Introduction
Retail pharmacies supply branded medicinal products, such as headache and cold
remedies, as well as medicines prescribed by doctors. Customers expect both types of
product to be immediately available and so this demands efficient purchasing and stock
control in each pharmacy. The retail pharmacy industry is increasingly concentrated in a
small number of nationwide pharmacy chains, although independent pharmacies continue to
survive. The pharmacy chains are increasingly encouraging their customers to order
medicinal products online and the doctors are being encouraged to electronically send their
prescriptions to the pharmacy so that they can be prepared ready for the patient to collect.
Pharmacy Systems International (PSI)
Pharmacy Systems International (PSI) is a privately owned software company which has
successfully developed and sold a specialised software package meeting the specific needs
of retail pharmacies. PSI’s stated objective is to be a ‘highly skilled professional company
providing quality software services to the retail pharmacy industry’. Over the last three years
PSI has experienced gradual growth in turnover, profitability and market share (see Figure
1).
Figure 1: PSI Financial information 2007 2006 2005
Turnover ($000) 11,700 10,760 10,350
Profits ($000) (pre-tax) 975 945 875
Estimated market share 26% 24% 23%
Number of employees 120 117 115
PSI has three directors, each of whom has a significant ownership stake in the business.
The chief executive is a natural entrepreneur with a past record of identifying opportunities
and taking the necessary risks to exploit them. In the last three years he has curbed his
natural enthusiasm for growth as PSI has consolidated its position in the market place.
However, he now feels the time is right to expand the business to a size and profitability that
makes PSI an
attractive acquisition target and enables the directors to realise their investment in the
company. He has a naturalally in the sales and marketing director and both feel that PSI
needs to find new national and international markets to fuel its growth. The software
development director, however, does not share the chief executive’s enthusiasm for this
expansion.
The chief executive has proposed that growth can best be achieved by developing a generic
software package which can be used by the wider, general retail industry. His plan is for the
company to take the current software package and take out any specific references to the
pharmaceutical industry. This generic package could then be extended and configured for
other retail sectors. The pharmaceutical package would be retained but it would be
perceived and marketed as a specialised implementation of the new generic package.
This proposed change in strategic direction is strongly resisted by the software development
director. He and his team of software developers are under constant pressure to meet the
demands of the existing retail pharmacy customers. On-line ordering of medicinal products
and electronic despatch of prescriptions are just two examples of the constant pressure PSI
is under from their retail customers to continuously update its software package to enable
the pharmacies to implement technical innovations that improve customer service.
Ideally, the software development director would like to acquire further resources to develop
a more standardised software package for their current customers. He is particularly
annoyed by PSI’s salesmen continually committing the company to producing a customised
software solution for each customer and promising delivery dates that the software delivery
team struggle to meet. Frequently, the software contains faults that require expensive and
time consuming maintenance. Consequently, PSI is being increasingly criticised by
customers. A recent user group conference expressed considerable dissatisfaction with the
quality of the PSI package and doubted the company’s ability to meet the published deadline
for a new release of the software.
Required:
(a) The proposal to develop and sell a software package for the retail industry represents a
major change in strategy for PSI.
Analyse the nature, scope and type of this proposed strategic change for PSI. (10
marks)
(b) The success of any attempt at managing change will be dependent on the context in
which that change takes place.
Identify and analyse, using an appropriate model, the internal contextual features that
could influence the success or failure of the chief executive’s proposed strategic
change for PSI. (15 marks)
(25 marks)
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QUESTION 2
OneEnergy plc supplies over half of the electricity and gas in the country. It is an expanding,
aggressive company which has recently acquired two smaller, but significant, competitors.
Just over a year ago, OneEnergy purchased the RitePay payroll software package from
RiteSoftware. The recently appointed Human Resources (HR) director of OneEnergy
recommended the package because he had used it successfully at his previous employer –
a major charity. His unreserved recommendation was welcomed by the board because the
company was currently running three incompatible payroll systems.
The purchase of the RitePay payroll system appeared to offer the opportunity to quickly
consolidate the three separate payroll systems into one improved solution. The board
decided to purchase the software without evaluating alternative solutions. It was felt that
payroll rules and processes were relatively standard and so there was no need to look
further than a package recommended by the HR director. The software was purchased and
a project initiated for converting the data from the current systems and for training users in
the features and functions of the new software.
However, it soon became apparent that there were problems with the suitability of the
RitePay software package. Firstly, OneEnergy had a wide variety of reward and pay
schemes to reflect previous employment in the acquired companies and to accommodate a
wide range of different skills and grades. Not all of these variations could be handled by the
package. Consequently, amendments had to be commissioned from the software house.
This led to
unplanned costs and also to delays in implementation.
Secondly, it also became clear that the software was not as user-friendly as the previous
systems. Users had problems understanding some of the terminology and structure of the
software. ‘It just does not work like we do’, commented one frustrated user. Consequently
users made more errors than expected and training costs exceeded their budget.
Three months ago, another set of amendments was requested from RiteSoftware to allow
one of the acquired companies in OneEnergy to pay bonuses to lorry drivers in a certain
way. Despite repeated requests, the amendments were not received. Two weeks ago, it was
announced that RiteSoftware had filed for bankruptcy and all software support was
suspended. Just before this was announced the HR director of OneEnergy left the company
to take up a similar post in the public sector.
OneEnergy has engaged W&P consultants to advise them on the RitePay project. An interim
report from W&P suggests that OneEnergy should abandon the RitePay package. ‘It is clear
to us that RitePay never had the functionality required to fulfil the variety of requirements
inevitable in a company the size of OneEnergy.’ They also commented that this could have
been avoided if the project had followed the competitive procurement policy defined in
company operating procedures.
W&P also reports that:
– The procurement department at OneEnergy had requested two years of accounts from
RiteSoftware. These were provided (see Figure 1) but not interpreted or used in the
selection process in any way. W&P concluded ‘that there were clear signs that the company
was in difficulty and this should have led to further investigation’.
– They discovered that the former HR director of OneEnergy was the brother of the
managing director of RiteSoftware.
Examine FOUR ways in which OneEnergy failed to follow a proper evaluation
procedure in the selection of the RitePay software package. Include in your
examination a discussion of the implication of each failing.
(12 marks)9J–
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