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Abbott started all the way back in 1888, when physician and drug store owner Dr. Wallace C.
Abbott started making his own scientifically formulated medications with the goal of improving
patient care. The company has paid 371 consecutive quarterly dividends, without interruption.
That is a 92-year streak of consistent dividends. The rich history and solid returns garners
attention to assess the key assets or capabilities that Abbott has been utilizing to have such a
competitive advantage. This article lays down the current situation of pharmaceutical sector
and will assess Abbott both historical and contemporary perspective.
A breakthrough molecule in a pharmas pipeline can bring hope and assure financial results to
patients and shareholders, respectively.
In the last decade or so many pharma companies have launched proprietary drugs that are
bringing hope to patients and providing assured financial results to its shareholders.
The expectation from pharma companies has always been to discover and launch blockbuster
drugs through creating completmentary marketing and operational proficiencies
But the blockbuster drug era has come to an end, where the looming patent cliff will erode the
profits generated through exclusivity and introduction of generics would create an alternatives.
However, there is a still plenty of unmet needs that are still need to accomplish.
In addition pharma companies still go through regulatory challenges
Employers pushing back on the prescription drug costs
The risk to award ratio is declining
Declining P/E valuation
Can pharma companies survive or grow in the present condition
Some companies have expanded to into different therapeutics or to different sectors altogether
(diagnostics, biosimilars or wellness).
Most of the companies have invested in the small biotech companies and some of them have
also expired in a hope to bring a next blockbuster drug in house without taking risks to create
one by itself.
Pharma companies in the history of any industry type have the most divergent strategies right
now, which itself has brought diminishing homogeneity.
The unsual state of change would for the first time in the legacy of pharma companies has
created a mask of uncertainity that even companies dont know which direction they are
heading
To survive and perhaps thrive in this unpredictable future, pharmaceutical companies
need to make some bets about the way the future of the industry will unfold
HENCE - strategic bets, which mesh with the companies key capabilities systems the things
each company does with distinction that provide its competitive advantage.
The pharma companies has went through both deterministic or stochastic approaches to design
strategy
For examples in IBM case study they went from developing or selling giant main frames with
PC computer changing everything. Some companies could not see the next wave of upcoming
industry change and some such as IBM were able to put the bets on the right horse ie.
Consulting services.
After years of steady and predictable growth, the pharmaceutical industry is entering a
stochastic period of its own.
Abbott created its own niche pharmaceuticals and biologics be controlled by abbvie and
abbott taking the lead on medical devices or services and nutrition and wellness
Bets designed to position the company for success in one or more specific business scenarios,
that are either aligned with the companys existing key capabilities systems or that include a
plan for developing or acquiring other capabilities that will be needed for success.
This is still the common mind-set in the industry, and the underlying assumption that
business units should be managed separately, and their individual profits maximized makes
perfect sense in a deterministic environment. But in a stochastic environment, in which no
company can know how the future will evolve, we believe this stand-alone pieces-of-a-portfolio
approach is insufficient to position a company to adapt successfully. However, if these
businesses are not linked with the core pharmaceutical business, they wont help the company
prepare, or reposition itself, for the future. In such cases, it may make sense to split the
successful independent business from the core pharmaceutical operation to realize the created
value, as Abbott recently decided to do, splitting its drugs and medical products businesses into
separate publicly traded companies.
The hypothesis might be that disease management will gradually have less to do with
prescription drugs and physician oversight, instead becoming more the responsibility of the
patient. the company may want to have a consumer healthcare business not necessarily for
the stand-alone profits the business can generate, but in the belief that a consumer healthcare
unit will become an essential partner with pharmaceuticals in a changing disease-management
landscape.
Another scenario might be that diagnostics will be among the essential pieces of the
pharmaceutical tool kit in the future, a way of identifying patients who can be helped by
particular drugs. Collaboration between different business units is essential such as followed by
J&J.
In other words, the bets should leverage the companys capabilities system, made up of the
three to six activities that truly differentiate the company and allow it to compete effectively
both in the market position it has staked out and with the products and services in its portfolio.
In our experience, companies that exhibit a high degree of coherence in these three elements
(their capabilities system, market positioning, and product/service portfolio)
world-class system for communicating with doctors, for example, would want to make sure that
its strategic bets take advantage of that capability. (as it might if the strategic bet were a
nutrition line optimized for the needs of cancer patients). If a strategic bet suggests that new
capabilities will be needed, they should be developed or acquired in such a way that the
companys overall capability system remains coherent.
First option is innovation The company would rapidly develop and launch many new types of
snacks and foods, packaged in new and interesting ways, offering leading-edge nutrition and
convenience.
Under the second option, the company would get closer to its customers, producing the food
people ask for. It could incorporate ideas gathered online into its offerings and provide busy
working families with customizable, convenient, and well-balanced meals.
The third option would involve transforming the dynamics of the relevant food sectors by
competing more aggressively. The company would become a category leader by investing in
new process technology, rightsizing operations to push costs down, and completing key
acquisitions.
But among these three strategies which one gives Abbott the greatest strength. Ofcourse,
combination of different rightly executed strategies leads to sustainable growth, but theres
always one or 2 key differentiator that makes that company a business leader.
A key differentiation for a company is transient, in regards to dynamic macro factors such as
regulations/policies or new entrants with advance technology. As key competitors either mimic
or surpass a businesss proficiencies, the importance of key decisions becomes more important.
As traditional indigenous companies in developing nations are becoming more global and
efficient, this has created threats for companies such as Abbott.
But expecting an abrupt change especially in a organization with heritage is tough. The culture,
brand perception, outreach and operational processes cant be changed easil or quickly
But companies such as Abbott has able to gradually and thoroughly changed its identity with
time to continue with competitive advantage. Nonetheless, it has been proven in business
world that companies with lot of pride accepting or executing a change has either been sluggish
or completely ignored.
Although this stickiness can be a problem but quite often it can also work as a blessing. The rich
repertoire of capabilities or assents with an excellent corporate culture can distinguish a firm.
The corporate identity attracts not just right customers but also suppliers, investors and
employees. Abbotts unwavering capacity of not so much influenced by the trends (buying new
small biotechs or merging with bigger ones) rather creating capabilities-driven strategies with a
coherence between different business offerings.
Realization of what not to do pulling back financial help from pharmaceuticals to nutrition
and diagnostics.
Within its international business, Abbott has placed particular focus on emerging markets. This
is a good strategy, since health care spending and economic growth in under-developed regions
is likely to exceed that in developed markets like the U.S. and Europe.
In addition to its geographic focus, the other major growth catalyst for Abbott is its product
focus. Abbott has positioned its product portfolio specifically to capitalize on the aging global
population. Abbotts nutrition business is its largest operating segment, and for good reason.
Brand portfolio and diversification are the two key segments for Abbotts to have a competitive
advantage
The company was still profitable during recession
Less reliability on the blockbuster drugs as compared to other pharma companies in the
industry