1991 Service Optimas Award ProfileBRAllergan Inc

When Allergan Inc. was acquired by Philadelphia-based SmithKline Beckman in 1980, it was a small, yet profitable, eye care company, averaging $100 million in sales each year. In contrast, William C. Shepherd, who would soon be president of its U.S. operations and later its chief operating officer, had a vision for the future. Not only did Shepherd want to increase sales, but he also wanted Allergan to become the world’s leading eye care company.

To accomplish this, Shepherd realized the company would have to strengthen its infrastructure and staff capabilities, especially in human resources. And although there were only 14 employees in two separate departments, personnel and training, Shepherd established a human resources position at the vice presidential level so that its occupant would report directly to him.

What Shepherd wanted to establish was a state-of-the-art HR function that would be an asset in helping Allergan implement and achieve its growth strategy. He hired Rick Hilles, who now holds the title of senior vice president of human resources, and put him in charge.

Hilles approached this project without a preconceived notion of how the HR department should be structured. He instead found his answers from managers in all areas of the company, from finance to manufacturing. “We were looking for a structure that would best meet the needs of the line managers responsible for different business units and how we could most effectively deliver the support and services they required,” says Hilles.

This commitment to serving others paid off. Irvine, California-based Allergan is now one of the world’s largest eye care companies with about 6,400 employees, 40 different business locations worldwide and more than $800 million in sales annually. And the HR department played an important part in making this happen.

“A company is only as good as the people who constitute that company. If you have talented people and then create an environment in which they can maximize their potential, you will have an excellent corporation,” says Shepherd. “Human resources is the leader in this area for the management team. All of the management team have opinions in this area, but you need someone who knows the range of possibilities to provide the leadership and support to bring your strategic goals into operational reality.”

Traditionally, HR departments in corporations the size of Allergan are structured horizontally, with a centralized HR function that overseas all areas of HR management, ranging from compensation to recruiting. Recently, some companies have opted to organize their HR departments in a more decentralized manner. As a result of mergers, acquisitions and the general addition of business units, the HR function has often been decentralized to concentrate on the different needs of these sometimes diverse business units.

To say there is anything unusual about either of these structures would be inaccurate. But when a company integrates both of them into its HR function, that’s unusual. Yet that’s exactly what Allergan’s HR department did so that it could best serve the company’s needs.

According to Hilles, there was no formal beginning to the implementation of the centralized and decentralized HR structure, but it began to take hold in 1986. At that time, Allergan was moving into a rapid growth phase, increasing its sales by as much as 20% annually. This growth was fueled by the company’s expansion into other segments of the eye care market.

To provide a platform to continue this rapid growth, Allergan was structured into six strategic operating areas, or SOAs. They included: Allergan Pharmaceutical, Allergan Medical Optics, Allergan Optics, Allergan International and Herbert Labs, all based in Irvine, and Allergan Humphrey based in San Leandro, California.

As a result, the responsibilities of the HR department were divided into two separate areas. “The idea was to provide those functions that require close interaction with the client [management and employees] to be located with the client and those that were more strategic, analytical and program-driven to be centralized,” says Hilles.

This structure has allowed Allergan to achieve the best elements of both HR management worlds. The decentralized organization structured around the SOAs has allowed the company to concentrate on market segments and separate goals, to achieve the flexibility of small organizations and the ease of communication within business units. At the same time, the centralized structure has allowed Allergan to gain the benefits of technology transfer and a broad use of available information and know-how in research and development, marketing, manufacturing and management.

In the six decentralized HR departments, there is an HR manager and anywhere from two to 30 HR employees. Each department provides direct support to its SOA in such areas as employment, employee relations and administration. This assures that priorities at the SOA level are properly aligned with their respective product business.

Allergan’s corporate HR department, which includes about 45 employees, represents the centralized structure. It provides leverage across the organization and focuses on strategic issues such as compensation, benefits and systems, HR development, environmental health and safety, and communications because all are economically and technically impractical to replicate within the SOAs.

This design is expensive because redundancies and overlaps are built into it. This, however, was done to help the HR department support the company’s growth. “I don’t think we could have gone through the acquisition process we went through if we hadn’t had the capabilities to have these diferent business units attended to through functions that were dedicated to their needs,” says Hilles.

The SOAs all benefitted from this centralized and decentralized structure, especially Allergan Pharmaceutical. During the last three years, its compound growth rate (20%) exceeded the company average, making it one of Allergan’s leading SOAs with more than $150 million in sales. Employee productivity increased even more dramatically. During the last three years, sales per employee increased by about 80% and operating income per employee increased by even more.

Allergan Pharmaceutical’s president, Robert Bishop, and its vice president of human resources Jerry King, are convinced that having the opportunity to work together closely helped both of them do their job better. Says Bishop, “I’m a task-oriented individual, so having someone to help me with HR issues and the process side to make sure that we are running the business in a way that will have the highest degree of effectiveness is clearly helpful to me.”

For King, the advantage hasa been close interaction with the pharmaceutical division’s executive team through all of its business activities, which range from strategic planning to budgeting.

The HR managers of the SOAs were also responsible for implementing the programs created by the corporate HR function. Taking the administrative responsibility off the shoulders of the corporate HR managers is in turn what helped that department function more effectively. “It helps that we are able to devote our time to developing it rather than administering it,” says Jim Lofstrom, Allergan’s vice president of compensation, benefits and systems.

In the last couple of years, Lofstrom has been busy implementing a pension plan, a 401(k) savings and investment plan and an employee stock ownership plan in response to the spin-off of Allergan into a public company in 1989. The HR structure not only allowed the corporate HR function to develop more programs, but it allowed it to develop better programs. Says Lofstrom, “We have been very busy, but I think this has allowed us to introduce programs that are more state-of-the-art.” The impact of the HR programs implemented in the pharmaceutical division range from small to large. For example, when King sensed that the employees new to his division were not receiving enough information about the pharmaceutical division during the corporate orientation program, a second such program was designed for new hires. “This allowed us to focus tightly on the pharmaceutical business, its products, product development cycles and other unique factors to our business,” says King.

In the area of turnover, the HR department had a greater impact. In 1990, the turnover rate in field sales was 29%. King thought that part of the problem was that recruitment had become the sole responsibility of the field managers. By introducing on-site support and coaching, King thought the HR department could help reduce turnover. “We added our own element of expertise to make the selection process have a higher payoff,” says King. And it worked. Turnover is now down to 13%.

But Lofstrom, as well as Hilles, Bishop and King all admit that this structure is only efficient when a company is experiencing tremendous growth. Otherwise, it becomes difficult to justify.

The eye care market is no longer growing at the pace it was during the 1980s and neither is Allergan. After meeting in the first quarter of 1990, Allergan’s top executives decided that the organization needed to make substantial changes in its business strategy to respond to current market trends. Allergan’s new strategy calls for continued growth and expansion in eye care, but the company will supplement that growth by identifying and aggressively expanding into other speciality health care markets.

For some time now, Allergan has been working to revise its current business structure to fit the new strategy. In February, the company’s board of directors approved a plan that calls for Allergan to be realigned into market-focus business groups along with a regional structure that will give the organization a more global focus. The realignment also emphasizes a greater integration of manufacturing and staffs.

Of course, this means that the HR department will be reorganized.

Hilles admits that starting over and establishing new relationships between HR and the new key businesses will take time, but he says he is ready to do whatever it takes. “To have a successful human resources function, you need to form a partnership with line management to support the achievement of business goals,” says Hilles, who adds, “You also need to anticipate and adapt to different business conditions.”

Personnel Journal, March 1991, Vol. 70, No. 3, pp. 56-57.

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