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Transcript of Project Ranbaxy
2 | P a g e Ranbaxy Laboratories Ltd., India.
Table of Contents
1. Introduction..........................................................................................................................................4
1.1 Mission, Vission and aspirations.......................................................................................................5
1.2 Growth of Ranbaxy............................................................................................................................6
2. Organizational Structure.......................................................................................................................7
3. Core – competency.............................................................................................................................11
4. Life at Ranbaxy..................................................................................................................................11
5. Culture at Ranbaxy.............................................................................................................................12
6. Business Model..................................................................................................................................13
7. Factors leading to growth...................................................................................................................13
7.1. Focus on Differentiated Products................................................................................................13
7.2. R&D in Ranbaxy.........................................................................................................................15
7.3. First – Mover Advantage............................................................................................................15
7.4. Information Security and Information synergy...........................................................................16
7.5. Acquisitions................................................................................................................................17
7.6. Agreements and collaboration....................................................................................................17
8. Corporate Social Responsibility.........................................................................................................18
9. Decline of Ranbaxy............................................................................................................................20
10. Analysis of the decline....................................................................................................................21
11. Weitzel and Jonsson’s Model of Organizational Decline...............................................................23
12. SWOT Analysis..............................................................................................................................24
12.1. Strengths........................................................................................................................................24
12.2. Weaknesses...................................................................................................................................24
12.3. Opportunities.................................................................................................................................24
Group A2 Organizational Theory Design and Change
3 | P a g e Ranbaxy Laboratories Ltd., India.
12.4. Threats...........................................................................................................................................24
12.5. Top Competitors...........................................................................................................................25
13. References.......................................................................................................................................25
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4 | P a g e Ranbaxy Laboratories Ltd., India.
1. Introduction
Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a distributor for a Japanese company
Shionogi. The name Ranbaxy is a portmanteau word from the names of its first owners Ranbir and
Gurbax. Gurbax Singh had taken a loan from Bhai Mohan Singh’s finance company Bhai Traders and
Financiers Pvt. Ltd, but was unable to repay the money and transferred ownership of his company
instead. Bhai Mohan Singh bought the company in 1952 from his cousins Ranbir Singh and Gurbax
Singh. Bhai Mohan Singh started off by selling imported drugs. In 1956, India banned the import of
finished pharma products and Ranbaxy opened a manufacturing plant in Okhla. That office is now with
Bhai Mohan Singh’s youngest son Analjit Singh (the promoter of the Max group of companies). After
Bhai Mohan Singh's son Parvinder Singh joined the company in 1967, the company saw a significant
transformation in its business and scale. It was Parvinder’s vision that Ranbaxy invest in both R&D as
well as manufacturing in order to survive. In 1973, Ranbaxy went in for a public issue “to bankroll the
(R&D) project and raised Rs 70 lakh from the market. And in 1977, Davinder Singh Brar joined
Ranbaxy. The duo—Parvinder Singh and Brar—are widely credited with turning around Ranbaxy’s
fortunes. Parvinder’s son, Malvinder Mohan Singh took over as the CEO in 2006. Both sons Malvinder
Mohan Singh and Shivinder Mohan Singh sold the company to the Japanese company Daiichi Sankyo in
June 2008.
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1.1 Mission, Vission and aspirations
Group A2 Organizational Theory Design and Change
Values of Ranbaxy
Customer Satisfaction High quality products Enhance wealth of share holders
Practice dignity and equity Foster mutually beneficial relationship Be responsible corporate citizen
6 | P a g e Ranbaxy Laboratories Ltd., India.
In 1993, Ranbaxy adopted its Mission – a goal that explained why the organization exists and what it is
to be doing. Aspirations define the official goals that act as guiding principles for the organization.
Ranbaxy defines above some of its terminal values which reflect a desired end state that the
organization wishes to achieve.
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7 | P a g e Ranbaxy Laboratories Ltd., India.
1.2 Growth of Ranbaxy
Year Significance1961 Company Incorporated
1973* Ranbaxy goes public* Multipurpose chemical plant set up in Mohali for manufacture of APIs
77 First JV in Lagos (Nigeria) is setup
85* Ranbaxy Research Foundation is established.* Stancare, Ranbaxy's second pharmaceutical marketing div. Starts functioning
87 Production start-up at modern APIs plant at Toansa (Punjab)88 Toansa plant gets US FDA approval90 First US patent granted – Doxycyline91 New facility at Mohali92 Agreement with Eli Lily of USA to set up JV in India to market Eli Lily's products
93* Agreement to set up JV in China - Guangzhou China Ltd* Enunciates corporate mission - to become a research based international Pharmaceutical Co.
94
* New Research Centre at Gurgaon* Registered HQ in UK & USA* Fermentation plant Paonta Sahib is commissioned* GDR listed in Luxembourgh Stock Exchange
95 Acquisition of Ohm Labs. Inc. – US
97RLL crossed sales T/O of Rs 10,000 million * Exports reached all time high - Rs 5000 million
98 Enters world's largest pharma market – US with Products under its own name
2000* Acquires Bayer's Generics business in Germany* Forays into Brazil. Largest pharma market in S America
2001New manufacturing facility in VietnamRanbaxy USA crosses sales of $ 100 mn - fastest growing co. in US
2003* Economics Times award for Corporate Excellence - The Co. of the Year 2002-03* Ranbaxy & GSK enter into global alliance for drug discovery and dev.
2004Acquires Aventis and starts ops in France* Elite club of Billion Dollar Cos.
2005Launches Ops in CanadaThird R&D facility in Gurgaon
2006
Acquisition in S AfricaAcquires GSK Businesses in Italy & SpainAcquisition in RomaniaStrategic alliance with zenotech in global markets
2008Redefines business model - Daiichi Sankyo as majority partner to create strategic combination of an Innovator & Generic Powerhouse
2009 Reconstitution of Executive leadership after Sankyo takeover
Group A2 Organizational Theory Design and Change
Board of Directors
Independent Director
Non Executive & Independent Director
Chief Executive Officer & Managing Director
Independent Director
Non Executive &Non Independent Director
Shareholders
Executive Committee
Mr. Ramesh L. AdigePresident, Corporate Affairs &
Global Corporate Communications
Mr. David BriskmanChief Information Officer
Mr. Omesh SethiChief Financial Officer
Mr. Dipak ChattarajPresident, Corporate
Development & Strategy
Dr. Sudarshan K. AroraPresident, R&D (Generics,
NDDS & Drug Development)
Dr. T G ChandrashekharVice President, Global Quality
& Analytical Research
Mr. Bhagwat YagnikHead – Global Human
Resources
Mr. Arun SawhneyPresident, API GBU, Global Manufacturing & Supply
Chain
8 | P a g e Ranbaxy Laboratories Ltd., India.
2. Organizational Structure
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9 | P a g e Ranbaxy Laboratories Ltd., India.
BOARD OF DIRECTORS
Dr. Tsutomu Une
Chairman Non Executive & Non independent Director.
Dr. Tsutomu Une was inducted as a Director on the Board of Ranbaxy Laboratories
Limited on December 19, 2008 and appointed as Chairman on May 24, 2009. Dr. Une joined Daiichi
Pharmaceutical Company Limited (Daiichi), Japan in April 1970 and has held many important
managerial positions. He was inducted on the Board of Daiichi in June 1999 and subsequently served as
Managing Director for various functions during October 2002 to June 2006, when he was promoted as
Senior Managing Director, Global Corporate Strategy of Daiichi. Dr. Une was inducted as Director in
the Board of Daiichi Sankyo Company Limited in September 2005 and has been a Member of the
Board, Senior Executive Officer, Global Corporate Strategy of Daiichi Sankyo since April 2007. Dr.
Une is a graduate from Hokkaido University School of Veterinary Medicine and holds Ph.D. in
Microbiology.
Mr. Atul Sobti
Chief Executive Officer & Managing Director
In his current role he is responsible for the global business operations of the Company
encompassing pharmaceuticals, consumer healthcare, API, manufacturing and R&D. Prior to joining
Ranbaxy, he spent seven years at Hero Honda and left them as the Executive Director, Sales, Marketing,
Finance and HR. 30 years of his career spans over diverse industries such as durables, information
technology, services, automobiles and now pharmaceuticals. Mr. Sobti joined Ranbaxy in October 2005,
as the President, India, Middle East, Asia Pacific and the Global Consumer Healthcare business and was
elevated to Chief Operating Officer in January 2007. An alumnus of the Indian Institute of Management,
Ahmedabad, Mr. Sobti completed his graduation in Economics (Hons) from St. Stephens College,
University of Delhi.
Group A2 Organizational Theory Design and Change
10 | P a g e Ranbaxy Laboratories Ltd., India.
Mr. Takashi Shoda
Non Executive & Non Independent Director
Mr. Takashi Shoda was inducted as a Director on the Board of Ranbaxy Laboratories
Limited on December 19, 2008. Mr. Shoda graduated from Faculty of Pharmacy, Tokyo University in
March 1972 and immediately joined Sankyo Company Limited, Japan (“Sankyo”), where he held
various important positions mainly in the international operations group. In June, 2001 he was elected as
Director of the Board of Sankyo and concurrently assumed the position of General Manager,
International Pharmaceutical Division. He was then promoted to Managing Director in the following
year and in June 2003 became its President and Representative Director. Mr. Shoda is President and
Chief Executive Officer of Daiichi Sankyo Company Limited since September 28, 2005.
Dr. Anthony H. Wild
Independent Director
Dr. Anthony H. Wild was inducted as a Director on the Board of Ranbaxy Laboratories
Limited on December 19, 2008. He is the co-founder and General Partner of BOWS Pharmaceuticals
AG. Until its acquisition by Meda AB in August 2007, he was the Chairman of the Med Pointe
Pharmaceuticals Inc., having served also as CEO from 2001 to 2006. MedPointe was formed around
2001 by the acquisition of the Carter-Wallace Company by MedPointe Capital Partners LLC, an
investment group founded by Dr. Wild in the year 2000. Between 1995 and 2000, Dr. Wild worked with
Warner-Lambert Company of Morris Plains (NJ) as the Executive Vice President and President of its
Global Pharmaceuticals Sector since 1996 till its acquisition by Pfizer as part of its hostile acquisition in
2000. Mr. Wild graduated in 1968 with an Honors degree in Chemistry from University of York and
also holds a Ph.D. in Physical Chemistry in 1971 from University of Cambridge.
Mr. Rajesh V. Shah
Independent Director
Group A2 Organizational Theory Design and Change
11 | P a g e Ranbaxy Laboratories Ltd., India.
Mr. Rajesh V. Shah was inducted as a Director on the Board of Ranbaxy Laboratories Limited on
December 19, 2008. Mr. Shah is the Co-Chairman and Managing Director of Mukand Ltd., Mumbai. He
has in the past served as an Independent Director on the boards of ONGC Limited and Hindustan
Petroleum Limited. He has also served as President of the CII during 1998-99 and held leadership
positions in the Young Presidents Organization (YPO). Mr. Shah has completed Master of Arts from the
University of Cambridge, UK, Masters in Business Administration from the University of California,
Berkeley and has attended an Executive Management Programme at the Harvard Business School, USA.
Mr. Akihiro Watanabe
Independent Director
Mr. Akhiro Watanabe was inducted as a Director on the Board of the Ranbaxy
Laboratories Limited on December 19, 2008. A founding partner of GCA and the founder
of GCA’s predecessor company, Global Corporate Advisory, Mr. Watanabe has over 25 years
experience in providing M&A advisory services both in Japan and overseas. He has spent 20 years with
KPMG primarily focusing on M&A advisory and M&A transaction related services. He is also a visiting
professor at the Business School at Kobe University and Chuo University as well as at the postgraduate
law school at Hitotsubashi University and a frequent speaker on industry panels related to M&A topics
including cross-border transactions, MBOs and takeover defense strategies. Mr. Watanabe is a Japanese
CPA and a graduate in Commerce and Accounting.
Mr. Percy ShroffNon Executive & Independent Director
Mr. Percy Shroff was inducted as a Director on the Board of Ranbaxy Laboratories
Limited on March 27, 2009. Mr. Shroff is a graduate in Arts from Whittier College,
California. He has an experience of over 20 years in the medical field in Japan and India and was
instrumental in establishing the India offices as well as business operations of Elekta AB, a Swedish
multinational providing advanced clinical solution. Mr. Shroff has held various managerial positions in
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12 | P a g e Ranbaxy Laboratories Ltd., India.
the Elekta Group in India as well as overseas since he joined the company in 1991. In 1997, he was
appointed as Managing Director - India Head of Elekta Instrument India Private Limited.
3. Core – competency
4. Life at Ranbaxy
Group A2 Organizational Theory Design and Change
Low cost, innovative and high quality product flow
Manufacturing Efficien
cies
Aggressive
Marketing
R&DCapabilit
iesHighly competitive
domestic market
Labor
Infrastructure
Global Quality
Standards
Skilled Scientist Pool
- Generics - Innovative Research
Process
ChemistryExpertise
13 | P a g e Ranbaxy Laboratories Ltd., India.
A career at Ranbaxy means an opportunity for ample learning & growth. It offers avenues to work
across the globe alongside the finest minds. The Company offers a challenging assignment, a world
class working environment, professional management, competitive salaries, and stock options along
with exceptional rewards. Group Life Insurance, Medical Insurance and Pension plans are a few
examples of the benefits provided to the employees and their dependents. Stock ownership is a part of
the compensation for the managers early in their career at Ranbaxy: business results reflect straight
away in their pay slip.
Such opportunities, defined career paths and allocation of rewards provide motivation to the
managers and employees to work in the best interests of the company. The flexibility to work across
regions develops the skills of the employee and keeps their motivation level and learning curve high.
It minimizes the need for the employee to look out for better avenues and as such builds a long lasting
team and provides stability to the human resource capital. It also, to some extent, minimizes the
Agency problem. By aligning the goals of the employees with that of the companies by giving them
stock options is a further act in this direction. By allowing people to work across in Ranbaxy’s
different functions (cross- functional teams), they are empowered to direct the value creation
activities necessary to complete different projects.
5. Culture at Ranbaxy
Opportunities have never being a constraint for the deserving. Ranbaxy believe in employee growth that
goes beyond vertical movements and change in designations. Potential and performance are the pillars
of career progression at Ranbaxy. A robust development process supports this. This shows that the
culture at Ranbaxy is highly organic.
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14 | P a g e Ranbaxy Laboratories Ltd., India.
6. Business Model
7. Factors leading to growth
The key to Ranbaxy’s growth lay in the strategic decisions taken by its management from time to time.
These strategies – specific patterns of decisions and actions – helped them achieve a competitive
advantage. It exemplifies how symbiotic interdependencies can be managed and harnessed for the
organization’s benefit, by manipulating the specific and general environmental forces. Ranbaxy’s
main strategy to manage its environmental forces seems to be through forming strategic alliances for
various products and markets. The company has followed an r-strategy i.e. the strategy of entering a
new environment early, and has thus reaped the benefits of being an early entrant in new markets.
7.1. Focus on Differentiated Products
The Company realized the importance of having a versatile product portfolio and thus is focusing on
offering differentiated/value-added new products to the Indian masses. Ranbaxy has accelerated its pace
to bring in new differentiated products in the Indian market to consolidate its leadership position.
Group A2 Organizational Theory Design and Change
Global Reach Developed &
Emerging markets
Product
Portfolio Generics, Branded Gx
Branded, OTC
Innovative
Research NCE, NDDS, Niche FTF
Therapeutic
Width & DepthAcute, Chronic
15 | P a g e Ranbaxy Laboratories Ltd., India.
Ranbaxy is building upon the practice of Related Diversification – entry into a new domain that is
related in some way to an organization’s domain – to gain a competitive advantage.
Examples
1. Rank in Therapy Segments
Over the last few years, Ranbaxy has realigned its domestic operations to the needs of its target
customer groups to have a more focused relationship with the doctors. This is aimed at providing
customer specific quality services surpassing expectations.
By forming relationship with doctors, demonstrates that Ranbaxy manages symbiotic resource
interdependencies by the way of co-optation to manage its specific environment better.
2. Entering into the Oncology Segment
Since Ranbaxy did not have a significant presence in the Oncology segment, it entered into a
strategic alliance with Zenotech Laboratories Ltd (Zenotech Labs) of Hyderabad, India, a
company with a stronghold in this segment.
3. Strengthening Presence in the Asthma Segment
Ranbaxy has entered into an ‘In-licensing’ agreement with Eurodrug Laboratories, the
Netherlands-based Pharma company for the Asthma product Doxophylline – a Novel Xanthine
Bronchodilator. It is a strategic step in the direction of expanding the product portfolio through
differentiated products for the Indian market, in the post-patent era.
4. NCE Products – India Focus
Recently a licensing agreement with a Swissbio-pharmaceutical company, Debiopharm, was
signed for the New Chemical Entity (NCE) Drug in the Gastroenterology segment.
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16 | P a g e Ranbaxy Laboratories Ltd., India.
5. Strengthening Product Basket in New Markets
In Canada, soon after the launch of its products in 2005, Ranbaxy is further expanding its
product portfolio through in-licensing and has already emerged as a pioneer in this area. In mid
2006, Ranbaxy Pharmaceuticals Canada Inc (RPCI) and Janssen-Ortho Inc (JOI) entered into a
licensing and supply agreement for a generic version of Risperidone compressed tablets, sold
underRanbaxy’s label, Ran™ Risperidone.
In-licensing agreement demonstrates that Ranbaxy makes use of the informal strategy of long term
contracts to manage its resource interdependencies.
7.2. R&D in Ranbaxy
NDDR – A Separate Entity Decentralization
Ranbaxy received an in-principle approval from the Board of Directors to de-merge its Drug Discovery
Research (DDR) operation. This is a significant step in creating an independent pathway for DDR with
dedicated resources and enhanced focus for long-term value building. Ranbaxy's state-of-the-art research
infrastructure and scientific talent pool can be more effectively leveraged through an independent
vehicle that better aligns assets with priorities to accelerate the company's drug discovery programs. The
resulting operational freedom and flexibility will also help to open up new growth opportunities, while
providing a platform for increased collaboration.
By the way of decentralization of NDDR, Ranbaxy has promoted flexibility and responsiveness by
allowing the research department to make on the spot decisions. Ranbaxy practices division of labor
and specialization by allocating dedicated resources and creating scientific talent pool to DDR. The
core competency of DDR is to discover new drugs.
7.3. First – Mover Advantage
Ranbaxy saw a great business opportunity in Japan, the world’s second largest pharma market, and
hence entered the market in the year 2002 through a strategic alliance with a mid sized research
pharmaceutical company, Nippon Chemiphar Co, Ltd (NC) of Japan. Ranbaxy acquired a 10% equity
Group A2 Organizational Theory Design and Change
17 | P a g e Ranbaxy Laboratories Ltd., India.
stake in its generic subsidiary Nihon Pharmaceutical Industry Co, Ltd (NPI). The company further
consolidated its presence in Japan by increasing its equity stake in the NPI, from 10% to 50% in 2006
and NPI, thus, became a 50:50 joint venture (JV) between Ranbaxy and NC.
7.4. Information Security and Information synergy
Since early 2006, Information Security (Infosec) has been a priority at Ranbaxy. Dr. Malvinder Mohan
Singh, CEO and MD, Ranbaxy, took the lead to introduce. ‘Operation Safed Sagar’ – an initiative
targeted at protecting the company’s information assets. The program is focused on bringing behavioral
change in people, sensitizing them to the importance of Information Security.
A policy framework called the Information Security Management System (ISMS) has been introduced
and Standard Operating Procedures (SOPs) laid down. A verification and validation framework has been
formulated in the ISMS to ensure sustenance of this initiative and eventual assimilation into the
Ranbaxy way. The sensitization process started through a well-crafted communication program
highlighting the risks and the appropriate behavior. Specific policies and procedures have been
introduced. Through concerted efforts of various teams involved in the project, Ranbaxy employees
have gradually understood the importance of Information Security as the rule of CIA, which is
Confidentiality, Integrity and Availability.
Group A2 Organizational Theory Design and Change
Ranbaxy
18 | P a g e Ranbaxy Laboratories Ltd., India.
By using Information security Ranbaxy has demonstrated that is uses IT
To make critical information accessible to employees.
To facilitate beliefs norms and values of Ranbaxy.
To enhance motivational effects of cultural values.
7.5. Acquisitions
Acquisitions in a row
June 2005 Efarmes in Spain
March 2006 Senetek in the US
March 2006 Allen in Italy
March 2006 Terapia inRomania
March 2006 Ethimed in Belgium
July 2006 Mundogen in Spain
Sep 2006 Cardinal Drugs in India
Dec 2006 Be-Tabs in South Africa
In the year of 2007 alone, Ranbaxy made an acquisition of 13 established and well recognized brands of
the dermatology segment from Bristol-Myers Squibb in the US.
Thus Ranbaxy has aggressively adopted merger and takeover strategy for growth in newer markets.
7.6. Agreements and collaboration
7.6.1. Agreement with GSK Extended
Ranbaxy extended its strategic R&D alliance with GlaxoSmithKline (GSK), established in 2003, to
provide Ranbaxy expanded drug development responsibilities and further financial opportunities.
Ranbaxy’s role, which was to conduct the optimization chemistry required to progress drug leads to the
stage of candidate selection, enlarges to advance leads beyond candidate selection, to completion of
Group A2 Organizational Theory Design and Change
19 | P a g e Ranbaxy Laboratories Ltd., India.
clinical proof of concept. GSK thereafter will conduct further clinical development for each program
and take resulting products through the regulatory approval process to final commercialization.
By forming strategic alliance with its competitor, GSK, Ranbaxy has demonstrated that it uses
strategic alliance to manage its competitive interdependencies.
7.6.2. Collaborating with DST
In another development, Ranbaxy entered into a collaborative agreement with the Department of
Science & Technology (DST), Government of India, in the area of New Drug Discovery Research
(NDDR). Under the agreement, DST will provide financial support by way of soft loans to Ranbaxy, for
two NDDR programs in the therapeutic areas of Anti-infectives and Inflammation. The funding will
enable Ranbaxy to conduct the preclinical toxicity studies/safety studies of the Company's NCEs in
these areas and take the molecules up to human Phase-I clinical trials.
On the basis of its strong fundamentals of innovation, entrepreneurship and aggressive marketing,
Ranbaxy has carved a formidable position at home and a growing footprint in the global pharma
market. The Company has displayed all the qualities of a nimble, agile and a dynamic organization
that has made balanced and strategic alliances in the developed as well as the emerging markets. The
company has been able to tackle many of the environmental uncertainties by way of collaboration,
innovation and alliances.
8. Corporate Social Responsibility
An essential component of Ranbaxy’s corporate social responsibility is to take care of the
community.
Based on the theme ‘Health for All’, Ranbaxy set up ‘Ranbaxy Rural Development Trust’ in
1978; later re-christened as Ranbaxy Community Health Care Society (RCHS) in 1994.
Group A2 Organizational Theory Design and Change
20 | P a g e Ranbaxy Laboratories Ltd., India.
Provides a blend of curative, preventive and health promoting services amply supported by
laboratory services covering areas of maternal child health, family planning, adolescent health,
reproductive health and education.
AIDS awareness and counselling is also a priority component of the programme.
Established very meaningful and useful partnerships with the Government, Medical Colleges,
NGO’s , Educational Institutions, Confederation of Indian Industry (CII) and other likeminded
agencies which has helped RCHS to broaden its scope of services.
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21 | P a g e Ranbaxy Laboratories Ltd., India.
9. Decline of Ranbaxy
The problems at Ranbaxy started with the sudden resignation of its CEO Mr. D.S Brar in 2004, under
whose leadership, Ranbaxy had witnessed some of its best years. Ranbaxy had grown rapidly in the late
1990s and the early 2000s. Its revenue grew from Rs.1, 560 crore in 1999 to Rs.3, 614 crore in 2004.
The company became a regular in the list of top 10 companies on the Bombay Stock Exchange (BSE) in
terms of market capitalization. Mr. Brar had long been involved in the progress of the company, and his
resignation, under unpleasant and unclear terms raised apprehensions among the share holders. Mr.D.S
Brar was replaced by Mr. Brian Tempest, who had previously been regional director (Europe,
Commonwealth of independent states and Africa), but was however just warming the seat for the next
CEO Dr.Malvinder Singh who was just 33 yrs old.
In September, 2008 the U.S. Food and Drug Administration (FDA) banned imports of more than 30
generic drugs made in India by Ranbaxy Laboratories Ltd. In banning the generic drugs’ importation,
the FDA cited safety concerns over Ranbaxy’s production practices at two facilities, namely, Dewas and
Paonta Sahib. However, the problems at the Ranbaxy facilities relate to the audit of the firm’s drug
manufacturing processes, and not to the specific failure of any Ranbaxy product to meet its required
specifications or to reports of human illness due to a manufacturing problem with Ranbaxy products.
Ranbaxy is also the focus of a separate criminal investigation into whether it submitted fraudulent data
to the FDA that allowed sale of substandard drugs. The import ban affects generic versions of several
popular medicines, including the anti-cholesterol drug Zocor; Acyclovir, which treats herpes; the
heartburn pill Zantac; and AIDS drugs. Because these drugs can be supplied by other generic drug
manufacturers, the FDA does not expect a medicine shortage.
In light of all these developments, Ranbaxy’s Quarterly showed dismal returns. In the three months
ended 31 December 2008, the firm, reported a net loss of Rs.680 crores, compared with a net profit of
Rs.188 crores in year-ago quarter. The company was acquired by Japan’s Daiichi Sankyo Co. Ltd in
November 2008. The CEO Dr. Malvinder Singh attributed the unprecedented forex volatility following
unforeseen global financial crisis and almost 25% dollar-rupee movement for the losses. In the previous
quarter, Ranbaxy had lost Rs.395 crores on account of a loss on currency hedges and a one-time
inventory writedown caused by the ban imposed in September by the US Food and Drugs
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22 | P a g e Ranbaxy Laboratories Ltd., India.
Administration (FDA) on products made at its two plants in Dewas, Madhya Pradesh, and Paonta Sahib,
Himachal Pradesh.
The profit margin analysis of the quarters is shown below:
2006 2007 2008 2009
-1200
-1000
-800
-600
-400
-200
0
200
400
600
800
Profit
Profit
10. Analysis of the decline
1) Ethical stance taken by the organization and the behavior of top managers strongly influences the
organizational culture. As the company received warnings for submitting improper documents
and falsification of documents it exposes lack of ethical culture in the organization, in case of
Ranbaxy, failure to come out with sufficient justification even after receiving several warning
letters exposes the fact that a ethical stance was not taken by the organization.
As we know developing a good reputation reduces transaction cost, i.e. cost of interacting with
external environment, as FDA issued warning letters to Ranbaxy it led to the fall of reputation of
the company. This resulted in sudden decline of stock prices which led to huge losses for the
company in the fourth quarter of 2008.
2) The other major factor which led to the decline was the growth in the organization was
influenced by kinship more than the technical competence and the efficiency. Mr. Brar was one
Group A2 Organizational Theory Design and Change
23 | P a g e Ranbaxy Laboratories Ltd., India.
of the most successful president of Ranbaxy. After he had taken over from Mr. Parvinder Singh,
Ranbaxy had grown from strength to strength with increasing market shares and Entry in to new
markets, but his resignation under dubious circumstances followed by a brief transition period
tenure of Mr. Brian Tempest and appointment of Dr. Malvinder Singh as the CEO emphasized
that importance was given more to kinship rather than effectiveness of the person. If the family
members do not have the strategic and organizational skills, it is better to hand over the complete
running of the company to professional managers. In fact, the Ranbaxy story is one where such
an event did happen. Yet, family interference and control got the better of this process and the
case is a classic one of failure of transition to professional management.
This emphasizes Weber’s second principle of bureaucracy, which states that if in an
organization, family relationships are given priority rather than technical competence; it can
be harmful for the growth of the organization, which is evident in this case.
3) As Ranbaxy grew and extended its operations into many countries and other variety of drugs the
complexity of the external environment increased and it was not an easy task to have control
over the external environment, the changes in external environment had a great influence on the
decline of Ranbaxy for example
a) Increase in competition for generic drugs and developed countries increasing the life
cycle of patented drugs which resulted in decrease in demand for generic drugs.
b) Increased regulation on generic drugs in the developed countries like USA which led
to FDA imposing regulations on Ranbaxy, this increased stringent measures had a severe effect
on several drugs manufactured by Ranbaxy.
The fluctuation in value of dollar was also a major factor, due to decline in dollar value the
company which had invested money in terms of dollars suddenly had to encounter decrease in its
cash balance.
These factors signify how interconnectivity between forces in the external environment increases
complexity. As the regulations were imposed by FDA, the stock prices fell so it was very
difficult to control the external environment.
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24 | P a g e Ranbaxy Laboratories Ltd., India.
This led to lack of control of Ranbaxy over its external environment and the company’s top
management was not able to device strategies to control external environment which finally led
to Acquisition of Ranbaxy by Daaichi, Japan based Drug manufacturer
11. Weitzel and Jonsson’s Model of Organizational Decline
Stage 1: Blinded
In this stage, the organization is unable to recognize the internal or external problems that threaten
their long term survival. In the case of Ranbaxy, the management failed to recognize the threat in the
form Of the stringent regulations governing the entry of generic drugs in developed countries like
USA etc.This led to them receiving warning letters by FDA, early in 2006, for not complying with
their regulations.
Stage 2: Inaction
Despite receiving a warning letter in January of 2006 and tabulating a response in which corrections
to the stability data previously submitted to the agency in several abbreviated new drug applications
(ANDAs) were included. It also included corrected stability test reports for various medicines, and
showed instances where stability test dates that previously had been submitted to the applications were
false. In some cases stability testing was conducted several months later than the dates reported in the
applications. However the management failed to learn the lesson and did not implement the changes
in the process to ensure proper documentation of all the processes involved which led to auditing
problems in checks by FDA in 2008. Prompt action at this stage by management would have
prevented the decline.
Stage 3: Crisis
The company faced FDA import bans on various products manufactured at two of its facilities in
India leading to a fall in the value of its share. The company faces huge losses to the tune of 1044
crores in 2008.This also precipitated a change in the management of the company by the parent
company daaichi sankyo. This essentially forms the effective reorganization needed to prevent the
decline.
Group A2 Organizational Theory Design and Change
25 | P a g e Ranbaxy Laboratories Ltd., India.
12. SWOT Analysis
12.1. Strengths
1. Strategic Alliances – GSK and Merck.
2. Differentiated Product Offering – Generics, Branded Gx, Branded, OTC. Broad product
portfolio imparting revenue stability.
3. Patents.
4. Strong presence in diverse geographies insulating business risks.
5. Aggressive Marketing.
6. Manufacturing Efficiencies – Labour, Infrastructure and Global Quality Standards.
7. R&D capabilities – skilled scientist pool, research across Generics as well as Innovative
Research (NCE, NDDS, Niche FTF), and Process Chemistry Expertise.
8. Low cost innovation and high quality product flow.
9. Strong CSR programs contributing to a positive reputation in the industry.
12.2. Weaknesses
1. High Cost structure related to manufacturing, R&D and distribution.
2. Lack of ethical culture, proven when Ranbaxy submitted improper and falsified documents to
USFDA.
3. Legal and Compliance issues with its manufacturing facilities at Dewas and Paonta Sahib in
India.
4. Tarnishing reputation in the industry because of the above two issues.
5. Nepotism in the organization – high degree of family interference and control.
12.3. Opportunities
1. Untapped high-growth emerging markets.
2. Ageing world population can act as a fundamental growth driver by providing increase in
demand for medicines.
3. Possible leverage on Daiichi Sankhyo’s strengths.
12.4. Threats
1. High entry barriers – technology and resource intensive.
2. Productivity under pressure – saturated developed markets.
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26 | P a g e Ranbaxy Laboratories Ltd., India.
3. Disruptive Technologies challenging established portfolios.
4. Increased regulations on Generic Drugs in developed countries like USA.
5. Unpredictable dollar rate fluctuation.
12.5. Top Competitors
The following companies are the major competitors of Ranbaxy Laboratories Limited
1. Dr. Reddy's Laboratories Limited
2. Abbott India
3. Morepen Laboratories
4. Kopran
5. Sun Pharmaceuticals Industries Ltd
6. Nicholas Piramal India Ltd
7. Novartis India Limited
8. GlaxoSmithKline Pharmaceuticals (India) Limited
9. IPCA Laboratories Ltd.
13. References
Ranbaxy – Annual Report
Ranbaxy World
http://www.ranbaxy.com
http://www.livemint.com
http://www.thehindubusinessline.com
http://www.dnaindia.com
Group A2 Organizational Theory Design and Change