Chapter Seven

Product Differentiation Strategy

It's difficult to implement product differentiation in the medical device industry without  going into costly approval processes through multiple government entities.  Wright recently got approved for its innovate bone augment by the FDA, which marks the first of its kind to receive that approval as an alternative to autograft.  That did not occur without some hiccups including a decade long research process and an initial rejection of the technology.  The re-evaluation was kind of like the hail mary of medical devices.  (https://globenewswire.com/news-release/2015/09/01/765328/0/en/Wright-Medical-Group-Inc-Announces-FDA-Approval-for-AUGMENT-R-Bone-Graft.html).

This definitely expands Wright into and  untapped $30 million market in the industry, but I can't see it becoming a strategy that Wright wants to continue in the future.  There is now immense pressure for the unlaunched product to create revenue, and until it hits the market we won't really know if that is a product that customers are willing to pay for.

When we look at the other technology, there is very little differentiation advantage as a Stryker screw will likely perform just as well as the Solana screw.  The difference is the reputation and service and support of the customer doing business with your company and those are marketing advantages that have to be expanded while being compliant.

Chapter Six

Cost Leadership

This brings be back to Wright Medical's decision to sell off its hip and knee division to Microport.  The decision was based on Wright's operative decision to shift away from hip and knee and create a focused line of products to gain a larger market share of the foot and ankle industry.  

I think the focus allows Wright to streamline costs in R&D and production of raw materials, which trickles down to training focus of its customers and sales and marketing efforts.  In an industry where technology is marginally different, I think the focus on reducing costs by making business decisions such as this is imperative to market growth.  Everyone can make a hammertoe screw, so how can we do it better than the competition?  I think it's more important to focus on areas of high growth, not necessarily of reducing a higher cost.  Efficiency is one thing, but you still have to provide products of high quality differentiation over your competitors.  That quality could pertain to the product itself, or even the logistical process of delivering product to your customers.  

Chapter Five

Applying the VRIO framework for evaluating an organization from a resources view point, I'll attempt to break down Wright's strengths and weaknesses.

VALUE

Most of the products manufactured at the raw level are valuable resources.  Special grade titanium for example, is a key factor in one of the ankle replacement product lines.  Excess titanium scrap from the manufacturing process can actually be sold for reuse.  This tells me that not only is it valuable, it maintains its value.

RARITY

For the most part, most of the resources Wright medical has from a production standpoint are easily accessible to the rest of the market.  Given the nature of the medical device industry, there are a select few materials that are regulated and accepted in the manufacturing process.  Develop of new material is heavily regulated, therefore rarity is hard to achieve.

IMITABILITY

There is really very little differentiation in the product technology.  Most innovations are made to make operations more efficient.  Yes, the resources are easily imitated, but the operations management is much harder to duplicate from organization to organization.

ORGANIZATION

For the most part, there is very little benefit in exploiting medical devices because of the regulations involved not only in the manufacturing of the devices but in the distribution as well.  Doctors and hospitals aren't going to purchase unregulated product.  Exploitation is minimal in this industry considering compensation also has to go through several levels of clearance before getting reimbursed.

This evaluation of Wright Medical's resources shows me that there is little competitive advantage to be gained from the valuation of it's resources from a production standpoint.  There is much room however to expand upon the VRIO of it's intangible resources from production management to customer experience.  

Chapter Four

This chapter talks about evaluating Environmental Opportunity as neutralizing the threats identified in the previous post.

Neutralizing the threat to entry:

Patents!  By erecting barriers to entry on research and development of specific technologies you can have some degree of creating and exploiting economies of scale and use that specialty as a production focus.  There are also heavy government regulations and monitors preventing the approval of patents too quickly so any established patent would be an advantage.

Neutralizing the threat of rivalry:

Wright medical recently merged with Tornier, and acquired OrthoPro and Solana Industries.  By combining forces these organizations are creating a bigger player in the market and is more protected from the threat of rivalry.

Neutralizing the threat of substitutes:

Not much can be done in this area.  Patents can provide barriers to very specific technology but there still remain many substitutes to complete a general procedure.  Customers may be impressed with the new Hammertoe line that allows customers to heal more quickly, but if that product is not available at the time of the case then the surgeon will go with something that gets the job done.

Neutralizing the threat of suppliers:

Wright medical in recent years has invested a lot in its global supply chain initiative, a large part of it which includes development of a stronger supplier relationship to be able to ensure there are enough resources when needed.  Forecasting and demand planning with these suppliers is key to the chain of efficiency and cuts down on extraneous costs related to production.

Neutralizing the threat of buyers:

Reducing buyer uniqueness isn't really an option as medical devices are meant to be for specific procedures.  The threat can be more neutralized by expanding upon the customer experience to appeal more to buyers.  Services can be offered in lieu of buyer power.  Specialized technologies can be expanded to appeal to more customers.

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.