An IT Strategy for MDCM - Case Study Example

An IT Strategy for MDCM Part MDCM falls within the Efficient Predictable Operator quadrant. Although no quadrant is a perfect fit for any company, MDCM fits best in this quadrant because the company operates in an industry with a lower-rate-of-change. Additionally, the competition is mainly based on price rather than on product differentiation. Therefore, operational efficiency is important. A number of changes have taken place in the industry over the years and even though MDCM has acquired other companies in order to strengthen its position it has not focused on synergizing its operations. Each of the company’s subsidiaries operates autonomously and so they compete on their own terms instead of as one company. It therefore means that the price that the company pays for its products is too high when compared to the competition. This is even more so with the large number of suppliers that MDCM deals with as a group. Additionally, MDCM is not obtaining time critical information that will allow it to produce and mange its operations more efficiently. Part 2 Based on the information given in the case the overall strategic goals of MDCM at this time are to improve its organizational structure, improve its information systems, reduce its operational cost and gain a greater market share. This can only be done through the integration of MDCMs information systems both departmentally, regionally and worldwide. The company has recently done some major re-organizations but the root cause of the problem has not been fixed. The CFO has indicated that margins have been shrinking for eight quarters with too much working capital and an inefficient cost structure (p.1). The structure of MDCMs operation does not augur well for its efficient operations. The company has done some restructuring and has reduced its staff complement but it still needs to do a strengths, weaknesses, opportunities and threats (SWOT) analysis of its operations in order to see what additional restructuring is required. The Chief Operating Officer (COO) has indicated that because of the inability to forecast MDCM is spending almost three times as much as the company needs to spend on materials because of having to expedite the process in order to satisfy the needs of customers. Production cannot be scheduled properly because of the rush to satisfy the immediate needs of customers. All of this suggest that the company does not have the information that it needs to plan or is not getting the information early enough in order to carry out its operations efficiently. Indeed the COO has indicated that the forecasting is terrible (p. 1). The COO has also pointed that the logistic outsourcer is also a problem which would also imply that the supplies are still not getting to customers on time. MDCM also appears to be more reactive in terms of its operations instead of being proactive. In order to improve its information systems the company has to make the necessary changes to its information technology infrastructure so that both internal and external communication can take place more efficiently and information can be collected expeditiously. The case points to a mismatch of IT systems which do not augur well for the effective operations of any business. For accounting there are several different systems operating different aspects of financial reporting and accounting. It therefore means information is slow in coming and a lot o manual work needs to be done before the full picture can be seen. Sales forecasting, pricing and invoicing is done using fifteen different systems. There is no standard e-mail infrastructure which therefore impacts communication negatively. There also no networking capabilities to access across subsidiaries because of incompatible protocols. There four different database which do not augur well for satisfying the informational needs of the organization. This all point to a set of pitchy patchy systems within the group which do not augur well for decision making in the organization. In order to reduce production and operating cost the company needs to have a centralized purchasing department that makes purchases for all its subsidiaries. By so doing it will be able to obtain better prices based on the volume of its purchases. This will improve the company’s buying power and place it in a relatively much better position than previously. The new CEO has already done some of that. Part 3 The competitive climate in which the company operates can be analyzed using Porters Five Forces model. The five factors as stated by Porter that influences competition in an industry are: the competitive rivalry within an industry, the threat of substitute products, barriers to entry, bargaining power of suppliers, and the bargaining power of customers. Rivalry with the industry is strong on MDCM over the years has survived by various mergers and acquisitions and organic expansion of its operations. MDCMs first major expansion involved the acquisition of a UK based firm in 1987 and by the mid 1990s the company had acquired some 20 more operations outside of the US. However, several foreign competitors entered the market in the mid 1980s with global capabilities that MDCM could not match. This has resulted in the loss the company’s ten largest customers between 1998 and 1999. Threat of substitute products – Although the products supplied by competitors are similar MCDM is renowned for its ability to produce highly customized versions of certain equipment for unique applications. MDCM has managed to increase sales by 11% in 1998, 8% in 1999, 6% in 2000, and 3% in 2001 despite the competition and its various weaknesses. However, this has been at the expense of reductions in gross profit margin. Barriers to entry – This is not very high as several foreign companies were entering the market in the 1980’s and the market was consolidating rapidly. This is was so despite MDCMs dominant position previously. However, the company has not consolidated it worldwide operations and so its acquisitions did not contribute much to setting up barriers which would have been possible if the company had synergized its operations. This would have improved the possibility of MDCM becoming a low cost producer. Instead each of MDCMs subsidiaries were operating autonomously and in some instances competing with each other. Bargaining power of suppliers – MDCM was one of the largest companies in the contract manufacturing and packaging services sector of the medical devices industry; however, the company did not make use of the synergies that it could gain from its mergers and acquisitions and so the bargaining power of its suppliers was relatively strong when it could have been otherwise if there was a centralized purchasing function instead of each company operating autonomously. Bargaining power of customers – MDCMs consolidated customer base gave the company little pricing power. This suggests that the bargaining power of the company’s customers is very strong. With other competitors in the market the customers were faced with more choices and therefore they do not have to purchase products from MDCM if they can get a better deal from another competitor. Additionally, MDCM derived almost 40% of its revenues from eight of its largest accounts which means that the company was highly dependent on those customers for its business. The strong bargaining power of customers in the industry has resulted in a loss of some of MDCMs key customers to its competitors. Part 4 The critical IT objectives of MDCM are not just ensuring that all its systems are properly interfaced locally and regionally but also internationally while ensuring that information relating to demand and prices are received on a timely basis such that the decision making capabilities of the company can be improved. This information would allow the company to make changes to its plans in a timely fashion. The COO has been having a difficult time as he has not been able to plan production effectively. This has resulted in some of the equipment being overworked while some are lying idle. Putting in the necessary informational technology infrastructure would therefore have a positive impact on the operations of the business. The accounting department would be able to produce the necessary information in a timely fashion in order to facilitate the decision making process. This would also result in timely information in relation to cost and will therefore impact positively on the company’s efficiency and lead to improvements in its profit margin as well as its market share. Additionally, if better communication existed between the subsidiaries the sharing of critical information would be possible. Furthermore, an improvement in its IT infrastructure could pave the way for the sharing of pertinent information between the company and its logistics providers. Works Cited Jeffrey, Mark and Norton, Joseph F. (2006). MCDM, Inc. (A): IT Strategy Synchronization. Kellogg School of Management. Read More