Daily Archives: September 9, 2009

The Cost of Big Business

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Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

“There’s a kind of mentality in this sector that [settlements] are the cost of doing business and we can cheat.”

The above is a quote by Bill Vaughn, an analyst at Consumers Union, the nonprofit publisher of Consumer Reports in response to the news that Pfizer had been fined a U.S. record $2.3B. (Yup, that’s a “B” not an “M”.) Apparently Pfizer was caught illegally promoting its pharmaceuticals by heaping all sorts of gifts such as golf outings, massages, and resort stays upon doctors.

This wasn’t the first time Pfizer had been caught – they are a repeat offender having had to settle such allegations by the federal government four times in the past 10 years. Ouch. This is going to need more than just a topical ointment to solve.

I have written before about what is so sad about these kinds of fraud cases and this case is so massively big that some the consequences and characteristics bear repeating:

  1. The $2.3B penalty is about 4.8% of Pfizer’s 2008 total revenue of about $48B. The penalty seems materially significant and could cause stock prices to fall affecting investor’s earnings.
    • This would appear to violate Sarbanes-Oxley COSO compliance framework aspects such as the Control Environment (also known as the “tone at the top”), Internal Controls and Risk Management.
    • Can we expect a change of corporate management and a refund of performance bonuses?
  2. The products involved in the illegal promotions included Viagra, Zoloft and Lipitor.
    • Is the prescription of unnecessary pharmaceuticals one reason why our healthcare system is so expensive and in crisis?
    • What are the health impacts to a person when pharmaceuticals are prescribed that they really didn’t need?
  3. What ethics examples are being set for current generations of employees and those up-and-coming sales representatives, doctors, and business executives?

But before we build a gallows for one, let’s consider the doctors who accepted these trips and gifts. Okay so Pfizer should not have offered but by the same token the doctors should not have accepted. If business ethics are not taught in medical school or promoted by the American Medical Association they darn well should be.

Taking this another step further it’s one thing for the doctors to accept gifts but it’s another thing for them to act on them. (Um … gee … that actually sounds a little bit like fraud itself!) If doctors (a) were persuaded to and actually did prescribe medicines without cause to patients who didn’t really need them, or (b) were persuaded to and actually did prescribe one company’s brand over another without regard to which brand was actually the better remedy, then the doctors themselves are also at fault here.

To me there are aspects of this case that parallel the disturbingly thought-provoking movie District 9. What affected me most in that movie is that I think the brutal and ego-centric representation of the human race and the various government, military, and gang players was dead-on accurate, and that unnerves me. I felt sorry for the victimized aliens who were more the “good guys” than the humans.

Mr. Vaughn’s observation describes the steamy underbelly of some healthcare companies & healthcare providers. This is analogous to when police officers are caught selling drugs from the evidence room or abusing their authority for their own benefit especially when it conflicts with protecting and serving the law-abiding public, or when politicians abuse their power for their own self-interests.

This case is about nothing more than greed sustained by a lack of integrity and a failure of fortitude to do the right thing. The people who could put a stop to fraud like this seem too reluctant to do so in lieu of favouring their own self-interests, so I’m hoping for an alien invasion by a more ethical species than ours.

Norman Katz, Katzscan

e-Leaders Speak: George Gordon of Enporion on “Are You Prepared to Grow”

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Today’s guest post is from George Gordon of Enporion.

As CEO of Enporion, a B2B e-commerce technology company, it has always been my role to push technology farther into business processes and apply it to doing business better. Most businesses have been using information technology to improve efficiency for decades. For the most part, “front end of the business” activities have been the first to benefit from information technology (IT) efficiency improvements.” Front end” applications are for those activities that are customer-facing and can be associated, for example, with receiving an order and delivering goods and services to the customer. The “back office” applications typically manage running the business, and have generally been late to attract the focus of management’s attention. The primary reason was that they were not perceived as having significant influence on driving increased revenue or lower cost. On a relative basis this may be true. However, in an ever increasing globally competitive high-technology world, the diligent manager must leave no stone unturned in looking for ways to improve business process.

Many of the IT systems used by businesses today came about through the automation of manual business processes, often on a departmental basis, creating silos of software for processes within the enterprise. Additionally, many businesses grew through acquisition resulting in a multi-enterprise collection of disparate software systems. My mission is to make information technology work for you, the business manager, without you having to throw out all of your legacy systems. Whether you are managing the buying, production, or finances, every business process you manage can benefit from improvements in IT. Trying to figure out what technology can provide the best improvement now and into the future can be a daunting challenge. How do you harness what is available today and plan to build on it in the future while keeping costs down?

Waves of information technology innovation shaped the foundation of business software today. Managers today must figure out how to work within their current IT boundaries such as investments in Enterprise Resource Planning (ERP) software applications, legacy systems, middleware and the Internet. The most recent software technology wave is in the provision of software applications offered as a service (SaaS); SaaS uses the Internet to connect businesses and systems to each other. To capitalize on past investments in technology, it is important to find solutions that will extend performance, scale for growth, and enable secure interaction over the Internet. It is important to keep your technology growing, and right now that is best achieved by using distributed computing, the Internet, and SaaS. SaaS is the most flexible and cost effective software available.

The current economic recession is destined to end. Now is the time to prepare for the inevitable boost in production and business consumption that will come with economic recovery. I have experienced six recessions in my career. The current recession is by far the worst of all and has had global impact. One important thing I have learned from these recessions is that the businesses who prepare for growth during the downturn are the ones who profit the most in the recovery. You can accomplish this by choosing technology solutions that provide the most capability, capacity, and, most of all, flexibility.

Far too often managers learn that a requested or essential software feature is not in a vendor’s product roadmap. By delivering software as a service, a company can successfully operate just one instance of production software for all of its customers. That’s why Enporion has adopted the SaaS model. When a customer requests a special feature, we not only have the capability to provide it indigenously, but we can effectively provide custom applications for every customer on one operating platform without any interruption of service or change for our other customers in our B2B e-commerce marketplace.

The analyst groups all agree that increasing efficiency in B2B transactions often significantly improves enterprise profitability. Procurement processes are critical business functions that are a great opportunity for operational improvement. Identifying inefficiencies in spend, driving costs out of sourcing and procurement processes, and establishing processes to better manage ongoing spend can all be accomplished with SaaS tools. Procurement processes can be enhanced by:

  • Providing better visibility into spending;
  • Aggregating spend;
  • Optimizing the number of vendors in B2B transacting;
  • Making manual processes more automated; and
  • Allowing automation through decision support technology.

These results can be delivered through a fully integrated suite of e-procurement software tools. The solution should include electronic sourcing, procurement, contract management and invoicing tools. A SaaS solution can easily integrate with any existing ERP or legacy application. It can also integrate with applications for smaller companies by providing a web-based user interfaces that requires only an Internet connection and PC. Also important to success in implementing e-sourcing and e-procurement are the substantially experienced people to provide professional services of change management, spend analytics, supplier onboarding, and project management. To make the best choice, find a company that can provide all of that to your business so you can prepare for growth and economic recovery.

Thanks, George.