Medtronic is a multinational organization that specializes in the production of different medical devices. The company has different Strategic Business Units (SBU) that are also known as departments. The departments are divided depending on the roles being played, and these are what that determines that amount of finances that will be invested in the department. The reason is that the different roles earn profits or positively contribute to the company at different rates. It is for this reason that the company recently conducted a BCG Matrix to evaluate the company’s market potential and the rate of medical devices market growth. During the evaluation, the company focused on two of its most important Strategic Business Units (SBU), and they are the manufacturing department and research and development unit.
At Medtronics, the manufacturing/production department is the business unit that holds all the medical devices production lines which are over 30 lines. On the other hand, the research and development unit is the section that plays of conducting a market search to be able to know the products to manufacture, how to design them depending with the market needs, and any other detail that would help all the other departments. The manufacturing unit is the high cash generating section of the business as compared to R&D and the finances obtained from the production can be used to promote R&D to improve its profitability levels of contribution to the business.
Medtronics products are in the growth stage of development. This is the case because the products have started to receive massive recognition in the market after the healthcare industry around the world has embraced advanced technology. The products have the highest advanced technology, and the products have high ability to detect errors as well as promote fast and efficient services. The devices are developed and manufactured for physicians to treat over 30 chronic ailments including; urinary incontinence, chronic pain, diabetes, spinal disorders, heart failure, and down syndrome among many others. Because of the growth that the company is recording, different outlets are being established in different countries around the world. However, due to changing technologies around the world, the company expects even to design and manufacture more and better products.
Competitive Forces Analysis
The global healthcare industry has expanded massively due to increasing demand for products and services in this sector. It is a reality that the world medical researcher are still identifying new chronic ailments and this has made the industry to require a high number of people to come up with new products and services that will help in the treatment and prevention of these diseases. Medtronics is one of these companies that have focused on the production of chronic diseases treatment devices. However, Medtronics is not the only company in the industry as many other companies offer Medtronics direct competition (Maresova et al., 2015). These direct competitors include; Johnson and Johnson, Boston Scientific Corporation, and St. Jude Medical LLC among many others. Nevertheless, the demand for medical devices is still high and more and more companies are being established and joining the industry hence making it highly competitive.
Porter’s Five Forces
· The Threat of New Entrants: The threat of new entrants in the medical devices production industry is continuously increasing. In the early days, only a few businesses had been able to invest in the industry and come up with devices that could be acceptable in the market. It is for this reason that companies like Medtronics and Johnson and Johnson have been able to dominate the market. However, with the increasing rate of advanced technology evolution, the art of designing and manufacturing high-quality medical devices is becoming familiar to many people hence increasing the threat of new entrants.
· Bargaining Power of Buyers: due to the high demand for medical devices and the fact that the company only specializes in chronic disease testing devices makes the company unique. This is something that has made the company to have power and control over buyers and buyers bargaining power hence being extremely low and to some extent nil. According to Rothaermel, (2015); this is the case because even the new entrants that are joining the industry have not been able to manufacture products that are as quality, efficient, and effective as those of Medtronics and hence clients do not have many choices but to purchase Medtronics products.
· Bargaining Power of Suppliers: the power of supplier at the Medtronic Company is relatively high. The reason is that all the medical devices being designed and manufactured by the company relies on raw materials being supplied by the suppliers. However, to control the impact and influence of suppliers, the company has ensured that it deals with diverse suppliers. The realization that competition is high by suppliers has made suppliers to be effective regarding supplying quality raw materials, at fair prices, and also promptly.
· The Threat of Substitutes: The threat of substitute is starting to take shape in the medical devices production industry. Many new entrants that are joining the industry are manufacturing substitutes. The reason is that designing and manufacturing quality medical devices like those of Medtronics is expensive and many investors cannot afford. Hence, many companies are entering the market where they are designing and manufacturing medical devices that are cheap and low quality only to substitute Medtronics medical devices.
· Competitive Rivalry: competition rivalry is not stiff in the medical devices production industry. The reason is that in the present times, physicals and medical facilities are only searching and dealing with companies that are manufacturing high-quality devices because of the high levels of accuracy and efficiency being demanded by the healthcare industry. As a matter of reality, a majority of companies in the industry are striving to learn and gain information from renowned companies like Medtronics which have already dominated the market to gain the expertise necessary for the production of high-quality products.
Competitive Profile Analysis
Medtronics Company is one of the medical devices producing company that occupies the largest market share. There are also other close competing brands like Johnson and Johnson as well as St. Jude Medical LLC. All the three companies can be said to be supplying 80% of the world’s medical devices. To be able to understand the three companies’ levels of competence, the various success factors were considered, and an evaluation was conducted to determine the main factors that could have contributed to the great success at Medtronics and close competing brands (Kramer et al., 2013). From the competitive profile matrix that was carried out, it was found out that the following success factors are the reason behind three competing companies success; advertisement, customer service, brand value, economic profit, customer loyalty, and quality.
The two SBU’s plays an important part and have collaboratively worked together to make sure that these success factors are achieved. The production department ensures that the products being manufactured are of high-quality and steadily manufactured. With high-quality products, it has been possible for the company to establish and maintain a good brand value. On the other hand, the R&D unit has ensured that adequate research is being done on the best advertising strategies that will be able to create the desired brand image as well as identify the best customer services. All these considerations after evaluation pointed to one great achievement which is customer satisfaction and loyalty.
Competitors Ratios Analysis
Medtronics and Johnson and Johnson have proved to be almost in the same level of operation and financial capability. However, Medtronics can be said to be doing better especially on products availability and accessibility in the market. According to the analysis carried out, Medtronics has occupied 27% of the market share, Johnson and Johnson have occupied 25% and St. Jude Medical LLC, has occupied 18%. The St. Jude Medical LLC has a high amount of expenses as compared to Medtronics and Johnson and Johnson (Kramer et al., 2013). The high expense can be said to have been as a result of lower sales that the company records as compared to these other two brands as well as a high loan facility that the company continues to pay back. However, all the companies are striving to make their equities valuable where Medtronic shares stand at $30, Johnson and Johnson shares stands at 25, and St. Jude stands at $12.
Different strategies exist that can help companies to record growth especially for companies like Medtronics that is in its growth stage of a product lifecycle. According to the company’s goals, vision, and mission statement, the company is focused on making tremendous growth. It is for this reason that the company focuses on identifying potential stars to invest in and making as high levels of milking from the cash cows available as possible. Due to this reality, the only available growth alternative strategy for the company is the expansion strategy. The expansion strategy can be employed by Medtronic Company to help determine other ways to break into other markets and raise their strategic competitive advantage. Medtronic can utilize expansion to help increase growth and mitigate a rapid decline by not expanding and adapting to the market demand and growing market share and using resources. Some advantages of expansion: R&D can be enhanced within the organization, opportunity to improve innovative ideas and diversify products and also economies of scale. These benefits are enormous and can help the Medtronics Company to record tremendous growth and even move from the growth stage to maturity stage where then the company can seek a stability strategy to avoid the products from getting to the decline stage. This way, the company can be able to remain dominant in the market for long, venture into the most potential markets available and earn as high profits as possible. There are also possible disadvantages of this strategy. They include; the approach requires massive capital investment, high levels of outsourcing which can also be relatively costly.
Kramer, D. B., Tan, Y. T., Sato, C., & Kesselheim, A. S. (2013). Postmarket surveillance of medical devices: a comparison of strategies in the US, EU, Japan, and China. PLoS medicine, 10(9), e1001519.
Maresova, P., Penhaker, M., Selamat, A., & Kuca, K. (2015). The potential of medical device industry in technological and economical context. Therapeutics and clinical risk management, 11, 1505.
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.