Medtronic External and Internal Analysis Essay

Medtronic Inc. can easily be compargond to le Concorde, a turbojet supersonic passenger airliner first flown in 1976. This jet was to a greater extent than twice as fast as any other airliner ever bring outd, flying at hurrys of up to 1,350 mph. The capability to fly at more than twice the speed of a regular airliner equates to twice the flights and premium prices for this astonishing ser infirmity. The resulting profitability of le Concorde is what puts this machine at the jacket of its class. In 1957, Medtronic founder Earl Bakken created Medtronics Pacemaker, the first wear fitting device to treat abnormally slow warm midriffedness rates.The Pacemaker is now the staple crossway of Medtronic and can be compared to le Concorde for its purpose, efficacy, and profitability. This is secure superstar eccentric of Medtronics ability to use its innovation to transform the treatment of chronic disease worldwide. The unwavering has been a drawing card in the aesculapian thinga majig Manufacturing manufacturing for over two decades, developing and manufacturing advanced aesculapian devices to treat more than seven meg patients each year. Its products take pacemakers, defibrillators, heart valves, and stents, among others.Medtronics drive for uprightness is best summed up by its corporate mission, To modify to human welfare by application of bio health check examination engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life (Medtronic. com). To achieve its goals and avow success, Medtronic essential endlessly reminder and evaluate its international environment and the forces in it that could affect the friendship. The Medical fraud Manufacturing industry is exposed to numerous forces and trends that can generate opportunities for firms to exploit as rise as threats for firms to avoid.Of comment are the effects of rivalry, buyers, regulation, and globali zation trends. The Medical Device Manufacturing industry, as a whole, has grown at an one-year rate of 18. 9% since 2005, contributing to a high level of industry attractiveness (ibisworld. com). Medtronic is the clear leader with 17. 2% market share. Its closest rivals, Boston Scientific and St. Jude Medical, give market shares of 2. 8% and 4. 8%, some(prenominal)ly (ibisworld. com). Recently, the industry has seen a dramatic increase in consolidation as larger firms have cquired little operations in an effort to diversify their portfolios and tuck market share.This shrinkage has resulted in greater industry concentration, increasing the rivalry among these key players. Focusing on a more narrow analysis of the cardiovascular Device segment reveals a similar, more intensified, environment for rivals. Compared to the overall industry, this specific segment has recently witnessed ofttimes lower crop rates because the market is saturated with products that have little differen tiation and limited innovation possibilities.For this reason, merger & acquisition activity is especially prominent among top firms seeking to create strategic warlikeness. They have identified the threat of rivals and are looking to gain agreeitional resources and capabilities through diversification. The role of buyers is very uncommon in this industry. While individual patients are the ultimate consumers of medical devices, firms ofttimes focus on healthcare providers when selling products. This is because patients in the market have low brand recognition of the devices they use.Instead, they rely on their hospitals and physicians to p puddle products for treatment. It is important for manufacturers to understand this distinction since it is these physicians and other providers that have the grea examine brand loyalty. That said, individual patients still drive demand for products, and their satisfaction remains the ultimate goal. One key demographic trend of buyers is the a ging U. S. population. As life expectancies stick around to rise, and the baby boomer generation ages into their late sixties and seventies, this embroidering age group give create a great opportunity for medical device manufacturers.For example, elderly patients experience a high occurrence of health issues compared to the aggregate market, driving demand for medical devices upward. In fact, 40% of all patients diagnosed with heart disease or arthritis are 65 or older (ibisworld. com). The Medical Device Manufacturing industry is too subject to tight regulations, both domestically and outside(a)ly. For example, a smart device may require a four-year trial in the first place it appears on the market so that the Food and Drug Administration (FDA) can test its long-term effects.Products in Europe, meanwhile, undergo a different regulatory process products are often introduced in Europe two to four years before they are available for patients in the U. S. Furthermore, complianc e with these regulations requires firms to hold significant additional resources, often detracting from sitments such as query and Development. Along with these initial requirements, devices are constantly monitored for defects, which can result in product recalls that damage brand reputation and hurt profits. globalization trends leave hobo certainly continue to have a strong impact on the industry, creating both opportunities and threats. Research shows that exportations direct for 21. 6% of industry revenue with an expected 2010 growth rate of 3. 9% (ibisworld. com). By developing these export markets, firms can work to maximize capacity utilization as they expand their distribution channels to reach more customers and generate more revenue. This is especially true of developing economies, in which 80% of chronic-disease-related deaths occur.Large portions of these markets are greatly underserved and demand is non being met. In addition, by diversifying into different geo graphic markets abroad, firms are able to mitigate the risks associated with being too dependent on the domestic market. The emergence of globalization also introduces several threats that firms must be aware of. For one, the competitive landscape changes as companies establish operations sites in contradictory countries. When this happens, the demand in export markets declines since customers can purchase devices locally.Exporting firms must then reevaluate their international strategies and consider establishing similar operations of their own. Another threat globalization brings is that of increased competition. Manufacturers constantly fight to expand their geographic reach and to gain control of underserved markets. Given the effects of strong forces and emerging trends in the Medical Device Manufacturing industry, firms should strive to possess a key group of success factors in locate to gain strategic competitiveness.The first factor is employees they must be highly skilled and noesisable since the devices they design and produce are very complex. Second, economies of scale allow firms to improve profitability by reducing variable be in manufacturing, which, in turn, lowers prices for customers. Third, as previously mentioned, the importance of global positioning cannot be understated. In order to compete in the industry, firms must make a global presence, expanding geographic scope and penetrating underserved markets. Finally, adit to the latest innovations is imperative.To acquire freshly technologies, firms must invest considerable resources into Research and Development. Not only must they develop new technologies, but they must also look for ways to persistingly improve brisk products through high levels of innovation. This understanding of the industry environment is essential when considering a firms national strategies. At the profession-level, Medtronic possesses a number of strengths and competencies that are used to create a competi tive advantage and contribute to the overall performance of the accompany.In particular, its research and development efforts along with its superior human resources drive the firms differentiation strategy in the Cardiac Rhythm Disease Management (CRDM) unit (see vermiform process for more strengths). This sector remains the firms most profitable product market, accounting for $5. 268 trillion of Medtronics $15. 817 billion total net sales in 2010 (Medtronic). As a percentage of those sales, Research and Development expenses equated to 9. 23%, a total of $1. 46 billion. Moreover, this expense has seen a Compound Annual increment Rate of 8. % in the last 5 years, indicating Medtronics continued confidence in its ability to create value through the investment in research and development. The innovation fostered by research and development in CRDM has allowed Medtronic to create many new products the complex nature of these products makes them rare and costly to imitate. They often even trumpet and replace the existing technology in the market, making them highly valuable and unsubstitutable. These key innovations, therefore, give Medtronic a significant competitive advantage in research and development.For example, the CRDM unit recently introduced a new leadless pacemaker. Once implanted into the heart via catheter, the penny-sized device permanently latches into the flesh with tiny claws. Doctors can then wirelessly monitor and control the pacemaker. Medtronics demonstration of reduced size and wire elimination go forth create a new meter for such devices in the industry, making current, bulky pacemakers obsolete, and giving Medtronic a sustainable competitive advantage. Medtronics 40,000 employees also play a key role in the success of CRDM and of the company as a whole.They are the source of one of Medtronics most valuable intangible assets knowledge. With a gross(a) understanding of human physiology and a breadth of technical skills, employees are a driving force behind the companys groundbreaking innovations. They generate ideas and implement processes that create new or improved products or therapies. These advancements require that employees are well trained and possess a high degree of knowledge near the products or therapies they develop. In addition to the actual production of products, employees extend their knowledge to customers.By educating healthcare providers and users somewhat the devices, employees ensure that patients safely receive the full benefits of Medtronics products. One way Medtronic optimizes its human resources is through coaction blogs and internal grants. The companys pursuance program awards project grants that encourage employees to test their own ideas for product innovation. Nearly 25% of these projects eventually become a product or some part of a therapy. For example, employee Brain Lee had an idea to create an effective diagnostic tool for patients who suffered from unexplained fainting.Wi th funding from the Quest program, Lee modified a pacemaker by adding self-contained electrodes. The device could be implanted just below the skin, recording electrocardiogram (ECG) signals in an endless loop. Much more effective than existing external tools, Lees device received additional funding, leading to successful clinical trials, and, eventually, a technical release. This is just one example of how Medtronics strong workforce creates a core competency for the firm, one that is unmatched by its rivals.Furthermore, the innovations unquestionable by employees and through research and development efforts can often be protected with patents, generating competencies that are not only distinctive, but also sustainable. At the corporate level, Medtronic is very well positioned. The firm outperforms its rivals in terms of market share with 17. 2%, compared to Boston Scientific and St. Jude Medical, which hold 2. 8% and 4. 8% market share, respectively. Since 2007, Medtronic has exp erienced an 8. 75% compound annual growth rate. While lower than St. Judes growth rate of 12. 3% in the period, it is noticeably higher than that of Boston Scientifics, 6. 84% (See attachment for further financial comparisons). Medtronics corporate-level strategy defines which businesses it will be in as well as how it will integrate those businesses to grow and deliver value to stakeholders. The firm currently operates in seven business units CRDM, Spinal, CardioVascular, Neuromodulation, Diabetes, Surgical Technologies, and Physio-Control, all of which are largely related. Because of Medtronics strong war chest, it has been able to focus its growth strategy around acquisitions.Since 2009, the firm has purchased nine companies, including ATS Medical Inc. and CoreValv Inc. , requiring a significant cash investment. In fact, Medtronic worn out(p) $370 trillion when it bought heart valve maker ATS Medical. The firms acquisition strategy specifically targets two types of purchases t hose that will add immediate revenue to existing businesses, and those that add to Medtronics technology portfolio by providing expertise the company does not have. Of late, the firm has been focusing on the former, targeting smaller companies that lack the resources to complete clinical trials and gain FDA approval.Chad Cornell, vice president of corporate development at Medtronic, notes, Size is obviously a factor, but its not what we start with. Instead the question is how can we add value? Thats the key lens (Lee). Medtronics international strategy is best characterized as a global strategy whereby it develops devices in the United States to be distributed across country markets. To support this strategy, it uses a worldwide product divisional structure. Medtronic has recently changed its strategy, implementing a Global Realignment Initiative in 2008.The goal of the initiative is to reorganize the firms resources to focus on areas that add the most value and have the most attra ctive growth opportunities. Prior to 2008, the company had segmented its global market into the United States market and international markets. Under this new strategy, Medtronic will focus around developed markets and emerging markets, using its resources and capabilities to effectively meet each segments unique needs. Developed markets include regions such as the United States and Europe where trained healthcare professionals are familiar with current devices, and new, innovative products are readily accepted.Medtronic relies on its strong innovation capabilities and Research and Development investments to meet the demands of this segment. For example, patients with pacemakers are often denied potentially life-saving MRI scans due to possible pacing interference. Medtronic used its superior innovation and product knowledge to address the concern, manufacturing the worlds first pacemaker that is compatible and safe to use with MRI systems. Introduced in Europe in 2008, this innovat ive device provides a much-needed solution to millions of people who will now be able to receive the full benefit of a safe MRI scan.Emerging markets, meanwhile, include regions such as China, Brazil, Africa, and the Middle East, where access to care is often limited, and physicians may be unfamiliar with certain medical devices and hesitant to accept new products. In this segment, Medtronic depends on its employees and its reliable, high-quality products. Using these strengths, it focuses on training and educating healthcare providers so that products and treatment are much more accessible to underserved patients. At present, Medtronic operates in more than 120 countries, with more than 16,000 employees in communities outside the United States (Medtronic. om). These employees provide immense value to the company by using their across-the-board knowledge and skills to educate and collaborate with physicians around the world. Currently, 41% of total revenues are realized outside of the United. Medtronic plans to continue its geographic diversity strategy, aiming to become a truly boundaryless organization and maintain its commitment to making a sustained, global impact in the fight against chronic disease (Medtronic). In order to keep its maiden status, Medtronic executes various tactics at each of its organizational levels in order to protect its strategic competitiveness.For example, the company uses a frontal assault on its biggest competitor, Boston Scientific. By using revenues created from CRDM, they have the capability to invest large investments into research and development in ways that Boston Scientific cannot. In doing so, they maintain continuous development and improvement of innovative products. Another tactic that Medtronic uses is the pre-emptive strike, identifying and evaluating a valuable opportunity and seizing it before a rival does so. This increases sales, differentiates Medtronic from competitors such as Boston Scientific, and helps fo ster innovation.Based on the analysis of Medtronics external environment and internal strategies, it is clear that the firm is a leader in the Medical Device Manufacturing Industry. However, there are also some key problems and issues the firm should address. Medtronic has had litigation issues over the past fewer years with recalls in various different product offerings as well as patent and licensing disputes. As noted on the 2010 annual report their litigation charges amounted to nets of, $374 million in 2010, $714 million in 2009, and $366 million in 2008 (36-37).This has been an industry wide issue as seen by Boston Scientifics 2009 litigations charges amounting to $2. 022 billion, $334 million in 2008 and $365 million in 2007 (Boston Scientific Annual Report pg. 69). With these industry wide litigation issues, the FDA is currently creating new standard procedures for testing products and time required to introduce them into the market, which creates a separate challenge in de aling with the new health care reform. In a recent interview with Brian Johnson from Massdevice. om, the CEO of Medtronic, Bill Hawkins outlines the challenges ahead with the new health care reform. The new medical device tax will cost us $cl to $200 million per year when introduced in 2013. In 2010 we spent $1. 5 billion on R&D and this tax will directly affect that budget for us which hurts our innovation, or possibly investments in emerging markets. Cleary the health care reform will be one of the toughest challenges ahead for Medtronic and the rest of the medical device industry.