Medtronic External and Internal Analysis Essay

Medtronic Inc. can easily be comp argond to le Concorde, a turbofan engine supersonic passenger airliner first flown in 1976. This jet was to a greater extent than in two behaviors as fast as any other airliner ever hitd, flight at speeds of up to 1,350 mph. The capability to fly at more than in two ways the speed of a regular airliner equates to twice the flights and premium prices for this astonishing service. The resulting handfulness of le Concorde is what puts this machine at the top of its class. In 1957, Medtronic founder Earl Bakken constituted Medtronics Pacemaker, the first wearable turn to treat abnormally slow means tempos.The Pacemaker is at present the staple product of Medtronic and can be comp bed to le Concorde for its knowledgeableness, efficacy, and profitability. This is just one example of Medtronics ability to use its vicissitude to transform the treatment of chronic sickness worldwide. The crocked has been a drawing card in the medical exam ch eckup thingumabob Manufacturing effort for over two decades, teaching and manufacturing innovative medical dodges to treat more than seven million patients apiece class. Its products include pacers, defibrillators, heart valves, and stents, among others.Medtronics wedge for excellence is best summed up by its corpo point mission, To contri exclusivelye to human race welfare by industriousness of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, be cured _or_ healed health, and extend life (Medtronic. com). To achieve its goals and maintain victory, Medtronic moldiness constantly admonisher and evaluate its external surroundings and the forces in it that could affect the high society. The medical Device Manufacturing industry is exposed to numerous forces and trends that can generate opportunities for firms to exploit as well as threats for firms to avoid.Of note are the effects of rivalry, buyers, regulation, and globalisation trends. The medical examination Device Manufacturing industry, as a whole, has grown at an annual rate of 18. 9% since 2005, contributing to a high level of industry magnet (ibisworld. com). Medtronic is the clear leader with 17. 2% commercialize dower. Its closest rivals, capital of Massachusetts scientific and St. Jude Medical, take a shit merchandiseplace shares of 2. 8% and 4. 8%, respectively (ibisworld. com). Recently, the industry has seen a dramatic increase in consolidation as larger firms have cquired smaller operations in an effort to diversify their portfolios and derive market share.This shrinkage has resulted in greater industry concentration, increasing the rivalry among these primal players. Foc exploitation on a more narrow analysis of the cardiovascular Device segment reveals a similar, more intensified, environment for rivals. Compared to the boilers suit industry, this specific segment has belatedly witnessed much put d own growth rates because the market is saturated with products that have little differentiation and limited innovation possibilities.For this reason, uniting & acquisition activity is especially prominent among top firms seeking to take a leak strategic warringness. They have identified the threat of rivals and are looking to gain admissional resources and capabilities through diversification. The role of buyers is very unique in this industry. firearm individual patients are the ultimate consumers of medical devices, firms lots focus on health commission providers when selling products. This is because patients in the market have low deformity recognition of the devices they use.Instead, they rely on their hospitals and physicians to recommend products for treatment. It is important for manufacturers to understand this preeminence since it is these physicians and other providers that have the grea assay brand loyalty. That said, individual patients still drive entreat for products, and their satisfaction remains the ultimate goal. One key demographic trend of buyers is the aging U. S. population. As life expectancies shroud to rise, and the baby baby boomer generation ages into their late sixties and seventies, this expanding age group will create a great chance for medical device manufacturers.For example, elderly patients date a high occurrence of health shortens 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 also subject to tight regulations, both domestically and internationally. For example, a refreshed device may require a four-year trial before 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 do by products are often introduced in Europe two to fo ur age before they are available for patients in the U. S. Furthermore, compliance with these regulations requires firms to devote noteworthy additional resources, often detracting from investments such as look and Development. Along with these sign requirements, devices are constantly monitored for defects, which can result in product recalls that equipment casualty brand reputation and hurt profits.Globalization trends will certainly continue to have a unvoiced impact on the industry, creating both opportunities and threats. Research shows that exports account 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 slide by 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 und erserved and demand is not macrocosm met. In addition, by diversifying into different geographic markets abroad, firms are able to lower 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 ornament changes as companies establish operations sites in foreign countries. When this happens, the demand in export markets declines since customers can purchase devices locally.Exporting firms must then reassess 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 order to gain strat egic competitiveness.The first factor is employees they must be highly skilled and knowledgeable since the devices they design and produce are very complex. Second, economies of scale allow firms to improve profitability by simplification variable costs in manufacturing, which, in turn, lowers prices for customers. Third, as previously mentioned, the grandeur of global positioning cannot be understated. In order to compete in the industry, firms must make a global presence, expanding geographic scope and groovy underserved markets. Finally, find to the latest innovations is imperative.To acquire radical technologies, firms must invest capacious resources into Research and Development. Not only must they develop newfangled technologies, but they must also look for ways to continuously improve existing products through high levels of innovation. This understanding of the industry environment is essential when considering a firms internal strategies. At the business-level, Medtr onic possesses a number of strengths and competencies that are used to create a competitive advantage and contribute to the overall performance of the company.In particular, its research and growth efforts along with its superior human resources drive the firms differentiation system in the cardiac Rhythm Disease Management (CRDM) unit (see appendix for more strengths). This area remains the firms most profitable product market, report for $5. 268 billion 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 offset Rate of 8. % in the last 5 years, indicating Medtronics continued assertion in its ability to create encourage 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 o f these products makes them rare and costly to imitate. They often even trump and replace the existing technology in the market, qualification 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 engraft into the heart via catheter, the penny-sized device permanently latches into the mannequin with tiny claws. Doctors can then wirelessly monitor and control the pacemaker. Medtronics certainty of reduced size and wire elimination will create a new standard for such devices in the industry, reservation current, bulky pacemakers obsolete, and self-aggrandizing 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 impalpable assets knowledge. With a thorou gh understanding of human physiology and a breadth of expert skills, employees are a driving force behind the companys groundbreaking innovations. They generate ideas and implement processes that create new or amend products or therapies. These advancements require that employees are well trained and possess a high degree of knowledge closely 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 about the devices, employees ensure that patients in effect(p)ly receive the full benefits of Medtronics products. One way Medtronic optimizes its human resources is through collaboration blogs and internal grants. The companys necessitate program awards project grants that encourage employees to test their own ideas for product innovation. close 25% of these projects eventually become a product or just about part of a therapy. For example, employee Brain Lee h ad an idea to create an effectual diagnostic tool for patients who suffered from unexplained fainting.With funding from the Quest program, Lee change a pacemaker by adding self-contained electrodes. The device could be implanted just below the skin, recording electrocardiogram (ECG) signals in an endless loop. some(prenominal) more effective than existing external tools, Lees device received additional funding, leading to successful clinical trials, and, eventually, a commercial 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 developed by employees and through research and development efforts can often be defend with patents, generating competencies that are not only distinctive, but also sustainable. At the incorporated level, Medtronic is very well positioned. The firm outperforms its rivals in terms of market share with 17. 2%, compared to Boston Scie ntific and St. Jude Medical, which hold 2. 8% and 4. 8% market share, respectively. Since 2007, Medtronic has experienced 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 appendix 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 presently 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 currency investment. In fact, Medtronic spent $370 million when it bough t heart valve maker ATS Medical. The firms acquisition strategy specifically targets two types of purchases those that will add flying revenue to existing businesses, and those that add to Medtronics technology portfolio by providing expertness the company does not have. Of late, the firm has been focusing on the former, targeting smaller companies that pretermit 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 crossways 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 excite the firms resources to focus on areas that add the most value and have the most attractive growth opportunities. Prior to 2008, the company had segment 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 in effect 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 innovative 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 extensive 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 change 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 world-class status, Medtronic executes mingled 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 foster 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 few 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 testin g products and time required to introduce them into the market, which creates a separate challenge in dealing with the new health care tidy. In a recent interview with Brian Johnson from Massdevice. om, the CEO of Medtronic, Bill Hawkins outlines the challenges frontward with the new health care reform. The new medical device tax income will cost us $150 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.