Critical Analysis of the Business Environment of AstraZeneca Case Study

Introduction of Critical Analysis of the Business Environment of AstraZeneca Case Study

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Evaluation of the strategic position and strategic ambitions of a company is an important matter. In this study a UK based well-known pharmaceutical company, AstraZeneca has taken. The environmental analysis of this organisation will be discussed in this study. Various factors regarding the threats and opportunities of this organisation will have to be done here through the use of SWOT, PESTEL and Porter's five forces. An analysis will also be done on the vision, mission and competitive strategy of this company with the help of Ansoff's matrix. The analysis is also based on the strategic resources and capabilities of the organisation. The corporate governance structure of AstraZeneca and its influence on the success of the company is a part of the discussion. The importance of this study lies in the fact that the readers can get a clear idea about the strategic position of the organisation and its strategic ambition.

1. Environmental analysis of the organisation

1.1. PESTEL analysis

Table 1: PESTEL Analysis

It can be said that the UK is a politically stable country. The absence of terrorism and political instability is helpful for the country because provides AstraZeneca with the field of business. This country is also economically stable and therefore business diversification for this present company had a great chance. At the present time, the negative impact of covid-19 has affected the business but the great economic factor will recover the field. The mean age of the UK seems to be 40.5 years and it is helpful for the company also (Worldometers.info, 2022). A great population of 68.5 million is a great source of employment for the present company in this country.

Technological factors impacted upon greatly in this country. The country is politically developed and it is a great chance for this company to make their business large. New technologies can also help in creating new company websites for business growth. The great hub for financial and technological institutions is also important for removing unemployment from the country (Wipo.int, 2022). Environmental Acts play a significant role in the company's development. The laws are related to the protection of wildlife and the environment. This is also helpful for the company as it leaves the company towards their responsibility. Therefore, it can be said that various factors of this country are helpful for this organisation.

SWOT

Table 2: SWOT Analysis

Analysis

AstraZeneca is regarded as one of the largest pharmaceutical brands in the sector of healthcare whose main USP is an integrated innovation-driven organisation. The organisation is highly compatible in the streamlining and making of rapid decisions due to the processing of diligence. As opined by Comber et al. (2018), in the emerging market, the organisation has a good presence in the R&D and commercial positions. The organisation has invested highly in research and development to ensure the best quality products and it has the ten highest selling products globally above 1 billion (AstraZeneca, 2022). The attractive product portfolio of the organisation includes cardiovascular, infection, respiratory and inflammatory disease, neuroscience and gastrointestinal.

The organisation has created high controversies in the emerging market of the pharmaceutical sector. The organisation has been highly impacted by the crisis of drug shortage in the context of “cefotan” (Johnson et al. 2020). The discontinuation of products in the organisation influences the internal operation and performance. The legal procedures concerning the pricing and patent problems impact the reputation.

The company has the highest potential in making innovative and useful products for the patients to develop and reach the leading position in the emerging market. As opined by Teramae et al. (2020), the maximisation of the ageing population globally creates a huge opportunity for the organisation to create an innovative product for the benefit of the patient and the organisation. The increasing necessity of the bio similar market is a huge benefit for AstraZeneca to expand its stores in the international market.

The organisation holds the leading position but it acquires potential threats in terms of revenue loss because of generics. The organisation's desyrel drugs are experiencing the threat of the copycat "generic drugs" (AstraZeneca, 2022). The organisation has the highest threat in the guidelines of rigorous development of drugs.

Michael Porter’s five forces

“Threats of new entrants”

AstraZeneca may experience this threat very low if the existing "regulatory policy" imposes particular problems on the new organisations who are interested to take entry in this sector. Entrants in the new sector need substantial resources and capital investment. As cited by Teramae et al. (2020), the force losses if the differentiation of the product is highest and customers set the essential factor to the unique experience. "New entrants’ threat" might be low if the psychological cost of switching for the customers is enormously high and existing brands have a settled loyal base of customers. This force may get discouraged if access to the channel of distribution is restricted.

“Substitute services or products threat”

This threat for AstraZeneca increases when affordable services or goods are available from the other sector. The switching cost of shifting from the industry to the substitute goods is low. The alternative choices offer the superior or even the same performance and quality as offered by the products of AstraZeneca. The threat of AstraZeneca gets lower when the cost of switching to alternative products is high (AstraZeneca, 2022). On the other hand, customers also cannot afford the similar utility as they derive from the product of AstraZeneca.

 Michael porter’s five forces

(Source: Fitipaldi et al. 2018)

“Competitiveness among existing organisations”

The competitiveness of the organisation is low for AstraZeneca if there are a restricted number of rivalries in the market. The industry is emerging at a rapid rate and has a clear market leader. This force is low for the organisation if the goods of the organisation are differentiable and every player in the market targets distinct sub-segments. As mentioned by Fitipaldi et al. (2018), the psychological or economic switching costs for the customers are high. This pharmaceuticals organisation experiences intense rivalry among existing organisations if the market players are strategically targeted and diverse in a similar market.

“Supplier’s bargaining power”

The bargaining power may be high for this organisation which has concentrated in a particular region and the concentration factor is higher than the purchasers. This force is specifically powerful when the switching cost from one distributor to the other is high for purchasers. The forward integration of suppliers weakens the position of the organisation as they become the rivalries in that area (Graham et al. 2019). The factor that may maximise the “bargaining power of supplier” comprises high differentiation of product that is offered by the suppliers. This force may be lower for AstraZeneca if the suppliers of this organisation are not concentrated and the goods lack differentiation. This organisation is highly cost-sensitive and has enough knowledge of the market which has no threat of forwarding integration.

“Customer’s bargaining power”

AstraZeneca’s bargaining power for the customer's increases when there is the maximisation of a more concentrated base of customers. The psychological and economic cost of switching maximises the customer's bargaining power. As cited by Kumar et al. (2019), the purchasing of standardised products, price sensitivity of customers and high knowledge of the market in the larger volumes maximise the bargaining power of customers. The factors that minimise the power of bargaining are "lower concentration of customer" which means the base of a customer is dispersed geographically.

1.2. Organisational vision, mission and competitive strategy

The mission of AstraZeneca is to push the science boundary to represent and facilitate "life-saving medicines". The vision of the organisation is to transform the healthcare sector by implementing innovative medicines and transforming the lives of billions of people for a better future (AstraZeneca, 2022). The competitive strategy of AstraZeneca is highly focused on the global “innovation-driven” strategy of pharmaceuticals.

Ansoff’s matrix

It is a strategic tool that is developed in guiding and facilitating the pertaining decision to the growth of a business. In the Ansoff matrix, four strategic choices are mainly followed including “market development”, “market penetration”, “product diversification", and "product development”. AstraZeneca is highly successful in global business and operations based on strategic decisions and choices. Ansoff matrix is utilised globally by the organisation to be the leading giant internationally.

 Strategic choices of Ansoff matrix

(Source: Kukartsev et al. 2019)

Table 3: Ansoff matrix of AstraZeneca

(Source: Zanjani et al. 2020)

Market penetration strategy has proved to be immensely successful for AstraZeneca which seeks development for existing medicines in the potential market where their brands are existing and are operational. As opined by Zanjani et al. (2020), the production capacity of the organisation has increased which permits them to reach more customers within similar markets. Along with this, maximisation of production capacity leads to effectiveness and efficiency in controlling and managing the overhead costs. The maximising activities of investment in marketing increase the penetration of the market of AstraZeneca. This pharmaceutical organisation explores innovative and new means of distribution channel which has significantly developed the distribution system and supply chain within a similar market by developing accessibility (Kukartsev et al. 2019). Competitive pricing is the major source of competitive edge for the organisation which leads to higher engagement of customers with the product.

AstraZeneca introduced cutting costs and competitive costs to maximise the product's appeal. As competitive pricing maximises sales and leads to maximised penetration. Lower cost of operation has also been introduced by the organisation which can help the organisation to have higher accessibility and affordability. This leading pharmaceuticals organisation may have joint ventures and strategic partnerships that permit AstraZeneca to gain access to distinct groups of customers, gumption patterns and their behaviours in the market. As opined by Najm and Alfaqih (2021), acquisitions provide AstraZeneca with leverage in reaching distinct segments and groups of customers. The company is highly innovative and reflects its potential in facilitating new medicines. However, this organisation is required to recognise the new characteristics and features in the existing goods for existing markets.

Porter’s generic strategies

AstraZeneca is a multinational organisation with a high reputation and identification in the segments of targeted markets. The prevailing environment of business of AstraZeneca is compelling to gather a crucial benefit to stay ahead of the competition (Kwon et al. 2020). The competitive benefit strategies of the organisation are comprehended in the shed of Porter's generic strategies. This pharmaceutical organisation has adopted the amalgamation of differentiation, cost leadership and focus strategy to maintain the pressure of competitiveness.

"Cost Leadership": AstraZeneca utilises this strategy as the main purpose of this strategy is to preserve the leadership position of the market through effective management of the value chain. This strategy permits AstraZeneca to expand the share of the market by targeting the middle class which creates the largest proportion of the overall mix of customers. This organisation focuses on easy accessibility and affordability which leads to the consciousness of high brand and high sales growth (AstraZeneca, 2022). Utilising this strategy, the organisation has acquired certain benefits such as motivating consumption, expanding the base of the customer, accomplishing sales targets and rapid brand identification.

 Porter’s generic strategies of AstraZeneca

(Source: Baxter, 2019)

"Differentiation": AstraZeneca utilises this strategy to extend the base of customers by emphasising the unique characteristics of the product. The utilisation of both the differentiation and cost leadership strategy assists the organisation in embedding a loyal and powerful base of customers. Through this strategy, AstraZeneca has positioned the offerings of products to be distinct and stand out from the different alternatives. As opined by Baxter (2019), the brand logo of the organisation is also utilised by this organisation to set the differentiation basis. The distinctive and unique logo of the brand has implemented a powerful reputation in the mind of the customers.

"Focus strategy": The focus strategy is used by AstraZeneca in terms of offering the best prices and low cost of the products. The strategy of low cost is adopted by serving the requirements of the niche market at the lowest possible costs. On the contrary, the best value focus strategy is accumulated over the design, size and taste of the product that might best match the requirements and needs of the customers (Banda et al. 2021). AstraZeneca has revised its strategy of branding by focusing on distinct attributes of the product. It brings constant changes in the packaging and design of the product to satisfy the psychological expectations of customers and increases the money value.

1.3. Analyse strategic resources and capabilities of AstraZeneca and its impact on organizational success

VRIO analysis

(Source: AstraZeneca, 2022)

Analysis

AstraZeneca’s analysis of resources and capabilities reflects that the brand reputation is highly recognisable whereas the financial resources are recognised as highly valuable. This factor assists the organisation in obtaining its external chances and preventing external threats. As cited by Sriviboon and Jermsittiparsert (2019), the employees of the organisation are considered extremely valuable resources for the organisation which leads to high productivity. The employees are recognised as the rare resources who are highly skilled and trained. The patents of this organisation are extremely rare and are not possessed and are easily available by the competitors (Banerjee et al. 2018). Distribution channels are also a rare factor because the rivalries require huge time and investment to emerge with a better network of distribution as compared to AstraZeneca. Competitive advantages of the organisation are temporary for employees as obtained from the VRIO analysis of AstraZeneca. The cost structure and R&D of the organisation are less competitive which a drawback for the organisation is.

The corporate governance structure of AstraZeneca

The report of corporate governance represents the new regulations which motivate transparency in the reporting of governance and boost comprehension of how AstraZeneca is managed. The board of AstraZeneca is highly responsible for setting the policies and strategies, overseeing the monitoring progress, corporate governance and risk towards fulfilling the annual plans and objectives (AstraZeneca, 2022). The directors of AstraZeneca perform in a certain manner they consider likely to foster the success of the organisation for the benefit of the members while considering a wide stakeholder range who communicate with the business.

Corporate governance structure

(Source: AstraZeneca, 2022)

In maintaining the corporate governance structure, the management and board maintain a constructive and regular dialogue with the investors to interact with the performance and strategy of the organisation to ensure continuation across the capital and foster confidence of investors. The management and board look at every patient as a person first and lets them at the core of what the company operates (AstraZeneca, 2022). Listening to the experiences of patients and taking insight from the feedback helps the organisation to deliver advanced features and services to the experience of patients.

In the context of shareholders and investors, the factors and interests are most important to the group of shareholders. The organisation also complied with the UK government law to maintain the code of conduct for the organisation (AstraZeneca, 2022). In maintaining the ethical standards and corporate governance of the organisation, the "one-to-one meetings" with the institutional investors and analysts are conducted. Results of finance are web-casted and conference calls are presented for improving the strategy and performance of the organisation.

Influence of Corporate governance and resources and capabilities on AstraZeneca's success

AstraZeneca has a well-established leadership team which includes the senior executives and Board of Directors who are accountable to the company's shareholders. They are liable for the conduct of the business and the long term success of the organisation. As opined by Alinaghian and Razmdoost (2018), the organisation is thoroughly focused on sustainability governance as good governance is crucial to make sure that the operations are well organised and managed and deliver the priorities strategically while fulfilling the expectations of the stakeholders. This pharmaceuticals organisation applies the supporting and main principles of good governance in the code of UK corporate governance and the concerned guidelines. AstraZeneca has enough financial resources to compete against its rivalries and conquer the leading market with its innovation and creativity and high investment in R&D (Singh et al. 2021). Adequate financial resources and continuous investment in R&D help the organisation to maintain its long term success.

2. Conclusion

It can be concluded from the above analysis of the business environment of AstraZeneca that the organisation has high potential and strength and opportunity in terms of finance and rank. The company experiences weaknesses in management strategy, leadership style and controversies which becomes a potential threat to revenue loss for the organisation. The strength and weaknesses have been obtained from SWOT analysis. It is obtained from Porter's five force analysis that the new entrants' threat, supplier's bargaining power and customers' bargaining power are relatively low for the organisation. Ansoff matrix and porter's generic strategies are utilised in evaluating the vision, mission and competitive strategy of the organisation.

From the Ansoff matrix, it is obtained that a “market penetration strategy” is best for AstraZeneca to succeed in the potential market. The organisation follows three factors of generic strategies which help to retain more customer base and gain a high competitive advantage. Resources and capabilities of the organisation have been analysed through the VRIO framework which reflects that brand reputation and financial resources possess a sustainable competitive advantage. It is also reflected in the study that the organisation has a stable corporate governance structure which helps to put the employees and patients first as a priority.

References

Journals

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Websites

Astrazeneca, 2022, About Astrazeneca, Available from: https://www.astrazeneca.com/ [Accessed on: 25th April 2022]

Astrazeneca, 2022, About CorporateGovernance, Available from: https://www.astrazeneca.com/content/dam/az/Investor_Relations/annual-report-2019/pdf/AstraZeneca_AR_2019_Corporate_Governance.pdf [Accessed on: 25th April 2022]

 Heritage.org, 2022, Economic Freedom of UK, Available at: https://www.heritage.org/index/country/unitedkingdom#:~:text=The%20United%20Kingdom's%20economic%20freedom,the%20regional%20and%20world%20averages. [Accessed on: 24.04.2022]

Theglobaleconomy.com, 2022, Political stability of UK, Available at: https://www.theglobaleconomy.com/United-Kingdom/wb_political_stability/ [Accessed on: 24.04.2022]

Wipo.int, 2022, Global Innovation Index of UK, Available at: https://www.wipo.int/pressroom/en/articles/2021/article_0008.html [Accessed on: 24.04.2022]

Worldometers.info, 2022, Mean Age of UK, Available at: https://www.worldometers.info/world-population/uk-population/#:~:text=The%20median%20age%20in%20the%20United%20Kingdom%20is%2040.5%20years. [Accessed on: 24.04.2022]