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7/21/2019 Strategic Analysis ResMed
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Strategic Analysis: ResMed Holdings Ltd.
Eduardo Nieto Leal (764703)
Sara Marquez Jaramillo (726689)
Subject Name: Strategic ManagementDate: September 8, 2015Tutor Name: Solomon Habtay
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Executive Summary
This report provides a strategic analysis of ResMed Holdings Ltd., is an Australian subsidiary
of ResMed Inc., a company that develops, manufactures and distributes medical equipment for
the diagnosis and treatment of diverse respiratory disorders that occur during sleep. Methods of
analysis include external environment, encompassing general and competitive environment.
Additionally, the company will be analysed internally by value chain analysis of its primary and
secondary activities, value system analysis of the industry and definition of ResMed extended
value chains and Resource Based View analysis to determine distinctive resources and
capabilities. Results of this analysis show that ResMed Holdings Ltd. is a fierce competitor in the
industry of “Sleep and Respiratory Disorders Solution Devices Manufacturing and Distribution”
due to its high economic power to invest in R&D as well as its brand reputation and global
presence. Likewise, its distinctive resources help them accomplish outstanding product features,
reliability in the eyes of the customer and high speed compared to technology; all factors that
help ResMed maintain its leadership. The report finds that ResMed’s current positioning and
continuous investment in R&D could potentially take the company one step ahead of its
competitors. However, the analysis conducted has limitations, as information of ResMed
Holdings Inc. is not as readily available as information of ResMed Inc. So part of the internal
analysis was made using assumptions of resources and activities that both companies shared.
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Contents
Executive Summary 2
Introduction 4
External environment 5 General Environment 5 Competitive Environment 6
Internal environment 9 Value Chain Analysis 9 Value System Analysis 11 Resources and capabilities 11
Conclusion 14
References 14
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Introduction
This document aims to provide a strategic analysis of the external and internal environments
of ResMed Holdings Limited (ResMed). The internal analysis will focus on the Australian
subsidiary, rather than on the U.S. parent company ResMed Inc., while the external analysis will
also cover the relevant factors that affect their global operations. The specific industry where
ResMed operates can be defined as “Sleep and Respiratory Disorders Solution Devices
Manufacturing and Distribution”, but for the sake of this analysis both the “Medical Equipment
Manufacturing Industry” and the “Australian Health industry” will be considered.
ResMed is a public company that develops, manufactures and distributes medical equipment
for the diagnosis and treatment of diverse respiratory disorders that occur during sleep. It is fully
owned by ResMed Inc., and operates offices in ten countries. Additionally, ResMed sells
products in over 60 countries through and extensive distribution network (IbisWorld, 2014). Last
year, the company was ranked 270 out of 2000 Australian companies, generated total revenue of
$ 1,528,650,000 and had 2592 employees. Although profit margins have declined over the past
five years due to rising costs and investment in R&D, industry-related revenue is estimated to
grow at a rate of 7.4% in the following years (IbisWorld, 2014).
The Respiratory Care Equipment industry is related to technologically sophisticated products,
which has protected the industry from import competition from developing countries, and has
allowed ResMed and its competitors to charge a premium, thus maintaining strong profitability.
ResMed’s main competitors worldwide are Philips Healthcare and Fisher & Paykel, but any
surgical procedure or dental appliances designed to treat obstructive sleep apnoea (OSA) is
considered a competitor. The development of new procedures/devices to treat these disorders can
lead to ResMed’s products becoming obsolete, so even though the main players of the Medical
and Surgical Manufacturing in Australia focus on other segments, ResMed falls into that industry
as well. The industry’s revenue is $3.5 billion, and has an expected annual growth of 3.1% over
the next five years; ResMed currently holds 26.8% of the market share, followed by Cochlear and
Abbott Australasia with 20% and 9% respectively (Little, 2015).
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External environment
The external analysis will cover the general and competitive environments in which the
Australian subsidiary operates. The general environment includes different macroeconomic
factors that affect each firm in every industry, and over which no individual firm has control.
This environment will be analysed using a PEST analysis, to evaluate the power of the Political,
Economic, Social, and Technological factors over ResMed’s performance.
General Environment
First, technology plays a crucial role in the company and industry’s performance, as the
products in medical care and treatment evolve rapidly. For instance, developments such as
nanotechnology, biotechnology and robotic surgery could revolutionise medicine and the way
many diseases are treated. Firms like ResMed must have high investments in R&D to develop
innovative and convenient products that catch up to, or even lead the technological advances of
the market worldwide. ResMed for instance, had a decline in profits in recent years due to a rise
in these investments, especially after 2011 when R&D expenditure increased from $ 31,436,000
to $ 55,831,000, and kept the levels at similar numbers in the following years (IbisWorld, 2014).
Since ResMed’s main competitors are North American or European firms, high levels of quality
and innovativeness must be achieved in order to maintain market share and profitability. Seeking
this innovativeness, ResMed announced in 2013 a partnership with the University of Sydney that
includes long-term funding of research into sleep-related breathing disorders (IbisWorld, 2014).
Secondly, political factors affect ResMed’s operations by implementing policies and
regulations that can benefit or affect their business. In Australia, therapeutic goods manufacturers
are required to hold licenses, as well as taking full responsibility for the design and production of
their goods (Little, 2015). The Federal Government’s Medicare Levy implemented in 1997 has
benefited the industry by motivating people to buy private health insurance and therefore making
private hospitals invest more in equipment to provide better services. Policies related to public
funding affect revenue as well, as expenditure in public hospitals means that they can buy new
equipment. In the near future the Federal Government will fund hospitals depending on the
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amount of procedures carried out each year, which provides incentives for hospitals to increase
efficiency and use the industry’s most advanced equipment (Little, 2015).
Thirdly, economic factors affect ResMed mainly through international trade. Exchange rates
can have an impact on the imports and exports of the products, affecting competition both in the
Australian and the global market. As mentioned, ResMed exports to over 60 countries, and
imports in the Medical Equipment Industry in Australia account for over 75% of domestic
demand (Little, 2015). With an Australian dollar expected to devaluate in the near future, revenue
from exports will grow as Australian products become more competitive, and import competition
will decrease, as foreign products will become more expensive. It is the case with the European
market, as the AUD has lost value over the last months compared to the Euro (XE, 2015),
ResMed’s products become more competitive against European brands like Philips. Factors such
as tariffs and other trade barriers, inability to obtain import licenses, and changes in import or
export restrictions are just some of the risks that ResMed faces with international trade.
Finally, social factors affect the demand for ResMed’s products around the world. As people
live longer lives and ageing population increases around the world, chronic diseases emerge and
the need for products like ResMed’s arises. There is also a global increasing awareness of
respiratory disorders, and their relation with other diseases like cardiac or neurologic disorders
that forecast growth in the industry. Being expensive products, ResMed targets mainly countries
with developed economies with high health budgets, or private hospitals where wealthy people
would pay for the use of the products.
Competitive Environment
ResMed’s competitive environment can be analysed using Michael Porter’s Five Forces
Model, which takes into account factors such as: threat of new entrants, power of suppliers,
power of buyers, threat of substitutes and existing competition to determine the overall
attractiveness of an individual industry.
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First, the threat of new entrants to the “sleep and breathing disorders solutions” can be
considered low, due to the complex barriers to entry. First, health devices manufacturing and
distribution are highly regulated by governments, and low experience in the industry pose a
barrier for new participants. Second, the fast rate of technology change means that there is a high
investment in R&D, in addition to the high costs of machinery. Finally, brand name and
reputation are highly valued by customers when purchasing health related products. On the other
hand, existing competition in the industry is high. Two of ResMed’s main competitors globally
are Philips and Fisher & Paykel, which have great financial, research, manufacturing andmarketing resources. Therefore, ResMed has to develop high quality products and efficient
operations to be able to meet the highest standards. The main competitive factors in the industry
are product features, reliability and price, but customer support and efficient distribution are
important as well (ResMed Inc., 2015).
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The power of buyers is high in ResMed’s industry, given the high competition and different
options in the market. Customers in many countries have access to products from different
companies around the world, which feature different characteristics and prices, giving the
customer the opportunity to choose the product that provides the greater value. As mentioned
above, ResMed must differentiate from its competitors by its innovativeness and efficiency in
operations, due to the price consciousness of the market. The power of suppliers could be
considered as medium, as most of the raw materials are off-the-shelf products available from
multiple vendors, such as silicon and plastic. On the contrary, some rare components are
purchased from single-source suppliers, which gives them power to bargain knowing that
ResMed would need to find a new qualified supplier if they left (ResMed Inc., 2015). This
means that ResMed has power over most of its suppliers, but has to be careful with its
relationships with the single-source suppliers.
Competition from substitute goods is low, as ResMed’s products are highly specialised.
However, surgical procedures and dental appliances designed to treat OSA and other respiratory
conditions are substitutes. Despite the current competition from substitutes being low, the rate of
change in medicine and technology means that a new procedure or product can be developed in
another industry that could make ResMed’s products obsolete.
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Internal environment
The internal analysis will cover the value chain analysis, the value system analysis and the
resource based view analysis (RBV). The value chain analysis includes the significant processes
within the primary and supplementary activities of ResMed, which is then extended in the value
system analysis. Finally, the RBV identifies the significant and distinctive resources and
capabilities associated with the activities described in the value chain analysis. These analyses
show how ResMed’s activities differentiate them from its competitors by transforming resources
into core competences to achieve competitive advantage.
Value Chain Analysis
In order to analyse ResMed’s value chain, it is important to define who the target market
is. As mentioned before, ResMed’s industry is the Sleep and Respiratory Solutions Devices,
having as its core market are adults with OSA (ResMed, 2015b). This market has one main need:
treating and managing their respiratory disorders. To achieve this, ResMed performs the
following activities, aiming to add value to its cost position (Porter, 1998):
ResMed invests around 6-7% of its total revenue in research and development of sleep apnoea
and related issues (ResMed, 2015b). Through this research they develop innovative products and
treatments that increase customer’s willingness to pay. Subsequently comes the development of
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the product, which depends on sourcing raw materials, parts and components from multiple
vendors through inbound logistics. As said before, most of the sleep disorder products are made
from off-the-shelf items, but a few of them are uniquely configured components that might have
various or single-source suppliers (ResMed Inc., 2015). This activity is mainly supported by
procurement , as ResMed must monitor supplier performance in terms of quality and efficiency,
and as technology changes, it must purchase inputs from new qualifying suppliers.
Once ResMed sources the different components, manufacturing the devices mainly consist on
assembling and testing, as suppliers already manufacture components (ResMed Inc., 2015). The
Australian manufacturing site is located in Sydney, consisting of a 155,000 square-foot owned
plant (Company 360, 2015). Manufacturing the products in Australia reduces the costs of the
consumers in this country, as no high transport costs must be added to the total price. ResMed
constantly improves manufacturing and supply chain in order to improve gross margins and offer
competitive costs (ResMed Inc., 2015). The manufacturing activity is mainly supported by
technology development because factors such as component design, field-testing and technology
selection are essential in the development of an attractive product for the consumer,
Afterwards, products are distributed locally and internationally to over 70 countries (Company
360, 2015). Distribution in Australia is made through wholly-owned subsidiaries, direct sales
force, independent distributors and directly to patients (ResMed Inc., 2015). Furthermore,
marketing and sales focus on building sleep apnoea awareness in patients, clinics and doctors,
instead of marketing aggressively its products (ResMed, 2015b). So ResMed markets with the
help of medical institutions that offer their products as solutions for respiratory and sleep
problems.
Finally, service occurs when consumers need replacement or adjustment of products. Distributors
can repair them using parts supplied by the firm, or in some cases products are shipped back to
ResMed’s facilities (ResMed Inc., 2015). This is a cost advantage for patients in Australia
because the plant is located in Sydney and there are no extra costs in terms of time and money for
sending the product abroad.
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ResMed’s general administration and HR area enhance the six primary activities mentioned.
General administration is in charge of developing the overall strategy of the company, while HR
links employee and corporate strategies (ResMed, 2015).
Value System Analysis
Inside the value system of ResMed’s industry, the company has a horizontally integrated value
chain, performing only two specific activities while working with other companies that perform
the rest (Abdi, 2015). The following diagram shows how ResMed extends its value through the
activities of assembly and distribution.
Resources and capabilities
“The ability to predict outcomes, communicate insights and act on data effectively and
efficiently keeps ResMed in a leadership position” (ResMed, 2015b). So, ResMed’s proven
solutions to the OSA are its competitive advantage. ResMed has a set of resources and
capabilities that are significant for each of its value-adding activities; these are shown in the
following table.
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Some of these resources are distinctive, as they provide the firm with its differential
competitive advantage. ResMed believes that “the principal competitive factors in all of our
markets are product features and reliability,” as well as the speed of product development, testing
and marketing (ResMed Inc., 2015). In other words, the characteristics that help ResMed achieve
1 ResMed acquired CareTouch, a provider of resupply programs for home medical equipment providers
(ResMed, 2015d)
2 ResMed’s senior management team has extensive experience in the medical device industry in general and
intend to continue to leverage the experience and expertise of these individuals (ResMed Inc., 2015)
Activity Significant Resources and Capabilities
R&D
- Patents
- Successful legal team
- Innovativeness of productsInbound Logistics - Reputation with suppliers
Manufacturing
- Plant facilities in Australia
- Excellent trial and control systems
- Efficient product development
Distribution - Reputation with independent distributors
Marketing & Sales- Global brand name
- Reputation with customers for reliability and quality
Service- Outstanding customer service
- ReSupply1
General Administration - ResMed Inc. benchmark and communication
HRM- Managerial experience
- Knowledge transfer 2
Technology Development
- Technical and scientific skills
- Customer and distributor feedback
- Innovation capacities
Procurement- Acquiring new suppliers
- Qualifying suppliers
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a competitive advantage are: product features, reliability and speed. These characteristics are
accomplished by using the following distinctive resources.
First, intangible resources such as technical and scientific skills and innovation capacities
(refer to table) enhance product features. ResMed is committed to an ongoing program of
product development that is not only focused on improving current products, but also in
expanding to new product applications (ResMed Inc., 2015). This set of resources is valuable as
they help ResMed achieve differentiation, and rare because it encompasses over 5,000 patents
and designs that are rare to competitors and hard to imitate due to physical uniqueness ().
However, this is not a sustained competitive advantage as technology is always changing and
more substitutes to ResMed’s products are being developed.
Secondly, reliability is a function of two different intangible and distinctive resources: brand
name and reputation with customers. Brand name and reputation are valuable and difficult to
imitate because of path dependency and social complexity respectively. These two factors make
the resource a temporary competitive advantage. However, a brand name and reputation can be
substituted by developing a different but strong brand name, and many of ResMed competitors
also have globally recognized brand names.
Finally, to achieve a high speed compared to technological change, ResMed uses its
distinctive resources of plant facility and location, excellent trial and control systems and
efficient product development. The first two resources that relate to the plant are valuable but
easily imitable and not rare, as many companies can establish in strategic locations and many
have greater financial resources to establish an even bigger plant (ResMed Inc., 2015); therefore,
they are act as a competitive parity. On the other side, trial and control systems and efficient
product development are also valuable, but these are harder to imitate due to path dependency.
Still, there is a chance that a company may substitute these resources by developing different but
effective control and product development systems. So high speed is also a temporary
competitive advantage for ResMed.
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Conclusion
After analysing the external factors affecting ResMed, the industry can be considered very
attractive for the company. “Sleep and respiratory solution devices” is an industry with high
competition, but with low risk of new players or substitute products, and with high profitability
and projected growth. ResMed has already the brand reputation and the global presence needed to
compete globally, and has the economic power to invest in R&D and maintain its leader position.
By analysing the internal environment, the value chain analysis shows how ResMed’s primary
and secondary activities add value to the customer’s need of managing the respiratory disorder
effectively and cost efficiently. The second part of the analysis demonstrates that the two main
areas of emphasis of this company are assembly and distribution, which differentiate them from
the industry’s value chain and competitors. Likewise, ResMed’s competitive advantage is
accomplish using the significant resources that accompany each of ResMed’s activities, but
specially through their distinctive resources of product features, reliability and speed.
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