Case Analysis - Amgen Inc.

Case Analysis - Amgen Inc.: Planning the unplannable

The biotech firm Amgen Inc. gives much attention and time to the planning process. Because the outcomes for a company like Amgen are often very unsure and many employees are quite sceptical about the use of such a planning, the main issue can be described as follows:

What is the added value of planning for a fast-growing company in an uncertain and dynamic environment?

To address this issue, an analysis will follow based on the following elements:

Responsibility structure

Amgen Inc. is a biotech company. The responsibilities of the Product Development Teams (PDT’s) can be described as “discretionary cost centres”. The output of a PDT is therefore difficult to relate to its input. Based on the long-term planning a reasonably clear definition is given what budget is available for each of the teams. Research in the early stages has less stringent policies.

Planning & budgeting

Within Amgen much time and effort is dedicated to the creation of a long-term planning (LTP). In the early stages of Amgen the strategic planning was executed by top management and implemented top-down. The PDT’s then created their own budgets and 5-year planning. Later on, the planning process of Amgen has developed into an interactive process whereby planning and information of the PDT’s is also used bottom-up. The LTP of Amgen is now mainly prepared as capital budget whereby the PDT’s have their own operational budget. The current interactive planning process ensures that employees are better informed and a bigger commitment to the planning is established.

At first the LTP was mainly financially driven. After the initial success of some of its products, Amgen’s LTP devote more attention to qualitative targets.

Performance Measurement & Management

Amgen’s planning is viewed by top management as an action control. The planning determines which actions the company must take to accomplish her targets. Based on the planning the company can take into account required capital, staff needs, patenting, etc.

But researchers are notoriously difficult to manage. A strategic plan cannot force a research breakthrough. Within Amgen therefore 20% of the researchers’ time is free to use as they themselves see fit.

Rewarding Results

Nearly every employee has Amgen stock options next to their base salary (reward based on long-term performance in the market place). The researchers within Amgen however do not seem to be very susceptible to financial rewards. This has much to do with the culture of research. Researchers gain much more satisfaction from the appreciation by colleagues in the field and from publications.

The planning process does not seem to be very focused on creating specific performance goals for managers and accompanying reward structure. Motivating managers does not seem to be a specific part of Amgen’s planning process.

Reason for creating long-term planning for Amgen Inc.

Within the various layers of the company there are different opinions about the added valie of long-term planning.

Top management considers the LTP’s as the backbone of the company and therefore sees the LTP’s as both a prediction of future revenue and as action plan for the coming year. This makes sure that they can anticipate on the required resources (capital, staff, infrastructure).

Middle management appreciates the added value of budgets, because it forces them to think about goals to be reached in the coming years. Once the plan has been finalised however, it only serves ex-post as input for the new business plan and as comparison of actual success versus the original plan. The planning is not used for day-to-day activities.

Amgen’s researchers consider the formal planning process more as a hindrance that as a motivator to create new drugs. That certain successes were accomplished from research that should have been halted because of strategic reasons makes them sceptical towards the LTP. Cancelled project are however never totally scrapped, so that they can be restarted quickly.

Evaluation of the planning process within Amgen.

Advantages:

- By bottom-up and interactive planning the top management gains a better picture of what is happening in the company. Even more important is that the leaders of the various product teams can estimate better how far they are from a breakthrough, which pitfalls have to be avoided and what can be expected in terms of sales and turnover.

- The biotech industry is a very uncertain environment top operate in. Giving a quantative planning can create a false sense of accuracy. That way a planning can lose much of it’s added value and confidence in planning might even disappear altogether. Strong points in Amgen’s planning is that the company focuses mainly on qualitative aspects. It should be remarked however that Amgen is in the luxurious situation that because of two very successful products she is not (totally) dependent on external investments.

- Because many qualitative aspects are used, the planning can be used as direction instrument. The qualitative aspects indicate into which direction de company wants to develop. By not linking this directly to quantative goals, the company avoids that the planning causes to much inflexibility. This might cause a lack of time and space to make the necessary scientific discoveries. And of course discoveries cannot be planned!

- Even if the actual situation in the coming years deviates strongly from the planning, the planning process still has added value in itself. It is a good moment for PDT team leaders to evaluate if they are still doing the right things. Next to this it is a snapshot of the expectations. A year later they can be revisited to evaluate how they expected the World to develop and analyse why things went different than expected. This might create insights to improve things.

- Amgen also uses planning to avoid pitfalls. By putting the actions on paper, Amgen is able to make an estimation of the expected risks and define actions to avoid them.

- Amgen’s planning process is not a rigid annual exercise. Instead it is adjusted every year. This way the process remains flexible and