External and Internal Environmental Analysis on Medtronic's - Essay Example

? External and Internal Environmental Analysis on Medtronic's EXTERNAL AND INTERNAL ENVIRONMENTAL ANALYSIS ON MEDTRONIC'S Background Medtronic is headquartered in Minneapolis and was founded in the year 1949. It is an international supplier of technological medical devices with total sales in 2011 totaling $5 billion (Medtronic, 2013). The company employs 25,000 employees. Despite the company being successful, it has been required to perform strategic analysis to keep up its competitive advantage and avoid its going stale. The health care sector is one of the most competitive in the world and some of its competitors include Beckman Coulter, Guidant Corporation, Baxter International, Arrow International, and Johnson & Johnson. The firm’s ability to operate has been influenced by such events as marketable securities regulation, demographics, technology, and liability laws (Medtronic, 2013). Therefore, Medtronic has found it necessary to interpret the changes, as well as adjust to them. External Environment The Health Care Environment The most important external environmental factor for Medtronic is government regulation. It is mandatory to comply with their regulations, and the government is involved in setting the quality standards and liability laws. The government in the US has increasingly become involved in health care since the creation of Medicaid and Medicaid in the 60s (Medtronic, 2013). Their implementation started a trend of increased medical spending with Medicare expanding the reimbursement for cardiac defibrillators. This has caused the system to move to a strategy of predict and manage from one of diagnose and treat under initiatives for health care expenditure control. Fortunately for the organization, there seems to have been little accomplishment with chronic diseases like diabetes and obesity increasing, whereas an aging population has ensured that there is a steady demand for their products like defibrillators and vascular tents, which Medtronic and their competitors manufacture (Medtronic, 2013). Because of the government’s immense power, there is an active attempt to influence it with the American Medical Association having been the most powerful, although this is no longer the case (Medtronic, 2013). The entire health care system has come to be defined by special interests. The government also heavily regulates facility providers with some of Medtronic’s competitors closing down due to decreased profits. Because of this, health care facility organizations have been lobbying for improved reimbursement, as well as reimbursement of new research protocols and technology. Medtronic stands to benefit from both of them. In addition, Medtronic is also affected by accrediting bodies. They may have the ability to add facility management value through facilitation and demonstration of quality improvement (Medtronic, 2013). Managed care organizations and 3rd party payer organizations also have lobbying groups that all seek to lower prices offered by Medtronic. Internal Strengths and Weaknesses The greatest strength that Medtronic has historically possessed is strong leadership. The current CEO has been at the organization for 20 years with the average tenure of board members being ten years (The Associated Press, 2013). Medtronic has used this core of committed leaders to sustain industry leadership as the organization has navigated the ever-changing technological world, coupled to constrained health care budgets. Underlying strength for the company is a futuristic business plan that has been born out of a well-established and strong team of leaders. In addition, the company has accomplished the task through other strengths like disciplined approaches to marketing, as well as R&D. Through maintenance of a keen awareness of trends in healthcare and biotechnology, the company has capitalized on R&D from smaller firms via mergers and acquisitions. The company has also been able to establish a recognized brand name, which is essential since health providers normally utilize equipment initially used in their training before moving to a private practice (The Associated Press, 2013). Medtronic, therefore, has been able to utilize this as strength by relying on provider loyalty and maintaining presence in the industry. On the other hand, their greatest weakness is reliance on acquisitions instead of R&D. With the company’s maturity coupled to tighter health care budgets, this will weaken the company’s financial standing since they attain an unacceptable debt to equity ratio (The Associated Press, 2013). The company also has aging assets that compound R&D’s financial impact. In order to regenerate the assets, this will force the firm to increase long-term debt. The long-serving leadership team can also act as a weakness, especially because there is no new blood coming into the company’s board. In addition, as the company continues to expand globally, its long-standing attachment to Minneapolis should be a cause for concern (The Associated Press, 2013). It is time consuming to get to the remote location, on top of being costly. Medtronic’s Competitor Analysis The biotechnology sector is among the most competitive and fastest growing markets internationally. Over the last thirty years, the industry landscape has dramatically changed. For example from fifteen pacemaker companies between the mid-60s to the late 80s, there are now only five with Medtronic holding 50% market share, Siemens holding 23%, 11% held by Sulzer Intermedics, and 8% held by Guidant & Biotronik (Ginter, 2013). Since there is heavy protection by patent law, there is a retardation of competition, which significantly lowers the intensity of rivalry with competitors, especially because Medtronic is a big innovator and patents its technologies early. Smaller companies, which are less financially sound, find it difficult to keep up, especially because of the legal arbitration. The latter is especially fierce with Medtronic finding itself as a defendant in legal proceedings from rivals (Ginter, 2013). However, the threat from substitute products is high since products are rendered obsolete due to changing treatment protocols. Medtronic deals with this by aiming to be the best in the sector with five product generations, under development at any time (Ginter, 2013). To fight this threat, the company buys startup companies to diversify product lines according to the needs of patients and innovations. However, generics always find their way into the market to compete with the Medtronic brand name after the expiration of patent restrictions, which forces Medtronic to stay, at the top of the game, to fight off this competition (Ginter, 2013). Structure of the Organization Medtronic possesses a well-qualified and dynamic management team with a president who has been around for two decades. The rest of management has served for an average of ten years. Medtronic’s management strives towards the acquisition or development of new product lines (Ginter, 2013). The evidence of the leadership strength is in the team’s tenure that has bred stability, over fifteen years of stock growth, and consistent evolution along the trends in the industry. Medtronic also employs 28,000 employees from various educational, technical, and professional levels. They have a diverse workforce and a highly developed HR plan, coupled to a lengthy code of conduct, as well as a tuition assistance plan of up to five thousand dollars for every employee. This saw the company’s employees scoring highly in a survey on mission support and value support. Medtronic has evolved into a global leader in their sector, which has been facilitated by state of the art communication systems and information management. The long lines of communication and organizational relationships have been supported by information systems that are cost effective like information processing systems and databases (Ginter, 2013). Conclusion Medtronic has done a good job in gaining a competitive advantage, although they need to do more in value addition. They must exploit current changes in their external environment, such as expansion of defibrillator reimbursement under Medicare, as well as support for portable defibrillators. Medtronic must also maintain its support structure, its service delivery network, and reinforce its values, mission, and vision to employees, especially after the economic recession. References Ginter, Peter. (2013). Strategic management of health care organizations (4th ed.). Malden, MA: Blackwell. Medtronic. (2013, January): Medtronic today. Retrieved July 2, 2013, from www.medtronic.com Medtronic. (2012). When Life Depends on Medical Technology. About Medtronic. Retrieved July 2, 2012, from www.medtronic.com The Associated Press. (2009). Medtronic, Microsoft, and IBM work together on Internet patient. Retrieved July 2, 2013, from www.unb.ca/bruns/9900/issue16/sciencetech/worktogether.html Read More