Medical Device Contract Manufacturings Overall Corporate Strategy - Case Study Example

MDCM Case Study Introduction MDCM is the abbreviation for ‘Medical Device Contract Manufacturing’. The MDCM, Inc. was founded in 1972 and it was one of the largest players in the industry in the beginning of the 21st century. In addition to medical device contract manufacturing, the company had specialized in “clean room medical injection molding and the design and fabrication of specialty assembly equipment for medical service manufacturers” (p.2). The MDCM, Inc. is a US based and FDA-registered organization which had nineteen foreign subsidiaries across the globe as of 2002. The company possessed large number of skilled and efficient employees and it assisted the firm to win different industry awards for product quality. Despite these potential internal strengths, the company had been struggling with the fifth consecutive quarterly loss for the second quarter of 2002. This paper will define the MDCM’s overall corporate strategy, the business environment in which the firm operates, and related high level IT objectives. Business model of MDCM The Accenture IT governance model includes four distinct IT infrastructures such as efficient and predictable operators, information integrators, responsive solution providers, and new capability enablers. It is clear that the MDCM falls under the category of new capability enablers. The Accenture IT governance model states that organizations that operate as new capability enablers are characterized with higher rate of organizational change. In addition, these organizations compete on product or service differentiation rather than on cost. New capability enablers generally have the capacity to meet rapidly changing business practices and requirements as they are flexible to market transitions. Such firms vehemently try to develop innovative IT solutions delivering first-mover advantages to managements as their major goal. For this purpose, they particularly target on their IT investments which add value to flexible capabilities that would produce bottom line results. The case study indicates that business acquisition is one of the major global expansion strategies of the organization. As Jeffery and Norton (2006) point out, MDCM allowed the acquired companies to operate freely and to serve their local customers better way. The case writers also reflect that the company had no centralized IT system to integrate the business operations of all subsidiaries (p.3). The company gave great emphasis on customer tastes and specifications and offered differentiated services to different market segments. However, the company was not in a position to compete on price with smaller but efficient rivals because of its higher internal costs. Recently, once the company management identified that lack of an effective IT governance structure was the root cause of current net losses, the management hired a new CIO, Shawn Atkins with intent to formulate fruitful IT solutions and thereby to effectively integrate the operations of the company. All these factors point that MDCM focuses on timely IT strategies in order to meet rapidly changing business trends and associated requirements. Corporate strategy of MDCM The MDCM strongly promotes product quality as its primary objective and therefore the company works closely with its customers. Through this practice, the company also intends to optimize designs for manufacturability and thereby to trim down manufacturing costs to some extent. The firm has set its motto as “absolute commitment to delivering quality parts and assemblies on time” (Integrity CMi.com). In short, customer satisfaction is one of the major strategic goals of the firm at this time. In addition, the company tries to expand its business horizon on the strength of acquisitions of non-US based firms that have potential competencies in contract manufacturing. According to Jeffery, Norton & Yung (2006), the company believes that this acquisition based business expansion strategy would assist the MDCM to take advantages of vertical integration. In addition to acquisitions, the organization also strives to expand its geographical territory by introducing new offices and manufacturing units close to its larger customer segments. Therefore, it could be undoubtedly stated that global expansion is another major strategic goal of MDCM. Similarly, the firm needs to achieve a well control over production as well as supply chain management as it has been identified that decentralized purchases and uncoordinated production operations caused financial losses to the company. The company management needs to ensure adequate and effective flow of information between various sectors of organization as poor information flow is greatly attributed to the consecutive quarterly losses. In sum, the company is trying to align its organizational structure with its corporate strategies in order for offering high quality contract manufacturing services across the globe. Business environment In order to define the IT objectives for MDCM, it is necessary to assess the current position of the firm in the industry. The Porter’s Five Forces model would be the most recommendable method to evaluate the competitive environment in which the firm operates. Degree of rivalry From the case scenario, it is clear that rival firms do not raise potential challenges to MDCM as the company follows an acquisition approach. In addition, the company has a strong market stature and this strength will greatly assist the company to dominate all market segments where it operates. Moreover, since the company maintains a strong relationship with its customer groups, it will certainly aid the company to effectively overcome the threats from its rivals. At the same time, the increased internal costs are preventing the firm from engaging in price competition with its local rivals. Threat of substitutes Since the MDCM operates as a medical device contract manufacturer, it is free from the threat of substitutes. Evidently, there are no close substitutes available to medical devices because the currently using devices have been accepted globally and little researches were conducted to develop substitute products. Furthermore, people would not be willing to risk their life by switching demand to substitute product, the quality of which is uncertain. This strength adds value to the competitive environment of the MDCM. Supplier power The case context reveals that suppliers of MDCM have bargaining power over the company due to various reasons. Firstly, the company does not have centralized purchased department and hence it cannot take advantages of bulk purchases including cash as well as trade discounts. Secondly, the company is presently struggling with net losses and this situation will add to supplier power even though MDCM is one of the highly established and largest manufacturers for medical devices. Hence, the high degree of supplier power remains to be a threat to the competency of the organization. Buyer power It is clear that customers of the MDCM do not have much bargaining power over the company products as medical devices fall under the category of necessary products. In addition, the company provides customers with the opportunity to suggest product design changes; therefore, customers get exactly what they want. Since customers’ needs and requirements are met properly, they may abstain from bargaining over the company prices. In contrast, since buyers generally purchase medical devices bulkily, they may force the company to offer more discounts. Threat of new entrants While analyzing the micro as well as macro environment of the MDCM, it seems that the company is less vulnerable to the threat of new entrants. Since huge investment is required for the establishment of medical device manufacturing firm, entrepreneurs or other business firms do not easily enter the industry. In addition, the government policies also become a barrier to new entrants. For instance, a medical device manufacturing company cannot operate in the United States unless it is certified by Food and Drug Administration (FDA, 2011). Since quality maintenance is highly mandatory in medical device manufacturing industry, firms hesitate to enter this field. IT objectives for MDCM Based on the information discussed above, it is easy to define critical IT objectives for MDCM. Evidently, the company gives specific emphasis on customer satisfaction. In order to attain customer loyalty, it is necessary to deliver the ordered products timely and properly. Hence, while developing a global IT infrastructure, Atkins must try to establish a well coordinated system for product ordering process and delivery. Similarly, it is advisable for Atkins to specifically focus on information flow process as ineffective communication is argued to be the major problem raising challenges to the operational efficiency of the company. In the words of Pat Perry, the MDCM’s vice president of marketing and sales, “my people can be twice as productive if they are getting information when they need it, not a week later” (as cited in Jeffery and Norton, 1). Since the organization has subsidiaries across the globe, the IT infrastructure must be comprehensive enough to meet the complex communication needs of the MDCM. The case scenario reflects that the MDCM does not have any system to integrate the operations of acquired businesses with the parent company. Since the company follows an acquisition based global expansion strategy, lack of operational cooperation would adversely affect its profitability. It is advisable for the IT management to give more focus on investment decisions, long term planning, and project development, implementation, and monitoring processes since the company’s corporate IT is responsible for the overall IT budget. Jeffery, Yung, and Norton (2006) point out that MDCM’s many IT projects overlapped and some of them contradicted each other due to lack of integration of IT operations. Hence, coordination of IT functions is the best strategy to eliminate bloated costs arising out of flawed practices. The company currently spends almost 80 percent of the IT budget on maintenance operations. This increased maintenance cost can be attributed to the ineffectiveness in system implementations. The case study clearly shows that there have been no successful major system implementations since 1995 (p.5). Therefore, it is recommendable for the company to establish strong control over IT systems in order to avoid unnecessary maintenance expenses. In sum, the company is forced to raise additional funds to meet its customer demands as a result of ineffective information flow among departments, suppliers, and logistics. A comprehensive and well structured global IT infrastructure will assist the company to come back to the profitability track by reducing its operational costs. Conclusion From the above case discussion, it is clear that the MDCM has been operating as ‘new capability enablers’. The company is struggling to meet its strategic goals as a result of its weaker and non-integrated IT operations. Although the micro as well as macro environment of the organization offers competitive advantages to the MDCM, it has failed to retain profitability. Therefore, the MDCM must coordinate its IT systems and operations to attain a clear control over the whole activities of the company in order to reduce the operational costs to a notable extent. Works Cited Integrity CMi.com. “Medical device contract manufacturing.” (n.d). 24 November 2011. Jeffery, Mark & Norton, Joseph F. “MDCM, Inc. (A): IT strategy synchronization.” Kellogg: School of Management. (2006):1-9. Jeffery, Mark, Norton, Joseph F & Yung, Derek. “MDCM, Inc. (B): Strategic IT portfolio management.” Harvard Business Review. (January 2006). Web. 24 November 2011. Jeffery, Mark, Yung, Derek & Norton, Joseph. “MDCM, Inc. (A): IT strategy synchronization.” Kellogg: School of Management. (2006). Web. 24 November 2011. FDA: U.S. Food and Drug Administration. “Regulation of medical devices: Background information for international officials.” Medical Devices. (2011). Web. 24 November 2011. Read More