Opportunities: improvement in the image quality and time with each new product coming on the market, growth of MRI market as a proportion of the medical imaging industry (from 15.8% to 20% in 6 years), contracts for servicing the equipment can generate new revenue streams, enter the mobile sector with a new strategy, a high end product has a higher profitability potential.
Threats: need for FDA approval for launch, intensive and expensive testing required, low service fees, hospital cost cutting initiatives modifies demand for MRI towards the lower end segment, a switch in strategy for lower end products suggests strategy, team and resource modification, and lower profitability in the short term.
Porter’s 5-forces Model in view of the expected development of the mobile MR segment
Suppliers: Low degree of dependence
High inventory on IGC sites
Customers: Medium degree of dependence
Potential new customers CHC but there is a limit to market growth and contracts can go stale
Incumbent hospitals, attentive for latest clinical practices, remain interested in constant quality improvement of MR technology
Substitutes: High degree of dependence
The mobile sector develops as a stand-alone segment
Low cost previous generation scanners
New Entry: Medium degree of dependence
Impeded by FDA approval, high initial costs
Incumbent companies Picker and Diasonics target the mobile segment
GE (30.6%), Siemens (10.9%), Philips (8.8%), Fonar (8.4%) challenge Resotech (7.2%) in imaging
Industry Rivalry: High degree of industry rivalry
Consolidation in the industry due to high capital requirement
Competitors want to capture a bigger share of the pie through M&A activities and development of internal knowledge and R&D
Expected growth in the imaging industry exacerbates industry rivalry
5 Diamond Approach to recapitulate the findings of the above analyses:
Arena: Growing imaging industry, consolidating industry and high competitor rivalry to secure market position and capitalize on growth opportunities.
Value proposition: Improved services and cutting-edge innovation to customers; service contracts has strong potential in enhancing value; most reliable product on market; profit potential due to growth perspective and criticality of product;
Staging: Secure market position and systematically increase the market share through sophisticated and reliable equipment
Vehicles: In-house top-notch expertise and dedicated contracts with hospitals, possible upfront fees paid, venture capital and equity for funding operations
Evaluation: Need to increase liquidity in order to gain financial flexibility to invest in new projects
Strategy Formulation
Below we list a few strategies Resotech can follow in the immediate term:
(1) Develop the RS- 2000 – an improved and sophisticated version of the MR1000
Pros: The company relies on past dependencies and experience for succeeding in this project. It enhances value proposition and secures its leadership position in high-performance, top-quality MR equipment. Resotech is very performing; however its market share is only 7.2%, which calls for sustaining market position first. It is less risky to improve on a technology than to embark on the development of a new one. Cash inflows come from high margin contracts.
Cons: Cash intensive; myopia on the mobile segment side; lose potential new clients; discard the possibility of developing additional expertise in imaging technology
(2) Develop the mobile MR
Pros: Demand for such equipment exists. Upfront payments and contracts provide a level of security. Cash inflows will come from a volume contract.
Cons: A switch in strategy can be very costly as the entire operations of the company would need to change. It requires a new set of skills and equipment, and further financing. As the process of development starts, Resotech might run into unexpected technological riddles and demand further cash to continue research. Loss of credibility for technological intensity and scientific edge is possible.
(3) Stay the course by concentrating on selling existing RS-1000 and developing service contracts. As revenues increase and market signals are captured overtime, Resotech might consider developing a more sophisticated version of the current MRI and keep its position in the top end segment targeting institutional and educational hospitals.
Pros: Resotech takes time to stabilize its financial and market position, and to conduct further market research, thus mitigating the risk of running out of funds during the development phase and going in the wrong direction. Resotech does not interrupt the course for continuously creating value.
Cons: Resotech might lose momentum and let rival competitor capture excess profit potential.
Recommendation
Before we iterate a specific recommendation for Resotech’s future operations, we call for further evaluation of Resotech’s capabilities, R&D focus and potential, and company direction for the future. Management needs to know where the company is aiming at in the future, what market segments it wants to target, and consequently, determine where to concentrate resources and intellectual capital. Additionally, Resotech needs to spend more time on organizational structure, R&D and internal operations. A formalization of processes is required to facilitate the decision-making process and to enhance flexibility in reacting to market demand.
Given that Resotech’s organizational structure is not yet adapted to quickly responding to changing customer needs, we suggest that Resotech stays the course in the short-term and then embarks upon developing the RS-2000. In this way, Resotech utilizes its unique resources and capabilities to stay focused on its core business – very reliable, top performing state of the art technology. As Kumasaka would say: “We can’t lose momentum on this project.”!