Problems with Performance Management in Bangladeshi Pharmaceutical Industry: Analytical Essay

Introduction

Over the last decade there has been a worldwide movement towards the implementation of performance management in both the public and private sectors. Performance management targets planned performance along with the improvement that needs to be achieved overtime. It is important for both organizations and individuals working in them and is best viewed as the development of these individuals who are working towards the achievement of shared meaningful objectives of the organization. Performance management system is a systematic way of measuring the performance of employees, through which the organization aligns their mission, goals and objectives. It also follows an integrated and goal oriented approach to assign, assess, train, and reward employees’ performance. However if its not conducted properly, they can give an inaccurate result about the performance of the employees which in turn affects the overall performance of the organization. Due to this reason the appraisers also need to be trained properly so that they can ensure the maximum effectiveness of this continuous process.

Employee performance management includes – planning, monitoring, developing, rating and rewarding. In effective organizations, managers and employees practice good performance management regularly by executing each key component process well. Goals are set and work is planned routinely. The progress that is made toward those goals is measured followed by giving employees the feedback. High standards are set, but it is also kept in mind that they are made achievable and the proper skills are taught through training needed to achieve them. Lastly both formal and informal rewards are given to recognize the behaviour and results that help in the accomplishment of the organizational goal. Therefore all five component processes work together while also supporting each other to achieve an effective performance management system.

The pharmaceutical industry in Bangladesh is one of the most developed sectors within Bangladesh. The two companies that we will be analysing in this report are:

• Square Pharmaceutical Ltd.
• Novartis (Bangladesh) Ltd.

Square Pharmaceutical is the local company whereas Novartis Pharmaceutical is the MNC. Square pharma is the flagship company of Square Group which has been holding a strong leadership position in the pharmaceutical industry of Bangladesh since 1985. They have been the market leader for the last 32 years. On the other hand Novartis provides healthcare solutions. The Company is a multinational group of companies specializing in research, development, manufacturing and marketing of a variety of healthcare products. Their portfolio focuses on science-based healthcare sectors that are growing rapidly while rewarding innovation and enhancing the lives of patients. The performance and appraisal management system in Square Pharmaceuticals Company is a planned system. They use different management tools for establishing their performance and appraisals management. For Novartis, they measure employee performance following three methods of performance appraisal – MBO, 360 degree feedback and SMART.

Problems with PMS Application in Bangladeshi Pharmaceutical Industry

In case of performance management application in Bangladesh, there is some evidence that shows performance management concepts are not being practiced properly in all organizations yet. Performance management system is not just about ticking the right boxes on a form. The concept of performance management is neither sufficiently well understood nor appreciated in most of the organizations in our country. In most cases current practice involves an old style of performance management system being followed which is highly bureaucratic and follows an hierarchical system with inadequate management expertise. The rigid hierarchical structures that exist in most organizations is also a reason for this situation. Performance management system is likely to be seen as a threat, facing resistance, at all levels of an organization and a reason for this is the absence of high level of technical capacity and transparency. In most of the organizations, it is a confrontational, one way communication done by the management or a formal interview carried out to take disciplinary action.

The broad objective of this study is to find out the overall situation regarding the practices of the performance management processes of the two selected companies in the pharmaceutical industry in Bangladesh.

The specific objectives of this report are:

• To identify the level of practicing the performance management system in the selected companies.
• To identify whether the practice of performance management system varies across these two companies.
• To provide some suggestions which could be used as contribution regarding managerial perspective for improving the management system of these two selected companies.

Company Overview

Square

Square company was founded in 1958 where it started its journey leading to today’s present state as one of the top line conglomerates in Bangladesh. It was converted into a public limited company in 1991 and listed with the stock exchange in 1995. Square Pharmaceuticals Ltd., the flagship company, has held a strong leadership position in the pharmaceutical industry of Bangladesh since 1985 and is now on its way to becoming a high performance global player. The turnover of Square pharma was Taka 45.88 Billion (US$ 540 million) with about 16.95% market share and a growth rate of approximately 8.52% from July 2017 to June 2018. Square Pharmaceuticals Limited has extended its range of services towards the highway of global market. It pioneered exports of medicines from Bangladesh in 1987 and has been exporting antibiotics and other pharmaceutical products since then. Present export market covers 42 countries. This extension in business and services has proved the credibility of Square Pharmaceuticals Limited.

Novartis

Novartis was created in 1996 as a result of the merger between Ciba-Geigy and Sandoz Laboratories, both of which are well known Swiss companies with years of experience. Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland. Novartis (Bangladesh) Limited researches, develops, manufactures, and markets pharmaceutical products. It operates as a subsidiary of Novartis AG. It is one of the largest healthcare companies in the world. Novartis produces medications for many diseases with cancer and cardiovascular medications making up the bulk of sales. Novartis is different from other major pharmaceutical companies as it also has a strong presence in the generic market with Sandoz being one of the largest generic manufacturer under a major pharmaceutical company. This investment in the generic market helps Novartis to be partially insulated from patent expiration. The Pharmaceuticals Division of Novartis is recognized worldwide for the innovative medicines provided to patients, physicians and healthcare organizations. The products are concentrated in major therapeutic areas: Cardiovascular and Metabolism, Oncology and Hematology, Neuroscience and Ophthalmics (NSO), Respiratory, Immunology and Infectious Diseases (IID).

SWOT Analysis

SWOT analysis conducts the external and internal analysis of a business. The acronym SWOT stands for strengths, weaknesses, opportunities and threats. This analysis may help to develop strategies for Square and Novartis pharmaceutical companies.

Square Pharmaceuticals Limited

SWOT Analysis of Square Pharmaceuticals

Strengths Weaknesses

• Good reputation with strong brand image
• Large customer base
• Product development capabilities
• Visible presence in the market • Some product prices are quite high
• Low investments in innovative R & D work
• Lack of latest or modern technology

Opportunities Threats

• Intensive Government support
• Global market
• Growing export potential • Growing competitors in this industry
• Innovative products offered by other companies
• Export efforts hampered by procedural hurdles in BD

Strengths

As one of the oldest companies in Bangladesh, Square pharma has developed a strong brand image in the pharmaceutical industry. They also have a large customer base and to support that base they developed the capabilities to produce different types of generic medicines. On the other hand they have the largest market share in this industry which shows a strong existence of Square Pharmaceuticals in the market.

Weaknesses

They have been using relatively older technology to manufacture medicines. Pharmaceuticals industry is a knowledge-based industry and due to this the entrepreneurs should be well aware of the necessity for research and development. However they do not spend as much as they should in this department which is necessary for innovation and to stay in league with the competitors. Some of their product prices are also quite high and one reason for this is the increase in price of raw materials.

Opportunities

The pharmaceutical industry of Bangladesh is growing day by day and the government is giving intensive support toward its future growth as it contributes to the GDP growth. This industry is also entering the global market. Along with this Square pharma’s share is increasing as well in the global market. On the other hand Bangladesh offers significant manufacturing cost advantages due to the lower cost of labour as it is 3 to 4 times lower than that of China and India. Due to this Bangladesh has huge potential to export pharmaceuticals products which is yet to be fully tapped.

Threats

As the industry is being supported by the government while also having a positive environment for growth, the competition is gradually increasing. Also competitors are offering innovative products. The customs authority of Bangladesh imposes a lot of restrictions in sending drug samples to the importing countries. However it without sufficient drug samples, no foreign buyers will be interested to buy our products.

Novartis (Bangladesh) Limited

SWOT Analysis of Novartis Pharmaceuticals

Strengths Weaknesses

• Ensures high quality products
• Highly skilled management team
• Innovative and unique product lines
• High quality customer service • Quite expensive raw materials leading to relatively higher costs
• Narrow product lines
• Lack of proper awareness regarding their products in the market

Opportunities Threats

• Scope to improve in export oriented products
• Transferring technological know-how to new products
• Global company reputation • Strong local competition
• Unfavorable regulations for pharmaceutical exports
• Negative country image

Strengths

Novartis provides high quality products as the quality of medicine that we get from them is identical with all other countries in other parts of the world. Since Novartis Pharma specializes in patent products, the products invented here is innovative and unique. They are also well known for recruiting highly skilled management, who are responsible for the success of this company. Novartis also has a separate division of customer care service who always keeps the current conditions of the customers updated and tries to provide them maximum service based on their medicines.

Weaknesses

Most of the raw materials Novartis uses to produce medicine are imported from abroad due to which the cost of purchasing raw material gets quite high causing the impact to fall on the products’ price. In spite of producing high quality products, Novartis does not have the same level of awareness regarding their products in the market, like Square and Beximco who have created a significant place in the mind of the customers. Another problem of Novartis is, its product line is narrow compared to that of their competitors. They create patent products which has higher price but at the same time variety is less. Hence other companies get the advantage of this.

Opportunities

They can transfer their technological know how to produce new products. Also their reputation of being a global company can put them at an advantageous position as they produce excellent quality products everywhere. Lastly there is high potential for export activities in this industry, as has been mentioned earlier, which can be achieved with the help of the Government.

Threats

As has been mentioned earlier, the local competition is very strong in this market. On the other hand Bangladesh bank permits to remit maximum 30,000 USD in a year which is hampering the export activities. Some small scale companies in our country are still producing drugs which are not up to the standard and this is damaging the overall image of Bangladeshi products to the international community. We don’t have a modern, well equipped Drug Testing Laboratory (DTL) with sufficient and skilled pharmaceutical scientists. Due to lack of this, our drug control authority cannot monitor the quality of drugs manufactured by different pharmaceutical companies in Bangladesh.

Industry Analysis

The pharmaceutical industry in Bangladesh is one of the most developed sectors within Bangladesh. After the promulgation of Drug Control Ordinance in 1982, the development of this sector was accelerated. The professional knowledge, thoughts and innovative ideas of the pharmacists working in this sector are the key factors for this development. During the last two decades the pharmaceutical industry of Bangladesh has been taken to newer heights. This sector provides 98% of the total medicinal requirement of the local market. The industry also exports medicines to global markets, including countries like Europe. Pharmaceutical companies are expanding their business with the aim to expand the export market. In the first quarter of 2018, the market size of pharmaceutical products in Bangladesh was $2.35 billion and year-on-year growth rate was 8%. Per capita consumption of medicine was about $15.36.

Company Name Market Share Annual Sales (in crore)

Square 16.95% Tk 3476.25

Save your time!
We can take care of your essay

• Proper editing and formatting
• Free revision, title page, and bibliography
• Flexible prices and money-back guarantee

Place Order

Incepta 11.08% Tk 2272.99

Beximco 8.26% Tk 1694.26

Renata 5.20% Tk 1066.43

Health Care 5.17% Tk 1061.07

Opsonin 5.08% Tk 1042.53

ACI 4.38% Tk 898.79

Eskayef 4.37% Tk 895.71

Aristopharma 4.11% Tk 842.48

Acme 3.52% Tk 721.66

Figure: Market share and annual sales of 2018 of top 10 pharmaceuticals

According to the Bangladesh Association of Pharmaceutical Industries (BAPI), there has been an upward trend in the domestic market for pharmaceutical products over the past few years, and market size now stands at around Taka 200 billion. In addition, Bangladeshi pharmaceutical products are being exported to atleast 70 countries, and generated over $100 million in the last fiscal year. Out of 31 listed companies in the sector, 24 are listed in the category ‘A’, meaning the companies regularly provide dividends to shareholders. The remaining seven listed firms fall under the categories of B, N, and Z. A recent study by LankaBangla Investment Ltd revealed that local players dominate Bangladesh's pharmaceutical market. The top 10 pharmaceuticals hold 67% of the market share whereas the remaining 194 pharmaceuticals hold only 32% according to IQVIA data. Square Pharmaceuticals holds 16.95% of market share which is the highest market share as shown in the table above. There are about 204 companies in this sector.

The imported drugs mainly include cancer drugs, vaccines for viral diseases, hormones etc. However Bangladesh Pharmaceutical Industry is heading towards self-sufficiency in meeting the local demand. The industry is the second highest contributor to the national exchequer after garments while also being the largest white-collar intensive employment sector of the country. Bangladesh pharmaceutical industry is mainly dominated by domestic manufacturers. Of the total pharmaceutical market of Bangladesh, the local companies are enjoying a market share reaching around 75%, while the MNCs are having a market share of 25%.

Porter’s Five Forces Model

The threat of new entrants: Low

A company that wishes to enter in a pharmaceutical industry requires huge capital expenditure and regulatory permission from the drug authority; which creates a significant barrier to enter in the industry. Furthermore, customer’s loyalty to the drugs of established brands, access to distribution channel creates further barrier. This causes threat of new entrants in the industry significantly low. However creating a strong distribution network would be easier if the producer knows his regional customers or retailer very well and that may in turn make it easier to enter the market for a new entrant.

The threat of substitute product: High

The retail consumer of pharmaceuticals product often switch from one brand to another. There are many substitute brands of single medicine. If consumer does not find one brand, he switches to another brand very quickly. Thus, the threat of substitute product is very high.

The bargaining power of buyers: Very Low

The government strictly maintains the retail price of lifesaving drugs. Pharma companies are free to set up the price of other drugs. Thus they have no choice to take alternative medicine. Bargaining power of customer for pharmaceuticals industry is low in Bangladesh, as patients typically depend on the prescription provided by physicians. NPPA (National Pharmaceuticals Pricing Authority) tries to control the price of all drugs but they cannot do it in that much effective way as the market is very competitive.

The bargaining power of the supplier: High

Bangladesh largely relies on imports for raw materials, in the absence of local active pharmaceuticals ingredients (API). About 95% of the Tk 5,000 crore worth of raw materials needed by the pharmaceutical sector are brought in from abroad – mainly India and China. Concentration of the supplier and high switching cost creates high bargaining power of the supplier. Presently an API Industrial Park is being set up by the Government at Munshiganj, 37 Km from the capital city Dhaka. This commercial operation of API Park in Munshijang will certainly decrease import dependency for raw material. Hence, bargaining power of supplier is expected to decrease in near future.

Rivalry among the exiting competitors: High

The pharmaceuticals market is highly concentrated as the top 20 players dominate the major portion of the market. Every company has similar medicine with different brand names. The companies are competing with each other fiercely in order to grab higher market share. Rivalry among competitors is very intense and the number of firms in the industry is very high compared to other industries in Bangladesh. Some of the firms are using differentiation strategy to modify their product with general competitors’ product while some are using cost leadership strategy to reach the mass population.

Literature Review

Concept of HRM and SHRM

The term HRM stands for Human Resource Management and it explains the implementation of management principles used for managing an organization’s workforce. It is simply the process of managing human resources in a systematic way that maximises the performance of employees and makes them more efficient and productive (Surbhi, 2016). HRM consists of human-oriented activities like recruiting, training and development, performance appraisal, safety and health, industrial relations and so on. It helps to align human resource policies and practices with the strategies of the organization. The functions of a human resource manager include planning, staffing, developing, maintaining, monitoring, managing relationships, evaluating, managing change, etc.

SHRM (Strategic Human Resource Management) is the process of aligning the business strategy with the company’s human resource practices, which includes development of policies, programmes and practices which, therefore, leads to the attainment of strategic goals of an organization (Surbhi, 2016). In this case the workforce of the company is managed proactively. Its primary purpose is to improve the performance of the business and maintain a culture that encourages innovation while working continuously to gain competitive advantage. It lays down a clear corporate strategy and vision for future.

Definition of Performance Management System

Performance management system is a systematic approach, to measure the performance of employees, through which the organization aligns their mission, goals and objectives with the help of available resources and systems to set the priorities of an organization. It also takes an integrated and goal-oriented approach to assign, assess, train, and reward employees’ performance. Through this process the overall performance of an organization can be improved by improving the performance of individuals within a team framework. It is a means for promoting superior performance by communicating expectations, defining roles within a required competence framework and establishing achievable benchmarks. Employee performance management includes (“Definition Of Performance Management”, 2018):

• Planning: Planning refers to setting performance expectations and goals for groups and individuals which will lead to the achievement of organizational objectives. Employees should also be involved in the planning process to understand the goals of the organization.
• Monitoring: Proper monitoring means consistently measuring performance and providing ongoing feedback to employees on their progress toward reaching their goals. Thus its easier to identify unsatisfactory performance during the appraisal period while providing assistance to remedy them immediately instead of waiting till the end of the period.
• Developing: Providing employees with training and developmental opportunities encourages good performance, strengthens job-related skills and competencies, and helps employees to keep up with changes in the workplace.
• Rating: Organizations need to know who their best performers are. Rating means evaluating employee or group performance against the elements and standards in an employee’s performance plan and assigning a summary rating of record.
• Rewarding: Rewarding means recognizing employees for their performance and acknowledging their contributions to the organization’s goals. These can be done formally, informally, positively and negatively. Good performance is recognized constantly without waiting for nominations of formal awards.

Importance of Performance Management System

The term performance management received proper attention in the early 1980’s when total quality management programs were recognized for its importance in the achievement of superior standards and quality performance. Tools such as job design, leadership development, training and reward system received an equal momentum along with the traditional performance appraisal process in the new comprehensive and a much wider framework (Juneja, 2018). Performance management is an ongoing communication process which is carried out between the supervisors and the employees throughout the year.

According to Armstrong and Baron (1998), Performance Management is both a strategic and an integrated approach needed to acheive successful results in organizations by improving the performance and at the same time developing the capabilities of both teams and individuals. Performance management is a much broader and complicated function of HR, as it includes activities such as joint goal setting, continuous progress review and frequent communication, feedback and coaching for improved performance, implementation of employee development programmes and rewarding achievements (Juneja, 2018). A performance management system is important to carry out the following actions:

• Developing clear job descriptions and employee performance plans which includes the key result areas and performance indicators.
• Selection of right kind of employees by following a suitable selection process.
• Negotiating requirements and performance standards for measuring the outcome and overall productivity against the predefined benchmarks.
• Providing continuous coaching and feedback during the performance period.
• Identifying the training and developmental needs by measuring the results achieved against the set standards and enforcing effective development programs for improvement.
• Holding quarterly performance development discussions and evaluating employee performance.
• Designing effective compensation and reward systems to give well deserved recognition to those employees who excel in their jobs.
• Providing the employees with promotional/career development support and guidance.
• Carrying out exit interviews to understand the cause of employee discontentment leading to their exit from the organization.

By establishing clear performance expectations which includes results, actions and behaviours, performance management system helps employees to understand what exactly is expected from their jobs while the setting standards help to eliminate those tasks which are not important. Through regular feedback and coaching, problems can be determined at an early stage and necessary corrective actions can thus be taken (Juneja, 2018).

Linkage of Performance Management with SHRM and Organizational Strategy

Performance Management and SHRM

Strategic HR decisions establish standards for each job role to define its competencies. Then, performance management systems measure employee achievement relative to those competencies. Managers use performance management systems to assess and reward the behaviour of their employees whereas a strategic human resource management function handles the recruiting, interviewing, hiring and development of all personnel needed to achieve organizational goals. The relationship between performance management and strategic planning links day-to-day operations with the company’s vision (Duggan, 2018).

• Setting Organizational Goals: As part of the strategic planning process, an organization defines its goals and objectives. Strategic direction may dictate whether a company maintains research and development spending. This impacts the HR department's ability to attract and retain top talent.
• Defining Personal Development Goals: An individual establishes his personal goals by aligning his development activities to the organization’s needs. Establishing a specific, measurable and attainable goal makes it easier for an employee to achieve his objective.
• Managing Change: In order to ensure an organization’s capability to provide critical services, the entire workforce needs to be assessed against a defined competency model for each role. Managers need to recognize individuals who can act as leaders and help others achieve strategic goals.
• Providing Training: Strategic HR management allows us to recognize the need to offer training and development opportunities which ensures that employees can respond to challenges both in the present and the future.

Performance Management and Organizational Strategy

In a company where hundreds of employees are working in different and diverse departments, employees should develop their individual and team goals while also ensuring that they don’t lose sight of the organization’s overall mission and objectives. The challenge is to align performance management with organizational strategy so that everyone coordinates their individual goals with those of the organization. A performance management system is not only crucial for employee training and development, but for organizational alignment as well (“Aligning Performance Management with Organizational Strategy”, n.d.). It includes:

• Performance Reviews and Goal-Setting: employees can set goals that match with the organizational objectives and review those goals at any time. Managers and executives can easily track the progress of these goals and ensure they are being met on aa regular basis.
• Competencies and Skills Matrix: Managers can use the system to gain insight about their workers' skills and close any gaps that may exist. They can also match the right employee with the right job or task with this.
• Continuous Feedback: Organizations should promote an environment of continuous feedback and coaching of their employees by managers. Managers can communicate with employees about their performance and goals and offer feedback while creating stronger relationships as well.
• Observation Checklist: With this tool the skills of each employee are automatically recorded in real time and their competencies are evaluated. This process eliminates the need for paper-based evaluations.