OR Solutions Reaches a Crossroads - Case Study Example

Case Study: OR Solutions Reaches a Crossroads Executive Summary Action may not always bring happiness,  but there is no happiness without action. – Benjamin Disraeli OR Solutions designed, developed and markets a surgical system that increases the safety of minimally invasive surgery (MIS) procedures. It is a system that reduces the possibility of surgeon error, improves hospitals' safety records and would reduce the time required for given MIS procedures. It is essential to improving MIS procedures. IT is technologically innovative and it is proprietary technology. Despite all these strengths OR Solutions has been unable to develop sales. The original business plan called for sales of 760 units in the first three years. In fact, only 36 have been sold – less than 5% of projected sales. Their problem is marketing. They have virtually no sales force and their single salesman currently offers only a limited and passive commitment. The recommended solution is a strategic partnership with a business with an established sales force and networks within hospitals and with surgeons. This will have an experienced and connected sales force in the field fastest. Their task will be facilitated by the in-house development of promotional material—videos, testimonials and newsletters – and utilization of the inventor, Tom Marshall, in the marketing program as Tom's exuberance is infectious. Only an aggressive marketing plan, under the auspices of an established company will raise the profile of the device to the point where a 'tipping point' is reached and customers come calling as opposed to having to be approached by OR Solutions. Benchmarks for this new strategy are relatively straightforward – SALES. The company needs to approach the sales volume that was predicted in its original business plan. As soon as possible annual sales of 1000 must be realized. This will make the original revenue figures realistic, establish the system in the industry, and result in a very profitable situation for both Tom and Jack. Key Issues Action may not always bring happiness,  but there is no happiness without action. – Benjamin Disraeli The key issue facing OR Solutions is sales, or lack thereof. Statistics included in the case, specifically projected sales and related revenues included in the original business plan and actual sales and revenues serve to demonstrate the discrepancy. Exhibit 1: Projected and Actual Sales, Revenue and Net Income Year Projected Sales Actual Sales Projected Revenue Actual Revenue Projected Net Income Actual Net Income FY 2005 10 5 $337,917.00 $140,000.00 -$130,125.00 -$125,000.00 FY 2006 250 32 $8,827,083.00 $910,000.00 $2,827,954.00 $49,000.00 FY 2007 500 0 $17,600,000.00 $395,000.00 $3,520,000.00 -$58,000.00 FY 2008 1000 $35,200,000.00 $7,040,000.00 FY 2009 1700 $59,840,000.00 $11,968,000.00 Simply put, sales of OR Solutions' Surgical System have been abysmal. In their first year they sold only one half of the number of units projected and their net income (loss) was approximately what had been predicted. In the second year they only sold one-eighth of the projected 250 units. Moreover, their net income was less than 2 per cent of their projected income. In 2007 their rosy prediction of sales of 500 units was confronted with a shocking and devastating strikeout—no sales were recorded. Any cash flow and/or capitalization problems that the company is facing are merely symptoms of their lack of sales. Without a significant increase in sales the company will never reach the 'tipping point' when the device is widely recognized and begins to 'sell itself'. OR Solutions' Surgical System is an original and invaluable piece of surgical equipment based on proprietary technology: If it is not selling it is not being marketed correctly. Unless sales and revenue increase the company is doomed as the OR Surgical System is its only product. Situational Analysis Essentially, OR Solutions has a cluster of technological advantages and strengths and a counter-balancing cluster of marketing weaknesses and failures. If OR Solutions does not capitalize on its technological advantages quickly they will be lost. This means that it must correct its serious marketing deficiencies, and quickly, or the moment of opportunity will be lost. Currently, minimally invasive surgery (MIS) procedures offer two significant advantages to hospitals. They are safer than open surgeries and they offer the opportunity to have patients in and out of the hospital quickly. This means more patients can be treated which is beneficial to patients – reducing wait times and recovery times – and to hospitals – it allows more surgeries to be performed in a given period and a shorter recovery time means less beds occupied by post surgical patients offering hospitals an opportunity to increase revenues. Further, the case indicates that currently 8.1 million MIS procedures are carried out annually. MIS procedures are a considerable market and there is every reason to believe that hospitals would like to see that number grow. Currently, also, MIS procedures are bedeviled by one serious problem. The foot pedals that control the instruments are confusing, difficult to identify and difficult to operate. This problem is so severe that it has led to a slapstick comedy routine in which a “a nurse would often have to crawl under a surgical table to press the foot pedal to let the surgeon know which instrument was attached to which pedal.” This situation is as absurd as it appears. This creates significant safety issues – a surgeon might cut when he meant to cauterize in a worst case scenario. OR Solutions' Surgical System offers an instant fix for this ridiculous and dangerous situation. Their system amounts to a universal remote control that eliminates the dangerous confusion that reigns in the current MIS regimen. It would make hospital ORs safer, it would reduce errors and improve the success ratio of hospitals and surgeons. Importantly, also, it would reduce the possibility of surgeons' errors and offer protection against malpractice suits and, theoretically, reduced malpractice insurance for both surgeons and hospitals. All of these improvements and their unification in one system does amount to a 'better mousetrap' and the world should be beating a path to OR Solutions door. If they are not (and they are not) it is because they are not aware of the device and, if that is the case, then the marketing by OR Solutions has not been adequate or appropriate. Frankly, OR Solutions' marketing efforts have been as phenomenally misguided and ineffective as its technological innovation has been directed and efficient. Henry Spencer came highly recommended and with contacts in the hospital industry. However, he has not been able to convert this into sales. Moreover, the case indicates that he has largely given up on OR Solutions' Surgical System. He is “no longer actively marketing OR Solutions” which means that their marketing force has dropped from one to zero. Under the circumstances it is hardly surprising that sales are not reaching a 'tipping point'. Indeed, in the product introduction phase that OR Solutions is stuck in creating 'buzz', gaining a profile in the industry, and actively and aggressively marketing are key and they are all missing from the OR business plan at the moment. Once the product has gained a profile and is being used widely by recognized hospitals and surgeons it may market itself through word of mouth, personal recommendations and testimonials. However, at this introductory stage the company's emphasis must be on marketing and creating a profile. It has an exceptional product that offers significant benefits to hospitals, surgeons and patients with no apparent downsides: It needs to let the world know. Strategy Formulation Simply selling the company or the product has advantages, particularly for Jack, but it is a non-starter for the inventor and majority owner, Tom. For Jack, a serial entrepreneur it would offer a quick profit and open the door to his moving on to another opportunity. He might favor that approach. However, it seems it would never fly with Tom. At the other end of the scale, is creation of an in-house sales force. However, there are significant disadvantages to this system. First there is the issue of time. Hiring and training would be required. Second, there is the question of the time it would take for these sales people to learn the field and to make personal connections with surgeons, OR head nurses and hospital administrators. This would satisfy Tom's desire to maintain absolute control but it is simply not practical. The third approach would be to co-opt the sales force of an existing medical through a strategic alliance. This would reduce training time as the sales force would only have to learn one new product rather than an entire industry. Second, it would not require the sales force take time to make contacts and connections within the healthcare sector: They would already possess those networks. There is also a third possible advantage. If the firm already sold surgical equipment for MIS procedures this product would compliment those sales and vice versa. A salesmen selling an MIS instrument to a hospital could introduce the OR Solutions' Surgery System as the perfect device for managing the new instrument and other instruments like it. Alternately, a salesman selling the OR Solutions' Surgery System could mention that it operates and coordinates various instruments that are also in her catalog. The OR Solutions' Surgical System is complimentary to MIS surgical instruments and MIS surgical instruments are complimentary to the OR Solutions Surgical System. The synchronicity is self-evident and could be beneficial to all concerned—salesmen, instrument manufacturers and OR Solutions. Recommendations Of the various strategic options — sale of the company, partnership and development of in-house sales team – only the second is viable. OR Solutions has an excellent product that simply needs to be marketed more effectively. Simply selling the technology is not an option due to majority owner Tom's resistance to that path. In fact, he is even resistant to outside consultants or a strategic partnership. At the same time, his proposal that an in-house sales staff be developed is also impractical. It would be time consuming and new sales staff would never have the contacts, connections and networks within the hospital industry and the surgical community that an established sales force would have. Working with a recognized name in the field such as Stryker or Ethicon-Endo Surgery would also attach name recognition and trust to an unknown company and a new product. Implementation Strategies Implementation places two demands on OR Solutions. First, a suitable partner must be identified from the shortlist of four that are interested in such a partnership. Then three key strategies must be implemented with the chosen partner. The two best fits for a partnership are Stryker and Ethicon-Endo Surgery. They have global reach, large sales forces and significant sales. Which one would prove the best fit would have to be determined through further negotiations relating, primarily, to the financial terms of the deal. The best deal for OR Solutions would determine which of the two corporations would become their strategic partner. Once this situation is resolved, and whichever company is chosen, the marketing strategy will have to include three key areas. 1. Development of company sales materials – No one knows a product as well as its designers and engineers. Therefore, Doug and Tom will have to play a key role in developing the marketing materials. These materials will have to include testimonials from noted surgeons. Listings of prestigious hospitals that have purchased the Surgery System, lists of awards and, if possible, endorsements from the AHA, SES and other professional organizations. OR Solutions will have to 'sell' the product to the partner's sales force. 2. Use of Tom's technical expertise and enthusiasm – Tom is well informed, respected in the field and possesses infectious enthusiasm. He needs to participate in 'selling' the new sales force on the product and then assist their sales efforts. Many inventors and designers are poor marketers, Tom needs to accept this weakness and work to correct it. With training and commitment on his part he could become a very effective sales tool. 3. Sales incentives linked to sales volume – The company needs to hit the 'tipping point' rapidly. Consequently, sales incentives must be linked to volume. Each individual salesperson must be aware of this goal and incentivized accordingly. The small impact this will have on profits will be more than compensated by the increasing sales once the 'tipping point' is hit. Benchmarks and Contingency Plans The bottom line on benchmarks is sales. The numbers in terms of profit per unit are sound and minimal production has confirmed their accuracy. The product is profitable for the company at its current price and the issue is increasing volume. IT is not an issue of increasing profit per unit. Volume of sales is the central problem and addressing it is the key to solving the company's progress. Moreover, this is an easily quantifiable and easily measured variable. The key is to reach the figure of 1000 in annual sales. At this point the company can assume that the marketing efforts will have gained momentum and the product will be becoming widely recognized. From this point forward it will, to a large extent, sell itself. Read More