An Analysis on Regulations playing Key Role in the Development of Industry and Company in Indian Market

Lets consider the Indian scenario in pharmaceutical industry and banking industry.

Industry: Pharmaceuticals:
Industry overview during the period: The Indian pharmaceutical industry was shaped to a great extent by economic policies since independence in 1947. In the early years, multinational companies from Europe and US region dominated the Indian market. In 1960, the government authorities in India established Hindustan Antibiotics and Ltd and India Drug and Pharmaceutical Ltd to compete with overseas companies. In 1970s, a regulation was passed by government (Drug Price Control Order – government authority can set prices on drugs sold in local market) and due to this the industry experience massive growth. Facing escalating costs in overseas markets (average of US$800 million to bring a new drug to market), major pharmaceutical firms focused on outsourcing. When choosing to outsource, global pharmaceutical firms tended to focus on three areas of the drug development and value chain (see Figure )
 Research and development (R&D). Drug discovery usually required considerable quantities of particular molecules with which to experiment. A contract research organization (CRO) could make target and even custom molecules to order. (Source: Based on information available in www.indiastat.com)
 Clinical trials. A drug would usually take through four phases of clinical trials to determine whether it worked consistently, for a large population, without toxicity or major side effects.
 Manufacturing. Once the drug was tested and approved, it could be produced in bulk according
to the set formula and process.
The country of choice for outsourcing of pharmaceutical products, whether finished or intermediate, was India. India had a large pool of English-speaking scientists and professionals who were well-educated and well-trained. Seeing the growth and importance of pharmaceutical, biotechnology and technology related fields, in 1986 the government authorities in India created the Department of Biotechnology within the Ministry of Science and Technology. So with this, Biotechnology attracted venture capital funding which resulted in growth of pharma industry.

Figure 2: Drug Development and Value Chain

Industry: Banking

In early 1990s, Banking was dominated by public sector banks, which fell into two categories, the State Bank of India group, which comprised of SBI & its associates, and 19 other nationalized banks. After nationalization of banks in 1969, the banks used to focus on two objectives: increasing deposits and increasing loans. This was achieved by increasing the branch network. Some of the private banks used to operate in regional spaces. The government neither did not allow any new players freely enter into market nor gave permission to some of the foreign banks to expand. So the public share of banks was around 85% of deposit and loans but lacked customer orientation.
Progress of Commercial Banks
See in Figure 1
Source: Report on Currency and Finance, 1999-2000, RBI

With the advent of financial sector reforms in 1992-93, the government decided to ease restrictions on private players. Foreign banks and new private players entered the Indian market space. At the same time may be because of competitive pressures or RBI norms, public sector banks (PSB) changed focus from asset expansion to asset quality. There were initiatives taken by RBI on interest rate deregulation from 1989 like banks were allowed to set its own interest rates on deposits of 30 days and above. With this according to Mckinsey Report , the banking index has grown at a compounded annual rate of over 51 percent from April 2001 as compared to 27% percent in the market index for same period. The size of the banking sector has gone up over six times from Rs.5,984 bn in 1995 to over RS.36,105 bn in 2006 Also considering the regulation of RBI, under Basel II, capital allocation will be based on risk of assets.
This create an integrated approach to risk management credit, market and operational risk. The risk adjusted return on capital made selected rapid growth companies in banking sector to drive its own pricing on products and manage their portfolio under RBI guidelines. Due to this, some of the factors contributed to rapid growth in Banking sector are specialised branches, new products targeted at specific groups, change in structure, systems and procedures involving quick turnaround time to meet world standards, marketing orientation, change in ambience, recruitment of specialists, tie-ups and sharing networks (ATM’s), and strategic alliances, Bancassurance and other products were introduced, technology-based payment systems, adoption of technology (Information Technology had also an impact) to business transformation and cost advantage were made during the period. So Industry had a direct impact in Banking sector as well.

360 degree approach to Centers of Excellence, Innovations Centers, Software R&D labs

Note: I have taken an example of Centers of Excellence (COE), as example, but not with respective to any company into mind as the above terms are buzz words in market. One can replace COE's with innovation centers or software R&D centers as it still likely to hold good. This is my personal view and opinion. No company or organisation is responsible for the below mentioned information.

Typically organizations which are big in size based on domain/business, as a strategy to increase the profits use a divisional structure which are called strategic business units/delivery centers. Some organizations would typically have centers of excellence/practice group at each of the business units and some organizations would have all this centers of excellence/ practice group all at one place. One of the core elements of the COE charters is converting ideas into output whether it is through competency building, IP generation or thought leadership.

The problem with all above discussed structures, idea gets generated at the top level or from the client/customer and on several discussions at the practice level, idea gets executed. The current structure has top to bottom approach in terms of idea generation and a bottom to top in terms of work done. This architecture works well as long as new ideas get generated from client/top level management. But as the business gets competitive, companies need to be a differentiator and add more value to the customers.

The structure proposed works on a 360 degree approach where the idea gets generated from any of the individuals in the organization. The underlying criteria of this would be adding values to business and customers. The generation of idea works on using the existing infrastructure in the companies. Once an idea gets generated, it is aligned to corresponding domain. Impacts and benefits, technological implementation in carrying out the idea, resources required, plan, functional organizational ownership, project which the idea can be applicable and study of adding value to customers would be carried out by practice people and senior management in the organization. Categorizing in this manner can help managers determine which technologies to invest in and how they can assist organizations in making the most of them.

Exhibit 1: COE Architecture

D1, D2, D3, D4 – can be taken as various domains

PROJ 1, PROJ 2, PROJ 3 – can be taken as various projects.

TM1, TM2, TM3 – various team members in the project

PR 1 – Individual from practice group.

The structure proposed works on a 360 degree approach where the idea gets generated from any of the individuals in the organization. The underlying criteria of this would be adding values to business and customers. The generation of idea works on using the existing infrastructure in the companies. Once an idea gets generated, it is aligned to corresponding domain. Impacts and benefits, technological implementation in carrying out the idea, resources required, plan, functional organizational ownership, project which the idea can be applicable and study of adding value to customers would be carried out by practice people and senior management in the organization. Categorizing in this manner can help managers determine which technologies to invest in and how they can assist organizations in making the most of them.

Companies can redesign its existing structure such that the person who generated the idea can be a part of these centers of excellence. This would boost the value of the centers of excellence and promotes effective horizontal networking across the organization. This would also bring a lot of value to the projects the individual is working on by having better personal relationships among the COE teams and the project as the individual can give training and also solve similar sought of problems within the project. If the idea-originator is not interested in taking part in the center of excellence (COE), the COE team can engage him for further discussions whenever required.

Once the idea gets generate specific to a certain business/domain, team member from each projects of a domain/business would be a part of COE. One person from the practice group would be more of a senior resource guiding them. One more person from the senior management joins the COE and assists them in the vision and direction of the ongoing project.

Advantages

1. Once COE wins a contract (enhancement) in existing project by showing in to customer, the team member in the project who is also part of COE can give training to others and works gets done faster.
2. Companies can still work on R&D (where risk is quite higher), COE in spite of currency depreciations.
3. Usage of bench strength till the time they get into project by asking them to analyze the ideas.
4. Each and every individual feel they would be a part of organization and gives them more recognition once their idea gets implemented.
5. Organizations can achieve good profit as the individuals in COE are also part of other billable projects.

Tradeoffs

1. People with valuable knowledge or skills may not join the COE, belong to other project, or fail to discover that a CoE exists.
2. Since some of the individuals working would be partially in one billable project and other on COE, managers try to influence the individuals in projects by constantly saying COE is not worth it. Hence the mindset of these managers needs to be changed.