industry healthcare analysis

XIMB

Strategic Management Assignment

Industry – Health Care, Medical Equipment Company– Boston Scientific

Submitted by, Anirudh Kandrika (U113147)

4/2/2014

The objective of the report is to study, analyze & understand the business model, vision, mission, corporate goals of Boston Scientific and prepare the activity map, conduct an industry environment analysis for the same whilst comparing the same with other major international / domestic players in the same industry.


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1. Compare and Contrast the business model of Boston Scientific with: a) An International Organization with a similar Business Model – Johnson & Johnson

Description of the Business

Model

Boston Scientific Johnson & Johnson

Customer Value Proposition

Disease Burden- Growing incidences- High mortality- Complex diagnosis

Unmet need- Absence of therapy- Limitations in efficiency- Difficulty in use of equipment- Device discomfort- High complication risk

Clinical Value- Innovative product- Substantially effective- Long term safety- Improve ease of use

Economic value- Price reflects value- Low budget impact- Cost savings- Cost effectiveness vs other

options- Hospital resource reductions

Quality- International standards- Consistency in products across

geographies







geographies

Profit Formula Revenue Generation:- Manufacture & Sale of medical

equipment- Through development & sale of

Drug-eluting slunts.

Revenue Generation:- Manufacture & Sale of medical


Drug-eluting slunts.


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- Income through licensing of patents developed.

Cost Structure:- Fixed costs: Salaries, R&D

expenses, work space rents etc.- Variable costs: Inventory

holding costs, raw material procurement costs, transportation costs, sales distribution network associated costs, etc.

Profit margins:- Dependant on achieving a

significant market share, developing new products through innovations and R&D.

- Market share increase through expanding to new geographies / launching new products in existing matrix.

- An analysis of the BCG matrix here would be of great help in understanding the profit centers for Boston Scientific

- Income through licensing of patents developed.

- Manufacture & sale of pharmaceutical products

- Manufacture & sale of packaged consumer goods like band aids, skin care products, etc.






- Product portfolio highly diverse and into many additional industries such as packaged consumer products has given J&J a distinct competitive advantage and deep pockets.


An analysis of the BCG matrix here would be of great help in understanding the profit centers for Johnson & Johnson.


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b) A Domestic Organization with a similar Business Model – Hospital Equipment Manufacturing Company (HEMC)

Description of the Business

Model

Boston Scientific HEMC

Customer Value Proposition







geographies




Economic value- Price reflects value- Local supplier providing a price

advantage- Low budget impact- Cost savings- Cost effectiveness vs other



geographies- Local supplier. Hence better

after sales service and cheaper spares


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Profit Formula Revenue Generation:- Manufacture & Sale of medical


Drug-eluting slunts.- Income through licensing of

patents developed.







- An analysis of the BCG matrix here would be of great help in understanding the profit centers for Boston Scientific

Revenue Generation:- Manufacture & Sale of medical

equipment & lab equipment.- Income through licensing of

patents developed- Note that operations of HEMC

are predominantly limited to India and a major chunk of the revenue comes from India and Indian clients.






Based on the above analysis and comparison in part 1(a) and 1(b), we can conclude that all medical equipment manufacturers operate on a similar business model having a similar kind of revenue generation model, cost incurring model and profit generation model. In addition, the value propositions offered are also highly similar.

However, few distinct differences between the global and local manufacturers is that local suppliers could have a significant advantage in terms of more economical sourcing of raw materials, easier availability of spares and cheaper after sales service, easier installation assistance and an overall stronger supply chain network locally. These differences could be offset


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by better use of technology, higher standards of equipment and more consistency in products by global manufacturers.

Another significant difference between Johnson & Johnson when compared against Boston Scientific is a distinctly diverse portfolio that Johnson & Johnson has. It manufactures and sells products ranging from Consumer Products, Pharmaceuticals to Medical Devices and Diagnostics. This means that Johnson & Johnson would have a significant advantage over Boston Scientific in terms of penetration or brand recall as it is a more house hold brand but at the same time could also prove as a disadvantage as people know J&J more for packaged consumer goods than as a medical equipment manufacturer and hence its credibility in this industry could be questionable to them.

Conclusions:

Hospital VAC use has increased and processes have expanded over time. Business models are increasingly focused on attaining an optimal balance between cost reduction and quality improvement. Most models include both clinical and administrative personnel to conduct clinical evaluation and provide cost analysis information and data review. However, there are several challenges associated with current hospital value analysis including physician buy-in and data availability. Healthcare reform has contributed to the surge in hospital value analysis as several initiatives are aimed at incentives for hospitals and physicians to improve the quality and efficiency of care. As a result, there is an evident shift towards increased use of medical equipment in hospital settings. It is thus essential for medical device manufacturers to understand the process, identify and quantify their product’s clinical and economic value proposition, provide evidence for value assessment considering outcomes that are relevant to hospital settings, and create systems to optimally communicate with VAC stakeholders.

2. Prepare an Activity System Map for both a Low Cost Organization (HEMC) as well a Diversified (Johnson & Johnson) Organization operating in the Industry/ Sector selected by you.

An activity map is a diagnostic tool to identify your organizations competitive advantage. It connects your organization’s value proposition to the activities of your organization that enable you to deliver this value proposition better than any competitors.An activity map is generally used for the following purposes:

Make incremental decisions about whether a new idea or opportunity fits the strategy. If the new opportunity does not undermine any other aspect of the activity

Communicate how every function and policy contributes to the organization strategy; you can also use it to cascade KPIs down the organization, linking with your Balanced Score Card

Identify mis-fits. What do you do that undermines any part of your activity map? Make decisions about the boundary of the organization. It is a strategic risk to outsource

anything on your activity map since this is the core of your competitive advantage. Anything not on this map is context and can be outsourced and managed for cost effectiveness.


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To make organization decisions for new ventures or acquisitions. If the activity maps of the businesses are very different, combing them in the same organization will create trade-offs, and they are better off separate, even if this increases the cost base.

Diversified Company (Johnson & Johnson)

Low cost organization (HEMC)


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We can hereby observe that while the strategic goals for a diversified company is more towards customer service and better products, the strategic goals for a small low cost company like Narang Medical, the strategic goals are to increase market share through expansion – either by increasing local market share or by expanding to other geographies whilst keeping a low cost product.

3. Identify the leading Organizations Low Cost Providers (HEML) as well as the leading Organizations with Diversified Product/ Service Providers (Johnson & Johnson) for India and for the 5 Continents (Asia, Europe, Africa, North America and South America). Document the Vision, Mission, and Objectives of these companies (ex: airline companies) and identify the key attributes of success for each of these organizations/ industries (ex: International Carriers). Is it in line with the various readings shared with you? Evaluate the Mission statement as per the suggestions given in the website (http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html). Prepare the Strategy Statements in line with

http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html

http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html


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the article on 'Developing the Strategy - Vision, Value Gaps, and Analysis' by Robert Kaplan, David Nortan, and Edward Barrows and identify the Value Proposition and Strategy Sweet Spots in line with the article on 'Can You Say What Your Strategy Is' by David Collis and Michael Rukstad

The leading organizations with a diverse portfolio for India are:1. HEMC2. Narang Medical Ltd.

The leading organizations globally who compete in this space is:1. Johnson & Johnson2. Siemens AG3. General Electric Co.

Mission statements for the companies:

The mission statement is a description of what an organization does, its various stake holders and the obligations it holds towards them. It is the statement that defines the basic reason for the company’s existence. Mission statements are generally of two kinds:

- Customer oriented- Product oriented

Let us look into the mission statements of each of these companies and evaluate them to try and understand how effective they are in including all their stake holders in their business. Some people argue that constantly modifying the mission statement and treating it as a live document have a higher rate of success in conducting their businesses.

Table 1: Evaluation of Boston Scientifics’ Mission statement

Mission Statement: Boston Scientific is dedicated to transforming lives through innovative medical


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solutions that improve the health of patients around the world.

Does it include…? Does it mention values like…?

CustomersProducts/

ServicesMarkets Citizenship Teamwork

Yes No Yes No No

TechnologyConcern for

survivalPhilosophy Excellence Integrity

Yes No No No No

Self-conceptConcern for

public imageEmployees

Result FairNo No No

Customer or product-oriented?

Customer-oriented

Table 2: Evaluation of Siemens’ Mission statement

Mission Statement: On the basis of our forward-looking technology and solutions we respond to

the most challenging questions of our time in the Industry, Energy and Healthcare sectors. Our wide

range of products and solutions are designed with the environment in mind and engage with the

subject of climate change.


CustomersProducts/


No Yes No No No



Yes No No No No


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Result FairNo Yes No


Product-oriented

Table 3: Evaluation of General Electric’s Mission statement

GE doesn’t have an official mission statement, but presents it through GE Works Equation. It can be

found in the picture below.

This is how GE explains it:

“We have a relentless drive to invent things that matter: innovations that build, power, move

and help cure the world. We make things that very few in the world can, but that everyone

needs. This is a source of pride. To our employees and customers, it defines GE.”


CustomersProducts/


No No Yes No No



Yes Yes Yes No No


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Result GoodYes No Yes


Customer-oriented

Table 4: Evaluation of HEMC’s Mission statement

Mission Statement: On the basis of our forward-looking technology and solutions we respond to

the most challenging questions of our time in the Industry, Energy and Healthcare sectors. Our wide

range of products and solutions are designed with the environment in mind and engage with the

subject of climate change.


CustomersProducts/


No Yes No No No



Yes No No No No



Result FairNo Yes No


Product-oriented

The evaluation of the mission statements can be observed as follows:


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Result – Good: The statement recognizes most of its stake holders like Customers, employees, public, understands the importance of markets, technology, and other attributes like Integrity, teamwork and excellence are given due recognition.

Result – Fair: The statement recognizes few of its stake holders like Customers, employees, public, understands the importance of few competitive forces like markets, technology but other attributes like Integrity, teamwork and excellence may not be given due recognition.

4. Conduct a External as well as Industry Environment Analysis for the industry in which the company (PESTEL and Porter's 5 Force Analysis) is operating. Identify the strategy of the company's closest competitor? Who are the complementors (company's offering complementary products or services) of the organization?

PESTEL Analysis of Medical Equipment Industry

Political Economic

Likely change of a stable government

High level of Bureaucracy

High Corruption level

Inviting Tax policies

Freedom of press

Highly regulated industry

Strict control of trade

Import restrictions (quality and quantity)

Tariffs

Competition regulation

Government involvement in trade unions and

agreements

Not so strong Copyright, patents /

Intellectual property laws due to which

innovation is stifled.

Highly employer friendly Employment laws in

comparison to North America

Strong health and safety laws but weak

implementation

Decreasing Growth rates due to recession

High rates of Inflation

Low rates of interest in few industries

encouraging investment

Decreasing rupee to the dollar making

imports expensive

Stable level of unemployment keeping

Labor costs more or less stable

Medical equipment industry is in the growth

stage of business cycle

Free availability of credit making finance

relatively easy

Increasing level of consumers’ disposable

income thus increasing demand constantly

Increasing inflation leading to increasing

prices in general.

Highly fluctuating and volatile stock markets

owing to the low level of confidence in the

economy


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Social Technological

Increasing level of Health consciousness in

urban & rural societies

Increasing levels of education & awareness

Globalization has bought in an accepting

attitude toward imported goods and services

Customers increasingly want better product

quality and customer service and readiness

to pay more for such products

Increasing emphasis on safety and health

practices

Lifestyles of urban people are becoming

increasingly healthy

Customers attitudes toward “green” or

ecological products is still negative as they

are not willing to spend more for green

products but this attitude is increasingly

changing

Stabilized Population growth rate

Predominantly young country and increasing

life expectancy rates

Almost equal sex ratio 933 women for 1000

men

Increasing average disposable income level

Social classes

Decreasing Family size and emergence of

nuclear families

Increasing levels of Basic infrastructure due

to increasing allocations in the budgets

Rapid rate of technological change

Firms increasing spending on research &

development

Setting up of SEZ’s giving Technology

incentives

Highly liberalized legislations regarding

technology post 90’s

High precision and increasing levels of

Technology level in medical equipment

industry

Increasing levels of communication

infrastructure adding to technological

advancements thus reducing costs

Internet infrastructure and penetration very

rapid leading to increasing awareness.

Environmental (ecological) Legal

Weak implementation of laws regulating

environment pollution, Air and water

pollution

Poor Waste management and disposal

systems which create health hazards

Non encouraging attitude toward “green” or

ecological products – changing trends

Non encouraging attitudes toward renewable

Absence of strong Anti-trust law

Equality in law protects interests of

everyone

Not so strong Copyright, patents /

Intellectual property laws due to which

innovation is stifled.

Highly employer friendly Employment laws

in comparison to North America


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energy – changing trends Strong health and safety laws but weak

implementation

Porter’s 5 forces Model Analysis for Boston Scientific:

Threat of new entry (very weak) ++ Supplier power (weak) +

Large amount of capital required

High retaliation possible from existing

companies, if new entrants would ring

innovative products and ideas to the industry

Few legal barriers protect existing companies

from new entrants

All existing companies have established

brand image and reputation

Products are mainly differentiated by design

and engineering quality

New entrant could easily access suppliers

and distributors

It is very hard to achieve economies of scale

Governments often protect their home

markets by introducing high import taxes

Few number of suppliers who deal with these

materials

Some suppliers are large but the most of

them are pretty small

Companies generally do not change

suppliers often and stick to a particular

supplier for a particular product

Suppliers do not pose any threat of forward

integration

Buyer power (strong) - Threat of substitutes (weak) +

There are many buyers

Most of the buyers are individuals that buy

one car, but corporate or governments usually

buy large fleets and can bargain for lower

prices

It doesn’t cost much for buyers to switch to

another brand of vehicle or to start using other

type of transportation

Buyers can easily choose alternative car

brand

Buyers are price sensitive and their decision

is often based on how much does a vehicle

cost

Buyers do not threaten backward integration

Since it is the health care industry and is

highly regulated, there are high quality

checks in place thus preventing spurious /

low quality manufacturers

Substitutes can rarely offer the same

convenience and hospitals generally do not

switch suppliers so easily owing to a lot of

factors


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Competitive rivalry (strong) -

Moderate number of competitors

Increasing importance and growth of the

health care industry has led to increasing

number of device manufacturers over the

years

Industry is still small and unorganized

Size of competing firm’s vary but they usually

compete for different consumer segments

Customers are mostly loyal to their brands as

switching brands involves training and

additional expenses

There is low threat of being acquired by a

competitor

Summary of Porter’s Five Force Model based on the above analysis

5. Write within 750 words each of the following:

Competitive Rivalry-

Threat of new entry

++

Buyer Power-

Threat of Substitutes

+

Supplier Power+


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a) Comment on the History, Evolution, Growth Rate, Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well?

History:Medical equipment (also known as armamentarium) is designed to aid in the diagnosis, monitoring or treatment of medical conditions.

A medical device is any health care product that achieves its primary intended purpose not through chemical action or by being metabolized

Medical devices include electro-medical equipment and related software, furniture, supplies & consumables, cardiovascular & neurological products, ophthalmological implants, orthopedic appliances, prosthetics and diagnostic kits, reagents and equipment.

Growth:The Indian healthcare industry has progressed at an impressive pace over the past few years. The private sector has emerged as a vibrant force in the industry, accounting for almost 74 per cent of the country’s total healthcare expenditure.

The Medical Devices and Equipment industry, valued at US$ 2.5 billion contributes only 6% of India’s US$ 40 billion healthcare sector. Moreover, it is growing at a faster annual rate of 15% than 10-12% growth seen in the Healthcare sector in its entirety. A rise in the number of hospitals and the increased requirement for healthcare facilities creates a need for sophisticated devices and equipment, which can provide accurate treatment to individuals. The Medical Electronics segment of this industry incorporates control, conversion, sensing, processing, storage, display, and transfer of information on anatomy and physiology by making use of the Electronics and Communication Technologies. The Medical Equipment industry is quite wide with > 14,000 different products types, as per the Global Medical Device Nomenclature (GMDN). The products range from wound closure pads to stents and IVD machines of medical devices. Further, it can be reasonably said that Medical Electronics is an area, where Electronics and Information Communication Technology play a decisive role. Healthcare sector is expected to record a compound annual growth rate (CAGR) of 15.0 per cent during FY08–17.


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The Indian devices market has been growing at an exceptionally healthy pace of CAGR around 15%


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Trends and InvestmentsThe Indian healthcare providers plan to spend Rs 5,700 crore (US$ 897.64 million) on IT products and services in 2013, a seven per cent rise over 2012 revenues of Rs 5,300 crore (US$ 834.65 million), as per a report by Gartner.

The Indian-American doctors’ community plans to organize the "Global Healthcare Summit" in Ahmedabad, Gujarat, from January 3-5, 2014, to bring affordable world class healthcare for Indians. Global Healthcare Summit 2014 aims at advancing the accessibility, affordability and quality of world-class healthcare to the Indian people. The Summit will also focus on prevention, diagnosis, treatment options and share ways to truly improve healthcare transcending global boundaries, as per Dr Jayesh Shah, President, Association of American Physicians of Indian Origin (AAPI).

Road AheadThe country's healthcare system is developing rapidly and it continues to expand its coverage, services and spending in both the public as well as private sectors. This is creating a large market for hospital information systems and other healthcare-related IT solutions.

The favorable demographic virtues offer an attractive market for healthcare providers and investors in India. An increase in foreign investment inflows and private equity (PE) deals in the industry’s various segments have also been noted, in addition to the increased focus received from the Government.

b) Size of the Industry across the world and the country where the organization is operating

Overall Market Segments in Health Care:Of total healthcare revenues in the country hospitals account for 71 per cent.


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The Indian healthcare industry, which comprises hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment, is expected to reach US$ 160 billion by 2017.

On the back of continuously rising demand, the hospital services industry is expected to be worth US$ 81.2 billion by 2015. The Indian hospital services sector generated revenue of over US$ 45 billion in 2012. This revenue is expected to increase at a compound annual growth rate (CAGR) of 20 per cent during 2012-2017, according to a RNCOS report titled, ‘Indian Medical Device Market Outlook to 2017’.

Market SizeThe healthcare industry in India is experiencing gradual transition from paper files to electronic mediums. The Indian healthcare assisted by IT market has been growing tremendously over the past few years. It is expected to grow at a CAGR of around 22.7 per cent during the period 2013-2015.The hospital and diagnostics centre in India received foreign direct investment (FDI) worth US$ 1,914.28 million, while drugs & pharmaceutical and medical & surgical appliances industry registered FDI worth US$ 11,318.32 million and US$ 653.45 million, respectively during April 2000 to June 2013, according to data provided by Department of Industrial Policy and Promotion (DIPP).

More so, the other related segments like genetic testing market is expected to grow at a CAGR of around 9 per cent during 2012-2017 and that of the diagnostic services market in India at a CAGR of around 26 per cent during 2012-2015. All the growth is based on the foundation on huge investments, fast expansion into tier II & III cities, and strong government support to strengthen the healthcare infrastructure in the country.

The global medical devices market is estimated at 250 Billion USD.


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Out of this, the distribution of the pie is as follows:

112.5

62.5

62.5

Sales (in Billion USD)

Medical EquipmentMedical disposablesImplants

The regional distribution among various continents is as follows


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44%

32%

18% 6%

Regional Share

North AmericaEuropeAsia PacificRest of World

c) Key success factors for any organization operating within the Industry and how is your organization performing on those criteria.

For any industry to survive and thrive in the present competition, it is very important to understand the drivers of growth. In the medical equipment industry, the following factors act as major drivers of growth. Booming economy Increasing healthcare expenditure Changing demographic profile Increasing incidence of lifestyle diseases

- Ophthalmology- Cancer- Cardiovascular diseases- Hypertension, diabetes and renal diseases- Neurological and psychiatric disorders

Increasing number of medical tourists Proliferation of hospitals Government programmes and support Outsourcing / relocation of medical devices manufacturing by western MNC’s


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User friendly and handy devices Telemedicine

Few major issues and challenges that the medical equipment industry faces are: India’s dependency on imports for supply of medical devices The regulatory environment needs to be reliable & consistent The prevailing low level of medical insurance The low level of healthcare facilities and awareness, especially in the rural areas

Coming to the performance of Boston Scientific on the above mentioned criteria, it is to be observed that Boston Scientific has addressed most of the factors required for success and also the issues & challenges at hand. This can be better understood by performing a SWOT analysis of Boston Scientific so that we can appreciate how the company has handled the various internal & external business environments.

From the SWOT analysis we can observe that Boston Scientific banks on its core competency of manufacturing quality medical products has helped it acquire a huge global market share

Weakness:- Has failed to tap into rural markets- Has to cope with developing infrastructure and govt. practices- R&D is not very advanced

Oppurtunities:- It needs to tap into existing knowledge & experience of local companies through fruitful JV's- There is also oppurtunity for regulations to improve market for equipment manufacturers- Needs to fund more from other profit centres to improve business here.

Threats:- The market is highly unorganized for medical disposables- Chances of spurious products coming in due to lack of regulations.

S W O T


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especially in hospitals that are visited by the urban middle class and above. It has also managed to grab the pvt. hospital sector aiming to attract medical tourists.

However, Boston Scientific has to work in improving its share in the local market through some fruitful JV’s and tapping the experience of local companies.

It would also be advisable to wait sometime in the medical disposable segment as the sector is highly unorganized now and investing there would not yield any results immediately.We understand that Boston Scientific’s India operations are in a question mark quadrant of the BCG matrix where the growth of the sector is high but market share is low. Hence, it is a great opportunity and needs to be funded from other profit centers to improve business here.

industry healthcare analysis

Documents

transportation costs

variable costs

fixed costs

new products

raw material procurement

cost structure

economic value price

new geographies