International Human Resource Management (IHRM)

As a business practice, HRM is largely determined by the productive models it is supposed to serve. Its evolution during the 1970s and 1980s bears witness to this. But HRM, as an academic discipline, also evolves according to managerial ideas and theories that convey a “good” way of managing work processes (Guérin & Wils, 2002).

The way in which companies organize the management process of their workforce is largely a result of the production model in place. Indeed, at the company level, the social system is designed to meet the needs of the productive system. This justifies the definition of Edwin Flippo “HRM is the process of planning, organizing, directing, controlling of procurement, development, compensation, integration, maintenance, and separation of human resources to the end that individual, organizational and social objectives are accomplished.” (Flippo, 1984).

Human resources management characterizes both a field of practice, that of workforce management, and a discipline just like strategy, finance, marketing, etc. This discipline itself is more recent than its practices (Guérin & Wils, 2002).

In this report, I will try to critically review and analyze typical organizational HRM practices at SAIDAL Group SARL, the biggest Algerian pharmaceutical company, two (02) leadership styles from the company’s internal environment, their applications, and finally discuss the benefits of an HR policy of Etisalat, a telecommunication company based in UAE and its influence on the global organizational behavior.

Keywords: Human Resource Management, SAIDAL Group SARL, leadership styles, HRM organizational practices, global staffing policies.

Introduction

What is SAIDAL Group?

SAIDAL Group is a pharmaceutical company based in Algeria, currently with a Capital of 2.5 Billion Dinars. 80 % of SAIDAL Group’s capital is owned by the state and the remaining 20 percent were sold to institutional investors and individuals in 1999 (mdipi.gov.dz, 2010). The restructuring process in 1997 contributed to its transformation into a big manufacturing company with three divisions (Pharmal™, Biotic™, Antibiotical™).

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Figure 1- SAIDAL Group Logo

Missions

SAIDAL’s main mission is to ensure the company’s strategic stability and profitability, and this by:

  • Safeguarding its financial flexibility and independence
  • Maintaining a constant development of its products’ quality,
  • Reaching its growth targets
  • Improving its human capital.
  • Achieve the State’s defined goals as the primary owner/shareholder.

To face new challenges, SAIDAL Group SARL should focus on management mechanisms in a global and strategic context, which integrates the HR dimension in all its managerial models. This might concern a change in the current managerial models in a way that makes HRs, through their skills and knowledge considered as the key resource at the heart of the company’s performance, creating value and competitive advantage.

HRM practices at SAIDAL Group SARL

SAIDAL Group Current Organizational Structure & HRM

Figure 2.. SAIDAL SARL: organizational structure. SAIDAL SARL is characterized by a simple and flexible organizational structure with a strong interweaving of functions.

The HR department has four (04) essential services (SAIDAL Group, 2020):

  • Social service: its mission is to manage all the social aspects of the employees.

  • Training and personnel development service: training and recruiting.

  • Payroll Department.

  • Occupational medicine service: it provides medical care for the employees.

HRM Components

Figure 3. Major HRM Components

In any company, the HR department deals with the most valuable resource: the employee, and therefore, it is considered as the backbone of any type of organization. Acting as a liaison between managers and regular staff members is a central role of HR, thereby helping businesses achieve their goals by ensuring that businesses hire and maintain empowered and competent employees. Other than that following are the main tasks of the human resource division namely, HR planning, staffing, developments, motivation, change management, appraisal, and evaluation, etc.

HRM manages many functional aspects within a given organization. From a dynamic and more explicit perspective it can be said that human resources management includes, all the activities of acquisition (selection, recruitment), qualitative adaptation (training, skills management), remuneration (compensation, benefits, promotion, career management), employees’ comfort and wellbeing (working conditions, safety, work content, work organization), stimulation and mentoring (participation, dynamism, animations, recognition, encouraging involvement), and adjustment (staff reduction, externalization/internalization, contractual adjustments, …) of personnel, decided by HR managers, with the aim of achieving short-, medium- and/or long-term techno-economic and socio-political objectives (Loosemore, et al., 2003).

All of those core HRM activities are being handled by the above four divisions. This kind of category or divisional system is a little bit different from other organizations. But SAIDAL has focused more on the social and medical factors of their employees more by setting separate sections/services for them.

At SAIDAL, the HRM department performs a wide body of tasks, whether it is a matter of managing contracts and payslips or communicating internally with employees, managers, directors, etc.

The Human Resources Director/Manager is responsible for defining and implementing the company’s HRM policy (recruitment, compensation, mobility, career management, etc.) that controls the application of legal and regulatory obligations relating to working conditions and employment relations, and organizes social dialogue and participates in internal communication operations related to changes in the company.

The director of HR may be assisted by a Manager (HR Manager), who ensures the implementation and the execution of the company’s HR policy.

The following table presents the four essential elements that we have identified as constituting HRM at SAIDAL SARL:

MANAGEMENT PRACTICES

Recruit

Mobilize

Evaluate

Form

RULES AND STANDARDS

Legal rules, collective agreements

Branch, company agreements

Standards, products, regulations

HRM Tools

MULTIPLE ACTORS

Internal: management, HR services,

managers, employee representatives

External: public authorities, trade unions,

consultants, principals,

shareholders

MANAGEMENT POLICIES

Determined by corporate strategies

in function:

– external contexts: markets,

products, business segment ;

– internal contexts: modes,

the organization, qualification levels,

work routines, the dominant culture

Table 1. essential elements constituting HRM at SAIDAL SARL (source: Saidal Group)

Current HR Practises at SAIDAL SARL

Management practices refer to the “visible” part of HRM at SAIDAL: recruiting, assessing, training, etc. They are now increasingly “equipped” and only make sense if they are developed in line with the management choices of the company, particularly in terms of strategy, decisions made on the basis of internal and external factors.

Management practices characterize the strategic choices that the company must make, in terms of employment, remuneration, employee loyalty, etc. We have already mentioned the plurality of internal actors involved in the field of HRM. To these should be added a certain number of external actors: institutional partners, more or less influential direct collaborators (consultants, professional associations), economic partners (subcontractors). However, this involvement might potentially increase conflicts of interest with which HRM will be confronted (Blum & James Jr, 1997).

SAIDAL has many functional departments, and the roles of each one are unique and interconnected. The aim of HRM, in general, is to optimize the use of the human factor in the company, therefore it is necessary to maximize returns in relation to obtaining a favorable social climate.

HRM manages many functional aspects of an organization. From a dynamic and more explicit perspective, we can say that: human resources management includes, in an organization, all the activities of acquisition (selection, recruitment), qualitative adaptation (training, skills management), remuneration (compensation, benefits, promotion, career management), employees’ comfort and wellbeing (working conditions, safety, work content, work organization), stimulation and mentoring (participation, dynamism, animations, recognition, encouraging involvement), and adjustment (staff reduction, externalization/internalization, contractual adjustments, …) of personnel, decided by HR managers, with the aim of achieving short-, medium- and/or long-term techno-economic and socio-political objectives (Loosemore, et al., 2003).

Training

Training involves the general, technical and practical knowledge related to the exercise of a profession, but also to the behaviors, the attitudes and the means that allow integration into a profession and more generally into all social activities” (Brockbank, et al., 1999). We can deduct from this definition that training plays an essential role in developing economic competitiveness insofar as it promotes the workers’ employability and helps acquire the skills needed.

According to a survey conducted by the University of Bejaia (Algeria), it has been found that SAIDAL SARL relied on continuing vocational training which aims to ensure the good mastery of tasks as well as the adequacy between the abilities, qualifications of employees and the requirements of the position held. Moreover, the trainees stated that all the training they received enabled them to improve their independence at work (Amel, et al., 2015).

Training has been considered as the main HR function at SAIDAL as the pharmaceutical industry requires highly advanced processes and needs much trained and top skilled professionals to be employed. Therefore, from the beginning, SAIDAL SARL relied on continuing vocational training which aims to ensure the good mastery of tasks as well as the adequacy between the abilities, qualifications of employees and the requirements of the position held. Moreover, the trainees stated that all the training they received enabled them to improve their independence at work.

Other than that, they have set up annual training plans for each of the employees making at least two pieces of training are necessary for all per year.

Recruitment

Recruitment is the set of techniques and procedures carried out to attract potentially qualified and capable candidates for positions within the organization (Ordanini & Silvestri, 2008).

As the first step in recruitment, a vacancy should arise. The Human Resources department at SAIDAL must decide whether it is necessary to hire a person on a seasonal, contract, part-time or full-time basis. Once the decision has been made, the vacant position is advertised to attract individuals with the necessary characteristics. SAIDAL SARL HR managers try to attract individuals and obtain information about them in order to decide whether they are interested in accepting them or not.

Recruitment requires careful planning that consists of three phases (Jaskiewicz, et al., 2014) :

  • Internal research: what are the company’s needs
  • Labor market research to find the most interesting offers
  • Definition of recruitment techniques and standards

The different phases of recruitment are as follows:

  • Position definition,
  • Profile definition,
  • Identification of recruitment sources,
  • Recruitment resources,
  • Recruitment campaigns,
  • Selection mechanism,
  • The hiring decision,
  • Integration

Orientation

This implies helping employees to make career choices, monitoring them, using skills assessments and professional interviews to develop personalized career paths.

Business Intelligence and Data Collection

HR plays a preponderant role in Business Intelligence at SAIDAL Group SARL. BI has many positive benefits, it can bring on a purely HR aspect: loyalty, reduction of turnover, company culture, development of skills, acquisition of know-how, and profitability. (Forbes, 2019).

Mobilizing

And, to achieve this, developing the emotional and organizational involvement of its employees, knowing how to lead teams in their diversity, communicating, informing and redesigning the organization of work.

Negotiating

And therefore knowing the logic and modes of action of trade unions, develop social dialogue, negotiate “win-win” agreements in the field with partners – Watch: which requires building its HR information system and having a strategic vision of HR, knowing how to dialogue with the HRD so that it becomes a business partner.

Social Services

Social Services department is the main place where all employee-related social activities are conducted.

Corporate Social Responsibility (CSR) is defined as the integration of social and environmental concerns into the business activities of companies and their relationships with stakeholders.

The internal social responsibility at SAIDAL is mainly exercised through human resources management practices. According to a recent survey conducted within the Group, 65% of the respondents said that the company is socially responsible and “treats its employees well” (SAIDAL Group, 2020). A socially responsible company also establishes fair treatment of individuals in the workplace. This form of responsibility is assessed in particular through criteria of employment sustainability, remuneration, working conditions, and profit-sharing.

Payroll

The basic task of human resources at SAIDAL involves managing each employee’s payslip. If many items must appear on a payslip, it is because they correspond to compulsory or supplementary contribution funds. Some are paid by the employer; others are deducted from the employee’s pay.

The nature of each sum must be specified in the total remuneration. Let’s list the most well-known elements of the payslip:

  • the payslip must be nominative,
  • each bonus is mentioned and specified,
  • social declarations give rise to social contributions (provident scheme, supplementary health insurance, unemployment, retirement, etc.) for the employee, and social charges for the employer,
  • the gross and take-home pay highlighted,
  • paid holidays are mentioned, the days earned, taken and remaining, in the month and the year,
  • any specified benefit in kind,
  • any type of specified compensation, work accident, the balance of any account, savings, etc.

Employees’ Remuneration and Careers Management

Remuneration is a sum of money that an individual receives in exchange for his or her work. Its amount is determined on an employment contract and can be fixed or variable. The net remuneration is the amount that the employee will actually receive. Managers may decide to grant additional remuneration in the form of a bonus.

Fixed remuneration, variable remuneration

When compensation is said to be fixed, the employee receives the same amount, regardless of the company’s performance or his or her own performance. When compensation is variable, the employee receives a profit-sharing plan based on the company’s results or his or her own results. Sales positions are generally paid a fixed salary, enhanced by a percentage of performance. Some positions are also remunerated solely by a percentage, but may not fall below the legal minimum.

Minimum legal pay in Algeria

The legal minimum wage in Algeria, also called the SMIC (‘salaire minimum interprofessionnel de croissance’) is defined by government decree according to various criteria. The SMIC represents the minimum hourly wage. Thus, an employee may receive a salary lower than the amount of the monthly SMIC if he or she does part-time work.

Remuneration with bonus

SAIDAL may distribute bonuses to its employees. This remuneration may be included in the employment contract, or at the discretion of management. It may take the form of a thirteenth-month bonus, or a reward bonus when the performance of the company or of a particular employee has been satisfactory. The amount of the bonuses does not have to comply with the minimum wage.

Gross remuneration, net remuneration

A distinction should be made between gross and net remuneration. Gross remuneration includes wage and salary costs, deducted at source by the enterprise and paid to the various recipient bodies. Net remuneration is the amount actually received by the employee. The employee’s income tax base is calculated on the basis of his or her net remuneration.

Career management

Career management enables the design and implementation of personalized career paths for employees. At SAIDAL, career management is anticipatory and proactive in order to best meet the current and future needs of the company, while taking into account the strengths and interests of employees. It is, therefore, a real opportunity for them, since it is carried out through training, promotion, etc.

Consequently, effective career management ensures the company’s sustainability: it is a source of performance and therefore of growth. It, therefore, represents an important issue for human resources and one of their main missions.

The role of the HRM department is:

  • Track all the information and data on the career path of the employees and their performance issues,
  • Analyze all resources available for all critical positions,
  • Identify career wishes, their relocation capacity for possible internal mobility,
  • Visualize talents under multiple aspects (performance, skills…),
  • Manage all positions in the organization,
  • Build a talent pool, in order to capitalize on this potential, simplify recruitment processes and, secondarily, enhance the company’s brand.

Currently, most of the employees are enrolled in SAIDAL mainly because of their remuneration system. However, the problem is that even though the employees engage in work for the sake of money, their optimum performance cannot be taken due to a highly hostile working environment.

Current Issus of SAIDAL HR Functions

Despite the company’s efforts to optimize human capital management and recreate social ties, the tension persists between employees, and HR managers, according to a study of 509 employees conducted by the El Khabar (Elkhabar.com, 2020).

76% of employees do not give a positive assessment of the HR function. To the question “What does the HR department do well? “31% of employees surveyed cited payroll and 26% cited processes. More worryingly, only 6% said that it listens and 5% said it recruits. The HR functions are therefore not yet considered strategic: the tasks that are mostly highlighted are mainly administrative management of the company. A mission on which employees are very skeptical. Only 15% have complete or very high confidence in the accuracy of their pay.

Even though there is a basic framework running at SAIDAL, these results prove the fact that HR functions have failed to gain the needed objective of handling human resources efficiently and effectively to achieve the strategic objectives determined by the organization. Following were identified as the main reason for these issues,

  • Lack of a proper organization of Human Resource Management function
  • Lack of HR professionals to handle related issues
  • Use of outdated technologies and traditional systems
  • Lack of employee motivation methodologies and programs.

Recommendations to resolve HRM functional issues

New technologies have opened up a new era for the HR department. HRM human resources management software might potentially help rapidly reestablish trust generating significant benefits:

  1. Efficiency
  2. Reduced costs
  3. Access to Information
  4. Data Analysis and Informed Decisions
  5. Improved Communication
  6. Risk assessment
  7. Security and Data Recovery

Furthermore, there is an urgent need for the HR department to get into HR marketing, to streamline its internal communication and to redefine its role towards more individual support.

The use of software and marketing only does not resolve the problem. Management has to involve in this matter to reorganize the HRM department and set up a program for proper in house 360 appraisals, effective remuneration systems and keeping the employees engages and well-motivated.

Other than that, an innovative approach to select and recruit the right candidate can be proposed. This will smoothen the process as well the maximum out of the candidate can be taken out making a pool of talent that will drive the organization towards its strategic objectives.

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Figure 4 – Proposed innovative recruitment procedure (Created using draw.io)

Effect of HRM Practices on SAIDAL Group performance

Recruitment and Selection

SAIDAL HRD focuses more on hiring talents whose personal values complement those of the organization. HR managers make sure they’ve put the right employee into the right place. The recruiting and selection procedures are managed by a senior manager to ensure that the hiring process is competitive and transparent.

Recruiting the right candidates holds supreme meaning for an organization’s ongoing progress. Therefore, a good recruitment and selection policy are needed for the goodwill of the company. A recruiting and selection policy’s primary aim is to ensure a consistent and equitable hiring process that will assist HR employees in choosing the best applicant based on merit and importance to the position.

Every organization has their goals set to achieve strategic objectives. Employees are the ones who drive this process in the correct direction. So a good hiring decision makes the company perform very well.

Figure 5. Challenges faced in Recruitment and Selection

Above are the challenges that are faced by SAIDAL regarding their recruitment. These data were obtained from the SAIDAL training prospectus 2019 (SAIDAL Group, 2020). Identifying these challenges at SAIDAL is also a success factor for the company. If all those are addressed and resolved then the problem of recruitment will wipe out, making the recruitment system transparent and reliable.

Training and Development:

As mentioned earlier, training is provided for employees wishing to develop certain skills and acquire other competencies in their field of activity. Vocational training has become a necessity, with many advantages.

For SAIDAL, offering its employees training sessions means increasing its competitiveness, attractiveness, and productivity, building employee loyalty and enhancing the company’s image.

In fact, training makes it possible to improve the employees’ qualifications, and therefore the company’s competitiveness. A well-trained employee will indeed be better able to take strategic decisions quickly. Continuous training also saves time, as the employee works faster.

It is also a way of retaining employees and limiting turnover within the company. Indeed, for the employee, continuous training means maintaining employability, as he or she improves or acquires new skills while remaining within the company.

Figure 6. Approaches in strategic human resources management

Algeria has 65 higher education institutes including 26 universities among them. These are good sources for exposure to the employees of SAIDAL which mostly rely on the new findings, research, and talent-related to the pharmaceutical industry. Therefore, these are the main resources for training and development for SAIDAL with plenty of employees willing to go higher in their dreams.

Leadership theories and applications in the Pharmaceutical Industry

Leadership

The term Leadership describes an individual’s capacity to direct certain individuals or organizations toward such goals. One leader is one who can direct, control and inspire (Crawford, 2012).

A leader differs from a manager or decision-maker, who has managerial expertise but does not necessarily “lead” a party, an entity or a country to another stage of its growth. A strong manager may be a leader but there is no direct correlation between the two attributes. Long associated with the political arena, leadership in other fields including the pharmaceutical industry, culture, technology, and sport is a sought-after value. There is also a distinction between public and private government, as the latter is business-oriented. A politician is not always a leader; other leaders, conversely, are not politicians.

There is no magic mix of features that will make a leader effective. This doesn’t mean, though, that none of them are more likely to win, and that we cannot learn to be more successful leaders (Burns & Rechy, 2004).

Leadership theories are centered on understanding how and why some individuals are becoming leaders. Those hypotheses tend to concentrate on leaders ‘characteristics. Yet others aim to recognize habits people should follow in various contexts to develop their own leadership skills.

To identify the leadership status and qualities of a particular organization, in our case, SAIDAL group SARL, it is needed to have a wide understanding of the common leadership theories applied in the world. Therefore, most commonly used leadership theories are explained here.

Hersey and Blanchard’s Situational leadership theory

The expression ‘situational leadership’ suggests leaders should adapt their strategy depending on the individuals they lead, and the situations around the challenge at hand. Nonetheless, relying on a number of situations, the Hersey-Blanchard Situational Leadership Theory is one focused upon variable leadership. When a leader will react as easily as possible to a given situation, in the end, everyone can benefit. (Papworth, et al., 2009).

Image result for hersey and blanchard’s situational leadership theory

Figure 7. Hersey and Blanchard’s Situational leadership theory (source:oregonbusiness.com)

In the basic model of the situational leadership there are four types of leader depending on the directive and the supportive behavior they are showing towards their subordinates namely:

Directing

The directing leader (originally named ‘telling leader’) is the first form of leadership mentioned in Hersey and Blanchard’s Situational Leadership Theory. Successors who lack both the ability and the desire to conduct a mission require a leading master. Hersey and Blanchard are advising against supporting actions at this level since the adherent can view the supporting actions as a reward. Some supporters then require a lot of task-driven coordination and monitoring.

Coaching

The coaching leader (originally named ‘sales leader’) is the second category of leader discussed in Hersey and Blanchard’s Situational Leadership Theory. The coaching leader is important in situations where followers have a strong need for guidance and encouragement. Followers who are unable to perform a task or lack the confidence to perform it but are committed to the mission and/or the company need a mentor. In this scenario, the leader may exert more direct influence over the effort made by the follower to achieve the mission, but he can still have a great deal of support along the way.

Supporting

Followers need more leader’s support than their expertise. Hersey and Blanchard see these leaders focusing more on building organizational conditions that promote the desires of these followers.

Delegating

Finally, if a follower is both inspired and professional, he or she wants a chief delegate. In this situation, this person can be conveniently assigned by a leader with the assumption that the follower can execute the tasks. Leaders cannot, however, fully stop positive actions and if a follower thinks he or she is totally neglected, the interaction between the leader and the follower can be negative.

Discussion

The situational approach emphasizes the importance of contextual factors such as the type of work performed by the company, the type of external environment and the characteristics of the followers. There are two categories in this approach. The first studies the impact of contextual factors on leadership behavior, while a second looks at the relationship between leader behavior and performance with contextual factors as moderating variables (Brockbank, et al., 1999).

The situational theory of leadership developed by Hersey and Blanchard (1979) is logically positioned within this theoretical corpus. Their theory considers the characteristics of followers as an essential element of the situation, particularly their level of experience and competence. Thus, employees with low skills would need a different leadership style than skilled ones. Four leadership styles underlie this theory: directive, persuasive, participative and delegating. The directive style is “descriptive” since the leader describes all the tasks to be accomplished; this style is more appropriate for the junior employee. The persuasive style includes defining a direction and consulting with employees before making important decisions. The participative style characterizes the advisory leader who guides and coaches his collaborators. Finally, the delegating leader gives full responsibility for the execution of tasks to the employee at a high level of competence.

Transformational leadership

Transformational leadership seeks to raise the level of motivation and morality in organizations by relying more on long-term intrinsic needs and less on short-term extrinsic demand. A transformational leader is a person with a vision for the future who shares a passion for achieving great things. He or she drives his or her project forward by injecting enthusiasm and energy into the people around him or her. His end comes when he imposes transformation despite his unpopularity.

Various concepts describe the favorable behavior of a leader with regard to “transformational leadership”. In Bass’ theory, the behaviors of a transformational leader are grouped into four categories (the so-called “four I’s”):

  • Idealized influence (role model function): The leader is perceived as having integrity and credibility. He or she serves as a role model for the employees, by which they guide themselves both personally and professionally.
  • Inspirational motivation: With an inspiring vision, transformational leaders try to increase the intrinsic motivation of their employees. They can convey meaning and significance and thus make clear what is worth investing time and energy for. The first two categories were initially referred to as the charisma of a leader.
  • Intellectual stimulation: The manager tries to stimulate the creative and innovative abilities of his employees so that they feel positively challenged and contribute to optimizing business processes.
  • Individualized consideration (individualized support): As “consultant, coach, teacher and mother figure” the manager addresses the individual needs of his employees and develops their skills and knowledge in a targeted manner. This is particularly successful in identifying individual needs, awakening motives and developing self- A screenshot of a cell phone Description automatically generated confidence.

Figure – Transformational leadership styles

Transformational leadership, driven by energy and enthusiasm

If a leader takes an active part in developing a dream and mission for the future, an organization may be changed. So people (followers) are a part of the dream. The “transformation master” is the one who is in charge of revitalizing the organization. He determines the need for improvement, develops new goals, mobilizes interaction in these goals, and gradually changes the company.

John Adams identifies six emerging themes of the transformed organization (Adams, 2005):

(1) vision and purpose,

(2) new perspectives (paradigms),

(3) human empowerment,

(4) performance and excellence,

(5) Leadership

(6) the organization itself as an energy field.

SAIDAL SARL and Leadership

Burns (1978) states “leadership is one of the most observed and least understood phenomena. Indeed, this paradox has haunted many researchers trying to understand leadership, its manifestation, and its component parts for centuries” (Burns & Rechy, 2004).

Currently, SAIDAL group has a bureaucratic type of leadership which is centered around the CEO of the organization and then followed by the executive committee handling the pharmaceutical portion and the other functional sections.

Figure . Span of Control CEO – SAIDAL Group

The span of control within this structure is so high that the relevant managers sometimes do not have the required authority rather than the CEO’s direct involvement.

The most suitable Leadership for SAIDAL SARL

According to the research evidence and the industry recommendation, the most conducive leadership style to promote performance in SAIDAL would be a mix of situational and transformational leadership.

SAIDAL group has a diverse set of divisions as their core business units and also other functional unit has much of diversity. Other than that, it has a diverse workforce starting from the lowest level to the highest level of the hierarchy. Not only that, in the earlier chapter we have identified that there are many issues related to the human resource management function of the company. So the company has much of a focus on changing marketplace with a diverse workforce. Therefore, one definite factor that can be seen in the organization for sure is “change”.

To take effective and efficient outputs from these types of situations, the company needs leaders who can adapt and act accordingly rather than some kind of bureaucratic leadership style. A situational type of leadership is means having a good bond with the employees according to the situation and transformational means handling of every situation in an entrepreneurial mindset.

Therefore, it can be concluded that a mix of Situation and Transformational Leadership styles will be suitable for SAIDAL Company to promote its performance and stimulate its global growth.

Global Staffing Policies

What is outsourcing

Outsourcing is the corporate method of recruiting a team outside of a corporation to provide tasks and produce products that the company’s employers and staff have historically done in-house. Outsourcing is a process that businesses typically use as a cost-cutting step. As such, it will influence a wide variety of workers, from customer service to development to back office (Quinn & Hilmer, 1994).

HR outsourcing (also known as HRO) is the practice of sub-contracting the roles of human resources to an outside provider. Business process evaluations have driven many companies to conclude that sub-contracting some or all of the non-core operations to specialized providers makes economic sense.

Types of Human Resources Outsourcing

Business process outsourcing (BPO)

An external provider handles individual HR tasks, such as managing payrolls, training, and perhaps the entire human resources function (Gene M. Grossman, 2005). BPO helps an organization save money and also spend most on key operations

  1. Outsourcing of back offices: this includes outsourcing of internal business roles such as accounting, HR, etc.

  2. Outsourcing at the front office: entails outsourcing customer-related activities such as technical assistance, repairs, etc.

Shared Service Outsourcing

This is the outsourcing where HR’s operations or logistical components are subcontracted to an external provider. These can include the workers’ personal interface.

Application Service Outsourcing

Application (and facilities) HR outsourcing operation, where foreign vendors are in charge of the technical (and physical) services to support human capital.

Advantages of Outsourcing

There are a lot of advantages of outsourcing HR functions to a company namely,

  • Reduction in cost
    • Cost reduction for salaries
    • Reduction of cost for benefits given to HR professionals internally
    • Reduced costs in recruitment and training
  • Legal penalties and issues are handled by the third party
  • Less time required for HR related activities
  • Lower mistakes as the work are done by a professional outsourcing company

Managing workers today is challenging and needs advanced expertise to keep the legislation from getting out of hand. Many small business owners simply don’t have that expertise, and often make payroll mistakes, don’t keep the proper paperwork on employees, or don’t have good personnel management procedures in place. Not only can these information gaps pose risk to the organization and cost money, but they also mean business owners are wasting more time on these activities than is required (Adams, 2005).

Through outsourcing human resources, it is possible to devote time to other tasks that are more useful to the company. Rather than wasting money with paperwork or struggling with accounting and compensation problems, the company can focus more on setting targets, designing a business strategy, promoting and sales, both of which would potentially pull in more cash.

  • Leads to the improved hiring process

HR consulting outsourcing streamlines the recruiting process, too. A PEO (Professional Employer Organization) will help you build an effective recruiting process and ensure that every component, from the original job listing to the interview process, is structured to attract top talent. Many HR agencies will also handle the early stages of recruiting and selection for you, and you just need to get interested until you’ve whittled down the list of applicants to the most qualified candidates (Brockbank, et al., 1999).

A PEO will also assist with the on-boarding process after employees are recruited. Surveys suggest that workers are more likely to assimilate quicker and more effectively into the organizational community when a company has a specified and clear onboarding procedure. It makes us find the running ground which results in lower turnover rates. Then after workers are set up a PEO can help track workplace efficiency, free up time and provide unbiased perspectives.

Disadvantages of Outsourcing

Outsourcing that is most widely regarded as offshoring has its pros and cons. Most of the time, outsourcing gains outweigh the negatives of outsourcing (Quinn & Hilmer, 1994). While there are many benefits to outsource, the strategy still has drawbacks, such as:

  • Loss of control and exposing confidential data

When an enterprise outsources HR, accounting and recruiting services, there is a possibility that sensitive client details will be revealed to a third party

  • Delivery extensions and synchronizing difficulties

In the case that the company does not select a correct outsourcing provider, some of the typical trouble areas include extended production periods, substandard product performance and incorrect obligations categorization. Such aspects are often harder to control within a company, rather than through an outsourced partner

  • Incurring of higher costs by hidden costs

Although outsourcing most of the time may be cost-effective at times, the hidden costs of signing a contract whilst signing a contract across international borders may pose a serious threat.

  • Loosing of customer focus

An outsourced vendor can tend to multiple organizations ‘expertise needs at a time. In these cases, vendors can lose full commitment to the tasks of your organization

Etisalat Case Study

What is Etisalat?

Etisalat is a Middle Eastern top telecommunications provider. It is one of the six GCC Arab countries ‘ biggest corporations. It has a market value of approx. 23 Billion USD with sales in excess of 10 billion USD a year. Its main base is in Abu Dhabi, UAE.

Figure 10. Etisalat Head Quarters in UAE (source: news.microsoft.com)

According to the case study, Etisalat has taken the outsourcing decision in the year 2012. This decision has been taken due to many reasons,

Why Etisalat Needed Outsourcing?

Earlier in February, Etisalat announced a 24 percent decrease in its net income to AED5.8b ($1.6b). This contributed some of this downturn to losses suffered by its Indian subsidiary, Etisalat DB following the cancelation of its license (Etisalat, 2015).

Etisalat has also posted declining profits for consecutive 7 years starting from 2005, as global operating earnings fell short of compensating for dwindling home sales (Etisalat, 2015). This decline was due largely to market competition with du and the ‘illegal’ use of VoIP services to make foreign calls.

Therefore, they had to take the call for cost-cutting to make the company on the go. This included outsourcing of one of the main business activity customer care operations.

Etisalat also provides consumer and business services: human resources, social responsibility, customer support, networks, and business solutions. In the sector, outsourcing includes contracting out company processes such as payroll services, and functional or non-core functions such as production, maintenance of facilities to another group. Being a trademark with one of the most respected telecommunications firms, Etisalat had always put additional effort into ensuring that its customer support provides its customers with the best out of the market. Customer service has also been outsourced to an Egyptian company under the outsourcing program.

Some may argue why Egypt was chosen for outsourcing the customer service program. However, in the sense of the following points, Egypt has proven to be the best country for this program:

  • In 2013, the Ministry of Communications and Information Technology (MCIT) reported revenues in excess of $1.1 billion in 2011 (mcit.gov.eg, 2013).
  • The principal benefit is the dimension of low cost. As per international practice, inexpensive land and labor are. Low salaries do not impact service quality since the capacity base is very high
  • With the aim of exporting their services, Egypt has built and created an emerging reputation as an epicenter for ICT companies. Arabic and English languages are well-known.

Etisalat having to focus more on their core business activities, it has become much easier for them to outsourcing customer operations so that a professional organization will take care of those. Following benefits were expected from that action

Benefits of Outsourcing for Etisalat

The following advantages were gained by the outsourcing program that Etisalat has done.

  • Etisalat should concentrate and spend its resources on core business areas, such as providing consumer telecommunications services.
  • Customers of Etisalat will expect improved services as Customer Service is now outsourced to a provider specializing in the provision of customer service.
  • The outsource provider also shares the elements of risk reduction and handles them even better.
  • The key advantage is cost savings. Outsourcing means cutting running costs. This would also reduce the cost of recruiting costs, as it can be very costly to hire local people
  • Whenever more staff is required, outsourcing firms will really benefit by supplying additional employees before the job is done. And greatly relieves the burden on the full-time staff.

Conclusion

Recent years have been marked by accelerated economic globalization and competition and rising investment costs. In the business world, only the most competitive companies can withstand the challenges of globalization and competition that is becoming increasingly ruthless.

Whatever its activity, a company must face and master the competition from national and international companies. Its strength lies in the quality of its products which are the result provided by its staff. It must ensure that it maintains competitive productivity in a context where technological innovations cross borders without delay. Therefore, the more qualified and motivated the personnel is, the more positive their performance will be. This, in turn, makes the company more competitive. Rigorous human resources management becomes indispensable.

Therefore, in achieving those goals SAIDAL has to work more on improving its Human Resource Management system to face the world with that much competition in hand. Using this analysis, it can be concluded that the SAIDAL HRM function need to be reorganized as the issues in recruitment, payroll work, employee motivation, etc are identified as the major drawbacks of the organization. Therefore, proper guided measures are needed to be taken.

Leadership is a symbiotic relationship produced jointly by leaders and followers that implies that the follower has an active and functional role complementary to that of the leader in the leadership process. When it comes to SAIDAL for leadership, similarly major reforms of leadership style are needed to thrive in today’s fast-moving challenging strategic world. Therefore, by stepping out from the current bureaucratic type leadership it is needed for leadership of more towards situational and transformational leadership

For an organization to be effective and competitive, it must take into account its HRM and the changes in its internal and external environments, and it is in this way that it can meet its challenges and thus be able to achieve its objectives along with the incorporation of a good leadership style.

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Organizational Redesign in a Pharmaceutical Company

SAIDAL Group, the biggest national pharmaceutical company in Algeria (mdipi.gov.dz, 2010) develops drugs in highly specialized areas such as oncology, hematology, immunology, neuroscience, infectious diseases, cardiovascular and metabolic diseases. SAIDAL is increasingly turning towards innovation and becomes nowadays open to new strategies of research and development, combining biotechnologies, artificial intelligence, analysis of real-life data and risk detection of pathologies. New concerns about customer satisfaction, market penetration, and global growth are being raised suggesting business strategies to be optimized and the company’s organizational structure to be adjusted.

The aim of this article is on one hand to draft a new organizational structure that enables the company to implement the strategy developed in part one (01) to cope effectively with the new business challenges and on the other hand, to evaluate this structure, identify its negative aspects, and the ways to overcome them.

Organizational transformation is the starting point for any business change (Nadler & David, 1995). It involves rethinking an organization’s structure, operations, and business practices to perform better. Organizational transformation is a continuous and evolutionary process whose center is the employee, where his commitment is the key element of success.

Being a company with more than 30 years of history it had a greater structure of work dividend which had brought the company to the current level. After the implementation of changes to the structure in the year 2010 with the newly appointed top management, everything seems to be running with little ups and downs eventually turning it to a big mess with a lot of revenue loss as mentioned in detail in part 1 of the assignment.

How Organizational Structure Affect the Performance?

The term “organizational structure” refers to the hierarchical framework that defines and structures the internal activities of a company (John, 1972). An organizational structure is used to structure a company according to its objectives (e.g. increase production, reduce costs, growth). It helps to clarify the following elements: functions, departments, responsibilities, relationships, and workflow (Van Der Aalst, et al., 2004).

The organizational structure thus provides a general overview of performance and tasks inside the company, as well as a basis for all standard procedures and routines. Depending on the objectives pursued by the company, the organizational transformation process can vary considerably.

Figure. A typical drug manufacturing process (Maniruzzaman, et al., 2018)

As given in the figure above the drug manufacturing process of all 3 of the subsidiaries of SAIDAL group are similar and therefore currently only focused on the production aspects.

Current Organizational Structure of SAIDAL GROUP

Figure. The Organizational Structure of SAIDAL SARL (SAIDAL, 2014).

The current organizational structure of SAIDAL group is a centralized one surrounding a board of directors where they control all of the divisions within the organization itself. The structure has two types of divisions but all one and those are the direct functional divisions and indirect functional divisions.

The advantage of the above organizational structure is that it is easily scalable where employees can specialize in their field, and thus work more efficiently. Clear areas of competence and responsibility would help to avoid activity duplication such as accounting in different departments. At the same time, the functional structure allows for quick decision making as the span of control is lesser in a certain division and therefore decisions have to be approved by only one boss. It is therefore particularly suitable for small companies that produce a relatively small range of standardized products in big quantities and at low costs.

One disadvantage is the communication barriers that could arise between the various functional areas in such a rigid structure. The more a department works for itself, the less its ability to communicate and its coordination with the other departments is reliable. Consequently, confusion, conflict of interests and reduced productivity might occur. The lack of orientation towards a specific market, target group or product, as well as the high degree of standardization and formalization also limits the potential for innovation (Desreumaux, 1996).

In conclusion, we can decide that this organizational structure is suitable for a small scale organization only and for SAIDAL like an organization with more than 2300 employees in it there must be a much of differentiation and changes needed to proceed ahead.

The impact of the current structure on the global performance

For several years, SAIDAL SARL has kept the same strategic objective of consolidating its position as a leader in the production of generic medicines, the group also contributes to the implementation process of the drug policy established by the public authorities (Boukhari, 2012).

Year 2009 2010 2011 2012 2013
Products sold 226 232 227 192 169
Source : Université Abou Bekr Belkaid de Tlemcen

Table 1. Number of products (therapeutic class) sold during the period 2009-2013 by UCE-SAIDAL

Figure. The number of products (therapeutic classes) sold between 2009-2013 by UCE-SAIDAL.

We can see in Figure 3 that the number of products (therapeutic classes) sold has decreased significantly after the year 2010 and reached 169 products in 2013, a decrease of 25% compared to 2009.

This could be interpreted as the result of a very limited number of new products introduced in the market, a failing marketing strategy, failure to cope with the current competitive environment, the withdrawal from the market of several specialties: Paralvic, Tenobiotic, Camphobiotic, and the ineffective strategic decisions of the company including production shutdown in Solupharm, AGD Pharma and the Batna production unit. This sharp reduction in the number of products did not have a direct impact on the annual revenues but could have a negative impact on the company’s image in the long term if the problems mentioned are not rapidly solved (Boukhari, 2012).

When dug down to the core reason for the above decline and the bankruptcy as described in part 1 of the report, it can be analyzed departments have worked separately without any coordination and especially the Research & Development division with much employee turnover and the decline of their progress due to malfunctioned work alignment.

Organization Design for Implementing Management Change

Businesses need a clear structure to operate smoothly and grow at the same time. Without structure, there is no clear goal, neither for management nor for employees. This creates confusion and stress and would potentially generate many conflicts in the sharing of responsibilities. The result is a lack of coordination and slow decision-making processes, which could have a long-term impact on the economic efficiency of a company.

A well-thought-out organizational structure, which defines the chains of direction, margins of control and communication channels in a comprehensible manner makes it easier to align the company’s capabilities with its objectives. This could be achieved, for example, by clarifying the value chain, creating an overview of work areas and even reducing organizational costs. This also helps new employees to orient themselves within the company, to know their superiors and subordinates, and to understand the overall situation and their career prospects within the company. A clear organizational structure thus contributes to improving employees’ sense of security and their satisfaction.

Therefore, a redesign in the structure as well the value chain of the SAIDAL group is essential to get the 100% out of the new structure and the organizational performance with innovation included.

Redesigning a New Organizational Structure of SAIDAL Group SARL

It is not so easy to design the right organizational structure and present it in a clear organizational chart. The greatest challenge here is to achieve a solid and reliable structure despite the complexity of the current environment.

Currently, the organizational structure of SAIDAL Group has 18 divisions working with their own separate goals without a communication within them. This is the main thing that needs to be corrected. Other than those following objectives need to be set prior to restructuring,

  • Increasing the communication within the organization (inter and intra-divisional)
  • Decentralization of the span of control
  • Restructuring inside of the Research and Development division
  • Introduction of a division for International Business
  • Introduction of an outsourcing management division
  • Increasing Innovation strategies

A “Mixed” organizational structure (Matrix + Divisional Organizational Structure)

As in the previous details that to avoid the communication problem, we have to go towards matrix organization structure, but total conversion to matrix means it makes the structure much complicated. Therefore, a mix of matrix and current divisional structure is essential.

Figure. SAIDAL SARL new organizational structure

This structure provides an innovative organizational structure that allows the company improve its global performance by separating the R&D department center from the functional directions and splitting it into highly specialized and independent units, reducing administrative costs and improving competitiveness through a targeted research and development approach based on market demand. This indirectly adds Innovation to spread throughout the System.

The above structure will increase the overall performance of the company by improving production and distribution methods, efficiency and productivity, administrative and procurement costs, employee job satisfaction and business relationships.

Span of Control

Divisions, networks, and funds should be better adapted to the company’s objectives rather than traditional functional hierarchy. The corresponding concepts are usually grouped under the term “flat hierarchies” and presented, for example, in the form of a circle (e.g. in the case of circular organizational structures):

Figure. A flat hierarchy within a matrix organizational structure

Management is not represented at the top but in the middle of the organization. The CEO intervenes less directly in the work of his employees and instead communicates his corporate visions from the inside. There are only a small number of levels in middle management so that each of the department heads is responsible for a larger number of employees, but the management chains are shorter.

Flat hierarchies are therefore increasingly based on personal initiative and individual responsibility of employees (Hunter, 2002).

At the same time, they make it possible to provide feedback directly to the right person instead of having to transmit ideas through traditional and sometimes tedious procedures. While traditional concepts provide for a relatively tight separation between semi-autonomous departments especially the R&D ones, the boundaries are less strict within flat hierarchies.

R&D center shall be divided into highly specialized units, responding to the market demand. This allows greater flexibility in work organization and would potentially increase the employees’ motivation.

Advantages of the Restructure

Once the restructure in place following advantage can be gained,

  • Increased communication within the organization
  • Higher work efficiency
  • Supporting innovation
  • Increased employee satisfaction
  • Greater collaboration and motivation within the team

Possible Disadvantages

Risk of conflicts and communication problems and unsuitability with decentralized operations. Decision-making circuits can become very long.  Without unity of command, it sometimes becomes difficult to make decisions or reach compromises to develop a common vision.

Challenging the principle of the hierarchy can lead to numerous conflicts between managers and thus hamper the implementation of the strategy in question (Larson & Gobeli, 1987). Greater difficulty in establishing a global corporate culture, redundancy of posts and higher costs (Fairfield, 2016).

Other than that when implementing this kind of structural change it is essential to follow a method of change management like Kurt Lewi’s Change Management Model. If not cultural and hierarchical issues may arise as this will become a radical change in the terms of this organizational context when implemented.

Changes to Value Chain Structure

As provided in the suggestions it is needed to implement changes as well to the value chain ones the restructuring is done in order to gain the maximum efficiency and the effect for productivity. Therefore, following value chain in proposed for action in terms of combining human resource management and finance division as a collaboration for the activities of pharma production.

This structure will create the coordination between each division of the traditional chain while adding the expertise of Human Resource Management for outsourcing and getting the open innovation to the organization and with the Finance division to get it at a highest profitable and efficient manner.

Conclusion

This restructuring is done with the effort into a development effort. R&D remains more rooted in organizational charts than in reality. Organizational Change is inevitable for the survival of SAIDAL SARL in so far as it facilitates the implementation of the business strategy discussed in part 1. It has also a positive impact on global performance.

First of all, change is expected at the employee level since the employee is at the heart of the company well-supported change will have positive effects on him/her: motivation, involvement, development of knowledge and skills through learning and cooperation.

It can be concluded that a mixed organization structure of both matrix and divisional features is ideal for the SAIDAL Group while having a change in the value chain.

References

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Strategic Management & Leadership Analysis in a Pharmaceutical Company

SAIDAL SARL Group is a pharmaceutical manufacturer in Algeria which has a history of more than 30 years. But after 2010 the company has faced financial crisis slowly which brought it to the level of bankruptcy. This was a gradual change and at a glance, it can be identified that if closely monitored the disaster would have been controlled. Now that it has happened, it needed to implement a strategical plan to set SAIDAL in a new direction to get its body back on track with a greater goal to achieve more.

Recent studies have shown that the main reasons for the disaster are:  the inappropriate resource allocation or investments, lack of monitoring of finances, structural errors of the newly appointed top management in 2010, also strategic decisions, errors in the value chain, etc. These were obtained by the external and internal environment analysis.

The aim of this work is above all to formulate a new business strategy R&D-open-innovation-oriented and focused on biotechnology to face challenges affecting the company’s global performance. Through critical analysis, I’ll try to highlight the relationships that might exist between this strategy, stakeholder expectations and the organizational effectiveness, and thus elaborate based on other similar and successful business models a reasonable implementation plan for the real-world environment that would make such a transition possible.

Introduction

What is SAIDAL Group?

SAIDAL Group is a pharmaceutical company in Algeria currently with a Capital of 2.5 Billion Dinars. 80 percent of SAIDAL Group’s capital is owned by the state and the remaining 20 percent were sold to institutional investors and individuals in 1999. The restructuring process in 1997 contributed to its development into a manufacturing company with three divisions (Pharmaceutical, Antibiotics, and Biotech).

Mission

  • Ensure strategic stability and profitability in safeguarding its financial flexibility, maintaining constant development of its goods ‘ quality, attaining its growth targets and improving its human capital.
  • Achieve the State’s defined goals as the primary owner/shareholder.

Why SAIDAL Group?

SAIDAL group is a company with a greater history in the pharmaceutical industry of Algeria as well in the international context. From its starting in the year 1985 up until around 2010 it performed well, but now the company is in a phase of declining where the strategic decline has commenced due to several reasons. Therefore, for the assignment this organization becomes an ideal candidate and in the next chapters’ evaluation of the current strategic position of the company will be analyzed along with the pros and cons that will give out good understanding where the company will be heading. Next, strategic suggestions and a fully pledged plan will be presented.

Current Strategic Position of the Company

SAIDAL Group was performing well in the initial stages prior to 2010 before the restructure was introduced. In the year 2017, the company revenue was only estimated at 84 USD Million and that was not enough to cover their investment made from the year 2010 150 USD million per annum. Therefore, by the year 2017 SAIDAL group is at a level of bankruptcy. At that moment the company had 2357 employees on board  (SARL, 2017).

Figure 2- SAIDAL Group Revenue 2006 – 2017

The concept of a firm in difficulty has only recently been introduced. Although this term has taken over from the traditional term “bankruptcy”, the two terms are not superimposable and do not in any way reflect the same legal approach. A firm goes through several stages before reaching the irremediable stage of bankruptcy.

A failure is first and foremost an economic event since it is the result of the company’s economic and financial difficulties. However, it is also a legal event, given the importance of the law in initiating recovery measures. Thus, it seems appropriate to devote a part of the present work to the legal framework of the Algerian company in difficulty.

SAIDAL group was performing well in the earlier stage but the turning point of this kind of bankruptcy occurred at the point of changes that were introduced in the year 2010 by the change of the top management.

SAIDL was it running smoothly?

The concept of a firm in difficulty presupposes that the firm has ceased to operate smoothly. A break in the continuity of its operations has occurred, will occur or is likely to occur. Similarly, SAIDAL was operating much smoothly prior to 2010 as the company was having three subsidiaries to operate separately in the pharma sector, antibiotic sector and biotic sector. During that time, their operation was much successful and the sales were growing rapidly with each year 1.23% increase in acquiring the international market especially in the South Asian region which was a much difficult entry for the other competitors. At the beginning of the year, 2017 firm was therefore not yet in a state of cessation of payments, characterized by the impossibility of meeting current liabilities out of available assets.

Jean Brilman adopts a fairly broad concept of a company in difficulty: “it is not only a company that is in financial difficulty (the immediate consequence of other, much deeper problems), it is also a company that, encountering or anticipating difficulties, takes immediate action to avoid financial problems: little or no profitability, difficult economic conditions, declining business volume, deterioration in the social climate, conflicts, etc.” (Brilman, 1978). Similar is what happened for SAIDAL at the initial stages there financial states were at a greater level as they had a lot of financial reserves stored from the earlier profit. Their liquidity ratios were at a greater level with a value of more than one  (SARL, 2017).

Beyond that, the notion of a company in difficulty does not necessarily refer to the idea of financial difficulties but reflects a different approach to the operating incidents that companies may encounter. Indeed, it incorporates an essential idea: prevention. SAIDAL management understood the situation by the year 2015 and took action to fix the issue but the prevention was not done. Actually what lacked in risk management. Therefore we can conclude that SAIDAL SARL was running very well and had a greater throwback due to some reason, that is what needed to be analyzed using this report.

The failure process of SAIDAL Group

Figure 3 – Failure process in a nutshell

As per (James Kolari, 2002) failure process of a large organization happens first in terms of economic, commercial and then followed by financial decline. SAIDAL group is an ideal example for such a consecutive failure or bankruptcy in their domain and the saddest part it while all of this process is happening none of the top management noticed any of these or no action was taken to fix this. Following are the details of the step by step financial failure of SAIDAL group according to their report (SAIDAL SARL, 2017).

Economic regression

The company’s performance is based on three factors which are: production cost, quantities sold and prices. Each of these factors is subject to the constraints of environmental variations. Depending on the nature of its activity and its situation in its environment, the company’s performance is more or less sensitive to some events: increase in the prices of raw materials, wage increases, competition, technological innovation.

Table 1- The most important investments in the pharmaceutical sector in Algeria (Ghebbi, 2010)

Company Country Investment in USD Rank
Sanofi-Aventis France 320 Million #1
Hikma Pharma Jordan 165 Million #2
Saidal Algeria 149 Million #3
GSK United Kingdom 142 Million #4
Novartis Switzerland 129 Million #5
Pfizer United States 111 Million #6
Novo Nordisk Denmark 85 Million #7
MSD United States 85 Million #8
Roche diagnostics France 85 Million #9

The new management program was appointed in the year 2010, established with the aim of expanding the business at SAIDAL. The directorial board took some kind of regressive investment decisions to work in line with the other competitors in the industry and come ahead of the competition.

  • Increasing investment to establish a new factory with USD 100 million
  • Increased Research and development investment up to 40 USD million from 20 USD million which was the earlier

While all of that investment was increased there was an increase in the mineral prices where the materials needed for pharmaceutical manufacture like Rutile, Zincite, Periclase, Hematite, etc were increased in price due to new tax revisions. Therefore the economic regression began for the SAIDAL.

Table 2 – SAIDAL  R & D Expediture Chnage – 2001 -2008

Indicator 2001 2008
Workforce by category

·                     Executives

·                     Supervisors

·                     Agents

 

1103

1371

938

 

1883

2004

583

% of employees in R&D 4,86% 6%
Average monthly gross pay per employee, DA 32,000 DA 57,000 DA
% of trained employees in one year 40.41% 39.71%
% Training expenses 0.59% 0.39%
Training budget/Wage bill % 2.36% 1.47%
Average training expenditure per trained employee, DA 22,480 DA 25,352 DA
Number of accidents at work weighted by severity rate 20.8 12
Source: academia.edu

Commercial decline

It may be abrupt, gradual or latent and concealed. It is characterized by a fall in sales or a drop in the gross margin rate, or both successively or simultaneously. Due to the above-mentioned reasons, the cost of production increased at SAIDAL making the average margin per pharmaceutical, biotic, and antibiotic to decline up to 17%, 19%, 15% respectively. Earlier these values were 38%, 43%, 32%. That became a huge drop for the company and gradually up until 2017 these values have dropped gradually. As the sales volume increased a little there was a remarkable revenue but that was not enough to cover the cost of the sales and the investment.

Financial decline

If the company does not react, is not flexible and cannot find new markets, while reducing its structural costs, then a financial decline might begin. It is most often the consequence of an uncontrolled commercial decline. The insufficient margin no longer allows the company to cover its structural costs (Senturk, et al., 2006). Similarly, SAIDAL lost the margin making the path to loss of markets and the works part is that there their investments has gone wrong making company much more susceptible for the bankruptcy. By the year of 2017, their liquidity has gone down, having a very low quick ratio in terms of finance and the top line bottom both growths has declined.

Strategic Management

According to Alfred Chandler, a strategy is an act of determining the fundamental long-term goals and objectives, putting in place the actions and allocating the necessary resources to achieve those goals (Chandler, 1990). Prior to developing a strategy, we should find out where an organization lies now and what are the factors that will affect the current status and successful strategic management in managing these factors effectively and efficiently to gain competitive advantage and bottom-line growth.

Strategic Management Process

The strategic management process consists of five main steps: 1) Initial analysis (understanding the strategic context) 2) Internal and external analysis (planning the strategic approach, analyzing environment, resources, identifying opportunities, threats, strengths, and weaknesses) 3) Formulation of the business strategy (developing a strategy) 4) Implementation 5) Evaluation of the results (Figure 1).

Figure 4. Business Strategy Framework

Strategic management is a continuous and systematic process during which the company’s leaders make decisions that will have consequences in the future, develop plans and programs to implement the decisions and achieve the set objectives, and finally, evaluate performance. It is also a unique opportunity to unite management, employees and various stakeholders as well as customers in a common reflection to understand where is the company and where it wants to go (Nag, et al., 2007).

Throughout the strategic management process, the company must focus on the needs (expressed and experienced) and expectations (expressed and unexpressed) of customers (current and future) and stakeholders (suppliers, human resources, management, partners, shareholders) in order to offer them satisfactory products and services meeting their needs and expectations (Riege, 2005).

Environmental Analysis of SAIDAL Group

Figure 5. The Components of a Business Environment

The survival of the company is directly linked to its dependence on external actors. The importance of the company’s external environment can be understood here in terms of the extent to which it has developed a certain degree of dependency on its environment.

Macro Environment

A company’s analysis of the environment has a twofold objective:

  • to evaluate the various elements that may affect its activity;
  • to identify environmental opportunities or threats;
  • to identify external factors over which the company has no control and which also influences its orientation.

We must therefore briefly analyze the external environmental factors (micro) that have or could have an influence on the company’s growth and profitability prospects as well as on its situation in the market. The analysis of the external environment will lead to identifying external market opportunities as well as external threats that could affect the company’s operations in the short, medium or long term.

PESTLE Analysis of SAIDAL Group

In business strategy, the PESTLE analysis (political, economic, sociological, technological, environmental and legal) is a model for identifying the influence (negative/positive) that macro-environmental factors can exert on a company (Holland, et al., 2004). However, the PESTEL or PESTLE analysis is not a reference, but a mnemonic tool that makes it possible to carry out an external analysis more simply and thus be able to produce a SWOT matrix.

SAIDAL and its competitors are generally companies that are not really known and established in a specific field that is difficult to grasp, partly because of the complexity of the products manufactured and sold and partly because of their equally difficult environment.

Policy

A company like SAIDAL is present in multiple countries and is also active in a market that is facing both globalization and health issues.

Thus, in addition to having to deal with the political environments of trade and tax laws, SAIDAL must also comply with the social protection requirements of the countries it serves.

Economic

The growth rate is gradually picking up again in most countries in the world, even if it remains insignificant (in Algeria, it is around 1.5% according to World Bank (WorldBank, 2019)). On the other hand, developing countries are an increasingly important target for any market, and even more so for pharmaceutical companies.

Socio-cultural

In Algeria, as in other countries, the consumption of medicines is an increasingly important part of health care expenditure and weighs heavily on health insurance, household, and state funds. This growth is the result of several factors and particularly of the socio-cultural transition that has characterized the Algerian society in recent years (Farida & Brahim, 2012).

Technological

Technology is the source of business power. In order to control the local pharmaceutical market, SAIDAL uses the latest technology, its control over the sources of supply of raw materials and intermediate products and over marketing networks, its management machine, its easy access to financial markets, etc. However, the industrial capacity of its subsidiaries operating outside the country is oriented towards products that consume imported pharmaceutical substances at prices that are often abusive.

Ecological

This is one of the black spots: the company being in the ecological trend, the synthetic drug has a bad image, in addition to coming from production lines mixing non-renewable elements such as solvents, or organic waste.

Legal

Fortunately, the pharmaceutical market is closely monitored in many aspects. SAIDAL’s business is significantly affected by patents, drugs, and their respective marketing authorizations, either under medical prescription or over-the-counter. It is one of the most challenging environments in which to operate, without a doubt.

Also, the newly introduced tax system for the pharmaceutical raw materials has become much of a burden for the industry.

Porters Five Forces Analysis of SAIDAL Group

Porter’s Five forces is a model that defines and analyzes five strategic powers affecting any market and helping to identify the vulnerabilities and strengths of a business. The study of the Five Forces is also used to describe the function of a market when deciding on business strategy. When it comes to strategic position determination of an organization like SAIDAL this step is very crucial to get an understanding of the current pharmaceutical industry status in Algeria.

Bargaining power of the buyers

The bargaining power of the buyers is very high as the number of patients, doctors and hospitals is very high throughout Algeria and also in the international context. Other than that the switching cost from one brand to another is very low in this industry in the majority of the drug types. It can be concluded that the bargaining power in this industry is very high.

Bargaining power of the suppliers

The bargaining power of the suppliers is very low in this context and that happens as there is much more possibility for the import of raw material rather than sourcing locally. But the same thing caused the decline of SAIDAL due to tax changes.

Threat of substitutes

This is very low in this industry as most of the products are generic items and the only limited number of alternative treatments available such as implants, surgery, homeopathic therapies, etc.

Risk of new entrants

There is a long lead time involved in the research and development in this industry, thing SAIDAL SARL has successfully completed years ago, other than that need of distribution channels, marketing teams, patent portfolio databases along with higher investment make new entrants a nightmare to this industry.

Rivalry among established firms

There are more than 20 players registered in this industry of Algeria which is considered as large scale / commercial pharmaceutical producers. Therefore the price competition is so much along with the new product introduction which makes the company with the highest technological Research & Development teams win. Also one of the major rules in this industry is the ‘first to market’ rule that makes a company succeed as well as decline fast.

So it is evident that SAIDAL group has taken above strategic decisions by identifying how the market works but the problem is that they didn’t identify the other factors and the internal environment of the business.

Micro Environment

SWOT Analysis of SAIDAL Group

Table 3- SWOT Analysis of SAIDAL Group

Strengths Weaknesses Opportunities Threats
Market leader in the latest generation of antibiotics

 

Sales Increase

Financial stability (lexpressiondz.com, 2017)

Decrease in R&D

 

Higher employee turnover ( lower retentions)

Increase in health issues

 

Rising population and living standards

 

The exponential growth of products on the biopharmaceutical market (vaccines, biotechnologies, etc.)

 

International possibilities in the Asian region

Generic drugs

Complex and rigorous regulations related to drug registration

 

Increase in counterfeiting

 

The government revised the tax system

 

 

The strategic management key is to converts threats and weaknesses of the SAIDAL Group into opportunities in order to get out of the level of bankruptcy.

Business Strategy

Strategic Objectives

The following objectives were set in order to get out of the current financial situation by taking the strategic planning duration to be five years. Findings from the internal and external analysis have been used for the formulation,

  • Increase the profit margin of every product type to be more than 30% by adapting an operational optimization process by the year 2022
  • Reach the net profit of 400 USD million by the year 2022
  • Increase the efficiency of the R & D division by innovation-based techniques with the aim of giving out minimum new product per year
  • Increase the local market share to 40 % by the year 2022 (currently 16% market share)
  • International market acquisition in terms of 20% total sales acquisition by the end of the year 2022

A Research and Development strategy (Functional Strategy) to Face the Current challenges

SAIDAL group, as well as the others in the pharmaceutical industry traditionally intensively based on R&D, has gone through a series of institutional and technological “shocks”. However, the core leadership of the respective department has remained sufficiently small and stable over a long period of time.

Industrial dynamics in the pharmaceutical industry are intimately linked to three specific key factors:

The nature of drug discovery processes, otherwise the properties of the technological opportunity space and the research procedures by which firms explore this space.

The fragmented nature of the relevant markets where research activities are relatively limited. Specifically, innovation processes are characterized by a long period of time during which the cumulative dimension is quite small and by “quasi-random” research procedures (random screening). Thus, innovation in one market (or therapeutic class) does not induce a greater probability of success in another market.

The type of competition and the role of patents. The pharmaceutical field is representative of those sectors where patent applications or models reasonably affect the competitive process.

Therefore, the major task for achieving the strategical success of the SAIDAL group depends on the hands of the research and development team and therefore this strategic plan mainly focuses on creating R&D stronger to gain the above mentioned SMART strategic objectives.

Biotechnology, a strategic field to exploit

The future of the pharmaceutical industry is thus taking on a new face, that of the “multi-buster” model, manufacturing specialty products, more oriented towards personalized medicine focused on small populations. The first discoveries on the human genome have given new directions to pharmaceutical R&D. As a result, nearly half of the new treatments launched on the market since 2003 are derived from biotechnology (Bertrand, 2000).

Figure 6- Top 10 drug sales by Evaluate Pharma

This chart from a report of Evaluate Pharma, one of the top 10 pharmaceutical producers in the United States shows that the top 10 drugs by sales are all biotech products, in red sales in 2018, and the shadow in grey represents the sales in 2017.

Therefore the SAIDAL group has a greater opportunity to enter into biotech products which will be the greater solution for their financial crisis as when biotechnology is involved, the cost of production as well the demand rises up.

The strategic choice of open innovation in biotechnology

Biotechnology has created an unprecedented innovation crisis in the pharmaceutical industry. The skills required are more advanced and diversified, and competition is upstream. Due to employee turnover, many of the skilled employees has left the R&D division making a challenge for them to engage in innovation bases biotechnological pharmaceutical formation.

To stay in the race, the best option is to turn towards open innovation, through various practices: alliances with start-ups, research partnerships with peers and many more.

Competition is becoming more and more established upstream of the innovation process, making the need for an innovation cycle to be narrow or shorter so that it will keep SAIDAL in the loop. The competition takes place in the acquisition of scientific and technical knowledge, which is often present outside the company’s borders. Thus, even the most competent R&D organization needs to connect to external sources of knowledge in order to innovate. This is the theoretical concept of open innovation.

There are 26 universities within Algeria itself and among that there are 14 universities that have biotechnology facilities which make eventually the best hub for open innovation.

Redesigning the Value Chain

The traditional value chain of the SAIDAL Group is just straight forward and only involves very small parties and that makes loopholes which eventually lead to loss of revenue as well the inconsistencies in raw material acquisition.

Even though there are around 2300 employees in SAIDAL their distribution is therefore restricted mostly for procurement, production, and marketing which are the primary value chain components. But it needs to be incorporated also with other supporting activities. The modified value chain can be generated as follows:

Figure 7 – Proposed Value Chain of SAIDAL Group

This will include a direct involvement of human resource division for the handling of the talent acquisition and monitoring of the R&D and other major divisions and also the involvement of the Finance and control division to handle all of the financials Realtime allowing the use of resources effectively and efficiently.

The implementation plan

The creation of an implementation plan is structured along several axes that define the growth of the company. It is defined by the act of determining the fundamental long-term goals and objectives, implementing actions and allocating the resources needed to achieve those goals.

Gantt Chart of Implementation

Table 4 – SAIDAL Strategic Change Implementation Plan – Gantt

4.1 Resources allocation

Human resources: The pooling of the brainpower of researchers from the ‘Inflammation and Immunology’ Division, they will be assigned to work in cooperation with the chosen startup on the biosimilar drug with collaborative research with selected 5 universities in Algeria

 

Physical and technological resources: The pooling of devices and all materials to conduct research and development in a cooperative context along with the reach of international partnership with SAIDAL and the other giants in the western countries like USA and Germany.

Financial resources:

To establish the estimated cost of the project, a list the direct and indirect costs should be established:

Direct costs

  • Salaries of internally mobilized human resources, according to the hours planned for them to work on the project;
  • The cost of external human resources;
  • The cost of purchasing and/or renting equipment, supplies, and materials (rooms, computers, software, building materials, tools…);
  • Any travel expenses.

Indirect costs

  • Overheads (or operating costs): these are all costs of the project other than labor and material costs, i.e. accommodation, heating, communication, external services, etc.;
  • Management costs such as salaries for the company’s transversal services (administration, marketing, finance, accounting, etc.).

Conflicts and Issues in Implementation

This process becomes a radical change that needs to be implemented quickly in order to take back SAIDAL to the prosperous age that it had earlier giving up bankruptcy. Therefore, some kind of theory like Kurt Lewin’s Change Management needs to be adapted.

Kurt Lewin’s Change Management Model use in SAIDAL

Kurt Lewin’s change model has three steps that include unfreezing, change and refreeze.

Figure 8- Kurt Lewin’s Change Model

In the environment of SAIDAL this can be implemented in order to get the desired change, First, need to be done the unfreezing by first making the employees aware of what the situation that SAIDAL is currently in and why this change is needed. Then with the involvement of the top management itself, change can be introduced to the employees and they will embrace it willingly. Once the change is established it can be made to refreeze by providing some kind of incentives, bonuses, etc to them.

Projected Profit & Loss Account

Table 5- Projected Profit & Loss Account for SAIDAL Group 2020 – 2023

USD Million
  2020 2021 2022 2023
Income 450 640 850 1000
Cost of Sales 150 220 350 350
Gross Profit 300 420 500 650
Administration expenses 60 70 73 80
Marketing & Promotion 50 50 60 70
Other (20) (20) (30) (40)
130 140 163 190
Net Profit 170 280 337 460

Conclusion

It can be concluded that SAIDAL group was a very well-established group that had fallen finically up to bankruptcy due to lack of monitoring of their process and also due to value chain changes and the investments that are done without considering other factors. These reasons were justified with the internal and external analysis conducted and can be concluded that the organization needs a strategic change.  This change can be successfully implemented by doing a change to the structure of the company by paying more attention to the research and development department but with much monitoring of resource and fund allocation. The next strategic change is to implement structural change, involving human resource management to monitor and control talent acquisition and finance division to real-time control finance allocation. After implantation of these strategic changes successfully, it can be guaranteed that SAIDAL can reach the given strategic objectives in no time.

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