m.small alcon mba project

Colorado State UniversityBUS621 – Fall 2007

Matthew Small

Company Introduction:

Reason Selected:

• Industry leading Pharmaceutical company dedicated to the Research and Development of eye care products

Primary Industry:

• Development, manufacture, and marketing of pharmaceuticals, surgical equipment and devices, and consumer eye care products to treat eye diseases and disorders

Financials and Major Trends:

• Alcon has grown sales for more than 25 consecutive years• Since 2002 IPO, sales have grown an average of 12.2% per year

Fall 2007 2Prepared by: Matthew Small

Mission Statement:

Vision:

To be the first choice for eye care products and the most trusted eye care company in the world.

Mission Statement:

To discover, develop, produce and market innovative, high-quality eye care products that preserve, restore and enhance sight. We will accomplish this by partnering with eye care professionals around the world to advance the treatment of eye disease and help people experience the best vision possible.


Current Competitive Advantages:

Time: • Established in 1945

Capitalization:• Stock Symbol – ACL (NYSE)• $40.18 Billion

Company Reputation:• Alcon is committed to delivering

the highest quality of products.• Dedicated to helping people

around the world see.• World’s largest Eye Care company

Relationships:• Research partnership with Amgen• Eye care professionals• Prevent Blindness America

Competitors:


Alcon Financials:

25 consecutive years of sales growth Alcon’s sales have grown an average of 12.2% per year for the

last 5 years Solid growth in Operating Margin which has increased from 23%

to 32% over last 5 years.

$481$511

$557 $584

$686

2002 2003 2004 2005 2006

Sale

s in

Mill

ions

Consumer Eye Care Sales


Alcon Financials:


Alcon Pharmaceuticals (ACL) stock performance for the last 5 years

Alcon Financials:


Alcon Pharmaceuticals (ACL) stock performance versus Allergan (AGN) for the last 5 years

Research and Development:

Alcon has spent $2 Billion on Research and Development over the last 5 years and expects to spend $3 Billion over the next 5 years.

R&D spending is expected to grow faster than sales to ensure that Alcon remains at the forefront of eye care treatments.

$323$350

$390$422

$512

2002 2003 2004 2005 2006

Expe

nse

in M

illio

ns

Research and Development


Research and Development:


Consumer 5%

Surgical 38%Pharmaceutical

57%

Alcon currently focuses majority of R&D resources on the development of new Surgical products and new Pharmaceutical drugs.

Alcon can use R&D resources to develop new consumer eye care products to enhance value to new and existing customers.

Alcon needs to increase allocation of future R&D resources to focus on the development of new products for consumer eye care lens solutions.

Alcon’s Major Product Lines:

Azpot Ciprodex Opti-Free Patonal Pataday Nevanac Systane Tobardex Travatan Vigamox


Executive Summary – 5 Main Points: Alcon can increase market share by capitalizing on recent

competitor product recalls. Alcon is ready to expand manufacturing capacity to meet increased

customer demand for consumer contact lens solutions. Alcon needs to increase R&D of consumer products to help sustain

future market growth. Alcon can increase profit margin by increasing production of Alcon’s

own brand. Alcon needs to improve Operational Excellence in order to capture

and retain increased market share of consumer lens care products.


Problem Statement:

Problem Statement:• Alcon will need to eliminate production of private label lens care

solutions in order to maintain increased market share due to recent competitor product recalls.

We Selected this problem because…• Alcon is the market share leader among branded contact lens

solutions.• In 2006 sales of contact lens disinfectants have grown 26.7%• Sales of disposable contacts will grow substantially over the next

5 years and products like Opti-Free will fill customers needs for convenience.


Tools Used to Understand the Problem: Approach Selected:

• Tools Used:• Logic-Tree• 5-Forces• Value Disciplines• TOWS

• Data Used:• Annual Reports• Alcon Labs and competitors websites• Industry reports

This approach is applicable because…..• This analysis will provide an understanding of how best Alcon

can compete by increasing market share and profit margin.


The Problem as a Logic Tree of Hypotheses:

Logic Tree

Macro Hypotheses:Alcon expands

manufacturing capacity

B&L and AMO loose market share due to

product recalls.

Alcon is product leader in lens care market.

Alcon can increase

consumer manufacturing

capacity.

Alcon can increase profit

with sales of own brand of lens

care solutions.

Alcon is committed

delivering the highest quality of

products.


Our macro hypotheses is…• Because of recent competitor recalls, Alcon should expand

manufacturing capacity of it’s own brand of consumer lens care solutions in order to increase revenue and profits.

Insights: Sub-hypothesis No. 1 Bausch and Lomb and American Medical Optics loose market

share due to recent product recalls.• Top competitors forced to pull lens care solutions off market due to

FDA recall in 2005 and 2006.• In 2006 Alcon’s market share increased from 34% in Nov 2005 to 50%

in December 2006.• Contact lens care sales benefited from withdrawal of competing

products due to potential outbreak of fungal keratitas.

0%

10%

20%

30%

40%

50%

60%

Nov. 2005

Mar. 2006

Jun. 2006

Sep. 2006

Dec. 2006

U.S. Contact Lens Solution Market Share

Total Alcon Share Opti-Free Replenish


Insights: Sub-hypothesis No. 2 Alcon is the product leader in the lens care market.

• In 2006, Sales of contact lens disinfectants grew 26.7%• Alcon has captured 50% market share of $1.7 Billion contact lens care

solution market.• Alcon consumer lens care solutions are recommended in 6 out of 10

new contact lens fittings in the U.S.


Insights: Sub-hypothesis No. 3 Alcon can increase consumer manufacturing capacity.

• In order to meet short term customer demand Alcon will eliminate the production of private label lens care solutions.

• Alcon manufactures private label products for several major retailers: Walgreens, Rite Aid, Target, Kmart and Wal-mart.

• Alcon will add additional weekend manufacturing shift.• Alcon currently has 15 automated, highly efficient manufacturing plants

around the world.• In order to meet long term customer demand and increase operational

excellence Alcon will need to increase it’s overall manufacturing capacity in order to meet increased demand for both Alcon and private label products.


Insights: Sub-hypothesis No. 4 Alcon increases profit margin with increased sales of own

brand of lens care solutions.• Operating profit margin has improved from 23% in 2002 to 32% in

2006.• Alcon continues to pursue operational excellence in order to increase

manufacturing capacity.• Alcon has gained improvements in manufacturing efficiencies due to

implementation of best practices and attention to cost controls.

$704$879

$1,132 $1,188

$1,572

23%

26%

29%

27%

32%

20%

30%

40%

0

500

1000

1500

2000

2002 2003 2004 2005 2006

Perc

enta

ge o

f Sa

les

Ope

rati

ng In

com

e

Operating Income Operating Profit Margin


Insights: Sub-hypothesis No. 5 Alcon is committed to delivering the highest quality of

products.• Alcon has spent $2 Billion on Research and Development over the last

5 years.• Alcon expects to spend $3 Billion on Research and Development over

the next 5 years.• Alcon adheres to ISO 9001 and 14001 standards which address

maintaining a quality management system.• Alcon has a reputation as industry leader with the largest eye care

related R&D facility of its kind.


5 Forces Model Analysis:


Threat of Substitutes:+ Switching cost is low + Expensive to introduce new

products- Brand Image

Barriers to Entry:+ High capital requirements to

compete+ Expensive to create new

products.+ Costly Government Approvals+ Strong brand loyalty+ Economies of scale are high.

Power of Suppliers:+ Top competitors forced to recall

products+ Reduced competition+ Increased Profit margin- Limited production capacity

Power of End-Users:+ Increased value – customers willing

to pay more for higher quality of goods

+ Limited products available due to recall.

+ Product is vital to customers who use contact lenses.

- Low switching cost for customers.- Customers not likely to shop based

on price.

Key:+ Good for Alcon- Bad for Alcon

Competitor Rivalry:+ Competitors unlikely to regain

market share+ Customers can easily switch

brands+ High fixed costs of production- Few competitors in growing

market with high profit margins.

Barriers to Entry

Threat of Substitutes

Power of Suppliers Power of End-UsersCompetitor

Rivalry

TOWS Model Analysis:


Strengths:• Product Leader• Commitment to Quality• Operational Excellence• Product Loyalty• Patents required

Weaknesses:• Brand recognition• Limited production capacity• Limited Consumer R&D

resources

Opportunities:• FDA Recall of Lens Solutions• Increased Profit Margin• Increased Market Share• Predicted sales growth next 5

yrs

SO Strategy:• Use Product Leader and

Commitment to Quality to retain increased market share.

• Use Operational Excellence to increase production capacity to meet increased customer demand.

WO Strategy:• Use opportunity of FDA

recall to increase product brand recognition.

• Use opportunity of increase profit margin to expand manufacturing capacity.

Threats:• Switching cost is low• Lost revenue from Private

Label• Similar products available• Aggressive campaign to

regain market share• Private label represents 20%

of Retailer Saline business

ST Strategy:• Increase Brand awareness as

product leader to minimize chance of customers switching products.

• Use strength as Product Leader to create differentiation among similar products.

WT Strategy:• Reduce production of private

label products to increase manufacturing capacity.

• Increase allocation of R&D resources to create future stream of new products in order to retain increased market share.

External Factors

Internal Factors

Value Disciplines Model Analysis:


Product Leadership“Best Product”

Customer Intimate“Best Total Solution”

Operational Excellence“Best Cost”

MinimumTo Compete

Risk and Impacts of Recommendations: Use strength as market leader and commitment to quality to

retain increased market share.

• Pros: Increased market share creates increased sales revenue and profit margin due to sales of Alcon’s own brand versus private label.

• Cons: Alcon needs to asses if this is a temporary increase in market share due to FDA recall or long term sustained growth potential.

• Risks: Alcon risks loosing long term revenue stream from private label accounts.

• Next Step: Alcon needs to create a strong advertising campaign to increase brand awareness as market leader in order to increase opportunity of retaining new customers.


Risk and Impacts of Recommendations: Increase brand awareness as product leader to minimize

chance of customers switching products.

• Pros: Increased brand awareness of consumer lens care solutions will reduce chance of new customers switching back to B&L and AMO product lines.

• Cons: Alcon will need to incur additional cost of marketing campaign to increase brand awareness to customers in United States.

• Risks: Alcon may not have the financial resources in current year’s budget. There is no guarantee that additional advertising will result in a higher percentage of retained new customers.

• Next Step: Alcon will need to see if there are additional resources in current year’s budget to cover cost of marketing expense. Request increased marketing budget for next year to cover additional expenses.


Risk and Impacts of Recommendations: Use opportunity to increase overall profit margin to expand

future manufacturing capacity.

• Pros: Increased profit margin from sales growth of Alcon’s own brand will generate additional revenue that can go towards future expansion of manufacturing facilities.

• Cons: Alcon might need to use additional revenue from increased profit margin to increase R&D resources for Consumer products.

• Risks: If Alcon is unable to sustain additional market share they could end up with excess manufacturing capabilities that are not needed.

• Next Step: Since industry predicts a strong future sales growth due to an increase in disposable contact lenses Alcon should invest additional revenue growth in expansion of manufacturing facilities to enable them to provide private label products to major retailers.


Risk and Impacts of Recommendations: Increase Consumer allocation of Research and Development

resources in order to create a future stream of new products to retain increased market share.

• Pros: New products will enable Alcon to sustain increased sales growth due to FDA recall.

• Cons: Increased allocation of R&D resources will take away from Surgical and Pharmaceutical segments which are more profitable.

• Risks: The introduction of new products will not ensure that customers will not switch back to AMO and B&L.

• Next Step: Alcon should increase allocation of R&D resources for Consumer products in order to increase the opportunity of customer retention and future sales growth.


Summary of Findings:

Alcon has the opportunity to successfully capture and sustained a 50% market share of the eye care industry due to their strong focus on Operational Excellence.

Alcon has the opportunity to capitalize on competitor recalls and position itself to sustain future sales growth of consumer contact lens care solutions.

Alcon has a competitive advantage in regards to overall Quality, Research and Development as well as consumer market penetration.


Conclusions and Recommendations: Alcon must determine their immediate short and long term corporate

objectives by focusing on operational excellence in order to sustain increased market demand.

Alcon must meet market demand in order to sustain growth for consumer eye care products.

Alcon needs to allocate additional consumer R&D and Marketing resources in order to increase brand awareness and ensure continued future sales growth of it’s own contact lens care solutions.


Executive Summary – 5 Main Points: Alcon can increase market share by capitalizing on recent

competitor product recalls. Alcon is ready to expand manufacturing capacity to meet increased

customer demand for consumer contact lens solutions. Alcon needs to increase R&D of consumer products to help sustain

future market growth. Alcon can increase profit margin by increasing production of Alcon’s

own brand. Alcon needs to improve Operational Excellence in order to capture

and retain increased market share of consumer lens care products.


m.small alcon mba project

Documents

eye care professionals

consumer eye care products

highquality eye care

trusted eye care company

eye diseases

treatment of eye disease

alcon financials

company introduction