Fisher and Paykel Healthcare: Just add Water - Case Study Example

Fisher and Paykel Healthcare: Just add Water Case Analysis Insert Name Course Instructor 01 November 2012 Executive Summary Fisher and Paykel Healthcare: Just add Water (FPH) is a global company that has established itself as a strong market player in the sale of healthcare products. The company’s CEO, Michael Danielle has identified growth opportunities for the company, but the way to go about exploiting opportunities remains unavailable. Therefore, the report analyses business environment of FPH and proposes the strategies that can be implemented. The business analysis shows that opportunities in local markets and foreign markets are prospective. FPH is found to have critical resources and capabilities such as patent rights, strong organizational management culture, and innovative technology. The company can therefore use these resources and capabilities to progress. In order to realize its market growth objectives, FPH has to develop and implement a business-level strategy, which is an integrated market growth approach. The approach ensures the company’s critical areas realize growth and improvement. Moreover, the growth strategy has to incorporate effective marketing strategy and pricing strategy, as well as, innovative product development, which have been found to be necessary for FPH’s take-off in its strategic planning. The rest of the paper is arranged in sub-sections and conclusion is provided that summarizes key aspects of the report. Table of Contents Table of Contents 2 Introduction 3 The company 3 Macro-environment analysis 4 Attractiveness of the industry 5 Competitive analysis 6 Internal analysis 6 Strategic analysis 7 Summary of business environment 8 Prospective strategies for the future 9 Conclusion 12 References 13 Appendix 15 Introduction Fisher and Paykel Healthcare: Just add Water (FPH) is a New Zealand business that was established in 1934. Since its establishment, the company has become a powerful global player that specializes in making diverse range of appliances in the health sector. The company remains optimistic that growth should be its platform of operation in the world and in the medical equipment sector. In 2006, Michael Danielle, Fisher and Paykel Healthcare: Just add Water CEO, surveyed the competitive landscape and established that there were more opportunities the company can exploit in the market. For instance, new applications for humidification beyond their intensive care stronghold were developing all the time. Also, the obstructive sleep apnoea (OSA) indicated chances of growth in future given the massive awareness campaigns being conducted. While this remains relevant in the minds of the CEO, the biggest question that remains unresolved is how and which proper ways to initiate in order to realise growth. Therefore, the case analysis details the current business environment that Fisher and Paykel Healthcare: Just add Water is exposed to, and the visible future potentials. Drawing from the findings, the cases analysis evaluates the strategic decisions or pathways the company needs to undertake. The company Fisher and Paykel Healthcare: Just add Water CEO, Michael Danielle, observes that growth strategy for the company is inevitable, but the way to do it is what remains challenging and confusing. Fisher and Paykel Healthcare: Just add Water prospects for growth are manifested by increasing financial growth of the company in terms of profits, where in 2006; it grew by about 17.2%. Also, the market opportunities OSA are prospective, with future growth trends linked to increasing population of aging people, health awareness campaigns, and more patients seeking healthcare products. Therefore, as a company that has future growth prospects as well as desires for competitive advantage, Fisher and Paykel Healthcare: Just add Water has no better alternative than conducting strategic assessment of the wider business environment it operates in so as to identify the opportunities available and how to exploit such opportunities. Subsequent sections are therefore used to presents summary of analysis of the business environment Fisher and Paykel Healthcare: Just add Water operates in. Macro-environment analysis Macro environmental analysis involves studying about and understanding external and wider outside business environment a business operates in (Muller, 2009). The process in most cases is facilitated by the use of analytical tool known as PESTEL (Gorgenlander, 2011). PESTEL Analysis involves making strategic decisions based on evaluating external business environment in order to identify and evaluate critical factors that affect or influence operation of business activities (Gorgenlander, 2011). PESTEL is acronym for Political, Economical, Socio-cultural, Technological, Environmental, and Legal factors (Williams & Green, 1997). These aspects are important for any business organisation with a vision establishing and implementing a successful strategic plan. Also, these external factors usually affect the performance of a company and planning process, and are not within the control of a company. Analysis of the macro-environment of Paykel Healthcare: Just add Water shows that operations of the company across the countries it has established presence are not threatened by political instability such as violence or wars. As a result, the confidence of the company in international market remains intact. Bureaucratic systems of Medicare, Medicaid, Health Insurance, and regulatory regime of FDA in USA tend to have impact on the growth strategy of the company in the market, especially when it is considered that USA is one of the largest markets for the company. On overall, prospects of the company regarding the macro-environment are reflected in the political-legal barriers that are reducing in many countries, hence giving the FPH opportunity to expand its market base internationally. Besides, the regulatory regimes across countries is becoming flexible, changes in global demographic aspects, especially in western industrialised world are being realized, and emerging new markets in different countries in Europe, Asia, North America, and Latin America. The essence is that the wider macro-environment for FPH looks bright with more opportunities as compared to threats. Attractiveness of the industry Attractiveness of the industry is established through the use of Porter’s Five Forces Analysis (Henry, 2008). This is an analytical tool that can be used to measure and evaluate the attractiveness of the whole industry so that an organization can develop strategic plans and opportunities that resonates to the industry positively. Results of the analysis of industry attractiveness show that FPH enjoys near control of market in the humidifier technology arena, a situation that lowers bargaining power of suppliers in this area. Power of buyers is more pronounced in the OSA market, barriers of entry remain relatively high in terms of capital and other resources. Power of buyers is normally pronounced in markets with many competitors as compared to markets with fewer competitors (Ahlstrom & Bruton 2009). Therefore, threats are minimal from new entrants. In summary, the attractiveness of industry for FPH shows that the industry is promising especially with changes in demographic aspects across countries, health awareness programs are responsible for increasing markets for OSA products, competitive is determined on the front of technological race and pricing strategy in which FPH is an active leader, competition is not fierce, and the strong entry barriers can be used to present to market more innovative products without fear of backlash from competitors. Competitive analysis Analysis of FPH competitors shows that the company demonstrates both strengths and weaknesses with regard to its competitors in the environment (Pahl & Richter, 2009). For stance, the company remains vulnerable to the two major OSA market players: Respironics and ResMed, which control 40% of the market. Subsequently, FPH controls only 8% of the total market, while other smaller players share the remaining percentage of market share. Therefore, although FPH remains technological innovator, it faces stiff market competition in the OSA market, a situation that requires redress. Moreover, the competitors: Respironics and ResMed have strong financial power as compared to FPH, which gives the competitors unique strength, especially when it comes to marketing, advertising, and promotions. Besides, FPH seems to trail the big market players in terms of diversification and adoption of strategic marketing and sales strategies. On overall, the entry barriers remain strong, hence no immediate threats from new players, although future growth of the market may inform future competition and market control threats. Internal analysis Internal analysis of FPH is conducted to establish the resources and capabilities the company has, which can be used in developing sustainable competitive environment (Peng, 2010). Also, value adding is necessary to the resources and capabilities that a company has, a situation that leads to a company to have thorough understanding of its internal environment before establishing strategic plan and roadmap. The resources and capabilities are reflected in the human resource capital, marketing, technology, finances, and retail locations (Kubik, 2011). Resources and capabilities of FPH can be identified to be firm infrastructure resources such as relatively financial strengths, sound financial performance in key markets, global assets in key markets, presence of effective distribution units, and presence of prototype model shops that facilitate product innovation and development. Technological resources that FPH boosts include exclusive rights to patents, actively in the technological race, where leadership of FPH remains visible, presence of more young and energetic engineers and scientists eager to be innovative, increased funding for R&D, and continuous invention of innovative technology. Key capabilities are in the FPH’s HRM in terms of strong organisational and innovation culture, motivated staff, team-working, and dedicated, loyal and trusted CEO and management team. On overall, internal analysis of FPH shows that the company has strengths in key resources and capabilities such as presence of outstanding customer service and management, excellent and superior product development capabilities, success at innovating new products, and presence of excellent and trusted human capital. Strategic analysis Strategic analysis looks at the strengths of FPH, together with weaknesses the company exhibits, so as to identify strategic capabilities that FPH can use or put into utilization to address identified opportunities and threats in the wider business environment (Gupta, 2011). Strategic analysis of FPH indicates that the company reflects critical capabilities in terms of possession of patent rights, hence technological advantage for the company, presence of effective organization management and innovative culture, company’s adherence to continuous innovative technology, customer service, and effective R&D. These capabilities or strengths are further supported by sound financial capability of the company to undertake operations and growth initiatives. Major weaknesses FPH has demonstrated is the lack of key departments like marketing, R&D, and HRM. Also, poor strategic location of supply chains, where they are concentrated more in non-performing markets, while suffocating the prospective and performing markets. Lastly, the company’s participation in social responsibility activities remains minimal. Using the capabilities it has, FPH can exploit the identified opportunities both in local and foreign markets that are reflected in key aspects like aging global population, increased health awareness programs motivating people to spend more on healthcare products, emerging markets in Europe, Asia, Latin America, and slow pace in medicine development. Based on its current vision, ‘to increase shareholder value through designing and producing innovative healthcare products that results into positive care outcomes among patient’ (Fisher and Paykel Healthcare, 2012). FPH has to establish a clear and achievable strategic plan in order to realise the goals and targets premised on tripling the current number of patients using the healthcare products, increase spending value of patients on healthcare products, and realizing an annual growth rate of 20% for the next ten years. Summary of business environment Environmental analysis shows that FPH’s position in the market remains strong; characterised by numerous opportunities that present as a result of changing situations and events. Health remains critical aspect in people’s lives, and any business geared towards providing solutions to many medical and health issues is likely to realise greater market opportunities. Nevertheless, even as market opportunities for FPH remain prospective, it is clear from analysis that the company requires appropriate strategy roadmap in order to formulate and precise objectives to achieve as far as strategic growth remains one area the management of the company has set its eyes on. Strategic planning is critical to enable the company identify effective means to exploit opportunities by minimizing threats, and working on the weaknesses (Seyed, Seyed & Seyed, 2011). Therefore, what follows in the next section is an outline and analysis of a prospective growth strategy FPH can develop and implement in order to realize its growth objectives. Prospective strategies for the future Hanson, Hitt, Ireland & Hoskisson (2011) observe that success of business is linked to strategies the businesses develop and implement. The process involves strategic planning, which no business or organisation cannot underestimate in modern dynamic business environment. In this way, strategy involves making choices among the available alternatives. In other words, when a business entity chooses a particular strategy, it does so by pursuing particular course of action instead of others. Besides, the primary reason for selecting any type of strategy is informed by the need to achieve strategic competitiveness and earn above-average returns (Hanson, Hitt, Ireland & Hoskisson, 2011). In order to develop a strategy, businesses have to rationalize the vision and mission with specific actions to achieve these two aspects. In order to establish a successful strategy for its market growth objectives, it is recommended that FPH should develop and implement business-level strategy (Hanson, Hitt, Ireland & Hoskisson, 2011). Business-level strategy constitutes an integrated and coordinated set of commitments and actions that a business has to identify and use to establish competitive advantage. This involves businesses exploiting its core competencies in specific product markets. The main reason for selecting business-level strategy is informed by the fact that market growth for FPH requires the company to pay close attention to its customers, human resources capital, technology, marketing, and product development (Hanson, Hitt, Ireland & Hoskisson, 2011). As established in the case analysis, healthcare market for equipment, especially in the OSA segment remains competitive with presence of larger competitors with huge financial and marketing capabilities. Therefore, future growth of FPH is hinged on the strategic position it decides to implement in the market. According to analysis carried out, key areas that the company can develop strategies in order to create strategic position and competitiveness include enhancing innovative technology, effective pricing strategy, appropriate customer service management, global expansion in emerging markets, increased funding for R&D, and adoption of effective marketing strategies. Earlier in the analysis it was established that competitiveness in the healthcare market that FPH is an active participant is largely derived from two critical areas: pricing strategy and technological race. Given its reputable history with innovative technology products, FPH has a chance to combine its efficient technological innovation of product development, with effective competitive pricing strategy, marketing, customer service, and efficient global expansion strategies into the new markets (Moseley, 2009). Performance of FPH in the industry in future depends largely on the way companies in the industry are going to address the health needs of growing market through development of high quality products at competitive prices. Quality remains the key aspects that innovative technology has to address and fulfill (Amiri, Kavousy & Azimi, 2010). Also, prospects in the market are likely to motivate more players in the future, a situation that calls for FPH to develop and establish strong brands in the markets. Given the current state where barriers to entry are enormous, FPH has an opportunity to allocate resources to brand development in the market (Almani & Esfaghansary, 2011). This will again require the company to identify effective marketing strategies in order to enhance market growth for its products. Besides, global expansion has to remain an area of market growth that FPH should not show any sign of weakness. The company has to grab the opportunity of establishing strategic presence in emerging markets, especially in Asia, North America, Latin America, and Europe. This means that distribution channels and systems of the company in foreign markets have to be enhanced and sales teams and representatives in these countries developed, motivated, and enhanced. More importantly, effective strategic marketing approach is what is needed on the company’s products especially in the new markets, both locally and internationally (Afuah, 2009). The strategic marketing approach is recognised to be important in the case of FPH given its current position where it controls a small market share in the OSA market as compared to its two leading competitors. Controlling only 8% of market share, while the competitors control 40%, FPH needs to increase its market control by developing innovative products and marketing them to consumers using appropriate means. Therefore, the marketing strategy the company adopts has to reflect 4Ps of marketing: price, place, promotion, and product (Shaw, 2007; Leader & Kyritsis, 1994). Pricing strategy of the company should be to sale innovative and quality products at competitive price. With regard to place, FPH has to develop and enhance its supply chains and distribution systems to ensure the products are available in almost all markets when in proper and better quality (Mohr, Sengupta & Slater, 2009). Promotion and advertisement should remain critical goal of the company, especially in creating and sustaining market brand for its products. Appropriate advertisement and promotion strategies have to be identified. Lastly, the quality of products should be high, and this requires FPH to continue and enhance its technological innovation of quality products. Conclusion In summary it can be stated that the dilemma Paykel Healthcare: Just add Water CEO, Michael Danielle, finds himself in concerning the ways the company should grow in the future can be said to be the common features in modern business environment. Business environment has become dynamic to the extent that having a one day view or contemplation of future direction of the company is almost impossible, especially when not guided by proper tools of decision making. Therefore, decisions to realize future growth for FPH originates from an extensive business environmental analysis that is carried out. From the analysis, it is clear that opportunities in healthcare market are increasing, and this requires FPH to establish strategies to exploit these markets for the growth of the company. Analyzing its resources and capabilities, as well as opportunities and threats, the study proposes that FPH should adopt a business-level strategy, which is an integrated growth strategy that incorporates key areas that affect competitiveness of the business. Once the key strategies have been fulfilled, the company should later develop and implement an effective marketing strategy. References Afuah, A. (2009). Strategic innovation: new game strategies for competitive advantage. New York: Taylor & Francis. Ahlstrom, D., & Bruton, G. D. (2009). International management: strategy and culture in the emerging world. Mason, OH: Cengage Learning. Almani, A. M., & Esfaghansary, M. G. (2011). Strategic planning: a tool for managing organizations in competitive environments. Australian Journal of Basic and Applied Sciences, 5(9): 139-149. Amiri, S. R., Kavousy, E., & Azimi, S. Y. (2010). The role of cultural strategic planning in increasing organizational productivity, development and perfection. European Journal of Social Sciences, 15(2): 69-74. Fisher and Paykel Healthcare. (2012). Vision and values. Retrieved October 25, 2012, from http://www.fphcare.com/about-us/vision-and-values/ Gorgenlander, V. (2011). A strategic analysis of the construction industry in the United Arab Emirates: opportunities and threats in the construction business. Hamburg: Diplomica Verlag. Gupta, R. M. (2011). Project management. New Delhi: PHI Learning. Hanson, G., Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: competitiveness and globalization. Australia: Cengage Learning. Henry, A. (2008). Understanding strategic management. Oxford: Oxford University Press. Kubik, J. (2011). Analysis and evaluation of chosen resources of Volkswagen in Germany and in respect of the Indian minicar market and the role of Suzuki as a Joint Venture prospect. Norderstedt: GRIN Verlag. Leader, W. G., & Kyritsis, N. (1994). Fundamentals of marketing. Cheltenham: Nelson Thornes. Mohr, J. J., Sengupta, S., & Slater, S. F. (2009). Marketing of high-technology products and innovations. Saddle River, NJ: Pearson Education. Moseley, B. (2009). Managing health care business strategy. London: Jones & Bartlett Learning. Muller, C. (2011). Case study and comparative strategic analysis of Toyota and Ryanair: The key differences in the operations strategy of manufacturers and service firms in terms of process design, supply chain, human resources, capacity, innovation and quality management. Norderstedt: GRIN Verlag. Pahl, N., & Richter, A. (2009). SWOT Analysis - idea, methodology and a practical approach. Norderstedt: GRIN Verlag. Peng, M. W. (2010). Global business. London: Cengage Learning. Seyed, M. H., Seyed, A. N., & Seyed, M. B. (2011). Using fuzzy multi-criteria decision making for strategic management. Australian Journal of Basic and Applied Sciences, 5(12): 2375-2379. Shaw, S. (2007). Airline marketing and management. London: Ashgate Publishing. Williams, T., & Green, A. (1997). The business approach to training. Hampshire: Gower Publishing. Appendix Strategic Analysis Worksheet Macro-environment Opportunities Threats Political Relatively stability in countries the company operates. Prospects for new legislative proposals to reform healthcare. Bureaucratic systems of Medicare, Medicaid, Health insurance. Regulation regime of FDA Economic Flexible health insurance programs outside USA. Federal funding cutbacks on health care research Changes in government and third-party reimbursement Socio-cultural Demographic factors Aging population Prevalence of diseases due to obesity, smoking, alcohol, and drugs Increase in health promotion Different cultures around countries may mean different perception towards the products Technological Investment in research and design (R&D) Leader in technological innovation More engineers and scientists High cost of technological development Technological advancement of big companies Legal Flexible regulatory regimes outside USA Exposure to potentially significant product liability claims Environmental No restrictive environmental regulations Poor disposal measures may invite stricter environmental regulation measures Global Increasing market opportunities in countries like China and Japan Competition in the global market Different regulation regimes Different economic situation in different countries Industry Environment Opportunities Threats Power of suppliers In the humidifier technology arena, FPH has co competitors, hence tend to have powers over suppliers Poor supplier management could affect production Supplier power in OSA market Power of buyers Humidifier technology has no competition, hence buyers have less powers Development of more products as competition among existing players increase could increase power of buyers The OSA market has numerous players apart from the three big ones, hence buyers have powers that affect pricing strategy Rivalry amongst existing competitors Rivalry is not fierce, but only expressed through technology Future changes in economic situations could allow a number of players Threat of substitutes Technology is key to competitiveness, therefore no threat from substitutes Quality remains key that other firms still lack Investment in technology by other big players could result in development of more quality substitutes Threat of new entrants High capital required Massive investment in technology hinder entry of small firms No threat from new entrants in near future Long-term period may be characterised by a number of new entrants as the market grows Overall industry attractiveness The industry is promising with aging population in industrialized countries increasing Awareness programs are increasing consciousness among the people to become aware of their health Competitiveness determined on the front of technological race and pricing strategy Few competitors Strong entry barriers in terms of capital and enormous resources required Competitor analysis from above Entry barriers still strong Growth of the market could inform future competition Few competitors Competitors have large market share and growth Competitors have financial muscles as compared to FPH Competitors have diversified and enhanced their marketing and sales strategies Internal Environment and Tangible and intangible resources Strengths Weaknesses Firm Infrastructure Financial resources Organisational resources Physical resources Financial strengths backed by funding. Sound financial performance, increasing profits Assets in different parts of the world Effective distribution plants Prototype model shops for product development Lag behind the two major competitors in terms of financial ability HRM Training and development Knowledge management Trust Managerial capabilities Organisational routines Staff retention Motivated staff More staff (1200 employees) Team-based approach Dedicated and loyal CEO Fresh graduates with innovative ideas Strong organisational culture In long-term the labor market for R&D personnel may become tighter in New Zealand Effective compensation and motivation among competitors could influence some employees to leave Technological development Technological resources Innovation Scientific capabilities Capacity to innovate Patent rights Leader in technological innovation More engineers and scientists More funds for R&D Continuous innovation Technological advancement of key competitors Lack of equipped R&D department Procurement Strong procurement networks from reliable sources Inbound logistics Products are manufactured and assembled in the custom-built New Zealand facilities. Warehouses concentrated in markets/areas with low sales volumes Operations Testing of products manufactured under strict and global recognized standards Absence of organized and coordinated operations activities due to lack of key departments Outbound logistics Distribution channels in the markets the company operates Direct sales Sales representatives Sales management personnel More costs incurred in the distribution process Marketing and sales Reputation with customers Brand name Perceptions of product quality, durability and reliability Reputation with suppliers Constant customer research Close conduct with customers Product developed based on customer needs and comments Customer prefer the products of the company as compared to competitors due to quality Efficient technology that guarantee reliability of products Lack of marketing department Superior marketing strategies by competitors, especially in pricing strategy Service Outlining and explaining functions of technologies in hospitals Helping the patients use technologies Address customer concerns Absence of coordinating departments to address the diverse issues Internal analysis summary The company has outstanding customer service and management Excellent and superior product development capabilities Aggressive and successful in innovativeness of new products Ability to have excellent human capital: engineers, scientists, management, sales, who later are motivated appropriately and their retention strategy is superb Core Competency Analysis Capabilities Valuable (Y/N) Rare (Y/N) Costly to Imitate (Y/N) Non-substitutable (Y/N) Competitive consequence Performance implications Patent rights Yes Yes Yes Yes Sustainable competitive advantage Good for the company Organisational management and innovation culture Yes No Yes Yes Temporal competitive advantage Should be enhanced Innovative Technology Yes No Yes No Parity Need improvement Research and Development Yes Yes Yes Yes Sustainable competitive advantage More resources Sales and Marketing Yes No /No No Disadvantage Need improvement Strategic Analysis Summary Strengths Patents rights Efficient R&D unit Innovative and technological efficient products Strong organisational and management culture Sound financial base Powerful in technological race Opportunities Aging global population Increased awareness for medical products Emerging markets in Asia, Latin America Increase spending on medical products in different countries Slow pace in medicine development Weaknesses Absence of key departments like marketing, R&D, and HRM Concentration of warehouses in non-performing New Zealand environment Poor participation in social responsibility activities Threats Competition from leading players in the market such as Respironics and ResMed Competitors control 40% of the market while FPH controls 8% Unstable regulation and taxation regimes across countries Long-term absence or scarce scientists Emerging innovative product technologies Current vision To increase shareholder value through designing and producing innovative healthcare products that results into positive care outcomes among patients. Current Mission – Strategic intent to triple the number of current patients that can be treated take the average per patient from $17 that to about $50 per patient Grow business at 20 % per year for the next ten years Is it achievable bases in SWOT (if not why not and what strategies need to be implemented to achieve it) The objectives are achievable if FPH adopts business-level strategy Prospective strategies for the future (based on SWOT) The strategic goals are achievable if the company adopts a business-level strategy, which is an integrative market growth strategy Read More