Strategic business management of Cochlear

Ques:Asks about the appropriateness of a directional strategy. A course of action is suggested. Should Cochlear adopt this course of action or not? Why or why not, given the state of the external environment (PEST and 5 Forces) and the firm (value, core competencies and value chain analysis). Contents Introduction. Environmental Analysis. PEST ANALYSIS. Political Factors. Economic Factors. Social Factors. Technological Factors. Micro environmental analysis. PORTERS FIVE FORCES ANALYSIS. Existing market rivalry among the competitors Bargaining Power of Suppliers Bargaining Power of Customers Threat of New Entrants Threat of Substitute Products Internal Analysis of Cochlear Value Chain analysis Infrastructure Human resource management Technology development Procurement Operations Core competencies Cost Leadership Product differentiation Conclusion Works cited Introduction Cochlear is an Australia based company providing hearing solution across the globe. It has been delivering innovative solution for more than three decades. The global leader focuses on innovation for gaining competitive advantage. Cochlear is directly operating in thirteen countries across the world. For other countries the products of Cochlear is sold with the aid of the local distributors. Cochlear focuses on providing value to its customers through its high quality products as well services. Innovation is focused on enhancing the consistent and positive customer experience. It has developed a customer information system for delivering products and services in accordance with the need and preference of the customers. The small electronic device invented by Cochlear assists a deaf person to hear. The technology adopted by Cochlear is improving in order to provide better service and customer satisfaction[1]. In the present competitive market Cochlear needs to adopt strategies for gai ning sustainable growth through competitive advantage. In order to identify and design generic business strategies, the external as well as internal environment needs to be analyzed. Strategic tools such as PEST analysis, Porters five forces analysis, and value chain analysis can assist in development of generic strategies for Cochlear. Environmental Analysis Development of business strategies requires understanding about the market environment. PEST analysis is a strategic tool that emphasizes on analyzing the macro environmental factors such as political, economic, social and technological components of the market in which the organization is operating[2]. This analysis will help in understanding the market position, potential of the business and future directions of the operations. In this section, PEST analysis for cochlear will be conducted for gaining an insight about the external environment. PEST ANALYSIS PEST analysis of Cochlear will analyze the four macro environmental elements for understanding the present external market environment for Cochlear. Political Factors Political factors refer to the degree of government intervention in the business, economy and policies. Government of a nation has great impact on education, infrastructure, health, economy of that particular country. As Cochlear is directly operating in various countries it needs to align its activities with the legislative framework of each country[3]. Government policies of Australia support the innovative activities by private organizations. Political stability in Australia has a positive impact on the business practices of Cochlear Limited. Tax planning aims to boost up the national economy. The stable government policy of Australia has a positive impact on the business activities of Cochlear. As cochlear belongs to the medical technology industry, it has abide by the regulations of the concerned departments. Regulatory implications in the medical industry have significant value and it can affect the growth and business position of the organization. US Food and Drug Administrati on has major role to play as a regulator of this industry. Cochlear Limited needs to get approval from the US Food and Drug Administration before selling it in the market of United States[4]. These are the major aspects that needed to be considered during the strategy development of Cochlear Limited. Economic Factors Australian economy is one of the largest economies of the word. In terms of nominal GDP Australia is ranked at 12. In 2013, Australia had experienced a GDP growth of 2.5%[5]. It has been observed that the greatest contribution in the GDP of Australia is made by the service sector followed by industry. Presently, the inflation rate of Australia is 2.7% [6]and the unemployment rate is 6.1%[7]. As the Australian government has focused upon the developing the manufacturing sector, it has contributed in the economic growth of the country. Australian foreign trade has shifted for Europe and North America to the emerging markets of East Asia. Recently a rapid growth in the Australian population has been observed and it leaded to a drop in the per capita GDP[8]. In the growing economy of Australia, there is a lot of opportunities for the trade and investment. The growing population and the open trade network has provided great environment for business in Australia. World class infrastructure has provided opportunities for the industries. The government of Australia is focusing upon enhancing the infrastructure investment for boosting up national as well as foreign investments. The transparent business environment and strong trade credentials of Australia have been attracting increasing number of investors[9]. The strength of the Australian economy and the consistent growth has a positive implication on the business activities of Cochlear Limited. In Asian countries, the demand for Australian resources and services are growing. The Australian government considers private investment as key for future economic growth. It welcomes the private organizations to investment in the economy of Australia. It has provided easy financing opportunities to the private sector. This strategic approach of the Australian government has developed a positive economic environment for Cochlear Limited. Moreover Cochlear is directly operating in many countries such as United Kingdom, France, Germany, and Switzerland which has a stable and robust economy . Social Factors Social factors have significant impact in the strategic design of the business activities. If the social structure of Australia is analyzed, it can be found that the population is growing and it has a positive implication of the industry. Cochlear Limited belongs to a medical technology industry which is also growing in order to provide better service to the growing population. It has been fund that almost 4 million people in Australia suffer from disability. It means one out of every five Australian have a disability. The disability can be supported by technological and medical interventions. Hence, the medical technology industry has major role to play in delivering service to the people o Australia. According to the Australian Network on Disability, 3.4 million Australian suffer from physical disability and among those 30,000 people in Australia has been affected by hearing loss. It implies that one person out of six suffers from deafness in Australia[10]. Hence, Cochlear Limited has lot of opportunities and business prospect in Australia. Moreover, according to the World Health Organization (WHO), almost 360 million people have the disability regarding hearing loss. Additionally, it has been estimated that 5% of the global population are deaf. Among them 328 millions are adult and 32 million children are suffering from hearing disability. Almost one third of the global deaf population is belonging to an age group of above 65. This trend has been more predominant in Asia pacific region, South Asian countries and sub-Saharan Africa[11]. Hence, there is a growing demand for hearing aids across the globe including Australia. Technological Factors Technology plays an important role in the cochlear industry as technological innovation helps in developing new products. Development of implants and bone conduction implants extensive technological support. In Australia, technological advancement has added a new dimension for the medical technology industry. Technological innovation has helped the industry to develop new products for hearing solution[12]. Cochlear needs to develop effective and long term hearing aid solution for the global customers. It aims to provide service to its client for life time. In order to achieve customer satisfaction, technological innovation is essential for Cochlear Limited and the technological support can obtained from Australia. The PEST analysis of Cochlear Limited provides an insight about the external environment. These factors must be taken into consideration while developing the operational strategies of the organization. Thus the opportunities in the external environment and issues regarding political, social and economic environment can be identified by Cochlear. Micro environmental analysis In order to develop business strategies for generating competitive advantage, an organization must analyze its present industry. It will provide an idea about the major factors such as competitors, suppliers, buyers etc and their power in the industry. In case of Cochlear Limited, the industry needs to be analyzed for identifying the major business strategies that can aid in achieving sustainable growth. In this section the micro environment or the medical technology industry needs to be examined with the aid of an effective strategic tool Porters Five Forces analysis. PORTERS FIVE FORCES ANALYSIS According to Michael E. Porter, an organization must consider five major factors that have predominance in the industry. If an organization gets an idea about the strength of these principle five forces, it can develop its strategy for the competitive global market. The five forces for hearing aid industry are discussed below: Existing market rivalry among the competitors Cochlear has potential number of competitors operating in the global market. Presence of strong competitors is generating continuous threat for the global leader in the hearing aid solution to the customers. Biggest competitors of Cochlear in the global market are Advanced Bionics, Resound, Beltone, Sonic, Oticon, Siemens, Phonak, Starkey etc[13]. All of them have adopted advanced technology for innovating new products in order to deliver life time solution to the hearing loss. Cochlear Limited has been receiving tough challenge from its competitors who has global presence. Adoption of new technologies and reaching to the potential customers are the major factors for gaining sustainable growth. Hence, it can be concluded that high competition in the global market exist in the cochlear implant industry. Bargaining Power of Suppliers Intensive research and development has helped in designing and producing cochlear implant mechanisms. Technological advancement is a major factor for developing these products. Rapid technological innovation has leaded to growth of medical technology industry. The bargaining power of suppliers is high as there is few numbers of suppliers who are responsible providing technological support to the organization. As suppliers are limited, they have significant power to dominate the market. Cochlear must focus on maintaining healthy relationship with its suppliers[14]. Moreover, suppliers must be chosen in such a way so that the quality of the product is not compromised. Hence, from the analysis it can be concluded that the bargaining power of suppliers is high in this industry. Bargaining Power of Customers Bargaining power of customers depend on the demand and supply of the product. According to World Health Organization, the existing global supply of hearing aids fulfills less than 10% of the actual global requirement[15]. It can be implied that the demand is much higher than the supply. It will take more time and enhanced production to meet the global need of hearing aids. As the number of potential customers is significantly higher than the actual production, the power of customers is very low in this industry. Hence, it can be inferred that the bargaining power of the customers is very low in the industry which has a positive impact on Cochlear. Threat of New Entrants Medical technology is a capital extensive industry and it creates a barrier for the new entrants. As the RD expenditure is huge in the cochlear implant, it is very difficult for the new organization to achieve economies of scale. Hence, it is a major barrier for an organization to start its venture in this industry. Moreover, the global leaders in this industry have already achieved customer loyalty as well as economies of scale[16]. High profitability of the market leaders aids them in investing huge amount in research and development for continuous innovation. Thus, the existing market leaders will gain competitive advantage through continuous improvement. Hence, it can be stated that the threat of new entrants in lower in this case. Threat of Substitute Products The cochlear implant focuses on providing life time solution to the hearing loss problem. External hearing aid is a substitute product for the cochlear implant. However, it does not provide long term solution and it does not cure the complete deafness. Presently, there is no medical treatment or device that can cure complete deafness for life time. Cochlear Limited need not to focus on the issue of substitute products. Hence, no potential substitute product has been found for this industry. Therefore, it has been found that the threat of substitute products is very low. Internal Analysis of Cochlear: The future success of a company depends on the conditions that are prevailing internally in the organization as well as the external conditions. Identification of the strengths, weaknesses, opportunities and threats of the company are crucial so that the company can solve the major issues affecting its growth. A company can gain competitive advantage only if it can set itself apart from its competitors. Value Chain analysis Infrastructure Cochlear is growing rapidly and has a well developed infrastructure at its head office in Australia. Cochlear mostly relies on IT infrastructure to support the wide range of business processes. From research and development to logistics, the entire operation of the company is based on IT infrastructure. The infrastructure of research and development is developed enough to promote the growth of its products. But it has faced challenges in its infrastructure development in the European organization. The European organization was struggling with the power supply. The IT infrastructure in the European organization is not at par with the other offices. It was costly to maintain the vital servers at the European centre. The affair was time consuming and it was hampering the work at Cochlear. The backups were risky and recovery was disastrous. To overcome this problem in IT infrastructure at the European centre, Cochlear made a partnership with IBM Business Art of Computing. They developed an IT infrastructure for Cochlear that would smoothen the work flow at the centre. Their energy efficiency increased along with increase in productivity. This change in infrastructure resulted in reduction in carbon footprint. It lowered the costs of 80 servers to 15 servers[17]. Human resource management The major strength of Cochlear is its employees. They work as a team. The employees of various departments like research and development, sales and marketing, customer service work in collaboration to one another to develop new products and provide customer service. The employees are encouraged so that they can communicate openly. New ideas are always welcomed. The teams strive for excellence. The wages of the employees are competitive and based on performance. Benefits are provided to employees on sound achievements. The recruitment program at Cochlear is transparent and based on merit. The recruitment provides opportunity for new clients. Technology development The technology used in Cochlear meet the needs of the product. It is a combination of CI surgery and stapedectomy. Cochlear has three basic solutions for hearing problems. They are cochlear implant hearing solutions, hearing solutions provided by bone conduction and hearing solutions which uses electric acoustic mechanisms. Cochlear implant is a medical device which functions electronically and replaces the damage that is caused by the inner ear. It helps to provide sound signals to the brain. Like other hearing aids it does not make the sound louder. The advantage of cochlear implant is that the implantation occurs by bypassing the damaged hair cells of the cochlea which aids proper hearing. Cochlear has developed another product which has gained competitive advantage to the company is its bone conduct implant. It is a medical device which transmits sound through bone to inner ear. It bypasses effectively the middle ear and the outer ear. Bone conduction implant is made up of small titanium implant abutment and a sound processor. The transmission of sound takes place in the form of vibrations. The vibration reaches from the sound processor to the implant. Then it passes the through the bone to the inner ear. It helpful for patients who have problem in the outer and middle ear. It helps to localize the sounds. It helps to gather natural sound and promotes improved understanding of the speech. This implantation works even someone is totally deaf. Apart from cochlear implant and bone conduct implant, Cochlear has several hearing aids which aid in capturing the sound. It makes the sound louder and sends the sound down the ear canal. Through the ear canal the sound passes to the inner ear where the hearing nerves are there. It is helpful for patients whose sensory cells are damaged due to aging. Some patients have damaged ear as they are exposed to loud noise. Some patients have hearing problems as a reaction of drug and some have hearing problems which are hereditary [18]. Procurement: The process of procurement of raw materials at Cochlear aims in reduction of cost. Purchasing costs are minimized to maximize the profit of the organization. Cochlear offers best prices to its customers. The company procures the goods directly from the manufacturer. They bypass all the intermediaries in order to reduce the purchase costs. Operations: Research and Development: The research and development at Cochlear aims at providing hearing solutions for children and for adults. The hearing solutions are implanted. It aids hearing problem issues internationally. It has a well managed research team which aims at continuous improvement of the product at Cochlear. Cochlear implants are provided for sensoneural loss of hearing which ranges from moderate to severe. Deafness which are single sided, mixed hearing loss, electro acoustic implants are the major services at Cochlear. The research team has developed a Vistafix system that provides a permanent attachment for ear. It is stable. The team has also developed a Cochlear hybrid which is another type of hearing aid for severe and high frequency hearing loss [19]. Cochlear makes the largest investment in research and development. The company partners with leading researchers internationally. Logistics: The logistics at Cochlear aims at providing fast service to its end users. The products are distributed via a wide network of distributors. The distributers channel is well networked easy access to the products. Sales and Marketing: The aim of Cochlear is to become the market leader in providing solutions to hearing problems. According to estimation Cochlear has more than quarter of a million people that have undergone implantations using one of their implantation services. The aim of Cochlear is to provide support to the customers with their innovative products. This can be achieved by the sale of upgrades of sound processor and provide product support to the customers. The market share of the company cannot be known exactly since it is not published in any report. It internally estimates its market share. It has 65% share of cochlear implants. It manages the sales and distribution through three regions. One of the region is its headquarters i.e. Australia while the other two are its regional offices. The regional offices are in America, Europe, Middle East and Africa. It also includes Asia Pacific region. Cochlear has presence in approximately 20 countries. It maintains a balance between its distributers and a gents who are the key agents in distributing the various products of Cochlear. Cochlear has lost certain percentage of market share for bone conduction implant since new entrants has increased the competition for Cochlear. The product portfolio of Cochlear has increased by the acquisition of Otologics LLC technology. Thus acoustic implant solutions form a major product of Cochlear [20] Customer service The strategy of cochlear is to focus on the experience of the customers. The main aim of the company is to meet the need of the customers. It wants to achieve excellence in operational activities, innovate the products and create value for the customers. Engagement with the customers and understanding their needs is the major focus of the company. There are many barriers to customer service. They are the customers are not aware of the availability of implantable solutions. They do not consider it to be a viable option. Patient motivation is an important factor to be considered while providing hearing aid solutions. Most of the customers cannot afford the cost required for implantation. In order to provide better service to the clients Cochlear has to increase the clinic capacity. Core competencies: Core competencies analyze the strengths and weakness of the company. Cochlear wants to become the leader in providing solutions related to hearing problems. This can be achieved by adopting the right strategy. Cochlear is one of the topmost companies in introducing hearing implants. Cochlear implants have the following advantages: Hearing implants helps to overcome problems related to acoustic feedback and ear mold issues. High frequency consonants can be heard with greater ease. It has greater opportunity for hearing to natural voice. It is a life saving technology otherwise people would not be able to hear throughout their lifetime. Hearing implants provides hearing aid to loss due to auditory neuropathy. It is a costly affair to imitate Cochlear. Cochlear invest huge sum of money in research and development. It has developed a knowledge bank of research and development. To compete with Cochlear in research is a tough task. It has formed a huge barrier for other companies to compete with the RD at Cochlear. Substitute products of Cochlear have come in the market but the substitutes are not developed technically. The safety of the substitute products of Cochlear donot provides similar product safety. Thus Cochlear maintains its market share and substitutes cannot replace it [21](Auditoryverbaltraining.com 2014). Cost Leadership: Cochlear has achieved sustainable competitive advantage. It has continued its operations for the development of product by reducing the size of the plants. The cost incurred in maintenance of the plants has also been reduced by Cochlear. Cochlear has developed products that are lower in costs. It has aimed at the huge developing country market. But there is fierce competition from the competitors. They have developed research and developed the products to provide competition to Cochlear. Product differentiation: The products and services at Cochlear are unique which provides competitive advantage over its major competitors. The products are innovative. The unique features of the products set off a mark for the company. The products are uniquely designed. The preservation techniques are unique. The performance of the products is outstanding. This enables the product to have preference over the products of competitors. The employees at Cochlear are confident in providing implant facilities to their patients. The support provided by the organization is unique and uses advanced processor technology. The designs of the machines at Cochlear are patented and they provide surgeon excellent services. Feedback is taken from the customers on a regular basis. The main aim of the company is to maximize the hearing performance of the patients. The company uses custom sound 4.0 software which is the most sophisticated software tool to control its devices. It is easier to customize the programs to meet the specific needs. The updated software saves time and helps to analyze the defaults[22] (Cochlear.com 2014). Conclusion: Cochlear has provided hearing solutions to more than 2, 50,000 people around the globe. The aim of Cochlear is not just limited to making products but it is aims at providing service to the customers. The service provided to the customers is of high quality which provides the company with competitive advantage. Cochlear has formed a lifelong partnership of hearing. They aim at supporting their customers at every stage of the journey. The infrastructure, technology, research and development, human resource, marketing and sales are developed in such a manner so that the company can achieve competitive edge. The company has gained competitive advantage over others and maintained its leadership position in the market. The unique strategy at Cochlear aims at understanding the problem area of the patients before treating it. It provides services that will benefit the patients lifelong. Cochlear provides a range of resources by which the customers can benefit from the product. Cochlear foll ows the path of innovation. They transform the life of the people by providing treatment for hearing loss. The main aim of the company is to help people hear and be heard. The patients can maintain connection with others in the society and lead a normal life. The patients by using the hearing aids or undergoing the implantation have helped people maintain a healthy life. Works cited Abs.gov.au,. 2014. '6202.0 - Labour Force, Australia, Jul 2014'. Accessed August 7 2014. Abs.gov.au,. 2014. '3101.0 - Australian Demographic Statistics, Dec 2013'. Accessed August 7 2014. Ahlstrom, David, and Garry D Bruton. 2010.International Management. 1st ed. Australia: South-Western Cengage Learning. And.org.au,. 2014. 'Stats And Facts Resources Australian Network On Disability'. Accessed August 7 2014. Austrade.gov.au,. 2014. 'Major Infrastructure - Foreign Investment Opportunities In Australia By Sector - Austrade'. Accessed August 7 2014. Auditoryverbaltraining.com,. 2014. 'Advantages Disadvantages: Hearing Aids Vs. Cochlear Implants Forthose With Severe Hearing Loss'. Accessed August 7 2014. Business.qld.gov.au,. 2014. 'PEST Analysis | Queensland Government'. Accessed August 7 2014. Businessweek.com,. 2014. 'Cochlear Research And Development Limited: Private Company Information - Businessweek'. Accessed August 7 2014. COCHLEAR Annual Report 2013. 2013. Ebook. 1st ed.. Cochlear Discovers New Levels Of Energy Efficiency, Resilience And calability With Art Of Computing And IBM Express Advantage. 2014. Cochlear.com,. 2014. 'Cochlear Implants And Cochlear Implant Technology Cochlear India'. Accessed August 7 2014. Cochlear.com,. 2014. 'Software And Programming'. Accessed August 7 2014. Cochlear.com,. 2014. Accessed August 7 2014. Dess, Gregory G, G. T Lumpkin, and Marilyn L Taylor. 2004.Strategic Management. 1st ed. Boston, Mass.: McGraw-Hill/Irwin. Fda.gov,. 2014. 'Medical Devices'. Accessed August 7 2014. Harrison, Roger. 2000.Biomedical, Biotechnology And Pharmaceutical Innovation. 1st ed. Double Bay, NSW: CL Creations. Healthyhearing.com,. 2014. 'Hearing Aid And Cochlear Implant Companies'. Accessed August 7 2014. Hill, Charles W. L, and Gareth R Jones. 2013.Strategic Management. 1st ed. Mason, OH: South-Western, Cengage Learning. Morschett, Dirk, Hanna Schramm-Klein, and Joachim Zentes. 2010.Strategic International Management. 1st ed. Wiesbaden: Gabler. Rba.gov.au,. 2014. 'RBA: Chart Pack-Australian GDP Growth And Inflation'. Accessed August 7 2014. Rba.gov.au,. 2014. 'Reserve Bank Of Australia - Home Page'. Accessed August 7 2014. Who.int,. 2014. 'WHO | Deafness And Hearing Loss'. Accessed August 7 2014. [1] Cochlear.com,. 2014. Accessed August 7 2014. [2] Dess, Gregory G, G. T Lumpkin, and Marilyn L Taylor. 2004.Strategic Management. 1st ed. Boston, Mass.: McGraw-Hill/Irwin. [3] Business.qld.gov.au,. 2014. 'PEST Analysis | Queensland Government'. Accessed August 7 2014. [4] Fda.gov,. 2014. 'Medical Devices'. Accessed August 7 2014. [5] Rba.gov.au,. 2014. 'RBA: Chart Pack-Australian GDP Growth And Inflation'. Accessed August 7 2014. [6] Rba.gov.au,. 2014. 'Reserve Bank Of Australia - Home Page'. Accessed August 7 2014. [7] Abs.gov.au,. 2014. '6202.0 - Labour Force, Australia, Jul 2014'. Accessed August 7 2014. [8] Abs.gov.au,. 2014. '3101.0 - Australian Demographic Statistics, Dec 2013'. Accessed August 7 2014. [9] Austrade.gov.au,. 2014. 'Major Infrastructure - Foreign Investment Opportunities In Australia By Sector - Austrade'. Accessed August 7 2014. [10] And.org.au,. 2014. 'Stats And Facts Resources Australian Network On Disability'. Accessed August 7 2014. [11] Who.int,. 2014. 'WHO | Deafness And Hearing Loss'. Accessed August 7 2014. [12] Harrison, Roger. 2000.Biomedical, Biotechnology And Pharmaceutical Innovation. 1st ed. Double Bay, NSW: CL Creations. [13] Healthyhearing.com,. 2014. 'Hearing Aid And Cochlear Implant Companies'. Accessed August 7 2014. [14] Hill, Charles W. L, and Gareth R Jones. 2013.Strategic Management. 1st ed. Mason, OH: South-Western, Cengage Learning. [15] Who.int,. 2014. 'WHO | Deafness And Hearing Loss'. Accessed August 7 2014. [16] Ahlstrom, David, and Garry D Bruton. 2010.International Management. 1st ed. Australia: South-Western Cengage Learning. [17] Cochlear Discovers New Levels Of Energy Efficiency, Resilience And Scalability With Art Of Computing And IBM Express Advantage. 2014. [18] Cochlear.com,. 2014. 'Cochlear Implants And Cochlear Implant Technology Cochlear India'. Accessed August 7 2014 [19] Businessweek.com,. 2014. 'Cochlear Research And Development Limited: Private Company Information - Businessweek'. Accessed August 7 2014. [20] COCHLEAR Annual Report 2013. 2013. Ebook. 1st ed [21] Auditoryverbaltraining.com,. 2014. 'Advantages Disadvantages: Hearing Aids Vs. Cochlear Implants Forthose With Severe Hearing Loss'. Accessed August 7 2014. [22] Cochlear.com,. 2014. 'Software And Programming'. Accessed August 7 2014.