Creating Competitive Advantage BUMGT: 760 Innostat case study This case study talks about Innostat company, which based in Boston, MA. The Innostat had charismatic CEO Jack Donally. This company was his creation. He had transformed the company from a small local manufacturer of scalpels and other surgical equipment into the world’s best-known maker of prosthetic limbs and surgical implants. Sales had reached more than $ 2 billion, with the company employing more than 5000 people at locations in Boston, Los Angeles, and Dublin, Ireland.
Mostly they are stakeholders in this business case. Innostat also had sales and marketing country organizations around the world. A few words about Jack. He had majored in history at the University of Massachusetts. He joined the company as a salesman after completing a tour of duty in Vietnam as a medical orderly. He loved to spend time talking to surgeons and researchers. He had that special skills that merged an interest in technology with an understanding of what customer needed and wanted. He typically came back from his travels full of ideas for new products.
He would go straight to the head of R&D and get him started on a project, rarely engaging Innostat’s senior team in discussion of these ideas and how they fit in to the company’s broader strategy. As a result, we see that power in hands of one person and, of course, his death will influence company’s life so much. This situation has a lot of disadvantages for future of the company. For example, marketing never developed as a strong function, and R&D, though technologically sophisticated, never developed marketing savvy.
Jack’s was bringing to the company some new modern idea, for instance, quality aspect. He believed that health care products had to be error free. That’s why the head of production was from Toyota – one of the best company in quality in the world. So basically it was simple structure – everyone reported to Jack and he made decisions as general strategic decisions as well as decisions in specific fields like marketing. He never asked advices. Last three years before Jack’s retirement, Innostat’s performance had declined dramatically, because the company met competitors in the market.
Some years before that, Innostat had a huge competitive advantage that only this company provided some products. But they haven’t developed new products. As a result, the company lost this competitive advantage. After a string of new offering in the 1990s, which delivered annual growth in revenue and profits of more than 15% a year, Innostat had not launched any major new products for the past four years, yet they were essential for profitable growth. In this difficult moment Stephanie Fortas became a new CEO of Innostat.
He has excellent education (PhD from Stanford and MBA from MIT Sloan School), experience (chief operating officer at Phasar, a medical technology company) and what is more important –she has good combination of technological skills and business savvy. She definitely understand that company needs changes and it worked before, it won’t work in future. Frank mentioned some problems and they are main problems for the company in this situation. Mostly Stephanie focus on them: 1) People are not thinking beyond their immediate functional departments.
They are focused only on making their numbers within their own units, so they don’t have so much reason to respond to product development initiatives from R&D. 2) Employees don’t believe R&D estimates of market potential. So they don’t understand why invest time and money on a promise they don’t believe. 3) Motivation is also problem, because the company needs more powerful incentives to get people thinking out of the box. Actually these are very logical problems for the company of charismatic leaders. They decide everything.
So there aren’t choices for employees to be independent, develop own projects and so on. Everything under control of good leaders, who only one person in the company knows how to develop a company. So now the main question for Stephanie is to reorganize company or not. I believe that yes. The company needs new products and impacts for development. Stephanie is good candidate for leading changes because her unique combination of marketing and technical skills. How does she see these changes? While she reading report, we understand it.
Management practices needs to be changed. Decision rights for new product development were to be taken out of R&D and given to cross-functional new product development teams headed by senior marketing people. The teams would be responsible for seeing the development from its early stages through to introduction of the product. The teams have to be interdisciplinary: bench scientists from R&D, a relatively senior manufacturing engineer, along with the manager of the plant making the product and someone from sales.
Also this report provided idea to create strategic marketing department. I’m not sure about the name of this department, but I guess we can call it simply strategic group. This group is needed for some reasons: 1) Stephanie can make mistake, which will negatively influence company’s future; 2) She doesn’t has clear and sequence plan and strategy; 3) She doesn’t has moral authority and respect in the company as a previous CEO. So it would be better to have support group. She has to be part of this group, but, probably, miss some meeting for helping creation of this group.
The main purpose of this group is identifying opportunities. 4) She can share risks with members of this group. There is one problem of this decision – who will be involved in this group? We have a few people: 1) Jim Pappas, director of sales and marketing. He mostly saleperson and marketing is a weak part of the company. Probably, we need change him from head of marketing position, but he has to be involved in this group. He understands what’s going on in market and as salesman he knows customer’s needs.
Anyway it would be a conflict, because Jim wouldn’t give up, but it’s essential decision, because he isn’t looking for new opportunities, but he is experienced. 2) Frank Timoshotsky is also possible member of this team. He is responsible for quality and I don’t see his bad impact on the company. He could be useful for strategic group. He is valuable person. But anyway this group will need new people, who can bring new ideas and new impacts. As I understand, Stephanie want not only new products, she want new culture in the company.
It’s much more difficult goal. I believe it would be better to organize some small interdisciplinary groups for development new products. They can be a good example of success inside company. Of course, it’s a huge risk, because nobody can guarantee success. On the other hand, it can bring excellent motivation to other employees. I believe it’s the best solution. The measurement o ? success in this case isn’t difficult – is there new product or not? What’s the market share of Innostat? What’s an annual profit?