The main objective of this paper is to present the management change and business process change in PLIVA pharmaceutical industry, Incorporated (PLIVA pharmaceuticals, Inc). In this research, the advantages and the benefits (tangible and intangible), as well as the problems, of the BPR and the ERP implementation projects were analyzed, discussed and compared to the similar research. The impacts of information technology (IT) were also discussed. This study presents the results of research conducted on reengineering business processes. It also discussed about the selected aspects of the business processes and information modelling in PLIVA, together with the results of analysis of the status and characteristics of ERP systems in PLIVA.

Introduction

Type of Change:

The type of the change in PLIVA is transitional change and development change i.e., ERP implementation and BPR projects. Transitional change is more intrusive than developmental change as it replaces existing processes or procedures with something that is completely new to the company. The future of the organization is unknown when the transformation begins which can add a level or discomfort to employees.

The outcome of transitional change is unknown so employees feel that their job is unstable and their own personal insecurities may increase. They provided education on the new procedures should be commenced at each stage of the new process. This allowed employees to feel that they are actively involved and engaged in the change. As an employee’s level of engagement in the new procedure increases, their resistance to change decreased.

One of its main problems in business management was the availability of information. Until now the available information often failed to give an accurate picture of the current business situation. Today companies need up-to-date information in order to make the right business decisions.

Impact of Change:

Management is cognizant of the impact and stress of these changes will have on their employees. The company continued to inform the employees of their status offer support in helping them deal with the personal adjustments they will be forced to make (Vuksic & Spremic, 2005). The impact of development change caused little stress to current employees as long as the rationale for the new process is clearly conveyed and the employees are educated on the new techniques.

ERP implementation significantly impacts company culture, organizational structure, business processes, procedures and rules. Furthermore, ERP applications integrate many best business practices and much knowledge that could be worthwhile if included as a part of BPR projects. By taking the best practices inherent in ERP applications, PLIVA can change their processes simultaneously with technological change (Vuksic & Spremic, 2005). As a result, PLIVA has to change their business processes to fit the ERP system requirements, and the possibilities of ERP systems have been used to underpin BPR.

Background Information

PLIVA is the largest pharmaceutical company by turnover in Central and Eastern Europe and continues to expand its operations with recent acquisitions of Pharmaceutical and R&D companies in the Czech Republic, France, Germany, United Kingdom and USA. With increasing efforts concentrating on the global Pharmaceuticals market, PLIVA has divested its cosmetics, food and agrochemicals production units as standalone companies (Al-Mashari & Zairi, 1999).

Since its 1996 listing on the London and Zagreb Stock Exchanges, PLIVA has made notable advancements in internationalizing its business and implementing global and innovative strategies. PLIVA is a rather unique company with investments in both research and development. With over 400 patents in its possession, PLIVA has proven the high calibre of its R&D capabilities, most notably through the discovery of its blockbuster – azithromycin. This macrolide antibiotic, globally known as Zithromax (under license to Pfizer) or Sumamed (PLIVA’s brand), is the top selling antibiotic in its class (Al-Mashari & Zairi, 1999).

PLIVA consists of 44 legal entities, has 5 major business divisions (research, fine chemicals, pharmaceutical, OTC, DDI) and 9 strategic/corporate divisions (development, regulatory affairs, finance, human resources, IT, quality assurance, legal affairs, corporate communications and engineering). PLIVA employs almost 7500 people in 33 countries (including 120 IT professionals not including out-of-house consultants), has 5 main production locations (Croatia, Czech Republic, Poland, Germany and USA) and 43 subsidiaries in 23 countries (Vuksic & Spremic, 2005).

Research Methodology

We gathered information about PLIVA from different case studies, white papers, and websites. We have read those cases and understood how did they done their research before implementing ERP and BPR projects. As the cases said that they had sent some questionnaires to managers of 14 different companies in Croatia and got the feedback from those companies. We have discussed about the change process in the evaluation section and how much time they have take for the research.

Description of Change Process

Pliva needed to standardise their business processes to help enhance their productivity and flexibility and maximise the efficiency of the business processes across the entire enterprise. They also wanted to implement new business and growth strategies to grow their business worldwide. Updating and integrating their business processes with an enterprise system would enable Pliva to take on more business and grow in new directions. Pliva found that implementing SAP will help them standardize their business and prepare for acquiring other companies, thus enabling them to expand their business.

Increase productivity

Improve business process efficiency

Increase revenues

scale for growth and economic recovery

prepare for mergers and acquisitions

PLIVA decided to solve this problem using the experience of other companies from all over the world. The management team was well aware that there was no point in trying to find their own solution: It was better to purchase a packaged business solution from an internationally renowned and experienced software vendor.

PLIVA wanted user-friendly software that would integrate all areas and levels of their business, and research on the world’s software market indicated that the most suitable solution would be SAP R/3. SAP R/3 would improve the efficiency of their business by giving them the functionality to enter the information only once and have it available everywhere (Vuksic & Spremic, 2005). This gives PLIVA:

A unique database

More efficient management

The ability to make business decisions in real-time

An integrated solution that connects all business areas.

Once the decision to implement SAP R/3 had been made, PLIVA appointed a team to manage the SAPLI project (short for SAP and PLIVA). The team included experts from PLIVA, Intelligroup Inc. USA, SAP AG and SAP Hrvatska, HP & Hermes Plus (Al-Mashari & Zairi, 1999).

“Since SAP R/3 includes many different modules, we decided to implement FI and CO first”, said PLIVA.s IT Manager, Ms. Jasna Turkovic. FI is a crucial module that integrates all business information; the whole business cycle begins and ends in FI. Once we have implemented SD, PM, PP, QM and HR, all our business processes will be managed by information technology and any information entered into the system will be available everywhere in real-time.

The implementation of the SAP solution took place in individual phases, with two modules in the area of cost centre accounting and profit centre accounting implemented in 1997. This enabled the better control of financial resources, forecasts and a new type of analysis.

During the process of implementation, one of the major problems faced by Pliva was resistance to the change process mainly by the warehouse employees. The reasons for the resistance, Vuksic & Sprenic (2005):

the employees feel they don’t require complicated system and the change is unnecessary

they feel threatened and insecure about losing their jobs and lack of skill to use the new system

In addition to resistance to change, the most significant problems in the system implementation were in the weak experience and quality of consultants who bid in the public tender, the lack of time and the specificity of the pharmaceutical industry.

During the implementation of the IS, the consulting company Price Waterhouse Coopers conducted a reengineering project, or the reorganization of business operations aimed at determining the key sectors of future operations: the ‘core business’. Though these were two fully independent projects, they were harmonized at the level of the steering committee.

“The project team consisted of 25 members, all of whom were experts in their fields”, said Mr. Damir Martinovic the SAPLI Project Manager. They were responsible for making all operational and strategic decisions during software implementation. Experts from our consulting agencies helped us get the best results from particular modules and consultants from SAP Hrvatska (Al-Mashari & Zairi, 1999) provided support with technical issues and the software itself, particularly regarding Croatian legal requirements.

The process of preparations and employees training and education lasted 4 months in 2 shifts, which included 700 employees (average training period of 7 days per employee). The transfer of operations to the new system (in the second phase of implementation) lasted 12 days, as the problem of shifting from the old coded system (taking over ‘old’ data) needed to be resolved. During the transfer to the new system, operations were halted for 10 days, while inventory and a detailed financial harmonization were conducted.

During the implementation of the new information system, and in running information systems in general, project organization with the usual participants stands out: the project sponsor, steering committee, project teams, team leader, functional teams and team members.

An interesting organizational solution used in PLIVA are the validation teams, which are separated from the project teams, having the task of control the teams’ work, measuring harmonization with business plans and goals and coordinating the cross-functionality of teams. The validation team is led by a person from Quality Assurance (QA), responsible for validating the information system.

The members of the validation team are also team leaders for the remaining teams in the project. It must be also pointed out that the IT Department in PLIVA has a strategic position in the company. It is directly responsible to the top management and is organized as a profit centre, meaning that daughter companies are billed for the transfer, implementation and use of the existing IS in the daughter companies (roll-out in 2003 in Czech Republic and 2004 in Germany). Considering that PLIVA has over 1500 SAP licenses, a help desk, ABAP programmers, highly educated employees (18 employees are SAP consultants) and an organizational management for user support, all the conditions have been set for PLIVA to become a SAP Customer Competence Centre, which would then reduce the costs of license maintenance on 20%.

SAP modules were implemented through 4 phases: (Vuksic & Spremic, 2005)

1) 1996-1997.

• SAP 3.0 modules: FI-Financials, CO-Controlling, BC-Basis components,

• UPGRADE SAP 3.0-3.1 H

2) 1998-2000.

Modules: MM- Materials Management, PP – Production Planning, QM-Quality

Management, SD-Sales & Distribution, WM- Warehouse Management, HR-Human

Resources,

• UPGRADE SAP 3.1H-4.0B-2000 (JAN)

• UPGRADE SAP 4.0B-4.6 C 2000 (JULY)

3) 2001.

• Modules: SAP PP-PI-Production Planning- Process industries-extension of PP module

• QM module-advanced functionality of Quality control

• PM-Plant Maintenance

4) 2002.

• International roll-out

A thorough review of the information system according to SAP specifications and standards was also conducted, and the implementation of the following modules was planned in 2003:

• SCM- Supply Chain Management,

• BIW- Business Information Warehouse,

• Project Systems, and

• Treasury

The Organizations Own Evaluation of Change Process

A research titled “comparative analysis of program support information systems in Croatia” was conducted in the month of November, 2000 to aid the companies’ implementing ERP by providing information regarding market status and allocation of expenses regarding training, development and other intangible and tangible aspects of implementation of ERP. The ministry of Science and technology assisted in compiling data for this research. The data was collected from fourteen companies who were in the process of implemented or had already implemented ERP. Ten other companies who were ERP users also participated in the study. For the evaluation phase, only 25% of the companies participated and Pliva pharmaceuticals fell in this group.

For thorough evaluation each component was studied individually and was graded with a range of possible scores. The relevance and criticality of the component could be assessed by its expressed weighted factor.

With respect to the change concerning the business process reengineering, a research was conducted by IT researchers from the Department of Information Science and Business Computing of the Faculty of Economics and Business in Zagreb (Croatia) in 2002.The main purpose being, examining all the possible issues and problems which arose while adapting BPR practices (Al-Mashari & Zairi, 1999). A questionnaire was prepared and survey was considered the most appropriate research methodology for this study since it involved a large sample space of 400 of the largest Croatian companies. To determine the largest companies their annual revenues were considered.

Another case study was conducted by Pliva on their own business processes. They implemented the ERP systems in phases by implementing the main key modules first and later upgrading their system and adding other modules (Al-Mashari & Zairi, 1999).

The results of the case study conducted by Pliva were compared with the results of the research that were done on ERP and BPR and the following results were concluded:

Pliva had a proactive approach to the change process. The example of PLIVA shows that successful implementation of the ERP system must be accompanied by an appropriate BRP project. From this example, it is possible to conclude that the final results are positive, even when these are completely separate and independent projects. This shows that much attention was given to employee training with the goal of achieving maximal flexibility and readiness for constant organizational changes. This long standing cooperation has resulted in an internal training program which PLIVA employees carry out according to the methodologies of the Management Centre Europe.

According to the research, the best supported components are Finance and Sales. From the results of the case study, Pliva disagreed with the research, for even though product planning and management were implemented in the beginning, there were no significant problems and very good results ensued. This indicates that good project management and coordination with the BPR project gives a good final outcome.

The time taken to implement the ERP project was 3-4 years. The project was implemented in 4 phases. Although it was too long, the phase-by-phase approach used in the case of Pliva could be assumed as the critical factor of successful implementation.

Pliva faced problems with finding a good quality consultant, consultants with experience in implementing the SAP system in pharmaceutical industries.

High initial consulting costs. However, Pliva realised that initial consulting cost can be reduced by choosing employees to act as consultants.

Although the project of implementing the ERP system and BRP project were independent, they were coordinated at the level of the project steering committee, which permitted proper execution of wide-reaching organization changes and contributed to the overall success of the ERP implementation.

The results achieved by ERP and BPR projects in PLIVA improved the process performance in terms of time and costs and can be summarized as follows (Vuksic & Spremic, 2005):

Reduction of overall inventory by at least 30%, thus increasing the coefficient of Turnover,

Reduction of product delivery time to the buyer from 4 days to 24 hours,

Reduction of the number of employees by 20-30% in functions where the new system was implemented (redistribution of work meant savings),

Reduction in the number of complaints due to mistakes in delivery (complaints reduced to a minimum)

Reduction of time of payment by 30% with the implementation of the buyer’s credit Limit.

Analysis of Change Process

Lewin’s model has dominated change management theories for many years. In recent years it has been criticized for: being top-down driven; assuming a stable organizational setting; being suitable only for small organizations; and ignoring organizational politics. Lewin is still relevant to the modern world, the argument goes rather than being outmoded (Litzell, 2005). From diverse and seemingly unrelated disciplines models describing the change process has been gathered and analysed. In tracing their origin it was found that a majority of the models were following Lewin’s three-stage model (Litzell, 2005). In order to bring about a successful change of a group’s performance the change must go through three stages as follows: unfreezing of the present level of performance should it be necessary; moving the group to a new level of performance; freezing the group on the new level of performance (Lewin, 1952).

Unfreezing – Destabilize old patterns.

The key is to create dissatisfaction with the existing situation, which in turn creates anxiety and a need for change. The response to this need is to choose improvements in line with the vision of the new organization. This kind of mobilizing is necessary throughout the change process; a less intense force is needed though to keep the change moving than the initial substantial force needed to get the change in motion (Litzell, 2005).

In the case of Pliva the management adds forces working for the change. To support it they tried to “Develop a shared vision of how to organize and manage for competitiveness.” (Litzell, 2005). The general manager employed towards the vision once there was a core group like the validation team committed to the ERP and BPE change. The vision defined new roles and responsibilities, coordinated information and work throughout the organization.

An arrangement working through the formal structure and systems will create less resistance (Litzell, 2005).There are only a few people in any situation that are absolutely essential in making the change happen and the successful manager target these people at the beginning and try to win their commitment and involvement (Litzell, 2005).

Moving – Analyze, handle and steer

When one attempts to change a social force field in equilibrium one has to consider all of the forces working to maintain this equilibrium. These forces may be groups, subgroups and members with different personalities, relations, barriers, communication and value systems etc. making up a social field. This social field has to be studied as a whole and reorganized in such a way that social events flow in a different way. One also has to take into consideration the economic resources available and the cultural values governing the group (Lewin, 1952).

As mentioned earlier, Pliva faced to resistance to change from their warehouse employees. But Pliva was proactive to the change process.

According to Brown & Harvey (2003), resistance to change can be managed by:

Move from reactive to proactive management

Build a launching platform

Diagnose the nature of the change

Build a supportive climate

Behavioral management of the process

alongside strategy projects, start projects aimed at transforming culture and power structures

Monitor and control the parallel development of new strategy and new capabilities.

Pliva continuously monitored and were on the lookout for arising resistance sources. They developed techniques and effectively used power and communication to overcome resistance. They involved employees to participate and gave them the necessary skills and training. They also implemented a BRP project alongside the ERP project to facilitate change process.

PILIVA generated support by displaying the behaviour of leaders. The management made sure that every action taken was in line with the change efforts. They developed structures to manage the transition by developing a step-by-step transition plan and set up an organization to manage and stimulate change. If employee competences are to be exploited the organization was able to structure and channel that competence which they required by allocating key people, use of consultants.

Pliva followed the principal of third party consulting by creating validation teams, which consisted of various personnel from different departments. Through this they aimed at having open and effective communications and a standard level of power in order to handle confrontations which could arise between groups. They were established to help understand different perspectives and ideas and respect it. The team would use confrontation as a tool to sort tense situations.

According to Brown & Harvey (2003), Third-party Consultation

uses a third party to help open communications, level power, and confronts problems between groups;

Provides diagnostic insight, is non-evaluative, and is a source of emotional support and skills.

aim to understand each other’s’ views/issues

situations are often tense and emotional

Confrontation is a basic feature of this

Pliva also adapted BPR in order to facilitate the required changes to their operations to make it more efficient. “The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed …Quantum leaps in performance” (Hammer and Champy, 1993). Business process reengineering allows rethinking and making radical changes across the organisation. The changes would begin by redesigning the basic processes of the organisation. By doing so they could make their processes more efficient and add value to their enterprise. It could involve combining or removing certain activities. The most effective method could be using top down programme which is neutral, assuming that neither upward flow of involvement or consensus style of decision would help implementing the changes.

According to Brown & Harvey (2003), Business process reengineering,

Seeks to make processes more efficient by combining, eliminating or restructuring activities;

Top-down program that assumes neither an upward flow of involvement nor that consensus decision making will work to accomplish dramatic changes.

Pliva used survey feedbacks as a method to evaluate their implementation process. Two surveys were done, one for ERP implementation other for BPR. This method would help them grade how successful they were and honest feedbacks would allow them to see places where they require to put in more effort and improve .It also helps them understand if they are heading in the right direction. Using this method they tried to bridge the gap between the current status and the desired status. This method also allows a participative approach through which all employees are engaged. Such approaches help them get a better understanding of the rationales and methods behind the change and they can come up with better strategies and mitigation plans in case of any problems. It also enables positive resistance which can benefit the company.

According to CMOE (2000), Survey feedback is a tool that can provide a feedback to help leaders guide and direct their teams. Obstacles and gaps between the current status quo and the desired situations may or may not be directly apparent. In either case, it is vital to have a clear understanding of strategies for diagnosis and prevention of important organization problems.

SURVEY PROCESS STEPS:

Identify project plan and objectives

Brief team leaders and employees about the process

Administer survey

Conduct interviews and focus groups

Train leaders on facilitating team discussions

Analyse the data and construct a report

Provide feedback to leaders

Team leaders conduct feedback action planning and meetings

Leaders present reports on progress and results to Senior Management

Follow-up by senior leadership to ensure progress and accountability

Since the employers have been participating in the planning and implementation

they got a feeling of accomplishment from seeing the change through. People

develop a sense of ownership through participation (Litzell, 2005). Participation enabled PILIVA to make use of the employees’ full diversity of competence in the change process. By involving employees in the change work resistance is overcome and the lasting of the change is ensured (Litzell, 2005).

Refreezing – Continuous perspective.

A change of a group’s performance is frequently short lived. The change will soon return to the previous level of performance as attention shifts from achieving the change to coping with everyday problems. This indicates the necessity of including ‘freezing of the new level of performance’ as an objective in the planning of change; it is merely not enough having to reach the new level of performance (Lewin, 1952).

Each department in PILIVA elaborated the change and find its own application. This elaboration process helped create commitment to learn and adapt to the new organization (Beer et al., 1990a).When the new organization was in place and running properly, and the right people were in position, and the new approach was settled, then general managers considered how to institutionalize change.

PILIVA carried out pilot testing and used the result as learning experiences which can be applied to the change in general. They set up systems ensuring that the change will last (Litzell, 2005). They monitored the revitalization process and adjust strategies according to emerging problems.

The basic intangible benefits from the implementation of the new ERP system in

PLIVA are (Vuksic & Spremic, 2005):

Better visibility of the ‘workflow systems’ and their coordination,

Secured forecasts of money flows and planning of available financial resources for a more rapid execution of all business processes,

Centralized supply (6-7 employees for the entire company) as a result of the BPR project.

Better (monthly) production planning (based on market needs and standing inventory)

Better flexibility of the system with regard to business decisions,

Automated warehouse (implementation of real warehouse with optimized selection and delivery of products)

Well-informed decision making, new quality in planning and forecasting.

Recommendation / Conclusion

The implementation of a new ERP system will not bring the expected benefits if it is not accompanied by a change in human behaviour and in organizational regulations.

There is no point in implementing a new ERP system if a business will then simply continue with its old, inefficient ways. Therefore, the implementation of ERP systems must be accompanied by a thorough change of business processes, procedures and rules.

The top management support.

Better planning before implementation of ERP.

Vision should be communicated to each and every employee.

Training for the employees.

They can follow some OD interventions or action research theories which we have discussed in this case study.

After the research we have done on Pliva there are some recommendations for them

As when they are implementing they can follow some action research theories or some OD interventions to motivate the employees and make them to involve in the change. Yes but they got successful with the change but we say that it will be much better if so they had followed some organizational development interventions.

Employees will naturally resist change but are more likely to accept the change if they view top management as keeping them informed and supporting them throughout the process. Employees will look for a rationale for the implementation of this major change. Top management should be prepared to involve employees in all phases of the transition.

The results presented have outlined the problems of PLIVA in the implementation of reengineering projects, including a lack of preparation for large organizational changes, resistance to change, inadequate information, education of employees, lack of strategic planning and vision and a reactive role of the management. The problems associated with ERP solution implementation were also analysed, such as large initial investments, people need to adapt to software solutions and the long implementation period. This case study shows that with the right management decisions and actions, through simultaneous and coordinated projects of business process reengineering and the development of an integral information system. The poor effects of the listed problems can be minimized or eliminated, which is clear from the tangible and intangible benefits outlined in this case study.