GUIDANT CORPORATION

Shaping Culture Through System

GROUP 5JAHJA – SHELY MEIFUZI – WISNU DASUKI – SAMMY

SANTOSO – EDI SURYANTO – STEVANUS PASSAT

Guidant Corporation

Challenge :•Competitor create new technology in similar product (more smaller) and subtitute product with lower price.•Building and maintain customer by create product that have competitive price.•To be able achieve cost leadership to compete with competitor

• 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

Business unit1.Cardiac Rhythm Management (CRM)2.Vascular Intervention (VI)3.Minimally Invasive Surgery (MIS)

Sales organizations1.Western Hemisphere Sales2.European Operations3.Pacific Rim Sales

GUIDANT’S STRATEGY

Shareholder Value

Global Product Innovation•25 product were introduced. •45% sales came from product introduced•Platform development takes 2-3 years and involves significant leaps in innovation and technologies.•Family approach to speed product development•Apply strategy to using common parts and freezing requirements early in the process•Risk : new technologies is monitored by FDA.

Economic Partnerships With Customers 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 and become independent from the business unit.

Organizational Excellence•Create organizational excellence as “As a culture in which all employees function as owners of Guidant”•Create employee commitment to the new Guidant Corporation and create core theme to work with for the eight strategic design teams

Shareholder Value• To create shareholder value, IPO in 1994• Create company goal : double market value in 1999 ($ 7 billion) • Cascade the company goal into 6 financial goals :

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. Measuring Economic Value to Align Systems drive the innovation and value ceation

• Incentive system objective:1. to align the motivation of employees with the creation of market value2. have every person at Guidant benefit from the success of the company

• “Economic Value Addes” isA new indicator to measure the progress towards the creation of shareholder value

Residual income = Net income – Cost of Capital = Net income – (Average Assets – Average Current Liabilities)*13,5%

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 Measurement System

Performance Measurement System

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.

2. Risk Management System prevent misbehavior• 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• 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.

3. Set Up Belief System communicate core company values• 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)

FUTURE

RECOMMENDATION

• Manage risk by comply to regulation.

• Setting the balanced incentive system.

• Repetitively internalize the vision, mission to have goal congruen.

• Focus to customer needs by achieve cost leadership to creare competitive product price.