Chapter Three

For the duration of the semester I will be following Wright Medical Group N.V. as I have a career interest in the medical device industry.  

Since Chapter Three offers specific insight as to how one determines Environmental Threats to an organization, I couldn't think of a better starting point than evaluating Wright through the Five Forces Model in order to identify the attractiveness of the industry.

Analyzing the medical device industry:

The medical device industry consists of firms that develop, patent, and distribute devices that are utilized in the medical field.  Major players in this industry include Smith and Nephew, Medtronic, and Stryker.  

The threat of entry: 

The threat of new entry is relatively low.  Medical devices do not have a significant production economies of scale and there is heavy emphasis on the economies of research and development.  Technology is constantly developed as older product is continually obsoleted, which means production is limited in its economy of scale.  

There is relatively little product differentiation advantages for firms in the medical device industry.  Larger firms have an advantage in being able to enjoy some cost advantages independent of scale because of the capacity of their distribution operations.  Government policy deters entry because new product can take years to approve, and even longer for the product to launch.

The threat of rivalry:

Historically rivalry has been high.  With little product differentiation the selling points of the product are often in customer experience.  Distribution operations are major factor in product satisfaction almost just as much as the reliability of the technology.  All major players have a hammertoe repair product line, and there is more advantage to be gained in the distribution than there is in the technology developed in the screw.  The larger players continually acquire the smaller players to gain a larger share of a certain market.  

The threat of substitutes:

The threat of substitutes is very high in this industry.  Medical devices are a technology that constantly seeks to replace its less efficient predecessor.  The development of markets creates a diverse portfolio of products in which customers are allowed to make preferences over product and techniques associated with the technology.

Threat of powerful suppliers:

The threat of suppliers is moderate.  There are devices that can be produced from easily acquired raw materials, and there are devices that require specialized manufacturing that must be done out of house.  Biologics that require living human tissue and are more difficult to acquire and manage.

Threat of powerful buyers:

Threat of powerful buyers is very low.  Medical devices operate at such high profit margins because of the reliability of healthcare and insurance providers to absorb the cost from customers (more specifically surgeons and doctors).  There is little government intervention with the price points of medical devices.

EXPECTED PERFORMANCE:  

Given this five forces analysis we can expect Wright Medical Group's level of performance to be low.  There are potentially dangerous threats in 3 of the forces evaluated that would indicate a lower expectation of performance.  Profitability maintains industry attractiveness but I'm not quite convinced that that would guaranteed high performance.