Corporate Strategy of General Electric Healthcare - Case Study Example

Introduction GE Heatlcare is a global company, which has a broad expertise in medical imaging and information technologies, medical diagnostics, patient monitoring systems, drug discovery, biopharmaceutical manufacturing technologies, performance improvement and performance solutions services (GE Healthcare Website, n.d.). In order to better understand company’s strategy, there will be used several tools that will help to define strategic direction and assess its success in terms of strategy implementation and business performance. As well there will be provided some recommendations related to strategic business activity which will be based on company’s vision and will suggest key actions. External Analysis Organizations working in healthcare industry exist in quite turbulent social and political environment, in which their behavior and movements are highly visible (Walshe, Smith 2006, 3). In order to better assess external environment with its challenges and potential risks, there was used PEST factors analysis. PEST Analysis Political factors The major political factors that might significantly impact or do impact of GE Healthcare business include: differences in the financing of healthcare (public versus private), insurance coverage, level of reimbursement, typically set by a government health agency (Khanna & Raabe 2006, 3). Economic factors Economic factors impact of financial behavior of potential customers and consumers. Thus, for example, type of hospital ownership and different physician compensation system significantly impact on GE Healthcare business strategy, depending on country. Percentage of GDP spent on healthcare is also significantly variable among different countries. Thus, for example, the United States spent 14,6% (the biggest share), in U.K. – 7,7%, in China – 5,8%. Healthcare expenditures per Capita also vary dramatically among different countries: in the United States, U.K and China in 2002 healthcare expenditures per Capita were $5,274, $2,031 and $63 respectively (Khanna & Raabe 2006, 16). Another significant factor is specific to healthcare and relates to rising costs. Even though technologies allow having better, cheaper computers, food, banking, consumer goods, yet in healthcare costs continue to rise (Walshe, Smith 2006, 4). Social factors Social factors in most countries follow the same tendency demographic shift and changing user and consumer expectations (Walshe, Smith 2006, 3). The demographic challenge is that because people are living longer the numbers of elderly and very elderly people are rising fast – and those people make much heavier use of the healthcare system (Walshe, Smith 2006, 3). Thus, for example, populations in advanced nations were aging, and those in Asia, Eastern Europe, and Latin America increasingly demanded better healthcare (Khanna & Raabe 2006, 1). Another factor of demographic challenge is the rising incidence of chronic disease in the wider population of developed countries (Walshe, Smith 2006, 3). Easy access to information also made people more knowledgeable and aware which also has impacted on consumer expectations on healthcare providers. Technological factors Technological factors also significantly impact on company’s business and overall GE Healthcare strategy. Thus, for example equipment throughput is one of the factors determining the price the purchaser can afford (Khanna & Raabe 2006, 4). Some other factors include: pace of technological innovation, including tendency of quick obsolescence of equipment as well as changes in technology. Advances in genomics and healthcare information technology made personalized diagnostics and personalized medicine possible (Khanna & Raabe 2006, 1). Thus, having analyzed political, economic, and social context in which healthcare organizations have to exist it is possible to conclude that GE Healthcare has to continuously adjust its business strategy in fast-changing and pressured environment (Walshe, Smith 2006, 4). Opportunities and Threats Analysis PEST analysis shows that the company operating in healthcare business is subject to threats as well as opportunities. The main opportunities are based on the external factors and include the following: growing demand in better healthcare, consumer demographic shift, as well as development of IT. The main threats are also subject to external factors and are mainly related to international business development in case of GE Healthcare. Main threats are: tendency of quick obsolescence of equipment, differences in cultural perceptions, lack of local expertise in new markets and dependence on local suppliers in new markets (Khanna & Raabe 2006). In order to ensure company’s success, GE Healthcare management has to take into account all these opportunities and threats and analyze PEST factors while developing its strategy in particular country. Internal Analysis In order to better understand internal “health” of the GE Healthcare business, it is helpful to use strengths and weaknesses analysis in addition to opportunities and threats analysis. Below is provided a summary table of strengths and weaknesses, followed by brief discussion. Strengths Weaknesses Focus on R&D activity - Cost effective manufacturing - Shift of manufacturing from high-cost to low-cost countries - Significant market share of the worldwide diagnostic imaging equipment business - Strong and cost effective supply chain management - Diversified services portfolio (equipment repair & maintenance, healthcare IT systems, etc.) - Highly competent technical and managerial talent - Information presented in this table demonstrates that the company has a very strong position inside the business. No weaknesses have been identified, because company manages to transform its weaknesses into strengths. All the strengths are essential for the GE Healthcare to perform its vision, follow its vision and finally hit strategic targets. While some of the strengths are strategic, others perform supportive function which is also critical to business success. Thus, for example, R&D activities, diversification of services/product portfolio relate to strategic development, and cost effective manufacturing as well as highly competent technical and managerial talent relates more to supportive function. However, one cannot successfully exist without another. This split demonstrates well interrelationship between strategic direction, business and function unit, which will be discussed further in the text. Strategic resources: core competencies, distinctive competencies, competitive advantage Healthcare equipment and IT software is a highly competitive market, dominated mainly by four key players: GE Healthcare, Siemens, Philips, and Toshiba. Siemens – one of the key competitors to GE also focusing on diagnostic imaging, services and cardiology. Philips – is another key competitor, taking a leading competitive position in cardiology, and also providing services, ultrasound and diagnostic imaging. However, despite strong and intensive competition, GE Healthcare is always on the edge of innovations, striving to keep its leading position. The core competencies of the company are: diagnostic imaging and services, clinical IT, Ultrasound, medical diagnostics and protein separations (Khanna & Raabe 2006, 21). Strategic Direction It is difficult to imagine a successfully operating company that does not have clear vision, mission and corporate values. Without these basic things clearly defined and communicated, the company cannot develop its strategic direction. As Moseley (2009, 7) explains, the mission provides the contextual basis for the organization’s strategies because all organization’s resources, activities and efforts should be focused on the mission. GE Healthcare states its mission as “development of solutions that enable patients to lead longer and fuller lives “ (HealthTech Wire, 2011). Based on this statement, naturally follows the vision of the company which explains how company views its strategic direction. For this purpose, GE Healthcare has even introduced its own term using it as a very efficient marketing tool. “Healthymagination” vision of GE Healthcare invites the world to join GE Healthcare on their journey as they continuously develop innovations focused on reducing healthcare costs, increasing access, and improving quality and efficiency around the world (GE Healthcare Website, n.d.). The above stated vision sets a clear strategic direction of the company, which can be analyzed in terms of three main prospects: corporate, business, and functional. Corporate strategy is considered to be the highest-level strategy work that encompasses the entire organization (Moseley 2009). It means that strategic activity at this level is concerned primarily with managing the portfolio of business and groups of business that compose the corporation and securing financial capital for allocation to them (Moseley 2009, 9). Taking as a basis this definition, corporate strategy of GE Healthcare would include focus on four key portfolios: diagnostic and clinical equipment, information technology, life sciences and medical diagnoses. These include: X-ray, digital mammography, Computed Tomography (CT), Magnetic Resonance (MR), Functional MRI, Nuclear Medicine, Molecular Imaging technologies, as well as Healthcare IT systems and software programs for clinicians (Khanna & Raabe 2006). GE Healthcare has a strong statement on its website, saying that “as a global leader, GE can bring together the best in science, technology, business, and people to help solve one of the world’s toughest challenges and shape a new age of healthcare (GE Healthcare Website, n.d.). Business strategy. Based on the text written by Khanna & Raabe (2006, 9) it is possible to say that GE builds its portfolio through acquisition or merger activities. One of such examples is strategic partnership between GEMS and Amersham formed with a purpose to develop positron emission tomography scanners (Khanna & Raabe 2006). This partnership resulted in business growth through acquisition of GEMS and Amersham, today known as GE Healthcare (Khanna & Raabe 2006, 8). Taking this strategic direction, GE Healthcare has launched new product line, Sigma – an open MRI system. But the company managed not just to launch this product line but also to adjust it to the needs of different local markets, considering their needs and financial opportunities (Khanna & Raabe, 2006). This activity perfectly works with the company’s vision to continuously develop innovations focused on reducing healthcare costs, increasing access, and improving quality and efficiency around the world. GE Healthcare management has managed to utilize its resources in a very efficient manner, using maximum benefits from local suppliers around the world and using cheap labor force, making its products more accessible. The whole GE Healthcare activity could be subdivided into separate Strategic Business Units. According to Moseley (2009, 10) functional areas of each SBU make their individual specialized contributions to the unit’s operations and strategic initiatives. Traditional functional areas include marketing, manufacturing or production, R&D, HR, and finances. For GE Healthcare, main SBU in terms of manufacturing or production could be defined as the following: CT, MRI, US, and medical records). There are some significant R& D activities which form true SBU. In response to technological progress in genomics and IT, which enabled personalized diagnostics and personalized medicine to be real, GE Healthcare has built its strategy and acquired Amersham and several healthcare IT firms (Khanna & Raabe 2006, 1). Traditional functional areas include marketing, manufacturing or production, R&D, HR, and finances. In terms of global expansion strategy, functional area atrategy of GE healthcare was based on customization of its products for each country (Khanna & Raabe 2006, 4). In terms of HR - reallocating HR away from mature segments toward newer ones, and providing proper training to local teams (Khanna & Raabe 2006, 5). In terms of marketing activity, GE healthcare has adopted “In Country for Country modification of GPC”, embedding country-specific demands within the global supply – chain. Issue identification Based on internal and external analyses of the GE Healthcare business it is possible to identify the most critical organizational issues. These are interrelated closely to company’s mission, vision and values. The company faces with three key challenges: cost challenge, access challenge and quality challenge. All these challenges vary significantly among different continents: the United States, Asia, and Europe. In this text will be referred to complex of three main issues, which arise from the company’s mission. The company by itself declares: “We see a world where cost, quality and lack of access prevent too many people from getting the healthcare they need” (GE Healthcare annual report 2011, 27). For GE Healthcare there can be suggested several alternative solutions which might help the company to fulfill its mission: to reduce healthcare costs, to increase access and to improve quality and efficiency around the world. Alternative solutions Strategic issue Alternative solution Pros and Cons Key Stakeholders Reduce costs Develop IT healthcare software which will enable to reduce costs Competition GE Management Society Healthcare organizations (public and private) Increase access Develop business not just in big cities but also in rural areas, especially in developing countries Dependence on government healthcare policy and GDP share spent on healthcare Society, especially people living in remote areas Improve quality Strategic alliances with healthcare systems Quality in healthcare is a key, even though the price is high (people will pay if they are confident in quality) GE Healthcare, Customers and Patients References: Moseley, G.B. (2009). Managing Healthcare Business Strategy, Jones and Bartlett Raabe, E. A., & Khanna, T. (2006). General Electric Healthcare, 2006. Harvard Business School Cases, 1. Smith J. & Walshe K. (2006). Healthcare Management. Berkshire, GBR: McGraw-Hill Professional Publishing. GE Healthcare Website, (n.d.). Annual Report 2011, http://www.ge.com/ar2011/#!section=downloads HealthTech Wire, (2011). GE Healthcare strengthens strategic alliance with Veran image-guided medical device company, http://www.healthtechwire.com/ge-healthcare/ge-healthcare-strengthens-strategic-alliance-with-veran-image-guided-medical-device-company-2902/ Read More