Strategic Quality Dissertation

Strategic Quality and Systems Management

The report on strategic quality identifies how organizations like Chery Motors Company can plan their strategic quality change and respond to market environments for their successful implementation. It also evaluates the strategic quality change of the concerned organization with effective planning to improve the performance of the organization, defining resources, tools and systems helpful in business processes and implications of planned strategic quality within an organization. The research work on strategic quality is also focused to identify the various systems essential to implement strategic quality change in an organization. It identifies the design of systems used to monitor the implications of strategic quality change, their ability to respond changes in market environments, embedding a quality culture in organizations for continuous organizational improvements and monitoring implementation of strategic quality, and identifying outcomes of a strategic quality change in the concerned organization.

Organizations should adopt continuous planning and implementation of strategic quality change either they are public or private organizations. Every quality management initiative must be tied up with their main business process performance indicators to make a real impact on the productivity and continuous growth of their respective organizations. However, strategic plans are rarely transferred into quality management strategies that are essential to make sure overall performance improvement gains. Cherry Motors Company, founded in 1997 in the Chinese province of Wuhu achieved considerable growth in the automobile production industry due to their effective strategic management policies. In 1999, they started their operations in automobile production using SEAT Toledo chassis system and improved their production quality by successfully founding a research and development institute. They also recruited large numbers of Japanese automotive consultants to get their assistance in achieving six sigma or lean process standards to their Wester/Japanese competitors. Cherry Motors improved aesthetic design of automotive parts production and made a contract with AVL Australia to get assistance in continuous production of 18 new engine models to integrate them into new models.

Ability to Plan Strategic Quality Change in an Organization

Plan of Strategic Quality Change in Improve Performance of Organization

Plan of strategic management quality to implement change within an organization is highly essential to improve performance in an organization. It improves the competitiveness, departmental quality and successful implementation of of their strategic quality change to make quick fixes into the realm of solutions. It leads them to the successful development of strategic management qualities and achieving their business objectives in competing with others. Planning strategic quality change in an organization of international reputation like Cherry Motors is possible if management successfully executes their strategic plans and deliver their desired changes in project through effective communication with their partners and stakeholders and effective management of their people (Crawford 2013).

The process of strategic quality plan starts with what an organization mean about their strategic quality management process to get competitive edge over their competitors. It identifies the process of defining quality to make sure the continuous process of developing quality standards along with creation of quality and translation of vision into a series of quality strategies. Quality strategic plans are associated with review of organizational strategic plan or imperatives, identification of strategies that have been used in the past, understanding the voice of their customers, engaging employees to get their feedback with continuous commitment to quality, creation of quality vision, development of the statements of quality standards, identification of quality strategies and development of effective and result oriented strategic implementation plan (Crawford 2013).

Chery Motors have always focused to achieve their customer satisfaction by adopting effective strategic quality management plans to enter into the market and establishing their business goodwill. They have successfully implemented the strategic plan to compete well with their business rivals and to continuously improve their products quality and standards. They have also improved the design and networking of their business processes by achieving a secure retail license after breaking international competitive barriers. They have taken all necessary steps in planning a strategy quality change to ensure consistent growth in their Foreign export, Sales growth, Production growth, increasing for the next several years. Policymakers at Chery Motors Company has given key importance to effectively plan strategic issues with the interpretation of information in predictable ways (Dutton and Duncan 2004).

Defining Resources, Tools and Systems to Support Business Process

Resources, tools and techniques are considered to be highly effective in meeting strategic quality plans and supporting business processes. Organizations that are interested in developing new products or want to improve their existing products or services depend largely on innovative tools and techniques used in strategic quality management systems. Businesses can be developed with the generation of new business ideas by listening to their quality management teams, or by measuring customer satisfactions. Benchmarking, strategic quality management teams, and the measurements of customer satisfaction are the resources, tools and systems that are used in quality management and recognized to be highly supportive of the management of innovation (Bossink 2002). Some quality tools have also become essential part of a most successful business organization in the recent times. These tools and systems are used in mainstream management to effectively control their manufacturing processes like Fishbone diagram that is quite specific to the engineering as well as to manufacturing disciplines. These resources, tools and systems have a strong focus in Kaizen, Lean management and other useful techniques most successfully used in various organizations like Chery Motors Co. (Thomas, Corso and Pietz 2013).

Strategic quality tools are referred to as tools and systems that are used to support Kaizen and other quality improvement standards within different organizations. It helps them to get a competitive edge and customer satisfaction in successfully enhancing the quality of their introduced products and services to their customers. These tools and systems are mainly based on statistical and manufacturing process tools, and quality tools that are most effectively used in organizations. Typically these resources, tools and systems are used to analyze Kaizen work within organizations, team analysis and review of business activities and uncover of inefficiencies. Chery Motors have successfully adopted these resources, tools and systems like Poka-Yoke, a Japanese term, that means ‘mistake-proofreading’ and it is lean manufacturing process used to help the equipment operator to overcome their equipment operating mistakes. The main objective of this tool and system is to get rid of product defects with successful correction, prevention or drawing attention on human errors. 5-S –S is another successful method used in quality management standards and it is based on five Japanese words including seiri, seiton, seiso, seiketsu and shitsuke. They represent housekeeping, workplace organizations, clean up, standardization and sustaining discipline in manufacturing organizations (Andersen, Savik and Lawrie 2004).

Implications of Planned Strategic Quality in an Organization

Strategic quality management with effective planning can make a considerable impact on public or private level organizations. It can make a significant impact on their customers as well and increase their competitiveness among others. In this way, organizations can make timely and more effective decisions with the aim of managing limited resources in a rational way along with improvements of their services to achieve greater satisfaction from their customers (Salkic 2014). Strategic approach to management has made considerable impact on various organizations in the recent years and it has improved their quality and customer services more significantly. It has gained more and more popularity due to the increased complexity of organizational environments, technological developments, globalization and shrinkage of economic resources at global level. The central focus of strategic quality planning is associated with the efforts of internal and external decision makers that work together in solving various issues and making the organizational achievements more effectively by crafting and implementing new strategic quality services. Furthermore, strategic planning focuses on the achievements of three C’s like cooperation, collaboration and coordination that can be operated to create a highly supporting culture and leadership system within the organization (Asghar 2011).

Strategic Quality
Strategic Quality

A planned strategic quality change could affect the strategic goals of the organization and enhance its productivity, competitiveness and customer satisfaction. Strategic quality change within the culture of an organization can impact the entire vision of the organization and thus improve every aspect of business process. These changes could also impact the managerial and personal staff working within the organization. Change can even create confusion in the operational processes of the organization, but it can even alter the clarity and stability of various roles and relationships that can even create chaos. It needs the realignment and renegotiation of formal patterns of business relationships and policies. But strategic quality management can improve the performance of an organization and increase productivity despite chaos or instability in roles and responsibilities of management. Strategic quality planning is useful in developing a link between organizational strategy and organizational performance, particularly in terms of their business quality. High level of strategic quality is also useful because it creates the potential of pursuing both differentiation and cost leadership strategy with a market where that organization operates and offers its products and services (Prajogo and Sohal 2006).

Design of Systems to Monitor Implications of Strategic Quality Change

It is the main responsibility of senior management is to come together to review, discuss, challenge, and finally agree on how effectively the components of strategic quality plans are used. The genuine commitment from senior team members is essential to make sure the successful implementation of strategic quality planning in a business organization like Chery Motors. Furthermore, strategic group members should be well aware about their purpose and intention to make changes, and pushing for consistent operational definitions that each member of the team agrees on. The strategic quality management is useful to prevent differing perceptions or turf-driven viewpoints effectively. A carefully selected team of professionals is highly essential to overcome business processes, group dynamics and interpersonal issues. An organization can know about their strengths, weaknesses, threats and opportunities through conducting a SWOT analysis. It helps them to identify them to know about their strengths and core capabilities, products, resources, and maximum facilitation of their customers. In this way, organizations like Chery Motors can know in which areas they are best and why they are in this business and how effective can compete with their competitors (Finlay 2000).

It is the core responsibility of top level management to develop and design systems to monitor the impacts of strategic quality change in organization of internal and external business environments. In their internal business environments, organizations like Chery Motors should monitor work environments, use the latest technologies to improve productivity, improve warehousing and logistics and give rewards and promotions to the best performers. They can review external business environments to know about different opportunities and growth possibilities or market conditions. They should evaluate whether or not these opportunities corresponds to their organizational strengths. Business managers can even evaluate critical changes in the marketplace over the next one to five years, the position of their organization for the anticipated market changes and need for greater innovation or change needs to occur in the organization to be successful (Peljhan and Tekavcic 2008).

Ability to Respond Changes in the Marketing Environment for Implementation of Strategic Quality Change

Implementation of Strategic Quality Change in an Organization

The implementation of strategic quality change within an organization is possible through the successful adoption of benchmarking. It is known as the best strategic process of identifying ‘best practices’ adopted within an organization like Chery Motors in relation to their products and processes. Using strategic quality change implementation, products are created and developed using innovative technologies, best available resources, tools, techniques and business systems. The search for best practice can be interrelated to a particular industry and also be applied to other industries to increase their productivity and customer satisfaction. The main objective of benchmarking is to understand and evaluate the current situation of a business where it stands with its strengths, weaknesses, threats and opportunities. Benchmarking involves identification of performance improvement techniques that can be used within a successful business organization. They identify how others have achieved their performance levels that they can also adapt to get benefits of available business opportunities. In the application of benchmarking, four key steps are involved, including an understanding of current business practices, analyzing business processes of others, comparing business performance with the business performance of others and implementing necessary steps to close performance gaps (Pfeifer 2002).

Embedding Quality Culture in Organization ensuring Continuous Monitoring

Embedding a quality culture in an organization is developed within an organization to make sure continuous monitoring and development of their business processes. Every successful business organization has their own organizational culture depending on their past beliefs, values and norms. It is highly due to various reasons. Organizational culture is effective to increase employee commitment and loyalty due to their emotional attachments with their organization. It is highly useful in enabling an organization to achieve their strategic goals as Chery Motors have successfully achieved their business goals after successfully planning, and implementing their strategic quality plans into business processes. The success of any business strategy relies heavily on their existing organizational culture. It is also effective in reducing disagreement in between different organizational departments and facilitates decision makers in developing their business policies (Malhi 2013).

Continuous improvements in organizational culture help them to achieve the commitment of their employees, delight their customers and build added value to their developed products and services. To build continuous improvements within a business organization, it is necessary to implement a quality culture in that organization. Culture is defined as the arrangement of things, norms or values on the basis of which organizations operate. It identifies the personality of the organization of what employees do with shared beliefs, behaviors, attitudes and assumptions acquired over time. Attitude shows the outlook and thoughts by which work habits emerge and related to qualities stem applications. Vision, mission, values, goals and strategies of the organization work as guideline principles of an organization and its culture is culminated from them (Bertels, Papania and Papania 2010).

Monitoring Implementation of Strategic Quality Change in an Organization

An organization can never win the battle by simply developing an effective strategic plan. But getting it implemented is generally tougher and complicated task to do. Monitoring, controlling and successful execution of strategic quality is highly important for the success of a business organization. Monitoring the strategic business plans is important due to several reasons as they are highly effective in meeting business needs. Strategic quality plans help to assure that business efforts are aligned with their strategic quality plans. It helps to make sure the results Chery Motors or a successful business organization can achieve aligned with their quantified objectives. Business monitoring and controlling help organizations to take corrective actions by fine tuning their business strategies and planning their business processes. Monitoring is a part of control process that is useful to encourage improved business performance by knowing it will considerably improve performance of their workers. Monitoring offers essential link in between their written business plans and their day-to-day business operations to manage their businesses, according to their plans (Daft 2003).

Evaluation of the Outcomes of a Strategic Quality Change in an Organization

Outcomes of Strategic Quality Change

Strategic quality change that is aligned with the goals of the organization needed to improve the quality of their products and services and enhance customer satisfaction. The processes of organization are redefined to make sure efficient and effective steps to ensure the quality maintenance throughout all the processes of the organization before the final product is produced. Strategic quality change is useful to assist the increased efficiency within an organization as achieved by Chery Motors by eliminating all the wasteful tasks. It is helpful for a successful business organization to better manage their available resources by implementing a system of quality control to make sure cost-effectiveness and to meet expanding customer needs. Overall, outcomes of strategic quality change are helpful to various organizations to get competitiveness and to achieve sustainability and satisfaction of their customer needs by eliminating unhealthy tasks (Lyon and Sullivan 2007).

Recommended Areas for Improvements to Strategic Quality Change Aligned with organizational Objectives

It is highly recommended that an organization should implement a balanced scorecard to make sure each and every department of the organization has achieved considerable improvement. The balanced scorecard is the strategic planning of the organization aligned with business activities to the vision and strategy of the organization. It is highly effective to improve the internal and external communications, coordination and successful monitoring of organizational performance against their strategic goals. The balance scorecard gives a framework of providing performance measurements to help planners that should be effectively done and measured. It enables business executives and top level management to successfully execute their business strategies (Hillier 2004).


Strategic management can help in implementing the strategic plan. Appropriate measures show the strategy is important for the leaders, provide motivation, and allow for follow-through and sustained attention. By acting as operational definitions of the plan, measures can increase the focus of the strategy, aligning the workforce around specific issues. The results can include faster changes (both in strategic implementation, and in everyday work); greater accountability (since responsibilities are clarified by strategic measurement, people are naturally more accountable); and better communication of responsibilities (because the measures show what each group’s primary responsibility is), which may reduce duplication of effort. Creating a strategic map (or causal business model) helps identify focal points; it shows the theory of the business in easily understood terms, showing the cause and effect linkages between key components. It can be a focal point for communicating the vision and mission, and the plan for achieving desired goals. If tested through statistical-linkage analysis, the map also allows the organization to leverage resources on the primary drivers of success.


Bossink, B., A., G., (2002). “The Strategic Function of Quality in the Management of Innovation.” Total Quality Management, Vol. 13, No. 2.

Andersen, H., V., Savic, N., and Lawrie, G., (2004). “Enabling Quality Management: How Strategic Context is Needed to Drive Effective Application.” 2GC Working Paper, 2GC Limited.

Thomas, C., Corso, L., Pietz, H., (2013). “Evaluation, Performance Management, and Quality Improvement: Understanding the Role They Play to Improve Public Health.” Centers for Disease Control and Prevention, CDC.

Salkic, I., (2014). “Impact of Strategic Planning on Management of Public Organizations in Bosnia and Herzegovina.” Interdisciplinary Description of Complex Systems.

Asghar, Z., (2011). “New Approach to Strategic Planning: The Impact of Leadership and Culture of Plan Implementation via the three Cs: Cooperation, Collaboration and Coordination.” ASBBS Annual Conference, Las Vegas.

Prajogo, D., I., and Sohal, A., S., (2006). “The Relationship between organizational strategy, total quality management (TQM), and organization performance – the mediating role of TQM.” European Journal of Operational Research.

Finlay, P., (2000). “Strategic Management: An Introduction to Business and Corporate Strategy.” Financial Times, 1st Edition, London.

Lowson, H., R., (2002). “Strategic Operations Management: The New Competitive Advantage.” Routledge, 1st Edition.

Peljhan, D., and Tekavcic, M., (2008). “The Impact of Management Control Systems – Strategy, Interaction on Performance Management: A Case Study.” Organizacija, Volume 41.

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Malhi, R., S., (2013). “Creating and Sustainability: A Quality Culture.” Malhi, J Def Manag 2013, Defense Management.

Bertels, S., Papania, L., and Papania, D., (2010). “Embedding Sustainability in Organizational Culutre.” Network for Business Sustainability.

Daft, R., L., (2003). “Management. – Sixth Edition” Thomson Learning, South Western, Ohio, USA

Lyon, E., and Sullivan, C., M., (2007). “Outcome Evaluation Strategies for Domestic Violence Service Programs Receiving FVPSA Funding.” National Resource Center, Harrisburg, PA.

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Human Capital Management

Human Capital Management in Banking

In an address to MIT graduates, Carly Fiorina, the legendary HP leader has been quoted as saying, “….the most magical, tangible and ultimately the most important ingredient in the transformed landscape is people” (Fiorina, 2000).

The pervasive question in strategic management on why some organizations are more successfully than many others is answered by their varying management of human capital (Hitt et al 2001). According to the resource-based view of organizations, organizations vary in their performances because of their varying resources and associated capabilities. Resources can be tangible and intangible. The intangible resources and capabilities are difficult to replicate and are socially complex and can be built or changed only in the long run (Hitt et al 2001). Thus, the competitive advantages produced from intangible resources are very unique, rare and difficult to replicate. The intangibility of human resource management is removed with an approach called human capital management which urges the organization to view its human resources as a financially quantifiable function – to analyze impact of people on contribution to shareholder value, to demonstrate value of HRM with ROI calculations and provide direction for future HRM practices (Angela & Armstrong, 2007).

Human capital theory views human resources and its skills as an asset of an organization and that the organization must strive to grow and safeguard this asset (Lepak & Snell, 1999). Human capital is a term applied to the approach of considering people as assets for the organization, putting people on the right side of the balance sheet, in a lighter vein. The human capital approach puts the HR function at a more quantifiable level thus rendering it strategically relevant. The approach enables the organization to orient and align its human resources to effectively meet organizational objectives (Lepak & Snell, 1999).

The scope of human capital management covers reporting the human capital of an organization. Such reporting enables stakeholders to develop another performance metric to evaluate the organization. The human value of an organization points to the potential it possesses for future performance, the strength of its internal processes and the sustainability of the business model.

The Implications of Human Capital Management

Human knowledge can be classified into articulable knowledge which can be codified and passed on easily and tacit knowledge which is based on organizational routines and social in context (Lane & Lubatkin, 1998). Tacit knowledge is unique and cannot be replicated and gained on the job and are unique in every organization for a particular role (Lepak & Snell, 1999). Hence there is a need to classify and segregate knowledge into core and peripheral assets.

The value of human capital is dependent on its potential to contribute to the organization’s core competencies and thus to achieve organizational objectives. The core assets contribute most and hence need significant continuous internal development and nurturing. As organizations move to more advanced technologies, the role of knowledge workers increases and hence the need to effectively manage core assets is more important (Lepak & Snell, 1999). Human capital is not owned by organizations, but merely secured through relationships (Angela & Armstrong 2007, p9) and hence the need to manage the same and ensure that the asset stays within the organization.

The pressures on efficiency and costs drive organizations to make or buy labor. This make or buy decision is based on the importance of a particular skill. Core assets cannot be outsourced and an organization that does this is under peril of losing its competitive advantage (Porter, 1985). Developing peripheral assets within the organization leads to higher overhead and transactional costs. Thus, these peripheral assets can be externalized or acquired from other parties for whom this is the core asset.

The implication of human capital management is that there is a positive correlation between leveraging human capital and organizational performance. The value of human capital is defined as the ratio of strategic benefits to customers derived from skills related to the costs incurred (Lepak & Snell, 1999). Human capital management forms the bridge between HR practices and strategic business performance. This argument places human capital management as a value creating activity for the organization. Thus, human capital is always measured in relation to the value it creates for the customer.

Investment in Human Capital – Theoretical Analysis

An employee gains knowledge on-the-job, by schooling and through other sources. The fact that an employee gains in experience and knowledge and thus becomes more skilled leads to the development of innate knowledge which is very important in the understanding of the uniqueness of a particular individual. What he gains through formal education is the foundation on which his social behaviors and personality are rooted within the organizational context. The other sources include access to information, inquisitiveness and developing skills out of the scope of the role (Becker, 1962). Hence, the education or the prior preparedness of the employee to be based within the organizational context in social behaviors and attitudes is very important to how effectively he is able to contribute to the organizational goals and objectives.

Human capital management focuses on the following HR processes (Angela & Armstrong, 2007 & Lepak & Snell, 1999):

  1. Resourcing strategies – the process of acquiring human capital, and managing them effectively to utilize them to achieve the organizational objectives. These strategies define the forecasting of skills required and the measures to acquire such skills through internal development or external acquisition – the make or buy decision. The make-or-buy decision also implies that the organization can outsource some of its competences to be effective, thus bearing significant ramifications for organizational effectiveness.
  2. Reward strategies – the fact that individuals expect return on their own investment in organizations – in skills and efforts spent on the job. Human capital theory encourages skill and performance base reward fabrication and to compensate an individual by fixing his market worth because the individual owns his own human capital. the fixing of the market worth of an individual is similar to accounting for the value of a physical asset, only that in human capital the value of an individual is in the skills and competencies of the individual.
  3. Retention strategies – the contribution by individuals to the organization make the organization find ways to retain this human capital either by increasing its valuation or by forming strategic alliances with its human capital for long term relationship. Thus, the role of promotions and awards play a part in ensuring that organizations are able to protect their human capital from leaving and thus aiding competitors. This multi-faceted approach to retention aids in reducing attrition and loss of human capital.
  4. Development strategies – organizations always try to develop their human capital – the core competencies of individuals. Core skills need to be developed internally and thus organizations go for training and knowledge acquisition for their employees. This increases the market worth of the employee by making him more skillful, and thus reiterates the importance of retention and reward strategies. The buying of core competencies results in the erosion of human capital in the organization, leading to loss of competency in many core business areas.

Valuation of Human Capital

The concept of human capital also means that the human capital has to be measured in financial terms and thus the significance and implications of the process be known. The economic value of people in the organization has to be accounted for through human asset accounting – for measurement, enumeration and analysis. Measurement and analysis help the human resources function to work at a more strategic level. It also provides investors and other stake holders with a better feedback on the working and sustainability of the business. There are three types of human resource accounting models (Bontis et al, 1999):

  1. Cost models, which consider the historical, acquisition and retaining costs of an individual or an asset
  2. Human resource model which also goes into non-monetary behavioral attributes
  3. Monetary models which account for discounted estimates of estimated future earnings

Human capital accounting models attempt to calculate contributions made by human assets by capitalizing expenditures in retaining the asset – salaries. Instead of putting total wage bill in the expenditure side in an income statement, a discounted cash flow of wages is classified as an asset in the balance sheet (Bontis et al, 1999). This requires a number of assumptions on the HR practice’s estimation. The average increase in wage per year and the tenure of expected employment are estimated for the workforce and all these cash flows for many years are discounted back to year one. The remaining figure is represented as the human capital value for the organization.

The assumptions made in the model explained above necessitate planning and predicting workforce strength and composition for many years ahead. Often, this proves very difficult to do accurately. Assumptions about tenure of employees, wage rises and turnover rates are not determinable accurately. Hence, all these models suffer from uncertainty and inconsistency (Bontis et al, 1999). Also, the practice of treating humans as assets is debated to be morally unacceptable as here it is assumed that the organization owns individuals.

HRA data can be utilized for three purposes (Bontis et al, 1999):

  1. To report human capital in audited financial statements for external stake holders
  2. Feedback on achieving strategic goals internally
  3. Developing future plans and strategy by assessing the uniqueness of the human capital prevalent in the organization

Only one of the purposes stated above needs auditing authentication – financial reporting. The other purposes are to help the organization assess and plan and strategize for itself the direction it has to take in evaluating its own human capital, its uniqueness and planning for additions or reductions or acquisitions of human capital. Hence, the focus of human capital management is in aiding in organizational effectiveness and thus to deliver more value to stakeholders. The lack of orientation towards human capital in financial statements is because of the fact that the field is constantly evolving and human capital management is still considered only a sustainability issues and not a purely financial issue.

Human Capital in Banking

The Service Organization Perspective

In service organizations human capital represents a significant portion of organizational value. In a service business, the service offered to customers is readily perishable, consumed immediately and irreversible (Kotler, 2002). When a product goes wrong or malfunctions, the company can satisfy a customer by replacing the product or just by a repair, but in service, the problem created cannot usually be reversed or rectified. The experience the customer gets when accessing the services is all the more important to ensure that the customer is satisfied. This goes a long way in achieving organizational goals. When a customer is accessing a service in a bank, he is effectively touching its employees. The role of employees in ensuring a great service experience for the customer is highly critical.

The above argument implies that the quality of service delivered can vary according to human capabilities – both the server and the served. The participation of the employee and the customer in a service rendering process is equally important. The role of the customer also plays a part in ensuring that the process goes effectively. Hence, customer management through interaction with employees forms the basis of customer satisfaction. Service delivery is just one aspect of the business. But intellectual capital is a very important part of a bank, as it works primarily on accumulated knowledge and experience. Relationships are another important reason why human capital is very important. Some information is codified and present at the push of a button, but much more is tacit knowledge within employees which need careful nurturing and planning. The tacit knowledge is more social..

Professionals gain knowledge through education (articulable) and on the job (tacit). Service professionals receive extensive education and training prior to entering the profession. The quality of the knowledge they acquire varies as per the quality of the scholars and teachers they have access to. Universities and schools are ranked and evaluated by the quality of teacher’s it employs. Individuals from the best schools and universities are said to possess the highest level of knowledge in their field and membership to elite social circles (D’Aveni & Kesner, 1993). Consequently, such professionals get the highest salaries, because of the knowledge and their social networks.

After completing their formal education, professionals enter organizations in trainee roles or apprenticeships. In these roles they acquire tacit knowledge, by observing and doing things in the organizational context (Szulanski, 1996). They bring in articulable knowledge from outside and develop tacit knowledge within the firm. The tacit knowledge thus developed during employment is a very important human capital component of the organization. Such firm-specific knowledge is unique cannot be replicated. This is truer in service organizations, where people are the first interface for customers and also for the bank.

Human Capital Management in Banking Industry

The broad nature of the discussions above indicate three well definable parts of human capital management – the implications of human capital management, how it is measured and how it is managed to create positive outcomes (Sherwin, 1983). As technology evolves, global expansion has become a reality, paving the way for fast growth, leading to significant challenges in human resource management. There is also an increased demand for more information from external stakeholders on human capital and its implications on organizational performance (Bontis et al, 1999). These challenges coupled together call for focus on human capital management in banks, with global footprint, widely dispersed service delivery networks and great diversity.

There are several levels of understanding human capital in the context of banks depending on the sophistication and detailing of the metrics and subsequent managing required (Whitaker & Wilson, 2007).

Impact of Existing Processes

The impact of the existing people management processes, mechanisms and systems forms the first level of understanding. The understanding required for this is that the organization must understand the people levers or capabilities that are critical to the business performance. Once these are understood, then metrics are developed to assess how well these capabilities are developed. This understanding helps the bank to understand present effectiveness of its processes and its people.

Strategic Focus

The next level of focus is the impact the organization’s people strategy has on business performance and quantifying the same. An example of a strategic people initiative is engagement. An organization can measure employee engagement through organization-wide surveys and playing it back to understand its correlation to business performance – key metrics like transactions per teller, profit margins and employee attrition (Bartel, 2004). This is possible only with the commitment of the top management of the bank and their understanding of such measurements and metrics. Thus, the dimension of managing human capital has to woven into organizational strategy and form the basis of evaluating business leaders.

Actionable Elements

After measurement discussed in the points above, it is important that the bank or the organization translates this into action to improve on its standing with those parameters and benchmarks. Improving processes to enable people to contribute more to the business is important. Else human capital management will be stuck at number of days of training per employee (Lepak & Snell, 1999). The bank must measure the highest employee engagement levels of managers across the organization and try to find attributes and qualities which lead to such high engagement levels and try to replicate this to other managers whose employees are not measuring up so high in engagement scores, taking the example of employee engagement in point 2 further. Thus, human capital management is much more than a measurement tool. It is a management style wherein the probability of achieving the organizational goals is improved.

Human Capital Management
Human Capital Management

Drivers of Human Capital Management – Banking

There are many human resource practices within the organization and these are organized into drivers which necessitate human capital approach. Human capital drivers for an industry can be divided into five categories with each driver having human capital practices associated with it (Massi & McMurrer, 2007):

Leadership practices

The role of leadership in any organization is important. In the financial sector, where the implications of a business failure are destructive socially, the importance of leadership practices is doubled. The most important consistent factors are open and effective communication, rational decision making and systems thinking. Unless these characteristics are displayed, there will be no coordination and direction for a bank, especially a large multinational bank.

Employee Engagement

Employee engagement starts with a good job design and ends with evaluation. The intermediate processes are workload and job stability. In the banking scenario, employees handle significant amounts of money, hence errors are bound to be costly. The evaluation of organization-wide data on employee engagement is a pre-requisite in any bank or financial services firm. Employee engagement scores must be actively used in assessing leaders and thus form a synergy between good leadership and engaged employees. This stops attrition.

Access to Knowledge

Organizations must have the information and its enablers within the reach of its employees. Also the data available from across the organization must be able to be consolidated and analyzed to create understanding and hence value to the firm. This is true with banks, where business locations are spread out, even across continents. Also, various divisions could be operating on different solution platforms, necessitating high level commitment o data integration and subsequent knowledge creation. Hence, access and availability of data is very critical to success.

Workforce Optimization

Effective training and well defined work processes, the right working environment and fair recruitment and reward practices ensure that individuals have a satisfying career experience with the firm and also for the firm to be able to retain its human assets. The process of evaluating this driver leads to make-or-buy decisions and reversing such decisions too. This is not just about cost savings through cutting jobs, but also about creating vital jobs to ensure effectiveness.

Learning Capacity

The organization must encourage innovations and promote systems thinking and a learning attitude among the workforce. This develops tacit knowledge and ensures that employees are well tuned to changes in their environment. This is true with financial institutions because of the fact that changes are frequent in this field and business is spread out globally. The ability of the firm to learn from within its processes creates cost saving opportunities and also work force optimization opportunities.

Human Capital Measurement in Banks – Implementation

In the Balance Score Card, the final quadrant, People, is the most difficult to quantify and report for many organizations. The information available to fill this quadrant is available as fragmented and un-integral data from across the globe for a bank. This is because the global organization implements different managerial systems which are incompatible to each other or use legacy systems. Even though data is available in most organizations and people know where the data is, they will not be able to compile this quickly, analyze and use it for decision making. Hence, the first and most significant driver for successful implementation of the human capital approach in banking is the availability of data. Unless contiguous data is available at the push of a button, there is bound to resistance in the system to utilize data which is available in various forms and formats.

Data is available for organizations from across the globe, across functions and divisions in business. Thus, integration of processes and the systems that run and create this data has to be accomplished and compatible with each other. Without integration, the intention will not translate to accurate measurements. Thus, an organization needs a single people management system and single global HR management system. This makes data available for strategic planning and analysis at a macro level. Thus, to implement a human capital management program within the organization, significant investments may be needed to create common platforms to enable people to utilize data more effectively and integrate the various divisions of the bank.

Banks are a people centered business, with people forming the core of the services offered and people being consumers of the services offered. Thus, the evaluation of the impact of people and their roles in ensuring customer satisfaction and to drive business performance is important (Bontis et al, 1999). Such a tool is the Human Capital Scorecard (HCS). The HCS enables an organization to (Whitaker & Wilson, 2007):

  1. Plan sourcing to meet growth aspirations
  2. Identify and analyze key human resource issues
  3. Informed business decisions by risk evaluation and priorities
  4. Monitor progress of strategic initiatives
  5. Tracking trends

The HCS has been successfully implemented by Standard Chartered Bank, throughout its global operations and various businesses (Whitaker & Wilson, 2007). The scorecard has measures inbuilt into it which help analyzing the effectiveness of human resources processes in helping business performance. Standard Chartered has automated its HCS enabling it to take out the scorecard for every division for every country in a matter of seconds. This is possible because of data homogeneity.

The use of advanced systems to compute and analyze global human resources data is applied in many banks with thousands of employees. Without such integration of systems and automation of the process of evaluating and compiling data, human capital can never be assessed and used as a basis for strategic plans and further evaluate performance. There are several software companies which cater to the need of banks in their human capital management initiatives. Such companies utilize data from other managerial systems such as ERP and CRM systems to compile and present data for human resource analysis (ACCA, 2009). Usually, the data required for implementing human capital management is available within the organization (Whitaker & Wilson, 2007), but the forms and content of such data will be radically different, arising out of legacy systems prevalent in different countries and divisions. This could lead to significant investments in managerial software and systems to ensure that data is available in the form it is wanted quickly.

Human Capital Management Solutions

Human capital management is available as customized software solutions for banks and other organizations. Such solutions specialize in extracting data from legacy ERP systems of the bank and integrate and present them in ways suitable to the particular bank. Their primary function is turn data into intelligence for the organization. This intelligence or relevant reports are alone are not enough, but the will to utilize this intelligence is more important.

We will now explore the case of human capital management solution implemented in two prominent and large banks:

Case 1: BNL –Gruppo BNP Paribas

BNL is one of the top Italian Banks raking in the top 60 among European banks. It is owned by BNP Paribas, a global financial institution which employs over 170000 people. BNL has approximately 16000 employees (SAS, 2010). This gives an indication of the complexities and the enormity of the human resource management function.

The objectives of a program implementation have to clear before embarking on the process. The bank wanted to implement a human capital management system with the following objectives:

  1. Using HR employee and line manager times effectively
  2. Identifying areas where it gets maximum return n investment in human capital
  3. Spending human resources budget in effective ways to align individual and organizational development needs

The solution was implemented in multiple stages, with the first stage being understanding of and evaluating existing human resource practices:

  1. Analyzing historical staffing and retention costs, estimating redundancies
  2. Effectively design career paths and skill maps
  3. Simplifying budgeting and reporting
  4. Analyze compensation components and simulating for synergies and cost-savings

Having analyzed the existing business processes, the bank then went on to creating intelligence. The solution’s second stage saw BNL adding more features and capabilities to the SAS solution:

  1. Efficiency studies – time and cost study
  2. Role and position analysis
  3. Performance analysis through scorecard models

The key challenge to the implementation lay in the extraction of vital information from the bank’s SAP R/3 ERP module and utilizing it in this solution. This involved significant complexities in configuring the solution for BNL. This is a major problem faced by organizations when implementing organization wide business solutions.

The successful implementation of the SAS Human Capital Management solution the bank has been able to generate return on investment because of the solution implementation. Also the solution put valuable information in the hands of human resource managers and line managers, thus reducing dependence on central planning but not reducing the quality of decisions made. This leads to significant time and cost rationalizations for the organization (ACCA, 2009).

Case 2: Standard Chartered Bank

Standard Chartered is a banking powerhouse head quartered in the UK. It employs over 60000 people in 1500 branches spanning 56 countries across Europe, Asia and Africa. The company has a high growth strategy and has doubled headcount and revenue post 2005 (Whitaker & Wilson, 2007). The organization manages human resources at a global level and places considerable importance on human resource management and is one of the pioneers in human capital management in banking.

Standard Chartered approach towards human capital management is guided by three principles (Whitaker & Wilson, 2007):

  1. Focus on the right talent at all levels for all roles and enabling human resources function to identify and retain high performing individuals
  2. Help individual employees utilize their strengths effectively and manage their limitations
  3. Develop exceptional managers and leaders who will help the bank achieve its human resources potential
  4. Manage and assess strategic human resource initiatives like diversity development

True to the classical implementation process of human capital management (Pfeffer, 1995), the bank at the first level analyzes the effectiveness of its people processes; understand the levers and drivers which contribute most to the core capabilities of the division or the organization (Lepak & Snell, 1999). The analysis happens on multiple metrics. The progress of high value individuals, their retention compared to the general population, talent management processes, succession planning for key roles are some of the processes that are measured to ensure that the various HR practices of the organization are being effective in their improvement of these key metrics.

The next level of understanding comes from the “so-what” angle. The inferences captured from the first level are taken to the level of understanding on how to make them better. The key drivers of human capital management and associated human resource practices are analyzed and taken to a new level of understanding. For example, leadership practices in the organization are assessed through various tools and practices across the various functional domains. Gallup scores from subordinates are also used. Then the efficacy of leaders is studied and exceptional leaders are unearthed through such an analysis. Standard Chartered does not stop with this but goes on to the level of understanding winning traits and characteristics of its most effective leaders and trying to replicate them across the organization.

The above discussion is a vital reminder that human capital management is more about action that access to information and understanding functional efficiency and processes. The action part is not brought out by any software or enterprise solution. The top management has to understand the essence of human capital management and utilize the data to further the achievement of organizational goals (Hitt et al, 2001). Unless this is done, the actionable elements of the concept will remain undone and human capital management will remain on paper and will not help the organization or its stakeholders in any way (Bassie & Mcmurrer, 2007).

To transform information to action, Standard Chartered uses a Human Capital Scorecard. This is an adaptation of the Balanced Scorecard and gives the top management the insights they need to make decisions regarding human capital. Data from across the globe is consolidated through a single global data warehouse and a Human Capital Scorecard is generated for every country and for every division to enable its leaders to make effective interpretations of the human issues in their sphere of action. The scorecard provides leaders with tools to effectively analyze trends and identify issues with the human capital and also to measure progress of previously started human resource initiatives. Thus, the leader is able to meet the human resource goals for his division or country and is also able to ensure that he is in line with the organizational goals and the specific goals set for his division.

The scorecard is generated annually, quarterly and in every month and the bank has automated the process to be able to generate country reports in 40 seconds. The reasoning of the bank for the high level of automation is to reduce the time spent on human resource planning thus making business leaders more efficient and also to ultimately make this tool available with its line managers, so that the dependence on headquarters will go down to make effective decisions. This saves significant costs for the organization.

To utilize the scorecard further, the bank sets a strategic planning agenda every year to evaluate and plan for human resource management annually. For example, in 2006, the scorecard highlighted the trend of attrition in the first year of joining by new employees. This led to increased focus on the induction process for joiners. The results of this action will be assessed periodically again through the scorecard. This process has brought increased rigor into the understanding, planning and action parts of the human resource function and involved other functional areas into effective human capital management.

The Importance of Human Capital Reporting to Stakeholders

There are other successful cases of human capital solutions implementations in the banking sector. For example, the Banca Carige, one of the oldest banks in Italy implemented an SAS Human Capital Management Solution to increase visibility and to make better HR decisions (SAS, 2010). The plethora of human capital management solutions available in the market indicates a high level of competency and popularity of the approach to banks.

The significant stakeholders for a bank are its shareholders, the Government, the society at large and the bank and its employees. For all these stakeholders, the primary concern with respect to the working of the bank is the need to have access to transparent, well-defined and quantifiable measure of the human resource strategy and the performance of its human resources to understand how the bank’s intangible elements are related to the bank’s worth and the efficacy of its decision making (ACCA, 2007). This creates the relevance of human capital reporting, with human capital becoming a metric of organizational performance and business sustainability. The employees of the bank are also important stakeholders. By defining its human capital strategy, the bank can focus on how to develop this capital for organizational growth. For example, Standard Chartered’s human capital goals for 2007 included the following points, affecting its employees (ACCA, 2007):

  • Embed sustainable lending training in core risk management training.
  • Review our approach to climate risk, including raising levels of awareness amongst appropriate staff on how to assess climate risk.
  • Upgrade the social, ethical and environmental (SEE) e-learning. Get external stakeholders’ input.

The market has started demanding significant data on human capital management as a sustainability issue and this has resulted in ranking in the US on human capital reporting. The fact that human capital reporting is deemed a sustainability requirement makes it imperative on organizations to go in for reporting. The Dow Jones Sustainability Index features human capital reporting as criteria in rating organizations (Sustainability Index, 2008). Association of Chartered Certified Accountants (ACCA) 2007 ranking rated Wells Fargo in the top 5 among Fortune 100 companies in human capital reporting (Creelman, 2007). The importance of human capital reporting is gaining statutory importance with many countries making it mandatory for organizations. In Denmark it is a statutory requirement in management reports, while in Austria, it is mandatory in all universities (Eubusiness, 2006).

In the small entrepreneurship context, human capital reporting creates investment opportunities for banks by showing them enterprises with great promise (Eubusiness, 2006). The downside of why most SMEs do not report human capital is lack of awareness in how to report human capital and lack of clear guidelines. Thus, banks could significantly benefit from companies and SMEs reporting human and intellectual capital in their annual and management reports. So the gaining of popularity by human capital measurement and reporting can aid banks both internally and externally.

Financial institutions have created human capital strategy papers for specific periods, which strategize the human capital approach and link it with its strategy and organizational objectives (FHFA, 2009). By doing so, banks are able to create an environment where human resources function is treated as a profit center and as one which yields business benefits which are tangible and measurable.

Human Capital Reporting – In Practice

In many countries, human capital reporting, or for the matter, any form of extended reporting is optional. When human capital reporting is viewed from the CSR perspective alone, it creates a number of reporting formats, which result in incomparable reporting structures which are not of use for observing industry trends and the value of the philosophy. Hence, there is a growing demand among intellectuals for a consistent reporting structure or pattern which will enable the further development of knowledge based on understanding these reports (Cuganesan, 2007). The genuine interest taken by some leading banks have created a need for other banks to adopt human capital reporting.

Standard Chartered Bank has been a leader in human capital management and reporting. It is one of the first organizations, along with Royal Bank of Scotland to measure and report human capital. It recognizes that human capital is intangible and hence difficult to quantify as directly related to cost and financial implications, as the variables are too complex to decipher and harness. Hence, it uses proxies which are tied to performance, like cost of training, cost of increasing workforce, etc. to arrive at relationships between factors in human capital which it deems to be important and its actual performance, at a national and an international level. It reports these proxy relationships as individual metrics, indices and ratios, which indicate a certain level of competency or worth for the bank (Bentley, 2007). Royal Bank of Scotland also reports similar indices and ratios to quantify its human capital to its stakeholders. Though various standards have been adopted by various nations, the reporting is still not mandatory, meaning that organizations need not report, even if they do they can do it in their own ways.


Banks are service providers to retail customers and business. They are faced with a number of challenges – high competition, geographical business spread, high headcount and significant emphasis on people and service quality. People deliver quality here, and not machines or computers. Hence, the way banks and financial institutions manage their people is very important and in fact the most important factor in success.

Human capital management which emphasizes the role of employees in an organization as its assets is best suited and is very important for banks in today’s complexities in financial services. The rapid advancement in technologies have enabled banks to serve customers far away and also allowed banks and customers access to each other from far apart. Thus, the role of intangibles is more important than tangible advantages. Thus, a person could be using phone banking more frequently than a bank teller. Significant levels of automation have taken place and it would seem as if the whole banking process would be automated and there would be no people working in banks.

But human beings create this technology, knowledge and manage it. Hence, the underlying factor for success is always going to be the human edge, the edge of the employee. The worth of an employee is far more than the salary he gets paid, he is worth the knowledge he possesses. Unless this knowledge is quantified and billed accordingly, the organization cannot realize its full value and hence is bound to discount in unwarrantedly. This is more so in banking, where business relationships hold the key to retaining and acquiring customers.


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Bontis Nick, Dragonetti C. Nicola. Jacobsen Kristine & Roos Goran, (1999). The knowledge toolbox: a review of tools available to measure and manage intangible resources. European Management Journal, Vol 17 No 4, pp 1-20.

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Bassi Laurie & McMurrer Daniel (2007). Maximizing your return on people. Harvard Business Review, March 2007.

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Deregulation of British Telecommunications

The Deregulation of British Telecommunications

Deregulation is the elimination or removal of government controls and restrictions in, for instance, a particular area of business with the aim of encouraging more competition. Deregulation in the telecommunication industry has ensured that there is a public policy that:

  1. Guarantees provision of quality service
  2. Allows for reasonable setting of prices
  3. Ensures the availability of advanced infrastructure

According to a survey done in the UK, there was an overwhelming feeling by many respondents that competition forces should determine the nature of the telecommunication industry instead of regulatory measures. Competition, ideally, spurs innovation which brings about new ideas and ways of doing things. Competition also allows prices do be determined naturally by the forces of demand and supply. The development of telecommunications market in UK has brought forth many new changes. The rise of BT (British Telecom), the first telecommunication company in UK, brought with it some issues worth to note in as far as deregulation is concerned. They include:

  1. The UK telecommunication market was the first market to benefit from deregulation measures in the 1980s. It was an area where ‘price cap regulation’ of commodities was first introduced in the UK
  2. British Telecom was the first major British telecommunications company to be deregulated and privatized in the 1980s
  3. Deregulation which brought in competition in the telecommunication industry was introduced a decade earlier when compared to many other European countries.

However, realizing meaningful competition in the telecommunication sector was a slow process for companies like British Telecom due to certain national dynamics.

Deregulation in UK

British Telecom was privatized in 1984 and it is also in this year that deregulation policies in the telecommunication industry were initiated. The 1980s saw the British government introduce a ‘duopoly policy’ in telecommunications which allowed the entrance of another market player, Mercury, into the industry. Despite this, British Telecom was still the dominant player as compared to Mercury. The UK government further allowed many other firms to enter the telecommunications industry mainly to enhance competition. Entrance of other players also meant that new innovations and infrastructure could be introduced in the industry unlike earlier when British Telecom was the only telecommunication service provider. Deregulation of the sector scrapped the price cap regulation on British Telecom which meant that the company had to depend on normal forces of demand and supply to determine the prices of their products and services.

Deregulation BT
Deregulation BT

The changes that the government was introducing in the 1980s were also aimed at making the British telecommunication industry an international standards leader. However, the industry was facing a competition crisis due to the existence of a duopoly policy in the provision of telecommunication infrastructure. The duopoly policy that mainly benefited British Telecom and Mercury was later abolished in 1991. New entrants in the provision of local access services such as Cable Television came into the market consequently increasing competition. It is from this move that major development on radio based telecommunication and mobile based systems such as PCS and radio access emerged. These new technological advancements brought about major influences in the telecommunications sector; something which had not been experienced before in the United Kingdom.

Initially, the privatization of British Telecom saw a price cap formula being introduced which meant that the company had to depend on rate rebalancing to determine prices. Further reforms in deregulation the industry have been deployed in recent years through, for instance, the announcement of the Chancellor of Exchequer, Gordon Brown, that as Better Regulation Action Plan was to be enforced as from May 2005. This new policy reduced the number of regulations from 29% to 7%, bringing about a 25% reduction in bureaucracies which also saw the Better Regulation Executive being transformed into the Regulation Commission.

Telecommunications in the UK

The duopoly policy was scrapped in 1991 following the publication of the White Paper. Earlier in 1989, further liberalization, deregulation and privatization had taken place. However, these changes were only of a domestic nature and not international per se. Until 1989, only two telecommunication services operators had been licensed, Vodafone and BT’s Cellnet. The White Paper which came into effect after duopoly policy, allowed CATV companies to start offering telecommunication services through their cable networks on their own rights. At the same time national public telecommunication companies were not permitted to offer any television services. Armstrong (1994) describes the first period of liberalization in UK telecommunication companies history as a period of opportunity loss due to ban on local service providers. The existence of only two licensed companies and very low competition were also a main feature of this period. Competition in the telecommunication market at that time was low. For example, it was until 1986, after four years of its licensed granted, that Mercury could get access to British Telecom’s local loop unbundled (LLU). Due to lack of competition, British Telecom wasn’t able to restructure itself ahead of a competition boom that was just about to hit the industry in the early 1990s. The essential developments in telecommunication companies are listed below:

  • Gradualness
  • Disambiguation
  • Regulating by negotiating
  • Expansion of the function of Regulation
  • Crimson selection
  • Rival mobile telecommunications
  • Sluggish reformation of BT

Today, competition is very high due to presence of many telecommunication companies that are periodically releasing of exciting and attractive offers to their customers. The most popular industry players among UK residents are BT Group, Virgin Media, BskyB and TalkTalk.

BT Group

British Telecom is a multinational telecommunication company whose headquarters are in London, United Kingdom. It is one of the largest telecommunication service companies in the world with presence in over 170 countries. Through its global service division, it supplies telecom services to corporate and government customers around the world. British Telecom Retail Division is a major supplier of telephone, broadband and subscription services in UK, having approximately 18 million customers. In 2012, British Telecom was unveiled as an official partner of London Olympics 2012 where it operated data network across 94 locations. The 2012 London Olympic Games were the first Olympic Games to completely rely upon VoIP (Voice over Internet Protocol) and Wi-Fi (Wireless) to relay information to the public.

The History of British Telecom by Years

1878-1969 January 1878: The First telephone was demonstrated to Queen VictoriaOct, 1969: The Post office ceased to be Government Department.
1969-1982 1977: CCR recommend further division of two main services1980: Renaming of the Post Office Telecommunications1981: Liberalization of the telecommunication industry starts

1982: License granted to run a public telecommunication network

1982-1991 1991: BT is privatized. The Government sold half of its remaining shares, reducing it to 21.8 %1993: All the government’s remaining shares are sold in a third flotation raises £5 billion for the Treasury. 750,000 new shareholders are introduced to company
1991-2001 1991: BT name was unveiled with a new organizational structure and corporate company
2000: Offered LLU (local loop unbundling)
2005: 105,055 lines had been unbundled
2001-2006 July, 2003: Office of Communications (Ofcom) introduced to replace Oftel.BT gets its Universal Service Obligation (USO) for UK, excluding the hull area. 
2006-present 1 April, 2009: BT Engage IT created14 May, 2009: 15,000 jobs are cut upJuly, 2009: offered workers a long holiday for an upfront sum of 25 % of their annual wedge or a one-off payment if they agree to go part time.

BT and Deregulation

Deregulation has seen British Telecom offer its consumers more pushy telephone packages. On the other hand, Ofcom has led to a decrease in pricing principles which has led to increased competition for all. Most communications companies are deregulating their retail services in the telecommunication market which is making British Telecom even more competitive. FTSE 100 group is also now offering some discounts in its packages (broadband, digital or 3G television) which include fixed-line calls for the very first time.

Ofcom has said that it had isolated the last bits of regulation after BT’s privatization 25 years. The reason raised was that it had no more market value to remain in UK telecommunications markets. Ofcom’s CEO, Ed Richards, said that it was an essential step in deregulating the telecom offers where competition is the main thing to just serve customers with better offers. Apart from BT customers, there are more than twelve million people residing in the UK who are using other telecommunication services. It is said that Virgin Media, BSkyB and TalkTalk are the most effective competitors for British Telecom.

According to estimates released recently, BT has fourteen million customers (fixed-line). Gavin Patterson, CEO of BT’s retail division, said about the new promotion that by this entire competing environment BT will be able to play the game on a better playing field as compared to previous one leading to more exciting offers. He also said that BT will announce new attractive offers in future for its valued consumers. UK residents are taking bundled offers at a large extent.

When we compared consumer’s choices by years, in 2008, UK customers have purchased two or more communication services from one service provider at the 46 % of total as compared to 2005 where 29 % did the same. This is according to Ofcom’s most recent counts. According to Ofcom, the actual competition uplift came into being when BT created Openreach in 2005. It has also provided services to BT’s competitors on equality basis. According to Kingham (2012), BT shares are one of the most popular shares with investors. BT is considered as a market leader operating in a safe and steady industry that is arguably well insulated from economic turmoil.

The following table demonstrates British Telecom’s increase in share prices in for the last ten years (Kingham, 2012). From the table, even if one can ignore the results of 2009, which was the time when most world major economies were experiencing economic downtown, it is suffice to say that, British Telecom has been experiencing a solid growth. Last year alone, despite falling sales and reduced spending by customers, British Telecom still returned a profit. The last quarter of 2012 saw an increased profit of 17% to 575 million Euros. The company also registered a quarterly decline in revenues of 5.8 billion Euros during the same period (Mike, 2012). All these can be attributed to the changes that this company has undergone in the last 20 years.


In conclusion, it is now a fact that BT Group is constantly deregulating which makes competition out there for other telecom companies a bit harder. It is also a fact that BT is enabling UK consumers to access reliable and cheap packages choosing options.

Hutchison 3G UK is currently allowing consumers to enjoy all calls on half prices as compared to other telecom operators. A wide range of bundles available in the market have enabled the consumer to choose according to his/her needs. This not only shows prosperity in the telecommunications industry, but also increases the chances of gaining benefits global wise in every aspect whether its country’s reputation or the company’s reputation.

As this is now the trend in UK, home based and business telecommunication consumers are now able to choose bundles (one or two or so on) according to their needs. Each market player is also offering exciting and attractive packages to its consumers with lots of offers such as free subscription, no initial charges or no line rent or any charges for six months. All these are exciting offers from telecommunication companies which attract consumers.

British Telecom is the first company in the UK to introduce public sector telecommunication service which has made BT has its own stage and own reputation. Apart from few drawbacks, BT is still the best choice of its consumers due to its services provided for its valued customers. Whether in Broad Band or fixed line, BT is a good choice of UK residents.


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Federal Communications Commission (FCC) deregulation policies in the UK

Financial Times: deregulation policies

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Michael E. Porter (1995) .Toward a dynamic theory of strategy. In Rumelt, Richard P., Schendel Dan E. and Teece David J. (Eds) Fundamental Deregulation Issues in Strategy. AResearch Agenda, Harvard University Press, pp. 423-461.

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Principal Operating Units: BT Ignite; BT open world; BT Retail; BT Wholesale; BT exact Technologies

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Smartphone Market Apple

Apple’s Position in the United States Smartphone Market

The smartphone market in the United States is comprised of all firms that manufacture and sell smartphone’s specifically to U.S. consumers. According to Cromar (2010. p 4.), a smartphone is a mobile phone which is run on an advanced operating system. The operating system makes a smartphone to have advanced computing capabilities such as installing of new applications and can connect to the internet.

There are five major players in the U.S. smartphone market. They include:

  1. Apple Inc. (a U.S. corporation)
  2. Research in Motion Limited (a Canadian corporation)
  3. HTC Corporation (a Taiwanese corporation)
  4. Motorola Inc. (a U.S. corporation)
  5. Samsung Electronics (a subsidiary of a Korean corporation)

This article will mainly focus on Apple’s presence in the smartphone market.

Apple’s Market Share

According to new statistics released by comScore – an analytics firm – on February 2013, Apple and Samsung have continued their two-horse race for the U.S. smartphone subscription over the last quarter of 2012 (Campblell, 2013). For three months ending in December 2012, Apple’s iPhone had maintained its dominance in the U.S. smartphone market which raised its share of the market by 2% up from 36.3% in the previous quarter. However, Samsung, the biggest competitor to Apple had experienced the most positive change over the same period by controlling 21% of the market. These two smartphone giants were trailed by HTC and Motorola, which unfortunately were experiencing declining results with market shares of 10.2% and 9.1% respectively (Campbell, 2013). The following table shows a percentage share of smartphone subscribers for the period between September 2012 and December 2012

Smartphone Market 01
Smartphone Market Apple

Source: comScore (2013)

This was a representation of 125.9 million people in the United States who were owning smartphones during the last quarter of 2012 (Jones 2013). As Apple was dominating in smartphone subscription, Google’s Android Platform operating system was leading with a 53.4 % of the market share in the fourth quarter of 2012 (Paul, 2013). This made Apple’s iPhone 5 and Samsung Galaxy SIII the bestseller in Q4 leaving HTC, LG and RIM struggling to get a share of the lucrative market.  The following table according to Jones (2013) shows a tabulation of Apple’s position in the period between December 2011 and December 2012

Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 +/-
Android 47% 51% 52% 53% 53% 6%
Apple 30% 31% 32% 34% 36% 6%
RIMM 16% 12% 11% 8% 6% -10%
Microsoft 5% 4% 4% 4% 3% -2%
Symbian 1% 1% 1% 1% 1% -0%
Other 1% 1% 1% 1% 0% -1%
Total 100% 100% 100% 100% 100%

Source: comScore (2013)

Threat Analysis

Apple’s dominance in the smartphone market for many years can be attributed to the advantage that the company takes from vital synergies that are available in its electronic ecosystem of electronics, computers and software (Comar 2012 p 31). Before the company released the iPhone, Apple already had an existing broad base of users for its iPods, computers and software like iTunes. The iPhone is a smartphone that can be easily integrated with other Apple products such as the Apple TV. It is the success of Apple’s other products that were carried over and integrated into the iPhone making it an unmatched smartphone with highly differentiated and integrated user experience.

As of 2010, most of Apple’s competitors were facing significant challenges in market share control due to Apple’s availability of a highly integrated electronic ecosystem.  However, Samsung has in the past two years revolutionized its smartphone presence in the United States making it Apple’s main competitor.  This has led to patent counter suits between Apple and Samsung being experienced in especially the last one year. Samsung has fully utilized its wide range of consumer products such as the manufacture of computer chips, PCs, TVs and printer to influence its smartphone innovation in recent years, a technique that Apple largely relied on in the earlier days.

Apple’s Weaknesses

The biggest challenge that Apple as a smartphone manufacture is facing today is the growing competition in smartphone operating system application platform. Apple smartphones use iOS which is a mobile operating system created exclusively by Apple. Over the last couple of years, Apple has been experiencing a significant long term risk in gradual loss of smartphone market share specifically to the Android platform. This trend has reduced Apple, a one-time smartphone giant, to a mere niche player in the U.S. smartphone market. The following image show’s Apple’s iOS market share as compared to other mobile operating systems for the period between January 2009 and June 2012 (Blodget 2012)

Smartphone Market Dissertation
Smartphone Market Dissertation

The Android platform that is giving Apple’s iOS a run for its money is a software stack of mobile devices which includes an operating system that is designed mainly for touch screen devices such as smartphones. Android, which is owned by Google, has played a key role in challenging the success of Apple’s smartphone by handing companies like Samsung an easy to use mobile operating system.

The reason why Apple’s smartphone market share is under siege is essentially because the smartphone market is a ‘platform’ market. Apple’s weakness here is that in a platform market, third company markets like Google build products and services on top of other companies’ platforms (Blodget 2012). In this case, Google continues to build the Android application for use by companies such as Samsung on their smartphones. Currently, Android and Apple are continuing to dominate the smartphone market with Apple’s share declining in a rapid manner in the last two years.

Another area of Apple’s weakness is its spending on research. According to Chen (2013), smartphone manufacturer, Samsung, outspent Apple by 2012 on research and development with Samsung spending 5.7% of its revenues on research as compared to Apple which has spent only 2.2% of its revenues. Research is essential, especially in a mobile based platform, since a company will always be abreast with not only emerging trends, but also reading the current trends of consumers.

Samsung’s Competition on Apple

Even though Samsung came in second in the U.S. smartphone market share, Samsung was the only company that recorded significant growth especially in the last quarter of 2012.  Paul (2013) points out that with increase in competition in innovativeness in smartphone design, Samsung’s growth rate was slightly more than Apple’s which consequently heightens the prediction of its market share results in the first quarter of 2013.  Samsung has not only been experiencing growth as a mobile phone manufacturer in the United States alone. Globally, for the first time in 13 years, Samsung toppled Nokia in the global mobile phone business on an annual basis at the end of 2012. Samsung accounted a growth of 29% in mobile phone business in 2012 which was up from 24% in 2011 (Wayne 2012).

Chen (2013) also concurs that for many years Apple has not face a challenger like Samsung, who can make very popular and profitable smartphones and tablets.   Whereas Apple is staking its success on creating new markets and then dominating them, Samsung is investing heavily on studying existing markets and coming up with new innovations inside them. Samsung’s strategy has seen the Samsung Galaxy SIII smartphone to be the first smartphone to engage on a neck-to-neck competition with Apple’s iPhone in sales (Chen 2013).

Samsung’s success over competitors like Apple and Nokia is being mainly forged by the company’s competitive edge in the smartphone sector. According to information and analytics provider HIS, on a global perspective, Apple and Samsung ended 2011 in an absolute two-horse race over smartphone market share, with only 1% separating the two (Wayne 2012) .

Business Analysis tools and techniques

There are many business analysis techniques and tools that can be used to analyze different business problems. This paper shall focus on four of the majorly used tools. They include:

  1. SWOT Analysis
  2. The PESTLE Technique
  3. The 5 Whys Technique
  4. CATWOE Analysis

SWOT Analysis

SWOT analysis is one of the most commonly used tools for analyzing and auditing the overall strategic position of a business and its environment.  SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities and Threats.  For purposes of understanding the business environment of a company through SWOT analysis, strengths and weaknesses mainly focus on the internal factors while opportunities and threats focuses on the external factors.

Whereas a business cannot change the external factors affecting it, it can change the internal factors affecting its business environment. SWOT analysis do help companies for instance to understand the external environment of a business and how they can strategize on sustainability and performance.  SWOT also helps a company to identify a strategy that creates a concrete business model that best matches a company’s capabilities and resources to the environmental requirements. It is basically a foundation in which a business evaluates its internal potential and probable limitations in comparison to opportunities and threats posed by its external environment. Arguably, a consistent SWOT analysis of the environment that a business is operating enables a company to adequately predict changes in trend and also helps in factoring them in the decision making processes of the company.


The strengths of a business are the unique qualities that enable a company, for instance, to accomplish its mission and vision. They form the basis on which the continued successes of a business are established and sustained.  The strengths of a business are what the business is well specialized in or the expertise it has, the traits and the exceptional qualities that its employees poses and the distinctive features as compared to others in the industry that gives the business its consistency.  They are simply the attributes within a company, which can either be tangible or intangible that give the business a competitive edge over others. Some of these beneficial aspects of a business may include: customer goodwill to the brand loyalty, human competencies, financial resources, products and services, etc.


Weaknesses are the attributes and qualities that prevent a business from accomplishing its mission and consequently achieving its desired full potential. In SWOT analysis, these are factors that prevent a business from achieving successful results since they simply deteriorate a business’ growth. They are internal factors in a business that make the business not to meet the required standards that the business opts to be meeting. They may range from insufficient research and development capabilities as in the case of Apple Inc. when compared to Samsung Electronics, to narrow product range and depreciating machinery. Analyzing weakness assists the management in a business to know the areas in the business that need to be improved. Weaknesses precisely impact on the profitability of a business and if not well controlled, they may make a company to go out of the business.


Opportunities are essentially the possibilities that a business has in increasing their profit margins or improving on performance.  They are presented by the environment within which a business is operating. Opportunities arise when a business takes an advantage of the conditions posed in its operating environment to plan and execute strategies that could drive it to more profit making. Businesses have to be very keen in identifying opportunities and grasping them immediately they rise. It could be something as simple as releasing a new product line to targeting a new customer niche. Conducting a SWOT analysis on opportunities involves examining external factors to a business such as technological advancements and the state of the overall economy.


Threats to a business rise when external factors in a business environment compromise the profitability and reliability of the business. They create a vulnerability that is faced by a business when compounded to its weaknesses. They are peculiar external factors which cannot be controlled. For instance, the economic downturn of 2008 was factor that most businesses could not control. Political and social trends can also be possible threats to a business. A good example is the current social and political push for products that are more environment friendly as compared to those that are not.  An essential part in analyzing the threats of a company has to involve a look at the strengths of its competitors.

SWOT analysis is advantageous in that it presents valuable information since a business can evaluate the four elements either independently or as in combination (Nordmeyer, 2010). It also involves the integration of qualitative and quantitative data which is an essential part in formulating a business strategy. SWOT analysis is preferred by many since one is not required either have technical skills or training to conduct the analysis. This in turn makes SWOT analysis one of the most affordable business analysis tools that also requires a fairly short time to conduct.

The PESTLE Technique

The PESTLE technique is a business analysis technique that is mainly concerned with the external aspects of a business such as the environment. PESTLE is an acronym that stands for Political, Economic, Social, Technological and Legal Environment (Financez 2012).  This method is mostly used in analyzing a business environment and making market evaluations at the initial stages of the business. According to Marx (2010), the PESTLE technique primarily consists of four main phases.  These phases are:

  1. Formulating the external factors list
  2. Identifying the implications of these external factors
  3. Determining the relative importance of the impacts of the external factors
  4. Formulating alternative scenarios

Political – When generating a political-factor list, one is expected to concentrate on the key political factors that will affect a business. The taxation policy, for instance, especially during elections is one of the main political factors that a business needs to internalize and factor in its strategy analysis. How foreign policy will affect exports and imports especially to a business in such a field can also be a cognizant factor.

Economic – In this analysis, one is considered to factor the overall economic situation, the strength of consumer spending in business’ main product and service segment, both current and future government expenditure and how it may affect the economy among many other factors.

Social – When considering the sociological aspects in business analysis, it is important to concentrate on the cultural aspects that are likely to impact on the business (Marx 2010). Cultural and social trends have great influences on a consumer of any product or service. Therefore, it is important to consider factors on demography, lifestyle patterns, fashion, and work attitudes as well as religious and ethnic differences when analyzing a business environment.

Technological – This is one area that has greatly changed the lives of many people today. For a business to easily sustain itself in today’s world, it has to adequately factor technological advancements available to improve its overall performance. Having a big eye on technology is a major factor that creates a competitive edge of a business over its rivals (Financez, 2012).

Legal – Legal and political factors are closely related but for good business analysis, they are distinguishable. Current and pending legislation ultimately do have implications on a business which makes them a compulsory business analysis consideration as this technique provides. Legislation may affect employment, taxation, health and safety requirement, as much as many other aspects of a business.

Environmental – These are factors in business analysis that may have a connection with the environment. Aspects on pollution capabilities and recycling possibilities in the product and services of a company are important factors in business analysis.

The 5 Whys Technique

The 5 Whys technique is a problem-solving technique that assists one in getting to the root cause of a problem quickly (Manktelo & Carlson 2011). This method simply helps in determining the cause-effect relationship in a problem or failure event (Sondalini 2008). This technique was made popular by Toyota especially in the 1970s when they were developing their manufacturing methodology. The 5 Why’s technique simply involves looking at a business problem and asking ‘why’ and ‘what caused the problem’. In using this strategy to solve a problem, one simply starts with the end results and works backward in asking ‘why’ in a repeated manner until the root cause of a problem is apparent.

Five is a rule of the thumb and that is why this technique is called the 5 Whys technique. It is not a must for one to ask 5 ‘whys’ since one may ask more or less before finding the root cause of the problem. When one, for instance, in business is facing a certain problem, you start with a statement of the situation and ask why it is occurring. Then turn the answer to this questions into a second ‘Why’ question. The answer to the second ‘Why’ questions becomes the third ‘Why’ questions and so forth. Repeatedly asking why peels away ‘layers’ in an issue which then leads one to the root cause of a problem. When one refuses to be satisfied with an answer, this increases the odds of coming up with the underlying root cause of the problem (Sondalini 2008).  Some of the benefits attributed to this technique are:

  1. Simple – it does not require the use of advanced mathematical tools.
  2. Effective – it quickly helps to separate symptoms from causes
  3. Flexible – It can be used alone or in combination with other techniques

CATWOE Analysis

CATWOE analysis is a business analysis technique where an analyst prepares a report, that is analytical, to solve a particular problem. CATWOE is an acronym that stands for Clients, Actors, and Transformation, Worldview, Owner and Environmental constraints.  In business, it is a technique that is very useful in checking the features existing in a defined problem. The CATWOE technique is mostly preferred when identifying a business problem that requires prompting critical thinking on why it is really necessary to be solved.

Clients – The clients of a business have to be analyzed on so as to understand who are on the receiving end of the business’s products and services.

Actors – This comprises the employees who form part of implementing the business strategy or changes to achieve a desired mission.

Transformation – It comprises of an analysis of probable changes that have been introduced in a business. It also factors on the analysis of the processes involved in transforming inputs into outputs.

Worldview – In other words, this is the world view. This describes an analysis on the bigger picture that a certain situation or a problem in business fits.

Owner – Having a look on the stakeholders and identifying needs of the owners or shareholders of a business is crucial.

Environmental constraints – It includes an analysis on the external environmental factors in which a business is operating.


Blodget H. (2012). This Trend is very worrisome for Apple. Business Insider

Campbell M. (Wednesday, 6th February 2013). Apple and Samsung pull further ahead in U.S. smartphone market, iOS gains on Android.  Apple Insider

Chen B. (February 10th, 2013).  Samsung Emerges as a Potent Rival to Apple’s Cool. New York Times

Comar S. (November 29th, 2010).  Smartphone in the U.S. Market Analysis

ComScore (February 6th 2013). ComScore Reports December 2012 U.S. Smartphone Subscriber Market Share

Financez (2012). What is Business Analysis: 2 – PESTLE Technique

Jones C. (February 2013). Apple’s and Android’s U.S. Smartphone Market Share Continues to Increase.

Manktelow J. & Carlson A. (2011). 5 Whys – Quickly getting to the root of a problem. Mind Tools

Marx C. (July 20th, 2010). The PESTLE Strategic Marketing Analysis Technique: Compiling the list of External Factors. Yahoo! Voices

Nordmeyer B. (2010). Advantages and Disadvantages of SWOT Analysis. Houston Chronicle.

Paul C (2013). Apple top US smartphone market with Samsung second. TechBeat.

Sondalini M. (2008). Understanding how to use the 5 Whys for Root Cause Analysis. Lifetime Readability Solutions

Wayne (December 18th, 2012). Samsung displaces Nokia as Top Cellphone Brand in 2012 and takes decisive Smartphone lead over Apple.  HIS Supplier

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Pharmaceutical Industry Analysis

Analysis of The Pharmaceutical Industry

Title: Analysis of The Pharmaceutical Industry. The pharmaceutical sector comprises of drug manufacturers, distributors and wholesale companies that handle the production of healthcare products. This industry largely focuses on medical as well as veterinary products, such as vitamins, biological compounds and other chemicals. Moreover, various diagnostic substance and devices are also included in the list of the products produced by these companies. The leading companies on the pharmaceutical sector are called as ‘Big Pharma’ that are responsible to generate almost fifty percent of the total revenue of this industry. The headquarters of these pharmaceutical leaders are mainly located in the west, however with the passage of time, the demand of medications is increasing in the third world countries consequently this drug manufacturing has become fifth most profitable industry in the world that is continuously growing. The following paper will illuminate various spheres of activities in this industry. It will be seen how these companies are surviving in a competitive environment and what it actually takes to become a pharmaceutical manufacturer.


The pharmaceutical industry, as the name indicates is associated with the development, production and marketing of products that are intended to be used as medications. This industry comprises of various pharmaceutical companies that are legally allowed by the government of a country to deal in brand or generic medicines. There are various rules and regulations all over the world that are considered useful to ensure efficacy and safety during the marketing of pharmaceutical products as they are directly associated with the human life. This industry also largely relies on research and development activities and is the largest employer of scientists. Many new medicines are being developed in the world and with the discovery and identification of new drugs the future of pharmaceutical industry is becoming brighter (Michael, 2012).

The aim of this paper is to increase understanding about the global pharmaceutical industry and its role in the healthcare system of a country. It will also be seen how this industry contributes to the economy and what major players are there in the global pharmaceutical industry.

Background and History

The origin and development of pharmaceutical industry dates back to the early days when Greeks, Egyptians, Chinese and Indian people tried plant derived medicines. Morphine, codeine and pilocarpine are some primitive drugs. In 1940’s insulin, antibiotics and psychoactive medicines were brought into the market that received remarkable response from the users. The US first   introduced its food and drug administration act in 1906 and the UK drug regulatory rules were developed after World War I, since then these rules have faced various amendments regarding the marketing and distribution of drugs in these countries. Despite various conflicts between retailers, marketers, consumers and drug inspectors, this industry quickly thrived all over the world (Anderson, 2005).

Literature Review

Henske 2009 sheds light on the current situation of the pharmaceutical industry. He demonstrates that this industry is passing through some major structural changes. A lot of mergers, acquisitions (M&A) are underway in order to ascertain stability and success in the long run. Some major pharmaceutical companies are trying to generate higher revenues with these M&As. Although, bigger size of a company is not the sole reasons for its success but even then some important advantages can be achieved with such joint ventures, because bigger drug manufacturing companies invest more in their research and development procedure that finally allow them to diversify their portfolio (Henske, 2009).

For Instance, in 2003 a prominent acquisition took place between Pfizer and Pharmacia soon after which Guidant bought Johnson & Johnson in $25 billion. These acquisitions greatly helped both of the newly developed companies to enhance their market share in the US market. These companies further elaborated their research and development process.

These joint ventures are also not very uncommon in the UK, for example major companies in various states of the UK have developed after mergers and acquisition amongst two or more than two companies. For example:

  • Merger between SmithKline Beecham and GlaxoWellcome results in GlaxoSmithKline
  • Merger between Aventis and Sanoffi Synthelabo creates Sanoffi Aventis

Grieder undergoes the analysis of the major pharmaceutical players and shows that these are not diversified rather major source of revenue generation for these companies is their pharmaceutical products. Although some companies, such as Johnson and Johnson’s is involved in the production of other goods as well but in majority of the cases pharmaceutical industries have their focus on the manufacturing of consumer’s healthcare products and nutritional products (Grieder, 2007).

Statistical Analysis

Grieder 2007 demonstrates that there are some major players in the pharmaceutical manufacturing that actually dominate this industry globally. Following table shows the position of these industries in terms of sale and revenue generation. The financial data has been gathered from the annual reports of these companies to ease accurate comparison between all these companies; moreover, the data related to pharmaceutical manufacturers working outside the US has been converted into dollars using average currency rates in 2004.

Company Name Headquarter Annual Revenue Total Sales
Johnson and Johnson US                           22,190                              47,230
GlaxoSmithKline US                           23,434                              37,897
Pfizer US                           46,133                              52,506
Sanofi Aventis France                           17,861                              18,711
Novartis Switzerland                           18,497                              28,244
AstraZeneca UK                           21,426                              21,426
Abbott U.S.                           13,600                              19,680
Wyeth U.S.                           13,965                              17,684
Bayer Germany                             5,458                              37,013

Table courtesy: (Grieder, 2007).

The above data also reveals that the headquarters of major pharmaceutical companies lie in the US or other Western countries, such as France and Germany. Only a few international drug manufactures are there in Asia (Grieder, 2007). Following chart shows how these companies rely largely on Western markets for maximum profit generation.

Research and Development

Research and development activities are essential for the success of pharmaceutical companies and major players in this area put great focus on the development of new products. This phenomenon is not very simple because it needs a lot of hard work and investment from Big Pharma companies. Sometimes research process involving one or two drugs needs many years, moreover the investment of resources remains unclear until the end of the process that also involves the approval of newly synthesized drug for marketing, therefore, it can be said that rate of success is highly unpredictable in the pharmaceutical industry (Noack, 2007).

According to a report, it takes almost fifteen to twenty years for a company to develop a new pharmaceutical product and only one out of thousands of pharmaceutical products discovered by research teams become medically useful. Moreover, the introduction of these products into the market involves many legal issues (National Science Foundation, 2001).

Growth Perspectives

The drug manufacturing industry promises appropriate healthcare for the citizens of a country and in turn, these people directly or indirectly aid in the growth and development of pharmaceutical industry. The life expectancy is increasing in some developed countries of the world after which the population of these countries is becoming older and grayer. All these elderly people are buyers of life maintaining drugs and continuously demand the healthcare products sold by these Big Phrama companies.

Along with that, some countries of the world including various states of the US are going to introduce their new drug sale act (Drug improvement and modernization act) after which elderly people of these states will be able to have their access to some medicines that were previously unavailable for them. As a result their drug coverage will increase and the sale of relevant pharmaceutical products will also enhance (Aronovitz, 2005).

Situation in developing countries

The above literature review suggests that major pharmaceutical companies have their headquarters in developed countries of the world, but recently some pharmaceutical companies in developing countries have also shown prominent improvements in their research and development activities, after which it can be said that these companies have significant potential for future growth. Increasing solvency of population in Asian, South American and East European economies is making these countries very attractive for investment. However, further reformations in the rules and regulations regarding drug sale and patent protection are required in order to ensure safe and trial free business (Blumberg, 1999).

Pharmaceutical Industry
Pharmaceutical Industry

Despite being an attractive business, the pharmaceutical sector needs a lot of efforts from individuals who are involved in it. Opportunities are limitless but issues are also there that should be taken into account by the management before planning final strategies of their companies. In this regard the management needs to consider some key challenges that are there for them before taking the plunge into this sector, these challenges will be discussed one by one the following paragraphs:

Price Control Issue

The pharmaceutical sector needs to work in a highly regulated culture, although details are different but this culture is almost same all over the world. One important aspect of these rules is price control issue. For example in the U.S. Medication Protection and Modernization Act has resulted in severe price reduction pressure over this industry after which it becomes difficult for companies to support their research and development activities. This downwards pressure on prices is also very prominent in other countries such as Japan, France and Germany. Drug prices are subjected to strict review and they are solely controlled by the government (Lott, 2007).


The pharmaceutical industry currently operates in a very competitive environment. New rivals are merging for Big Pharma companies and this competition covers almost all segments of pharmaceutical marketing. Moreover, research oriented pharmaceutical companies also face severe competition from generic manufacturing companies. The price of generic manufacturers is much lower than that of their research oriented counterparts; finally they successfully achieve greater market shares (Roth, 2009).

Patent Protection

Research oriented companies can only be saved in a highly competitive environment by the introduction of patent protection rules and regulations because generic drug manufacturers start production of a patent protected analogue before a patent expires, consequently R&D companies face enormous financial loss.


The pharmaceutical industry has been an attractive business place for entrepreneurs and also for people involved in research and development activities, however, now the situation is changing fast. Immense competition is there for Maga Pharmas from generic manufactures and other healthcare companies that are involved in the production of pharmaceuticals. Therefore it must be stated that this industry sounds easy and attractive but must be difficult involving great risks. Companies that want to survive should keep a strong eye on the current market scenario in order to avoid loss and ensure maximum growth, moreover, mergers and acquisitions also turn out to be helpful for some companies because they augment their growth opportunities in the global pharmaceutical industry.


Anderson S., 2005, Making Medicines, Pharmaceutical Press.

Aronovitz G. L., 2005, Medicare Contracting Reform, DIANE Publishing.

Blumberg, 1999, Pharmaceutical Industry in developing countries, Conference Summary.

CPPR, Pharmaceutical Research centre, National science foundation.

Grieder K., 2007, Big Fix, Public Affairs.

Harper, 2002, Patent protection in pharmaceutical Industry,

Henske P., 2009, Mega Mergers cannot cure pharmaceutical industry, Business Week.

Lott R. J., 2007, Freedomnomics, Regnery Publications.

Michael J., 2012, The pharmaceutical industry, Michigan State University.

Noack A., 2007, Research and Development in pharmaceutical Industry, GRIN.

Roth T., 2009, Drug makers paying off to competitors, TPM Links.

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