https://www.mediafire.com/file/80iu10pmhdn1oc1/Final_Exam_case.pdf.pdf/file this is the case study to write from II. External Assessment: Opportunities and Threats (about 1 page) Strategy relates

Date and time received

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GMGT 4010 - ADMINISTRATIVE POLICY

TEAM NUMBER 5

Word Count:

Page Count: 8

Alok Dua

Section A02 (Tuesday, Thursday, 9:00am - 11:45am)

FINAL EXAM GROUP CASE

Executive Summary - 1 pg ( - Wei & Jessica)

Dear Mr. Takeuchi,

Our team has analyzed Olympus Corporation's recent strategic changes and will provide recommendations based on our findings. In recent years, Olympus has shifted from being a well-known Japanese camera company to becoming a growing leader in the global medical technology (MedTech) industry. This report highlights the key suggestions we offer to help Olympus stay on track toward becoming a top global MedTech company.

The Medical Technology (MedTech) industry is highly competitive and is dominated by large global players. To maintain its competitiveness and promote growth, this report recommends that Olympus Corporation expand into developing markets such as China, India, and Brazil. These regions offer significant growth opportunities due to their vast populations and underserved healthcare needs.

Implementing this expansion into developing markets strategy involves Olympus customizing its offerings to meet local market needs and preferences, as well as establishing a strong local presence through strategic alliances and vertical integration. Financially, this strategy is expected to generate significant returns by entering high-demand markets, increasing market share, and enhancing revenue growth. Non-financial implications include improved brand recognition, improved healthcare outcomes in these areas, and stronger relationships with local stakeholders.

In order to finance the costs associated with this strategy, which include R&D costs, local manufacturing setup, and supply chain development, Olympus can use reallocated funds from divested non-core businesses, reinvested earnings from mature markets, and joint investment through local strategic partnerships. Olympus is also in a good financial position to utilize a combination of debt and equity to finance these efforts. These resources will allow the company to handle the initial investments without exceeding its financial capacity.

This strategy will increase Olympus’s market presence and revenue streams in rapidly growing areas, strengthening its competitive position globally. Additionally, by tending to the healthcare needs of these developing markets, Olympus will contribute to improved public health and economic development in these areas, enhancing its brand reputation and fostering long-term customer loyalty. Overall, this strategy positions Olympus for sustained growth and leadership in the evolving MedTech industry.

External Assessment (1 page - Aaliyan)

The Medical Technology (MedTech) industry develops, manufactures, and distributes the technological devices, equipment, and diagnostic tests that are used for disease detection and to ensure more effective treatment (Maresova et al., 2015). The industry spread to North America, Europe, Asia, the Middle East Africa, and Oceanic countries. Most Global MedTech firms are dominant in the U.S. since the U.S. is the largest medical device market in the world.

An opportunity for firms in the MedTech industry is to expand to high-growth markets such as India, China, and Brazil by adapting their product offerings to meet local needs. Statistics suggest that China and India have more than 2.8 billion population and a low endoscopist-to-population ratio, indicating demand for this expansion (Mohapatra et al., 2024). Firms in the MedTech industry will need success factors such as a strong research and development function to develop products to adapt to local needs, and robust supply chain distribution networks to reach a broader customer base.

Firms in the MedTech industry can diversify to single-use endoscopes to align with the shift in market demand, as consumers in the U.S. and Europe are starting to prefer single-use endoscopes to reusable ones. Studies show that U.S single-use endoscopes were predicted to grow by 15-18 percent per annum over the next five years and it will better fit patient needs (Collis, & Wert, 2024). Firms in the MedTech industry can leverage key success factors such as product development capability to develop products that are safe and cost-effective. In addition, the firms can invest in a strong sales and marketing value chain to create awareness among consumers on the benefit of single-use endoscopes towards infection control.

Firms in the MedTech industry experience intense competition from global endoscopic solution players such as Johnson & Johnson(J&J), Medtronic, and Boston Scientific, and some of these firms have specialized and others engage in all use cases (Collis, & Wert, 2024). Firms can address this competitive threat through investment in research and development capabilities to enhance the firm digital capabilities and develop new products that align with market needs. Also, the firm can leverage its technological prowess to enhance its optical and lens technology which is crucial in enabling the firm to enhance its supplier power in the market.

Exhibit I

1. Expand to high-growth market such as India, China and Brazil to adapt to local needs

· Leverage on research and products development to develop products to adapt to local needs

· Leverage its supply chain capabilities such as distribution network to reach a broader customer base.

2. Diversify to single-use endoscopes to align with the presenting market and shift in consumer in the U.S, Europe to prefer single-use endoscopes to reusable one.

· Leverage on key successive factor such as product development capability to develop products that are safe and cost-effective.

· Leverage on their sales and marketing value chain to create awareness among consumers on the benefit of single-use endoscopes towards infection control.

3. Players in this Industry experience intense competition from global endoscopic solution players such as J&J, Medtronic, Boston Scientific

· Address competitive threat through investing in research and development capabilities to enhance firm digital capabilities

· Leverage on Technological prowess to enhance it’s optical and lens technology which is crucial in enabling the firm to enhance its supplier power in the market.

Internal Assessment: Resources and Capabilities (1 page - Wei)

Olympus is a top global medical technology company. The company operates in multiple business segments, including endoscopy, therapeutic devices, scientific solutions, and medical imaging. Although it originally focused on Japan, it now operates in many countries due to strategic partnerships and acquis

Sustainable Distinctive Competency

Olympus’s sustainable distinctive competency is its advanced technology and expertise, giving it a leading position with a major share (over 70% market share) of the global market in endoscopes. This success comes from building a strong research and development function and promoting innovation throughout the company. To maintain its leading position, Olympus must continue investing in research and development and hire talented and creative employees.

Strength

Olympus exemplifies strong customer engagement by offering training programs that teach healthcare providers how to use their advanced technology. These programs also help Olympus gain a more thorough understanding of customer needs. This way, Olympus builds strong relationships and makes sure its technology fits the healthcare industry's needs.

Weakness

Olympus’s inconsistent product quality controls weaken its market position and damage customer trust. Poor quality in medical devices can lead to severe safety issues and attract regulatory attention, which would harm Olympus’s reputation, as it did after an illness outbreak in 2015. To address this weakness, Olympus should enhance regular quality control, invest in advanced technology, and ensure all products meet set standards. Building better relationships with suppliers can improve confidence that the inputs meet quality standards.

Internal Assessment: Financial Performance & Future Financial Capacity (0.5 pg - Jessica)

Olympus Corporation’s financial ratios from 2021 through 2023 demonstrate an upward trend in profitability through both its ROIC and its net profit margin. The ROIC increase from 1.73% to 14.65% (see exhibit 3) suggests that Olympus is becoming a more efficient corporation with better cost control, enhancing future financial capacity. Improved efficiency could be due to divesting from its imaging and life sciences business units to focus on MedTech. Olympus has seen a steadily decreasing debt-to-equity ratio from 1.99 in 2021 to 1.35 in 2023, as well as a high interest coverage ratio of 22.83 in 2023. This promotes future financial viability, exhibiting that the company is in a good position to take on debt in combination with sources like equity financing to fund its future strategic initiatives.

Current Strategies and their Implementation (0.5 pg - Jessica)

Olympus Corporation’s current strategy, as outlined in Exhibit 4, is focus differentiation. It concentrates on providing endoscopic and therapeutic products for healthcare professionals in the gastrointestinal, respiratory, and urological fields. The company differentiates itself through superior technological innovation and strong customer support, such as its customer equipment training programs. Olympus has pursued related diversification by developing therapeutic devices complementary to the endoscope. It uses vertical integration by offering solutions for different stages, like diagnosis and treatment, and has expanded through strategic acquisitions. Globally, Olympus uses a transnational strategy, globalizing through standardization of its major functions, while addressing local pressures through local innovation and partnerships. Its strategy implementation involves a 3D matrix structure with two divisions (ESD and TSD), functions, and regions. Controls involve global quality standards, job-based compensation systems, and a culture that promotes innovation, continuous improvement, collaboration, and high performance.

Key Issues of the Case (0.5 pg. - Dan & Ritu)

Visible and Pressing Issues

Olympus’s matrix structure poses challenges with decision-making, leading to inefficient decision-making. In turn, this causes friction between regional divisions and limits resource utilization. Moving from a seniority-based system to a job-based system has resulted in resistance, which affects organizational engagement and productivity.

Underlying and Long-term Issues

Integration of advanced technologies, such as AI and machine learning systems into Olympus’s MedTech products require investments and alliances. To obtain this, Olympus should adopt a strategy to acquire global talent. This will foster a top-performing workplace culture. A second underlying issue is employee fatigue and resistance from mature employees due to the rapid pace of organizational changes related to globalization. Strong change management, clear communication, and cultural alignment will help ensure a smooth transition.

Future Issues

Demands for minimally invasive and personalized solutions should be anticipated by Olympus. Therefore, Olympus should focus its innovation efforts on digital diagnostics as well as regulatory and market changes.

Implementable Strategic Alternatives (1 pg. - Dan & Ritu)

Expansion into developing markets utilizing focused product differentiation

Emerging markets, such as China, India and Brazil have healthcare sectors that are still developing and evolving, resulting in demand for affordable and quality medical equipment and technology. Therefore, Olympus should strategically direct its efforts towards expanding its market presence in these emerging markets. It would be beneficial for Olympus to alter its endoscopic and therapeutic products to meet local challenges and needs of healthcare providers in these markets. This will allow Olympus to differentiate its product selection and maintain a competitive edge. Furthermore, utilization of vertical integration in Olympus’s supply chain and development of alliances with local stakeholders can improve Olympus’s efforts for efficient market penetration. With this strategy, Olympus can address the key issue of expanding its market presence, while having a competitive edge. This aligns with Olympus’s corporate strategy of related diversification.

Full Global Integration

This strategy focuses on the complete integration of Olympus’s global operations, providing a more unified and cohesive company structure. The objective is a shift to a divisional structure, with each division having full authority over regional operations, product development, sales, and P&L. This results in more streamlined decision-making processes, reducing internal friction and leading to quicker demand fulfillment. Several strategic moves are required:

First, transitioning to a divisional model, giving each division control over regional sales, product development, and supply chain management - eliminating long negotiations between corporate functions. Secondly, the implementation of global standards across the entire company - specifically in human resources, finance, and IT - including deploying the data and analytics platform. Lastly, launching a universal change management program in order to address regional resistance, including extensive training in new systems and processes. Significant investment in digital capabilities would be required, involving R&D spending and global talent acquisition.

Criteria and Evaluation of Alternatives by Criteria (1.5 pgs - Dan & Ritu)

To evaluate our implementable strategic alternatives, three criteria will be used: NPV, stakeholder effect, and advancement in innovation and technology. NPV will be used to determine the expected financial benefit from each strategy. The stakeholder effect outlines the effects that each strategy will have on relevant stakeholders including customers, employees, and the environmental effects. Finally, advancement in innovation and technology will be used to determine Olympus’s competitive position regarding advancement in technology relative to the industry - specifically in digital solutions and medical technology (tools used in operations).

Expansion into Developing Markets

With this strategy, there are opportunities for growth for Olympus in regions that have high demand, such as China, India and Brazil. This strategy has an NPV of ¥1980.96, indicating that it has substantial potential for returns. Expanding into these emerging regions will increase market presence, which contributes to a higher NPV, even though this strategy requires significant investment for market penetration and localization.

The effect on stakeholders is optimal, as it would make high-quality medical equipment accessible in underdeveloped regions, resulting in a positive impact on public health. Furthermore, establishing a stronger market presence in these regions provides employment opportunities, which further contributes to economic development. Although, there are regulatory and cultural challenges, such as compliance and adaptation to local preferences, which can deter the success of market entry, if not handled strategically.

With advancements in innovation and technology, this strategy focuses on adapting products to meet the local challenges in emerging regions, rather than developing new technologies from scratch. Customizing products to local challenges does motivate innovation, although it will not rapidly advance Olympus to be a leader in cutting-edge technologies, such as AI and machine learning, which will maintain a competitive edge for Olympus in the long term.

Full Global Integration

This strategy has an NPV of ¥1671.21, primarily resulting from increased efficiencies from faster decision-making and a cohesive corporate culture. This strategy requires high investment in talent acquisition, administrative costs, and digital solutions - however, even with these investments, NPV remains high.

The stakeholder effects of this strategy would overall be moderate to positive. Firstly, the effect on employees will be mixed - some regions may have cultural resistance and thus feel dissatisfied with structural changes. Globally, the corporate culture will be more cohesive. Customers will be satisfied as faster decision-making will lead to more efficient development of medical technology. Environmentally, Olympus will be more effective as waste is reduced.

Finally, innovation-wise Olympus will be in a better competitive position as decision-making to allocate resources between divisions will be quicker than the current structure. Digital solutions will be deployed under the new globally integrated structure, allowing for consistent, seamless analysis and AI technologies - putting the company in a better position.

Recommendation and its Implementation (0.5 page - Viren)

Olympus should focus on expanding into developing markets such as China, India, and Brazil by leveraging focused product differentiation. Olympus should therefore customize its endoscopic and therapeutic products ensuring they are affordable and of good quality. This strategy is consistent with Olympus’ corporate strategy of related diversification which will enable it to have a competitive advantage over emerging competitors.

Olympus should establish localized product development teams to implement this strategy and make its products more acceptable in different regions. This involves investing in R&D and forming strategic alliances with local stakeholders to enhance market access. The company needs to integrate vertically across the supply chain to reduce costs and ensure that products are always available. Building manufacturing and distribution infrastructure to support the implementation will require an initial investment within these territories. It is possible to use funds reallocated from disposed non-core businesses and reinvested earnings in mature markets. Moreover, Olympus should train domestic sales and engineering staff while cultivating a spirit of innovation and customer-centeredness that would bolster the entrance into new markets. In effect, Olympus hopes to increase its market share as well as boost earnings by penetrating the fast-growing healthcare countries globally.

Limitations and Critique of Recommendation (0.5 page - Viren)

When it comes to entering emerging nations, it has some big dangers. However, adjusting Olympus’ products in order to meet local needs can overstretch the R&D department and hence interfere with time-to-market. Moreover, there might be regulatory hurdles and varying levels of healthcare access which could lead to non-compliance issues thus increasing the cost of operation. Conversely, joining this market requires a high amount of investments in infrastructure and partnerships that have a short-run impact on the bottom line. Furthermore, economic and political unsteadiness in such regions is capable of significantly affecting supply chains and operations. To mitigate these risks though, Olympus needs to devise strong risk management strategies that involve diversifying entry into several markets as well as having back-up plans for policy changes or geopolitics.

EXHIBIT 1: External Assessment (Aaliyan)

1. Opportunity: Expand to high-growth markets such as India, China and Brazil

• Strong research and development function to develop products to adapt to local needs.

• Robust supply chain distribution networks to reach a broader customer base.

1. Opportunity: Diversify to single-use endoscopes to align with the shift in demand

• Strong product development capabilities to create safe and cost-effective products.

• Effective sales and marketing value chain to create consumer awareness of the benefit of single-use endoscopes towards infection control.

1. Threat: Intense industry competition from global endoscopic solution players

• Continuous investment in a strong research and development function to enhance digital capabilities.

• Technological prowess to enhance optical and lens technology which is crucial in enabling the firm to enhance its supplier power in the market.

EXHIBIT 2: VRIO Analysis (Wei)

Olympus has shown strong competitive advantages in corporate operations. To fix manufacturing quality problems, tighter quality checks and ongoing improvements are needed to keep product quality high and stay a market leader.

EXHIBIT 3: Financial Ratio Analysis

Overall, since 2021, there has been an upward trend in profitability as seen by both the increasing ROIC and the increasing net profit margin. Liquidity is relatively stable, and debt is decreasing steadily. The increasing DPS indicates improved performance and financial stability.

EXHIBIT 4: Current Strategies and their Implementation (Jessica)

Name of the Business Strategy: Focus differentiation

Customer Needs:

• High-quality and accurate endoscope technology for diagnoses.

• Safe and reliable therapeutic devices for disease treatment.

Customer Groups: Hospitals and healthcare professionals

Basis for Competition:

• Superior technological innovation

• Superior customer responsiveness (i.e., equipment training programs)

• Focus parameters:

  • Product segment: endoscopic and therapeutic products

  • Customer segment: healthcare providers in GI, respiratory, and urology

Corporate Strategy:

• Related diversification: development of complementary endoscopic therapeutic devices

• Restructuring: divesture from imaging and scientific solutions; redesign into 2 divisions

• Vertical integration - offering solutions for different stages (diagnoses & treatment)

• Mergers & Acquisitions - expansion through purchases of companies like Medi-Tate.

Placement in the Value System: manufacturer, service provider (i.e., customer training)

Global Strategies: Transnational - balances global & local pressures

Major Functional Strategies:

• HR: Job-based compensation; global talent deployment; “two-in-a-box” management

• Quality: global quality system and standards

• R&D - Strategic Business Planning (SBP) process to prioritize projects globally.

• Manufacturing - lean techniques

• Sales - Omnichannel approach for cohesive customer experience.

Implementation:

Structure: 3D matrix structure of two divisions, functions, and regions.

Process: Divisions theoretically have deciding power over the regions, but still involve negotiations with some functions over some decisions.

Controls: Global quality standards and regulatory approval processes, job-based compensation.

Culture: Emphasis on innovation and continuous improvement. Instilling a competitive and collaborative high-performing culture.

EXHIBIT 5: Comprehensive Structure of a Strategic Alternative (Ritu)

Name of the Alternative of Strategic Goal Identifier

- Expansion into developing markets utilizing focused product differentiation

Customer Needs

- Demand for affordable and high-quality endoscopic medical devices, adapted to healthcare difficulties in developing markets.

Customer Groups

- Medical providers in developing markets that have limited medical technology

Basis for Competition

- Product differentiation with localization; efficient distribution networks

Corporate Strategies

- Related diversification

- Vertical integration

- Strategic alliances

Placement in the Value System

- Manufacturer and supplier

Key Issues Addressed by this Alternative

- Meeting healthcare demands of underdeveloped communities

Feasibility Justification for the Strategic Alternative

- Environmental Opportunities: Growth of healthcare industry and demand for affordable medical technology creates an environment that is good for expansion

- Environmental Threats/Risks: Competition, economic uncertainty, regulations

- Present Corporate Attributes: R&D experience, brand reputation, established distribution networks

- Missing and/or Insufficient Corporate Attributes: Needs more knowledge on local markets and develop relationships with local stakeholders

EXHIBIT 6: Comprehensive Structure of a Strategic Alternative (Dan)

Name of the Alternative of Strategic Goal Identifier

• Full global integration

Customer Needs

• Demand for high-quality, innovative medical technologies across global markets

• Access to advanced digital solutions

• Post-purchase support and services

Customer Groups

• Global healthcare providers (hospitals, clinics)

• Product groups:

  • Endoscopic Devices

  • Surgical Solutions - i.e., minimally invasive surgery tools

  • Digital health solutions - diagnostic tools, analytics platform

Basis for Competition

• Operational efficiency: streamlined, standardized global operations, faster decision making

• Innovation leadership: Integration of AI, digital solutions

• Broad differentiation strategy

Corporate Strategies

• Related diversification

• Restructuring to a fully multi-divisional structure

• Global talent acquisition

Placement in the Value System

• Manufacturer, supplier, and service provider

Key Issues Addressed by this Alternative

• Inefficiencies, friction, and slow decision-making from matrix structure

• Quicker integration of advanced technologies due to more cohesive global culture

Feasibility Justification for the Strategic Alternative

- Environmental Opportunities: Growing global demand for advanced medical technologies and digital healthcare solutions

- Environmental Threats/Risks: Resistance to changes due to cultural differences in regions, risk of over-centralization

- Present Corporate Attributes: Established global brand, R&D capabilities, experience in global operations, ongoing investments in digital innovation

- Missing and/or Insufficient Corporate Attributes: Limited experience with full divisional autonomy globally, differences in corporate culture in some regions

EXHIBIT 7: Assumptions and Justifications (Ritu)

1. Revenue growth: Assumption is that Olympus will achieve 5% revenue growth within the next 5 years. The justification is that Olympus is shifting towards MedTech and expanding into emerging markets. This growth rate integrates Olympus’s market potential and their strategic direction based off of the 2023 Integrated Report. Revenue growth under full global integration would be slower at first - 2% for the first two years during restructure, increasing to 6% after the restructure is complete.

2. COGS: The assumption is that COGS has a 3% annual increase. The justification is that Olympus its proficient in manufacturing, as well as cost efficiency. Their 2022 Integrated report reviews their efforts for optimizing its supply chain. COGS would be lower under the full global integration strategy due to higher efficiency - at 2%.

3. Operating expenses: The assumption is that operating expenses will increase by 4% per year. The justification is that Olympus needs to continually invest in R&D, particularly with AI and machine learning. This aligns with their 2023 Integrated report, which discusses innovation as a key aspect of future growth. This expense will increase significantly at first under the full global integration strategy due to restructuring, then stay at 4% year over year.

4. Interest rate: Assumed 2.5% interest rate for debt financing. In their 2022 Integrated report, they have an improved credit rating, which enables better borrowing opportunities. Olympus is also in a sound position to leverage debt for its investments.

5. Income tax rate: Assumed to be 29%. This is aligned with the average effective tax rate in the 2023 Integrated Report and it incorporates the tax environment in the markets that Olympus operates in, such as Japan and the U.S.

6. Exchange rates: 115 JPY/USD. 2021 and 2022 reports show that there is depreciation with the yen. Exchange rate variations are important due to their global operations.

7. CapEx: 4% annual growth. Olympus needs continuous investments to support its growth. The 2020 Integrated Report states that investments in tech and manufacturing are central. 3% annual growth is assumed under the full global integration strategy.

EXHIBIT 8: Strategic Alternative Net Present Value (NPV) Analysis (Ritu)

Projected Cash Flows in Billions of JPY

EXHIBIT 9: Strategic Alternative Net Present Value (NPV) Analysis - Full Global Integration Strategy

EXHIBIT 10: Evaluation of Alternatives by Criteria

EXHIBIT 11: Implementation Schedule

Resources

Collis, D., & Wert, H. (2024). More than optics: Olympus’s vision to become a leading global MedTech company. HBS No. 9-724-426. https://www.iveypublishing.ca/s/product/more-than-optics-olympuss-vision-to-become-a-leading-global-medtech-company/01tOF000003h0vEYAQ

Olympus Corporation. (2021). Consolidated financial results. https://www.olympus-global.com/ir/data/brief/pdf/Olympus_FY2021_Consolidated_Financial_Results_E.pdf

Olympus Corporation. (2022). Consolidated financial results. https://www.olympus-global.com/ir/data/brief/pdf/01_tanshin_Q4FY2022_en.pdf

Olympus Corporation. (2023). Consolidated financial results. https://www.olympus-global.com/ir/data/brief/pdf/01_tanshin_Q4FY2023_en.pdf

Collis, D.J., & Wert, H.(2024, Feb. 1). More than Optics: Olympus's Vision to Become a Leading Global MedTech Company. Harvard Business School.

Maresova, P., Penhaker, M., Selamat, A., & Kuca, K. (2015). The potential of the medical device industry in a technological and economic context. Therapeutics and clinical risk management, 1505-1514.

Mohapatra, A., Mohapatra, S., Mahawar, S., Pani, K. C., Mohapatra, N., Ramchandani, M., ... & Uedo, N. (2024). Endoscopic diagnosis and prevalence of early gastric cancer in India: A prospective study. DEN open, 4(1), e309.