MDCM IT Strategy. Case study - Essay Example

?Combined with a weak competitive position and slow market growth, MDCM occupies the fourth quadrant. As a result of high internal costs, MDCM could not compete effectively with smaller, more efficient rivals. They also had global capabilities which MDCM could not match. Consolidation in the medical device industry had also slowed market growth. As a result MDCM had shifted its growth strategy from geographical reach to diversification through acquisitions. The type of business that MDCM operated in was contract manufacturing. In this business, the manufacturer had pioneered the process of creating close partnership arrangement with customers to maximize their success with MDCM’s products. MDCM had decades of experience in the business. However consolidation in the industry had given greater bargaining power to the customers so that the company could not price competitively. MDCM’s competitive position was further weakened by a lack of cost control. There was lack of coordination among departments, suppliers, logistics so that expected synergy gains from the acquisitions could not be realized. By focusing upon acquisitions, MDCM was in effect implementing the strategy of diversification into related products. This made the company more globally diversified, enabling it to better serve large customers who were also becoming globally diversified. However MDCM’s operating and profit margins continued to fall in a competitive market. Because MDCM operated in an industry which was consolidating and which had more efficient competitors, the company continued to decline in market share and profits. As mentioned in the case, even though MDCM was the largest company in the industry, it had the worst operating and profit margins. For this reason MDCM had a weak competitive position. The company was facing a new competitive landscape and had responded to the competition by shifting growth strategy to acquisitions. However MDCM continued to decline in terms of market share and profit losses. The company could not match more efficient competitors who possessed global capabilities. This gave MDCM a weak competitive position. The industry was consolidating which gave customers more pricing powers. With this combination of weak competitive position and slow market growth, MDCM falls in the fourth quadrant. The overall strategic goals of this firm at this time are to implement operational and cost improvements and to focus on IT integration. The two goals are related since operational and cost improvements can be realized from IT integration. As indicated in the case, the management was facing problems with the cost structure, sales and marketing and production scheduling. These problems could be addressed by the right IT implementation plan. The implementation plan should be aligned to the overall strategic goals of the firm which are to implement operational and cost improvements in medical device contract manufacturing. The company had recently lost its competitive advantage because of its high internal costs which hampered the company’s ability to price competitively against smaller, more efficient rivals. As a result sales and profits continued to decline. Therefore the top priorities at this time were to undertake a project related to IT strategy synchronization that would lead to improved information flow which would facilitate operational and cost improvements. The industry had gone through a consolidation process which reduced the number of customers. Because there were fewer larger customers, they had more pricing power. Therefore, in order to remain competitive, MDCM would have to access more information about its business processes, thus enabling the managers to take corrective action which would turn around sales and profits. The critical success factor at this time was tight coordination between the different business functions. Traditionally the strategic focus of the company had been to locate close to the customer. However this strategic focus had been changed as a result of the Horizon 2000 program. Now the focus was upon cost streamlining by consolidating into the newer, more efficient production facilities. Because the customers had more pricing power at this time, one of the strategic goals of MDCM would have to be cost control so that profits could be maintained. Because of cost overruns, MDCM had lost its competitive positioning. In order to regain its former market strength, the management would have to exercise greater cost control. In addition to cost control, tight coordination between the different functions was also a strategic goal. Tight coordination between the different functions would ensure that there was minimal duplication of efforts resulting into more efficient resource usage. A third strategic goal was to develop a sophisticated IT capability which would speed up the information flow. The strategic goals of MDCM at this time were in the areas of supply chain so that customer demands could be met at lower costs. The competitive environment in which MDCM operates is defined by consolidation. MDCM had responded to this trend by shifting its strategic focus from increasing geographical reach to acquisitions. Consolidation meant that the existing companies had advanced capital bases which made it a capital-intensive industry. Therefore there was minimal threat of new entrants. Success in contract manufacturing and packaging services was defined by customers’ satisfaction with the devices that the company manufactured for them. This meant that the companies had to work in close coordination with the customers. Therefore one of the key success factors was the long term process of creating close partnership arrangements with the customers. New entrants would be at a disadvantage compared with the existing companies which already had partnership arrangements with several key accounts. For this reason the industry faced a minimal threat of new entrants. This was further underscored by the fact that the customers were also consolidating. So there were fewer customers in the market for the manufacturers to compete for. In other words, market size was dwindling. There was minimal threat of substitute products because of the high degree of customization involved in contract manufacturing. The threat of competitive rivalry was considerable because market size was dwindling as a result of consolidation in the customer base. Foreign competitors were entering the US market which was increasing competitive rivalry in that market. These were multinational companies with global capacities. Therefore these companies were in a better position to coordinate with the larger customers who were also globalizing their operations. Therefore the competitive environment was defined by global capabilities. Initially MDCM could not match these competencies of the new competitive landscape and therefore based the new growth strategy upon foreign acquisitions. This enabled the company to have greater bargaining power with the suppliers since the foreign suppliers were wholly owned by MDCM. These subsidiaries could coordinate with the local suppliers to get the best price. The bargaining power of the customers was a threat because consolidation was leading to fewer but larger customers. These customers were becoming more globally focused. Therefore they had a considerable level of bargaining power. This is the competitive landscape that MDCM operates in. There is minimal threat of new entrants in the future but there is a considerable level of competitive rivalry resulting from consolidation in the customer base which gave the customers more bargaining power. The manufacturing base was also consolidating so suppliers had less bargaining power. The critical IT objectives are to create an integrated MDCM network, increase use of the internet as a means of networking and communications for customers and suppliers and finally to focus upon IT integration by creating a single, centralized view of MDCM’s overall IT assets and capabilities. A more sophisticated IT capability than the one that the firm possessed at this time was required for the company to implement operational and cost improvements. The critical IT objectives would enable the management to create the IT capability that was strategically aligned. For the new IT capability to have any strategic value, it would have to improve the information flow among departments, suppliers and logistics. The new IT capability would tie together the disparate systems and platforms which were clearly leading to cost overruns from duplication of efforts. The critical IT objectives have been formulated to eliminate bloated costs from lack of coordination among the different business functions. The critical IT objectives should be defined by their ability to synchronize with the strategic goals of operational and cost improvements. The objective of creating an integrated MDCM network would enable the firm to increase networking within regions/countries. The competitive landscape of the industry was defined by global capabilities. For this reason MDCM’s growth strategy had shifted to acquisitions. However there was so little coordination among the foreign subsidiaries that the company faced bloated costs from seriously flawed practices. This problem could be addressed through greater networking within regions/countries and this is the objective of an integrated network. Tight coordination was one of the strategic goals and this goal could be reached by improving information flow among departments, suppliers and logistics. The IT objective of increasing use of the Internet as a means of networking and communications would facilitate the development of a global IT infrastructure which would adequately support the strategic goals in operational and cost improvements. This would be the most important step in IT strategy synchronization. The IT objective of creating a single, centralized view of overall IT assets and capabilities would reduce the occurrence of duplication of efforts. It would enable the management to minimize the number of disparate systems and platforms. Critical IT objectives for MDCM are to increase networking, enhance use of the Internet as a communications tool and to create a single, centralized view of IT assets and capabilities which would increase information flow through the organization and between the company’s partners and suppliers. References Jeffery, Mark, and Joseph E. Norton. MDCM, Inc. (A): IT Strategy Synchronization. Kellogg School of Management, 2006. Print. Read More