November 24, 2006

Expanding Expansion

The goal of every manager is to develop a company that is capable to effectively compete against the other companies within the industry. Managers can manipulate their practices and employees to have the most successful and efficient company possible. What happens when your company becomes too successful and grows too quickly? If the company expands faster than the management anticipates then the management will run into a whole new set of problems. A problem some of the best companies have is the fact that they are too big and they stretched themselves to the point where some areas of the company will become lost. MGMT 250 stresses the importance of strong management in an expanding company and how to deal with the changes that a dynamic environment forces onto the company. Every article we have read in the class, whether it was business ethics, training priorities, or even motivating employees, supports the idea that the role of a manager has to be thoroughly understood.

What Do You Do When The Unexpected Happens?

Our group just received the results from the 6th Quarter HR Simulation in our MGMT 250 class, and we were rather surprised with the results. It turns out that our productivity decreased immensely, not because we didn't have sufficient training methods, but because we had too many employees. How does this work? I would think the more employees hired, the more work would get done. However, in a world with limited space and responsibilities, employees are restricted to the production parameters that they are given. In other words, if you need to produce 50 bottles of Ambesol (a common oral numbing medicine) and each employee can produce 10 bottles an hour, it would be most beneficial to hire 5 employees. If you hire any more than that, the production of each employee will be limited to how many need to be produced. Ten employees will only produce five bottles each not because they aren’t as efficient as the average employee, but why should they produce 10 bottles when the goal is only 5? It also could be due to limited space. An office that holds 100 people will be overcrowded if 120 employees are working, creating bottlenecks within the workplace and therefore decreasing production.

November 16, 2006

Executive Compensation: Why the best should be paid the best

The drama with Enron and World Communications in 2001, unveiled a cover on the travesty of exuberant executive compensation existing universally throughout large corporations within the financial industry. According to the article, "Getting a Grip on Executive Compensation" by Eric Krell (an article read within out MGMT 250 class), it was proven that in the financial services industry, CEO's were being paid an average of $11,936,000 a year. At the same time, the average employees of those companies were being paid less than .5% of that amount. In the pharmaceutical industry, the executive compensation average is a lot less (averaging around $1 million).

Although there are some exceptions to that norm: William C. Steere, Jr., Pfizer's Chairman, who made $40.2 million and C.A. Heimbold, Jr., Bristol-Myers Squibb's Chairman and CEO, who held $227.9 million including stock options. I think everyone would agree that this is way too much for any person to be paid for any job. However, most people would be horrified at what these men are doing, while I respect what they are doing and I think they are playing the game perfectly. The objective of a CEO is: to effectively produce a product, keep the company running efficiently, and to ensure the happiness of the consumers and employees.

From a Business Prospective:
These CEO's have accomplished all those goals, with enough money left over. If the employees are working efficiently at the wages they are being paid, then there is no reason to pay them any more money. These CEO's have also played the supply and demand model to an exact science. They are aware that their products are at an extremely high demand, so they can charge a colossal amount. As long as the consumers pay for it, they can charge it. They are maximizing their profits just like every single businessman tries to do, except they are doing it better and more efficient and are getting criticized for doing it. Don't fault the CEO; fault the non-competitive industry that allows this business practice to exist.

Brand Yourself: its all about image

In MGMT 250, there is an article entitled; "Brand Yourself" that discusses a man named Tavis Smiley. He talks about many steps that people can take to make themselves an active participant in the company they are in. I found that the steps he uses to market himself and his talents can also be used to market a product. A pharmaceutical company can use these steps to effectively create and distribute a product to the public.

STEP 1: FIND YOUR NICHE
Find the group of people that will most likely use the product. Selling Viagra to 16-30 year olds will probably not be very effective because not to many of those people will have the need for the product.

STEP 2: IS YOUR BRAND MARKETABLE?
Is it a product that people would actually want to buy? If it looks to be useless, then it probably is. However, if you have a drug that people might really have the need for, then you can move to the next step.

STEP 3: SEEK PROFESSIONAL HELP
Normally the drug company itself doesn't market their own products. Instead they hire a professional marketing/advertising company that is skilled enough to effectively create an image for the market.

STEP 4: PROMOTION, PROMOTION, PROMOTION
Doctors use it, patients use it, friends use it, and everybody (that should use it) is using it! Once you create the perception that this drug is being used by everyone, the fear of it will diminish. Once the fear of it is gone, people usually have no problem spending money on something that will improve their health.

STEP 5: BRANCHING YOUR BRAND
Extend the product to as many places possible. For a drug product, there is a large sunk cost, but small variable costs. The more products you sell, the faster you will be able to cover the fixed costs.

STEP 6: GOING BEYOND THE BRAND
Many drug products offer other related products. They figure since they already have the trust of the consumer, then that trust can be converted to more sales. A cholesterol reducing drug might offer other drugs that strengthen the walls of the arteries or increase cardiovascular circulation.

Why Any Feedback Is Good

When developing a product, it is necessary that all the flaws the product has are sorted out before it reaches the market. Any large imperfection that still exists once the product is being used by the public could create a large financial burden for that company. In a technology industry, you commonly hear about a recall occurring; where they simply announce a defect with the product and they provide a replacement at no cost. However, in the pharmaceutical industry, you can't recall the medicine already given out. If the medicine was ingested and there is a problem with it, then the damage will have already been done, and the company will face lawsuits (probably class action lawsuits). In MGMT 250, we focus on receiving feedback and how to manage the criticism. A drug company would prefer to have negative feedback while the drug is still in development, that way they don't have to incur the large costs commonly found from a lawsuit. Any feedback is great feedback for them because information is power. They know how the drug works, the benefits of it, and also the side effects. With this knowledge, they can provide almost perfect knowledge to the consumer so it can benefit them, while at the same time protecting the company as well.

November 10, 2006

Which Do you Prefer: Long or Short?

In case you were confused with the title, this is referring to goal setting again. In class, we were told to write down a bunch of our long-term goals on note cards and analyze them. I noticed that any of those long term goals, for me, seemed almost unreachable at this point in my life. It was almost overwhelming. I put on one of the cards that I wanted to be a CEO, which one day I would like to be a CEO of a Pharmaceutical company, but that would be of an example of a goal that I wouldn't even strive for because it seems to far in the distance. I compare it similar to a connect the dots puzzle. You have to have a long term goal in mind, but you set very many short term goals one after the other until eventually, it creates a picture. This picture is your long term goal, and all the tiny dots along the way showed you what you had to accomplish to make that picture. So for me, I would prefer to have short term goals.

Morale or Productivity?

The goal of every company around the world is to become the most efficient in that industry. There are so many factors in business that are out of a manager's control, but efficiency is something that can be addressed and controlled. In order to have an efficient company, the manager has to be able to increase morale and productivity. There are other types of efficiency (like cost efficiency), but in MGMT 250, we assume that having an efficient company as a whole will reduce the other extraneous factors. Also, through the HR simulation we are taught that resources are always limited. Given that a manager has limited resources, should he focus those resources to improve the productivity of the company, or the morale? If he pushes to much productivity, then the company will lose morale and efficiency and will collapse. An example of this was back in the 1980's, Steve Jobs, CEO of Apple computer Systems, was working on a computer known as the Macintosh. This computer was supposed to revolutionize the computer industry, but ended up failing to a dominant IBM computer because the programmers and developers were pushed too hard and they fell behind. If you concentrate too much on improving morale, then again the company will be unfocused and will not succeed either. So the purpose of this post is to state the fact that there needs to be an appropriate balance between morale and productivity if efficiency needs to increase.