BENCHMARKING IN NIGERIAN PHARMACEUTICAL INDUSTRY IMPLICATIONS FOR ORGANIZATIONAL GROWTH

ABSTRACT

This study seeks to determine the effect of benchmarking on transparency among Nigerian pharmaceutical companies. It examined the effect of benchmarking in pharmaceutical firms on end-users of pharmaceutical products, the relationship between benchmarking and the profitability of Nigeria’s pharmaceutical firms and the relationship between benchmarking and growth of pharmaceutical firms in Nigeria. The study adopted descriptive research design. The population of the study comprised of managerial, senior and junior employees of registered pharmaceutical companies in Lagos state. The Taro Yamane formula was used to determine a sample size of 324 for the study. Data collection was through questionnaire structured in 5-point likert-scale and oral interview. The reliability of the instrument was established through Cronbach alpha, the value obtained was 0.87. The Chi-square (X2) statistical tool and Pearson moment correlation were used to test the hypotheses at 5% error. The result emanating from the findings indicate that benchmarking has significant positive impact on firm level transparency of Nigerian pharmaceutical firms (Xc2  = 115.72 > Xt2  = 23.3 and p < 0.05), benchmarking has significant positive impact on the end-users of Nigerian Pharmaceutical firms’ products (Xc2  = 35.08>  Xt2    =23.3  and  p  <  0.05),  there  is  a  positive  significant  relationship  between benchmarking and profitability of Nigerian pharmaceutical firms (correlation coefficient (r) = 0.935 and p <0.05) and there is a positive significant relationship between benchmarking and growth of pharmaceutical firms in Nigeria (correlation coefficient (r) = 0.985 and p < 0.05). The study thus recommends that pharmaceutical industry in Nigeria should adopt benchmarking in line with world standard that will enhance good health care system in Nigeria, that processes and procedures involved in benchmarking in Nigerian pharmaceutical industry should be encouraged.

1.1 Background of the Study

CHAPTER ONE INTRODUCTION

One of the most important approaches in business strategy in recent time is benchmarking which is relatively recent discipline that deals with new paradigm shifts in integrating operations at adopting product companies (Lapide, 2005). In this strategic approach, firms constantly scan the environment to find out the best practices. After understanding this practice, it is incorporated into the firm, to enhance competitiveness. Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests and/or best practices from other industries  (Lapide,  2002).  The  concept  is  elaborated  as  the  analysis  and  learning  the  best practices, and incorporate the same either directly or adapting the practice to ensure cultural fit in to the organization for improved outcomes (Chiplunkar, 2010). In the pharmaceutical industry for instance, if many diclofenac brands are being launched, the companies benchmarking the market activities, start launching their own brands of diclofenac to get a slice of the market. Here the benchmarking effort has helped in new product launch. Benchmarking in a way is copying the best practices.

The term benchmarking was first used by cobblers to measure people’s feet for shoes. They would place someone’s foot on a “bench” and mark it out to make the pattern for the shoes.  The formalization of benchmarking as an instrument of managerial practice, and its widespread use within change initiative such as business process redesign, TQM, reengineering is relatively recent and was developed by Xerox corporation in the late 1970s (Fong et al,2001:306-316). Xerox Corporation was the market leader for the sale and rental of photocopy machines until

1975. However, by 1980, Xerox had lost virtually 50% of its market share and competition in the business was intense (Deros, 2004). The main competitors were cannon and Ricoh, Japanese companies which match Xerox‟s quality, reliability and service but better on price (Amir, 1994). If Xerox was to remain as market leader, they need to change their business approach and renew their customers‟ focus. In an attempt to gain back its market share, Xerox compared its operation and quality standard to its competitors (Ramabadron et al., 1997: 47-58). Using Fuji-Xerox, which won the 1980 Deming prize, as the role model, they realized that there was a need to

change the corporation‟s culture and management style (Amir, 1994). Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others (Camp, 1989).

Dimensions typically measured in benchmarking are quality, time and cost (ITEM, 2010). In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful. The ultimate goal of ‘managements of enterprises’ is to constantly improve productivity (Kruttens, 1999: 14-

22). For knowing how to do this, knowledge sharing of practices is vital. Benchmarking helps in this regard.

Imagine the database of a pharmaceutical marketing company in Nigeria which has mapped the Marketing Research (MR) reports over three years. Based on this historical data, the Information Technology group can provide an e-mail to each MR, suggesting to the MR on the important calls that can be made in the next three days, including the timings of the calls, and the products to focus on. This concept can help reduce planning time, ensure better call outcomes, optimize time spent on doctor visits and if the MR is new, it will provide a great helping hand for efficient planning. This is the strength of a robust benchmarking.

In 2008, a comprehensive survey on benchmarking was commissioned by the Global Benchmarking Network, a network of benchmarking centers representing 22 countries. Over 450 organizations responded from over 40 countries. Results from the study showed that, Mission and Vision Statements as well as Clientele Surveys are the most used parameter (77%), followed by SWOT analysis (72%), and Informal Benchmarking (68%), Performance Benchmarking was used  49% and Best Practice Benchmarking  39% (GSB, 2008: 176).  The study shows that the tools that are likely to increase in popularity the most over the next three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice Benchmarking. The study

also reveals that over 60% of organizations that are not currently using these tools indicated they are likely to use them soon.

In Nigeria today, the pharmaceutical companies are becoming more competitive in respect of new product innovations and market share. The industry relies heavily on benchmarking, which can help to determine where they are in relation to the industry norm, and if they are below, what they have  to  do  to  get  there.  This  raises  important  research  question  on  the  link  between benchmarking and organizational growth. This research therefore attempts to provide answer to this question by examining the implication of benchmarking on the growth of Nigerian pharmaceutical firms.

1.2  Statement of problem

With over 2 billion people lacking medicines for treatable diseases and others dying annually from infectious disease globally, there is an undeniable need for pharmaceutical firms to meet global best practices through benchmarking. Accordingly, there has been an increasing trend to benchmark the pharmaceutical industry on their performance in access to medicines. Benchmarking creates a competitive inter-business environment and acts as incentive for improving growth.  Increasing transparency through benchmarking is  a powerful tool which reveals the industry’s shortfalls to the public, affects the decisions of socially responsible investors, and is a risk to their financial bottom line.

Recently in Nigeria, there are reports that major pharmaceutical companies are launching new branded generic products to get a share of the booming pharmaceutical market.  The idea is to launch new brands that are copycat brands of successful molecules and improve sales results. This means Nigerian pharmaceutical firms are no longer relying on their personal marketing wisdom. It indicates a new openness in the pharmaceutical marketing approach. The firms too are  learning  best  practices  from  the  market  that  ensure  market  success.  One  of  the  key approaches for success in Indian pharmaceutical companies is launching branded generics. Nigerian pharmaceutical firms are betting on this game with firm resolve to achieve better performance for organizational growth.

Benchmarking however is a very new innovation especially in Nigeria and as such, empirical works  in  this  area  are  seriously  lacking.  Consequently,  there  exist  several  research  gaps

including the benchmarking strategies  being  employed  by these pharmaceutical  firms,  their transparency;  the  possible  implication  of  benchmarking  on  the  end-users;  the  effect  of  the practice on profitability of Nigerian pharmaceutical industry; and, the impact on the firm‟s growth. This research seeks to fill this important research gap and in the process propose a framework that will guide industry benchmarking among firms in the Nigerian Pharmaceutical industry.

1.3 Objectives of the Study

The general objective of this research is to examine the overall implication of benchmarking Nigerian pharmaceutical industry. Specifically, the study set out to achieve the following objectives:

1.   To   determine   the   effect   of   benchmarking   on   transparency   among   Nigerian pharmaceutical companies.

2.   To  examine  the  effect  of  benchmarking  in  pharmaceutical  firms  on  end-users  of pharmaceutical products.

3.   To determine the relationship between benchmarking and the profitability of Nigeria‟s

pharmaceutical firms.

4.   To investigate the relationship between benchmarking and growth of pharmaceutical firms in Nigeria.

1.4       Research Questions

Based on the statement of research problem and the objectives of the study, this research sought answers to the following questions:

1.    What  extent  has  benchmarking  affected   transparency  among  firms  in   Nigerian

Pharmaceutical industry in Nigeria?

2.    How   has   benchmarking   influenced   the   end-users   of   the   products   of   Nigerian

Pharmaceutical firms?

3.    What   is   the   relationship   between   benchmarking   and   profitability   of   Nigeria‟s

pharmaceutical firms?

4.    What   extent   is   there   any   relationship   between   benchmarking   and   growth   of pharmaceutical firms in Nigeria?

1.5       Research Hypotheses

Consistent with the statement of problem, the research objectives and the research questions, the following hypotheses are formulated for the study:

1. Benchmarking has impact on firm level transparency of Nigerian pharmaceutical firms.

2. Benchmarking has impact on the end-users of Nigerian Pharmaceutical firms‟ products.

3. There is relationship between Benchmarking and profitability of Nigerian pharmaceutical firms.

4. There is  relationship  between  Benchmarking and  growth  of pharmaceutical  firms  in

Nigeria.

1.6 Significance of the Study

In Nigeria, manufacturing companies are expected to produce quality products that meet customers‟ expectations. Benchmarking is more than a means of gathering data on how well a company performs against others (both in and outside the industry). It is a method of identifying new ideas and new ways of improving processes in order to meet customers‟ high expectations. It is believed that this work will x-ray the processes and procedures involved in benchmarking in Nigerian pharmaceutical industry.

This study is significant because it will create and reinforce the much needed awareness of benchmarking as a management tool that firms  in Nigerian pharmaceutical industry should embrace in order to improve the quality of their drugs. It will also help other firms in Nigeria to identify benchmarking as an important management tool that can be applied for the purpose of performance improvement. This study will also be beneficial to the end- users of products of Nigerian pharmaceutical firms.

This study is significant in the sense that firms in Nigerian pharmaceutical industry will realize that production of high quality drug is imperative for the survival of the intense competitive business environment through the application of benchmarking as a management tool. This study will also be beneficial to the government. Adopting benchmarking strategy will improve the quality of drugs which will help in improving health and standard of living.

This project work will also help fellow researchers who will make use of it in future for the solution of similar problems. It will also help pharmaceutical industry to look into them and appreciate their own practices, then look outside their own practice (best practice) and make comparison. This will result in a shift in business culture and provide environment for change.

The  study  will  help  firms  to  set  up  standards  and  eliminate  the  issue  of  organization conservatism so as to give room for comparison, bring about competition and help other firms to target for continuous improvement processes.

Finally,  it  will  make  firms  to  set  up  functional  standards  that  will  help  in  bridging  the performance gap whether in their management process and further create awareness for improvement and competition and for the firm‟s superiority.

1.7       Scope of the Study

The study assessed benchmarking in the Nigerian Pharmaceutical industry:  Implications for Organizational Growth. This means that the study was designed to find out whether pharmaceutical industry in Nigeria is aware of the numerous benefits that could be derived when benchmarking is applied in its operations despite the problems they encounter while trying to benchmark.    The Transparency in the Benchmarking strategy adopted by Nigerian Pharmaceutical Companies, the Impact on end-users, Profitability and Growth rates are the major parameters  to  be used  to  measure the impact  of benchmarking  in  Nigerian  Pharmaceutical Companies.

However, the Research  was carried out in Evan Medical PLC, Emzor Pharmaceutical Industries Limited, May and Baker Nigeria PLC, Fidson Healthcare PLC and Mopson Pharmaceutical Industries Limited, which are located in Lagos State, Nigeria. These firms were selected because they have met the global best practices through benchmarking.  The period covered by the study was  2009  to  2011.  This  is  because  the  pharmaceutical  industry  experienced  sub-standard products during the period.

1.8       Limitation of the study

This study is limited by the factor mentioned below

Attitude  of  the  respondents:    Often,  most  respondents  of  the  different  companies  were unwilling to cooperate, for fear of disclosing the true position of the company‟s activities. Some of the companies were unwilling to allow the researcher have access to their operational techniques. Others were apprehensive of the researcher‟s intention suspecting that she may sell their organization‟s information to their competitors. These problems limited the availability of some of the vital data needed for the investigation.

The limitation notwithstanding, the findings of the research still remain valid.

1.9       Profile of the Selected Organization

Evans Medical Plc

Evans Medical Plc is one of Nigeria‟s largest pharmaceutical Manufacturing Company, It started business in Nigeria in 1954 and has since then been committed to Research, Development and Manufacturing of safe and effective medicines and nutraceuticals of highest standards. Evans Medical Plc has its manufacturing facility located at Agbara in Ogun State and a Corporate Office at Isolo in Lagos State, Nigeria.  The company‟s numbers of Employees as at 2009 were

339.

The Product ranges of Evans Medical Plc are well over thirty and are household names across Nigeria and the West Africa sub region. Amongst which are, Multivites, Cofta, Vanclox, Rapidflox, Amovin, Ferbelan, Dequadin Lozenges, Allenburys Glucose-d, and Calamine Lotion etc.

In other to increase the revenue base of the company and to ensure that it does not only remain competitive but also relevant in the Healthcare services now and the future.

Evans Medical Plc undertook a restructuring that saw the company metamorphosizing into four different companies.

The four companies are;

1. Evans Medical Plc [Holding]-Manufacturing, Sales and Marketing of OTC-Products.

2. Evans Nutraceutical Ventures Limited

3. Cipla Evans Nigeria Limited

4. Evans Healthcare Nigeria Limited.

Evans Medical Plc celebrated 50th anniversary on the 26th of June 2004. The company new logo

[Evans the hope] was also launched at the occasion

Management Team

Evans Medical Plc has a twelve member Board of Directors comprising of seven non Executive Directors and Five Executive Directors with Chief S.A.Edu as the chairman and Dr. Kiran C. Virat as the Group Managing Director

The Group Managing Director is assisted by the other Executive Directors and Nine Senior

Management Staff in the day-to-day running of the business.

Name Changes

1.   Evans Medical Plc was incorporated in 1954 under the name Allen & Hansbury Nigeria limited.

2.   In 1958, the company was merged with Glaxo Laboratories Limited.

3.   In 1970 the name of the company was changed to Glaxo Nigeria Limited

4.   In 1976 the company name changed to Glaxo Nigeria Plc, [indigenization policy].

5.   In 1994, the name finally changed to Evans Medical Plc

Transformations

Evans Medical Plc was incorporated in 1954 and started with the sale and marketing of products of Allen & Hansbury, United Kingdom. The company, in 1958 merged with Glaxo Laboratories Limited United Kingdom and began the sale and marketing of Pharmaceutical products.   In

1963, the company started local manufacture of drugs from basic raw materials. In 1970, the name of the company again changed to Glaxo Nigeria Limited to emphasize its association with Glaxo group of companies and later

to Glaxo Nigeria Plc due to indigenization policy. On 30th of March 1994, the name of the company finally changed to Evans Medical Plc

Emzor Pharmaceutical Industries Limited

Emzor Pharmaceutical Industries Limited, a subsidiary of Emzor Chemists Limited, is a wholly private indigenous pharmaceutical manufacturing company incorporated in Nigeria in 1984 for

the purpose of manufacturing high quality pharmaceutical products and medical consumables. Its holding company, Emzor Chemists Limited opened for retail business in January 1977 at number

1 Fola Agoro street, Abule Ijesha,Yaba, Lagos. The company‟s numbers of Employees as at

2009 were 525.

The rapid growth of the retail business encouraged Emzor Chemists Limited to venture into the importation and wholesale of assorted pharmaceuticals. The idea to manufacture locally came later and this was predicated on the need to develop local capability, create jobs and provide high quality pharmaceutical products and services to the Nigerian people at prices that are not only affordable but represent value. Emzor Pharmaceutical Industry Ltd. started pilot production in

1985. By 1988 it had become an established pharmaceutical manufacturing company especially with the introduction of Emzor Paracetamol.

The factory is located on 2.5 acres of land in the Isolo industrial area of Lagos with facilities to make a wide variety of high quality pharmaceutical products that meet international standards at affordable and competitive prices. The factory is registered with the Federal Ministry of Health under the supervision of Mrs. Stella Okoli, the superintendent pharmacist, managing director and chief executive officer. The then secretary of Health to the Interim National Government Dr. Christopher Okojie officially commissioned the company in July 1993. The company has since attracted foreign missions, scholars, and students of pharmacy, microbiology and chemistry. In April 1999, Prof. Debo Adeyemi, the Honorable Minister of Health, commissioned the factory extension.

From the humble beginning of four (4) product lines in 1987, they now manufacture in their factory a large range of over fifty (50) products in the analgesic, anti-malaria, vitamin/haematinics/multivitamin supplement, anti-helmintic, antibiotics and therapeutic class.

Today, Emzor has become a household name in Nigeria and a leader in the pharmaceutical market that is known for quality products at prices that offer real value. These products are widely distributed throughout Nigeria and the West African coast.   Their commitment is to produce and deliver flawless products on time and every time.

Product Catalog

Emzor Pharma markets a wide range of over-the-counter medicine and generic products. As the leading  indigenous  manufacturer  in  Nigeria,  the  company  continues  to  expand  the  Emzor Pharma portfolio through identifying consumer need for innovative products and conducting ongoing  research.  As  a  company  that  is  committed  to  its  community,  shareholders,  and customers, Emzor Pharma believes in the highest level of social responsibility and maintaining the excellent quality of their products. The company has a standardized system of handling complaint and recall procedures for products. Emzor Pharma conforms to international quality standards. Self-inspection teams and a fully equipped laboratory are just a few of the many methods to ensuring quality. All ingredients – water, raw and packaging materials, and finished products – are subjected to comprehensive analysis.

May $ Baker Nigeria Plc.

This is a public limited liability company. The company‟s legal status and ownership is 100% Nigerian. Their office is located at 3/5 Sapara Street, Industrial Estate, Ikeja, Lagos and 1 May & Baker Avenue, Ota, Ogun State. The company‟s numbers of Employees were 344 as at 2009. Their product Range are Antipyretics, Analgesics, Antimalarials, Antibiotics, cough $ cold, Antidiabetics etc. Their SWOT –Analysis-:

Strengths:

–Well established and trustworthy company.

– Strong corporate image and brand identity

– Distribution Network

– Good relationship with financial sector.

Weaknesses:

-Few innovative products in portfolio.

-Poor product support.

– Large administrative workforce.

Fidson Healthcare Plc

The company is a private limited company. Ownership is 100% Nigerian. Its head office is 268

Ikorodu Road P.O Box 7210, Shomolu Lagos. The company‟s numbers of Employees were 294

as  at  2008.  Their  products  Range  are  Antiretrovirals,  Antitubercular  Drugs,  Antimalarials, Antibacterials, chondroprotective etc.

SWOT-Analysis-:

Strengths:

-Dynamic and focused staff

-Established and clear company vision

-On the job staff training through partnership

Weaknesses:

–   Limited fund

–   Lack of WHO prequalification

Opportunities:

–   Emerging market

–   Improving investor confidence in Nigeria

–   Global initiatives on HIV/AIDS, TB and Malaria.

Threats:

–    Lack of utilities (power and water)

–    Security of life and property

–    Cheap competing imports

Mopson Pharmaceutical Industries ltd

This is a private limited company. The ownership is 100% Nigerian. It is located at Mopson House 47, Osolo way, Ajao Estate. P.O Box 5147, Oshodi, Lagos, Nigeria. The company‟s numbers of Employees as at 2008 were 202. Their product range is 30 products including Anti TB and Anti malarial.

SWOT –Analysis-:

Strengths:

–   Dedicated and focused management and staff.

–   Continuous staff training

–   Established marketing and logistics systems

Weaknesses:

–    Limited funding for expansion and continuous improvement

–    Lack of WHO prequalification.

Opportunities:

–   The continuous development of local production capacity

–   Emerging market in Nigeria and ECOWAS

–   Economic and political environment

Threats:

–   The cost of utilities (power and water)

–   Cheaper competing imported product

–   Poor infrastructure, especially roads

1.10     Definition of terms

The operational definitions of terms as used in this research work are as follows:- Benchmarking:  This is the process of identifying, understanding, and adapting outstanding practices and processes from organizations anywhere in the world to help your organization improve its performance. “The essence of benchmarking is the continuous process of comparing a company‟s  strategy, products, and processes with those of world leaders and best-in-class organizations in order to learn how they achieved excellence, and then setting out to match and even surpass it” (Ezigbo, 2007).

Best practices: This is where organization search for and study organizations that are high performer in particular area of interest (Ezigbo, 2007)

Competitiveness:  This  is  the  degree  to  which  a  nation  can,  under  free  and  fair  market conditions, produce goods and services that meet the test of international market while simultaneously maintaining or expanding the real incomes of its citizens.(Ezionye,2002)

Performance: This is the actual output or result of an organization as measured against its intended output (goals and objectives). For the purpose of this work, performance was measured by the employees‟ rate of turnover.(Richard, et al,2009).

Productivity: This is the relationship between physical output and the associated physical input used in the production process. It is the ratio of unit of output to unit of input. Productivity demands that organizations should endeavour to increase their production as high as possible. (Ezionye, 2002)

Superiority: This is a position or the last position that a firm attains with continuous effort and constantly adhering to changes in the best practices spontaneously to excel above the competitive edge (Ezigbo, 2007)

Quality: This is the conformance to customer‟s expectations in respect of goods and services. Law of every country provide that goods be adequately tested before they are marketed and in most cases the chief ingredients be stated on the package or container. The purpose of this stipulated is to ensure that goods meet a certain quality required by the law. (Ewurum, 1995)

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