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Sample # 4
Organization Theory and Application
Eli Lilly and Company
This paper
attempts to study the organizational system at Eli Lilly and
Company. Eli Lilly and Company is a global research based
corporation that develops, manufactures, and markets
pharmaceuticals, medical instruments, diagnostic products, and
agricultural products. It was founded in
Indianapolis,
Indiana on May 10 1876, by Colonel Eli Lilly. The Company presently
has more than 31,000 employees worldwide, with more than 6,000 of
them engaged in research and development activities. It is a leader
in the pharmaceutical industry with investment in R&D being
approximately 18% of sales in the year 1999. Being an international
firm it has products marketed in 179 countries. It has area offices
in Africa and the Middle East, Asia Pacific, Canada, Central and
Eastern Europe, Greater China, Japan, Latin America and Western
Europe.
It sells products
with worldwide popularity such as the first insulin product Iletin,
other products such as Ceclor, Humulin (Human Insulin), Zyprexa (a
miracle drug for the cure of Schizophrenia) Evista (for the
treatment of postmenopausal osteoporosis) Gemzar and Prozac, the
world’s best-selling antidepressant, which was named product of the
Century by Fortune Magazine in 1999. The Company has approximately
15,802 employees employed outside of the United States.
History of the Company
The Company was
founded by Colonel Eli Lilly in 1876 in the Midwestern section of
the United States.
A 38-year-old pharmaceutical chemist and a veteran of the U.S. Civil
War, Colonel Lilly was frustrated by the poorly prepared, often
ineffective medicines of his day. Consequently, he made these
commitments to himself and to society: he would found a Company that
manufactured pharmaceutical products of the highest possible
quality. His company would develop only medicines that would be
dispensed at the suggestion of physicians rather that by eloquent
sideshow hucksters. Lilly pharmaceuticals would be based on the best
science of the day. 
Although his
business flourished, Colonel Lilly wasn’t satisfied with the
traditional methods of testing the quality of his products. In 1886,
he hired a young chemist to function as a full-time scientist, using
and improving upon the newest techniques for quality evaluation.
Together they laid the foundation for the Lilly tradition: a
dedication that first concentrated on the quality of existing
products and later expanded to include the discovery and development
of new and better pharmaceuticals. Eventually Colonel Lilly’s son
Josiah K. Lilly, Sr., and two grandsons, Eli Lilly and Josiah K.
Lilly, Jr., each served as President of the company. And each
contributed a distinctive approach to management. Together, these
management styles established a corporate culture in, which Lilly
employees were viewed as the company’s most valuable assets, a
belief that is still the cornerstone of their corporate philosophy.
Mission Statement
To guide its
affairs, the company follows certain fundamental principles. These
principles, which the corporation believes are in the best long-term
interests of employees, customers, shareholders, and society as a
whole, are the following:
·
The company is
committed to the discovery and marketing of innovative products of
the highest quality that offer benefits to customers in all our
markets.
·
The company is
dedicated to the highest levels of ethics, integrity, and excellence
in research, manufacturing, marketing, and all other phases of its
operations.
·
The company
recognizes a primary responsibility to its employees because of the
key role employee’s play in the achievement of corporate goals. The
company’s objective is to attract and retain outstanding people at
all levels and in all parts of the organization. It is committed to
fair and equitable treatment of all employees, to the creation of an
environment that recognizes the value of diversity, and to policies
and programs that offer the opportunity for employees to develop
meaningful and rewarding careers.
·
The company
believes that it has an obligation to be a good corporate citizen
wherever it operates and that it has a responsibility to conduct its
operations in a manner that protects human health and the
environment.
Lilly’s Vision
·
Eli Lilly and
Company is committed to being a leader in the worldwide market place
for products based on the life sciences.
·
The Company’s
primary objective is to discover through research, innovative
products of the highest quality.
·
All Company
activities are to be conducted with a thirst for excellence, with
the highest of ethical standards, and with a customer orientation.
·
In keeping with
its traditions, the company continues to recognize its employees as
its most important asset.
Interpretation of the Mission Statement by different departments
The mission
statement at Eli Lilly is developed along the lines where it can be
interpreted and broken down for all its departments. For instance
the marketing department can interpret it in terms of a responsible
corporate citizen and thus developing campaigns that satisfy these
criteria. In addition to promote the products in such a manner as to
uphold the ethics and value systems of the organization. The
research division is the most core function of the company and that
is dedicated to developing new and quality products to be marketed.
The human resource department also translates the mission statement
in terms of recruiting and developing the best personnel in the
industry to meet its missions and objectives.
The development
and interpretation of a formal mission statement at the company is
in conjunction with strategic management concepts that are employed
to develop new and futuristic strategies for the company.
Organization Structure
In light of the
above description of the Company and its operation it is evident
that it is a huge functional organization, which has a geographic
span that covers 179 countries. The Company has divided itself into
area offices or regional offices, which are then responsible for the
working of the different marketing offices that are present in the
different countries. The manufacturing facilities are not present
all over and the products in the countries that serves as only
marketers are imported. The structure therefore is functional and
divisional. Therefore in lying with the theory for organization
structure that merits the functional system, the organization has
developed itself along that management theory.
The geographic
distribution is then functionalized in the organization structure.
According to the industry the titles of the departments are thus:
Marketing, research and Development, Human Resource, Finance,
Manufacturing and Operations and Medical. They each have various
department heads, which are designated as Directors. This management
theory of functionalization across departments takes advantage of
the fact that it incorporates various aspects of specialization.
Theoretically functionalism should lead to the greatest efficiency
and the most economic utilization of employees. However there are
certain dysfunctions that exist. And some of these are also present
at the structure in Eli Lilly. These the hinder the fit of the
theory with the actual practical application of the theory.
Dysfunctions between theory and practice
Although the
theory of functionalization states that specialization results in
greater efficiency, the dysfunction that is evident in the critique
as well as at Lilly is that of specialization conflicts. There is
the evidence of conflicts between departments. In fact departments
are then marked as territorial sub cultures within the organization
and these develop competitive conflicts, which are then detrimental
to the overall achievement of the organizations objectives and
goals. Specialization also impedes communication between units. The
management team of a highly specialized unit has its own terminology
and specialized interests, attitudes and personal goals. This is
evident at the Lilly environment, in the specialized departments.
Especially the finance department. That is a highly technical and
specialized department that has its own sub culture that inhibits
that of the others. Also the marketing department, which is the crux
of the organization, has its own function of the product managers
and communication is rarely horizontal across departments.
Another
dysfunction that exists is that of hierarchy. The functional and
specialist departmental approach has a very definite defined
theoretical structure of upward and downward communication. That
communication is however mostly emphasized as being downward and
rarely upward. The functional attributes although maintain unity of
command and serve as a formal system of communication again that is
mostly downward. At Eli Lilly however upward communication is
encouraged by the implementation of what is called an open door
policy. However the hierarchical structures so developed have made
its actual implementation a little difficult. Eli Lilly and company
believes that it cannot successfully achieve its individual and
collective missions without effective communication. Therefore the
management at Lilly continually strives to provide a work
environment throughout the organization, which accomplishes this
goal by encouraging open dialogue.
The most
important working relationship occurs between an employee and
his/her supervisor. In order for this relationship to remain
effective, supervisors and managers must be aware of employee
concerns. It is therefore very important for employees to discuss
their ideas, concerns and suggestions with the management. This kind
of communication is thus encouraged and the terminology for the
maintenance of such a system is called an “Open Door Policy.” The
Lilly management further believes that employees should be informed
about Company-related issues that affect them, and be provided with
the information needed to perform their jobs efficiently. It is the
Company’s desire to create an environment, which encourages the flow
of information and ideas among people at all, levels. However there
are often deviations and dysfunctions in this regard. Information
that can be shared if often kept confidential from employees even
within the departments and that often leads to lower motivation,
especially when employees know that some vital information is being
kept confidential that could be shred for instance if a Director is
resigning, or being replaced, information pertinent to the issue is
often leaked into the industry before the company, and the employees
are the last to know what is happening. Thus resulting in lower
morale and motivation and consequently lower efficiency and
productivity.
Degree of Centralization and Decentralization
Eli Lilly is a
global research based pharmaceutical organization. It is a huge
company, and although follows a rather functional structure for
organization professes to a certain degree of decentralization.
Within department the structure are not very tall and are rather
flat. The type of decentralization that Eli Lilly professes to is in
fact that of geographic dispersion as it has operations dispersed
across 179 countries. This has been implemented and is practical and
necessary, as Lilly has grown over the past century. It has
internationally developed itself and its operation and has thus
succeeded in applying the management theory of dispersion to its
operation across the world.
The second type
of decentralization-centralization is that in relation to
functionality. This is easy to explain with the help of an applied
example. That in relation to the human resource function of the
organization. A separate human resource department has been
established, which performs functions such as recruitment and
selection, as well as training for the various departments. This is
claimed as being a centralized function. However if the various
departments handle their own human resource function, then human
resource is considered to be decentralized. At Eli Lilly and Company
the human resource function for instance is centralized, as is the
finance function.
The third type of decentralization-centralization according
to theory is in regards to the analytical use of the concept. This
is where the terms “centralization” and “decentralization” refer to
the retention of or delegation of decision-making prerogatives or
command. From an organization theory and analysis standpoint, this
third type is most relevant use of the concept of centralization and
decentralization. They are however relative concepts because every
organization’s structure contains both structures and the difference
is only in degrees. At Eli Lilly and Company the conceptual degree
of decentralization said to be high. They profess to empowerment, in
that they have assigned responsibilities such that theoretically
decision-making is distributed along various levels of the
hierarchy. Eli Lilly claim to understand and respect their
employee’s motivations and thus have instituted the system of
empowerment, which stems from decentralization of authority by the
assignation of responsibility and accountability to employees. An
example of this can be understood by assessing the responsibilities
of the various designations that make up the personnel in the Human
Resource Department. For instance the HR Director is responsible to:
(1) Ensures that all employees are provided with a copy of the
Employee Handbook of Eli Lilly and Company – The Red Book, and
Guidelines to Company Policy; (2) Orients all new employees on
Company guidelines and policy, Employee Manual, and benefits; (3)
Reviews existing policies and guidelines based on the Employee
manual and presents the Management Committee with revisions; (4)
Communicates to all employees, revisions in the Employee Manual. (5)
Takes a lead in the recruitment and selection of all affiliate
employees; (6) Ensures that all requirements for existing employees
are satisfied; and (7) Approves requests for medical cash advance,
purchase of company cars and pagers.
The next in line the HR Associate (1) Reviews employees’
benefits and makes recommendations to Management Committee; (2)
Assists in the orientation of all new employees on Employee Manual
and benefits; (3) Assists in recruitment of new employees; (4) Gets
car quotations, and prepares orders for Company cars; (5) Provides
HR requirement list to new employees and follows up on trainee’ HR
requirements; (6) Maintains the HR Library. The HR Administrative
Assistant (1) Mails/distributes HR memos and other communications on
time; (2) Keeps and updates employee files and car files; (3) Files
and records important HR communications, and completed HR forms from
employees; (4) Receives and processes car repairs due to accident
and medical benefit claim of the employees and retirees; (5)
Documents and files Vacation/Sick leave of employee; (6) Facilitates
company car registrations.
These were some of the examples of how responsibility has
been distributed at Eli Lilly and Company in the HR Departmental
function. However theoretically they follow the theory of
empowerment. The term "empowerment" has been used to convey a wide
variety of meanings, from the mere absence of a formal manager to
active front-line participation in decisions about selection,
rewards, or promotion.
Uses of the term have thus mixed
structural definitions -- (e.g., the absence of formal managers) --
with behavioral definitions (e.g., participation in managerial
decisions).
Specifically, teams are "empowered" or self-managing to the
extent that they have authority that traditionally belongs to
managers, including deciding how the work gets done, monitoring
performance, and being ultimately accountable for work outcomes.
The relevance of the command and control organizational
systems dominant in previous decades is being questioned in today's
contemporary business environment characterized by rapid change due
to regulatory transitions, innovative technology, and globalization.
Success in contemporary organizations depends on management's
ability to involve employees through high levels of employee trust
and empowerment, trust is critical for creating cooperative behavior
among employees and empowerment is a prerequisite for employee risk
taking and proactivity
So basically empowerment is the ability to make decisions
in ones area of work without any approval from anyone else. The
employee is encouraged to Just Do It and act on his intuition and
initiative and is also provided with the resources to do so, so that
he may not have to seek continual approval from his superiors.
However although
the company has institute that they will empower their employees and
decentralize authority there are again certain dysfunctions that
arise in relation to developing the conditions that are necessary
for empowerment.
The first of these conditions that are necessary for
implementing successful empowerment are participation: Empowerment
is a concept that necessitates employee participation and it is
important for the employee to feel a part of the organization and
its process. Reducing the levels of communication and the red tape
as it is put enables employee co-operation and encourages him to
participate and share ideas. However although at Eli Lilly there is
an employee suggestion system, there is not a formal forum to
initiate employee involvement in sharing new ideas and then being
involved in the actual implementation of any ideas that may be worth
implementing. This condition however is not prevalent globally. It
is most definitely present in the area offices. However it is in the
smaller affiliates such as in the Latin American and Asian pacific
region that these discrepancies between theory and practice exist on
these issues. Here the theory exists and certain platforms for
involvement also exist, but the actual application and practice is
faulty and does not meet theoretical guidelines.
The next condition is innovation: When employees have the
power and authority to make decisions they tend to be more open and
sharing with new ideas, which facilitates innovation. And even if
the idea when put into action is not successful the organization
should provide a very supportive climate, to encourage further
ideas, which may be successful. In this regard Eli Lilly has a very
extensive system, through its research and development laboratories.
Being told that something is confidential or having limited
access to information can be very demotivating. And the concept
behind empowerment is to provide employees with initiative to act on
their intuitions, for that they need access to information. Not just
what is needed, but as much as can be provided without much risk.
Again the trust factor is important. This problem to is prevalent in
the smaller affiliates such as the Pakistani region where political
and social conditions and cultures inhibit the implementation of
such theoretical practices. However even in such affiliates
communication plans are so developed that facilitate sharing of
information, but the actual practice negate these claims. For
instance the global communication policy at Eli Lilly Pakistan has
the objective to establish guidelines and procedures for managing
internal and external communications of Eli Lilly and Company, which
are then filtered to the affiliates through the area offices.
The scope of the policy is such that it is equally applicable to
employees operational in all divisions / departments / units of Eli
Lilly. Its states that the Company believes in sharing as much
information as possible with its employees, and in encouraging all
those who work for it to share information with each other, so as to
promote high-quality work.
They do this through the institution of Briefing Groups:
When the company introduces changes in its policy, or when it has
new information, which is of interest to all its employees, it makes
sure that the explanations are given face to face, to enable an open
floor for questions and clarifications. 2. Bulletin Boards: Bulletin
boards are one of the ways that the Company communicates, with
employees and employees communicate with each other. Since the
boards are for Company use, they should not be used for solicitation
or other activities not endorsed by the Company, nor should they be
used to display advertisements or materials of other organizations.
All materials placed for display on the bulletin boards should have
prior approval from the Human Resources Department. 3. Publications:
Every department in the Company periodically publishes its own
newsletter to provide a forum for communication. The Human Resource
Department publishes the newsletter “Contributor.” The purpose of
these publications is to promote internal communications by
providing information relevant and interesting to Company employees.
4. Employee Suggestions: The Company recognizes that many of the
most effective ideas for enhancing operations and research come from
employees.
The next
important application of theory into practice is the ERAP – Employee
Representative Advisory Panel: At Eli Lilly, and its smaller
affiliates for instance a panel of employees (ERAP) has been formed,
which works to improve the overall-working environment of the
organization. It aims to create an environment of shared learning
between the employees encouraging them to contribute towards the
practices and procedures that govern their daily working lives, in
order to improve them and make the general work process more
efficient. This is achieved through encouraging employee suggestions
and creative solutions that can be provided best by the people who
are involved in the day-to-day activities in question. At this
platform members of ERAP sit together and resolve the functional
conflicts (if any) and resolve the working problems themselves in
order to reduce the workload of management. At the same time it
serves the dual purpose of motivating the employees by making them
feel that they have ownership and a part of decision-making. This
panel also helps to create a trustworthy relationship between the
management and the employees and the main role of this panel is to
produce profit making and
good creative ideas that can help the organization to grow further.
However although
this is an example of how theory of empowerment and decentralization
has been implemented practically, there are certain dysfunction in
actual implementation in certain affiliates not all. And these
dysfunctions are caused due to cultural constraints and cultural
relativism, which inhibits the implementation of certain theories
when conflicts arise between past acceptable practice and new
change. For instance although these panels for communication exist
they are not regularly convened. The full advantage that can be
gained from them is not. In addition the degree of decentralization
of authority although claimed to be high and also shown to be high
through the designation of responsibilities as previously discussed
still falls short. For most cases in the smaller affiliates the
Managing Director is ultimately responsible, and all decisions are
taken by him/her, rather than the departmental directors.
The Organization as an Open System, Modern Organization Theory
The modern
organizational system that negates the benefits of the bureaucratic
model presented by Max Weber. The modern organization is termed as a
system, which works as a system, that is it uses inputs to process
the output. It works in integration with a number of other parts or
the so-called traditional departments.
Input -
Transformation process - Output
The open-systems
concept, especially, which stresses the involvement of the external
environment has had a tremendous impact on modern organization
theory. This approach is also fast becoming more and more relevant
in today’s fast paced changing environment where no factor or no
aspect of the environment be it technological or social, legal or
political is static. The key for viewing the organization as an open
system is the recognition as the eternal environment as a source of
input. In the systems approach the boundaries of the systems are
permeable to the external environment (social, legal, technical,
political and legal).
There are many
types of inputs that serve to enter the organization through the
external environment. An example from Lilly can be provided through
the functioning of their research facilities.
Application of the Open System and concentration on External
Environment as a Stimulus for Internal Functions:
Lilly
Research Laboratories
The research
division, at Lilly Research Laboratories (LRL), is responsible for
the discovery, development, and clinical evaluation of
pharmaceutical products and for providing ongoing scientific support
for marketed products. At the core of LRL’s mission is discovering
and developing innovative therapies for many of the world’s unmet
medical needs. LRL comprises more than 6,000 people from a wide
variety of scientific disciplines who work in laboratories in the
United States and at other locations around the world. Research and
development locations in the U.S. include four sites in Indiana
(Indianapolis, Greenfield, West Lafayette, and Clinton). In 1994,
Lilly acquired Sphinx Pharmaceuticals, a division of LRL
headquartered in Research Triangle Park, North Carolina, with
additional laboratories in Cambridge, Massachusetts. Sphinx’s novel
approach to drug discovery and development has provided them with
cutting-edge research tools to identify and optimize promising drug
candidates more quickly and efficiently. Outside the United States,
they operate research facilities in Belgium, Canada, England,
Germany, Japan, and Spain. In addition, we conduct clinical research
in approximately 70 countries around the world.
This was the
application of a concept that was realized from an external
environmental aspect that was translated into an input. The need for
new and better pharma products was recognized from the external
environment and that need was translated into the input that was
required to develop a research lab, where the new products are
innovated and developed, and the output is then marketed as a new
drug. Lilly advocates policies that recognize the value of
pharmaceuticals in treating patients and reducing total health care
costs. In many instances, pharmaceuticals eliminate the need for
surgery and hospitalization, slow or reverse the progress of a
disease, prevent a disease from developing, and allow people to
return to work sooner. With the U.S., for example, devoting
approximately 15 percent of its economy to health care (as measured
by gross domestic product), there is increasing pressure to contain
growth in these costs. Innovative and cost-effective pharmaceuticals
are an important way to help contain overall health care costs. As a
result, society benefits as health care solutions become more
cost-effective and people live longer, healthier, and more active
lives. At Lilly, relying on the judgment of health care
decision-makers who provide and pay for health care is the way to
fully realize the value of pharmaceuticals. Excessive or
inappropriate government regulations, including cost controls,
stifle the innovation necessary to bring the next generation of
lifesaving drugs to customers. Applying market principles to the
health care system can ensure the delivery of high-quality,
lower-cost health care by encouraging innovation and efficiency,
which ultimately benefit patients.
All the above
described facets are inputs from the environment, which resulted in
action internally in the company thereby qualifying the firm as an
open system, that is n touch with its external environment and
reacts accordingly.
Lilly is a leader
in researching and developing superior pharmaceutical-based health
care solutions that enable patients to live longer, healthier, and
more active lives. This continued excellence hinges on the ability
to use and apply promising technological advances, such as genomics,
combinatorial chemistry, molecular biology, and informatics. New
technologies hold the key for our researchers to better understand
complex disease processes and to develop new therapeutic approaches
aimed at preventing, treating, and curing diseases. Lilly intends to
make full use of all promising technological advances.
The technological
environment is one that has greater impacts on almost all businesses
and industries and Lilly as an open system takes its inputs as
changes that occur in the environment and translates them into
products that will cater to the changes in the market and the
environment, conducts a process of transformation to complete the
output and then markets that output into the market. Also the size
and global nature of Lilly make sit imperative for the firm to focus
a great deal on the different external environments that are a part
of the entire Lilly system.
References:
1. Luthans, Organization
Behavior, Organization Theory and Design, chapter 17, pp464
2. Lilly Company Information and
Background from
http://www.lilly.com
Luthans, Organization Behavior, Organization Theory and Design,
chapter 17, pp464
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