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ASSIGNMENT – INTERNAL ASSESSMENT OF PFIZER, Inc. Provide a brief description of your company and identify 3 general terms for each of the 6 categories of the value chain which could apply to your organization and explain how they are relevant to this analysis (18 items). Pfizer, Inc. is a pharmaceutical corporation with annual revenue of $ 67. 8 billion (2010 Annual Report). It is traded on the New York Stock Exchange (NYSE) under the symbol PFE.
It is also Dow Jones Component Company. The company is based in New York City, New York with its research headquarters in Groton, Connecticut. Some of its well know products include Lipitor (atorvastatin, used to lower blood cholesterol), the neuropathic pain/fibromyalgia drug Lyrica (pregabalin), the oral antifungal medication Diflucan (fluconazole), the antibiotic Zithromax (azithromycin), Viagra (sildenafil) for erectile dysfunction, and the anti-inflammatory Celebrex (celecoxib).
Value Chain Analysis (VCA) refers to the process whereby a firm determines the cost associated with organizational activities from purchasing raw materials to manufacturing products to marketing these products. VCA can enable a firm to better identify its own strengths and weaknesses, especially as compared to competitors’ VCA and their own data examined over time. A VCA was performed on Pfizer based on its 2010 Annual Report. Three items from each of the six VCA categories are listed below.
Extensive research was conducted to obtain actual costs for the VCA. However, all costs within each category could not be found. Reasonable assumptions were made to populate the following VCA. VCA is a process whereby a firm determines the costs associated with organizational activities from purchasing raw materials to manufacturing products to marketing those products. Low cost advantages and disadvantages can be identified along the value chain by benchmarking costs with competitors.
VCA can enable a firm to better identify its own strengths and weaknesses, relative to its competitors’ value chain analyses and their own data examined over time. In Pfizer’s case, it has the lowest earning per share as compared to its rivals – Merck and Novartis. Pfizer can use its value chain analyses with others to see where it can cut costs in the areas of supplier costs, production costs, distribution costs, sales & marketing costs, customer service costs, and management costs. CATEGORY |SUBCATEGORY |COST | |Supplier Costs |Raw Materials |$ 406 million | | |Energy |$ 100 million | | |Warehouse |$ 25 million | |Production Costs |Inventory |$ 8,597 million | | |R |$9,379 million | | |Cost Accounting |$ 100 million | |Distribution Costs |Shipping |$ 50 million | | |Internet |$ 5 million | | |Maintenance |$ 25 million | |Sales and Marketing Costs |Website |$ 5 million | | |Advertising |$ 200 million | | |Promotion |$ 100 million | |Customer Costs |Postage |$ 1 million | | |Phone |$ 2. 5 million | | |Warranty $ 10 million | |Management Costs |Administration |$ 1,000 million | | |Employee Benefits |$ 400 million | | |Finance & Legal |$ 100 million | Identify the category and then list and describe at least 10 internal strengths of the organization. 1) Investments in Research and Development: In 2010, Pfizer invested $ 9. 4 billion in Research and Development (R). To maintain a sustained competitive advantage in the industry, Pfizer has to invest lots of money in research to come up with vital innovative drugs. Pfizer size is its key internal strength and, it uses it very well to stay ahead of others in the industry.
This strength can be categorized under the R functional area. 2) Selling Drugs Online and Accepts Discount Cards: Pfizer sells its products online through its “open for business” website. This gives its customers a 24/7 access to ordering products, accounts payable and accounts receivable. This strength can be categorized under the marketing functional area. 3) Green Buildings and Sustainability in Design: Pfizer is actively engaged in building state of the art pharmaceutical manufacturing projects that utilize new and innovative technologies to enhance the delivery of a quality project, as well as reduce the cost of producing high-quality medicines.
At the Pfizer Biotechnology Ireland Monoclonal Antibodies Small-Scale Facility, Dublin, Ireland, in 2008-2010, it used industry best practices for sustainability and Pfizer’s green building guidelines that included the extensive reuse of existing assets, waste minimization procedures, recycling utilization in both construction and operations, the inclusion of energy-efficient fixtures and equipment, and minimized air change rates to meet comfort conditions and classification standards. This strength can be categorized under the production/operations functional area. 4) Six Sigma Initiatives: At Pfizer, the application of Lean Six Sigma principles (widely recognized Quality/Process Management Initiative) assures that capable and efficient work processes are used to manufacture and deliver consistently high quality products to our customers.
Pfizer has trained over 95 % of its suppliers worldwide in basic problem solving, which has resulted in over 8,000 improvement projects across the world in the time period from 2005-2010. Improvements to key products have delivered a 40 % percent reduction in both the time to make and ship the product as well as allowing a reduction in inventory. This strength can be categorized under the management functional area. 5) Accounting for Business Acquisitions: Pfizer uses the purchase method of accounting when acquiring other businesses. This requires the assets acquired and the liabilities assumed to be stated at fair value by the date of the acquisition. The transaction costs and other related costs when acquiring another company are allocated to the underlying assets of that company in proportion to the related values.
If purchase price is above the fair value of net assets, any difference is recorded as goodwill. Pfizer’s financial statements reveal that its accounting system is transparent and it discloses all relevant information that is pertinent to its investors and regulators. This strength can be categorized under the finance/accounting functional area. 6) Accounting for Revenues: Pfizer’s revenue recognition policy records revenue when the products are shipped and legal title is transferred to the customer. This type of policy prevents accumulation of unearned revenues and provides transparency of its disclosure of accounting information. This strength can be categorized under the finance/accounting functional area. ) Aggressive Shares Buy Back Program: In 2007, Pfizer announced that it will cut down its R&D spending and buy back $ 10 billion worth of common stock shares. This increases shareholder value. This strength can be categorized under the management functional area. 8) Lowering Costs by cutting 11,000 employees: In 2007, Pfizer cut down its employees by 11,000. This is an attempt by Pfizer to align cost structure by revenue and refocus on capital allocation to maximize efficiencies. This strength can be categorized under the management functional area. 9) Largest Company in its Peer Group/Industry Leader: Pfizer has been able to maintain its position as an industry leader for over 160 years.
It has done that by achieving growth in revenues, extensive R&D capabilities, and a sound management. This strength can be categorized under the management functional area. 10) Global Document Management System: The vision of Pfizer’s Global Document Management System (GDMS) was to create a single, globally accessible document management system that facilitates information sharing across the company and enables timely and access to highly regulated and controlled documentation. This information system enables timely and accurate access to highly regulated and controlled documentation. This information is used by over 17,000 people in 100 countries.
Similar to this system, Pfizer has the state of the art MIS systems that make their environmental, health and safety department very successful and effective across the globe. This strength can be categorized under the management information systems (MIS) functional area. Identify the category and then list and describe at least 10 internal weaknesses of the organization. 1) Unethical Corporate Past: Pfizer’s growth has come through its R&D and through its acquisitions. In 2009, Pfizer plead guilty to the largest health care industry fraud relating to its marketing practices. It was fined $ 2. 3 billion. The charges were over marketing of its recalled Bextra, an arthritis drug and three other medicines.
The charges involved representatives of Pfizer promoting drugs for conditions that they had not been approved for, and giving doctors kickbacks to encourage them to prescribe the medications. This litigation could have lead to the collapse of Pfizer if it had not used shell companies Pharmacia and Upjohn to plead guilty on its behalf. Revelations by its employees indicate that Pfizer had a culture of promoting similar practices to succeed. This is a serious weakness and can be categorized under the marketing functional area. 2) Effects of Cost Cutting Measures: Over the last 5 years Pfizer has shed several thousand jobs and taken several other cost cutting measures.
As Pfizer grew through acquisitions, they attempted to integrate multiple corporate cultures into their own, a number of key resources were lost that were vital to the success the company had enjoyed for so long. Redefining and motivating any corporate culture devastated by job losses, cut backs and significant change is not an easy task and each has a direct effect on the productivity of employees in executing the objectives of the company. This weakness can be categorized under the management functional area. 3) Employee to Managers Ratio: In the recent years, Pfizer’s ratio of employees to managers has swelled up to 13:1. Typically, the ratio is around 6:1. This effects productively and employee morale. This weakness can be categorized under the management functional area. ) Negative Effects of Acquisitions: Employees cannot work productively with multiple managers and repetitive oversight of their tasks that has resulted as a resulted of so many acquisitions made by Pfizer in the recent years to sustain growth and revenues. This weakness can be categorized under the management functional area. 5) Loss of Patent Protection on Several Drugs: Patents on some of Pfizer’s flagship offerings like Aricept, Lipitor, Zalantan, Geodon, Viagra, and Detrol have either expired or are expiring by 2012. After the loss of patent protection, Pfizer’s has to replenish its product lines to offset revenue losses. At this time, Pfizer’s R&D has not produced enough additional to compensate for the potential loss.
This weakness can be categorized in the R&D functional area. 6) FDA Compliance: Pfizer’s annual report for 2010 reports that is has received warning letters with respect to the reporting of post-marketing adverse events relating to certain drugs. Pfizer is currently working with FDA on this matter. This weakness can be categorized under the marketing functional area. 7) Pension and Postretirement Benefit Plans: Pfizer’s 2010 annual report states that there was an added expense of $ 27 million due to global economic downturn. Investments made by Pfizer did not yield enough returns to meet its obligations. This weakness can be categorized under the finance/accounting functional area. ) Environmental and Legal Matters relating to the Wyeth Acquisition: Wyeth acquisition came in with environmental liabilities of $ 570 million and other legal liabilities of approximately $ 260 million as per its 2010 annual report. This weakness can be categorized under the finance/accounting functional area. 9) Saturated Market Place: International sales accounted for $ 38. 76 billion and $ 28. 26 billion in 2010 and 2009 respectively. US sales were $ 21. 75 billion and $ 28. 26 billion respectively for 2010 and 2009 respectively. Based on the aforementioned, it seems that sales in the US for Pfizer’s products have declined. This weakness can be categorized under the marketing functional area. 10) Financial Ratios: Pfizer’s financial rations over the last few years have been very volatile.
This is due in large parts to sizable acquisitions. Pfizer’s return on equity ratio fluctuates largely from year to year because of these mergers which causes a large part of the volatility in the sustainable growth rate. This weakness can be categorized under both the management and finance/accounting functional areas. Construct an Internal Factor Evaluation Matrix (IFE) including at least 10 of the above items related to the internal strengths and 10 items related to the internal weaknesses. Provide a summary analysis regarding the significance of both the strengths and weaknesses as this information relates to your company. INTERNAL FACTOR EVALUATION MATRIX |KEY INTERNAL FACTORS |WEIGHT |FACTOR |WEIGHTED SCORE | | |STRENGTHS | | | | |1 |Investments in R |0. 10 |4 |0. 4 | |2 |Online Selling |0. 02 |4 |0. 08 | |3 |Green Buildings and Sustainability in Design |0. 05 |4 |0. 2 | |4 |Six Sigma Initiatives |0. 05 |4 |0. | |5 |Accounting for Business Acquisitions |0. 03 |3 |0. 09 | |6 |Accounting for Revenues |0. 03 |3 |0. 09 | |7 |Aggressive Shares Buy Back Program |0. 05 |4 |0. 2 | |8 |Lowering Costs by Reducing Employees |0. 02 |3 |0. 06 | |9 |Largest Company in its Industry |0. 20 |4 |0. | |10 |Global Document management System |0. 03 |4 |0. 12 | | |WEAKNESSES | | | | |1 |Unethical Corporate Past |0. 05 |1 |0. 05 | |2 |Effects of Cost Cutting Measures |0. 02 |2 |0. 04 | |3 |Employees to Managers Ratio |0. 02 |2 |0. 4 | |4 |Negative Effects of Acquisitions |0. 02 |2 |0. 04 | |5 |Loss of Patent Rights on Several Drugs |0. 10 |2 |0. 2 | |6 |FDA Compliance |0. 02 |2 |0. 06 | |7 |Pension and Postretirement Benefit Plans |0. 01 |2 |0. 02 | |8 |Environmental and Legal Matters – Wyeth Acquisition |0. 02 |2 |0. 4 | |9 |Saturated Market Place |0. 05 |2 |0. 1 | |10 |Financial Ratios |0. 10 |1 |0. 1 | | |TOTAL |1. 00 | |2. 93 | An internal audit was conducted on Pfizer’s internal strengths and weaknesses. Ten strengths and ten weaknesses were identified during through the process. Subsequently, to each factor, a weight that ranges from 0. 00 to 1. 00 was assigned. A factor of 0. 0 meant not important and 1. 00 meant very important (relative importance of the factor to being successful in the firm’s industry). Since of all weights assigned to the factors must equal to one, the factors were adjusted on a spreadsheet while holding the logic intact to add up to 1. 00. Secondly, a factor ranging from 1 to 4 was assigned to each internal factor. Rating captured whether the factor represents a major weakness (rating =1), a minor weakness (rating = 2), a minor strength (rating = 3), and major strength (rating = 4). When rating strengths, the ratings were either a 3 or a 4. When rating weaknesses, the ratings were either a 1 or a 2.
The weight assigned is company based and the factor assigned is specific to company being studied. Each factor was multiplied by its rating yielding a weighted score for the internal factor. A sum of all the internal strengths and weaknesses provides the total weighted score for the business. Total weighted scores below 2. 5 points indicate an internally weak business. Scores significantly above 2. 5 indicate a strong internal position. The IFE matrix is a strategic management tool for auditing or evaluating major strengths in functional areas of a business. IFE matrix also provides a basis for identifying and evaluating relationships among those areas. IFE matrix is used in industry for strategy formulation.
The major disadvantage of using an IFE matrix is that the method is very subjective. Though intuitive judgments are required in populating the IFE matrix with factors, having to assign weights and ratings to individual factors brings a bit of empirical nature into the model. Overall, it is a good model to objectively evaluate the strengths and weaknesses and can be useful in formulation of strategy. Pfizer received a total weighted score of 2. 93. Pfizer is doing well for its size and complexity of its business, there is room for improvement in the areas of ethical business practices to avoid fraud allegations and litigation. Also, the series of mergers has resulted in significant loss to stock holder value.
The global recession, and the health care reform has not helped it too much. For Pfizer to retain its market leadership, it should invest more into research and development of new formulations to solve serious health problems that we face. Its growth in US sales is declining in the recent years is flat. However, the decline is being compensated by growth outside the US. To maintain sustained competitive advantage, Pfizer has to take advantage of its strengths and overcome its weaknesses by instituting measures to counter the weaknesses. Pfizer is doing so by expanding sales and R globally, aggressively acquiring companies to diversify its portfolio.
It has cut down costs and reduced employees. It has closed several plants and started partnerships outside the US where manufacturing costs and labor costs are lower. It has heavily invested in technology and emerging markets. In summary, Pfizer is taking advantage of its strengths and taking measures to overcome its weaknesses. In my opinion, based on the extensive research and literature review conducted, Pfizer will continue to be the market leader in its industry segment for many more years to come. It has positioned itself well with the new world business climate that has emerged in the last 10 years and, I am confident that it will continue to do so in the future.