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Case Study

Novartis: Corporate Strategy

Novartis AG is a Gloal leader in Pharma and Consumer Health. Novartis has leading businesses in growing healthcare segments - pharmaceuticals, eye care, generics, vaccines & diagnostics and consumer health. The Company has about 70,000 employees and consists of five businesses operating in 140 countries. Novartiss strategy is to progress towards pure healthcare offerings with pharmaceuticals as the core business. Novartis has planned for reorganization by creating Business Units within the companys Pharma business with an aim to build blockbuster brands without losing the core capability of discovering, developing and successfully selling speciality products.

Business statistics
Presently for Novartis business, Pharma provides 60% of revenue and is 80% operating income, Consumer Health provides 22% of revenue and is 12% of operating income, Generics provide 7% of revenue and is 3% of operating income, CIBA Vision gives 7% of revenue and is 2% of operating income and Animal Health provide 4% of revenue and 3% of operating income.

Corporate Strategy
Novartis' long-term strategy is to grow in a dynamically changing healthcare environment. Cornerstone of Novartis strategy is focus on innovation through most productive R&D program in the industry. Diversified healthcare portfolio addresses key unmet needs including prevention, innovative pharmaceuticals, low cost quality medicines and selfmedication providing potential for sustainable growth. The company's focused healthcare portfolio across key growth segments in healthcare provides Novartis a leading position in the respective market segments. Novartis has leading businesses in fast growing segments of healthcare, and by focusing on the strategic priorities the Company is well positioned to succeed in a rapidly changing healthcare environment. Novartis is concentrating on the core strategy of focused diversification in high-growth healthcare segments. The Company is leveraging the core competencies in scientific discovery and development to continue driving innovation, growth and productivity across the businesses. While healthcare is expected to remain a growth industry well into the future, it also is a rapidly and dramatically changing environment, creating new opportunities and challenges. However, downward pricing pressures and healthcare reforms will also force companies to adapt their approach to reimbursement and build broader portfolios that can deliver on diverse healthcare needs. The execution of the strategy is built on four elements; firstly the diversified healthcare portfolio provides a robust growth platform through focus on key healthcare growth sectors - Pharmaceuticals, Eye Care, Sandoz, Consumer Health and Vaccines and Diagnostics; Novartis' industry leading innovation has generated an "innovation premium" to market

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growth and this is expected to continue with the current pipeline; a greater emphasis on productivity should generate improved profitability leading to strong cash flow returns. Cash flow is expected to drive re-investment for future growth and shareholder returns. Novartis expects to invest in innovation at the high end of the industry at a time when peers are cutting spending in research and development. In addition, the Group plans to strengthen its commercial position in fast growing markets and develop significant businesses in those markets. The company expects to continue investments to scale up its businesses for long-term growth, and plans to do so through freeing up working capital as well as increase productivity which will provide the basis to reinvest into innovation and gain greater operating leverage. The reorganization strategy will help in productivity improvements across business areas to drive cash flow and help to further sustain operating leverage and will also drive greater value creation. As the organization regroups under various Business Units, it will help in creating a more customer centric approach, leveraging resources and portfolios crossdivisionally through key account management and co-promotion of products to better meet the needs of the customers and driving increased value for Novartis. Further, efficiencies are also expected through process simplification and system standardization across the general and administrative areas. The various Business Unit Heads can be more focused on their specific strengths, weaknesses, opportunities and threats. By further leveraging the group scale crossdivisionally and implementing global category Centers of Excellence under the different BUs, Novartis can free up further resources for re-investment into its pipeline and can also increase cash flow and shareholder return.

Novartis should reorganize its pharmaceutical business to form global business units in oncology, transplantation, ophthalmology, and mature products. The remaining primary care products can continue to be managed within global functions (e.g., R&D and marketing). The new organization will create a matrix structure and new roles and responsibilities for heads of business functions, CEOs of new business units, and country managers operating in over 100 countries. This will be the ideal strategic direction for a Global major like Novartis.


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