1st Nov 2011
Today, Sun Pharma stood full pager on Economic Times. It is not difficult to understand, why the most valued Indian Pharma company is way ahead of its competitors, although its revenues are not the highest.
There have been regular full page coverage on industry leaders (including Pharma) in various business magazines, but this article stands apart, for it depicts exactly why Sun is different and why it is the way it is.
Pharma continues to be a high margin business. When gross margins in business is over 50%, there is a normal tendency to excessively rely on exploiting clients, product portfolio, geographical expansion and regulatory framework, and build shameless complacency in operational effectiveness. Additionally, given the advantage of cost structure in India, you got to be taking things for granted and become careless.
Sun is doing something different that gives it cost advantage also, and not the other way. It is not wasting its effort, diluting its attention or creating self-inflicting uncertainty. And even though Sun’s Gross margins has been over 70%, (Gross margins=Sales- material cost), it has not allowed dilution of its focus and discipline to operate the business effectively and efficiently.
Sun is an extremely focused company. It knows that the market is big enough. While competitors have been chasing every opportunity and the obvious directions (antibiotics and easy to make drugs in India), Sun chose to be different (building competencies in chronic diseases). It adopted blue ocean strategy, choosing exactly where it could add significant value (instead of risking its money all over world). It did not try to imitate competitors.
In the words of its Chairman and Managing Director, Shanghvi, “We compete with ourselves”. He knows that you do not need to compete with others, when the market is big enough. Also, if you try to compete with others, you would only be where they are and, when things change you would be lost. Though, competing with yourself, is not a stage that you could build quickly and easily. The ability to come to this enviable level, where you can compete with yourselves, is dependent on consciously building capabilities that are different and far superior to others.
Sun in one Pharma company that has developed the ability to crack complex molecules, the area that is often left by others, who took easier route for harvesting patent cliff and gambled their efforts in opaque and risky ventures. And thus it has developed an ability and a confidence to do business on its own terms. Today it is considered an example in ‘business excellence’, that has created a huge organic growth potential within. Even look at its acquisitions, it did not go blindly to access full global markets. Nor did it go with the sole objective of buying companies to gain foreign foothold and transfer products back to India for low cost manufacturing. Rather, it bought a series of poorly performing organizations, and turned them around by placing its own operating system. This is a rare capability that hardly any other competitor in Pharma industry has.
Also when Shanghvi says, “We do not want the process of growth to be stressful,” people look at his approach not just as a personal habit but a strong organizational belief that it has experienced working year after year.
Sometimes or may be often, people feel that he is conservative and not so aggressive. Actually, it is not about being conservative or aggressive. It is about being aggressive when you need to be and conservative when you need to be. Leaders and organizations often put their aggressive bets where they should not and succumb to grave undesirable effects.
Now take the case of Shanghvi. When he says ‘growth without stress’, he is talking about the ‘commitment’ that one makes to the stakeholders (market, clients, employees included). The commitment should not be out of over enthusiasm, nor with a view of short term gains, nor to lock customer with aggressive promises, nor promising hyperbolic story to analyst to spike up valuation. It actually means to being closer to reality and giving certainty to your stakeholders.
Of course, he has his eyes firmly on bottom line and cost. He means business and he is certain what he can deliver. He is not conservative because he does not often follow the crowd and conventional wisdom. But he certainly follows a rare discipline. He knows that the market is big enough, not just for one company like his, but for several. And therefore, he does not follow the conventional wisdom to try to grab everything available. He is disciplined enough to identify just a few Blue Ocean opportunities and pursue them with rigor. His pursuit for Taro and Coraco is an indication of this. He is very aggressive. Of course, taking sick organizations and turning them around is not conservatism, rather it calls for significant aggression in ‘Execution’. For that matter Sun’s unassailable position as a speciality Pharma company is attributed to this focused approach and aggressive execution. Of course, specialty comes from expertise and from inception, Sun has made focused effort in developing generics in specialty areas, and created ability to crack difficult to mimic generics based on complex technologies.
Shanghvi has a wide portfolio of products and has a remarkable pipeline of new product filings in US. But he is not relying on any one of these, when it comes to promise. Just because he has a huge war chest, he does not go to war and acquire things blindly. He does not want to add numbers just for the sake of a position in the market place.
He is promising on ‘execution’ and ‘operational’ capability of his people. He is relying on the capability to work with complex molecules and the ability to lead in specialized therapeutics. He is relying on ability of his team to transform performance of his existing plants and any new acquisition. He is relying on the deep inroads he has made within India and the alliances he is building with distributors in the US. Most importantly, he is looking to unleash significant capacity organically.
In today’s time where Pharma industry is at cross roads especially because of growing complexity of blockbuster R&D model, onslaught of Innovators into generic space, tightening control of government and regulators, shifting customer base and the fading Sales Centric model; it becomes important for organizations to make execution and operation excellence central to their business model. Sun’s ability to respond faster to change comes from the ability to turn things around quickly; whether within existing organization or in an acquired one. Shanghvi has shown that his team has perhaps significant edge over others. And aspiring to be the Teva of India, is only for it to aim for. And the reason… his discipline to choose stress free growth… by bringing aggression where required. We call it focused execution and now look forward to tracking remarkable growth path of Sun.
But how do we go about achieving operational excellence and building the rigor of execution culture. ‘The Path – Leveraging Operations in a Complex and Chaotic World’ presents the insider story of pharma organization. Here are the links:
eBook:
https://www.smashwords.com/books/view/325264
print (international):
https://www.createspace.com/4194640
print (india)
http://www.flipkart.com/path-leveraging-operations-complex-chaotic-world/p/itmdh2mfxfhjrxzn