Organizational Structure in the Pharmaceuticals Industry

Industry Abstract Pfizer and Johnson & Johnson are the largest and most successful pharmaceutical companies in the world today. Each company has a massive workforce and conducts business in countries all over the globe. Both companies have used a high degree of horizontal differentiation in order to manage their business units more effectively. Operating companies are grouped together by their function, as well as the type of product the produce. There are concerns about the lack of control that results from decentralization.The benefits, however, appear to outweigh the risks, as evidenced by the successes enjoyed by Pfizer and Johnson & Johnson. Organizational Structure in the Pharmaceuticals Industry Johnson & Johnson and Pfizer are both pharmaceutical companies that can be found near the top of the Fortune 500 list. Johnson & Johnson was ranked 33 and Pfizer 50 on this year’s list (Fortune 500, 2010). The complexity of this industry requires a very large wor kforce with many specialized roles. More specialized roles in an organization call for more differentiation within the company.There is a great deal of all three types of differentiation within each company: horizontal differentiation, vertical differentiation, and spatial differentiation. This high level of differentiation results in a very complex organizational structure (Nelson & Quick, 2011). Globalization presents significant challenges to all organizations that operate in many different countries. These challenges are typically created by the cultural differences that may exist among the countries in which a company operates. Hofstede believes work-related attitudes are formed by five dimensions of cultural differences.These dimensions are as follows: individualism vs. collectivism, power distance, uncertainty avoidance, masculinity vs. femininity, and time orientation (Nelson & Quick, 2011). It is important for a company to consider these dimensions when developing i ts organizational structure for the global marketplace. Johnson & Johnson owns more than 250 companies located in 57 countries. Each operating company is placed into one of three business segments: consumer health care, medical devices and diagnostics, and pharmaceuticals (Company Structure, 2010).This classification is based on the types of products the company produces. The grouping of subsidiaries in this manner represents horizontal differentiation. Johnson & Johnson gives each operating company a fair amount of control within their environment. This decentralized structure can create concerns about lack of control, but there are benefits as well. As stated above, many of these companies are located outside of the United States. The decentralized structure yields much of the power to the leadership within each company and country, who are more familiar with the environment in which they are working.Furthermore, decentralization provides a great opportunity to develop emp loyees. The leader of a smaller subsidiary may move to a larger sister company if he or she performs well. Innovation can also thrive in a decentralized environment. When people are developing ideas in independent environments, there is greater creativity. Innovation and creativity are paramount in the pharmaceuticals industry (â€Å"Johnson & Johnson CEO,† 2008). Pfizer, like Johnson & Johnson, utilizes a high degree of horizontal differentiation within its organizational structure.Like many companies, Pfizer has gone through several periods of restructuring over the past few years. The latest round of restructuring occurred after Pfizer acquired Wyeth in 2009. Pfizer’s operations can be split into two distinct categories: research and global health care businesses (â€Å"Pfizer Announces,† 2009). After the acquisition, Pfizer formed two separate research organizations. The PharmaTherapeutics Research Group focuses on small molecule research, while the BioTherapeutics Research Group concentrates on large molecules. Within each group, small teams work on specific projects of high potential.This decentralized structure provides sharper focus and less bureaucracy for those working in this critical field (â€Å"Pfizer Announces,† 2009). Upon acquiring Wyeth, Pfizer reorganized its operating companies into two diverse categories: Pfizer BioPharmaceutical Businesses and Pfizer Diversified Businesses. Pfizer BioPharmaceutical Businesses contains five distinct biopharmaceutical businesses: Primary Care, Specialty Care and Vaccines, Emerging Markets, Oncology, and Established Products. Pfizer Diversified Businesses is made up of four unique businesses: Animal Health, Capsugel, Consumer Health, and Nutritional Health.Each of these nine businesses has clear expectations for results from initial product development to the end of the product’s life cycle (â€Å"Pfizer Announces,† 2009). This type of decentralized environme nt provides employees with a sense of pride and ownership in their products. Each business is also able to react more quickly and respond more directly to consumer needs in this decentralized structure (Besthof, 2009). While there are many benefits to a decentralized structure, there are also drawbacks as well. Management often times does not like to yield power and control to others, which may result in micro-managing.There is also concern whether the values and ethical standards of upper management are being practiced by those making criticial decisions. This may be of particular concern for situations in which it is difficult to monitor the activities of those trusted to make these decisions. When working in a global environment, however, the benefits of a decentralized structure certainly appear to outweigh the risks. Nelson and Quick believe the three biggest challenges facing managers today are globalization, diversity, and ethics (2011).All three of these issues are certainly present in the pharmaceuticals industry, and in particular for large global companies such as Pfizer and Johnson & Johnson. Decentralization can be very beneficial for a company operating in a global environment. Managers working daily in that country should be actively involved in decision making, since they are most familiar with the environment. Operating globally can also bring diversity issues to the forefront. These issues can also be aided by decentralization, which allows situations to be addressed by those closest to them. Ethics is a major challenge in the pharmaceuticals industry.In a decentralized structure, upper management must be able to trust that others are doing things the right way. If they are not, the reputation of the entire organization may be damaged by the poor decisions of one person in a relatively minor role. Pfizer and Johnson & Johnson have many similarities in the structure of their organizations. Both companies utilize a high degree of horizo ntal differentiation, some of which is required by their wide range of operations. Each company, however, has also made a commitment to allowing these business units to operate with a high degree of autonomy.ReferencesBesthof, Robert. (2009). Pfizer Makes Push in Ophthalmic Market With Restructuring, R&D Strategy. Ocular Surgery News. Retrieved October 13, 2010, from: http://www. osnsupersite. com/view. aspx? rid=42818 Business Wire. (2009, April 7).Pfizer Announces Operating Structure and Select Senior Leadership Posts to Be Effective Immediately Upon Close of Wyeth Acquisition. Retrieved October 13, 2010, from: http://www. businesswire. com/news/home/20090407005717/en/Pfizer-Announces-Operating-Structure-Select-Senior-Leadership Fortune 500. (2010).Retrieved October 7, 2010, from: http://money. nn. com/magazines/fortune/fortune500/2010/industries/21/index. html Johnson & Johnson. (October 2010).Company Structure. Retrieved October 11, 2010, from: http://www. jnj. com/conne ct/about-jnj/company-structure [email  protected] (2008, June 25).Johnson & Johnson CEO William Weldon: Leadershipin a Decentralized Company. Retrieved October 11, 2010, from: http://knowledge. wharton. upenn. edu/article. cfm? articleid=2003 Nelson, D. L. , & Quick, J. C. (2011).Oranizational behavior: Science, the real world, and you. Mason, OH: South-Western Cengage Learning.