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Every business aspires to grow over time. Even this phrase is becoming redundant now as the fortunes are being made and lost in short spans of time in the digital world. But we are talking about regular businesses which are established and run and grown over time.
My context is as usual Pharma Industry and the setting is Pakistan.
When I started working 46 years ago, every company, even the biggest ones, were actually small. They sold products across the country, but the scale was always small. The smallness showed in everything: the offices were small, production units were small, there were few employees, and the revenue was small. The overall size was small and limited. It was true for multinational companies who had over a hundred-year history, and it was truer was Local Pharma who had 15-20 years history. The time was mid-seventies. And we must relate business sizes to the overall economic conditions.
During the 1980s, things started changing. Economic conditions got much better. Money started flowing in from expatriates and due to influx of foreign currencies thanks to Afghan war. People had more expendable income and this influenced the spending on healthcare also.
On the Pharma side, the generic industry found the courage to launch generic versions of new drugs alongside their old, traditional products. The market expanded rapidly, and the trend has continued since then. Today, Local Pharma companies are raking in billions of rupees. They have overtaken all MNCs, barring one, and have become cash rich. Surplus cash brings the luxury to invest further, and the affluence cycle keep gathering more force. Money begets money can be seen clearly in Pharma business presently. It is the same with others also.
Money also brings power and the larger businesses like textiles have powerful association and lobbies to get policies made in their favor. Pharma is extremely weak in this area. The MNCs have a separate body called Pharma Bureau. Local Pharma have their PPMA – Pakistan Pharmaceutical Manufacturers Association which has not been able to do significant work on the policy side. More on that in a separate blog. Our current topic is scaling up.
About twenty years ago, an owner director of a medium size company asked me this question. Why is it so that when a local pharma company reaches 300-400 million rupees turnover (it was quite big at that time, not now), It prefers to raise another company from the beginning, rather than expanding the same one? I did not have a concrete answer immediately and I said so. I said it was an important question and I shall try to understand and discuss. After a few days we talked again. I told him that it appeared to be linked to ‘Capacity’, capacity of the people, processes, and systems. The owners knew only how to handle so much volume, production, supply chain, logistics, sales, revenues etc. When it exceeds, they resort to restarting the process by establishing a new corporate.
Since then, I have been able to learn more, observe more and experience more through being a part of such growing organizations.
Scaling Up is a challenge and must be taken up systematically. This is still among our weakest areas. We shall discuss this topic in a few blog posts. Recently, I read an article in Harvard Business School Working Knowledge by Julia B. Austin, who is a senior lecturer at Harvard Business School in Business Administration. She also has experience of working in the industry and she draws upon that also. The link to article appears below. Local Pharma Industry of Pakistan has its own peculiarities which are not studied by any business school of Pakistan. They prefer to buy and teach international case studies which are not entirely applicable here.
Our handling of scaling up challenge starts here.
Adding More People
This is the first response in all departments. The demand comes from the departmental head and the pressure keeps mounting. The sales have increased, so the sales team head(s) wants more salespeople. Number of employees will increase, so the HR needs more staff to handle their matters. Revenue has increased, so the finance needs more staff. Demand for production has increased, so the production needs more staff in production, quality, warehousing, logistics etc. More materials are required, so the supply chain needs more staff. The demands are persistent and keep getting louder every day. The question is, Is increasing the number of people solution to all capacity issues?
We shall look at it in the next post.
To be Continued.…..
Disclaimer. Most pictures in these blogs are taken from Google Images which does not show anyone’s copyright claim. However, if any such claim is presented, we shall remove the image with suitable regrets. https://hbswk.hbs.edu/item/how-scale-changes-a-manager-s-responsibilities?cid=spmailing-33563290-WK%20Newsletter%208-4-2021%20(1)-August%2004,%202021