Zimmer Holdings - Case Study Example

Zimmer Holdings: Case Study The aspect of innovation in making life of orthopedics much better as illustrated was only achievedthrough innovations by Company’s such as Zimmer. Before technological innovation was embraced in the field of orthopedics, life was more difficult for such patients, with amputations being the only option to solve joint problems, particularly involving hands or legs, and was done in extreme cases (Bickel, 3). However, it was through innovations and improved technologies that the entry of companies such as Zimmer in orthopedics changed lives not only for patients in making amputation unnecessary and replacement of joints possible, but was a relief to health insurers such as Medicaid and health practitioners; they were able to handle such cases with much ease, at lower costs and resulted to much less suffering in the patient. It was in the 90s that the leading companies in orthopedics realigned in a competitive market, which led to massive mergers and acquisitions of other device makers that a new trend in orthopedics was designed. Companies in this period vehemently searched for smaller companies to acquire to improve their product lines, improve innovations through technologies, increase market penetration, and reduce complexity of managing rapidly growing companies, especially in spinning off major business lines by large pharmaceutical companies to reduce the size of their enterprises (Bickel, 3). As explained earlier, it was innovativeness through research and development that many companies such as Zimmer managed to venture rapidly in the market, while strategically making acquisitions to strengthen their footing in the global market. For example, through such innovativeness Zimmer became the pioneer of initiating a bloodless and less painful surgery operation, resulting in reduced trauma in a patient’s body tissues; such innovations opened another new page in orthopedics, a window that introduced the company to stiff competition. The strength of the company was concentrating more on research and development, to come up with new products increased its competitiveness. In addition to innovations, marketing activities were critical in defining a company’s presence in any particular market. However, in this marketing approach there were unfair trends in selling of orthopedic products to hospitals. Instead of manufacturers dealing directly with major hospitals, distributors were largely used to acquire such products. The problem was that surgeons and other medics could take advantage of such distribution channels, where distributors could establish close and strong relationships with particular surgeon, which ensured surgeons and distributors formed a monopoly set up, where all the orthopedic products had to be sourced from such a distributor; some distributors had exclusive rights to distribute such products to specific hospitals. This was a deliberate way of attaining selfish ends as the exclusive rights were not given based on competiveness factors such as low cost or high quality, but distributes were using surgeons to achieve such ends. To ensure fairness and professionalism, hospitals were supposed to deal with the manufacturer directly to avoid any cases of fraud due to hidden dealings between a few individuals. For Zimmer holdings, its strategy as explained earlier was aggressive acquisitions to capitalize and capture new markets, and recruiting a team of distinguished professionals as executives, who were able to steer such acquisitions and ensured the company maintained its market share. Sam Leno and Raymond Elliott were particularly the nerve behind the success and growth of Zimmer holdings. These were two individuals of high caliber professionalism, skills and knowledge upon which the company was steered to great heights. Power of acquisition and mergers in controlling the global market was observed in the 1989 merger of Bristol-Myers with Squibb, which propelled the new company to be among the top 10 global pharmaceutical companies in 1989 (Bickel, 5). The experience and skills of Leno and Raymond, two executives who matched perfectly and behind the great success in Zimmer, were tested in the proposed acquisition of Sulzer Corporation, a leading company in medical technologies from Switzerland. This was an ambitious plan as Suzler Medica was one of the oldest companies in Switzerland, was performing greatly and even quoted in public stocks, and had even acquired an American company, Spine Tech to explore the U.S market. Differentiation and market focus were the main competitive strengths of most orthopedic companies as the high technology involved acquired a smaller, focused and specialized line of production, which made many companies to spin off some part of business to have more focus on a line that seemed more profitable and of greater interests. An example is the spinning of electrophysiology business by Sulzer Medica to focus on orthobiologics, similar to Zimmer. The sensitivity and the high risks involved in this business was observed when SM got into troubles after working designs in inter- Op acetabula shell and tibil knee replacement led to loosening which necessitated more surgeries in patients to rectify the problem (Bickel, 7). The troubles in SM presented Zimmer the best chance to make an acquisition attempt of such viable company with a large market command in Switzerland and he U.S. After suffering heavy losses due to the settlements totaling to at $ 1.1 billion dollars, Suzler had no option but to spin of SM in 2001 as an independent company in the market, presenting Zimmer with an ideal opportunity to make the catch. The high interests generated by SM made companies such as Incentive to attempt a hostile takeover which failed. Incentive capital had a higher advantage as the CEO of Incentive shares had direct interests in SM, and held the largest individual shareholding in Centerpulse, and incentive capital had an 18.9% share in SM. Again in this case, the issue of surgeon relationships in controlling market dynamics was the main drive behind Zimmer’s interests in Centerpulse, previously named SM. The company had also respected brands in spine and dental market. The acquisition of Centerpulse would have been strategic in leading to control of the Japan, European, and American market in reconstructive surgery, which was Zimmer’s dream. However, there was still a high stake in Centerpulse as another formidable entrant, Stephen and Nephew worked behind the scenes towards acquiring Centerpulse through a merger, and the deal approved by the two boards, which would have propelled the merger to the third position in orthopedics industry, a lucrative position that S & N was determined to capture. This was a backstage agreement and Zimmer was shocked to learn about the new deal. The deal between S & N and Centerpulse was a merger where S &N where S & N had promised to retain most of Centerpulse management. To Centerpulse this was a better option as the company would not lose its identity in S &N, but its top managers were to continue to serve in the same capacity. However, with Zimmer acquisition meant S &N being part of Zimmer and being absorbed and restructured according to Zimmer’s discretion, which could have been un attractive option that made S & N the better option to Zimmer,. Zimmer in this case could have adopted the same approach. Therefore, Zimnmer was in a dilemma considering a hostile takeover or mounting a tender and pleasing the shareholders of Centerpulse. who previously had viewed Zimmer in a negative light compared to S &N. Zimmer’s weakness in the entire process was that the company aimed at changing the management and structure of Centerpulse after its acquisition, which made the employees, stakeholders, and other interested parties to oppose its bid in favor of S &N, which had more accommodating merger that ensured all the management would retain their status. Therefore, for Zimmer to have acquired Centerpulse with much ease, they could have promised a merger where all stakeholders would be considered and then introduce the issue of restructuring with time. Acquisition approach as favored by Zimmer was best for companies with a troubled presence, which need both capital and management to revive its operation, and not such high performing company as Centerpulse that had impressive performance in the market, and event attracted much attention. A merger could therefore have worked properly for Zimmer and not acquisition. Work Cited Bickel Mark. Zimmer Holdings: Acquisition of Centerpulse Switzerland, Richard Ivey School of Business, Ivey Management Services, 2007. Read More