October 13, 2010
Richter Case Analysis
I. Executive Summary
For many reasons including government regulations, market demand and varying core competencies, Richter’s affiliates face quite a wide range of unique business challenges. The problem has become facing these challenges with a centralized IT strategy that cannot address the critical idiosyncrasies of each unique affiliate market simultaneously. The net effect is that some affiliates have an excess of resources while others are stretched too thin. Unless resources are optimized per each location’s requirements, Richter can expect an overall lack of IT efficiency, which will not serve the overall enterprise very well.
Additionally, the double standard of having central IT decision-makers allocate resources for enterprise-wide SAP rollout while local decision-makers are tasked with everything else creates a major inconsistency that is inherently counter-productive.
Our group has identified three main problems as follows:
Disproportionate IT resource allocation among the Affiliates *
Lack of Coherent Decision Making System for SAP
Inefficiency due to language barriers
After a thorough analysis of the problems, our group recommends the following actions to maximize IT productivity at Richter: *
Realign IT staff to reflect proportion of local sales volumes *
Extend IT decision-making autonomy to each affiliate (within certain central guidelines) *
Outsource language translation service
In summary, Richter is on the right track but could potentially optimize its IT operation by changing its policies as per above.
Operating since before World War I, Richter is a multinational pharmaceutical company. While the majority of Richter’s revenues are from generic drugs, the company has begun actively pursuing development of original drugs.
The company has two production sites in Hungary, which serve as the primary production facilities for the majority of Richter’s affiliates. Richter operates wholly owned subsidiaries in 14 countries, and has production capabilities in Romania, Poland, and Russia. Even with their own production capabilities, the Romanian, Polish, and Russian operations rely on large amounts of exports from the Hungary facilities. The only vertically integrated operation is the one in Romania.
In the early 1990s, Richter decided to implement the financial modules of SAP’s R/3 ERP system in order to standardize financial reporting practices, which was essential to the IPO it was planning during that time. The new technology gave Richter credibility as a leader in the pharmaceutical industry, which was reflected in the company’s share value.
Following the initial success of this implementation the company began expanding its SAP footprint to other aspects of the business including resource and distribution management and human resources. In 2002, Richter finally decided to expand its SAP modules to its affiliates, focusing on Romania and Poland. Difficulties arose from the fact that each affiliate runs its operations at least slightly differently, so not every executive believed that the modules’ success in Hungary would translate to their own operations.
The current structure of the IT department is highly centralized. SAP support is handled by a team of twelve specialists reporting to the CIO directly at headquarters. There are also twelve IT operations, fifteen procurement and four IT project staff, all reporting to the CIO. Each affiliate has its own local staff of ten reporting to the top local management with a dotted line into the CIO.
From a management perspective, all affiliates make their own IT decisions with the exception of SAP implementation which is decided by an advisory committee of senior management at the parent company.
Looking ahead, the CIO, Vince Szucs, is tasked with recommending best practices for how IT will support...
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