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Issue dated - 21st November 2002

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Corporate Scan

Why companies fail to sustain their success?

Companies should adopt strategies according to the present and future requirements of the market. This alone can enable them to among the topline, says R K Srivastava

The Indian pharma industry is a vibrant segment. It has made the nation proud due to its innovative, imaginative approach to be competitive and provide drugs at reasonably affordable price. However, success of several companies has taken a beating due to severe competition. Though to be among the top league in pharma industry is appreciable, the rat race has left several companies fall into oblivion. Under such situation marketers, CEOs and managers need to be on their toes. Their ability to succeed gets reflected in such crucial moments. Table I gives the analysis of 15 years follow-up of pharma companies:

Glaxo has been the numero uno pharma company since 1986 or may be even earlier, while Cipla, Ranbaxy hold the number 2 and 3 positions. Further down, the rankings have undergone several changes. Torrent, Lupin, Wockhardt and other vibrant companies of the nineties no longer feature among the top five. Similarly, at present only three MNCs rank among the top 10 compared to five in 1986. Moreover, Pfizer, Knoll, Novartis which were steady companies have failed to make their mark. Alembic, another old-timer do not hold much influence in the market. It is interesting to note that these top notch companies have failed to sustain their success. Even in US the downfall of companies like Enron, Lucent, WorldCom, K Mart Cisco, Tyco etc are some of the recent examples.

Table I : Rank analysis of top ten pharma companies since 1986

An indepth analysis revealed that several drawbacks in the companies’ functioning have led to their downfall. These include:

Absence of marketing audit: Marketing audit helps to review all the activities of the company and gives a new direction for future. This tool enables the company to see beyond the four walls and become more progressive. It enables them to identify the ‘danger zone’ or the path which can only bring destruction to the company. Unfortunately, many companies overlook this major point.

Marketing arrogance: Success brings arrogance and people tend to be more complacent. They continue to live in the past with no willingness to change. This mindset hinders people from adopting and accepting new ideas. Failure rate has gone up because they still insist on applying out-dated marketing techniques which are not applicable in today’s environment. Today the marketing profile and customer profile both have undergone dramatic changes. The expectations of the customer, too, have changed. This approach has led to failure as rightly reflected in new product launches. Many MNCs could not achieve the same amount of success like they did in the earlier times.

Failure to achieve enough sales from new products requires a rethinking. There is a need for a change in the mindset of people and greater dissemination of information within the company. Very often CEOs fail to get adequate information which could have abled them to take instant decisions. According to Daniel Goleman, a psychologist, subordinates are afraid to tell the truth as bosses, basking in their past glory, do not want to listen.

Hence, it is advisable to reorient self by asking people to:

  • Become more accountable
  • Become more open
  • Not to fear boss every time
  • Not to be ‘yes-man’ always
  • Keep company first, person latter

It is easier said than done. However, if proper attempt is made then something can be achieved. This brings more degree of professionalism with a flair for enterpreneurship. Success leads to complacent behaviour and organisation becomes lethargic and bureaucratic.

Lack of pace in marketing

Table II : New product contribution analysis - MNC vs Indian sector

Success has its own demerits. It can make or mar any organisation. Sustaining success demands taking hard decisions about the company’s future plans and it cannot be postponed. This requires aggressiveness in marketing. The lack of aggressiveness very often leads to: relying on old methods; banking on same product mix without upgradation or change of product mix. This could be one of the main reasons for companies to underperform. An analysis has clearly indicated such a trend.

While Fortune magazine in its May 2002 issue highlights the same reason for failure of certain US companies, this is applicable for Indian companies too.

Similarly, the dominant segment has shown the decline and companies have failed to enter segments which are vibrant. Timely decision or pace in marketing is a must for survival and growth. Ranbaxy has shown lower growth which is mainly attributed to sluggish market segment and not much success was achieved from new products.

Lack of product introductions:

In today’s environment new products serve two purposes:

  • Increases volume sales leading to better growth
  • Improves profit and gives an edge compared to others leading to better ranking. However, new products are not introduced in the proper perspective. It appears companies have adopted shooting in the dark policy. There are no sincere efforts to build a brand from a multi crore product. This has led to failure of many products though companies did get a respite from multiple new products in production.
Table III: Impact of a new product on overall growth

However, new products have really helped many companies. Cipla could retain No. 2 position and narrow the gap between them and Glaxo due to new products. Sun Pharma, Zydus Cadila, Dr Reddy’s Lab have realised that new products are the backbone for “growth.” Failure to follow the path of success led Torrent to go down for some years. Since 2001, Torrent too has become active as seen by their success in 2001 and 2002. Alkem too is another example. Alkem has overtaken Aristo and is ranked among top ten companies today. It is all due to consistent policy of new product introductions.

However, product introduction alone cannot determine success of a company. Even leading companies with massive field coverage, resource availability are not able to register better sales. (See Table IV)

The reasons for failure are not far to seek. Today, new products are launched like ‘trading material’ without a proper marketing approach. New product introduction is not as easy as it is presumed. In view of lack of efforts in applying appropriate marketing tools, success rate is low. This has also led to deterioration as marketing effectiveness and importance are replaced by ‘trade activities.’

Many successful companies did not give importance to new products leading to their stunted growth, loss in market share and increasing threat to their ranking or even slipping down in the market. Torrent is the typical example

In fact, Torrent and Zydus Cadila have zoomed their ranking and growth through new products introduction. Till 1999 they were slipping.

A true successful marketing company always realises their problems in time and take corrective measures accordingly. Failure to do so can lead to company’s downfall. Therefore, market coverage too is important to emerge successful. Failure to reach market after initial success have also led to failure of many companies.

Trained field force: A large field force has many advantages and lead to success of a company. Glaxo with a large field force continued to be the No 1. Companies cannot become big players if they cannot cover almost all the doctors. To cover at least 90 per cent of doctors a company may require a minimum of 1500-1800 representatives. The numbers will go up with the setting up of more hospital/nursing homes and more medical colleges opening up.

Table IV : Effectiveness of New Product Launch of different companies

Cipla, Ranbaxy, Glaxo, Cadila, Pfizer after the merger, have the advantages of reaching top 5 positions due to large number of medical representatives. This cannot be attributed to Aventis, Novartis, Fulford, Knoll, Alkem, Torrent etc.

As company progresses, coverage should be expanded too. Many times this is a neglected area. To top it all, training is the most neglected aspect in many successful companies which have failed or not doing well. Training is considered to be liability and an unwanted expenditure rather than as an asset. When this feeling percolates down, then it leads to downward trend for the company.

Training brings the right work culture among people. Many reps would like to sell exclusive products and not sell ‘me too’ products. This lack of ‘killer instinct’ has let down many companies under competition and pressure. A proper strategy coupled with total involvement of people keeps the successful company going up.

Lack of innovation on a continuous basis: Innovation is the key to success. Only innovative companies can get succeed. Many MNCs like Wyeth, Fulford, Knoll, Novartis have slided down due to lack of continuous thrust on innovations.

Country-specific policy: MNCs should adopt country-specific policy not the same strategy all over the world. India is culturally different with different customer insight and perceptions. A proper understanding will lead to continuous innovations in pricing policy. Pfizer made the biggest blunder with Amlodipine and paid the price. Pricing has to be innovative depending upon the per capita consumption and earning power. This awareness equipped with competent marketing personnel can take the company to greater heights.

Change of competent heads: Many times when competent head leaves or retires, second in line is not trained enough to take over the company. Torrent, Intas, Wockhardt, Glaxo, Ranbaxy etc had to face difficulties after change in key posts. Professionalism is an paramount aspect to a company’s success. Many companies have slided down due to immature managers at the helm of affairs. Experienced and mature managers are needed to run organisations efficiently. Wisdom, experience, taking right decisions on time comes with lot of working knowledge. Mere professional qualification does not guarantee success. This could be reason for failure as many managers are immature and lack experience in running the organisation as they are too young.

Other reasons which lead to company’s downfall are:

  • Rising cost with low productivity
  • Wrong product selection
  • Faulty distribution network
  • Wrong strategy development
  • Wrong acquisition or blunder committed in marketing etc.

The pharma industry will witness a lot of changes in the coming years. The companies have to change their line of policy and approach on a continuous basis. It was predicted in 1998 that Pfizer, Novartis will not remain in top ten companies. It is true that customer focus will be the key for survival today but tomorrow it could be customer insight and understanding. Therefore, if marketing does not gear up to meet the challenges it is likely that many companies will go down further. Only competent persons and companies will succeed.

The writer is Mumbai-based marketing consultant

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