"The market is changing and we need to adapt ourselves on a structural level. Can I say that we were running completely optimally beforehand? I cannot," Ika Abarbanel, Executive Vice President of Teva Corporate in Israel and Global Community Alliances, admits, following the company's announcement that it that is laying off 10% of its workforce, roughly 5,000 employees in all. Abarbanel presumably knows what he is talking about when he says that the company was not functioning optimally previously, because until two months ago he served as Group Executive Vice President, HR and Chief Integration Officer, a post he held for six years.
Currently, in his new role, he is responsible for all the relationships with the various bodies in Israel, among them the government and the Histadrut (General Federation of Labor in Israel). "We agreed with the Histadrut that we will work with a high degree of cooperation, as we have in the past," he said. "Right now, the heads of the workers committees are expressing their feelings and that is okay, but the truth of the matter is that they, too, have an interest in Teva continuing to be a market leader, and if we do not carry out this process, it will put that into question."
Abarbanel points out that the cuts in manpower should save the company $250 million per year, as part of cost cuts totaling $2 billion. "When we announced the cost cutting exercise in December, we decided that a cut in manpower would be a last resort, and we started with real estate and procurement projects. The changes in the market led us to the point that we have to engage in this as well," he says, and mentions that Merck, too, recently announced layoffs amounting to 20% of its manpower, "even though their profit margins are higher than Teva's."
One of the main changes that led to the decision was the court ruling in the US that brought forward the expiry of the patent on Copaxone, Teva's main pharmaceutical, from September, 2015, to May, 2014. "This is very significant, and we must assume the worst in order to be responsible," says Abarbanel. Another change is the greater-than-anticipated erosion of prices in generics, which will lead to a drop in revenue. The third is described by Abarbanel as an "auto-pilot of collective agreements," which causes a rise in salaries worldwide, based on rises in inflation, for instance.
Over the next three months, a committee headed by senior manager Erez Israeli will investigate "down to the individual unit" what the tasks of each unit are, where there are excesses of manpower, and where more is needed. Abarbanel says that the company will try to transfer workers to different positions within the organization as much as possible, and will also allow for early retirement. After the conclusion of this stage, Teva will name the laid-off workers, and Abarbanel emphasizes that this will be handled through negotiations with workers unions around the globe.
Have you hired an external consulting company? "No, we have extensive internal knowledge as a result of the integration processes that we have implemented during recent years. This is a very great managerial challenge, and we will try to quickly conclude the interim period with its terrible, for both the workers and the management. We are working with them in order to not make mistakes. To appoint a group of experts to sit behind the scenes would lead to us making all the mistakes.”
As a part of the process Teva will sell or close some operations, and two sites with roughly 900 employees combined have already been marked; one in California and one in Pennsylvania. "We are combing over everything, everything is up for scrutiny and there is no taboo," says Abarbanel. "The process is entirely business-driven, there is no other criterion to evaluate, other than Israelwe have a positive bias, semi-emotional, because we are an Israeli company. The sensitivity here is much higher, and, because of this, I can say that I do not anticipate that sites will be closed in Israel. That said, here, too, we will need to streamline operations."
Published by Globes [online], Israel business news - www.globes.co.il - on October 14, 2013, 2013
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