以平衡計分卡與系統動態學觀點探討台灣製藥產業發展之績效

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(1)國立高雄大學亞太工商管理學系碩士班碩士論文. 以平衡計分卡與系統動態學觀點探討台灣製藥產業發展之績效. Using Balanced Scorecard and System Dynamics in Exploring the Performance of Taiwan's Pharmaceutical Industry. 研究生：楊淑涓撰指導教授：李亭林博士. 中華民國一百年七月.

(2) 致謝不經一番寒澈骨，焉得梅花撲鼻香。撰寫論文過程中，雖遭遇許多難題與瓶頸，然而因為師長與朋友的協助與鼓勵，使得論文得以順利完成，而歷經的風雨也將化為甜美回憶。以下僅以簡單文字，獻上我滿心且誠摯的感謝。首要感謝的莫過於亦師亦友的指導教授李亭林老師。在您的指導下，除專業知識與論文外，亦習得待人處事之道與態度；於失落困惑之時，老師更不斷給予鼓勵，使我受益良多，學生銘感在心。口試則承蒙蕭乃沂老師及王俊賢老師撥冗審閱，並提供精闢建議與寶貴意見，使本研究更添內涵與完善。回首這兩年，十分慶幸遇到同為李氏門派，且自碩一便相互扶持與合作的莉媖、郁倫及阿源；一同共事與分享心事的好夥伴聖權；彼此互吐苦水的雅雯；318 開心果勇恩、經濟大師靜婷、統計人才丁丁、會計達人維尼與其他同儕，因為你們，讓我的碩士生活多采多姿。感謝不吝分享經驗的同門師兄姐：宜欣、惠姍與聖新；感謝總是給予關心並協助張羅口試的同門師弟妹：梅君、艾薇、嵋璊與尚霖；以及貼心的燿名與其他學弟妹們。此外，更感謝 9898 團員們，因為有你們不斷的加油打氣聲，才讓我能順利走完研究所生涯。最後，謝謝建臺兩年來的激勵、陪伴與照顧，很慶幸我們能相遇並一同完成碩士學歷，希望未來我們可以繼續攜手面對任何大大小小的挑戰。而完成碩士論文的這份榮耀最應該獻給萬分支持我，讓我無後顧之憂、順利取得學位的可愛家人們，因為有你們作為我最堅強的後盾，促使我全力衝刺，獲取此份榮耀。未來，我一定會持續努力的發光發熱，使你們備感光榮與驕傲。楊淑涓謹致於國立高雄大學民國一百年七月. I.

(3) 以平衡計分卡與系統動態學觀點探討台灣製藥產業發展之績效指導教授：李亭林博士國立高雄大學亞太工商管理所學生：楊淑涓國立高雄大學亞太工商管理所. 摘要自 1982 年以來，台灣已制定許多發展製藥產業的相關策略，但此產業對於台灣之貢獻仍然有限。平衡計分卡(BSC)可以協助轉換策略，形成一套績效指標並管理執行策略之情況，是近年來備受重視且常用於企業層級上的績效衡量方法，然而至目前為止，少有研究將其運用於產業層級上。本研究嘗試結合平衡計分卡與系統動態學來探討台灣製藥產業。主要的研究目的在於以平衡計分卡中的四構面，訂定相關指標以建構台灣製藥產業的複雜系統，並透過系統動態學模擬結果給與政策修正之建議，進而協助提升此產業績效。根據模擬與分析，本研究得出以下之結果：(1)藥價調降比率會導致國內藥品市場銷售成長明顯趨緩；(2)台灣製藥產業的研發經費之來源，以企業與創投為最重要之來源； (3)企業經費就長期而言，投入研發所帶來之營業績效會比投入行銷上之績效好； (4)學習與成長構面的六個衡量變數中，以研發經費為提升研發能力與新藥開發績效最重要之因素，而教育訓練則最有助於提升此產業之營業額。本研究不僅整合平衡計分卡與系統動態學兩種研究工具以給予改善此產業績效之建議，更希望藉此研究結果，協助台灣發展成為亞太地區研發、製造、營運中心。關鍵字：關鍵字：平衡計分卡、系統動態(力)學、製藥產業、績效. II.

(4) Using Balanced Scorecard and System Dynamics in Exploring the Performance of Taiwan's Pharmaceutical Industry Adviser：Dr. Ting-Lin Lee Department of Asia-Pacific Industrial and Business Management, NUK Student： Shu-Chuan Yang Department of Asia-Pacific Industrial and Business Management, NUK. Abstract “Balanced Scorecard (BSC)” is one of the most popular ways of measuring performance and is usually used on the enterprise level; only few studies have ever tried to use it on the industry level. This study tries to combine BSC with SD in order to explore Taiwan’s pharmaceutical industry that had set up the relevant strategies of its development since 1982, but its contribution is still limited at present. Based on the four dimensions of BSC, the related indicators will be conducted in this study. The main purpose of this study is to investigate and build the complex system of Taiwan’s pharmaceutical industry; then, amend the policy direction to enhance its performance.. According to the outcomes of the simulation and analysis, some findings have been revealed as follows: (1) the policy of drug-cutting prices rate will result in the obvious slow-down of the domestic pharmaceutical market; (2) the most important fund sources of R&D mainly comes from the enterprise and venture capital; (3) in the long term, reducing 10% marketing funding and using this 10% to invest in R&D area will bring better performances in new drug development and sales value; (4) R&D funding III.

(5) is the best effective driving force for the increasing “R&D Capability” and “New Drugs Appear in the Market”; while training is the most important factor in the dimension of learning and growth for improving “Sales Value”.. This paper not only integrates the research tools and gives the suggestions to improve the performance of this industry, but also assists Taiwan in becoming a center of R&D, manufacturing and operating in Asia-Pacific region in the future. Keywords：：Balanced Scorecard, System Dynamics, Pharmaceutical Industry, Performance. IV.

(6) Table of Contents 致謝.............................................................................................................................. I 摘要............................................................................................................................. II Abstract ...................................................................................................................... III Table of Contents ........................................................................................................ V List of Tables .......................................................................................................... VIII List of Figures ............................................................................................................ IX Chapter One Introduction .......................................................................................... 1 1.1 Research Background ...................................................................................................... 1 1.2 Research Motivation........................................................................................................ 3 1.3 Research Objectives and Research Questions ................................................................. 5 1.4 Research Procedure ......................................................................................................... 7. Chapter Two Literature Review................................................................................. 9 2.1 Pharmaceutical Industry in Taiwan ................................................................................. 9 2.1.1 The Definition and Boundary of Pharmaceutical ................................................... 10 2.1.2 The Characteristics of Pharmaceutical Industry ..................................................... 13 2.1.3 The Development Status and Strategy.................................................................... 16 2.1.4 Relevant Studies about Taiwanese Pharmaceutical Industry ................................. 19 2.2 Balanced Scorecard (BSC) ............................................................................................ 21 2.2.1 Four Dimensions of BSC........................................................................................ 22 2.2.2 Cause and Effect Relationships .............................................................................. 26 2.2.3 The Limitations and Reinforcements of BSC......................................................... 27 2.3 Key Performance Indicators (KPI) ................................................................................ 33. Chapter Three Research Methodology .................................................................... 35 3.1 Research Framework ..................................................................................................... 35. V.

(7) 3.2 System Dynamics (SD) ................................................................................................. 36 3.2.1 The Definitions of System Dynamics ..................................................................... 37 3.2.2 Basic Concepts of System Dynamics ..................................................................... 38 3.2.3 The Modeling Process of System Dynamics .......................................................... 42 3.3 Boundary Selection ....................................................................................................... 44 3.4 The Main Variables of Four Dimensions ...................................................................... 45 3.5 Data Collection, Research Period and Simulation Tool ................................................ 50 3.6 Expert Interview ............................................................................................................ 51. Chapter Four Model Construction and Testing ..................................................... 52 4.1 Dynamic Hypothesis in Causal Loop Diagrams............................................................ 52 4.2 Flow Diagrams and Equations....................................................................................... 59 4.2.1 Financial Sub-system.............................................................................................. 61 4.2.2 Learning and Growth Sub-system .......................................................................... 67 4.2.3 Internal Processes Sub-system................................................................................ 78 4.2.4 Customer Sub-system ............................................................................................. 85 4.3 Model Testing................................................................................................................ 91 4.3.1 Dimensional-consistency Test ................................................................................ 91 4.3.2 Extreme-condition Test .......................................................................................... 92 4.3.3 Pattern of Oscillation .............................................................................................. 94. Chapter Five Simulation and Analysis .................................................................... 96 5.1 Basic Simulation............................................................................................................ 96 5.2 Policy Analysis ............................................................................................................ 100 5.2.1 Scenario 1: The Policy about Drug Prices ............................................................ 101 5.2.2 Scenario 2: Resources of R&D Funding .............................................................. 112 5.2.3 Scenario 3: Corporate Should Choice R&D or Marketing? ................................. 122 5.2.4 Scenario 4: Improve R&D Performance .............................................................. 125 5.3 Remarks ....................................................................................................................... 130 VI.

(8) Chapter Six Conclusion and Recommendation .................................................... 132 6.1 Conclusion ................................................................................................................... 132 6.2 Recommendation ......................................................................................................... 134 6.2.1 Government .......................................................................................................... 134 6.2.2 Enterprise.............................................................................................................. 135 6.2.3 Overall Taiwanese pharmaceutical industry......................................................... 136 6.3 Limitations................................................................................................................... 140 6.3 Future Research ........................................................................................................... 141. Reference .................................................................................................................. 143 Appendix I: The Data and Sources of Indicators ................................................. 150 Appendix II: The List of Interviewees ................................................................... 154 Appendix III: The Interview Questions Outline ................................................... 155. VII.

(9) List of Tables Table 2-1: The Distribution of Global Drugs Market in 2009 ..................................... 11 Table 2-2: The Comparison of Industrial Characterizations: Take the Pharmaceutical and Electronic Industry for Example ........................................................ 15 Table 2-3: Cost Effective Ratio of the Pharmaceutical Industry ................................. 15 Table 2-4: Output Value of the Pharmaceutical Industry in 2008 and 2009................ 17 Table 2-5: The Relevant Studies of the Performance of Taiwanese Pharmaceutical Industry ..................................................................................................... 20 Table 2-6: Customizing Measures for Business Strategies and Financial Themes...... 25 Table 2-7: The Related Literatures about Combined SD with BSC ............................ 29 Table 2-8: The Relevant Performance Indicators of the Pharmaceutical Industry ...... 33 Table 3-1: The Main Strategies of Four Dimensions................................................... 45 Table 3-2: The Main Variables of Four Dimensions ................................................... 46 Table 5-1: The Comparison of the Variables Changed by Policy or Natural ............. 101 Table 5-2: The Comparison of Three Lines in Scenario 1 ......................................... 110 Table 5-3: The Comparison of Five Lines in Scenario 2(1) ...................................... 112 Table 5-4: The Comparison of Five Lines in Scenario 2(2) ...................................... 116 Table 5-5: The Comparison of Five Lines in Scenario 2(3) ...................................... 120 Table 5-6: The Comparison of Three Lines in Scenario 3 ......................................... 122 Table 5-7: The Adjustment Data of Six Variables ...................................................... 125 Table 5-8: The Ranks of Importance between Six Variables ..................................... 131. VIII.

(10) List of Figures Figure 1-1: The flow chart of this research .................................................................... 8 Figure 2-1: The areas of biotech industry in Taiwan ................................................... 10 Figure 2-2: The value chain of the pharmaceutical industry in Taiwan ...................... 12 Figure 2-3: The R&D system of the pharmaceutical industry in Taiwan .................... 13 Figure 2-4: The internal perspective – generic value chain model .............................. 23 Figure 2-5: Customer perspective: Core outcome measures ....................................... 24 Figure 2-6: How to linked measures from the four dimensions .................................. 27 Figure 3-1: The conceptual structure of this research .................................................. 36 Figure 3-2: Causal loop diagrams notations ................................................................ 39 Figure 3-3: Representing delays in causal diagrams.................................................... 40 Figure 3-4: Stock and flow diagramming notations .................................................... 41 Figure 3-5: Modeling is embedded in the dynamics of the system ............................. 43 Figure 4-1: Four dimensions of BSC ........................................................................... 53 Figure 4-2: Causal Loop Diagram of this research ...................................................... 58 Figure 4-3: System Model ........................................................................................... 60 Figure 4-4: Financial Sub-system ................................................................................ 61 Figure 4-5: Learning and Growth Sub-system............................................................. 68 Figure 4-6: The Relationship between Education and R&D capability....................... 71 Figure 4-7: The Relationship between Work Experience and R&D capability ........... 72 Figure 4-8: The Relationship between Training and R&D capability ......................... 74 Figure 4-9: The Relationship between Annual R&D Expenditure per R&D Staff and R&D capability ....................................................................................... 75 Figure 4-10: The Relationship between Publications and R&D capability ................. 77 Figure 4-11: The Relationship between Patents and R&D capability ......................... 78 Figure 4-12: Internal Processes Sub-system ................................................................ 79 Figure 4-13: The Relationship between Reduced R&D Time and R&D capability .... 81 Figure 4-14: The Relationship between Increased R&D Successful Percentage and R&D capability ....................................................................................... 81 Figure 4-15: Customer Sub-system ............................................................................. 86 Figure 4-16: Extreme-condition Test in Learning and Growth Sub-system................ 93 Figure 4-17: Extreme-condition Test in Innovation Stage .......................................... 93 Figure 4-18: Extreme-condition Test in Customer and Financial Sub-system ............ 93 Figure 4-19: The Comparison Chart of Sales Value .................................................... 95 Figure 4-20: The Comparison Chart of Total R&D Staff ............................................ 95 IX.

(11) Figure 4-21: The Comparison Chart of Actual Domestic Market Demand ................. 95 Figure 5-1: The Comparison Chart about New Drug Development and R&D Capability................................................................................................ 96 Figure 5-2: The Comparison Chart about New Drug Development and Funding....... 97 Figure 5-3: The Comparison Chart about Input Funding ............................................ 98 Figure 5-4: The Comparison Chart about R&D and Marketing Funding.................... 99 Figure 5-5: The Comparison Chart about Import and Marketing Funding ................. 99 Figure 5-6: The Comparison Chart about Domestic Market Share, Sales Value and Import ................................................................................................... 100 Figure 5-7: Two Conditions about NSTPBP Funding ............................................... 102 Figure 5-8: Two Conditions about The Ratio of Corporate R&D Funding............... 103 Figure 5-9: Two Conditions about Average Annual Salary per Researcher ............. 103 Figure 5-10: Two Conditions about Average Level of Education ............................. 104 Figure 5-11: Two Conditions about The Ratio of R&D Training Opportunities ...... 104 Figure 5-12: Two Conditions about Total Amounts of Training Opportunities from Corporate .............................................................................................. 104 Figure 5-13: Two Conditions about Total Amounts of Training Opportunities from Government .......................................................................................... 105 Figure 5-14: Two Conditions about Total Amounts of Drug Relief Application...... 105 Figure 5-15: Two Conditions about Total Amounts of Defective Reaction Bulletin 106 Figure 5-16: Two Conditions about Aging Index ...................................................... 106 Figure 5-17: Two Conditions about Population......................................................... 107 Figure 5-18: Two Conditions about The Decline Rate of Drug Price ....................... 107 Figure 5-19: The Comparison between Two Conditions........................................... 109 Figure 5-20: The Comparison in The Decline Ratio of Drug .................................... 111 Figure 5-21: This hypothesis about Line 1 (1)........................................................... 112 Figure 5-22: This hypothesis about Line 2, 3 and 4 (1) ............................................. 113 Figure 5-23: Resources of R&D Funding- Decreased from 2010 to 2020 (1) .......... 114 Figure 5-24: Resources of R&D Funding- Decreased from 2010 to 2020 (2) .......... 115 Figure 5-25: Resources of R&D Funding- Decreased from 2010 to 2020 (3) .......... 115 Figure 5-26: This hypothesis about Line 1 (2)........................................................... 116 Figure 5-27: This hypothesis about Line 2, 3 and 4 (2) ............................................. 117 Figure 5-28: Resources of R&D Funding- Decreased from 2001 to 2020 (1) .......... 118 Figure 5-29: Resources of R&D Funding- Decreased from 2001 to 2020 (2) .......... 119 Figure 5-30: Resources of R&D Funding- No Input from 2001 to 2020 .................. 121 Figure 5-31: Policy Analysis about Marketing and R&D Funding (1)...................... 123 Figure 5-32: Policy Analysis about Marketing and R&D Funding (2)...................... 123 Figure 5-33: Policy Analysis about Marketing and R&D Funding (3)...................... 124 X.

(12) Figure 5-34: Policy Analysis about Marketing and R&D Funding (4)...................... 124 Figure 5-35: Policy Analysis about Learning and Growth (1) ................................... 127 Figure 5-36: Policy Analysis about Learning and Growth (2) ................................... 128 Figure 5-37: Policy Analysis about Learning and Growth (3) ................................... 129. XI.

(13) Chapter One Introduction. 1.1 Research Background On March 2010, IMS (Intercontinental Medical Statistics) Health pointed out that there was a US$837.3 billion market on the global pharmaceutical industry in 2009, and it will reach US$1.1 trillion in 2014 (Industrial-Development-Bureau, 2010a). Although the global drugs market is mainly focus on America, Europe and Japan, whose markets accounted for the. global. pharmaceutical. market. share. about. 81%. in. 2009. (Industrial-Development-Bureau, 2010a), the pharmaceutical market is gradually saturated in these leading countries, and the newly industrialized countries will become the world’s pharmaceutical market growth drivers. IMS Health therefore forecast an unspectacular growth rate in the most top of the emerging market, China, which will reach to 22~25% per year in the future.. Although the development of the pharmaceutical industry in Taiwan is later than America and Europe, it is earlier than the emerging countries. In addition, near to the third-largest market “China”, Taiwan not only owns an important advantage of location in developing pharmaceutical industry, but also plays an important role between the developed and developing countries. With the help of the government, the pharmaceutical industry has developed since 1982, and the civil societies are also strongly investing and promoting this industry. However, the contributions of this industry are still limited at 1.

(14) present in Taiwan. Thus, over the past few years, a considerable number of studies have been made on the performance of the pharmaceutical industry in Taiwan.. Although the performance of the pharmaceutical industry has been an object of study for a long time, most of these studies have been focused on the enterprise level. According to the article, “2010 White Paper on the biotechnology industry in Taiwan”, among these Asian countries: Singapore, South Korea, China, and India, they have been the most successful in developing biotechnology, and retained double-digit biotech industry sales growth every year, yet Taiwan's biotech industry had total sales revenue of NT$210.5 billion in 2009, which represented the growth is only 5%, compared with 2008. Within the biotech sector as a whole, the pharmaceutical. industry. grew. at. a. rate. of. only. 1%. (Industrial-Development-Bureau, 2010a). This result shows that this industry still needs to something to be desired.. From the view of national innovation system, besides the individual enterprises, the interaction between the government, academia, research institutions and the upstream and downstream of the industry chain could also form a complex and dynamic system, and then affect the development of this industry. Consequently, finding the key performance indicators is a complicated process. This complex situation is very suitable to study by System Dynamics (SD), which is used to analyze the nonlinear, interdependent and interaction causality. Surprisingly, only few studies have so far been made at this point in the pharmaceutical industry. 2.

(15) 1.2 Research Motivation Because of the Asian financial crisis in 1997 and the subprime mortgage crisis in 2007, the economy was seriously affected around the world. The electronic information industry bringing a lot of wealth in Taiwan also could not withstand the forces of the economic crisis. At this point, Taiwan should not only assist the electronic industry, but also develop another industry for a more sustainable future. Owing to the continually growing population and the serious aging problem, the demand of the therapeutic and preventive drugs is substantially increasing. The pharmaceutical industry which has the specificity of products with high value-added, the long term profit and patent protection shows that it is the worthy industry to be cultivated.. Since Robert S. Kaplan and David Norton proposed the concept “Balanced Scorecard” (BSC), it has been one of the most popular performance measure methods and also a strategic management approach. By this method, the organizational strategy can be translated into a set of clear KPI, and then to measure and manage the status of strategy implementing. Through BSC, an organization which has strategies but always lacks the executions can achieve its objectives smoothly.. As mentioned in the research background, Taiwan had formulated the relevant strategies and objective of development and also put a lot of resources to develop the pharmaceutical industry since 1982. However, there is still little contribution and the growth rate is worse than the other countries in Asian. Pharmaceutical industry is a technology-intensive industry. If 3.

(16) Taiwan does not try its possible to develop this industry, the entry barriers such as in-house technology, licensing royalty issues etc. can be predicted in this industry in the future. These problems will make the manufactures who want to enter this industry quit.. In general, BSC is usually used on the business unit level, and only few of the studies have ever tried to use it to analyze the performance of an industry’s national development. Nevertheless, Science & Technology Policy Research and Information Center (STPI) points out that if the concept of enterprise is used to promote to the industry, or the national level tool is applied to the enterprise level, it will help the business and government to be more clearly carrying out the strategic planning and policy planning (David, 2008). Thus, the author attempts to use BSC on the industry level.. Furthermore, some literatures showed that the BSC theory and practice had some limitations. The root of limitations is “cause and effect are not closely related in time and space” (Tu, 2004). Although BSC is a static, one-way causality link from bottom to top, it is unable to simulate the complicated environment and also fail to judge and certify the influence of events’ time-delay. However, System Dynamics can make up its deficiency (Tu, 2004; Wu, 2005). As a result, the author also tries to take BSC and SD as the research methods to investigate and model the complex structure, behavior and performance in the pharmaceutical industry in Taiwan.. 4.

(17) 1.3 Research Objectives and Research Questions The purpose of this study is to attempt to combine BSC with SD to explore the complex system and performance about the pharmaceutical industry in Taiwan, and then try to amend the policy direction of this industry to enhance the performance in Taiwan. Our concerns are to report five objectives:. 1.. To investigate and model the complex system of the pharmaceutical industry in Taiwan by literature review and expert interviews.. 2.. Based on four dimensions of BSC, we try to find out the related indicators of the development to build the dynamic structure in this industry.. 3.. Mapping out the stocks and flows diagram to simulate and analyze the development of Taiwanese pharmaceutical industry in the future.. 4.. Finding out the key decision points which actually affect the performance of this industry in Taiwan.. 5.. According to the result of the policy test, the suggestions are given to amend the policy direction of this industry and then to enhance the performance in Taiwan.. Based on the proceeding research objectives, the primary research questions that must to be clarified in this paper are as follows: 5.

(18) 1.. What are the developing situations and interactions between the four dimensions of BSC in Taiwan’s pharmaceutical industry?. 2.. What are the related KPI for measuring performance of pharmaceutical industry in Taiwan? And how about the performance of this industry is in Taiwan in the future?. 3.. 4.. What are the key decision points in doing policy testing?. How to amend the policy direction of this industry to enhance the performance in Taiwan?. With these objectives and questions in mind, we hope the research results may help Taiwan government related departments and institutions to improve the performance of developing the pharmaceutical industry, and also help to become the important role of developing this industry in the future.. 6.

(19) 1.4 Research Procedure For these objectives to be achieved and according to the research questions, this study is structured as follows (Figure 1-1). The first section provides an overview of the theoretical foundations for the development of the research. In the second section, the relevant indicators have to be selected by the literatures and expert interview, and then to building the causal loop diagram of the pharmaceutical industry in Taiwan. Simulation and analysis are then presented, with a thorough description of the stocks and flows diagram about this industry. Afterward, the policy testing was proceeded to amend the developmental strategies. Finally, the conclusion and suggestions are presented in the research.. 7.

(20) Research Questions. Literature Review. The Biotechnology Pharmaceutical Industry in Taiwan. Balanced Scorecard. Indicators Selection. System Dynamics. Expert Interviews. Causality Analysis and Developing Causal Diagrams. Mapping Stocks and Flows. Simulation and analysis. Policy Testing and Result. Conclusions and Suggestions. Figure 1-1: The flow chart of this research Source: This Study. 8.

(21) Chapter Two Literature Review. 2.1 Pharmaceutical Industry in Taiwan Biotechnology is not only an interdisciplinary technology, including biology, biochemistry, microbiology, genetics, chemical engineering, electrical engineering and mechanical engineering sciences, but also a great potential technology of application. Because of the different from the owner of resources and social needs in every region, there are different definitions and categories for biotech industry.. The leading countries generally consider the emerging biotech industry to be limited in genetic engineering. Asian countries, however, generally define biotech industry classifications more broadly. Due to the fact that the developments of pharmaceuticals and medical devices are closely linked with biotechnology, and based on the current state of the industry development and assistance considerations, in addition to the emerging biotech industry, the biotech industry is defined as including the pharmaceutical and medical devices industries in Taiwan (Industrial-Development-Bureau, 2010a), see Figure 2-1.. 9.

(22) Biotechnology Industry (Generalized). Emerging Biotech Industry. Food field Agriculture field Environmental field Materials and chemistry field Related Technical Services Biological agents and drugs field. Pharmaceutical Industry. Western medicine Drug substance Chinese herbal medicine. Medical Devices Industry. Rehabilitation devices field Treatment devices field Diagnostic devices field General medical auxiliary devices Disease prevention and health promotion. Figure 2-1: The areas of biotech industry in Taiwan Source: Industrial-Development-Bureau, 2010a. 2.1.1 The Definition and Boundary of Pharmaceutical The “Pharma 2020: The vision” had been published by Price Waterhouse Coopers in June 2007, pointed out that owing to the continually growing population and the serious aging problem, the demand of the therapeutic and preventive drugs is substantially increased (Price-Waterhouse-Coopers, 2007). Additionally, IMS Health forecasts that the global drugs market will reach US$1.1 trillion in 2014. And the newly industrialized countries which have 10.

(23) enjoyed double-digit growth will become the world's pharmaceutical market growth drivers (Table 2-1). These situations will drive the pharmaceutical industry growing, and attract many pharmaceutical firms to involve in the development of new drugs actively with a view to occupying a position in this market. Thus, in this study the main stress falls on the pharmaceutical industry. Table 2-1: The Distribution of Global Drugs Market in 2009 Unit: billion U.S. dollars, % Region North America Europe Japan Asia, Africa, Oceania South America Total. Market 2009 2004~2009 Scale Growth Rate Average Growth Rate 3,238 5.5 5.2 2,639. 4.8. 6.6. 950. 7.6. 3.9. 1,066. 15.9. 13.9. 479. 10.6. 10.9. 8,373. 7.0. 6.7. Source: IMS Health Market Prognosis, March 2010 According to Industrial Development Bureau, Ministry of Economic Affairs in Taiwan, the pharmaceutical industry includes drug substance, western medicine, and Chinese herbal medicine. And the Law of Pharmaceutical Affairs which is the basis for market regulation defines the pharmaceutical industry as: “The pharmaceutical manufacturers in this law are meant the manufacturers who operate the manufacturing and working of drugs, products wholesale and export, and importation of raw materials for own use.” Therefore, the author considers that the pharmaceutical industry includes drug substance, western medicine, Chinese herbal medicine and their related industries and products.. 11.

(24) In this study, the discussion will be limited to two parts. First one is concentrated on the value chain (Figure 2-2) and R&D system about the pharmaceutical industry, including the interaction between the companies, government, academic and research agencies in Taiwan (Figure 2-3) and the four dimensions of BSC. The second is focused on the relevance between the technological policy and the development of the pharmaceutical industry. Out of these parts, like foreign direct investment (FDI), ethics, or political elections are not the scopes of this paper.. R&D. Manufacturing. Warehousing and. Marketing. Service. Distribution. Drug Discovery. Pre-clinical Trial. Clinical Trial. Commercialization. Figure 2-2: The value chain of the pharmaceutical industry in Taiwan Source: Deng, 2007; Wang, 2004. 12.

(25) Probability of Success. R&D Expense Ratio. Average time (Year). Process. Stage. Biotechnology, Chemical synthesis,. Drug Discovery. │. National Science Council. Natural substance. 2.5% 35%. 3.5 New compounds. 5%. Related Institutions. National Health Research Institution Academia Sinica Research institute Universities. Efficacy assessment. Ministry of Economic Affairs Toxicity test 12%. 10%. 2.5 Investigational new drugs (IND). 5%. 1. Phase I. 30%. 10%. 1.5. Phase II. 65%. 40%. 2.5. Phase III. Development Center of Biotechnology Biomedical Information Resource Center Medical and Pharmaceutical Industry Technology and Development Center. Animal Technology Institute Nuclear Energy Institute. New drugs approval. Clinical Trial. 20%. Pre-clinical Trial. Types of drugs design,. Department of Health Medical Center Biotech Company. (NDA). 1 New drugs appear on the market Phase IV. Commercialization. 95%. Enterprise Field Pharmaceutical Factory Biotech Company. Figure 2-3: The R&D system of the pharmaceutical industry in Taiwan Source: Deng, 2007; Lee, 2003; This Study. 2.1.2 The Characteristics of Pharmaceutical Industry Pharmaceutical industry is the knowledge-oriented industry which combined the knowledge innovation, high technology, and high profit. It has the characteristics of a phased development, high development potential and its products have the high added-value, thus this industry is vary suitable for the country which is small, densely populated and shortage resources to be developed (Chiang, 2006). 13.

(26) Due to the products of this industry are used to remedy diseases in the human body, its safety and effectiveness are very important. Compare with other high-technology industries, the pharmaceutical industry is strictly controlled by government. Thus, the R&D for the pharmaceutical industry is time-consuming and high cost, and low possibility of success. In brief, the characteristics of pharmaceutical industry are summarized by this study as following:. 1.. Drug development requires an enormous amount of resources, including large R&D expensive, highly-skilled equipments, and so on.. 2.. The R&D process takes a long time: 10~12 years on average (Chang et al., 2005), and the successful rate of R&D is lower than other industries.. 3. 4.. Its industrial structure is very complex, and the value chain is longer. Its specialization is deep and its knowledge comes from different scientific domains.. 5.. Emphasize the protection of intangible assets, such as intellectual property rights.. 6.. The drug approval process (FDA, TFDA) is comprised of many rigorous phases and also takes a long time.. 7.. It is strictly management and control by government, and its mode of operation and pricing strategies are also influenced by government policies. According to the above characterizations, we could realize that the. pharmaceutical industry is a R&D-oriented industry with high enter-barrier, 14.

(27) and it is different from other industries, such as the electronic industry (Table 2-2). The R&D expensive of pharmaceutical industry accounts for about 15-25% of the operating income. However, the profit and value-added is higher than other industries (Berardi, 2003; Hsia, 2008; Wang, 2004) (Table 2-3). Table 2-2: The Comparison of Industrial Characterizations: Take the Pharmaceutical and Electronic Industry for Example Item Value Chain Human Testing Laws and regulations Government Policy Pricing Development Stages Product Life Cycle Intellectual Property Rights Investment Risk Profit. Pharmaceutical Industry Long, complex, and emphasizing the specialization Necessary. Electronic Industry Long and emphasizing the specialization Unnecessary. Strict Considerable influence Regulated in most countries Long Long. Less Less Determined by the market Short Short. Very important. Important. Very high. High. High. High Source: Wang, 2004. Table 2-3: Cost Effective Ratio of the Pharmaceutical Industry Item Income Sales Cost R&D Cost Overhead Operating Profit. Range (%) 100 20~30 15~25 25~35 40~10. Source: Berardi, 2003. 15. Average (%) 100 25 20 30 25.

(28) 2.1.3 The Development Status and Strategy •. Important Development Projects. Since 1982, Taiwan’s government identifies biotechnology as one of the eight key technologies, Academia Sinica set up the preparation office for the Molecular Biological Research Institute and the Biomedical Research Institute. In 2002, Executive Yuan reviewed and approved the Challenge 2008 six-year (2002-2007) national development plan, and then proposed a project named “Two Trillion Twin Star (2T2S) plan” to promote the pharmaceutical industry. Among these six years, the government had started to promote the more perfect plans of science and technology, enhance the laws and regulations about pharmaceutical industry, and build the related institutions and systems, such as the information network about drug regulations and clinical trial, research centers and experimental centers (Industrial-Development-Bureau, 2010a, 2010b).. On the subjects of growing population, serious aging problem and an unspectacular growth rate in the emerging countries’ drugs market, the government included the biotechnology industry in “Six Key Emerging Industries”, and started a plan, “Diamond Action Plan for Biotech Takeoff” in 2009. The purpose of these plans is let government play an active role to invest and build the based environment, and then guide private investment funds to invest in the most efficient target with the help of venture capital experts.. 16.

(29) •. Domestic Market Summary. According to the report from Business-Monitor-International in 2010, Taiwan’s US$3.81 bn pharmaceutical market is the sixth largest in Asia Pacific. Annual per-capita spending on medicines is US$165, just above the regional average of US$142 (Business-Monitor-International, 2010). In Taiwan, the turnover of pharmaceutical industry is up to NT$70 billion in 2009, and the scale of western medicine is the biggest among this industry (Table 2-4). However, this table tells us that this industry grew at a rate of only 1% from 2008 to 2009 and export value was much less than import value. This reason is that the pharmaceutical market is dominated by foreign multinational firms selling patented medicines for chronic conditions. Although local drug markets specialize in generic medicines, they are increasingly engaging in original research to move up the value chain (Business-Monitor-International, 2010).. Table 2-4: Output Value of the Pharmaceutical Industry in 2008 and 2009 Unit: hundred million NT dollars Sub-industry. Turnover. Export Value. Import Value. Market Demand in domestic 2008 2009. 2008. 2009. 2008. 2009. 2008. 2009. Western medicine. 417. 439. 46. 58. 524. 595. 895. 976. Drug substance. 205. 203. 82. 84. 200. 163. 323. 282. Chinese herbal medicine. 68. 58. 7. 3. 16. 1. 77. 56. Total. 690. 700. 135. 145. 740. 759. 1,295. 1,314. Source: Industrial-Development-Bureau, 2010a. 17.

(30) •. The Direction of Development. According to “Diamond Action Plan for Biotech Takeoff”, “National Science and Technology Program for Biotechnology and Pharmaceuticals (NSTPBP)” and “2010 White Paper on the biotechnology industry in Taiwan”, this study integrate the visions, strategies and objects about the development of Taiwan’s pharmaceutical industry as below:. Vision： Establish Taiwan as an important part of international biotechnology community development and commercialization and assist Taiwan in becoming a R&D, manufacturing and operations center of biotechnology in Asia-Pacific region.. Strategy： 1.. Strengthen the role of R&D in this industry’s value chain; focus on the industrial application development of R&D results, and help the research result smoothly transfer to industry.. 2.. Continue to promote the output of successful investment cases in biotechnology industry.. 3.. Integrate the limited sources and the channel of communication to promote the co-operation among industry, government, academic and the institute, and then form a virtual R&D team of efficiency to contribute to the output of domestic drugs.. 4.. Shorten the time to market, build a good investment measures and 18.

(31) environmental, and establish an alliance about drug export to expand domestic and foreign markets. 5.. Expand the training and recruiting of biotechnology talent.. 6.. Improve Taiwan’s pharmaceutical legal and regulatory environment.. Objective： 1.. The turnover of the biotechnology industry average growths 25% per year in the next 5 years and drive 150 billion investments (From 2003 to 2007).. 2.. Increase R&D contribution in the field of biotechnology to some 3% of GDP by 2014.. 3.. Increase the annual output value of biotech industry to more than TWD1trn (US$30.86bn) in four years (2010~2014).. 2.1.4 Relevant Studies about Taiwanese Pharmaceutical Industry Over the past few years a considerable number of studies have been made on the performance of the pharmaceutical industry in Taiwan. However, most of these studies have been focused on the firm level. And most of these studies use “Data Envelopment Analysis (DEA)” as the research methodology. This study as well summarized the scholars’ researches about the performance of Taiwan pharmaceutical industry in Table 2-5. According to this table, we can find that few scholars have ever used balanced scorecard or system dynamics to discuss this topic in Taiwan.. 19.

(32) Table 2-5: The Relevant Studies of the Performance of Taiwanese Pharmaceutical Industry Scholars. Title. Liau (2002). The dynamic analysis of the relative efficiency- A study of Taiwan biotechnology and pharmaceutical industry. Data Envelopment Analysis (DEA). Lu (2003). Relationship of Marketing and R&D Investments to Operating Performance and Corporate Value within Biopharmaceutical Industry in Taiwan. Ohlson model. Lee (2003). Present situation and competitive strategy of Taiwan pharmaceutical industry under way of biotechnology.. Case Study. Using the BSC to evaluate the influential factors of enterprise value- An empirical study on Taiwan biotechnology firms. Balanced Scorecard (BSC). Lin (2005). The Relationships between R&D Expenditure, Non-financial Index and Performance in Pharmaceutical Industry- A Study on Active Pharmaceutical Ingredients Industry. Regression Analysis. Hsia (2007). Analysis of FDI on performance of Taiwanese biotech Firms. Data Envelopment Analysis (DEA). Lin (2009). Performance Evaluation of Biotechnology Pharmaceutical Industry in Taiwan using Data Envelopment Analysis. Data Envelopment Analysis (DEA), Fuzzy Logic. Relationship of R&D and Marketing Investments to Operating Performance within Biopharmaceutical Industry in Taiwan. Data Envelopment Analysis (DEA), Tobit regression model. Hung et al. (2009). Using Data Envelopment Analysis Approach to Evaluate the Operation Efficiency of Biotechnology Firms in Taiwan. Data Envelopment Analysis (DEA). Hsu (2010). Context-Dependent DEA Performance Evaluation Customer's View: The Case of Pharmaceutical Industry in Taiwan. Context-Dependent DEA. Hung (2010). The study of Measuring Efficiency and Corporate Governance in Taiwan Biotechnological Industry. Data Envelopment Analysis (DEA). Wang et al. (2004). Chen (2009). Source: This study 20. Methodology.

(33) 2.2 Balanced Scorecard (BSC) Since Kaplan and Norton published their first article on the balanced scorecard, “The Balanced Scorecard: Measures that Drive Performance” in 1992, this concept has been one of the most important management innovations of the 20th century. The traditional performance measurement methods are almost focused on the financial perspective, thus most companies place on short-term financial measures leave a gap between the development of a strategy and its implementation (Kaplan & Norton, 1996a). There is a characteristic of time-delay for many strategies to bring the results, take the pharmaceutical industry for example. It is a long-term action to invest in the drug development: 12 years on average (Deng, 2007). Because the results brought by the investment project could not show on the financial statements instantly, these investments are always treated as the expense item.. Different from the traditional methods, the balanced scorecard supplemented traditional financial measures with criteria that measured performance from three additional dimensions – those of customers, internal business processes, and learning and growth (Kaplan & Norton, 1996a). This measurement is an integral part of the mission identification, strategy formulation, and execution processes, with a focus on translating strategy into an integrated set of financial and non-financial measures (Chow et al., 1998). In its financial and non-financial measures, the scorecard contains leading and lagging performance measures, and soft and hard measures of performance. This not only provides information about past performance but 21.

(34) also about future results based on drivers of performance (Bader, 2007).. According to Kaplan and Norton (1996a), the balanced scorecard is including four dimensions and there are four processes to design and implement the scorecard. The next section, we will introduce these dimensions and the relationship between these dimensions.. 2.2.1 Four Dimensions of BSC Because the balanced scorecard is directly linked to mission and strategy, the relevant components and measures will vary across organizations depending on their specific goals and circumstances (Chow et al., 1998). However, no matter at a common or conceptual level, most of people accept the representative balanced scorecard including at least four dimensions proposed by Kaplan and Norton (1992). The four dimensions of the BSC are as followed:. •. Learning and Growth: “Can we continue to improve and create value?” An organization’s ability to innovation, learning, and improvement implicates directly to the organization’s value (Kaplan & Norton, 1992). Organizational learning and growth come from three principal sources: people, systems, and organizational procedures (Kaplan & Norton, 1996b). They are the drivers of success for the financial, customer, and internal business process objectives.. In this dimension, the staffs’ competence, technological structure, and culture must be clarified, then the organization will be able to adjust 22.

(35) the human resources and information technology to act in concert with the mission and strategy (Kaplan & Norton, 2000).. •. Internal Business Processes: “What must we excel at?” Customers’ concerns tend to fall into four categories: time, quality, performance and service, and cost (Kaplan & Norton, 1992). This perspective asks what must be done internally to meet and exceed the customers’ need (Brewer & Speh, 2000). Thus, the internal measures for the balanced scorecard should stem from the business processes that have greatest impact on customer satisfaction (Kaplan & Norton, 1992).. According to Kaplan and Norton’s report (1996b), the internal business processes include three parts: innovation cycle – the long-wave of value creation, operations cycle – the short-wave of value creation, and post-sale service cycle – the middle-wave of value creation. (See Figure 2 - 4) Therefore, a comprehensive strategy should be pursued at these parts in the overall improvement of internal processes, and then to generate the revenue (Kaplan & Norton, 2000).. Innovation Cycle. Customer. Indentify. Create the Product/. Need. the. Identified. Market. Service. Operation Cycle. Pos-Sale Service Cycle. Build the Deliver the Products/ Services. Products/ Services. Offering. Service the Customer. Customer Need Satisfied. Figure 2 - 4: The internal perspective – generic value chain model Source: Kaplan & Norton, 1996b 23.

(36) •. Customer: “How do customers see us?” The purpose of this perspective is to measure the organization’s ability to achieve overall customer satisfaction. No matter the measures chosen are general, such as those focusing on customer value, customer retention, or they are specific addressed a dimension of customer value such as product and service quality, response time, flexibility, or cost, they should capture customer opinion (Brewer & Speh, 2000).. To put the balanced scorecard to work, organizations should articulate goals for what customers’ concerns and then translate these goals into the core outcome measures (Kaplan & Norton, 1992). Kaplan and Norton (1996b) consider that the core outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments (see Figure 2 - 5).. Financial Objectives Customer Outcomes Market Share. Customer Retention Account Share Customer Profitability. Customer Acquisition Customer Satisfaction. Core Outcome Drivers and Internal Business Process Measures. Figure 2 - 5: Customer perspective: Core outcome measures Source: Kaplan & Norton, 1996b 24.

(37) •. Financial: “How do we look to shareholders?” Based on other three dimensions, this perspective is focused on the ability to make profit; it includes measures such as operating income, revenue growth, cost reduction, asset utilization and economic value added (Bader, 2007; Kuo, 2004). On the other hand, it also indicates whether the strategy, implementation, and execution are contributing to bottom-line improvement (Kaplan & Norton, 1992). At the different stage of the life cycle, an organization should development different financial indicators to link with its different strategically goals. Kaplan and Norton (1996b) take an example to show how the balanced scorecard can be used to make explicit the financial strategy of a business unit, and how to customize financial objectives and measures to business unit strategy (Table 2-6). Table 2-6: Customizing Measures for Business Strategies and Financial Themes. Sustain Harvest. Business Unit Strategy. Growth. Financial Themes Cost Reduction/ Revenue Growth and Mix Productivity Improvement • Sales growth rate by segment • Percentage revenue from new product,. • Revenue/ Employee. services, and customers • Share of targeted customers and accounts. • Cost versus competitors’. • Cross-selling. • Cost reduction rates. • Percentage revenues from new applications. • Indirect expenses. • Customer and product line profitability. (percentage of sales). • Customer and product line profitability. • Unit costs (per unit of. • Percentage unprofitable customers. output, per transaction). Source: Kaplan & Norton, 1996b 25. Asset Utilization • Investment percent • R&D percent • Working capital ratios (cash-to-cash cycle) • ROCE by key asset categories • Asset utilization rates • Payback • Throughput.

(38) 2.2.2 Cause and Effect Relationships A strategy is a set of hypotheses about cause and effect (Kaplan & Norton, 1996b). The balanced scorecard links a series of strategies, objectives and measures that are both consistent and mutually reinforcing (Kaplan & Norton, 1996b). Thus, Kaplan and Norton (1996b) assume the balance scorecard is like a flight simulator, it should incorporate the complex set of cause-and-effect relationships among the critical variables and feedback loops that describe the trajectory, the plan, and the strategy.. The chain of cause and effect should pervade all four dimensions of a balanced scorecard (Kaplan & Norton, 1996b), and the relationship between these dimensions is: measures of organizational learning and growth → measures of internal business processes → measures of the customer perspective → financial measures (Nørreklit, 2000), see Figure 2-6. Therefore, the learning and growth perspective is the root of the scorecard, and the measures of the learning and growth perspective are the drivers of the internal business processes. Similarly, the measures of the internal business processes are the drivers of the measures of the customer perspective, and the drivers of the financial measures come from the customer perspective (Kaplan & Norton, 1996b; Nørreklit, 2000).. The emphasis on cause and effect in constructing a scorecard introduces dynamic systems thinking. It enables individuals in various parts of an organization to understand how the pieces fit together, how their role influences others and the entire organization (Kaplan & Norton, 1996c). 26.

(39) (+). Financial. Return on capital employed. Accounts receivable. Operating expense. (-). (-) Customer satisfaction. Customer. (+). Internal Business Process. Rework. (-) (+) Employees’ suggestions. Learning and Growth. Employees’ morale. (+). Figure 2-6: How to linked measures from the four dimensions Source: Kaplan & Norton, 1996a. 2.2.3 The Limitations and Reinforcements of BSC Although BSC contains outcome measures and the performance drivers of outcomes, linked together in cause-and-effect relationships, and thus aims to be a feed-forward control system (Nørreklit, 2000). Nevertheless, a number of inherent weaknesses have also been reported in the BSC literature (Akkermans & Oorschot, 2002). These disadvantages are described below.. 1.. Cause and effect are not closely related in time and space: BSC measures cause and effect at the same time without considering any 27.

(40) time lag, so it has no time dimension (Nørreklit, 2000). This limitation which is fail to judge and certify the influence of events’ time-delay causes the user focus on the short-term object and ignore the long-term influence (Tu, 2004).. 2.. Unidirectional causality too simplistic: The use of causal-loops alone is seen as problematic because these loops do not capture the notion of strategic factors accumulating and depleting (Akkermans & Oorschot, 2002). Nørreklit (2000) even questions the existence of the one-way causality which only links from bottom to top between the areas of measurement in the BSC. This author believes that the relationship is more one of interdependence, or bi-directional causality (Akkermans & Oorschot, 2002).. As Kaplan and Norton's point of view, promoting the BSC should be based on the balanced development of the four dimensions, and focus on the strategy alignment between four dimensions. However, because of these limitations, the decision makers will make the wrong decisions and actions. Thus, many scholars have addressed various studies about using “System Dynamics” to support and improve the BSC. The related literatures are integrated as Table 2-7.. 28.

(41) Table 2-7: The Related Literatures about Combined SD with BSC Scholars. Tu (2004). Huang (2005). Research Title. A Study on Some Dynamically Aligned Principles of the Balanced Scorecard Strategy in System Dynamics. A Study on feedback influence of performance index of the Balanced Scorecard Strategy with system dynamics - Take private Fixed Network Company as an example. Research Methodology 1. By system dynamics method, this research builds qualitative and quantitative system dynamics models and inquires the cases’ BSC strategy.. Conclusions 1.. 2. By case study method, this research follows qualitative research perspective to compare two cases and generate propositions.. Includes a conceptualized framework of “improving the dynamic alignment of the balanced scorecard strategy in system dynamics”, to support “the theory of developing BSC with system dynamics” and enhance the long-term effectiveness of BSC strategy.. 2.. Finds some dynamic pitfalls propositions.. 1. Adopts the system dynamics method mainly, the materials which carry on case study are collected and analyzed.. 1. With the causality of the BSC strategy goal project, there is influence of side effect and sequelae.. 2. “ The procedure of planning, design and measurement of enterprise's strategy goal” utilizing this research to be put in order, by the expansion of the strategy map and Balanced Scorecard, carry on the setting-up, simulation, test and analyzing of the system dynamic model.. 2. Imitate the execution achievement of the BSC strategy goal action scheme with the system dynamics method, can be the reference for policy planning and adjustment of the strategy.. 29. 3. With the side effect in the strategy goal causality of the Balanced Scorecard, support to conclude the performance index measurement..

(42) 4. Utilize the simulate test of system dynamics, look for the leading index in the system. 5. Expect that enterprises can use system dynamic to improve the whole benefit for a long time of enterprise's strategy goal to organize effectively. 1. The use of Strategy Map and Balanced Scorecard can help system Dynamics to make the system boundary conveniently while the enterprise’s strategy model is developing.. Wu (2005). The research of the strategy goal and the dynamic decision-making mechanism - Ｗ Electronics Corporation for example. 2. Strategy Map and Balanced Scorecard are static, simple, without positive and negative relationships, and one-way causality link from bottom to top. They pay close attention to the short-term goal and neglect the long-term goal, also don’t consider the time delays, but System Dynamics can make up their deficiency. 3. The levels and auxiliaries of System Dynamics Model Structure can assist the measures of Balanced Scorecard to be instituted and be discussed. 30. 1. To integrate the theories of strategy management for application. 2. To explain the changeful meaning of the 6 performance indicator and to strengthen the performance management. 3. To assist the examing of the strategies to obtain proper decision. 4. To find the counter intuition which can help enterprises to dig unexpected questions out of the objective intuition. 5. To analyze the revenue of the strategy actions and the cost benefit, also to help the system of the budget and the strategies estimate..

(43) 4. The system thinking from System Dynamics can prove general objective and intuitional thought, also can get counterintuition. 5. Each KPI of Balanced Scorecard only knows the “up and down” change in itself, doesn’t understand the dynamic collection between each other, from System Dynamics simulation can tell the influence of each other KPI. Lu (2006). Review the operation of Strategy Map learning growth perspective- Take private Telecommunication Company as an example. 1. Use the system dynamics method, the Strategy 1. By the question that negative feedback loop Map of learning and growth perspective key produces, forced learning and growth the strategy element the characteristic of nonlinearity , time of perspectives , it is limited to benefit what has delay in simulation, find out the staff and does been organized the performance, strengthen not admit that learning and growth perspective learning and growth the way where the strategy the reason why the strategy carry out the of perspectives do not solve the system problem . activity , offer a policymaker to consult . 2. The strategy map of construction organized, but 2. Inspecting the strategy map, the ones that by using the system dynamics method, in probe into learning and growth perspective the imitating the course of the dynamic mechanism strategy and internal business process are of the strategy map , give consideration to the linked with the merger situation, do the basis strategy map other perspectives close linking of the strategy in order to revise and improve (alignment ) and combining (integration ) wholly,. 31.

(44) learning and growth. 3. Negative feedback loop produced with the dynamics method experiment simulation system operation of the system, offer a whole system to a administrator to think , make the right and best decision .. Source: This Study. 32. reduce wrong decision, avoid wasting and organize resources to consume manpower time emptily. 3. Learning and growth strategy should carry out by department determine with perspective execution track casing that performance link closely while being other independently each to learn , prevent the staff at the basic level from regarding learning and growth the execution activity that perspective as surplusly, become a mere formality..

(45) 2.3 Key Performance Indicators (KPI) “If you can’t measure it you can’t manage it.” (AGIMO, 2006) is the best description for the importance of performance evaluation indicators. According to the studies about the performance of the biotech and pharmaceutical industry, the author compiles the relevant performance indicators (Table 2-8). Because this research concentrates on industry level and System Dynamics depends heavily upon quantitative data to generate feed models (Luna-Reyes & Andersen, 2003). Therefore, we only collate the indicators which can be useful on industry level and translated to a quantitative data.. Table 2-8: The Relevant Performance Indicators of the Pharmaceutical Industry Scholars. Research Topics. Indicators Financial Customer. Implementation and Application. Wu (1999). of Strategic Performance. Internal. Evaluation (Balance Scorecard). business. for Taiwan Industries--Field Study.. Learning & growth. Market share, Inventory turnover Market share, Number of attending seminars. Productivity evaluation indicators, Item of products IT expenses, Training expenses, Number of persons receiving education and training. Present situation and Lee. competitive strategy of Taiwan. (2003). pharmaceutical industry under. R & D expenses, Number of patents,. way of biotechnology.. De Carolis (2003). Competencies and limitability in the pharmaceutical industry: An. Number of patents. analysis of their relationship with firm performance 33.

(46) Using the BSC to evaluate the Wang, et. influential factors of enterprise. al., (2004) value─ An empirical study on. Taiwan biotechnology firms. Financial. Operating margin. Customer. Market share, Customer satisfaction. Internal business. R & D intensity, Staff turnover. Learning & growth. Employee productivity, Educational degree of employee. Chen (2007). An empirical study of the relationship among technology orientation, market orientation, product innovation performance and corporate competitiveness in Taiwan pharmaceutical industry. R & D capabilities, IT expenses. Hsia (2007). Analysis of FDI on performance of Taiwanese biotech Firms. R & D expenses, Educational degree of employee. Kasch & Dowling (2008). Commercialization strategies of young biotechnology firms: An empirical analysis of the U.S. industry. Number of patents. Using DEA approach to evaluate Hung, et the operation efficiency of R & D expenses, Number of employees al., (2009) biotechnology firms in Taiwan. Source: This Study. 34.

(47) Chapter Three Research Methodology “Balanced Scorecard (BSC)” is one of the popular performance measure methods which can translate the strategy into a set of clear performance indicators and manage the status of implementing the strategy. And “System Dynamics (SD)” is an approach that be used to analysis the nonlinear, interdependent and interaction causality. Because the main purpose of the study is to gain a better understanding of the complex system and performance about the pharmaceutical industry in Taiwan, this study combines BSC with SD to be the main research methods.. Based on the research motives and objectives described in chapter 1, the conceptual framework of this study is provided at first. The author, then, introduces the basic operational processes of SD. Finally, the boundary and variables selection, the data collection and sources, and the causal diagram are also described in this chapter.. 3.1 Research Framework According to the research motivations, research objectives, and the literature reviews, the study is distinguished in to four parts. Based on four dimensions of BSC, the first section is translating strategies and objectives into KPI which is sorted out from literature review and expert interviews. Second, according to the concepts of BSC and SD we build the model of this research. Sequentially, the author applies the computer simulation to find the key decision points which actually affect the performance of pharmaceutical 35.

(48) industry in Taiwan. Finally, the author will propose the improvement strategies. The conceptual structure of this study is showed as Figure 3-1.. Figure 3-1: The conceptual structure of this research Source: This Study. 3.2 System Dynamics (SD) The theory of System Dynamics was developed in the late 1950s and early 1960s by Jay W. Forrester of the Massachusetts Institute of Technology (MIT). He and his associates started pursuing feedback concepts in the research of what was originally called “Industrial Dynamics”. After the study, he realized that the name of “Industrial Dynamics” was restraining the idea that the approach could be applied to complex systems in several disciplines. Thus, he renamed it as “System Dynamics”.. In contrast with other theories such as the input-output model, the econometrics model, or the economics of control model, System Dynamics emerged and currently provides a strong theoretical basis for analyzing such systems, in terms of nth-order, non-linear, long-term, quantitative analyses (Lee, 2002; Su, 1988). 36.

(49) 3.2.1 The Definitions of System Dynamics Forrester explains that SD is an approach which combines the theory, methods, and philosophy needed to analyze the behavior of systems. It can provide a common foundation that can be applied wherever we want to understand and influence how things change through time in not only management, but also in environmental change, politics, economic behavior, medicine, engineering, and other fields (Forrester, 1991).. Coyle (1996) defines SD as a method that through qualitative and quantitative models to describe, design, and model robust information feedback structures and control policies through simulation and optimization. Coyle claims that managers can use SD to deal the time-dependent behavior of managed systems, and understand interrelationships among variables influence the behavior of the system over time (Coyle, 1996; Suryani, 2010).. Sterman (2000) considers that learning about complex dynamic systems requires more than technical tools to create mathematical models. In addition to be grounded in the theory of nonlinear dynamics and feedback control developed in mathematics, physics, and engineering, SD also draws on cognitive and social psychology, economic, and other social sciences. Thus, SD is fundamentally interdisciplinary and very suitable to support managers to learn and understand complex systems (Sterman, 2000).. Su (1988) describes System Dynamics as a quantitative method that is based on the theory of feedback control and takes the computer simulation as a mean to study the complex social and economic systems (Su, 1988). Han 37.

(50) (2002) also emphasizes that the application of System Dynamics must be based on system thinking to build the system model, and takes the computer simulation as a mean to verify the system behavior. By this application, we can truly grasp the essence of System Dynamics, and then understand the superiority and uniqueness of System Dynamics (Han, 2002).. According to the above description, we can know that System Dynamics which is based on the theory of nonlinear dynamics, system thinking and feedback control is a method to understand how things change and the influence over time. The framework of SD is focused on systems thinking, but takes the additional steps of constructing and testing a simulation model (Suryani, 2010). By applying computer simulation, SD can show how structure, policies, decisions and time delays within organizations and business systems are interrelated and influence growth and stability (Y. L. Lee, 2002), and further help us to learn about dynamic complexity and the sources of policy resistance, and provide more effective policy suggestions (Sterman, 2000).. 3.2.2 Basic Concepts of System Dynamics Comprehending the fundamental concepts is an important thing to help us to build, analyze, and test the model. Thus, some basic concepts that play an essential role in model development are described as follows:. •. Causal Feedback Loop. Coyle and Sterman emphasize the role of the causal loop diagrams (CLDs) as a tool for thinking about the problem and representing the feedback structure 38.

(51) of systems (Coyle, 1996; Sterman, 2000). Causal diagrams are simply maps showing the causal links among variables with arrows from a cause to an effect (Sterman, 2000). CLDs are built of variables and some symbols which are depicted below and Figure 3-2 is an example of causal loop diagrams:. 1.. It contains many “independent variables” and “dependent variables”.. 2.. “Arrows” indicate the direction of causality.. 3.. Signs “+” or “-” at arrowheads indicate the polarity of relationships: a “+” denotes that an increase in the independent variable causes the dependent variable to increase, ceteris paribus (and a decrease causes a decrease). Similarly, “-” indicates that an increase in the independent variable causes the dependent variable to decrease.. 4.. “(+)” is called a positive loop. It means that the causal loop tends to reinforce or amplify a change in any one of its elements. And “(-)” is called a negative loop which tends to diminish or counteract a change in any one of its elements. +. Birth Rate + +. +. -. Population. -. Death Rate +. Average Lifetime. Fractional Birth Rate. Figure 3-2: Causal loop diagrams notations Source: Sterman, 2000 •. Delay A delay is a process in which output lags behind input. When the input to a 39.

(52) delay changes, by definition the output lags behind and continues at the old rate for some time (Lee, 2002). Delays are critical in creating dynamics. Delays give systems inertia, can create oscillation, and are often responsible for trade-offs between the short- and long-run effects of policies (Sterman, 2000). In CLDs, “delay” has a specific symbol to represent (Figure 3-3).. Supply. Price. +. Figure 3-3: Representing delays in causal diagrams Source: Sterman, 2000 •. System Thinking System thinking is a thinking of circular way, not a straight way. It. emphasizes putting problems in its environment to think, rather than linear thinking or focusing on individual cases. This method which mixes the concepts about “Causal Loop” and “Delay” helps us to focus on patterns of behavior over time, to see how system structure influences behavior, and to think in terms of levels and rates.. •. Stock, Flow, and Auxiliary This concept of stocks, flows and auxiliary is a central idea in System. Dynamics (Sterman, 2000). “Stocks (or levels)” are usually recognized as the results of accumulation, like a tank with water. They are the variables whose values would not drop to zero if all the flows in the system were stopped. On the screen, they are represented as rectangles.. 40.