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Case Study Gems

In: Business and Management

Submitted By carlitos0510
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Group 8: Sven Hampus Björkman (T01701122) Agathe Giner (A01627201) Henrik Sanden (T01701220)

Daniel Campo (A01724102) Jonghyup Lee (T01701104) Carlo Schmitz (A01741103)

Assignment 3 General Electrics Medical Systems -­ Case

Q1. What is the underlying logic behind the Global Product Company (GPC) idea? Generally GPC’s Philosophy was defined “to concentrate manufacturing -­‐ and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost effectively”. This was specifically done by the use of centres of excellence (COE). Each product of the General Electric Medical Systems (GEMS) portfolio was manufactured in one to two centres of excellence. From there the products were shipped all over the world. The case states that 60% to 96% of products made in a centre of excellence were eventually sold in a different part of the world. At this point, with regard to the manufacturing strategy we think it is important to mention that GEMS only manufactured the most decisive parts of their products themselves, the so-­‐called “crown jewels”. This took place in the centres of excellence. The rest of the process was mainly assembly of parts they bought from outside vendors. Therefore, the vice president of GEMS, Marc Onetto, points out that it is “mainly a supply chain game”. However, for the most vital parts, where all the technology and knowledge of GEMS was concentrated the COEs were the main pivotal point. Coming back to the centres of excellence, it is evident that GEMS or General Electrics in general was in a very preferable position to try something like the Global Product Company. Due to its size and the according marketing and sales organisations it was very easy to implement the structure needed for the shifting of production locations. Around 85% of product inputs were manufactured in high cost countries, meaning developed countries with high costs of labour and resources and extensive regulatory work. The current cost structure was divided into around 80% material cost and 20% labour cost. Through the GPC, General Electric Medical Systems wanted to change its suppliers, so that ca. 50% of the purchased materials come from low-­‐cost countries. Furthermore, 60% of its own manufacturing capability should also be transferred to low-­‐cost countries. Ultimately, representing the main motivation of the Global Product

Group 8: Sven Hampus Björkman (T01701122) Daniel Campo (A01724102) Agathe Giner (A01627201) Jonghyup Lee (T01701104) Henrik Sanden (T01701220) Carlo Schmitz (A01741103) Company, the goal of this was to save 10-­‐30% on material cost and 50% on labour cost. These increased margins were forecasted to set off the GPC-­‐specific cost, like “inventory, logistics, documentation, and import-­‐duty costs” within 2 years, a very short time for such a large project. This shows the effectiveness of the GPC. In the long-­‐term this strategy will show to be a great benefit for GEMS. One additional benefit of the GPC was the great way to attract talent, as it makes GEMS insiders in the respective countries, where they move. Thus they can tap into different talent pools, which is a positive aspect for the whole organisation. In the end, the GPC helps GEMS to reach high margins and stay ahead of the competition. For the years ’99, ’00 and ’01 GEMS reached margins of ca. 17.1%, 17.7% and 17.6% respectively. Compared to the main competition of Siemens, Philips and Toshiba, which only achieved margins of around 10%, -­‐3% to 9% and 5% GEMS performs very well. This in turn can GEMS to stay ahead of the competition even further, by financing their strategy of innovation, organisational change and acquisition, which will be explored further in this analysis. Q2. Should the Global Product Company philosophy be altered to suit the needs of the medical diagnostics market in China (In China, For China)? Why or why not? In our opinion the GPC philosophy should be altered to the Chinese market. This market is very different to the other markets GEMS is represented in, as it is not a market economy with extensive regulations. GEMS have already broken some governmental barriers in China and got a round the importing regulations by forming a joint venture with a local company. After this manufacturing joint venture in 1991 the company got a foothold in the Chinese market, and 2002 it acquired the ventures to become the 100 percent owner. Due to the existing infrastructure through this investment, this is something that GEMS has to utilise, also because of the associated sunk cost. Moreover, their competitors do not have the same position in the market and GEMS can utilise their infrastructure at very low cost now. Therefore, they have to aim at a more long-­‐ term, sustainable strategy in China. China is perfect to be a manufacturing centre of excellence of the GPC philosophy since the demand for low-­‐end medical diagnostic products is the largest. Main manufacturing in China means that costs will be reduced in particular for the Chinese market, enabling

Group 8: Sven Hampus Björkman (T01701122) Daniel Campo (A01724102) Agathe Giner (A01627201) Jonghyup Lee (T01701104) Henrik Sanden (T01701220) Carlo Schmitz (A01741103) cheap low-­‐end products to their customers. Customers in China are also very price-­‐ sensitive to medical products. The case mentions that, if price would drop by 10%, the sales could increase by 50%. This high price elasticity means that this move is a particular profitable opportunity for GEMS. Additionally, the manufacturing centre in China will not only result in increased sales in the low-­‐end product market in China, but also give GEMS capability to satisfy demands for more qualified products. Q3. Should GEMS be pursuing genomics or health-­care IT opportunities aggressively in addition to, or instead of, the China opportunity? Why? Concerning this question we would argue that the China opportunity has to be tackled in addition to the genomics and health-­‐care IT. Those two opportunities/decisions lie on completely different continua in our opinion. The recent developments in genomics and health-­‐care IT represent technological changes. These are more or less exogenous trends in the health sector as technology advances, through incremental improvements and discoveries. The health-­‐care IT is mainly aimed at personalising medical treatments and thus increasing effectiveness, for example, by digital imaging, which can then be more easily stored and processed. Genomics were used in particular for new kinds of treatments of illnesses, which could not have been treated before. These trends can change the whole business structure of GEMS as they might have to move away from their classic manufacturing of medical equipment “toward biochemistry and learn to compete intensely with entrepreneurial software companies”. In order to enter the genomics market successfully GEMS will need build up biomedical expertise and collaborate with pharmaceutical companies. Furthermore, they would have to adapt to changes in development and revenue streams. For the healthcare IT market, which was already worth $3 billion only in the U.S. and growing at 20% per annum, GEMS had to cope with challenges like database management, privacy issues, data ownership and data evaluation. This is again a not really part of GEMS traditional core competencies. However, we think that, in order for GEMS to maintain their leadership position they will have to follow those trends. These trends do not only impose a threat, but can also

Group 8: Sven Hampus Björkman (T01701122) Agathe Giner (A01627201) Henrik Sanden (T01701220)

be seen as great business opportunities and untapped potential for the future.

Daniel Campo (A01724102) Jonghyup Lee (T01701104) Carlo Schmitz (A01741103) markets with high growth

In contrast we would argue that the business in China represents more or less operational opportunities. It is about adapting the current manufacturing and sales structure, which was explained in the previous parts. As already mentioned this will enable GEMS to access the largest market, which is also growing at very high speed. Furthermore, it will bring about cost savings and thus improve margins, giving GEMS the competitive edge. However, most importantly for this argument it will fund and finance the research and development necessary to be successful in the trending markets of genomics and healthcare IT, which seem to be leading the way in the near future. Furthermore, it will equip GEMS with the necessary resources to adapt their organisational structure to those changes in business. Thus, both activities are highly interlinked and have to be tackled at the same time keeping the whole picture in mind.…...

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