Description
Documentation about organization analysis of Biocon including factors that led to Biocon's expansion and growth, factors that led to its decline, organization structure of Biocon, culture of Biocon, core competency and values of biocon
Date: 7th September 2009
ORGANIZATIONAL ANALYSIS – A CASE STUDY OF BIOCON
TABLE OF CONTENTS
S. NO. CONTENT An introduction to the Organization 1 2 3 4
Conducive factors identified The growth of the Organization Identified factors that have led to its expansion growth and
PAGE 3 14 15 16
5 6 7 8 9
The decline (if any) of the organization/Further expansion The factors that led to its decline/ further expansion Conclusion Learning from the project Reference sources
18 20 21 22 23
2|Page
1. AN INTRODUCTION TO THE ORGANIZATION Biocon is India's leading integrated biotechnology enterprise focused on the development of biopharmaceuticals. Since its inception Biocon has evolved from an enzyme manufacturing company to a fully integrated biopharmaceutical enterprise, focused on healthcare. Biocon has successfully forayed into drug discovery and development. It has developed innovative and effective biomolecules in diabetology, oncology, cardiology and other therapeutic segments. Biocon delivers products and solutions to partners and customers in over 50 countries. Mission and goals: Biocon’s mission is “to be an integrated biotechnology enterprise of global distinction.” Biocon also aims to deliver affordable innovation, since innovation without affordability is of no use to their customers. Their long term goals are: - Intellectual asset creation through discovery, research and development - State-of-the-art manufacturing capabilities - Internationally benchmarked quality and regulatory systems - New medical insight through disease specific clinical research - Customer relationship through outstanding products and services - Human resource development through training, mentoring and empowering
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- Management of research and business partnerships Domain: Biocon’s chief operational domains are in research, contract research, clinical trials services, and biopharmaceuticals production and marketing.
Process sciences- Biologicals (Insulin, Streptokinase etc), Small molecules
Clinical research
Non-clinical research
Figure 1: Chief Domains of Biocon
Location: Biocon is based in Bangalore in a 90 acre Biotech park US $200 million SEZ which is the largest of its kind in the Asia Pacific region- the Biocon Park. It has its subsidiary divisions in Germany (Axicorp GmbH) and in the UAE (Neobiocon FZ) as well geographically. Its remaining operations are all achieved out of the SEZ park facility in Bangalore. Geographically, Biocon has its presence in three countries (including a joint venture): India, UAE and Germany.
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Organizational Structure of Biocon: Biocon’s fully integrated business model spans the entire drug value chain, from pre-clinical discovery to clinical development and through to commercialisation. Their businesses in custom research, clinical development and biopharmaceuticals provide multiple revenue streams to balance risk, drive innovation, deliver products and accelerate growth. As a fully integrated biopharmaceutical company, Biocon’s subsidiaries are as under: Syngene International Limited is a custom research organisation offering synthetic chemistry and molecular biology services for early stage drug discovery and development. Clinigene International Limited is a clinical research organisation offering Phase I-IV clinical trials and studies for novel/generic molecules to international pharmaceutical majors. Biocon Biopharmaceuticals Private Limited (BBPL) is a joint venture with CIMAB to develop and market a range of monoclonal antibodies and cancer vaccines. Biocon biopharmaceuticals has an impressive track record of commercialisation capabilities. We have brought to market a considerable portfolio of biopharmaceuticals, led by our blockbuster Statins. The commercialisation of Insulin, Immunossuppressants and a range of Biogenerics demonstrates our highly advanced process development and manufacturing expertise. AxiCorp GmbH is a Friedrichsdorf (Germany) based pharmaceutical marketing company and is amongst the fastest growing in Europe. Biocon Limited acquired a majority stake in AxiCorp GmbH (70%) in February, 2008.
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NeoBiocon FZ LLC is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.
BIOCON LTD.
SYNGENE INTERNATIONA L LTD (99.9%)
CLINIGENE INTERNATIONAL LTD (100%)
BIOCON BIOPHARMACEUTICALS PVT LTD (51%)
NEOBIOCON FZ LLC (50%)
AXICORP GmbH (70%)
Figure 2: ORGANIZATION CHART The organization has a relatively flat and open structure [1]. Its subsidiary organizations are further divisible into product divisions that concentrate on researching upon specific products, and these are supported by centralized support functions. Biocon’s recently successful product divisions include the Cardiology, the Diabetology and Oncotherapeutics divisions all of which rolled out successful statins, oral insulin and cancer therapy molecules respectively. Within the product divisions, research and development happens via flat research teams of scientists. The divisions involved in continuous process technology (fermentation processes) have an appropriately designed hierarchy with floor engineers and supervisors.
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Biocon’s corporate governance is achieved by its highly competent board of directors and the key management team. Board of directors currently include Dr.Neville Bain, Prof.Charles Cooney, Dr.Bala S Manian, Mr.Suresh Talwar, Ms.Kiran Mazumdar Shaw, Mr.John Shaw, Prof.Ravi Mazumdar and Prof.Catherine Roseberg.
Figure 3: Corporate structure
Organic structure : In the research environment prevalent at Biocon, an organic structure is in place to support and nurture innovation. Task analyzability is low and task variability is high in the research laboratories, and hence appropriate setting of targets and expectations, enabling lateral and vertical flow of ideas
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and allowing collaborations is imperative to the management at Biocon. They achieve this by maintaining a very organic structure where people’s insecurities are done away with [1]. Organizational Culture: Given the fact that Biocon’s chief focus is on research and intellectual property generation, and accordingly the culture set by the CMD, Ms.Kiran Mazumdar Shaw, has three cornerstones openness, trust and collaboration. Employee culture : Employees are encouraged to collaborate from the beginning, and accessibility of superiors is highly valued. Employees are also encouraged to avoid hierarchies, and they try to be accessible to colleagues without specifying approvals or appointments. ? Socialization New employees are informally and serially initialized; they learn from their peers, and the time-frame estimated for the internalization of the values and norms of Biocon is 2 years [1].
? Rewards and Incentives Biocon had invested in both numerous creature comforts – special transportation, free lunch and snacks, on-site health checkups, etc. – and a strongly meritocratic hiring and performance management system. Performance rewards were based not merely on an individual’s achievement but on the performance of her team, so as to foster excellence and reinforce collaboration.
? Employee Profile :
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Biocon has 3500 employees (approximate) as of September 2009. The common job titles at Biocon include those of Scientist, Executive, Sr.Scientist, Scientific manager and Manager. The median age of the employees is estimated to be 28 years [8]. 15% of Biocon employees are women (across the group). The employee attrition last quarter was 7% and last year it was over 20%. The average age of the employees is 29 years. Thanks to its cultural and financial successes, Biocon India had become a highly desirable place to work, allowing it to hire the best minds in the sciences. According to the Head of Human Resources, Biocon recruits people with scientific backgrounds because it makes it much easier for people to talk to each other. They are familiar with the jargon, accustomed to scientific concepts, and this facilitates dialogue and fitting in. Importantly, Biocon India Group’s people were also business oriented, typically coming from industry backgrounds (Novo Nordisk, Astra Zeneca, etc). Yet senior managers were keenly aware that background and industry experience alone were not enough. They placed utmost importance to collaborative attitude as well [1]. The recruiters at Biocon have been known to reject applications from brilliant scientists because of a proven track record of non-collaborative work-style. Thus they have maintained continuity in their organizational culture by internalizing and bringing into practice their unique culture and norms. Moreover, as mentioned earlier, since teamwork is rewarded in appraisals, this collaborative work culture is reinforced.
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Figure 4: Employee Profiles and numbers
Core competency: Biocon’s patent portfolio reflects growth from a domestic and global perspective. Till 2008-2009, Biocon had a total asset of 415 patent applications of which international PCT applications were 99. In this fi scal, Biocon was granted 25 patents with 4 in order for grant. Till date, 34 patents are in the US alone. Through acquisitions, Biocon’s IP asset now stands at 516 of which 94 are granted, bringing the total number of patent applications to 924 and the total number of granted patents to 178. Thus Biocon’s core competency lies in its proprietary technologies, researched and perfected over the years. Biocon’s increasing spending on R&D has been a permanent feature of their annual reports made available to their stakeholders. In direct correlation to their expenditures have been their outputs in terms of new molecules and therapeutic agents.
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Figure 5: R&D expenditure Publicity and Ethics: Clinical trials dealt with humans, and thus carried significant risk to the CRO sponsoring the clinical trial. Although rigorous and stringent conditions were imposed by the industry and government bodies, the risk still fell upon the company running the experiments. Furthermore, this risk could have multiple dimensions: financial losses from failed clinical trials and compensation to victims, ethical challenges for employees eager to achieve results and unsure where subjectively measured “good ethics” lay, and damage to reputation and even organizational survival if questions were publicly raised about the company’s impact on humans and society. In the media, Biocon India Group had enjoyed coverage ranging from quiet approval to fawning praise. But if a Biocon subsidiary were to run clinical trials in India, a developing nation with a significant population living in poverty, it could receive negative and destructive attention for the first time. The issue of human participation in clinical trials, never a simple topic, grew far more
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complex when the use of illiterate and arguably ill-paid subjects raised questions of patient consent and abuse. In the United States, for example, any actual or perceived infringement of clinical trials ethics – not providing informed consent, preventing control-group subjects from seeking medical treatment, etc. – frequently provoked references to the Tuskegee Syphilis Study (1932-1972), “arguably the most infamous biomedical research study in U.S. history.” In its desire to grow into a model firm – a rare Indian example of a fully integrated drug discovery and development company –Biocon India Group might find itself accused of deliberately inviting neocolonial imperialism, foreign exploitation, and subjugation to the West. Interface with the external environment: Shareholders Biocon enjoys silent approval from the society and the investing public at large. Biocon became the second Indian company to cross the $ 1 billion mark on the day of listing. Biocon pays out high dividends to its shareholders every year. From its IPO in 2004, Biocon has payed out 20%-100% dividends consistently. Corporate Social Responsibility- BIOCON Foundation Vision of Biocon Foundation: Promote social and economic inclusion by ensuring that marginalized communities have equal access to healthcare services and educational opportunities. Biocon recognizes its significant responsibilities towards delivering better healthcare to the underserved communities of India, especially those in Karnataka. One of the most important initiatives undertaken this fiscal is the partnered program with the Government of Karnataka and The Embassy
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of Ireland to build 800 toilets for individual households in Huskur Gram Panchayat, Anekal. The Micro-Health Insurance initiative under the auspices of Arogya Raksha Yojana (ARY) continues to increase enrollments and has expanded its network of clinics and hospitals. Biocon Foundation has also partnered the Jain Institute of Vascular Sciences in its Mobile Diabetic Foot Clinic which offers free detection and counseling services to diabetic patients in rural communities. Biocon is involved in providing services to the underprivileged through many of the programs launched by the company itself and supporting some programs of other NGO’s. BIOCON launched programs such as Specialist services to augment their primary health services, organizing camps in outreach villages wherein a team of doctors and specialists treat hundreds of patients and Ragpickers Education and development scheme named as Deephalli. BIOCON also supports other NGO activities such as Mobile Diabetic foot clinic run by Jain Institute of Vascular Sciences. BIOCON Foundation is also involved in building schools, clinics and better sanitation facilities in various villages, which benefitted the society. Also the ARY Micro Health Insurance Scheme, which is now a five year old program run by BIOCON, in this year got thousands of enrollments and many surgeries were done to benefit the villagers in Karnataka and Andhra Pradesh. Values: Core values must be enacted throughout the organisation in all that is done. They guide decisionmaking in the organization. Core values of BIOCON as listed by them on their website are: Entrepreneurial and innovative - Research is at the heart of our value creation. We will constantly search for better ways.
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Protection of and Respect for Intellectual Capital - We recognize that this is a key value driver and we also respect the intellectual capital of others. Open and Honest in Our Decision-Making and external reporting and our relations with stakeholders - We will always act with integrity. Enhance Our Human Talent - We recognize that the development of our people will enhance our performance. We encourage teamwork across our organization. Responsibility- to our company, staff, customers, suppliers and our community.
2. CONDUCIVE FACTORS IDENTIFIED 1) Biocon was the first Indian company to manufacture and export enzymes to USA and Europe and to receive US funding for proprietary technologies. This was a major conducive factor that helped Biocon during the days of its inception and growth early on as competition was nearly non-existent on the domestic front. 2) Fueling Biocon and its export market was the global pharmaceutical industry’s trend toward outsourced research, development, and manufacturing. Facing slimming pipelines and escalating costs – an average of US$800 million to bring a new drug to market – major pharmaceutical firms increasingly saw outsourcing as the best, perhaps only, way to boost speed, reduce problems faced during regulatory processes worldwide, and cut costs by 30% to 35%. 3) Starting in its earliest days, the Indian pharmaceutical industry experienced phenomenal growth. A combined bulk drug and formulations output of Rs.168 crore in 1965 grew to Rs.19,737 crore 35 years later, an annual growth rate of 15%. Biocon was helped by the presence of a conducive environment to pharma related growth thus.
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4) The Indian government has also helped Biocon in many ways. The government set up a separate department for Biotechnology in the Ministry of Science and Technology after realising the potential of this sector in the future. The government of Karnataka eased tax, duty and lease levies for Biocon in its SEZs. 3. THE GROWTH OF THE ORGANIZATION Biocon was founded on November 29, 1978 as a joint venture between Biocon Biochemicals Ltd. of Ireland and an Indian entrepreneur, Kiran Mazumdar Shaw. In 1979, Biocon became the first Indian company to manufacture and export enzymes to USA and Europe. Unilever plc. acquired Biocon Biochemicals Ltd. in Ireland in 1979 and merged it with its subsidiary, Quest International. In 1989, Biocon became the first Indian biotech company to receive US funding for proprietary technologies. In 1993, Biocon's R&D and manufacturing facilities received ISO 9001 certification from RWTUV, Germany. In 1994, Biocon established a subsidiary Syngene International Pvt. Ltd to address the growing need for outsourced R&D in the pharmaceutical sector. In 1996, Biocon entered the biopharmaceuticals and statins segment. In 1998, Unilever sold its shareholding in Biocon to the Indian promoters and Biocon became an independent entity. In 2000 Biocon commissioned its first fully automated submerged fermentation plant to produce speciality pharmaceuticals. In the same year Clinigene, India's first clinical research organisation and a subsidiary of Biocon, was set up to pursue clinical research and development. In 2001, Biocon became the first Indian company to be approved by US FDA for the manufacture of lovastatin, a cholesterol-lowering molecule. In 2003 Biocon became the first company worldwide to develop human insulin on a Pichia expression system. In 2004, Biocon entered the stock market with its IPO and became only the second Indian company to cross the $ 1 billion mark on the day of listing. In 2006, Biocon launched India's first cancer drug BIOMAb EGFR. Biocon sold its Enzyme business to the Denmark-based Novozyme
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Industries in 2007 for $115 million to concentrate on its revenue generating Biopharmaceutical business, apart from Syngene and Clinigene. In July 2008 Biocon acquired a German pharma distribution major Axicorp GmbH for Rs.173 crore. NeoBiocon FZ LLC, the latest subsidiary of Biocon, is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture of Biocon with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.
4. FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH ? Production and marketing of an increasingly sophisticated range of biopharmaceutical generics is a reason for Biocon’s successes. Production of these products are by noninfringing processes based on Biocon’s proprietary fermentation processes. This noninfringement gives these products a competitive advantage[6]. That is, the company has stuck to its core competencies all along, to create competitive advantages. There has been optimal differentiation of the divisions in Biocon, while the integration is also good between the various divisions.
? Activities of the group are varied. All of these activities are built on the core strengths of the group. Enzyme and pharma activities are extensions of Biocon’s fermentation processes. CRO activities are logical extensions of Biocon’s own outstanding research record. Syngene leverages the Group’s culture, values of respect for IPR, and scientific talent in India to create significant CRO[6]. ? Biocon was the first Indian company to get Food and Drug Administration (FDA) approval for the manufacture of fermentation derived molecules for pharmaceutical purposes. The
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Group boasted of clients like Glaxo Smithkline, AstraZeneca and Bristol Myers Squibb. Thus Biocon was successful in gauging its external environment, so that it could establish trust and reputation among its target clientele, by way of securing the FDA approval in the USA market.
? Biocon was one of the first enzyme companies globally to receive ISO 9001 accreditation in 1993[6]. And it was the first Indian biotech company to achieve this accreditation. Thus their internal technical approach to efficiency has been resolute, leading to better quality in their product delivery.
? According to the Weitzel and Johnson’s model of organizational decline, organizations typically decline due to inaction. Biocon has thrived because Mazumdar Shaw has followed a cyclical model[3] that allows one product to come in as another one fades. Thus there is corrective action periodically by Biocon so that the organization doesn’t go into a period of decline owing to inaction and dependence on one product or a range of products. For instance, Mazumdar Shaw anticipated Statins to make way for a new immunosuppressant line of business way back in 2005, and has currently succeeded in making insulin and cancer treatment molecules available today.
? Biocon has a flat organizational structure that was designed by the CMD, Kiran Mazumdar Shaw. Mazumdar believed in encouraging an open and supportive culture at Biocon. The company had a flat organizational structure and anybody in the organization, from the
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gardeners to the presidents, had equal access to her. She said, "The moment you start building boundaries, you destroy open culture." She believed that motivation comes from empowerment, and consequently, she encouraged her employees to challenge themselves and solve their own problems. Biocon created a culture in which employees could grow and develop. This helped the company attract and retain the best talent in the country. Biocon also gave importance to customer relations. It did not simply sell the customer a product; it sold a product as well as a service[7].
? At the point of time in 1994 when Kiran Mazumdar Shaw mulled over the creation of Clinigene for clinical trial services, experts expected Biocon to face many problemsClinigene as a division could drain resources from the parent company, it could outgrow the parent as a subsidiary, and the collaborative work culture of Biocon may not be carried on at Clinigene[1]. However these fears have been proven wrong; as of 2009 Clinigene has succeeded sustainably and the work culture there has reflected Biocon’s own remarkably. The organization has managed organizational change proactively.
5. THE DECLINE OF THE ORGANIZATION/FURTHER EXPANSION OF THE ORGANIZATION Decline in profits: Biocon’s 2008-09 Q4 results were hit due to MTM forex loss on hedging contracts. Net profit went down 62% at Rs.25 crores vs Rs.65.3 crores Year on Year. Biocon’s operating profit declined 25%
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in Q1 of FY08-09. The operating margins of the company declined from 28.24% in Q1FY08 to 21.82% to Q1FY09 . Further expansion: Biocon’s slump in net profit has been offset by increases in operating profits and in total revenues during the financial year 2008-09 taken as a whole. Operating profit was up at Rs.90 crore from Rs.82.5 crore by Q4 of Financial year ’09. Biocon’s newly acquired Axicorp GmbH in Germany has directly contributed to the increase in revenues from the point of acquisition which is positive for the company’s future. Net sales went up by 75% at Rs.463 crore from Rs.266.363 crore.
Figure 6: Revenue
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6. THE FACTORS THAT LED TO ITS DECLINE/ FURTHER EXPANSION Factors that led to the decline in profits: The global economic downturn has impacted corporate earnings in an unprecedented manner over the last fiscal. This has been further compounded by foreign currency volatility followed by a surging US Dollar which has led to export driven companies suffering large losses on account of foreign ex-change hedging. Biocon’s financial performance has been challenged with all these factors resulting in a sharp decline in post tax profits. The reduction in Q1 of Financial year 2008-09 was due to the non-existent enzymes business and operational delays in Syngene. The reduction in operating margins was due to ~200 basis points increase in employee cost and 121 basis points increase in other expenses. The employee cost has increased due to operational delays in Syngene’s contract research[9]. Thus Biocon has been affected adversely by its direct and indirect environments in which it operates. Factors that led to the further expansion: Biocon’s continued stress on research has led to increased income from licensing of its research derivatives. Moreover, the development of pathbreaking molecules at Biocon has been a source of strength for Biocon, thus seeing an increase in the sales of each subsidiary of Biocon on the whole. The acquisition of Axicorp has also started paying off for the company right from the start, as is evident from the following graph. Axicorp has contributed to 25% of the company’s operating revenues in the Financial year 2009 evidently. Thus Biocon’s continuous efforts at improving efficiency and to integrate vertically have been paying dividends even in uncertain times.
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Figure 7: Revenues by subunit
7. CONCLUSION Even though Biocon has gone through a period of declining profits of late, their core competencies remain intact. Biocon’s net sales and revenues have shown commendable growth year on year. Also, their strategy of “Learn as you earn”, whereby they internalize and deepen their domain knowledge, has allowed them to vertically integrate themselves into a full-fledged research driven Biopharmaceutical company from starting out as just an enzyme manufacturer in 1978. Significantly, throughout their expansions, divestitures, subsidiarizations and acquisitions, the Human Resource function at Biocon has functioned remarkably well by retaining the original culture and set of values that made Biocon a world-class company. Even in times of declining returns to its shareholders, market analysts have assigned a high worth to Biocon as an investment option in the long run. This also reflects the confidence of the external environment and stakeholders in the company’s abilities.
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8. LEARNING FROM THE PROJECT ? From this study of Biocon through the Organizational theory prism, one may learn first and foremost that it is critical to any organization to stick to its core competencies. Any lateral or vertical differentiation of the company must be attempted only if their established competencies can be leveraged appreciably. ? Corollary to the point above, being the fact that the growth of an organization must be achieved sustainably. Growth must not overshadow the existing frameworks upon which the company was built. ? It is imperative for an organization to evolve its strategies like Biocon did. Products go out of demand, and patents will live out their useful lives. Dependence on a product will spell the decline of a company. ? A company can offset losses sustained due to uncontrollable environmental circumstances, provided that their core business processes are proper. ? The organizational culture is directly impacted by the structure and norms of the organization, designed by the founders. This in turn affects the operating environment and the productivity of the employees. ? An innovation-centric strategy in the long run pays rich dividends to a technology-driven company.
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9. REFERENCE SOURCES 1. https://mitsloan.mit.edu/MSTIR/GlobalEntrepreneurship/Biocon/Pages/default.aspx 2. http://www.traderji.com/fundamental-analysis/650-biocon-profits-jump-51-a.html 3. http://money.outlookindia.com/article.aspx?88528 4. http://www.iloveindia.com/economy-of-india/top-50-companies/biocon.html 5. http://www.thehindubusinessline.com/2008/02/12/stories/2008021250980300.htm 6. ‘Organisational climate survey of Biocon India Limited’,2003,by Rahul Joshi, TAPMI. 7. http://www.icmrindia.org/casestudies/catalogue/Leadership%20and%20Entrepreneurship /Biocon-Kiran%20Mazumdar%20Shaws%20Entrepreneurial%20DreamLeadership%20and%20Entrepreneurship-Case%20Studies.htm 8. www.LinkedIn.com 9. www.Icicidirect.com
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doc_705727038.docx
Documentation about organization analysis of Biocon including factors that led to Biocon's expansion and growth, factors that led to its decline, organization structure of Biocon, culture of Biocon, core competency and values of biocon
Date: 7th September 2009
ORGANIZATIONAL ANALYSIS – A CASE STUDY OF BIOCON
TABLE OF CONTENTS
S. NO. CONTENT An introduction to the Organization 1 2 3 4
Conducive factors identified The growth of the Organization Identified factors that have led to its expansion growth and
PAGE 3 14 15 16
5 6 7 8 9
The decline (if any) of the organization/Further expansion The factors that led to its decline/ further expansion Conclusion Learning from the project Reference sources
18 20 21 22 23
2|Page
1. AN INTRODUCTION TO THE ORGANIZATION Biocon is India's leading integrated biotechnology enterprise focused on the development of biopharmaceuticals. Since its inception Biocon has evolved from an enzyme manufacturing company to a fully integrated biopharmaceutical enterprise, focused on healthcare. Biocon has successfully forayed into drug discovery and development. It has developed innovative and effective biomolecules in diabetology, oncology, cardiology and other therapeutic segments. Biocon delivers products and solutions to partners and customers in over 50 countries. Mission and goals: Biocon’s mission is “to be an integrated biotechnology enterprise of global distinction.” Biocon also aims to deliver affordable innovation, since innovation without affordability is of no use to their customers. Their long term goals are: - Intellectual asset creation through discovery, research and development - State-of-the-art manufacturing capabilities - Internationally benchmarked quality and regulatory systems - New medical insight through disease specific clinical research - Customer relationship through outstanding products and services - Human resource development through training, mentoring and empowering
3|Page
- Management of research and business partnerships Domain: Biocon’s chief operational domains are in research, contract research, clinical trials services, and biopharmaceuticals production and marketing.
Process sciences- Biologicals (Insulin, Streptokinase etc), Small molecules
Clinical research
Non-clinical research
Figure 1: Chief Domains of Biocon
Location: Biocon is based in Bangalore in a 90 acre Biotech park US $200 million SEZ which is the largest of its kind in the Asia Pacific region- the Biocon Park. It has its subsidiary divisions in Germany (Axicorp GmbH) and in the UAE (Neobiocon FZ) as well geographically. Its remaining operations are all achieved out of the SEZ park facility in Bangalore. Geographically, Biocon has its presence in three countries (including a joint venture): India, UAE and Germany.
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Organizational Structure of Biocon: Biocon’s fully integrated business model spans the entire drug value chain, from pre-clinical discovery to clinical development and through to commercialisation. Their businesses in custom research, clinical development and biopharmaceuticals provide multiple revenue streams to balance risk, drive innovation, deliver products and accelerate growth. As a fully integrated biopharmaceutical company, Biocon’s subsidiaries are as under: Syngene International Limited is a custom research organisation offering synthetic chemistry and molecular biology services for early stage drug discovery and development. Clinigene International Limited is a clinical research organisation offering Phase I-IV clinical trials and studies for novel/generic molecules to international pharmaceutical majors. Biocon Biopharmaceuticals Private Limited (BBPL) is a joint venture with CIMAB to develop and market a range of monoclonal antibodies and cancer vaccines. Biocon biopharmaceuticals has an impressive track record of commercialisation capabilities. We have brought to market a considerable portfolio of biopharmaceuticals, led by our blockbuster Statins. The commercialisation of Insulin, Immunossuppressants and a range of Biogenerics demonstrates our highly advanced process development and manufacturing expertise. AxiCorp GmbH is a Friedrichsdorf (Germany) based pharmaceutical marketing company and is amongst the fastest growing in Europe. Biocon Limited acquired a majority stake in AxiCorp GmbH (70%) in February, 2008.
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NeoBiocon FZ LLC is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.
BIOCON LTD.
SYNGENE INTERNATIONA L LTD (99.9%)
CLINIGENE INTERNATIONAL LTD (100%)
BIOCON BIOPHARMACEUTICALS PVT LTD (51%)
NEOBIOCON FZ LLC (50%)
AXICORP GmbH (70%)
Figure 2: ORGANIZATION CHART The organization has a relatively flat and open structure [1]. Its subsidiary organizations are further divisible into product divisions that concentrate on researching upon specific products, and these are supported by centralized support functions. Biocon’s recently successful product divisions include the Cardiology, the Diabetology and Oncotherapeutics divisions all of which rolled out successful statins, oral insulin and cancer therapy molecules respectively. Within the product divisions, research and development happens via flat research teams of scientists. The divisions involved in continuous process technology (fermentation processes) have an appropriately designed hierarchy with floor engineers and supervisors.
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Biocon’s corporate governance is achieved by its highly competent board of directors and the key management team. Board of directors currently include Dr.Neville Bain, Prof.Charles Cooney, Dr.Bala S Manian, Mr.Suresh Talwar, Ms.Kiran Mazumdar Shaw, Mr.John Shaw, Prof.Ravi Mazumdar and Prof.Catherine Roseberg.
Figure 3: Corporate structure
Organic structure : In the research environment prevalent at Biocon, an organic structure is in place to support and nurture innovation. Task analyzability is low and task variability is high in the research laboratories, and hence appropriate setting of targets and expectations, enabling lateral and vertical flow of ideas
7|Page
and allowing collaborations is imperative to the management at Biocon. They achieve this by maintaining a very organic structure where people’s insecurities are done away with [1]. Organizational Culture: Given the fact that Biocon’s chief focus is on research and intellectual property generation, and accordingly the culture set by the CMD, Ms.Kiran Mazumdar Shaw, has three cornerstones openness, trust and collaboration. Employee culture : Employees are encouraged to collaborate from the beginning, and accessibility of superiors is highly valued. Employees are also encouraged to avoid hierarchies, and they try to be accessible to colleagues without specifying approvals or appointments. ? Socialization New employees are informally and serially initialized; they learn from their peers, and the time-frame estimated for the internalization of the values and norms of Biocon is 2 years [1].
? Rewards and Incentives Biocon had invested in both numerous creature comforts – special transportation, free lunch and snacks, on-site health checkups, etc. – and a strongly meritocratic hiring and performance management system. Performance rewards were based not merely on an individual’s achievement but on the performance of her team, so as to foster excellence and reinforce collaboration.
? Employee Profile :
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Biocon has 3500 employees (approximate) as of September 2009. The common job titles at Biocon include those of Scientist, Executive, Sr.Scientist, Scientific manager and Manager. The median age of the employees is estimated to be 28 years [8]. 15% of Biocon employees are women (across the group). The employee attrition last quarter was 7% and last year it was over 20%. The average age of the employees is 29 years. Thanks to its cultural and financial successes, Biocon India had become a highly desirable place to work, allowing it to hire the best minds in the sciences. According to the Head of Human Resources, Biocon recruits people with scientific backgrounds because it makes it much easier for people to talk to each other. They are familiar with the jargon, accustomed to scientific concepts, and this facilitates dialogue and fitting in. Importantly, Biocon India Group’s people were also business oriented, typically coming from industry backgrounds (Novo Nordisk, Astra Zeneca, etc). Yet senior managers were keenly aware that background and industry experience alone were not enough. They placed utmost importance to collaborative attitude as well [1]. The recruiters at Biocon have been known to reject applications from brilliant scientists because of a proven track record of non-collaborative work-style. Thus they have maintained continuity in their organizational culture by internalizing and bringing into practice their unique culture and norms. Moreover, as mentioned earlier, since teamwork is rewarded in appraisals, this collaborative work culture is reinforced.
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Figure 4: Employee Profiles and numbers
Core competency: Biocon’s patent portfolio reflects growth from a domestic and global perspective. Till 2008-2009, Biocon had a total asset of 415 patent applications of which international PCT applications were 99. In this fi scal, Biocon was granted 25 patents with 4 in order for grant. Till date, 34 patents are in the US alone. Through acquisitions, Biocon’s IP asset now stands at 516 of which 94 are granted, bringing the total number of patent applications to 924 and the total number of granted patents to 178. Thus Biocon’s core competency lies in its proprietary technologies, researched and perfected over the years. Biocon’s increasing spending on R&D has been a permanent feature of their annual reports made available to their stakeholders. In direct correlation to their expenditures have been their outputs in terms of new molecules and therapeutic agents.
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Figure 5: R&D expenditure Publicity and Ethics: Clinical trials dealt with humans, and thus carried significant risk to the CRO sponsoring the clinical trial. Although rigorous and stringent conditions were imposed by the industry and government bodies, the risk still fell upon the company running the experiments. Furthermore, this risk could have multiple dimensions: financial losses from failed clinical trials and compensation to victims, ethical challenges for employees eager to achieve results and unsure where subjectively measured “good ethics” lay, and damage to reputation and even organizational survival if questions were publicly raised about the company’s impact on humans and society. In the media, Biocon India Group had enjoyed coverage ranging from quiet approval to fawning praise. But if a Biocon subsidiary were to run clinical trials in India, a developing nation with a significant population living in poverty, it could receive negative and destructive attention for the first time. The issue of human participation in clinical trials, never a simple topic, grew far more
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complex when the use of illiterate and arguably ill-paid subjects raised questions of patient consent and abuse. In the United States, for example, any actual or perceived infringement of clinical trials ethics – not providing informed consent, preventing control-group subjects from seeking medical treatment, etc. – frequently provoked references to the Tuskegee Syphilis Study (1932-1972), “arguably the most infamous biomedical research study in U.S. history.” In its desire to grow into a model firm – a rare Indian example of a fully integrated drug discovery and development company –Biocon India Group might find itself accused of deliberately inviting neocolonial imperialism, foreign exploitation, and subjugation to the West. Interface with the external environment: Shareholders Biocon enjoys silent approval from the society and the investing public at large. Biocon became the second Indian company to cross the $ 1 billion mark on the day of listing. Biocon pays out high dividends to its shareholders every year. From its IPO in 2004, Biocon has payed out 20%-100% dividends consistently. Corporate Social Responsibility- BIOCON Foundation Vision of Biocon Foundation: Promote social and economic inclusion by ensuring that marginalized communities have equal access to healthcare services and educational opportunities. Biocon recognizes its significant responsibilities towards delivering better healthcare to the underserved communities of India, especially those in Karnataka. One of the most important initiatives undertaken this fiscal is the partnered program with the Government of Karnataka and The Embassy
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of Ireland to build 800 toilets for individual households in Huskur Gram Panchayat, Anekal. The Micro-Health Insurance initiative under the auspices of Arogya Raksha Yojana (ARY) continues to increase enrollments and has expanded its network of clinics and hospitals. Biocon Foundation has also partnered the Jain Institute of Vascular Sciences in its Mobile Diabetic Foot Clinic which offers free detection and counseling services to diabetic patients in rural communities. Biocon is involved in providing services to the underprivileged through many of the programs launched by the company itself and supporting some programs of other NGO’s. BIOCON launched programs such as Specialist services to augment their primary health services, organizing camps in outreach villages wherein a team of doctors and specialists treat hundreds of patients and Ragpickers Education and development scheme named as Deephalli. BIOCON also supports other NGO activities such as Mobile Diabetic foot clinic run by Jain Institute of Vascular Sciences. BIOCON Foundation is also involved in building schools, clinics and better sanitation facilities in various villages, which benefitted the society. Also the ARY Micro Health Insurance Scheme, which is now a five year old program run by BIOCON, in this year got thousands of enrollments and many surgeries were done to benefit the villagers in Karnataka and Andhra Pradesh. Values: Core values must be enacted throughout the organisation in all that is done. They guide decisionmaking in the organization. Core values of BIOCON as listed by them on their website are: Entrepreneurial and innovative - Research is at the heart of our value creation. We will constantly search for better ways.
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Protection of and Respect for Intellectual Capital - We recognize that this is a key value driver and we also respect the intellectual capital of others. Open and Honest in Our Decision-Making and external reporting and our relations with stakeholders - We will always act with integrity. Enhance Our Human Talent - We recognize that the development of our people will enhance our performance. We encourage teamwork across our organization. Responsibility- to our company, staff, customers, suppliers and our community.
2. CONDUCIVE FACTORS IDENTIFIED 1) Biocon was the first Indian company to manufacture and export enzymes to USA and Europe and to receive US funding for proprietary technologies. This was a major conducive factor that helped Biocon during the days of its inception and growth early on as competition was nearly non-existent on the domestic front. 2) Fueling Biocon and its export market was the global pharmaceutical industry’s trend toward outsourced research, development, and manufacturing. Facing slimming pipelines and escalating costs – an average of US$800 million to bring a new drug to market – major pharmaceutical firms increasingly saw outsourcing as the best, perhaps only, way to boost speed, reduce problems faced during regulatory processes worldwide, and cut costs by 30% to 35%. 3) Starting in its earliest days, the Indian pharmaceutical industry experienced phenomenal growth. A combined bulk drug and formulations output of Rs.168 crore in 1965 grew to Rs.19,737 crore 35 years later, an annual growth rate of 15%. Biocon was helped by the presence of a conducive environment to pharma related growth thus.
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4) The Indian government has also helped Biocon in many ways. The government set up a separate department for Biotechnology in the Ministry of Science and Technology after realising the potential of this sector in the future. The government of Karnataka eased tax, duty and lease levies for Biocon in its SEZs. 3. THE GROWTH OF THE ORGANIZATION Biocon was founded on November 29, 1978 as a joint venture between Biocon Biochemicals Ltd. of Ireland and an Indian entrepreneur, Kiran Mazumdar Shaw. In 1979, Biocon became the first Indian company to manufacture and export enzymes to USA and Europe. Unilever plc. acquired Biocon Biochemicals Ltd. in Ireland in 1979 and merged it with its subsidiary, Quest International. In 1989, Biocon became the first Indian biotech company to receive US funding for proprietary technologies. In 1993, Biocon's R&D and manufacturing facilities received ISO 9001 certification from RWTUV, Germany. In 1994, Biocon established a subsidiary Syngene International Pvt. Ltd to address the growing need for outsourced R&D in the pharmaceutical sector. In 1996, Biocon entered the biopharmaceuticals and statins segment. In 1998, Unilever sold its shareholding in Biocon to the Indian promoters and Biocon became an independent entity. In 2000 Biocon commissioned its first fully automated submerged fermentation plant to produce speciality pharmaceuticals. In the same year Clinigene, India's first clinical research organisation and a subsidiary of Biocon, was set up to pursue clinical research and development. In 2001, Biocon became the first Indian company to be approved by US FDA for the manufacture of lovastatin, a cholesterol-lowering molecule. In 2003 Biocon became the first company worldwide to develop human insulin on a Pichia expression system. In 2004, Biocon entered the stock market with its IPO and became only the second Indian company to cross the $ 1 billion mark on the day of listing. In 2006, Biocon launched India's first cancer drug BIOMAb EGFR. Biocon sold its Enzyme business to the Denmark-based Novozyme
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Industries in 2007 for $115 million to concentrate on its revenue generating Biopharmaceutical business, apart from Syngene and Clinigene. In July 2008 Biocon acquired a German pharma distribution major Axicorp GmbH for Rs.173 crore. NeoBiocon FZ LLC, the latest subsidiary of Biocon, is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture of Biocon with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.
4. FACTORS THAT HAVE LED TO ITS EXPANSION AND GROWTH ? Production and marketing of an increasingly sophisticated range of biopharmaceutical generics is a reason for Biocon’s successes. Production of these products are by noninfringing processes based on Biocon’s proprietary fermentation processes. This noninfringement gives these products a competitive advantage[6]. That is, the company has stuck to its core competencies all along, to create competitive advantages. There has been optimal differentiation of the divisions in Biocon, while the integration is also good between the various divisions.
? Activities of the group are varied. All of these activities are built on the core strengths of the group. Enzyme and pharma activities are extensions of Biocon’s fermentation processes. CRO activities are logical extensions of Biocon’s own outstanding research record. Syngene leverages the Group’s culture, values of respect for IPR, and scientific talent in India to create significant CRO[6]. ? Biocon was the first Indian company to get Food and Drug Administration (FDA) approval for the manufacture of fermentation derived molecules for pharmaceutical purposes. The
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Group boasted of clients like Glaxo Smithkline, AstraZeneca and Bristol Myers Squibb. Thus Biocon was successful in gauging its external environment, so that it could establish trust and reputation among its target clientele, by way of securing the FDA approval in the USA market.
? Biocon was one of the first enzyme companies globally to receive ISO 9001 accreditation in 1993[6]. And it was the first Indian biotech company to achieve this accreditation. Thus their internal technical approach to efficiency has been resolute, leading to better quality in their product delivery.
? According to the Weitzel and Johnson’s model of organizational decline, organizations typically decline due to inaction. Biocon has thrived because Mazumdar Shaw has followed a cyclical model[3] that allows one product to come in as another one fades. Thus there is corrective action periodically by Biocon so that the organization doesn’t go into a period of decline owing to inaction and dependence on one product or a range of products. For instance, Mazumdar Shaw anticipated Statins to make way for a new immunosuppressant line of business way back in 2005, and has currently succeeded in making insulin and cancer treatment molecules available today.
? Biocon has a flat organizational structure that was designed by the CMD, Kiran Mazumdar Shaw. Mazumdar believed in encouraging an open and supportive culture at Biocon. The company had a flat organizational structure and anybody in the organization, from the
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gardeners to the presidents, had equal access to her. She said, "The moment you start building boundaries, you destroy open culture." She believed that motivation comes from empowerment, and consequently, she encouraged her employees to challenge themselves and solve their own problems. Biocon created a culture in which employees could grow and develop. This helped the company attract and retain the best talent in the country. Biocon also gave importance to customer relations. It did not simply sell the customer a product; it sold a product as well as a service[7].
? At the point of time in 1994 when Kiran Mazumdar Shaw mulled over the creation of Clinigene for clinical trial services, experts expected Biocon to face many problemsClinigene as a division could drain resources from the parent company, it could outgrow the parent as a subsidiary, and the collaborative work culture of Biocon may not be carried on at Clinigene[1]. However these fears have been proven wrong; as of 2009 Clinigene has succeeded sustainably and the work culture there has reflected Biocon’s own remarkably. The organization has managed organizational change proactively.
5. THE DECLINE OF THE ORGANIZATION/FURTHER EXPANSION OF THE ORGANIZATION Decline in profits: Biocon’s 2008-09 Q4 results were hit due to MTM forex loss on hedging contracts. Net profit went down 62% at Rs.25 crores vs Rs.65.3 crores Year on Year. Biocon’s operating profit declined 25%
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in Q1 of FY08-09. The operating margins of the company declined from 28.24% in Q1FY08 to 21.82% to Q1FY09 . Further expansion: Biocon’s slump in net profit has been offset by increases in operating profits and in total revenues during the financial year 2008-09 taken as a whole. Operating profit was up at Rs.90 crore from Rs.82.5 crore by Q4 of Financial year ’09. Biocon’s newly acquired Axicorp GmbH in Germany has directly contributed to the increase in revenues from the point of acquisition which is positive for the company’s future. Net sales went up by 75% at Rs.463 crore from Rs.266.363 crore.
Figure 6: Revenue
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6. THE FACTORS THAT LED TO ITS DECLINE/ FURTHER EXPANSION Factors that led to the decline in profits: The global economic downturn has impacted corporate earnings in an unprecedented manner over the last fiscal. This has been further compounded by foreign currency volatility followed by a surging US Dollar which has led to export driven companies suffering large losses on account of foreign ex-change hedging. Biocon’s financial performance has been challenged with all these factors resulting in a sharp decline in post tax profits. The reduction in Q1 of Financial year 2008-09 was due to the non-existent enzymes business and operational delays in Syngene. The reduction in operating margins was due to ~200 basis points increase in employee cost and 121 basis points increase in other expenses. The employee cost has increased due to operational delays in Syngene’s contract research[9]. Thus Biocon has been affected adversely by its direct and indirect environments in which it operates. Factors that led to the further expansion: Biocon’s continued stress on research has led to increased income from licensing of its research derivatives. Moreover, the development of pathbreaking molecules at Biocon has been a source of strength for Biocon, thus seeing an increase in the sales of each subsidiary of Biocon on the whole. The acquisition of Axicorp has also started paying off for the company right from the start, as is evident from the following graph. Axicorp has contributed to 25% of the company’s operating revenues in the Financial year 2009 evidently. Thus Biocon’s continuous efforts at improving efficiency and to integrate vertically have been paying dividends even in uncertain times.
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Figure 7: Revenues by subunit
7. CONCLUSION Even though Biocon has gone through a period of declining profits of late, their core competencies remain intact. Biocon’s net sales and revenues have shown commendable growth year on year. Also, their strategy of “Learn as you earn”, whereby they internalize and deepen their domain knowledge, has allowed them to vertically integrate themselves into a full-fledged research driven Biopharmaceutical company from starting out as just an enzyme manufacturer in 1978. Significantly, throughout their expansions, divestitures, subsidiarizations and acquisitions, the Human Resource function at Biocon has functioned remarkably well by retaining the original culture and set of values that made Biocon a world-class company. Even in times of declining returns to its shareholders, market analysts have assigned a high worth to Biocon as an investment option in the long run. This also reflects the confidence of the external environment and stakeholders in the company’s abilities.
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8. LEARNING FROM THE PROJECT ? From this study of Biocon through the Organizational theory prism, one may learn first and foremost that it is critical to any organization to stick to its core competencies. Any lateral or vertical differentiation of the company must be attempted only if their established competencies can be leveraged appreciably. ? Corollary to the point above, being the fact that the growth of an organization must be achieved sustainably. Growth must not overshadow the existing frameworks upon which the company was built. ? It is imperative for an organization to evolve its strategies like Biocon did. Products go out of demand, and patents will live out their useful lives. Dependence on a product will spell the decline of a company. ? A company can offset losses sustained due to uncontrollable environmental circumstances, provided that their core business processes are proper. ? The organizational culture is directly impacted by the structure and norms of the organization, designed by the founders. This in turn affects the operating environment and the productivity of the employees. ? An innovation-centric strategy in the long run pays rich dividends to a technology-driven company.
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9. REFERENCE SOURCES 1. https://mitsloan.mit.edu/MSTIR/GlobalEntrepreneurship/Biocon/Pages/default.aspx 2. http://www.traderji.com/fundamental-analysis/650-biocon-profits-jump-51-a.html 3. http://money.outlookindia.com/article.aspx?88528 4. http://www.iloveindia.com/economy-of-india/top-50-companies/biocon.html 5. http://www.thehindubusinessline.com/2008/02/12/stories/2008021250980300.htm 6. ‘Organisational climate survey of Biocon India Limited’,2003,by Rahul Joshi, TAPMI. 7. http://www.icmrindia.org/casestudies/catalogue/Leadership%20and%20Entrepreneurship /Biocon-Kiran%20Mazumdar%20Shaws%20Entrepreneurial%20DreamLeadership%20and%20Entrepreneurship-Case%20Studies.htm 8. www.LinkedIn.com 9. www.Icicidirect.com
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