Allergan 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 realised 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 world-wide 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 maximise 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 centralised HR function that overseas all areas of HR
management, ranging from compensation to recruiting. Recently, some companies
have opted to organise their HR departments in a more decentralised manner. As a
result of mergers, acquisitions and the general addition of business units, the HR
function has often been decentralised to concentrate on the different needs of these
sometimes diverse business units.

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 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
centralised and decentralised 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 fuelled 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 to be located with the client and those that were more strategic, analytical and
program-driven to be centralised,” says Hilles.
This structure has allowed Allergan to achieve the best elements of both HR
management worlds. The decentralised organisation structured around the SOAs has
allowed the company to concentrate on market segments and separate goals, to
achieve the flexibility of small organisations 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 decentralised 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 centralised structure. It provides leverage across the organisation 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 different business units attended to
through functions that were dedicated to their needs,” says Hilles.

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 The SOAs all benefited from this centralised and decentralised 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 has 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.

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 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 organisation 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 organisation a more global focus. The realignment
also emphasises a greater integration of manufacturing and staffs.
Of course, this means that the HR department will be reorganised.
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.

Question:

Discuss Allergan’s Inc. approach to SHRM.

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