Business Marketing Case 2 Summer 2006 Due June 22, 2006 The Boston Consulting Group: Finding re

enue gro!th in the medi"al so#t!are industr$

This case is one that the Boston Consulting Group offers to assist in developing strategic marketing understanding and application. You are acting as a consultant to GenCo., a medical instrument and services company. It will take you through five steps: . ". %. '. (. !ctively listening to the case #sta$lishing understanding of the case &etting up the framework of the case analysis #valuating the case using the framework &ummari)e and make recommendations to your client *GenCo.+ focusing on future efforts that address: a. The changing markets $. ,i-ing the market organi)ation to ensure $etter use of your resources and $etter prepare for the future of the market. c. The reduced market share for GenCo. d. ,uture marketing efforts . .arketplaces ". Competitive Impact on the markets %. #ntry / #-it strategies '. ,uture 0rofit areas: a. .arket &egments $. 0roducts c. #-isting customers and prospective customers relations d. 0ositioning, Customer &ervice, 0romotion

!s always, $e deli$erate, decisive, and detailed in your approach. Give a clear e-planation of your Conclusions and 1ecommendations citing particular elements of the case. 2on3t limit yourself to a narrowed approach, rather allow yourself to use what you have learned in the way of core products and processes to assist you in solving this $usiness pu))le.

Step 1: Actively listen to the case

Your client is GenCo, a large, international, diversified company with a health care division that produces a wide variety of medical instruments and related services. ,ive years ago, it e-panded into the health care software industry $y purchasing .edCount, which markets administrative systems to large 4.&. hospitals. These systems are designed primarily for $ack5office functions6 they are not designed for managing patients or providing other physician and technical support. &ince it was purchased, the software division has failed to deliver the growth needed to 7ustify the multiple GenCo paid for it. GenCo feels it has already s8uee)ed margins as much as possi$le, and now is looking for new sales opportunities. .edCount turned to BCG to help identify potential ways to increase revenues. 9ow would you approach this pro$lem:

Step 2: Establish your understanding of the case

First, let me make sure % understand the pro&lem' The parent "ompan$ produ"es medi"al de i"es and ser i"es, &ut &e#ore the a"(uisition !as not in ol ed in health "are so#t!are' The "ompan$ it pur"hased, MedCount, sells onl$ administrati e s$stems so#t!are to large hospitals' %t is no! looking #or opportunities to in"rease re enues' That is correct. Could % take a moment to )ot do!n a #e! thoughts* &ure, that would $e fine.

Source: The Boston Consulting Group On-line

Step 3: Set up the framework

% !ould suggest using the #ollo!ing #rame!ork: First, %+d !ant to understand the market si,e and gro!th rates #or MedCount+s market and related so#t!are markets' -e.t, % !ould like to e.plore the "ompetition and their market shares' Third, % !ould like to e.amine "ustomer re(uirements and then, gi en those e.ternal "onditions, look at the di ision+s "apa&ilities to understand ho! !ell prepared it is to meet the needs o# the marketpla"e' That sounds fine. &o what do you want to know a$out the market:

Step 4: Evaluate the case using the framework

/ell, the #irst hurdle !ould &e to identi#$ the markets the "ompan$ !ould &e interested in' Besides administration s$stems, !hat other t$pes o# medi"al so#t!are s$stems do large hospitals pur"hase* There are many software systems, $ut for the sake of time, the team focused on three primary markets: administration systems, patient administration, and physician support systems. /hat do those s$stems do* 0atient administration includes systems like admissions and tracking. 0hysician support systems are more speciali)ed, for individual physician procedures. % !ould like to kno! ho! large ea"h market is and ho! #ast ea"h is gro!ing' % !ould use se"ondar$ sour"es su"h as press releases, anal$st reports, and pu&lished market studies, to o&tain this in#ormation' Great; That is what we did during the market study. <ur information revealed the following market si)es and growth rates. !dministration .arket si)e *=.+ Growth rate ,(>> (? 0atient administration ,>>> (? 0hysician support ,">> "?

From a si,e and gro!th perspe"ti e, ph$si"ian support s$stems looks like a er$ attra"ti e market' %+d like to kno! a little a&out the "ustomers themsel es' The "lient is "urrentl$ targeting large hospitals' 0ppro.imatel$ !hat per"entage o# the market do the$ represent* @e were una$le to get an e-act $reakdown, $ut we know that these hospitals make up the vast ma7ority of the total medical software market. That !ould make sense, sin"e the more sophisti"ated pro"edures at a hospital might ne"essitate more ad an"ed so#t!are solutions' % kno! that there ha e &een a lot o# "hanges in the industr$ as a result o# managed "are' % don+t kno! mu"h a&out the industr$, so % !ould !ant to look at market studies and press "lippings to get a &etter sense o# the hospital market in general and an$ te"hnolog$ or so#t!are trends more spe"i#i"all$' <kay. AetBs say that you did that and were presented with this summary of market trends: Consolidation in the industry, with three to four large hospital networks dominating '( percent of the market Cost controls instituted, particularly as these large hospital networks ac8uire smaller hospitals *centrali)ation of functions $eing a key cost issue+ .any hospitals seeking to consolidate their vendor $ase @ith regard to technology, many hospitals upgrading their older systems %# hospitals are "onsolidating endors, perhaps our "lient has an ad antage in &eing part o# a larger medi"al "ompan$' Ma$&e the "lient "ould also gain some ad antages &$ e.panding into other so#t!are segments' 0re the people responsi&le #or pur"hasing so#t!are at the hospital the same #or all three segments* Aike all things, it differs $y hospital, $ut the larger hospital networks, have tried to consolidate their purchasing not only within $ut also across hospitals. %s the de"ision maker #or medi"al so#t!are the same as #or medi"al instrumentation and de i"es*

Source: The Boston Consulting Group On-line

In some cases, the head of purchasing influences $oth decisions, $ut the person who makes the final choice is different. &oftware decisions are usually made $y the hospital IT function, and those for instrumentation $y the medical staff. % think % ha e a prett$ good understanding o# the market #or no!' 1et+s look at "ompetition ne.t' /e "ould identi#$ all the "ompetitors and &uild up the market shares using a "om&ination o# pu&li" data and estimates' @ell, letBs assume that you donBt have an infinite amount of time to look at all the competitors. You can only look at the top five competitors in each market. You are given the following data: !dministration &ystems .edCount 9C& &oftware &ystems .orningside &oftware !dmin &ystems &olutions 9TI &oftware &ales *=.+ C>> >> D> C> (> Growth *?+ '? C? %? "? (?

0atient !dministration 9TI 1egistration &oftware &olutions &ignup &oftware 9C& &oftware &ystems 0atient &oftware

&ales *=.+ %>> "'> E> %> ">

Growth *?+ (? '? %? E? 5 ?

0hysician &upport 9C& &oftware &ystems 0hysician &upport &ystems .edical Technology Inc 9TI .ed&ys

&ales *=.+ (> >> "( "> (

Growth *?+ E? ? D? %"? (?

2er$ interesting' The #irst thing % !ould note #rom the data is that the market "on"entrations are er$ di##erent' %n administrati e s$stems, the top #i e "ompetitors "ontrol 66 per"ent o# the market and in patient administration, the$ "ontrol 63 per"ent' But in the ph$si"ian support market, the$ "ontrol onl$ 23 per"ent' % !ould !ant to kno! !hat gross margins look like in ea"h o# these markets as !ell' % might turn to anal$st reports and look at "ompetitors+ #inan"ial statements to dedu"e !hether the$ are making mone$ in ea"h market' Gross margins vary, of course, $ut the analyst reports have margins of "( to %> percent for administrative systems and for patient administration. ,or physician support, the margins tend to $e higher, more like '( to (> percent. % see that t!o "ompetitors, 4T% and 4CS So#t!are S$stems, ha e er$ large re enue gro!th in all three se"tors, although the$ ea"h dominate one' % !ould !ant to look at their #inan"ials, annual reports, and press releases to #ind out a &it more a&out their strateg$ in ea"h o# these areas' YouBd find that they recently entered these noncore markets. @hy might they have done that: 5erhaps, like our "lient, ea"h had a strong position in its o!n segment, 4T% in patient administration and 4CS So#t!are S$stems in ph$si"ian support' Ma$&e the$ too de"ided to &ran"h out into the other segments to #ind additional gro!th' That is a very good hypothesis. AetBs say there is evidence in the sources you consult that supports your assertion. /ell, i# that !ere true, these t!o "ompanies "ould &e a threat not onl$ in the other t!o segments, &ut also in our "lient+s segment, administrati e s$stems' %t looks as i# the "lient is slo!l$ losing market share in its segment, sin"e it is gro!ing more slo!l$ than its market' Good o$servation. The market and "ompetitor trends "ould also suggest that the "lient ma$ !ant to enter these other markets' %n parti"ular, the ph$si"ian support market looks attra"ti e, gi en it has high gro!th and la"k o# a dominant "ompetitor'

Source: The Boston Consulting Group On-line

The higher gross margins ma$ pro ide attra"ti e returns on the ne"essar$ in estment in so#t!are de elopment' 4o!e er, the patient administration market ma$ also &e attra"ti e' 0lthough it is more "on"entrated and o##ers lo!er margins than ph$si"ian support, the "lient ma$ &e a&le to enter this segment !ith a smaller up6#ront in estment' Gi en the trend to!ard upgrading e.isting "omputer s$stems, it ma$ &e important #or MedCount to ha e a produ"t o##ering in ea"h o# the three market segments' That should not &e too di##i"ult, sin"e the "ompan$ is alread$ in the so#t!are industr$' 0erhaps, $ut you should think a little more closely a$out these types of software. !re all software systems alike: /ell, let me think a&out that #or a moment' % suspe"t patient administration !ould ha e relati el$ lo! entr$ &arriers' From $our earlier des"ription, these s$stems appear to &e prett$ &asi", dealing primaril$ !ith admissions and patient tra"king 4o!e er, the entr$ &arriers in ph$si"ian support might &e higher, sin"e these s$stems are more "omple. and there are pro&a&l$ multiple s$stems #or the arious ph$si"ian pro"edures' % guess it !ould &e harder to get into those t$pes o# s$stems' That would make sense. Sin"e the "ompan$ might !ant to go into onl$ some o# the segments, % !ould !ant to kno! ho! important it is to ha e produ"ts in all three segments' Do !e kno! i# the "ompetitors are marketing their produ"ts as a &undle* 9ow might you find that out: Sin"e it !ould &e di##i"ult to talk to a "ompetitor dire"tl$, % !ould pro&a&l$ target a "ompetitor+s "ustomer, parti"ularl$ one that )ust "on erted #rom our "lient+s so#t!are' AetBs say you get an interview with a customer that recently switched to 9TI. You discover that the competitor was offering it a $etter pricing deal and service for software products in all three segments. 4o! !ere MedCount+s so#t!are and ser i"e per"ei ed in relation to those o# "ompetitors* The customer thought that its administrative systems were ade8uate, Fthe old stand$y,F $ut not stellar. /ere there an$ other ke$ reasons it s!it"hed #rom MedCount+s s$stem* @hen it decided to upgrade its systems, it tried to contact .edCount, $ut could never get a representative to descri$e its options. %nteresting' 4o! did 4T% per#orm* The 9TI representative had heard that the company was considering switching software vendors and provided a sales representative to pitch 9TIBs administrative product the ne-t day. %t de#initel$ sounds as i# there !as a pro&lem !ith the sales #un"tion and that "ustomer relations need to &e impro ed, parti"ularl$ #or the larger hospital "hains' There also seems to &e an ad antage #rom &oth a marketing and sales perspe"ti e in ha ing multiple so#t!are produ"ts' % !ould !ant to "on#irm those ie!s &$ doing #urther inter ie!s' AetBs say further interviews support those assumptions. Sin"e !e ha e alread$ looked at the e.ternal "onditions, % !ould like to mo e on to the "lient itsel#' %+d like to kno! more a&out its marketing and selling organi,ation as !ell as its so#t!are de elopment skills' So #ar, !e kno! that our "lient o##ers administrati e so#t!are and that there ma$ &e a pro&lem !ith sales and marketing' Could $ou tell me a little a&out the marketing department* The marketing department is organi)ed regionally. Teams are assigned to hospitals within each state or geographic region, such as Gew #ngland. That "ould e.plain some o# the pro&lems !ith MedCount+s marketing and sales' %# hospital pur"hasing is "entrali,ed, the marketing organi,ation ma$ &e outdated' Does the "ompan$ ha e an$ teams dedi"ated to the #our or #i e &iggest hospital net!orks* Go, there are no dedicated teams. They talked a$out doing that for a while, $ut it conflicted with the regional structure it had in place.

Source: The Boston Consulting Group On-line

/ith regard to so#t!are, does the "ompan$ #eel it has an$ strengths or !eaknesses* It feels that their administrative product is very strong *F$est of $reedF+ and is the dominant technology. !lso, the product is modular in design, which allows for easier upgrades. !lthough the company has never $ranched out into other market segments, the software developers $elieve that certain modules could $e used to $uild the foundation for other administrative software programs. The company feels customer support is also an area in which it e-cels.

Step : Summari!e and make recommendations"

Source: The Boston Consulting Group On-line