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Respironics Inc.: Expanding Success
BUS470, Business Policy & Strategy
Submitted to: Dr. Desmarais
December 11, 2010
Vanessa D’Angelo
Minushe Mustafaraj
Paul Atkinson
Jessica Purington
Cristina Coppola
Rose Barry
TABLE OF CONTENTS
Executive Summary
Macro-Environment
Industry Analysis
I. Industry Drives
II. Five Forces
III. Changes to the Industry Structure & Competitive Environment
IV. Existing Rivals competitive capabilities
Critical Issues the Industry faces
Respironics Inc., Competitive Capabilities
I. Business Strategy
II. Functional area strategies
III. Assessment of Respironics Inc.’s Strategic Performance
IV. Resources
V. Value Chain
VI. Assessment of Respironics Inc.’s Financial Performance & Capabilities
VII. Strategic Issues Respironics Inc. Faces
VIII. Management’s Values
IX. Organizational Culture
Appendices
A. SWOT Matrix
B. Stakeholder Matrix
C. Financial Ratios
D. Financial Trend Graphs
E. Budgets & Schedules associated with recommendations
F. Responses to questions asked during presentation
Executive Summary
Our consulting team completed an analysis of the company: focusing on opportunities
and threats, Respironics competitive capabilities, strengths and weaknesses. The analysis has led
us to suggest the following recommendations. Each recommendation is followed by supporting
persuasive logic regarding the current strategic issues and the steps to expand the overall success
of the company. The following recommendations contain the tools needed to take immediate
action.
We recommend Respironics:
1. Meet with Philips regarding the merger. Depending on the offer given by Philips,
Respironics will either accept or decline. After analyzing Respironics’ financial statements, we
believe it will be in the best interest of shareholders if the offer meets or exceeds $5 Billion. If
Philips does not meet or exceed the figure given, we believe Respironics will prosper as an
independent company. Respironics has strengths to defend against competitors. Respironics has
$260 Million in cash and marketable securities on hand to pursue new market opportunities, the
company also purchases from multiple suppliers. There are opportunities for new industry
possibilities as an independent company.
2. Lobby for change against existing Medicare guidelines. Current Medicare guidelines are
a threat to Respironics’ sales opportunities in the U.S. Respironics has the capital available to
fight this threat by increasing awareness and lobbing for change. We believe the Stardust will
sell successfully in the U.S., as it has in France if Medicare reimbursement policies change.
Respironics will increase awareness by running commercials on daytime television, educating
residents and asking them to petition their political representatives. The commercials will
educate individuals on the reimbursement guidelines that are restricting a market for the Stardust
in the U.S. and would also describe how the Stardust would result in faster diagnosis and
treatment of sleep apnea sufferers. Changing Medicare guidelines will dramatically increase
Respironics domestic sales.
3. Pursue international market potential. After the analysis of Respironics strengths and
weaknesses, the first implementation step is to align the current sales strategy with the overall
business strategy. By opening up more sleep clinics internationally Respironics can retrieve
more research on sleep disorders developing internationally, and with the research the research
and development (R&D) department can continually introduce new and marketable products to
attract new potential customers. Respironics has a broad knowledge of sleep disorders and can
start to further educate other countries. In a year’s time Respironics can control 18% more
market share raising control to 50% and by end of year 5 control the international market share.
4. Pursue the opportunity of an increased number of individuals with sleeping disorders by
utilizing face to face selling. There is a high demand for reliable and portable breathing devices,
created by the aging population. We believe Respironics should pursue this opportunity by
utilizing face to face selling. In face to face selling sales representatives will add value to
customers by highlighting the benefits of Respironics product line. Sales representatives will
target this age demographic by visiting retirement communities, hospitals, distribution facilities
and sleep clinics. Representatives will hold seminars geared towards educating individuals on
the benefits of Respironics breathing devices. The seminars will leave time for representative to
talk to individuals one on one to see how Respironics can meet the needs of this demographic.
5. Implement of strong internal and external quality control measures. Product liability
suits are a threat to Respironics. Implementing extensive training to all employees in every
department will aid in Respironics’ defense against this threat. External measures call for a
switch from Demand Flow Technology (DFT) to the 6 Sigma manufacturing. While DFT is
working, Senior Consulting strongly believes that this set of quality control and manufacturing
management would greatly improve the measures needed to advance in the industry as a top
competitor. 6 Sigma follows a strict zero-defect guideline which greatly improves quality and
reducing the process variation of production. These changes would provide overall
improvements in credibility.
6. Research potential acquisitions to expand their product line. Respironics has capital
available to pursue this opportunity and potentially buyout other companies in order to expand
and grow. The key is finding a company with the best strategic and financial fit for Respironics.
Finding the best strategic fit includes looking at the potential acquisition’s industry and product.
Followed by, analyzing the company’s culture and values. Respironics should identify with the
potential acquisitions corporate values. When looking for potential acquisitions Respironics
should seek companies, who focus on the success and needs of customers, recruit and retain the
best employees, empower workers to make decisions and assure social responsibility. The
desired outcome is to find a company with expertise in product development in order to add
more product lines through potential acquisitions.
Macro-Environment
In 2006, we saw growth in the U.S. economy; unemployment had many major changes.
Deficit was one of the biggest issues facing the U.S. economy. In 2006 the resolution affected
exchange rates, interest rates, inflation and growth for the next few years. Consumers
experienced the increase in debt payments. The debt left less money available for key
household expenditures, and late in the year many families began experiencing loan defaults
and bankruptcies. Inflation in most major countries remained low, and long term interest rates
were low as well. Japan saw relatively good performance by the end of 2006, the result of
strong demand from neighboring China. Although some of the biggest countries of the
European continent were stagnating. In 2006, global equity market returns were strong.
Although the price of oil has risen substantially, oil consuming nations seem to have
absorbed the shock reasonably well. Meanwhile, oil exporting nations are seeing their first
major windfall in a generation. The U.S. still imports vastly more than it exports, and job
growth continues to drop.
A political concern is dealing with the budget deficit, the looming public pension crisis,
the crisis in private pensions, and the issue of immigration and visas. The deficits were
financed largely by overseas investors resulting in higher interest payments out of the U.S.
Treasury. The outflow, in turn, exacerbated an already record high trade deficit fuelled by
America’s large dependence on foreign oil and rising oil prices over the years.
Medicare reimbursement policies restricted a market for Stardust, a portable sleep
diagnostic tool, in the U.S. The policy did not reimburse patients and clinicians for the cost of
the treatment.
Industry Analysis
Industry drivers
Sleep disorder and respiratory diseases were higher in countries across the world than in
the U.S. Some of the sleep diagnostic tools like CPAP were not popular or reimbursement
from Med Care in U.S. As the baby boomer generation got older the need to maintain an
active lifestyle increased the need to use ventilators, which in that period of time had became
more complicated. Ventilators were used on patients when they suffered from respiratory
diseases.
Five Forces
There were many rivals in the industry, and due to increase of the older generation in
the U.S., air pollution and an increase in the smoking population in other countries
Respironics’ individual size is growing. ResMed and Fisher Paykel Healthcare were the main
competitors for Respironics. There was not much differentiation as they contend with similar
products and sell to similar markets. Respironics competed on a product by product basis with
the company’s two rivals, some of which had significantly greater financial and marketing
resources and broader product lines. The rivals believed the principal competitive factors in
all of their markets were product and service performance, and improvement. Efficient
distribution and competitive price were also very important.
There was a high threat of entry into the Respiratory disorder industry. The industry’s
growing rivals had vertical integration, and significant amounts of horizontal integration.
They also were able to use economies of scale in their products. There were high costs and a
significant learning curve associated with entry. Exit barriers were not as high which allowed
companies to compete and switch form one product to the other.
A substitute for diagnosis and treatment of a sleep related disorder was surgery to
relieve airway obstruction, which was increasingly preferred by many patients. If the airway
obstruction was related to anatomical structures that were narrowing the airway, surgical
reshaping of the soft palate and uvula may be performed.
Respironics had bought parts from many different suppliers. DFT system implemented
in 1998 help Respironics to have just on time supply. The DFT implementation set the standard
for continuous improvement and implementation of best practices for the operations
management team at Respironics. Suppliers to the industry provide most parts of their tools. It
is very expensive for a company to switch suppliers so they are unlikely to do so. Many
companies use vertical integration.
Buyers are all over the world. The largest marketplaces are the Sleep and Home
Respiratory Group, the Hospital Group, and the International Group. Each group also has a
complete understanding of their markets. This decentralized business structure helps to ensure
that the Company’s resources are channeled to efficiently meet specific market in sleep
disordered breathing marketplace. They are massive buyers and have constant need of
product. The buyers do not use backward integration. Buyers’ switching costs are low, but
they are unlikely to switch to other.
Existing rivals competitive capabilities analysis
A threat for Respironics was the company’s two major competitors: ResMed and Fisher
Paykel Healthcare. ResMed’s competitive strategies consisted of branding, and the reliance on
clinical literature to tell where the market was headed. ResMed’s innovation and worldwide
distribution prowess gave the company an international competitive advantage. For instance,
in 2006, ResMed sold products in 68 different countries through a combination of wholly
owned subsidiaries and independent distributors. ResMed was poised to gain market share
because of the company’s reliance on clinical literature. For example, through clinical
literature, ResMed created devices for hypertension and diabetes patients, which expanded the
company’s target market. Moreover, 83% of individuals with hypertension who had SDB, and
80% of type two diabetes patients invested in the medical devices.
ResMed posed a major threat for Respironics. Respironics base was bigger in the U.S.,
but outside the U.S. ResMed was twice as big in the sleep business, and the company’s
growth rate was twice Respironics. ResMed’s strategy for increasing sales and market share
were to collect information from clinical literature and expand the market for the medical
devices by introducing new products. The sleep disorder business was growing because of the
increased awareness and improved understanding of sleep disorders. Therefore, ResMed had
the flexibility to make major strategic changes. ResMed was located worldwide, which gave
the company a competitive advantage over Respironics. ResMed had the opportunity to
dominate the industry internationally.
The other major competitive threat for Respironics was Fisher Paykel Healthcare.
Fisher’s competitor strategies involved increasing inventory and putting measures in place to
ensure help with the severe acute respiratory system pandemic (SARS). Fisher Paykel
designed humidifiers for individuals diagnosed with SARS, and the products boosted the
company’s profits by millions. Infant care products also contributed to the increase in profits.
Fisher’s products were sold in more than 90 countries, which put the company at considerable
exchange rate risk. Although Fisher Paykel was global, the company had the smallest revenue
when compared to ResMed and Respironics. Fisher Paykel Healthcare was a concern for
Respironics; however, the company did not pose a major threat. Fisher also faced competition
in the company’s international market because ResMed was worldwide as well.
Key Success Factors
Technology is one of the most important key success factors for the industry. The
medical industry is constantly changing and companies are coming up with new technologies.
Therefore, scientific research and expertise is beneficial to a company seeking to enter the
industry. The only way for companies to keep up with the new advancements is through
research and development.
It is a competitive advantage for a company in the industry to invest in scientific
research and expertise. Product innovation quality is a key success factor for the industry
because research and development are continuously changing. For example, when medical
scientists come out with new developments related to the industry, companies have to alter the
production of the devices in order to satisfy the new findings. In order to compete, companies
in the industry must change the quality of the product.
Internet expertise is a key success factor because the internet offers companies in the
industry a channel of communication. Moreover, there are several different jobs involved in
an individual company within the industry, such as engineers, manufacturers, clinical staff,
quality staff, marketing employees and purchasing agents. The internet is a way for the
stakeholders to communicate efficiently and effectively.
Manufacturing is a key success factor for the industry. Manufacturing flexibility is
important because it is crucial that companies within the industry have several suppliers.
Having several suppliers eliminates an excess amount of inventory, which saves the company
money in the long run. Also, supplier agents are willing to step in quickly because of the
importance of the medical devices. Manufacturing quality is particularly significant for
companies in the industry. Medical devices are produced with precaution because customer’s
lives depend on the quality of the product. Companies are responsible for assuring quality in
the industry by hiring quality assurance inspectors and also customizing test fixtures.
Developing ways to ensure quality is advantageous to the company in the long run, financially
and for the company’s reputation, and also eliminates lawsuits and recalls before the devices
leave the assembly lines.
When focusing on skills within companies in the industry, workforce talent is especially
important. Workforce talent is a key success factor because companies in the industry want to
guarantee the products developed are dependable and safe for customers to use. Training
employees is tremendously important for workers in the industry because people’s lives are
directly reliant on the devices. It is profitable for the workforce to be well-rounded, in which
workers are able to perform numerous job tasks and develop different skills among operators.
Quality control is another key success factor because companies in the industry work to
ensure high quality. Quality is imperative for the industry mainly because people depend on
the devices to survive. Developing trustworthy products with high quality prevents the
company from lawsuits and recalls.
A key success factor important to the industry is image and reputation because
companies in the medical field are dealing with other people’s health. It is important for the
image and reputation of companies in the medical industry to be reliable. Moreover,
companies in the industry want to eliminate recalls as much as possible by increasing quality.
Another key success factor is the access to financial capital, particularly for research
and development. Research and development is an essential aspect in the industry because of
the constant medical changes and advancements. Also, capital is necessary for the ability to
hire skilled workers educated in the medical field to help develop innovative products.
Lastly, patent protection is a growing key success factor. Patent protection is a way for
companies to protect the development of new technologies beneficial to the industry.
Furthermore, a company with a technological development which is protected has an
advantage over competing companies because rivals are unable to use the new development.
Critical issues the industry faces
There are possible surgeries that provide long-term benefits that relieve the side effects
of the sleep and respiratory disorders. However, the surgeries do contain risks, pre and post-
surgery complications may arise. An alternative to these surgeries are certain medical devices
(CPAPS) that have been developed. These are a less invasive and safer way to relieve the
symptoms from sleep and respiratory disorders providing a more comfortable life to patients.
This is a positive issue facing the industry due to the advanced number of people developing
sleep disorders. While it had a negative impact on the patient, there is a need for treatments
which creates a positive influence for the industry.
The advancing technology is a critical issue that the industry faces. Research and
development is an important factor in this advance. There are more enhanced technologies for
the equipment and procedures available for the industry. It is imperative for companies to use
these advancements to improve development of new products or services provided to
customers. The medical industry field is progressive and has the need to be cutting-edge and
elite in the ideas created to improve the health of their market. In the sleep disorder segment,
there needs to be research involved both medically on the disorder and in the products that are
going to help with that particular disorder. Investing in R&D is one way a company can gain
an advantage in the industry over another company that has gathered less information on the
advancing technologies available to market.
The medical industry field is an elite area of production. There are high barriers to enter
because it is a niche market. The companies in the industry need to have progressive products
to offer that are effective for the solution of the medical issue faced by the patient. The rules
and regulations that need to be followed are imperative to abide by due to the nature of the
industry. There are also high costs associated with remaining in the industry. The products
developed are high priced for this niche market which means the cost of production is also
high. A company requires high capital to enter or remain in the industry.
Although the number of potential buyers is increasing, the companies must compete for
potential buyers to obtain revenues in order to remain in business. This can be a challenge for
companies attempting to enter the market or stay in the industry.
Respironics Inc. Competitive Capabilities
Business Strategy
Respironics’ overall business strategy is broad differentiation. This strategy calls for the
development of a product that offers unique attributes. The unique attributes must offer value,
either real or perceived to the buyer.
Functional Area Strategies
Under a differentiation strategy companies should be utilizing face to face selling as a
sales strategy. Respironics sleep area sales representative sell diagnostic equipment and
services over the phone, while hospital group sales representatives sell ventilators to
pulmonologists face to face.
R&D department primarily focused on new products, including major enhancements to
existing ones. This accounted for forty to fifty percent of sales in every two year period.
Respironics invested approximately six percent of annual revenues into research and
development.
The company’s manufacturing and assembly facility used demand flow technology
(DFT) to assemble electromechanical devices. Assembly lines were developed so that
multiple products could travel along them. The implementation of DFT resulted in 400% unit
volume increase and component inventory reduced by 60 to 70 percent. Despite the improved
process for applying adhesive in 1995, Respironics voluntarily recalled several of its products.
In 2006 the company recalled 172 thousand humidifiers that had been in use for three to five
years at a cost of $5 million.
Respironics’ basic organizational structure consists of three groups; each with its own
separate business units: Sleep Group, Home Group, Hospital Group, and International group.
Both the Sleep Group and Hospital Group have their own sales forces. The Sleep group sells
diagnostics equipment and services to sleep clinics, and the Hospital Group visits the ICU of
hospitals, selling breathing devices.
Respironics acquired competitors in the sleep equipment therapy market and respiratory
market. The series of acquisitions has increased Respironics’ product line. For example, the
EverGo, a portable oxygen concentrator, was added to Respironics product line in 2006 in the
acquisition of OxyTec. In 1998 Respironics bought Healthdyne Technologies for $337
million in stock and $38 million in assumed debt. Healthdyne manufactured monitoring
devices for newborns and therapeutic devices for sleep apnea and other respiratory disorders.
Assessment of Respironics strategic performance
Currently, Respironics sales strategy is a weakness. Respironics’ year to year growth
rate in sales is declining, from a 21% increase in 2004, to 20% in 2005 and 15% in 2006. The
company needs to align the sales strategy with the business strategy in order to add value to
customers.
Respironics research and development department continually introduces new
marketable technologies and products to the market. Respironics’ R&D functional area
strategy is strength to the company. However, improvements could be made by following the
lead of competitors. ResMed’s investment into clinical literature has enabled them to expand
the market for CPAP devices. The literature suggested that CPAP devices could help diabetes
patients manage glucose levels.
Respironics quality control measures are an internal weakness. Despite added quality
control training, Respironics voluntarily recalled several of its products in 2006, costing the
company millions of dollars.
Successful acquisitions are strength of Respironics’. Through the process of successful
acquisitions the company has grown and expanded its product line.
Resources
Respironics developed a set of core competencies to support its vision and
organizational structure. The three competencies were: teaming, market foresight and learning
agility. Respironics holds a completive advantage in the industry. The company named
Harvard Medical school professor of sleep medicine, Dr. David P. White as its chief medical
officer. Dr. White wanted to redefine the sleep industry. This competitive advantage put
Respironics a step ahead of competitors.
Value chain
Respironics had reduced costs of carrying inventory by implementing demand flow
technology. This technology meant that employees made products only based on orders
received.
The company purchases from many suppliers. One suppler utilized a kanban system to
deliver printed circuit boards to Respironics’ assembly facility on an as needed basis.
The company has an international group that provides the selling of the devices to Asia,
Pacific, Middle-East and Africa. Domestic sales representatives utilized phoning and face to
face selling.
Assessment of Respironics Inc. Financial performance & capabilities
Respironics started with $13 thousand in capital in 1976 which was raised from angel
investors. Now, Respironics exceeded the $1 billion mark in revenues for the first time, as
well as had $260 million in cash and marketable securities to pursue new market
opportunities. With the financial success Respironics had there was still concern with the
price fluctuation in Respironics’ stock price as well as the steady decline in the domestic sleep
therapy equipment market share. In 1998, Respironics acquired Healthdyne Technologies,
Inc. for $337 million in stock and $38 million in assumed debt. Since 2001, Respironics sales
had grown by at least 15% and net income had risen from $84.4 million in 2005 to $99.9
million, giving Respironics two awards for market leadership, one in the sleep diagnostic
device market and the other in the positive airway pressure devices market.
Respironics invested about 6% of annual revenue in research and development (R&D),
which compared to other competitors was slightly better. Respironics also funded other types
of research activities such as, educational and charitable activities, and invested $1.5 million
in the company’s foundation. Another concern Respironics had was the recall of humidifiers
which cost the company $5 million, and also had to hire a firm to handle the collection
process. In the sleep and respiratory market Respironics was using the sufficient capital of
$260 million to acquire a couple of companies as well as create new products. Mini Mitter
Company was first acquired by Respironics for $10 million in cash, and from the acquisition
Respironics developed ventilator-related products which increased global hospital ventilation
sales up 15% from 2005. OxyTec Medical Corporation (OxyTec) was than acquired by
Respironics for $10.4 million, but there was room for provisions up to $30 million depending
on the operating performance in future years. Respironics also acquired Profile Therapeutics
for approximately $44.6 million to help deliver not only oxygen to patients, but also deliver
the drugs needed for the patients.
Respironics does not rely on being a “highly debt-leveraged firm” and does a good job
with collecting receivables in a short amount of time to turn the cash received into additional
sales. The problem Respironics had was the money used to fund operations was greater than
the money received from the operations; also Respironics does not receive a sufficient
proportion of money from each dollar of sales.
Strategic issues facing Respironics
Respironics strongly presents the company's vision to be the worldwide leader for the
sleep and respiratory markets. The large market creates low barriers to current medical device
companies, and forces a threat upon Respironics. The vision and organizational structures:
teaming, market foresight, and learning agility will assist in the success of the vision.
Furthermore, the addition of a substantial mission statement will further provide information
to current and potential buyers.
Respironics had an opportunity to become a partner with Phillips, a mutual business
interest. However, Respironics wanted to remain an independent company and was not
interested in a business combination or acquisition.
By becoming the manufacturer for Phillips, Respironics will no longer be an
independent company. Changes to the overall business structure would change and success as
an independent company would not be present. If the offer is accepted, Repsironics will rely
on Philips for the manufacturing of the products, while expanding the distribution of the
product line CPAPS and C-Flex Technology.
Respironics needed to assess the Medicare guidelines which threatened the expansion of
sales in the U.S. Stardust was a popular product in France which patients wore on his/her
chests and the device recorded physiological data while the patient slept in his/her own home.
Respironics could not market the product in the U.S. because patients and clinicians could not
get medical reimbursement. Respironics also was competing for the non-ResMed
international market share. Respironics held 32% market share while ResMed held 50%
market share. ResMed’s investment in clinical literature was the reason for the company’s
international dominance.
Respironics had the opportunity to take advantage of an increased number of
individuals with sleep and respiratory disorders because of the aging population. The baby
boomers (born between 1946 and 1964) were eager to maintain active lifestyles. The
increased number of individuals who smoked was another opportunity for Respironics to
supply efficient breathing devices to the respiratory market. The decrease of liability suits was
another strategic issue the company faced. Respironics recalled 172 thousand humidifiers
which cost $5 million. In 1997, Respironics was being sued by ResMed for patent
infringement. Acquiring new potential acquisitions was another strategic issue the company
faced. Potential acquisitions for Respironics must fit strategically and financially. For
financial fit, Respironics calculated net present values to pay back, dilution and accretion.
Management values
Respironics’ board members had concluded Respironics needed a leader with strong
sales and marketing skills as well as strong personal skills who relates to healthcare
professionals, salespeople and customers. Hiring James Liken as CEO and John Miclot as
president of Respironics showed strong and effective management. John Miclot succeeded
James Liken as CEO and now the values were even stronger. Chief Strategic Officer, Craig
Reynolds and Chief Medical Officer, Dr. David P. White made the management values start
to drive Respironics’ organizational culture. Respironics’ management values started from the
top-down and the characteristics of the management is what Respironics needed.
The ability for Miclot to communicate effectively and efficiently with others as well as
have the confidence and decisiveness to deal with strategic issues the company faceed really
had a positive effect throughout the company. The credibility of Dr. David P. White was an
important value which Respironics board members was looking for. Miclot, Reynolds, and
White all had integrity, respect for others, and personal resolve as tools which the 3
implemented throughout Respironics. The most important value each one had was personal
humility, where each one would not think of themselves less but think less of themselves.
Organizational culture
The organizational culture relates specifically to the employees working for the
company. Respironics provided extensive benefits and cared a great deal about how the
employees were being treated within the organization. The need to express the vision to
customers was as highly important for the organization itself as the employees. Happy
employees make for a healthy organization. The more the employees were enthusiastic about
Respironics and what they stand for, the energy will transfer into the production of products
and the outreach to the customers and potential buyers.
With 47 hundred employees at the closing of 2006, Respironics genuinely cared about
the well being of their workers. Respironics reminded the employees to drink enough water,
to take walks outside and to take vitamins to remain healthy. There were many benefits for the
employees including; fitness centers, medical and dental, education reimbursement, stock
options and other critical options for the happiness of their employees. Respironics also
believed in internal entrepreneurship within their functional group areas.
Respironics consisted of three basic function areas. There was the Sleep and Home
Respiratory Group which held a focus on the patient and their area of treatment. There was
also the Hospital Group, which also determined the area of treatment for the patient. The sales
associates associated within these groups focused their marketing towards the sleep clinics,
home care or hospital organizations to sell the products available. There was also the
International Group, which accounted for three regions; Asia and the Pacific, Europe and the
Middle East and Africa and the Americas (which consisted of South America and Canada).
The sales associates within this group sold to approximately twenty-five countries.
Respironics believed in many values along with their vision statement. Some core
values mentioned were; the focus on driving the success of our customers and they believed in
the hiring of the best people, retain the best people and accept no less. Respironics also
believed in the allocation of resources to achieve the objectives of the company while
maximizing the shareholder value and reiterate social responsibility within the organization
and industry.
The continuation of the positive organizational structure within Respironics is a key strength
and opportunity to grow further in the sleep and respiratory disorder industry.
APPENDICES
A. SWOT Matrix
B. Stakeholder Matrix
C. Financial Ratios (see attached Excel document)
D. Financial Trend Graphs (see attached Excel document)
E. Budgets and schedules associated with the recommendations
F. Responses to questions asked during presentation
Opportunities:
Increased knowledge of Sleep Disorder
Selling Respironics to Phillips
Potential Acquisitions
International Potential
Increased number of people with Sleep
Disorders as the average age increases
(Respiratory market increases)
Increased international market (more
people smoke overseas)
Threats:
RESMED’s market share increased
RESMED has two times the annual
growth rate outside of the U.S.
Product liability lawsuits because of
recalls
Medicare guidelines preclude
Strengths:
260 million in cash
Respironics also has securities
Demand flow technology – product only
based on orders received (saves
company money)
Research and development continually
introduces new marketable products and
technologies
Weaknesses:
Not adding value through marketing
Stakeholder matrix
STAKEHOLDERS SPECIFIC
COMPANIES,
GROUPS &
INDVIDUALS
TYPE/ NATURE
OF THE
RELATIONSHIP/
WHAT WE DO
NEEDS HOW WE
SATISFY
THOSE
NEEDS
Customers
Patients with
sleep and
respiratory
disorders
Hospitals
Provide respiratory
system to help with
breathing & sleep
To live
comfortably
To sleep and
breathe
CPAP, Masks,
C-Flex design
Competitors
ResMed
Fisher &
Paykel
Employees
Sleep Group,
Home Group,
International
Group
Reflects the
locations of patient
diagnosis and
treatment.
Selling
respiratory
product line to
various
locations.
At sleep clinic,
home or
hospital.
Provide
systems to
patients
suffering.
Shareholders
Customers in
Industry
Investors
Community
Raise
awareness
Community
relations
Providing goodwill
Simulation
programs to
provide
awareness
Strategic
Alliances
Philips,
Healthdyne,
Consumer
Health Care
Meet with Philips
to discuss potential
future
Maintain
relationships
Financial trend graphs
All three company’s assets are financed more through equity rather than debt.
Respironics strengths are not relying on being a “highly debt leveraged firm.
The graph shows how much debt each company has compared to their assets. A ratio
greater than 1 means a company has more debt than assets. All 3 companies have less debt than
assets. Respironics strength is keeping their long term debt relatively low while having sufficient
amount of assets.
0
0.05
0.1
0.15
0.2
0.25
0.3
2003 2004 2005 2006
Years
Debt to assets ratio
F & P
ResMed
Respironics
0
0.002
0.004
0.006
0.008
0.01
0.012
2003 2004 2005 2006
Years
Long term debt ratio
F & P
ResMed
Respironics
The graph shows all 3 company’s either operate on a cash basis or the extension of credit
and collection of accounts receivable is efficient. Resipronics strength is by maintaining
accounts receivable the company is indirectly extending interest-free loans to their clients.
The graph shows F&P takes the longest to collect their receivables meaning most likely
F&P are selling their product on credit and taking longer to collect money. Where ResMed and
Respironics both collect money in a shorter amount of time. Respironics strength is by taking a
shorter time to collect money owed to them, they can put the cash into use again, by ideally
making more sales.
0
1
2
3
4
5
6
7
2003 2004 2005 2006
Years
Receivables turnover
F & P
ResMed
Respironics
0
20
40
60
80
100
120
140
2003 2004 2005 2006
Day
s
Years
Days' sales in receivables
F & P
ResMed
Respironics
F&P takes longer to collect receivables in 2003 and 2004, and ResMed takes longer to
collect receivables in 2005 and 2006. By not collecting receivables in a short amount of time
like Respironics does, F&P and ResMed cannot turn their receivables into cash as fast.
Respironics strength is turning their receivables into cash faster than their competitors.
The graph shows F&P generates more sales from operations than funding their operation,
while ResMed and Respironics do not do as well. Respironics weakness is they use more money
to fund their operations compared to the sales they make from their operations.
0
20
40
60
80
100
120
140
2003 2004 2005 2006
Day
s
Years
Average collection period
F & P
ResMed
Respironics
0
1
2
3
4
5
6
2003 2004 2005 2006
Turn
ove
r
Years
Net working capital turnover
F & P
ResMed
Respironics
The graph shows how effectively these companies generate net sales from fixed assets.
Respironics strength is effectively generating more net sales from fixed assets than their
competitors.
The graph shows the amount of sales generated for every dollar’s worth of assets for each
company, the higher the turnover the better. Respironics strength is the high amount of sales
they generate from their assets; this also tells us the effectiveness of a company’s pricing strategy
because if a company has a high asset turnover then their profit margin is smaller. Respironics
other strength would be their pricing strategy.
0
0.5
1
1.5
2
2.5
3
3.5
2003 2004 2005 2006
Turn
ove
r
Years
Fixed asset turnover
F & P
ResMed
Respironics
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2003 2004 2005 2006
Turn
ove
r
Years
Total asset turnover
F & P
ResMed
Respironics
The graph shows the proportion of money each company makes from every dollar of
sales. F&P and ResMed have high margins which is good. Respironics weakness is they don’t
receive a good proportion of money from each dollar of sales.
The graph shows how much out of every dollar in sales each company keeps in earnings.
The higher the percentage the better, so F&P and ResMed keep more in earnings from each
dollar of sales. Respironics weakness is for every dollar in sales they keep very little of the dollar
in earnings which indicates they are not a profitable company and does not have good control
over their cost compared to their competitors.
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006
Pe
rce
nt
Years
Operating profit margin
F & P
ResMed
Respironics
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006
Pe
rce
nt
Years
Net profit margin
F & P
ResMed
Respironics
The graph shows how profitable each company is with the money the shareholders
invested. F&P is very profitable from the investments of shareholders over Respironics
and ResMed. Respironics weakness is not generating enough profits from shareholders
investments which make the shareholders very unhappy.
The graph shows how much profit each company gets from the assets they have. F&P
has a great return and gets more money for their assets. Respironics weakness is they are
not getting a sufficient amount of return from their assets.
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006
Pe
rce
nt
Years
Return on equity
F & P
ResMed
Respironics
0
5
10
15
20
25
30
35
2003 2004 2005 2006
Pe
rce
nt
Years
Return on assets
F & P
ResMed
Respironics
The graph shows how much of the company’s profit is allocated to each outstanding
share of common stock. Respironics allocates the most profit to their outstanding shares of
common stock. Respironics strength is showing how profitable they are through their
outstanding shares of common stock.
Respironics, ResMed and F&P all display current ratios above 1. This indicates that all
three companies have good short term financial strength and posses adequate resources to pay
debts over the next twelve months.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2003 2004 2005 2006
Years
Earnings per share
F & P
ResMed
Respironics
0
1
2
3
4
5
6
2003 2004 2005 2006
Years
Current Ratio
F & P
ResMed
Respironics
The quick ratio is an indicator of a company’s ability to meet its short- term obligations
with its most liquid assets. Companies with higher quick ratios are in better financial positions.
In 2006 ResMed displays a higher quick ration than Respironics.
The above graph depicts total debt ratios for Respironics and two major competitors. The
total debt ratio indicates what proportion of debt a company has relative to its assets. All three
companies have ratios below 1, indicating that they all have more assets than debt.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2003 2004 2005 2006
Years
Quick or Acid test ratio
F & P
ResMed
Respironics
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
2003 2004 2005 2006
Years
Total Debt Ratio
F & P
ResMed
Respironics
This liquidity ratio can determine if, and how quickly, the company can repay its short
term debt. When looking at 2006 ratios for the three companies, we can conclude that
Respironics will be able to pay its short term debt; however, ResMed displays a stronger cash
ratio. R&P’s ratio is drastically falling, timely payments to obligations is questionable in this
situation.
The above graph shows inventory turnover for the three companies. This ratio displays
how many times a company’s inventory is sold and replaced over a period. This is a strength for
Respironics, the company has turned over inventory 3.812 times.
0
0.5
1
1.5
2
2.5
3
2003 2004 2005 2006
Years
Cash Ratio
F & P
ResMed
Respironics
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2003 2004 2005 2006
Years
Inventory Turnover
F & P
ResMed
Respironics
All three companies display positive net working capital, meaning they are able to pay
off short term liabilities. This graph measures the three companies ability to cover its short term
financial obligations.
This graph represents the number of days an item is held as inventory before it is sold.
The lower the day inventory, the more efficient the company is. Respironics is stronger than
both competitors in this category. Respironics held inventory in 2006 for 95.75 days compared
to ResMed at 184.31 days and F&P at 99.74.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
2003 2004 2005 2006
Years
Net working capital to total assets
F & P
ResMed
Respironics
0
50
100
150
200
250
2003 2004 2005 2006
Day
s
Years
Days' Sales in Inventory
F & P
ResMed
Respironics
All of the companies display positive net working capital. Similar to net working
capital/total current assets, this graph measures the company’s ability to cover financial
obligations. An increasing working capital to assets is usually a positive sign, showing the
company’s liquidity is improving.
This graph assess the company’s financial health by revealing the proportion of money
left over from revenues after accounting for the cost of goods sold. Gross margin serves as the
source for paying additional expenses and future savings. Respironics is weak in this area.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2003 2004 2005 2006
Years
Net working capital/current assets
F & P
ResMed
Respironics
0
10
20
30
40
50
60
70
80
2003 2004 2005 2006
Pe
rce
nt
Years
Gross Profit Margin
F & P
ResMed
Respironics
The Equity multiplier ratio is a way of examining how a company uses debt to finance its
assets. A higher equity multiplier indicates higher financial leverage, which means the company
is relying more on debt to finance assets.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2003 2004 2005 2006
Years
Inventory to net working capital
F & P
ResMed
Respironics
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2003 2004 2005 2006
Years
Equity multiplier ratio
F & P
ResMed
Respironics
Responses to questions not answered in the presentation
Why is ResMed growing dominancy and why is Respironics losing market share?
ResMed invests more in clinical research. By investing more in clinical research,
ResMed is able to develop innovative products, and make improvements on the current product
line, specifying specific health problems (diabetes). ResMed focuses on clinical literature,
assisting with the market direction, opening more opportunities of target markets while
expanding Redmeds market size and segments. By using the CPAP technology for other health
issues, ResMed is able to attract more customer and distributors. Furthermore, the clinical
literature is improving the success of ResMed, growing dominance internationally.
Respironics lacks clinical research, not providing certain products to specific health
factors. The overall product line for Respironics focuses strictly on sleep and respiratory devices
(CPAPS, surgical masks, ventilators, and oxygen concentrators). The product line serves
patients suffering only from sleep and respiratory diseases. Respironics lacks R&D
internationally, resulting in a decrease in market share.
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