Should Abbott Reorganize?

Should Abbott Reorganize

Abbott Laboratories is a company divided. Abbott Laboratories pharmaceuticals, hospital products, and nutritional products divisions all operate as an autonomous, self contained division in the United States, and Abbott’s International division handles operations for all three divisions outside the United States on a geographic basis. The other side of the corporate division is Abbott’s diagnostic division which is organized on a global basis. The debate is should Abbott choose one form of corporate organization over the other and if so, which form of corporate organization should Abbott choose?

International Division Structure

Abbott’s organization of its heritage product divisions, pharmaceuticals, hospital products, and nutritional products, into an International Division Structure is not surprising. According to a Harvard Study cited by Hill (2003) sixty percent of businesses that expand to international operations adopt this form of organization. Unfortunately, this structure can also lead to conflict and coordination problems between domestic and foreign operations (Hill, 2003). The international divisional structure is also not well designed for global product development and launch. This can be especially limiting in Abbott’s pharmaceutical division where the company faces an average of eight hundred and two million dollars in development costs for each new drug. This is further compounded when you consider that seven out of ten new pharmaceutical products launched never cover the average cost of development. (DiMasi, Hansen, Grabowski, 2003) The advantage of the international divisional structure is that Abbott is able to have a single marketing structure in each geographic area that is able to negotiate with large customers across product lines. According to Hill (2003) this can be an advantage when dealing with health maintenance organizations and other large health care providers.

Global Divisions Structure

Abbott’s newest division, diagnostics, is organized as a global product division. In a global division structure, the company is aligned by product divisions on a global basis rather than on a geographic basis. The global brand managers have responsibility for brand initiatives worldwide. This organizational structure is much better suited to the development and rapid introduction of new products worldwide (Hill, 2003). It is this potential benefit that has the product division managers at Abbott pushing for the entire company to adopt a global divisional structure. The downside to the global divisional structure is that power shifts from geographic managers to product managers and this can limit local responsiveness. (Hill, 2003)

Change or Not?

The big question facing Abbott Laboratories is should they change and adopt one structure over the other? To date, Abbott Laboratories has not changed to adopt either structure companywide. Senior management has felt the costs of implementing change of this magnitude outweigh the potential benefits to the organization. (Hill, 2003) This may not be the case for much longer however. The cost of pharmaceutical development has been escalating