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Running head: SERVICE AREA STRUCTURAL ANALYSIS 1
Service Area Structural Analysis
Module 2: Working Exercise
Bianca Huntsman
HA616: Healthcare Strategic Management and Marketing
Dr. Lee Bewley
January 27, 2019
SERVICE AREA STRUCTURAL ANALYSIS 2
Medtronic
Overview
(Ginter, Duncan, & Swayne, 2013)
Porter's Five Forces is a simple but powerful tool for understanding the competitiveness of your business environment, and for identifying your strategy's potential profitability (Mindtools, 2018). Medtronic would benefit greatly from these five forces as it would assist them in understanding the environment that will affect their profitability and use these tools to their advantage. Ginter et al. (2013) describe The Porter Five (5) Forces as -
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat from Substitute Products
SERVICE AREA STRUCTURAL ANALYSIS 3
Rivalry among the existing players. Potential Entrants
Medtronic has to continue to develop state of the art tools to continually compete with competitors out there. The threat of entry for new competitors is high in this industry. Global medical device maker Medtronic has agreed to buy healthcare and medical supplies major Covidien in a cash-and-stock deal valued at close to $43 billion; the buyout is expected to help Medtronic reduce its global tax burden, as it plans to relocate its headquarters from the U.S. to Ireland, where corporate tax rates are considerably lower. It would also give the company lower-
cost access to its $14 billion in cash (Team, 2014). The advantage Medtronic has is the brand recognition within the healthcare industry. By creating products that can be cost efficient would help them be best out there. Consumers want affordable and reliable tools and will continue to go
for the best that can be provided. Medtronic will have to invest in some research to find new ways to make their product the best.
Power of Suppliers
Powerful suppliers in Healthcare sector use their negotiating power to extract higher prices from the firms in Medical Appliances & Equipment field (Owler, 2019). Bargaining with suppliers is key to developing a product that is beneficial and affordable to the consumer while Medtronic continues to gain profits. Medtronic relies on raw material to develop their products; therefore, Medtronic has the advantage with dealing with a multitude of suppliers. One of the lessons Medtronic plc can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where
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SERVICE AREA STRUCTURAL ANALYSIS 4
these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike (CSI Market, 2019). Creating a strong network and multiple resources gives them the ability to bargain the best prices and quality material. Power of Buyers
Medtronic is in a great position due to their high demand of specialized devices, creating a high demand, and threat of the buyer low. This creates power as the company controls the buyer by also being a trusted brand. The smaller and more powerful the customer base is of Medtronic plc the higher the bargaining power of the customers and higher their ability to seek increasing discounts and offers (Owler, 2019). The more Medtronic develops new product the less the buyer has power. Medtronic should aim to continue to change the game so that they buyer keeps coming back for the latest and greatest. The lifestyle of fast food and unhealthy choices creates an environment dependent on these devices Medtronic develops. Threat of Substitution
The threat of substitution from other companies is a huge threat to Medtronic and their profitability. Medtronic should aim to serve their consumers with the absolute best so that they look at them as their number one. If another company can make an alternative that is cheaper and
more effective, then Medtronic could greatly suffer. This goes back to research and ensuring the success of their product and ensure quality in their name. Medtronic serviceability should be aim to serve their customers and understand what they truly need. Medtronic could mitigate the threat
of substitution by increasing the switching costs of customers, this could be achieved through data collection and incorporating different products and services to consumers. Rivalry
SERVICE AREA STRUCTURAL ANALYSIS 5
Medtronic has a vast pool of competitors, therefore has to rely on research and delivery to
stay relevant. Medtronic has the advantage to have a large market presence as it purchases smaller companies. Medtronic remains large and is one of the top competitive Medical Appliances & Equipment organization.
Key competitors
Boston Scientific, Bard, Abbott, and K2M are top five competitors to Medtronic
Owler (2019) has identified the following key strengths and weakness:
Strength
:
Fast industry growth with less competition
Strong brand name and ability leverage technology
Strong supply chain
Economies of scales due to large scale operations
Weakness:
Lack of stability in performance
Relationship with suppliers and other partners
Weak numbers across gross margin, operating margin and net margin compared to industry averages
Strategic Group
The diagram below is a snapshot of Medtronic’s Diabetes Group strategy and strategic requirements for its diabetes business until fiscal 2022 (Market Realist, 2017). The main advantage that Medtronic has established is its world wide operation. They have developed closed loop insulin, a dosage system for type 1 diabetes. Additionally, aims to increase its presence in value-based healthcare programs and become a dominant force in predictive and
SERVICE AREA STRUCTURAL ANALYSIS 6
interactive diagnostics by the end of fiscal 2022 (Market Realist, 2017). These innovations have put Medtronic at a competitive advantage.
(Market Realist, 2017)
Findings
Medtronic goals, vision, and mission statement states they want to have growth in product lifecycle (Medtronic MiniMed., 2019). After conducting the 5 step Service Analysis Medtronic can implement the above strategic goals. Utilizing Porters 5 step Service Analysis the identification of high and low threats and identifying ways of mitigation we now understand what impacts Medtronic. This analysis has been able to point out trends and opportunity as well enhance their profitability.
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SERVICE AREA STRUCTURAL ANALYSIS 7
References
CSI Market. (2019). Medtronic Plc's vs. its Suppliers Results. Retrieved from https://csimarket.com/stocks/competition2.php?supply&code=MDT Ginter, P. M., Duncan, W. J., & Swayne, L. E. (2013). Strategic management of health care organizations
. San Francisco, CA: John Wiley et Sons/Jossey-Bass
Market Realist. (2017). What's Medtronic's Long-Term Growth Strategy for Its Diabetes Business? Retrieved from https://marketrealist.com/2017/09/medtronic-formulated-
robust-long-term-growth-strategy-diabetes-business Medtronic MiniMed. (2019). Transforming Diabetes Care Together, For Greater Freedom And Better Health. Retrieved from https://www.medtronicdiabetes.com/about-medtronic-i
nnovation/what-sets-us-apart Mindtools. (2018). Porter's Five Forces Understanding Competitive Forces to Maximize Profitability. Retrieved from https://www.mindtools.com/pages/article/newTMC_08.htm Owler. (2019). Medtronic Competitors, Revenue and Employees - Owler Company Profile. Retrieved from https://www.owler.com/company/medtronic Team, T. (2014, June 16). Medtronic's $43 Billion Covidien Buyout Is More Than Just A Tax Saving Deal. Retrieved from https://www.forbes.com/sites/greatspeculations/2014/06/16/medtronics-43-billion-
covidien-buyout-is-more-than-just-a-tax-saving-deal/#3456a9f274da