- To forecast future strategies and decisions.
- To predict likely reactions to a firms strategic initiatives
- To determine how behaviour can be influenced to make it more favourable.
This needs to be understood in order to aid one’s own competitive moves and strategy.
One of the main models used in competitor analysis is the Five Forces Model by Michael Porter of the Harvard Business School. See Appendices I.
There are five major companies that provide competition to Smith & nephew according to . These are:
Agfa-Gevaert Ltd, Becton Deickinson Ltd, Ge Medical System Australia Ltd,
Medical Applications Ltd, and Paris Miki Aus Ltd.
When reviewing the competitive position of Smith & Nephew, they must be positioned against their perceived competitors, and how well they differentiate their offering (Brassington & Pettitt, 2001). For example, a review of their products offered (and how they are differentiated), and their financial performance over the last few years will provide an indication of their current position.
In comparison to Agfa, there is a large amount of differentiation among the products, for example, Agfa work largely on films (camera) & processors, hardcopy systems and computed radiology. The latter links in with their competition to Smith & Nephew: they provide x-ray equipment for endoscopy and for orthopaedics (). However, Smith & Nephew provide a more detailed website, with information on products – this is due to the more focused product range. ()
6.0 Financial Comparison between Smith & Nephew and Agfa:
Diagram 1 (Smith & Nephew)
Above one can see that the company has had a steady few years, maintaining turnover levels of over £1,000 million. According to their annual report (www.smith-nephew.com), turnover in 2001 was £1081.7 million, with an operating profit of £174.6 million. Dividends per share are also at a rate of £4.65, increasing from £4.50 the previous year (which was their 5 year low point). These are strong figures indicating a high market share level and strong competitive position. To illustrate their strength further the following figures were published:
- There was an underlying sales growth of 14%
- Acquisition added another 4% to sales growth
- Pre-goodwill amortisation earning per share up 15%
- Orthopaedics underlying growth at market leading 20%
- Outlook remains positive
In comparison, Agfa shows a high Gross Profit level of 1972 Euros, which calculates to £1,338.90. Agfa though, is not as strong through their stocks, with each dividend per share being at a level of £. 50 in 2002, which is an increase from £0.23 the year before ( – consolidated income reports).
As one can see from the analysis, and in accordance with the company website (), Smith & Nephew operate with the following strategy.
Company strategy is to be first choice for patients, suppliers, customers and employees. Smith & Nephew are looking for sustainable product development, so that they move in a positive direction providing a better quality of life for everyone involved. This is all done through a division of their strategy into several sectors. These are: Environmental management, Performance Measurement, Product Innovation, Social recognition, Economic performance and through Health & Safety. The company is strong in the marketplace and performs well financially. They are a market leader, and with reference to Appendices I, it becomes clear how their current strategy illustrates that.
7.0 Future Strategy and Recommendations:
When deciding on a future strategy, one must identify the resources and capabilities of Smith & Nephew to the opportunities that arise in the external environment (Bonge, 1972). According to Grant (2002), Smith & nephew must invest in what is currently strong, (sales and product portfolio), and then choose another area of investment.
Smith & Nephew has just undergone massive restructuring, with their focus now on advanced medical devices in the higher growth sectors. Their investment has been in two main growth drivers: strong and experienced sales teams, and an expanding portfolio of innovative products.
Smith & Nephew’s strategy is for future growth through product development in its existing core business and expansion into the rapidly growing market for less invasive therapies. It is believed that the orthopaedic market will continue to grow according to demographic data: this is largely attributable to the ‘over 65’ age group – joint replacement, and orthopaedic therapies are more common in this sector. Therefore a higher investment and development of superior quality products shall exploit the growing demand for the orthopaedic sector.
More technology developments, especially in biotechnology would be an excellent way of more effective testing for disease. This seems a logical move for Smith & Nephew, considering the threat of biological and chemical warfare on the horizon.
Over the next 3-5 year period, it is also a recommendation for Smith & Nephew to initiate a strategic alliance. This is briefly mentioned in the annual report from their website, arguing that it may be beneficial to pursue strategic alliances or acquisitions in order to complement its existing business. See Appendices III (Advantages and Disadvantages are listed). These types of transactions involve numerous risks, including successfully integrating acquired businesses – any of which could have a detrimental affect of the Smith & Nephew’s results.
Such a move would benefit Smith & Nephew – there would be a pooling and sharing of information allowing innovation and ideas to be spread and developed at a greater speed. Costs decrease too, as resources are united: this can allow for even greater investment into research over this future period. Through the above, Smith & Nephew are giving them a distinct advantage over their competition.
8.0 Justification of Strategy:
The main issue to deal with now is how this will give Smith & Nephew a competitive advantage. Grant (2002, p.227) defines a competitive advantage as ‘when two or more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of profit’.
8.1 Suitability: Smith & Nephew must decide whether the strategy they implicate is a good idea. By exploiting the demographic status of the growing elderly population, they can build on the strong market share they have and increase their treatment levels and product sales. They avoid the threat of losing any investment, as there will be a guaranteed demand for their services.
Many opportunities arise from the prospect of an acquisition or alliance, namely the sharing of resources, increased power and minimised costs. This will benefit such a large company, as they already possess an experienced sales team and a quality product portfolio. There are risks too, such as a possible lack of control. These are underlined in Appendices III.
8.2 Acceptability: The fore mentioned strategy should provide Smith & Nephew with strong financial returns. It is expected that turnover should grow to above the £1150m mark – this would be a result of the concentration on the ‘over 65’ sector. The only worry of any alliance would be the sharing of ideas, should the alliance fail. Years of experience may be lost.
There may be the possibility that economic factors can affect an alliance, for example if the other party were to face legal costs or penalties, then the brand of Smith & Nephew would also be attributed to this. This could affect relationships with customers, suppliers and loyalty to the brand.
8.3 Feasibility: The strategy is viable on several levels. Smith & Nephew have a strong brand that is a market leader in their field. Resources are high, with strong profit levels and a fine dividend per share ratio (as mentioned under financial comparison). According to the annual report, Smith & Nephew’s customers reflect the wide range of distribution channels to over 90 countries worldwide – the largest single entity being the National Health Service in the United Kingdom (representing 4% of the Groups worldwide total sales).
Any alliance would add to this strong foundation, and increase resources even further to satisfy customer’s needs. Such a strong base indicates that the strategy can be implemented with high performance level results.
One can also look at the role of the corporate parent. This is an aid for Smith & Nephew to help focus on their goals and keep in line with their mission and strategy. This will be useful over the next few years with their new strategy. Through benchmarking, whether it be financially against competitors or themselves, or through the product research and innovation, it becomes feasible to see the success of the strategy.
9.0 Conclusion:
What are the implications to Smith & Nephew?
The company is working with their resources and by using the future strategy are aiming to work towards a sustainable business. The aim of any company is to move towards sustainable product development (See Diagram below).
By working through product differentiation, Smith & Nephew offer distinct advantages to the healthcare profession in general, not just to those directly involved with them. By continuing their work based on their stronghold of the market and by attributing strategic theory to their product development over the next few years, the future looks bright for Smith & Nephew.
10.0 Appendices I:
PEST (LE) - (Grant 2002)
Political: Because Smith & Nephew operate in many countries, political development in those countries may have impacts on operations elsewhere. For example, laws must be considered and taken into account. How will this affect product development? Smith & Nephew must review such difficulties in order to develop a strategy that realises their capabilities, allowing them to compete in the market.
Economic: In a market such as this, economic factors play a massive role. It can affect inter-country trade, for example a rise in interest rates and exchange rates causes an increase/decrease in trade. The market itself though is growing, and since their rebuilding and restructuring in 2001, Smith & Nephew’s more focused approach on specific segments uses its resources more effectively. Many of the issues are dealt with in detail in Appendices II.
Social: Public opinion of a company such as Smith & Nephew is high. It is a market leader providing high quality medical equipment, and it holds strong relationship with many that are involved. According to their annual report, they destroyed any relationship they had with another party when it was discovered that they were not conforming to the standards Smith & Nephew set.
S&N encourages and supports employees at all levels that undertake community work, providing resources (money and materials) and paid time off to participate in projects.
Smith & Nephew supports a range of charitable causes (mainly at local level) by donations of money, gifts in kind and employee time.
Smith & Nephew are also a member of the UK Business in the Community and we are committed to adopting the principles of corporate community involvement across the whole group wherever practical. ()
Technological: This is a highly complex, technology motivated market, where innovation and development is core to business survival. Competition is intense, so in order to maintain a competitive advantage, massive investment is needed. Smith & Nephew re-invests 5% of annual turnover into research and development- this underlines their commitment to competing in such a hostile environment.
11.0 Appendices II:
See below a diagram of the Porters 5 Forces Model:
Smith and Nephew must examine each sector of the model and use it as analysis of competition and their positioning. This will then allow them to identify their drivers and strategy.
Substitutes: - This revolves around the price customers are willing to pay for a product, and also looks at the availability of a substitute product. In the case of Smith and Nephew they are in a strong market position as there will always be a need for their products. Not only this, Smith & Nephew are leaders in innovation, product development and the marketing of them.
Entry: - With an established company such as Smith & Nephew, entry into the marketplace would prove difficult. Massive investment would be needed, with product innovation and also access to channels of distribution. Smith & Nephew have a high market share and a long product life cycle. Significant barriers to entry exist in terms of technology manufacturing know how, market reputation and customer relationships.
Buyer Power: Much of the power lies with Smith & Nephew. Purchasers need the latest equipment and technology for higher results. Pricing can also be controlled through this, but business ethics and customer relationship are a core aspect of Smith & Nephews company strategy.
Supplier Power: According to there is a mutual benefit relationship between them and suppliers. There is a sense of bargaining power on each side. This allows a relationship to build over time, increasing trust levels and efficiency of service between the parties involved.
12.0 Appendices III
Advantages and Disadvantages of a Strategic Alliance:
Advantages Disadvantages
13.0 Bibliography and References
Brassington F., and Pettitt S., (2000) Principles of Marketing (2nd Edition), Pitman Publishing
Grant, R. M., Robert Morris, 1948-. - Contemporary strategy analysis : concepts, techniques, applications / Robert. - 4th ed.. - Malden, Mass.; Oxford : Blackwell Business, 2002
Grant, R. M., Robert Morris, 1948-. - Contemporary strategy analysis : concepts, techniques, applications / Robert. - 4th ed.. - Malden, Mass.; Oxford : Blackwell Business, 2002 – page 227 (quote)
Grant, R. M., Robert Morris, 1948-. - Contemporary strategy analysis : concepts, techniques, applications / Robert. - 3rd ed. - Malden, Mass.; Oxford : Blackwell, 1998
Bonge, John W. - Concepts for corporate strategy : readings in business policy / (by) John W.. - New York : Macmillan; London; Collier-Macmillan, 1972
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