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During the outbreak of COVID-19, Darnitsa (one of Ukraine’s biggest pharmaceutical companies) actively voiced its ideas to the public and became one of the first businesses to help Ukrainian hospitals.

For Darnitsa, this is a manifestation of leadership and responsibility. What kind of experience did the company’s team gain during the quarantine? And how did this understanding of leadership change in times of crisis?

See the answers to these questions in our interview with Dmytro Shymkiv, Chairman of the Executive Board, Darnitsa Group held by Andriy Tsymbal, Managing Partner, KPMG in Ukraine.

Download the eighth issue of KPMG Review Magazine "A new normal" (PDF 4 MB).

A new normal

KPMG Review Magazine #8

Download this issue
(PDF 4 MB)


 

The unexpected, incalculable phenomenon of COVID-19 gave rise to global challenges the likes of which we’ve never seen. What kind of lessons in tenacity and resilience did you and your company take from the COVID-19 crisis and the government’s quarantine measures?

Any crisis provides an opportunity to rethink the processes in your company and seek innovative, extraordinary decisions to help adapt to the new reality. In particular, it was critical to satisfy customers’ needs for medicines when the pandemic broke out. At that time, the demand for certain items skyrocketed within just a couple of days so it was important to avoid panic. For most essential medicines, we revised the production plan three times to meet public needs, which resulted in a fivefold increase in production — an absolute record. At the same time, we brought six new (non-COVID related) products to the market within a six-month period in accordance with our established schedule. How did we achieve this, despite difficult circumstances? We looked for new opportunities and approaches, and we undertook a partial organisational transformation. And, importantly, digitalisation. In the first six months of the year, our digitalisation expenditures increased from 10 percent to 16 percent of net income. We continued to expand and promote digital processes in the company. As for Darnitsa; innovation, creative solutions and agility are all part of our DNA. We are among the global model for businesses in terms of using digital technologies, particularly enterprise resource planning (ERP). We have achieved significant results in this area, both economic and organisational.. Looking back at our work during the last six months of the crisis, I can say with confidence that our company is ready to respond to the challenges. But can we say that COVID-19 impacted( and will continue to impact) Darnitsa and, in a broader context, economic, business and social processes in Ukraine and around the globe? Definitely, yes. And business is going to evolve as well.

As for the organisation of your employees’ work, how did Darnitsa adapt to the pandemic?

We did not halt production, this was just impossible. At the same time, the safety of our personnel became our top priority. We used Microsoft digital technologies to provide medical insurance to all employees, organised safe transportation, and arranged remote psychological counselling on adaptation to this new reality. The company stockpiled medicines for employees. We strengthened both top- and middle-tier management communication with employees using a variety of formats: video addresses, closed Facebook groups, intranet etc. This allows each employee to quickly obtain up-to-date information on the company’s actions and plans. At the end of Q1 2020, we paid additional bonuses to the employees. All these factors had a positive impact on the efficiency of our work and improved the team’s motivation. Today, we are in a position to facilitate remote work for all eligible employees. Our well-developed IT infrastructure ensures the company’s efficient work to the fullest extent.

Did experience gained during the COVID-19 crisis change the company’s development strategy?

We realise that a company’s strategy is not just established once and remains the same forever in today’s world. The circumstances caused by the pandemic created significant uncertainty. Even assuming that vaccines are created by the end of the year, they will become accessible to the public in the middle of 2021 at the earliest. The uncertainty and volatility of the situation will impact economic and social processes in Ukraine and around the world. For us, in particular, it means further focusing on the Ukrainian market as these new circumstances are hindering exports. The countries to which we want to export our products normally inspect us carefully before providing access to their markets. However, given today’s mitigation measures, the inspectors are not always able to visit Ukraine. We also face problems with access to raw pharma materials under the pandemic due to restrictions imposed by India and China. We’ve managed to accumulate sufficient stocks to ensure medical supplies to customers in Ukraine and abroad. 

However, while in the past we dealt with warehouse and inventory optimisation, today things go the other way round as we need to increase our stocks. Such steps are going to affect certain performance indicators but they are necessary to ensure the continuity of our operations.

In general, certain elements of our business strategy have changed but our overall vision remains the same. We have accelerated digitalisation and new technology implementation, continued with R&D processes, and our plan is to release 13 new products by the end of the year.

At the same time, we can see and take advantage of new opportunities — for instance, we launched a new line of antiseptic products in accordance with World Health Organisation (WHO) recommendations.

We are among the global model for businesses in terms of using digital technologies, particularly enterprise resource planning (ERP). We have achieved significant results, both economic and organisational, in this area

Today, there is much discussion on how Ukrainian businesses could take advantage of the global supply chain effects of COVID-19 and become alternative suppliers to Europe or the Americas. What is your view on that?

I can only speak from the experiences of the pharmaceutical industry. A number of countries are in real need for medicines but, at the same time, there are a number of requirements the pharma businesses must comply with. We are proud to meet international standards and we are proud to report that the WHO conducts international inspector trainings at Darnitsa. This attests to a high level of sophistication in our processes. At present, we actively cooperate with experts in researching the American market so that we can step in with an offer that would both meet US Food and Drug Administration (FDA) requirements and satisfy customer needs.

Furthermore, resumption of pharmaceuticals and medicines manufacturing appears to be back on the agenda in the US and some European countries. Everybody understands this is a matter of national security and this process will definitely impact the industry.

Today, EEC countries are building stocks of medicine. This provides opportunities to Ukrainian pharmaceutical market.

It would be great if you could tell us about your personal experience gained during the COVID-19 outbreak. Which of your skills were especially useful? What kind of skills does a leader generally need with the onset of the new normal?

We all know about the Kübler-Ross model of the five stages of grief. It’s important for a leader to be able to pass through all the stages of this model quickly; that is, to reach the “Acceptance” stage as soon as possible and support the entire team in the process

The first thing that happened at Darnitsa with the outbreak of COVID-19 was the decision of the owner and the Board to join forces with the management team. We worked dynamically in close, day-to-day contact to solve employee and operation safety issues.

We have a mechanism based on the UK strategic crisis management principles. I actively implemented this model during the Revolution of Dignity in 2014 when I was CEO of Microsoft Ukraine, and we have also successfully put it into practice it in the time of the COVID-19 pandemic. This mechanism consists of four elements that are regularly reviewed and provides the basis for our decisions.

First — our people and their safety. People are our top priority. A leader should be aware of what is going on in the organisation as a whole, as well as with each individual employee.

Second — our business. You should keep an eye on the developments, financial indicators, and various risks: from currency to credit risk.

Third — assets that may be exposed to risk in times of crisis. These include production facilities, logistical centers, and office spaces.

And fourth — communication, both internal and external. I’ve already mentioned the importance of continuous communication within the organisation. At the same time, we actively communicated with our customers and the general public. I’m sure our announcements on the additional production of paracetamol were very important, as they helped to stop panic buying and avoid manipulation of public opinion.

The analysis of the above four factors allowed Darnitsa to take clear systemic decisions and respond to the crisis effectively.

What is your view on how to lead in times of crisis? What kind of lessons should be taken from the COVID-19 pandemic?

In today’s circumstances, what both employees and the general public expect from owners and management is responsibility and leadership. During the pandemic, Darnitsa invested over UAH7 million in socially-oriented projects. We were at the forefront of buying ICU ventilators for hospitals, providing essential medicines to seriously ill children, and supporting people affected by natural disasters. That is to say, Darnitsa hs consistently realised its vision of social responsibility. Leaders should always understand challenges and recognise not only the need to act responsibly within their organisation but also ensure the positive social impact of their businesses.

It is important to understand the environment in which our business operates and alter our strategy in response to changing circumstances. What’s happening now will change our approach, our understanding of business processes and, in many ways, directly impact the company’s operations. In my opinion, investing in digital technologies is a top priority today, as digitalisation is one of the key development drivers for any business. Once a customer starts using a digital service provided by some company, the same service will be expected from all other companies in the future. In this sense, the pandemic has had a positive effect as it boosts digital transformation projects.

Dmytro Shymkiv

Chairman of the Executive Board, Darnitsa Group