To Centralize or Decentralize? - Teva Pharmaceuticals: Global Integration

In the 1990s, Israeli pharmaceutical giant Teva underwent a massive growth spurt, with acquisitions throughout the US and Europe. With sales in 1999 of $1.2 billion, a doubling since 1994, and some 22 production sites around the world, the company faced a dilemma: continue with its laissez-faire approach to acquired companies or create a central organization to achieve global competitive advantage? Company leadership chose the latter and was left with the difficult task of selling its new vision to a sceptical management team. Professor Yves Doz picks up the story in this new Case Study.

by Yves Doz, Marie-Aude Dalsace
Last Updated: 23 Jul 2013

It is a dilemma facing every company that has achieved growth through acquisition: leave your acquisitions alone to do what they do best or rationalize and integrate them in order to gain global competitive advantage? In this Case Study, Yves Doz, The Timken Chaired Professor of Global Technology and Innovation, looks at how Teva Pharmaceuticals navigated this tricky question.

An Israeli-based maker of generic pharmaceuticals, Teva had experienced tremendous growth in the 1990s, mainly through foreign acquisitions. By 1999 Teva’s sales had reached $1.2 billion, a doubling since 1994, and owned some 22 production sites around the world. An increasingly competitive generics market, coupled with a significant acquisition in Europe (Holland’s PharmaChemie) pushed the question to the fore: should the company continue with its laissez-faire approach, allowing decisions to be made at the local level, and operations to be run locally, or coordinate and integrate to achieve competitive advantage from globalization?

Teva CEO Eli Hurvitz chose the latter and contracted with Israeli consulting firm Shaldor to help him decide what this new organization would look like. Teva was organized geographically with separate business units for Israel, the US, Europe, and International sales. In this highly decentralized structure, the company gave full autonomy to the local management, who reported directly to Eli Hurvitz. Shaldor believed that Teva could save “tens of millions of US dollars” by integrating these disparate companies. Said Shaldor’s CEO: “Teva needs to change fast. It is facing increased competition; products are coming off patent more rapidly, and in a limited time window. It is now in a big stakes game, and Teva will never win as dispersed small units.”

Shaldor advised Teva to keep the BUs but add an overlay of “integrative processes” between them on selected dimensions. Four “integrators” would organize around Operations, R&D, Strategic Product Planning, and Business Development. The easy part, it seems, was designing the new organization. The harder part would be selling it to management, who had been left out of closed-door meetings between Hurvitz and Shaldor. To them, the organizational changes meant bureaucracy, something they were not used to having.

Given the rather lukewarm reception from the regional units’ management, Professor Doz asks us to consider how each of these functional cross-boundary coordinators, each facing different issues and bringing different skills, are going to define their mission, roles, priorities, and action plans.

The Case Study is used in courses on organizational behavior, international management and strategy and management.

INSEAD 2002

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