cpm_guidant corporation shaping culture through systems - christoper
DESCRIPTION
This is about analysis on Guidant Corporation about how Corporate Management System could shape culture in a company.TRANSCRIPT
Guidant Corporation
• Established in January 1994
• Created from the spin-off of 5 companies from Medical Devices and Diagnostic Division -> generate value by reducing costs and creating competencies
• Design, produce, and sell medical devices
• Product : pacemakers, defibrillators, catheters, and devices for minimally invasive abdominal surgery
Guidant’s Main Businesses
Business unit
1. Cardiac Rhythm Management (CRM)
2. Vascular Intervention (VI)
3. Minimally Invasive Surgery (MIS)
Sales organizations
4. Western Hemisphere Sales
5. European Operations
6. Pacific Rim Sales
Guidant’s Business Unit
Cardiac Rhythm Management
(CRM)
• President : Jay Rac
• Combination of Cardiac Pacemakers, Inc. and Health Rhythm Technologies
• Product : cardiac pacemakers, defibrillators, and leads
Vascular Intervention (VI)
• President : Ginger Howard
• Combination of Advanced Cardiovascular Systems, Inc. and Devices for Vascular Intervention, Inc.
• Product : catheters
Minimally Invasive Surgery (MIS)
• President : Jay Watkins
• Predecessor : Origin Medsystems
• Product : laparoscopy
GUIDANT’S STRATEGY
Global product innovation
Economic partnerships
with customers worldwide
Organizational excellence
Global Product Innovation
• Family approach to speed product development
• Create common platform to incorporate core features and functions -> adapt derivative products rapidly to enhance technological performance and add new features.
• Platform development takes 2-3 years and involves significant leaps in innovation and technologies.
• Risk : new technologies and advances are subject to careful scrutiny
Economic Partnerships WithCustomers Worldwide
• Build strong relationships with physicians and healthcare administrations
• Develop a direct salesforce in markets (Japan and Europe)
• Reorganize sales function to establish closer relationships with customers, understand better the economics underlying their operations, and gain economic efficiency
Organizational Excellence
• As a culture in which all employees function as owners of Guidant
• Create employee commitment to the new Guidant Corporation (not each of the 5 original medical devices companies)
Core theme to work with for the eight strategic design teams:
Leverage Sales and Distribution
Optimize Global Presence
Build Cost-Effective Administration
Create a Stream of Novel Business and Products
Build Competence to Ensure Speed to Regulatory Approval
Minimize Risk of Regulatory Actions
Leverage Manufacturing Assets
Influence Public Policy Important to Our Business
Shareholder Value
Capital market as the ultimate judge of Guidant’s ability to create shareholder value
To achieve double market value in 1999, there are six specific financial goals:
Consistent value
Create strong reputation
Sales growth greater than competition
Decrease effective tax by 1% per year
Maintain capital expense below depreciation
25% Debt to Equity
Decrease OPEX 2% of sales per year
Improve gross margins
DESIGNING THE SYSTEM
1. Performance Measurement System
drive the innovation and value ceation
2. Belief systems
communicate core company values
3. Risk management system
prevent misbehavior
Performance MeasurementSystem
• Measuring economic value to align incentive system
• Incentive system objective:
1. to align the motivation of employees
with the creation of market value
2. have every person at Guidant benefit from the success of the company
Performance MeasurementSystem
“Economic Value Addes” is
A new indicator to measure the progress towards the creation of shareholder value
Residual income = Net income – CC
= Net income – (AA-ACL)*13,5%
CC = Cost of Capital
AA = Average Assets
AVC = Average Current Liabilities
10% of compensation was contingent upon increases in this residual income measure for Guidant
60% of their compensation linked to stock performance through stock ownership and stock options (as part of the long term compensation)
The incentive structure would facilitate communication, learning and mobility across divisions
Performance MeasurementSystem
Incentive of the business heads (Compensation of the ten senior managers)
Global Guidant’s performance
Performance MeasurementSystem
Bonus Structure Divisional Performance
The bonus was adapted to the changing needs of the division and based on the divisional performance.
The employees’ contribution was invested in a diversified fund
Next, would be necessary to fine-tune the incentive system to reflect unit performance more heavily than corporate performance.
Belief System
• Communicating Core Values
to reduce the potential of undesirable behavior
by distribued a 32-page Code of Conduct among its employees
• Guidant’s mission statement and core values were powerful vehicles to remind people what they were working for (a firm reminder of the foundation upon which economic value must be created)
Risk Management System
• Managing risk of the heavily regulated environment and the sanctions from Food and Drug Administration (FDA) to ensure the health-delivery standards was safe
• FDA required:
- detailed information on the characteristic of new medical device products and the manufacturing process
- Guidant to inform the agency of any changes in products, manufacturing process and sales material
Risk Management System
• A new compliance function (Chief Compliance Officer) was created to address this important control issue
• Each of the business units where compliance officers assumed a critical role, the same structure was duplicated
• A corporate audit function also established to document organizational processes, identify best practices across the company, perform process engineering and ensure the internal controls accomplished their objectives.
FUTURE
1995 •Managing the market pressures of the IPO and making Gudant a solid company
1996 •Four managers evaluated whether the system s put in place would shape the appropriate culture to drive Guidant forward as a successful medical devices company
Next •Long term planning (a well excuted planning system required a significant time commitment and possibly an environtment stable enough to look 2-3 years into the future)
Recommendation
• avoid the over stocking and upgrade the devices regularly
• according to the market need, comply with the statutory requirements
• implement the new products through innovations to increase the organizations profitability and decrease the operational cost
• handle the HR through balanced incentive system