MDCM's Corporate Strategy - Case Study Example

The MDCM (A) Case Table of Contents Table of Contents 2 Introduction 3 What Is Corporate Strategy? 3 What Are Objectives? 3 Overview of the Company 4Strategic Goals of the Company 5 Competitive Environment of the Firm 6 IT objectives for MDCM 7 Conclusion 9 References 10 Bibliography 11 Introduction What Is Corporate Strategy? Corporate strategy refers to the major organizational plans of an organization. Corporate strategies involve a set of key decisions that are used to achieve certain business objectives. They are formulated by the manager in context with the organization’s environment. Strategic management involves achieving the best fit between the competencies and the resources of an organization and a balance between the organization and its external environment. In the words of Eric D. Beinhocker, “Strategy has traditionally been a high stakes game that starts when a management team develops a vision of the company’s future environment. The team then makes big, hard to reverse decisions about where the company will focus its energies, its capital and its people. Finally the team hopes and prays that its vision is correct” (Dransfield, R., “Corporate Strategy Studies In Economics and Business”). What Are Objectives? The desired results that an organization wishes to achieve are known as objectives. Strategic objectives generally arise from the mission statement. Managers should ensure the following while formulating objectives: Objectives should be result oriented rather than activity oriented. Objectives should always be quantified. Result oriented objectives are specific in terms of what the company wishes to achieve. Example of such an objective would be 10% increase in sales. This kind of objective is clear and employees are motivated further by such objectives. The companies should not set too many objectives. It should set few and clear objectives. Every objective should have a single theme or a central idea (Kachru, U., “Strategic Management”). Overview of the Company MDCM specializes in medical device contract manufacturing. The US based company has 19 foreign subsidiaries and is located in 35 cities. The company has been suffering repeated losses. In the second quarter of 2002, the firm had suffered $33 million losses and revenues of $1.12 billion. This was a major concern for Max Mullen, the CEO of the company. The company has not been able to bring about improvements in operations and cost in spite of its reorganization efforts. The CFO, Sharon Leis pointed out that they would have to go for further cost cutting. He also pointed out about delays in receiving information. The vice president of marketing and sales, Pat Perry stated that his sales and marketing staff could do much better if they received the right information at the right time. The COO, Michael Shed stated that he could schedule the production properly as he had to rush in order to meet the customer’s orders. In view of the existing problems at MDCM it has become necessary to implement an IT strategy aligned with the corporate strategy. The company has always stressed on the success of the customers who use the device that is manufactured by them. They maintain close association with their customers. This had helped them to achieve great growth. The company had made several major acquisitions and had assumed that it would improve their operations. The acquired companies were given autonomy. However, the company realized later that it would not gain synergy from its acquisitions if it brought changes in its mode of operations and the organizational structure. There were major problems that could be attributed to poor coordination and lack of information. In 2000, the new CEO, McMullen and his team introduced a reorganization effort by the name of “Horizon 2000”. All the subsidiaries shared the same brand and each was responsible for its local customers. Each customer’s accounts were supervised by a sales manager. Materials purchasing was aggregated and suppliers were reduced. Inbound and outbound logistics of the company were outsourced. The production facilities were reorganized and older facilities were closed. The company reduced its number of employees. In the changed environment, after implementing “Horizon2000” an efficient IT system had to be put in place. The CIO Atkins realized severe flaws in the IT system of the organization. He comprehended that the need of the hour was to implement an appropriate IT strategy. Strategic Goals of the Company The company needs to implement certain strategic goals. Primary goal of MDCM at this stage is the implementation of an appropriate IT strategy in conjunction with the corporate strategy of the company. This strategy has to be implemented keeping in mind the investment decisions, planning and the future projects. The company plans to achieve cost efficiency, improve its profit margins and reduce the number of suppliers. The company plans downsizing in terms of reducing its employees. Competitive Environment of the Firm The business environment of a firm is described in terms of its mega environment and micro environment. The mega environment is a broader environment. The elements that constitute the company’s mega environment are the political, legal, socio cultural and economic environment. The micro environment deals with the factors within the industry that influence the company’s functioning. This can be explained by Porters’ Five Forces Model. In the following way: Threat of New Entrants: MDCM earlier had occupied a dominant position in the market. Foreign competitors gradually entered the US market and the company had to face tough competition. The competencies of the organization could not match up to the standards of the foreign players. The industry is open to the entry of new players and MDCM’s shortcomings are making it easier for new entrants to enter. The company had lost four of its prominent customers to its competitors because it was unable to provide them attractive price. The company has to reduce its internal cost so that it is in a position to offer attractive prices to its customers. Power of Buyers: The consolidated customer base of MCDM gives it very little pricing power. Power of Suppliers: MDCM does have proper coordination with many of its suppliers. The number of suppliers has to be reduced. A company audit had revealed that MDCM was buying the same parts and materials from many different suppliers. The suppliers might take opportunity of this shortcoming. Intensity of Rivalry: There is immense competition in this industry. MDCM has several competitors. If it does not improve its operations then it would not be able to compete with its competitors. Product substitutes: MDCM does not have the fear of substitute products. It is in the business of contract manufacturing of medical devices. There are no substitutes for such products. IT objectives for MDCM When Atkins took over as the CIO of MDCM, he discovered serious flaws in the existing IT system. The corporate IT while formulating the IT budget had not taken into consideration the future projects, long term planning and the investment decisions. There were many overlapping and contradictory projects. 80% of the IT budget was spent on maintenance. There were gaps in the information flow between suppliers, logistics and the various departments. The problems in the IT of the company should be tackled by establishing certain IT objectives. A single and uniform legacy system has to be established for handling the financials of the organization. A single legacy system has to be established for the Human Resources Department all across its various subsidiaries. The existing 15 customs legacy system for handling sales forecast, pricing and invoicing have to be reduced. The legacy systems for logistics and transportation; and the different custom systems for duty and custom inspection also have to be reduced. A standard infrastructure for emails has to be established. The protocols should be made compatible so that better coordination is possible across subsidiaries. A complete renovation of the IT department and a smooth implementation of the IT strategy are required. The company has to work on its IT infrastructure. It should be ensured that proper information flow takes place across the various departments so that crucial decisions can be taken at the right time. Conclusion MDCM was a leader in the services industry but an inappropriate IT system had affected its profit margins. It has lost its market share and is facing tough competition from its competitors. The company needs to bring about homogenization in the operations across its various subsidiaries and departments. The company has to improve on its IT capability and infrastructure. References Kachru, Upendra. Strategic Management Excel Books, 2005. Dransfield, Robert. Corporate Strategy Studies in Economics and Business Heinemann. 2001. Bibliography Jeffery, Mark & Norton, Joseph F. MDCM, Inc. (A): IT Strategy Synchronization. Kellogg School of Management, 2006. Walker. Marketing Strategy: A Decision Focused Approach Tata McGraw-Hill. 2006. Read More