Case Study -1                                                                                                                                                                           

Introduction: XYZ -An Organizational Perspective

The Pre-OD Scenario: Our Strengths and Areas of Concern

In the years 1990-91 XYZ had grown into the largest Indian HARDWARE company with revenues of over Rs. 1100 crores and racing towards achieving its vision of being global top ten. As pioneers in the industry, XYZ’s strengths included on time delivery, premier position in the industry in terms of revenues, focus on training programs, quality initiatives, use of good technical tools and procedures and encouragement of individual excellence in performance. However, XYZ’s was also, at that point in time, grappling with a few areas of concern with regard to its operational paradigm.

Mounting revenue pressures: The pressure to retain its strong premier position led the organization to tend towards short-term revenues, and relatively lesser efforts were being put into medium and long-term markets and activities (such as products and building up knowledge). Though XYZ’s built relationships with individual customers, Relationship Managers largely tended to focus on obtaining short-term projects – there was lesser investment on aligning to long-term objectives of customers. The approach, by and large, was of reactive project management and we were yet to espouse the approach of architecting proactive solutions for the customer.

Selectivity in projects: There was a tangible tension at, XYZ’s between generating revenues and organizing strategically, on basis of technology and business areas, impacting selectivity in projects accepted. Pressures from customers on schedules was resulting in faster delivery and hence, snowballing into further pressure on future schedules.

Focus on specialization: There was diffusion of expertise and we were yet to focus on building strategic expertise in individual centers. Employees were rotated across domains and skills in the interest of learn ability as well as for meeting requirements. In a sense, there was heightened focus on Voice of the Customer, in comparison to the Voice of Employee.

Efforts on Experimentation & Innovation: The management at XYZ’s felt that by and large, employees tended to go straight by the book. Though Dr. De Bono’s techniques were introduced and employees trained on these techniques to encourage innovation, there was a need to scale up on perceived rewards for experimentation.

Rewards and Recognitions: The reward structure at XYZ’s was, at this point in time, primarily focused on individual performance and we were yet to explore the institutionalization of team based rewards at the organizational level.

Inter group co-ordination & knowledge sharing: Sharing of knowledge was very centre-oriented, and although, informally, best practices spread by interaction and word of mouth, we were yet to evolve a formal system which would capture these for ease of replication across projects. Multiple centers and multiple projects within the same centre ended up resolving the same sort of issues, resulting in avoidable rework.

Branding and PR: Image building endeavors were not yet an area of focus and, in a subtle way, this affected the sense of pride of employees. Among educational institutions, this meant greater difficulty in terms of attracting quality talent, which further aggravated stress among the few key performers in the organization. By the year 2002, management felt the conscious need to bring in changes in our approach to the aforementioned areas, in order to align more closely with the customer, business and market requirements at an organizational level.

Questions

1. List the various reasons in Organization xyz, which lead to its development?

2. If the organization had not invested in its employee, would they have developed?

3. Site few examples of Indian companies, similar to XYZ mentioned above?

4. What would have been the drawback of the XYZ Company prior to 1991?

Case -2                                                                                                                                

The Great US Meltdown: Privatization of Profits, Nationalization of Losses

AIG, Bear Stearns, Freddie Mac & Fannie Mae required government bail-outs. Lehmann Brothers has filed for bankruptcy. Merrill Lynch has been sold. Such grave situation of affairs reflects immense failures in respect of management, leadership and regulation of these firms. The government, like a knight-in-shining-armor, comes to the rescue and lends bail-outs worth a trillion dollars to these companies. Consider the fact that only 12 countries in this world have a GDP more than $ 1 Trillion and a country of more than 1 Billion joined this elite club only last year. This act of bailing-out using taxpayer’s money has been rightly called “The Bail-out of all Bail-outs”. Also this raises serious questions on the way money has been used to protect private companies, which was supposed to be used for benefits of the society by large.

These bail-outs would certainly be a bitter pill to swallow for all those who argued that free market capitalism was the best, and there should be no regulations at all in an unfettered market. And this idea has been most certainly put to rest in the last few days with the US government curbing short-selling and offering guarantees to money market mutual funds on 19th of last month, as it attempted to bail-out hundreds of billions of dollars mortgage debts. This follows the bail-out of three financial giants early last month. The stocks soared in response to these actions. Though this certainly re-affirms the requirement for regulations, but the question arises as to what extent this marks a shift towards more interventions.

It is a fact supported by many leading economists that history suggests that policy makers demand de-regulation during good times and bailing out in a big way at the times of crisis.

The present action does address the short-term problems of liquidity crisis and mid-term problem of dealing with bad assets, but on the longer term regulatory issue, there is no strategic plan in place and that is really problematic. What is required is a complete overhaul of present regulations and not just more regulations. Moreover, the government rushed to rescue these firms without trying many of the private sector solutions.

Questions

1. Is it fine to privatize profits and nationalize losses, is it right for organizational development?

2. Was this a result of failure of leadership of these firms?

Case – 3                                                                                                                               

Tata Cummins Limited (TCL) is a 50-50 joint venture between Tata Motors and Cummins Engine Co., Inc., USA. Tata Motors is the largest manufacturer of commercial vehicles in India, and Cummins Engine Co. is the largest 200+ HP diesel engine manufacturer in the world. The Joint Venture was incorporated in October 1993 and commercial production commenced on January 1, 1996.

The vision of TCL is to be widely acknowledged and bench-marked as one of the best companies in the world. The company, thus, abides by the following core values: –

• Care for customers
• Obsession for quality
• Care deeply about people
• Do what’s right and not what’s convenient
• Guarantee product leadership
• Responsible citizenship
• Relentless improvement

TCL is a QS 9000 company. TCL Jamshedpur boasts of state-of-the-art, fully air-conditioned diesel engine plant, with a computerized Building Management System for safety and energy conservation. The plant has five major components manufacturing lines for Cylinder Block, Cylinder Head, Connecting Rod, Crankshaft & Camshaft, with the best measuring and gauging instruments to assure Consistent Quality. TCL has very strong systems and IT infrastructure for controlling and facilitating its operations. To further increase overall efficiency and visibility of information, Oracle Applications and a web-based Supply Chain Management System have been implemented in June 2000.

Products

The low emission Diesel Engines manufactured by Tata Cummins are for use in a new generation of Tata Motors Ltd’s Medium and Heavy Commercial Vehicles. The engines conform to EURO-I, EURO-II & EURO-III standards for emissions. The 78 to 235 Horsepower engines have a high power to weight ratio and will enable Tata Motors Ltd. access new markets worldwide with its advantage of emissions, power, oil consumption and durability.

Plant

Tata Cummins has a modern manufacturing facility located adjacent to Tata Motors Ltd., designed by Kevin Roche, John Dinkeloo Associates of USA and C. P. Kukreja Associates of Delhi. The unique plant comprises a fully air-conditioned 182 x 186 m building with pre-cast concrete coffer roofing and 15 x 15 m bays.

The North and South walls are of glazed curtain glass. Features such as a PLC controlled Fire Detection / Suppression System, Skylights and Building Management System ensures high levels of Safety and Energy efficiency.

Organizational Strategy

At Tata Cummins, the organizational strategy is designed by the leadership team which includes the top management and the department heads. The department goals are then formulated in accordance with the organizational goals. These goals are reflected in a document called ‘Goal-Tree’. The tree also contains the action plan, the schedule for achieving the goals, and the persons responsible for achieving them.

As per the Goal-Tree, the three organizational goals for 2005 are: –

• Grow Sales to 853 crores
• Improve PBIT by 10% over last year and achieve 25% ROANA
• Achieve and Sustain the respect of all Stake Holders

The organizational goals are broken down to the strategies. The initiatives for implementing the strategies are then identified. The responsibility for implementing these initiatives is then assigned to respective departments. Further, the tentative deadlines are also reflected. The targets are reviewed quarterly.

Questions

1. Do the core values, really influence and have a impact on organizational development? Explain.

2. Is organizational development depended internally on employees and externally influenced by customers? Discuss

CASE -4                                                                                                                                

Benchmarking Performance

Key performance indicators (KPIs) are the metrics deemed essential to understanding operational health. Measuring performance allows an organization to objectively determine what is working and what is not. In addition, by identifying successes, managers can reward and learn from best practices.

“Measurement has the power to focus attention on desired behavior and results,” said Gardner. “People will pay attention when they know their job is being measured, especially if the measurement is linked to compensation.” When targets are set using validated, normalized data, measurement will support a means to determine operational improvement. Of course, it is critical to tie process improvement to measures that matter to an organization. In doing so, measures can provide:

• Feedback to guide change,
• Assessment and baseline information,
• A compelling business case,
• A diagnostic tool to identify areas for improvement and set priorities, and
• A basis for communication (using a consistent definition).

Most measurement occurs at the process level, where the transformation from input (resources applied) to output (goods and services) takes place. The four main categories of metrics to assess performance at the process level are:

• Cost effectiveness (e.g., $ 6.22 per invoice),
• Staff productivity (e.g., 93 invoices processed per FTE),
• Process efficiency (e.g., 11.2 percent error rate), and
• Cycle time (e.g., processing time of 3.8 days).

Cost Effectiveness

Cost effectiveness measures tell how well companies manage cost. Normalized data usually include cost per unit, cost as a percentage of revenue, cost as a percentage of total budget, and actual costs versus budgeted costs. Supporting indicators include cost components as a percentage of total and disaggregated cost per unit. Examples of measures follow:

• Customer service/call centers
  • Cost per call (or cost per minute)
  • Cost per reported complaint
• Finance and accounting
  • Cost per invoice
  • Cost per remittance
• Human resources
  • Cost per recruit
  • Benefits administration cost per employee

Staff Productivity

Measuring staff productivity provides insights into how much output each FTE has produced. KPIs include units of output (e.g., invoices and purchase orders) per FTE and workload (e.g., customers and general ledger) per FTE. Supporting indicators can focus on factors influencing staff productivity such as hours of training per FTE and employee tenure. Examples of measures follow:

• Customer service/call centers
  • Calls per representative
  • Resolved complaints per FTE
• Finance and accounting
  • Invoices processed per accounts payable FTE
  • Remittances processed per accounts receivable FTE
• Human resources
  • Total organization FTE per HR FTE
  • Requisitions per recruiter

Questions

1) Measurement has the power to focus attention on desired behavior and results,” How it leads to
organizational development?

2)   Discuss benchmarking techniques, are really helpful for succeeding in I today’s scenario?

CASE – 1

Raj Thapar, Karan Singhania and Aditya Mehta were bucking the trend during the 2001 recession.  While their counterparts were aggressively laying off workers, these CEOs were holding the line against layoffs.

Raj Thapar is CEO at Airbus.  His company, along with Boeing, dominate the market for commercial aircraft.  But while Boeing announced layoffs of upto 30,000 workers following the terror attacks of September 11, 2001, Thapar said he won’t be firing anybody.  Said an Airbus executive, “This is a bet that life will resume.  There’s more uncertainty now, but we decided to be optimistic.  This thing will turn around and you can’t risk losing skilled people when the upturn comes.”

Karan Singhania is CEO at North-Western Mutual, the largest seller of individual life insurance in the United States.  Singhania is no “Mr Nice Guy”.  Every year his firm fires the lowest four percent of its 4,100 employees — those with the poorest performance.  But it is very loyal to its good ones.  Singhania is committed to a no-layoff policy.  Why?  Employee loyalty says Singhania?  He believes employee loyalty helps in customer loyalty.  And he may be right since Northwestern loses only about half as many customers as the industry average.  Singhania argues that his Firm’s higher customer retention rate allows Northwestern to have more money to invest longer, while spending less to replace defectors.  The company can then pass the savings back to customers by lowering prices on policies.

Our final CEO, Aditya Mehta, heads up Enterprise Rent-a-Car.  Mehta proudly says that his company has never had a layoff.  This may be one reason why Enterprise is now America’s largest rental car company.

In a down economy, these CEOs were running against the tide when the economy began to slow, most corporate leaders’ first reaction was to cut the size of their workforce.  In 2001, alone companies let more than one million workers go. Why?  It immediately cuts operating expenses.  For public companies, it sends a message to stock investors and analysts that management is serious about maintaining profits and reducing losses.  A week after Boeing announced that it was laying off 20 per cent of its workforce, its stock jumped 10 per cent.

Questions:

1) What are the arguments for and against layoffs in hard times?

2) How have the three executives in this case shown leadership?

3) Explain the difference between management and leadership.   Discuss why conceptual leadership skills become more important, and technical skills less important, at higher level organizational levels.

CASE –  2

The engineering division of Shah & Co, consists of four departments, with the Supervisor of each reporting to the division general manager (GM).  The four departments range in size from four employees in the smallest (industrial engineering) to twenty in the largest (sales engineering).  The other two departments (design engineering and process engineering) each have eight employees.

There occurs frequent rivalry among various departments over the allocation of resources.  This problem has worsened by the favouritism that the GM purposely shows towards the industrial and design engineering units and his reliance on majority-rule decision making (among his four supervisors and himself) at staff meetings.  The Supervisors of the sales and process engineering complain that this practice often leads to leaders of the industrial and design engineering departments forming a group with the GM – to make a decision, eventhough they represent  a small number of the total employees.  In response, the industrial and design engineering supervisors charge the supervisors of the sales and process engineering units with empire building, power plays, and a narrow view of the mission of the division.

Questions:

1) Is the GM’s approach wrong?  If yes, then why if no then why not?  Give reasons for your answer.

2) What would you recommend to the G.M.

3) Team leaders and team members need skills to develop effective teams.  Is this statement correct or wrong. If there are any skills needed by the team leaders and team members to develop effective teams then discuss them.

CASE – 3

The new general manager (GM) of a Malaysian Carpet company was faced with the challenge of turning around the firm, which was rapidly going downhill.  He had to influence his own head office, senior executives, workers, bankers, dealers and others to support the change till the Firm turned the corner.  But the workers were in no mood to wait and decided to go on strike demanding higher wages and bonus.  A senior executive, who wanted to cut the new GM to size, was provoking them surreptitiously (secretly).

One day, as the workers were planning to leave for the day, the GM decided at the spur of the moment to talk to them.  He said, “I understand that you are planning to go on strike and hold demonstrations.  When you will sit outside the factory gate tomorrow, there will be people from the press who will come and photograph you.  Your pictures will appear in the newspapers.  They will ask you questions and blow up the issue.  But our bankers will also read our problems.  They already think that ours is a dying company and when you go on a strike, they will reject our proposal for funds.  If that happens, the company will close down.  Of course, you will continue to hold demonstrations, but now no press people will come to take your photographs and write what you say.  I have another job at the head office and so I will lose very little, but I am not sure if all of you can find another job when the company closes down.

The response of the workers to the GM’s impromptu address was electric, the GM had established contact with the group.  The GM looked directly into the eyes of a worker who was listening intently and asked him, “Tell me, do you want to go on strike tomorrow?”

The worker avoided his eyes but the GM persisted, “You cannot avoid my question.  It is far too important for the company’s future and yours.  Do you want to go on strike?  For a while, there was silence.  Then, slowly the worker said, `No’.  The GM moved to another person and repeated his question.  Again the answer was no.

The third person, fourth person and soon ripples of a new sentiment were being generated.  Towards the end of the addresses, the crisis had been avoided.  The GM quickly followed up with initiatives to strengthen employee communication and involvement to build on the positive sentiment that had come about.

The GM followed a different approach with the bankers.  He met them regularly and frequently, each time with some good news about the company.  He used his contacts to get certain purchase orders released, even if the deliveries were required later.  Every time there was a big order, he told the bankers that it was only the tip of the iceberg, and there was more to follow.  In the GM’s words, “No accounts are presented to the bankers unless we put lipstick and mascara and make them look as pretty and healthy as possible.”  Finally, the banks relented and accepted the financial restructuring package we had proposed.  That helped the company turn around in a remarkably short time.

Questions:

1) How did the GM distinguish between the two target groups to make his communication effective?

2) What is the main advantage of direct face-to-face communication, as against communication through circulars or memos?

3) What makes technical communication different from general communication?

4) How important is it to be able to communicate?

CASE – 4

1)         Interviews – How are you?

Vikas — Nice.

2)         Interviewer — Tell us something about your background and academic credentials.

Vikas – (tensed and nervous).  I … I am a very qualified manager.  I am from Mumbai.  I
studied at Top institutions of Mumbai.  I am very famous.  I believe in hard work and honesty.
Currently, I am not working with anyone.

3)         Interviewer – What kind of a position are you looking for ?

Vikas – (in a rigid tone) I want the post of a Senior Manager only.

4)         Interviewer –  Tell us something about your work experience.

Vikas –  I have a lot of experience.  I have marketing experience as Manager (Sales and
Marketing).  Before this job, I worked with K K & Company.  I have always proved myself as
an outstanding sales professional.

5)         Interviewer –  Can you tell us about your responsibilities at your last job ?

Vikas –  As I told you, I am a very hard working professional.  My last job with K K &
Company as Manager (Sales & Marketing) kept me very busy.  My colleagues were very lazy.
So I had to perform extra responsibilities on their behalf.  My main job was to do the marketing of K. K water purifiers.

6)         Interviewer – What are your career objectives?

Vikas – I want to acquire a challenging position in a large companym where I should be able to
use my specialized qualification, understanding and experience in marketing and sales.

7)         Interviewer – What are your strengths ?

Vikas – I have good communication and interpersonal skills.  I am good at getting along with
others.  I have always achieved company targets.  Last year, my company wanted me to sell
2,00,000 water purifiers, I did it.

8)         Interviewer – What is your greatest weakness?

Vikas –  I think that I do not possess any weakness.

9)         Interviewer – Are you a leader or a follower?

Vikas –  I am a leader.  I have successfully completed several projects as a leader.

10)       Interviewer –Why do you want to work with our company?

Vikas –  There is no specific reason for this question.  Your company pays more than other
companies.  As I told you earlier, I am currently jobless, I need money so I have to work.

Questions:

1) Read the above conversation carefully if you were Vikas, how would you answer all the questions asked by the interviewer.  Rewrite the answers, making them more appropriate by changing the language, style, tone, and attitude of the answer.”

2) Describe the significance of job interviews today.

CASE 1: INTRODUCING WORK-LIFE BALANCE AT OXFORD MANUFACTURING

Fiona McQuarrie, University College of the Fraser Valley

Oxford Manufacturing is a company with 350 employees in a large Midwestern city. It specializes in producing custom plastic products, although it also manufacturers a range of small plastic items (such as storage boxes and water bottles) that it sells to wholesale distributors. Because of the variety of products the firm produces, its workers have a wide range of skill levels and qualifications: engineers with university degrees work on design and production specifications for customized products, and assembly line workers, some of whom did not finish high school, operate machines in the production facility. The company’s plant operates 12 hours a day, seven days a week – although if a large order cannot be produced during regular hours may be added to meet that demand.

Over the last few years, where Oxford is located, the demand for workers has begun to exceed the supply. Oxford’s owners have realized that the company can no longer afford to sit back and let potential employees find them, as was the case in the past. They also realize that the company is now increasingly competing for employees, especially skilled ones, with other manufacturing firms in the same area. These realities have led Oxford’s owners to decide that Oxford needs to be seen as a “preferred employer” if it is going to attract and retain the best employees. They have decided to make Oxford a preferred employer by emphasizing how much the company cares about employees’ work-life balance. The message communicated to potential and current employees is that Oxford wants to help them achieve a lifestyle in which work and nonwork commitments are important. The company has adopted a policy giving each employee five “free days” off per year to use for whatever purpose the employee desires, in addition to generous vacation and sick leave benefits. The company also has encouraged department managers to schedule workers’ shift to accommodate the workers’ outside commitments as much as possible. The company managers feel that offering such benefit will not only attract good workers to Oxford but also help retain the ones already working there.

Peter MacNee is a manager of one of the production areas. He has received requests from two of his employees to accommodate their work schedules to their nonwork commitments.

• John Mason is an engineer whose marriage has recently ended. He is now a single parent to a daughter, age 9, and a son, age 6. His parents are helping him with child care, but they are not always available to take care of children during the day when John is at work. In addition, John’s daughter was badly affected by her parents’ divorce; occasionally she has temper tantrums and refuses to go to school or stay with her grandparents, insisting that only her father can take of her. These situations have occasionally resulted in John having to miss work on short notice. Peter has allowed John to use three of his five annual free days to cover these situations, even though company policy states that employees wishing to take free days must notify their superior two weeks before the date of the absence. John is asking to work only in the evenings because his parents regularly available to supervise his children then. He is also offering to work overtime in exchange for formally being allowed to take his two remaining free days as needed without the required period of notification. He is willing to continue to be available for unpaid overtime if the company gives him a yearly allocation of five additional free days.
• Jane Collier is a supervisor on the production line. She also participates in curling at the local recreation center. When a friend encouraged her to take up curling for fun a few years ago, she was having problems with her health and was also somewhat shy. Because she has been curling regularly, her fitness level has increased, and her health problems are on longer affecting her attendance at work. In addition, because success in curling requires working effectively as part of a team, her social and supervisory skills at work have noticeably improved. Jane’s curling team has an opportunity to join a new curling league that is more competitive than the one they currently belong to, but this will allow them to compete at regional, national, and possibly even international levels. Jane’s team has decided not only to join this league but also to start working with a coach to improve their technique. Jane is asking to be scheduled for day shifts only because of the time demands of this new level of participation and because most of her curling related activities will take place in the evenings. She is also for two weeklong unpaid leaves per year to attend curling bonspiels (competitions) out of town.

Peter is not sure what to do with these requests. He knows that the company encourages employee work-life balance and expects its management to support employees trying to manage both work and nonwork activities. He realizes that John and Jane would not have made their requests unless they felt the requested accommodations were the only way they could successfully balance their work lives with their nonwork commitments. However, there is no way he can grant both requests: The products John helps design are manufactured by the production line Jane supervises, and both of them need to be at work at the same time at least twice a week to share information about the products they are working on. He is also aware that John and Jane are talented and experienced employees, and if he turns down these requests, they will have no trouble finding comparable jobs with any of Oxford’s competitors.

As Peter is considering this dilemma, he shuffles through the pile of mail that arrived on his desk that morning. An interoffice memo catches his eye, and he pulls it out of the pile and opens it. The memo is from the three administrators in his area. The administrators complain that they are becoming increasingly upset with their co-workers, most of whom are married and have families, “dumping” work on them because of family crises. The memo describes several recent incidents in which co-workers received phone calls about family problems and then left for the rest of the day, asking the office administrators to cover for them and complete their work. After dealing with their co-workers’ unfinished tasks, the administrators often had to stay beyond the end of their scheduled shifts to finish their own work. The last paragraph of the memo states, “We don’t mind helping out once in a while, but not having kids or elderly parents to take care of doesn’t mean we don’t have anything to do besides work. If we have to stay late on short notice, we often have to cancel activities that are important to us. This is unfair; and if other people can’t manage their family responsibilities, they should be the ones making the adjustments, not us. We want you to address this problem immediately because it is occurring more and more frequently.”

Questions:

1. How should Peter deal with John’s and Jane’s requests and the complaint from the administrators?

2. What can the organization as a whole do to address problems like these?

3. What organizational behavior can you identify in this case?

Case 2: COX-2 INHIBITOR DRUGS

Christine Stamper, University of Western Michigan

Treating chronic pain conditions associated with growing older, such as arthritis, has become more important (and more profitable) with the aging of the baby boomers, the largest generation in U.S. society. Pain medications produced by pharmaceutical companies take many forms, including both over-the-counter (aspirin, Tylenol, Motrin, Aleve, and the like) and prescription types of medicine. Investment in the research and development of new drugs costs pharmaceutical companies billions of dollars each year, with approximately 4-6 percent of all researched drugs actually receiving the approval of the Food and Drug Administration (FDA), the watchdog government agency tasked with maintaining public safety pertaining to medicines. Given this low “to-market” rate, top managers in pharmaceutical companies try to protect the drugs that are on the market at all costs.

The last few years have witnessed much concern over a class of drugs called Cox-2 inhibitors, such as Vioxx (manufactured by Merck) and Celebrex and Bextra (both produced by Pfizer). Despite the fact that all of these drugs were approved by the FDA (Celebrex in 1998, Vioxx in 1999, and Bextra in 2001), recent independently conducted research has shown significant negative health effects in people who have taken these medicines long-term (for more than three months). Specifically, all three drugs have been found to increase the risk of heart attack and stroke in patients, and Bextra also may cause fatal skin reactions. Subsequently, Vioxx was taken off the market by Merck in September 2004, and Pfizer stopped selling Bextra in April 2005 at the request of the FDA. However, Celebrex remains in the market.

When first introduced, Cox-2 inhibitors were hailed as a type of “super-aspirin,” alleviating the suffering of the patient while causing little risk. They were also viewed as a preferred alternative to existing NSAIDs, which are nonsteroidal anti-inflammatory drugs like aspirin, naproxen (sold as Aleve and Naprosyn), and ibuprofen (sold as Advil and Motrin). When taken for three months or longer, these NSAIDs pose a risk of internal bleeding in the stomach and small intestine areas (approximately 16,000 people die from these effects each year). Vioxx, Celebrex, and Bextra were produced to provide pain relief while protecting the lining of the gastrointestinal tract.

Even knowing that Cox-2 inhibitors carry a potentially large cardiovascular health risk, there are chronic pain sufferers who would voluntarily (and happily) continue to take these drugs. For example, it was reported that one man who suffers from chronic knee, hip, and shoulder pain thought, “…whom do I know who has some but isn’t taking it? How can I get as much of it as possible before it disappears from the shelves?” He, and many others, would willingly tolerate the health risks of these medicines instead of living with chronic pain. The acting director of the FDA’s Center for Drug Evaluation and Research has recognized, in light of new information about health risks, that it is important to balance these risks with the potential benefits of the medicines before deciding whether to remove them from the market. However, the associate director for science and medicine at the FDA’s Office of Drug Safety has argued strongly that the health risks associated with Cox-2 drugs vastly outweigh any potential benefits.

In December 2004 (prior to its request to pull Bextra off the market) the FDA recommended that doctors limit their prescriptions of all Cox-2 inhibitors, including Celebrex, to only those patients at risk for gastrointestinal bleeding. Researchers at Stanford and the University of Chicago argued that millions of patients who did not face this risk were prescribed either Vioxx or Celebrex by their doctors. Each of these drugs can cost 10-15 times as much as the NSAIDs available to treat the same pain symptoms, and critics of big pharmaceutical companies argue that the Cox-2 inhibitors were marketed too aggressively and deceptively to potential patients. It is not clear whether the increase in prescription for the Cox-2 inhibitors in lieu of NSAIDs was due to patients asking their doctors specifically for either Vioxx or Celebrex, or to recommendations by physicians that the patients change their medications.

Both Pfizer and Merck still assert the relative safeness of the Cox-2 inhibitors. In February 2005 and FDA advisory panel recommended that Vioxx, Celebrex, and Bextra should continue to be sold despite their health risks because the potential benefits of the drugs outweigh the risks for some patients. The doctors on the panel stated that they felt Vioxx posted the greatest risk to consumers and that Celebrex had the fewest side effects. Research estimates show that Celebrex increases the risk for heart problems by 1 percent, but only for individuals who routinely take double the normal dosage of 200 milligrams. Also, another recent study indicated that Celebrex may suppress the typical immune function of the body, which may benefit some arthritis sufferers.

The FDA does not always follow the recommendations of its advisory groups, and it subsequently decided to request Pfizer put Bextra from the market. A statement released by Pfizer said the company “…respectfully disagreed with the FDA’s decision on Bextra and that it would work with the agency on Celebrex’s label.” The FDA has requested that a “black box” warning label be placed on Celebrex, which is the strongest warning procedure available in product labeling. However, the FDA also requested “black box” warning on NSAIDs like Motrin, Advil, and Aleve. Pfizer has also stopped public advertising of Celebrex, but still argues that it should be available to patients who need it, according to a doctor’s recommendation. Two additional Cox-2 drugs are now waiting for the FDA’s approval, one of which (Arcoxia) is produced by Merck. Arcoxia has been approved for use in 51 countries worldwide.

As this case was written, Pfizer had just finished a widely publicized strategic planning meeting addressing the future of the company. In the press releases from this meeting, and prior to the FDA asking Pfizer to remove Bextra from the market, corporate representatives expressed their desire to revitalize the sales of both Celebrex and Bextra in the coming months. With the removal of Bextra form the market, financial analysts predicted that Pfizer’s earnings would continue to decline for 2005, and the recent predictions for double-digit earnings growth for 2006 and 2007 would have to be revised. In 2004 sales associated with Bextra were $1.3 billion, and Celebrex’s sales were estimated at $3.3 billion. Together Bextra, Celebrex, and Vioxx totaled more than 50 million prescriptions in the United States in 2004 (Bextra = 13 million, Vioxx = 14 million, and Celebrex = 24 million).

Questions:

1. Should Pfizer voluntarily pull Celebrex off the market, given that the other two drugs in its class have been withdrawn? What factors are the most important in making this decision? What should the FDA do about Arcoxia?

2. What are the responsibilities (if any) of Merck, Pfizer, and the FDA for the deaths of individuals who took the Cox-2 inhibitors? Who holds primary responsibility?

3. How many deaths per 100,000 people pose an acceptable risk for a drug to be viewed as marketable? Should individual patients have the right to determine if the risk is too great for them? What roles do organizations and consumers play in maintaining consumer safety?