit and dividend prepared enough support for continuation of the program. The future plan includes adapting remuneration system, reviewing organisational structures, revising product development method from the product base to therapeutic groups and preparing a portfolio management system based on the progress of the companies. Bibliography Arjomandi, M., Kestell, C., & Grimshaw, P. (2009). An EFQM Excellence Model for higher education quality assessment. 20th Australasian Association for Engineering Education Conference. University of Adelaide. BA-ABAAD, K. M. (2009). REVIEW OF THE LITERATURE OF BALANCED SCORECARD AND PERFORMANCE MEASUREMENT: THE CASE OF HEALTHCARE ORGANIZATIONS. Bhatt, D. (2009). EFQM: Excellence Model and Knowledge Management Implications. Bou-Liusar, J., B.Escrig-Tena, A., Roca-Puig, V., & Beltran-Martin, I. (2009). An empirical assessment of the EFQM Excellence Model: Evaluation as a TQM framework relative to the MBNQA Model.

14 Lawrie, G., & Cobbold, I. (2009). Development of the 3rd Generation Balanced Scorecard:Evolution of the Balanced Scorecard into an effective strategic performance management tool. Andersen, Henrick, Gavin Lawrie, and Michael Shulver. The balanced Scorcards vs. the EFQM business Excellence Model. Berkshire: 2GC Limited, Corporate-Level Strategy: Creating Value in the Multibusiness Company by Michael Goold, Andrew Campbell, and Marcus Alexander, 1994 The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment by Robert S. Kaplan and David P. Norton, 2000 Execution Premium by Robert S. Kaplan and David P. Norton, 2008 The EFQM Excellence Model to Assess Organizational Performance - A Management Guide (Best Practice) by Chris Hakes, 2007 The Balanced Scorecard vs. EFQM, Which is the better management tool? Henrik V.Anderson, Gavin Lawrie, Michael Shulver, 2000,2GC active management