Kindly go through the instructions and write a report based on Master card case provided below.

A0201

GMGT 4010 - ADMINISTRATIVE POLICY

TEAM NUMBER A0201

Word Count 828

Page Count 3

Professor Jie Yang

Section A02

HAND-IN TEAM ASSIGNMENT

Fall 2022

External Assessment

Health spending globally was US$7.8 trillion in 2017, equivalent to about 10 percent of gross domestic product (GDP). The industry is in the middle of tectonic shifts caused by changes in demography, digitalization, delivery, democratization, and decree that created a lot of opportunities for Philips to grow. The COVID-19 pandemic had accelerated these shifts. The World Health Organization predicted that by 2020, the prevalence of chronic diseases would increase by 57%. In order to provide the long-term care and chronic illness management services needed by a rapidly growing senior population, more resources for health care would be necessary.

Patients are now more actively participating in their own care due to mobile technology and apps. By separating care from institutional settings, remote monitoring is assisting in lightening the load on healthcare systems. Outpatient services are gradually taking the role of inpatient care. The change in distribution method is creating new opportunities allowing potential competitors from the retail sector to enter the market. Some industries, including those based in technology and software, are particularly well-suited to make the switch from goods to platforms. Digital technologies have a disruptive impact on how a corporation can personalize and customize its offerings.

Being alert of all incoming threats is not always easy. Since information is now more readily available than ever, Phillip is facing difficulties in preventing competitors from exploiting the information to imitate their products.

Internal Assessment

Philips is a leader within the global health and health care technology sector, operating in over 100 countries. The company has transitioned from providing household electronics, to health-tech products, and most recently moving towards health care platforms with an aim to combine the capabilities of their product line to improve customer outcomes.

The company has consistently produced quality products and comprehensive customer solutions to establish a sustained distinctive competency. This competency is extremely valuable as Philips is known as a trusted and reputable health care tech provider. To reach this high level of product utility requires deep understanding of customer needs and process knowledge which makes it rare and difficult to imitate. Philips’s organization structure enables them to capitalize on this competency.

Philips has established a high level of service resulting in loyalty and trust among their global customer base which is both an important strength and a sustained distinct competency. This strong relationship is very valuable and continues to serve them while they have transitioned their business model towards a solutions based technology which requires enhanced collaboration with their institutional customers. This deepened relationship continues to improve their product line and platform capability as they gain valuable insight on the ways their technology can improve to maximize utility. This trust and loyalty takes time to obtain which makes it rare and difficult to imitate. Philips is now organized to capitalize on this strength/distinct competency.

The restructuring of Philips organizational architecture based on customer needs, and updating the metrics for evaluating sales performance is a distinct competency as it directly aligns with the company's strategy. This shift is extremely valuable as it addresses earlier weaknesses to maximize synergy among various departments through improved information sharing resulting in increased product utility, relationship oriented sales, and overall improved customer experience. This organization architecture is rare and difficult to immediate because no two companies operate exactly the same.

Financial Assessment

As Philips discovered new opportunity within the healthcare system by shifting from product focus to consumer focus, Philips introduced a new strategy that led to developing platforms which enabled efficient and improved healthcare delivery and accessibility for the consumer. Although a new opportunity has been identified, Philips faces several dilemmas. Thus, it is important for Philips to have enough financial capacity to implement new strategy while simultaneously continuing to sell its products to generate revenue.

Last three years (2018-2020) of Philips’ financial performance shows that Philips are operating in net positive with steady increase of net income each year. The financial ratios from the years 2018 to 2020 also indicate positive performance as well (see Exhibit 3). This means that since net incomes are increased each year along with positive financial ratios, it enables Philips to utilize capital gains and make internal investments.

The company has enough financial capabilities to implement the new strategy and eliminate technology dilemmas that the company faces. First, Philips should optimize the process of creating and designing platform software which would lead to low expense. Second, Philips should invest in building infrastructure and hiring skilled managers that can develop, improve, and properly maintain the platform. Calculations show positive cashflow for the next 5 years with the initial investment for infrastructure and R&D for the platform. Consequently, expenses can be avoided and have positive outcomes with the new platform strategy.

Exhibit 1:

• Risk of entry by potential competitors due to easy access of data

• Mobile technology and apps working as complementors to Phillip products

• Low bargaining power of buyer

There are many opportunities for Phillips in the current external environment. Their products are innovative and are new in the market leaving low bargaining power for buyers. Rapid development of mobile technology and apps complements the products by providing easy access to health information to patients. Excessive accessibility to information is a threat to Phillips as risk of potential entrants can decrease their market share.

Exhibit 2: Internal Assessment / VRIO Analysis

In order to remain a leader in the health tech industry, Philips will need to increase collaboration as they move from products to platforms to ensure software development is compatible with one another in order to maximize utility of their system.

Exhibit 3: Financial Analysis

Source: https://www.macrotrends.net/stocks/charts/PHG/koninklijke-philips/financial-ratios

Most Profit Ratios and Leverage Ratio show unfavorable numbers. However, Liquidity Ratios, Activity Ratios, and Shareholder-return Ratio indicate favorable numbers. Thus, the ratios indicate Philips are performing well for the years 2018 to 2020.

Exhibit 4: Net Present Value Assessment

With initial investment, after 5 years of projected operations we have determined a net present value 3137 million euros associated with introducing the platform strategy. Costs associated with the resources required to develop the infrastructure for the platform have been implemented into research and development costs. We recommend proceeding with the project.

Exhibit 6:Assumptions and Justifications (NPV)

1*-Due to the trend in the past 3 years (2% increase in sales from 2017-2018, 7.5% from 2018-2019) we will assume a 5% increase in sales per year after 2019 (2019 as basis). This trend is assuming the success of Healthsuite and continuing global conditions.

2*- directly proportional to sales, therefore we will assume a 5% annual increase (2019 as basis)

3*- Will assume a 3% increase in 2 years with 2019 numbers as a basis, will then assume a 8 % increase every year after compensation metrics for Platform strategy are refined.

4* will assume a slighter higher estimate than normal (15% of Revenue) for the first 2 years for Research and Development as well as infrastructure investment required for the platform, and will then assume normal (10%) R&D costs for the remaining years.

5*- Due to the negligible amount and difficulty of an objective estimate, we will assume a static expense based on the average from the previous 6 years of income statements.

6* Will assume declining interest rates for 2020, 2021, and 2022 due to COVID 19 pandemic (2%, 1.5%, 1%). We will then assume a 2% interest rate in 2023 and a 2.5% rate in 2024 due to the estimated global economic upturn. Both financial expenses and income will be based on average from the previous 6 income statements and we will assume an interest rate of 2.5% as a basis.

7* Due to the necessity for collaboration with industry players in order to create an effective platform we recommend an increase to associate investments to a static 5 million euros a year, this will be for the purchase of shares in associated organizations to encourage partnership.

8* Due to a tax rate of 23% in 2019 and 27% in 2018 we will assume an average tax rate of 25%

9* Due to lack of data for wacc and alternative discount rates, we will assume a constant 10% per year, discount factor=discount rate to the power of years ahead of time 0.

References

Koninklijke Philips Financial Ratios for analysis 2009-2022: PHG. Macrotrends. (n.d.). Retrieved October 4, 2022, from https://www.macrotrends.net/stocks/charts/PHG/koninklijke-philips/financial-ratios

Koninklijke Philips N.V. (2021, July 25). Philips annual report 2019. Philips Results. Retrieved October 5, 2022, from https://www.results.philips.com/publications/ar19