MEDTRONICSWOT ANALYSIS AND

SUSTAINABLE BUSINESS PLANNING

By Adeboye Oluwajuyitan

Medtronic, plc (Medtronic), formerly Medtronic, Inc. is a medical technology company. It carries out the development, manufacturing and marketing of a wide range of medical devices, therapies and services used in the treatment of chronic conditions such as heart disease, spinal conditions, neurological disorders, vascular disease and diabetes.

INTRODUCTION

Its major products include aortic and peripheral vascular products, cardiac rhythm and heart failure products, coronary and structural heart products, advanced surgical technologies and general surgical products, medical supplies, respiratory and monitoring solutions, and venous solutions, diabetes services and solutions, intensive insulin management solutions, non-invasive diabetes therapies, Neuromodulation and neurovascular devices, orthopaedic and spine products and surgical technologies.

The Medtronic mission is to contribute to human welfare by the application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.

The company’s business strategy consists of three strategic priorities: therapy innovation, economic value creation, and globalization – aimed at addressing three identified universal needs.

These needs are increased outcome for better care, increased access to therapies so more people who can benefit from them are treated, and improve healthcare delivery to increase efficiency and reduce overall costs.

The Medtronic business achieved solid financial results in FY2015, achieving $20.3 billion in revenue and $2.7 billion net earnings. The company invested $1.64 billion, or 8.1 percent of total sales, in Research & Development — including new ways of addressing health problems in emerging markets such as China and India. Over $47.6 million was invested in employee training and development programs and more than $108.8 million was invested in training 50,000+ medical professionals around the world.

Medtronic donated 1.9 percent of its global pre-tax profits to charitable causes, and matched the generosity of its employees’ $25.2 million donations with nearly $20 million more to nonprofits of employees’ choosing. Medtronic also made good progress toward its ambitious 2020 Environmental Performance Goals, cutting carbon dioxide emissions and water use by 7 percent. Non-regulated waste was also decreased by 5 percent.

Medtronic currently has over 85,000 employees; the company operates in

approximately 160 countries. The estimated research and development spend is $1.640m

and it has over 53,000 patents. On January 26, 2015, Medtronic completed its

acquisition of Covidien marking a significant milestone.

The combination of Medtronic and Covidien has created a medical technology and service company with a

comprehensive product portfolio, a diversified growth profile, and broad geographic reach. The four groups –

Cardiac and Vascular, Minimally Invasive Therapies, Restorative Therapies, and Diabetes – are committed to

improving the lives of people through a wide range of medical technologies, services and solutions.

The Cardiac and Vascular group (CVG) brings all Medtronic cardiac and vascular businesses together into one cross-functional, collaborative operating unit. CVG provides innovative and comprehensive solutions, including the industry’s broadest portfolio of technologies as well as programs and services that drive economic value across the care continuum. ◦ Cardiac Rhythm and Heart Failure◦ Coronary and Structural Heart◦ Aortic and Peripheral Vascular

Cardiac and Vascular Group

The Minimally Invasive Therapies Group (MTG) aspires to enable earlier diagnoses, better treatments, faster complication-free recoveries, and enhanced patient outcomes, using less invasive solutions. MTG’s initial focus areas include diseases and conditions of the gastrointestinal tract, lungs, pelvic region, and kidneys, as well as obesity and preventable complications.◦ Surgical Solutions◦ Patient Monitoring and Recovery

Minimally Invasive Therapies Group

The Restorative Therapies Group (RTG) provides innovative, life-changing restorative therapies and services to meet the needs of millions of people worldwide who suffer from a wide range of chronic medical conditions.◦ Spine◦ Neuromodulation◦ Surgical Technologies◦ Neurovascular

Restorative Therapies Group

The Medtronic Diabetes Group is the world leader in advanced diabetes management, solutions, including integrated diabetes management systems, insulin pump therapy, continuous glucose monitoring systems, and therapy management software. The group also provides unrivalled, around-the-clock service and support to consumers and healthcare professionals.◦ Intensive Insulin Management◦ Diabetes Services and Solutions◦ Non-Intensive Diabetes Therapies

Diabetes Group

The company sells its products through direct sales force in the US and a combination of direct sales representatives and independent sales distributors in markets outside the US. The company’s primary customers include hospitals, clinics, third party healthcare providers, distributors, and other institutions, including governmental healthcare programs and group purchasing organizations.

The Medtronic headquarters is in Dublin, Ireland. The company’s operating divisions include Cardiac Rhythm Disease Management (CRDM), Coronary, Structural Heart and Endovascular, Spinal, Neuromodulation, Surgical Technologies and Diabetes.

DESCRIPTION : SWOT ANALYSIS

“SWOT is an acronym for the internal Strengths and Weaknesses of a firm and the environmental Opportunities and Threats facing that firm. Medtronic uses SWOT the analysis technique to create a quick overview of its strategic situation. The technique is based on the assumption that an effective strategy derives from a sound “fit” between a company’s internal resources (strengths and weaknesses) and its external situation (opportunities and threats). A good fit maximizes a firm’s strengths and opportunities and minimizes its weaknesses and threats. Accurately applied, this simple assumption has powerful implications for the design of a successful strategy.”

SWOT ANALYSIS

A SWOT analysis focuses entirely on the four elements included in the acronym, allowing Medtronic to identify the forces influencing its strategy, action or initiative.

Knowing these positive and negative elements will help Medtronic more effectively communicate what parts of its plan need to be recognized. Medtronic operates by making sustainability a central and core value of the business, one that reduces risks, creates opportunities, brings efficiencies and enhances the company’s reputation.

Strengths describe the positive attributes, tangible and intangible, internal to the organization.

 The strengths of Medtronic, Plc. include:

Innovation Brand name recognition Employee satisfaction

and retention Global growth

STRENGTHS

Medtronic practices optimizing innovation directly with their mission. The Medtronic brand name is recognized on a global level. Medtronic has been noted as a very satisfying place to work and was voted the best place to work in 2012 according to the website MedReps.com (“Medtronic – 2012 Best Places to Work in Healthcare Sales”, 2013), with a global employee turnover rate of 17%. Medtronic is an established presence in over 160 countries worldwide. There has been a continual increase in cash dividend for 38 consecutive years.

Weaknesses are aspects of the business that detract from the value the company offers or places the company at a competitive disadvantage. These areas need to be enhanced in order to compete with the best competitors.

 Medtronic Plc. weaknesses include:

More than 50% reliance on US markets Government Investigations

WEAKNESSES

In the 2013 Annual Report, Medtronic geographic revenue mix showed 55% of the revenue from the US markets. This strong reliance on one market can be damaging if there is an increase in competition or decrease in market share. Considerable controversy has been caused by a Federal Investigation into the sales and marketing practices and physician relationships related to off-label use of Infuse bone graft (Snowbeck, 2012). This is only one of several investigations the company has undergone recently, bringing a tarnish to the company’s reputation.

Opportunities are external positive or attractive factors that represent reasons the business is likely to prosper.

The following are Medtronic’s most significant sustainability opportunities:  1. Access to Care: championing the widest access to healthcare globally across various

systems and budgets.

2. Product Quality: ensuring that products and services unfailingly comply with the highest standards of safety and reliability.

  3. Ethics in Sales and Marketing: leading the industry as trusted partners who always

act with integrity.

4. Responsible Sourcing: collaborating with its supply chain to develop long-term relationships that enhance product quality, worker rights, and environmental protection.

5. Product Stewardship: minimizing the life cycle footprint of products and packaging through design innovation.

OPPORTUNITIES

As Medtronic develops its sustainability strategy incorporating Covidien, these priorities should be reflected in its focus and resource allocation. In addition to these five very significant opportunities, there are other material opportunities that could be of importance to Medtronic: trial data, stakeholder engagement, device security, philanthropy, post-market surveillance, corporate governance, talent, and financial strength.

Threats include external factors beyond the company’s control that could place its strategy, or the business itself, at risk. The company has no control over these, but may benefit by having contingency plans to address them if they should occur.

THREATS

Medtronic manufactures most of its products at 41 manufacturing facilities located in various countries throughout the world. The largest of these manufacturing facilities are located in Arizona, California, Colorado, Connecticut, Florida, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, Texas, Puerto Rico, Canada, France, Germany, Ireland, Italy, Mexico, The Netherlands, The People’s Republic of China, Singapore, and Switzerland. Many of the components and raw materials used in manufacturing these products are purchased from numerous suppliers in various countries.

Production and Availability of Raw Materials

For reasons of quality assurance, sole source availability, or cost effectiveness, certain components and raw materials are available only from a sole supplier. Medtronic works closely with its suppliers to help ensure continuity of supply while maintaining high quality and reliability. Due to the U.S. FDA’s requirements regarding manufacturing of its products, Medtronic may not be able to quickly establish additional or replacement sources for certain components or materials. Generally, it has been able to obtain adequate supplies of such raw materials and components. However, a sudden or unexpected reduction or interruption in supply, and an inability to develop alternative sources for such supply, could adversely affect operations.

Medtronic medical devices and business activities are subject to rigorous regulation, including by the U.S. FDA, DOJ, and numerous other federal, state, and foreign governmental authorities. These authorities and members of Congress have been increasing their scrutiny of Medtronic’s industry. For example, Medtronic has received inquiries from members of Congress and other government agencies regarding a variety of matters. In addition, certain state governments and the federal government have enacted legislation aimed at increasing transparency of Medtronic interactions with health care providers.

Greater scrutiny and regulation by governmental authorities

As a result, Medtronic is required by law to disclose payments and other transfers of value to health care providers licensed by certain states and, starting with payments or other transfers of value made on or after August 1, 2013, to all U.S. physicians and U.S. teaching hospitals at the federal level. Any failure to comply with these legal and regulatory requirements could impact its business. In addition, Medtronic may continue to devote substantial additional time and financial resources to further develop and implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, which may also impact the business. The anticipation is that governmental authorities will continue to scrutinize the Medtronic industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to its operations.

Medtronic devices and therapies are subject to regulation regarding quality and cost by HHS, including the Centers for Medicare & Medicaid Services (CMS) as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care goods and services. U.S. federal government health care laws apply when Medtronic submits a claim on behalf of a U.S. federal health care program beneficiary, or when a customer submits a claim for an item or service that is reimbursed under a U.S. federal government-funded health care program, such as Medicare or Medicaid.

Penalties could disrupt Reputation and Business Operations

The principal U.S. federal laws implicated include those that prohibit the filing of false or improper claims for federal payment, known as the false claims laws; those that prohibit unlawful inducements for the referral of business reimbursable under federally-funded health care programs, known as the anti-kickback laws; and that which prohibits health care service providers seeking reimbursement for providing certain services to a patient who was referred by a physician who has certain types of direct or indirect financial relationships with the service provider, known as the Stark law. The laws applicable to Medtronic are subject to evolving interpretations. If a governmental authority were to conclude that Medtronic is not in compliance with applicable laws and regulations, Medtronic officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation as a supplier of product to beneficiaries covered by CMS. If Medtronic is excluded from participation based on such an interpretation it could adversely affect its reputation and business operations.

Quality is extremely important due to the serious and costly consequences of product failure. Medtronic quality certifications are critical to the marketing success of its goods and services. If Medtronic fails to meet these standards, its reputation could be damaged, customers could be lost, and its revenue and results of operations could decline. Aside from specific customer standards, Medtronic’s success depends generally on its ability to manufacture to exact tolerances precision engineered components, subassemblies, and finished devices from multiple materials. If components fail to meet these standards or fail to adapt to evolving standards, its reputation as a manufacturer of high-quality components will be harmed, competitive advantage could be damaged, and it could lose customers and market share.

Quality problems with processes, goods, and services could harm reputation

Through its Business Continuity Management Program, Medtronic addresses disruptions that could impact the operations or supply chain, focusing on four key areas:

Business Continuity Planning: strategies to ensure that it can continue to operate and meet demand.

IT Response and Recovery: plans designed to respond to failures in technology and recover the infrastructure that supports business continuity.

Emergency Response: actions to ensure health and safety, protect physical structures, and limit environmental impact.

Crisis Management and Mobilizations: coordination of responses to crises.

The crisis management teams follow a protocol to effectively manage issues and synchronize responses across the business. The Corporate Crisis Team provides regular updates to the Executive Committee, ensuring that crisis strategies and protocols are executed appropriately. For issues with potentially significant business impacts, the Medtronic Global Command Center responds, and the Corporate Crisis Filter Team determines the appropriate level of response.

Reputational damage from unethical behaviorThe Medtronic Office of Ethics and Compliance trains every employee to comply with the letter and spirit of The Compass: The Code of Conduct for Living out the Mission. Employees receive other compliance training that is relevant to their jobs.

Failure to meet customer sustainability requirementsMedtronic quality, access, and environmental programs are designed to meet or exceed all customer product and service requirements.

Sustainability Threat Areas and how Medtronic Manages these Threats

Changing ethical, social, and environmental regulationsThe public government affairs and environmental function groups track relevant regulations in leading markets including the European Union, United States, and China. Medtronic engages with industry organizations and regulators to educate them about its industry and to prepare for emerging and pending regulation.

Increased costs from end of product life obligationsMedtronic will increasingly be expected to exercise stewardship over the full life cycle of its products and packaging, including end of product life solutions.

Medtronic has more than 50% reliance on US markets. It's involvement in the markets of other countries is small in comparison and it gets less than 10% of its revenue from the markets of third world countries. This is a weakness on Medtronic’s part and one that also presents itself as an opportunity, in terms of gaining wider world recognition as well as generating larger revenue. 

DISCUSSION: More than 50% reliance on US markets

Majority of the third world countries have poorly developed medical device industries. West Africa is a region which offers significant opportunity. In countries of this region, the biomedical engineering sectors are poorly established and poorly financed. Activities revolve purely around marketing and sales of healthcare technologies. International medical device companies including Medtronic, Plc. have their products distributed and sold to hospitals and retailers in these countries but there is no investment in their research and development sectors.

This is a threat to Medtronic as other healthcare technology companies can take the initiative by implementing their own R&D sectors in these regions and as such exercise major control there. This could also be an area of opportunity for Medtronic, Plc. if the company implements a project in the near future. The following reasons show

why:

More than 20% of qualified and licensed medical professionals, engineers, and technicians in West Africa are unemployed. Getting qualified personnel for the project will be a matter of preference as there are large pools of employed and unemployed personnel to select from. Acquiring workers from this cohort could be a risky move putting the already attained level of dependability at stake. However a way to prevent such a problem will be to properly screen applicants and even develop a training scheme thus providing a standard framework for potential Medtronic employees.

Large Pool to Select Personnel

There is a number of medical and engineering professionals interested in contributing both professionally and financially in the biomedical engineering sectors but who are unable to because the sectors poorly developed. A stakeholder analysis should include the medical professionals, a diverse range of engineers, other medical device companies in the region, private and public hospitals, and medical and engineering graduates.

Ample Supply of Investors

Investment in the biomedical engineering sectors of developing countrieswill bring modern medical innovations closer to people of these regions.

A combination of medical professionals familiar with the endemic diseases working with qualified engineers and technicians will favour the success of such a project. The Medtronic mission of alleviating pain, restoring health, and extending life will be getting addressed.

Fulfilling Medtronic Mission

Medtronic, Plc. establishing and developing R&D departments in West Africa and other developing regions will aid its sustainability goals and positively enhance its global growth and outlook as a company. This will lead to a significant increase in the number of investors and shareholders.

Sustainability Goals and Global Growth

Implementation of such a project could involve the acquisition and development of strategic local healthcare technology companies around involved regions.

Opportunity to Expand Local Partner Base

RISK A major drawback to implementing this project will be the

availability of necessary resources and infrastructure to maintain the current Medtronic operating standard, as in West African countries for example, availability of infrastructural facilities are not known to be widespread. This should be given risk priority one.

Since there is a more centralized distribution of infrastructure, a way to avoid such problems will be to start the implementation of Medtronic centers and activities in major areas that are well developed for example, the major capital cities of the region.

The Work Breakdown Structure of the project should include the following deliverables and project activities.

DELIVERABLES◦ -Expansion of Medtronic markets and presence to

countries of the West African region.◦ -Establishment of Medtronic centers in countries

of West African region.◦ -Establishment of Research & Development

centers of standard Medtronic, Plc. quality.

ACTION PLAN

PROJECT ACTIVITY◦ -Acquisition of major strategic local healthcare

technology companies in West African region.◦ -Appointment of overall project manager who will

deal with selection of secondary project managers.◦ -Recruitment of financial manager and accountant

manager◦ -Attribution of tasks to relevant personnel◦ -Procurement of necessary raw materials, devices

and equipments.◦ -Establishment of framework for employing

personnel and selection of workers.

The practice of innovation has netted Medtronic a large, rather diverse portfolio which helps to maintain its edge in a highly competitive market. The company’s continual growth and the ability to turn revenue into free cash flow make it appealing to the investing eye.

The recent lawsuits and hits to the company’s reputation do not seem to be causing lasting effects on the company’s bottom line. The acquisition of Covidien has made a great point for the company.

CONCLUSIONS AND RECOMMENDATIONS

Further strategic acquisitions of similar companies will promote the global growth of Medtronic and expand its investor population.

  Investment in medical device

companies and sectors of developing countries will be a very profitable move, promoting the company’s sustainability goals, investment base, and global outlook even more.

With the implementation of such actions and provided there are no more major settlements, or lawsuits, the Medtronic, Plc. should continue to fare well.