Before Ohmeda was acquired by BOC group in 1978, the company had been performing various functions such as manufacturing, research and development, finance, human resources and marketing. One of the key goals of the company was to ensure that they concentrated on high-tech development in terms of sale. During this time, the president of Ohmeda had a goal to ensure that they changed or increased their sales in medical equipment form $95million in 1978 to $158 million in 1985.
Rountree, who joined Ohmeda in 1984, had three crucial decisions to make. Roundtree's first decision was whether to continue with the current system that Ohmeda had been using. The second decision was to reduce the number of dealers while at the same time focus on the sale of the organizations products and services directly to the customers. Finally, Rountree had to ensure that Ohmeda's sales force was specialized so as to change the sales strategy of the organization. Apart from these three crucial changes, Rountree also made the decision to focus on high tech medical equipment. High tech medical equipment along with medial gas supplies and gas business unit were the three key products of Ohmeda. Ohmeda's revenue in the 1985 fiscal year hit a top of $160 million whereby $13 million represented pretax income. In terms of employment, Ohmeda was continuously recruiting more than 2000 individuals and 130 salespeople. Ohmeda's strategy was to focus a different market as compared to its competitors. Ohmeda focused on rural hospitals thereby having an advantage over their competitors who focused their sales on large hospitals in the urban areas. However, all was not well with Ohmedas strategy.
The key challenge experienced by Ohmeda was changing their sales force through training technical knowledge. By training their sales force, the company could have specialists who could explain their products to their customers and pursued them to purchase their medical equipment. In order to achieve this feat, the company had to incorporate their training costs to the marketing channel thereby increasing the cost of training that the salespeople of the high tech medical equipment needed. In the short run, the strategy employed by Ohmeda would not be a success. However in the long run, the training would boost the effectiveness of the sales people due to the high commission received by the sales people and the specialization received.in order to minimize the loss of sales efficiency, Ohmeda had to target the large hospitals in urban areas. Nonetheless, evidence from Exhibit 4 in the case study depict that the cost of the sales that were made by the direct salespeople were higher than the cost of the sales made by the sales dealers. Ohmedas predicament was facing larger cost of specialized sales channels while at the same time wasting time for training and sending salesperson specialist to rural hospitals. The rural hospitals could be served well by the geographical salespeople, as this could be more effective.
Dekle Roundtree's decision to focus on the sale of high tech medical equipment of Ohmeda could be considered as reasonable considering the circumstance that Rountree found himself in. however, it is imperative to comprehend that the decision had bot advantages and disadvantages. After the BOC Group had purchased Ohmeda, one of the key changes undertaken was to reorganize their product lines. This feat was achieved by the rationalization of the companys international manufacturing capacity. In order to enhance healthcare businesses provided by BOC Group, the company planned to group all the businesses related to gas products under one unit. The challenge was that the plan was being implemented at the time and as such, the plan had some difficulties thereby not functioning effectively. Financially, the transfer of gasses product to another unit within the company could cost the organization revenue ($27. 2 million or 17%). The medial supplies portion of Ohmeda offered Rountree revenue of $22.4 million. This revenue ensured that Rountree could focus marketing medical supplies of Ohmeda. The revenue of $22.4 million, which also represented 14% of the total revenue, was not constant, as Rountree had reduced the companys involvement in the sale of medical supplies. Although this was a large sum of money, Rountree had a believe that Ohmedas future in supplies was limited though this represented a large percentage of the companys total revenue. The reasoning behind this strategy was that the supply market was dominated by low prices and it did not play towards the strengths of Ohmeda thereby making it difficult to compete with other established multinationals such as Baxter-Travenol. By making the two changes, Ohmeda would lose almost $50 million in its total revenue in the short run. In the long run however, the choice to venture into high tech medical equipment would prove to be suitable since the future technology would develop in the coming years. Based on this assumption, Ohmeda would proceed with the development of high tech equipment that would provide larger revenue in the long run. Eventually, the pinch felt by the company in the loss of gasses and supplies would not be felt by Ohmeda. Based in the circumstances of Ohmeda, it would be more profitable if BOC Group handled the gases and the supplies thereby enabling it to develop even more. The introduction of an advanced microprocessor controlled ventilator heightened Rountrees expectation even forcing him to expand the market of the new technology. The downside of focusing on high tech equipment only meant that Ohmeda would lose almost 15% of its market share in its low-tech segment. Nevertheless, Rountree did not see any potential benefit. The other downside of focusing on the high tech products is the loss of suction therapy products. Ohmeda had been successful in the sale of suction therapy products and many operation rooms and intensive care units were well conversant with the products of Ohmeda. Infant care products, which were a combination of simple accessories, incorporated advanced microprocessor especially in the thermoregulation systems. Despite the major expectations of a very low growth rate in the United States, Rountree proceeded with the introduction of ICI. The ICI applied a different double walled hood design that was compatible with other products in healthcare centers and hospitals. Rountrees plan was to ensure that the market share of the company grew by at least five percent in the thermoregulation segment of the market share. It is imperative to conclude that Rountree was very pessimistic in his expectations especially in the long run.
Most of the customer resort to new business channels such as the direct channels as the market is already oversupplied with dealers. If Ohmeda is successful in eliminating dealers, then the firm would be at a disadvantageous position since all its customers already know where to purchase their products. More money would also be needed to expand the business especially the specialized staff members. The company has to come up with strategies to ensure that they communicate with their customers through advertisements and marketing. There are also other various ways in which Ohmeda may benefit from cutting off its dealers. Ohmeda will be in a prime position to clearly identify the needs of the company as well as those of the customers as t will be dealing directly with the customers. Additionally, ohmeda will be able to generate more profit from the commissions that sthe dealers ad before they were cut off. The audience or the target market would increase immensely as the company wil be dealing in some specific products. With gasses and medical supplies, there may be some forms of bureaucracy that the company has to face. Moreover, the company may face unhealthy competition from within the company.
There were various possible effects on the elimination of dealers. The first obstacle in this instance is that most of Ohmedas dealers have basic knowledge regarding their low-tech equipment and do not necessarily have the expertise or information regarding the high tech equipment. This is because the gases market is deemed as being extremely limited based on Rountrees assessment and the gases had been transferred to another section of BOC Group. The other obstacle is that the dealers of these products cannot expect to sell the products and expect other specialized individuals to go and provide demonstrations to the functionality of the products. Due to this conundrum, there is need for Rountree to ensure that he makes the proper assessment of the company especially in reviewing the management of Ohmeda while at the same time evaluating, compensating, and evaluating its salespeople. Ohmeda could be in an advantageous position if they focused solely on direct sales. This is due to the effectiveness that the dealers can have on the products of the firm. However, Ohmeda would have to hire additional staff and this can be costly and time consuming in the short run. In the long run, however, this strategy can pay off through direct sales, as it would be nondependent on dealers. By investing of high tech products such as the CPU-1 could prove a winning strategy as most of these products sold pretty well. For the company to be successful there is need to ensure that the process of cutting off the dealers should be done in a slow progressive manner. There are other options such as focusing on the specific product segment such as the market share, customers, competitors, and needs in the bid to find the channels that are appropriate to the company.
With the transfer of gases to another unit in BOC Group, Ohmeda would be in a disadvantageous position. This is because its supplies market in the future would be limited meaning that the profit margin would be low. The best option that Ohmeda has is to ensure that it focuses solely on the sale of medical equipment. Moreover, the market of gases and supplies is no longer viable for Ohmeda.
If Ohmeda decides to focus on the high tech equipment, then there are repercussions that the company has to face. The company would lose a large amount of revenue while at the same time losing its distribution channel. When properly analyzed, Ohmeda would also have the opportunity to ensure that it structures its strategy to strengthen itself by building stronger relationships with its customers and increase sales. To be successful in this strategy, Ohmeda has to identify its competitors in each category of product that it offers and the needs of the customers. Secondly, Ohmeda has to allocate its salespersons o both direct and indirect sales. Ohmeda should slowly eliminate its dealers especially the dealers who do not know the functionality of their products effectively. This would offer an opportunity for the company to specialize. There is a downside to this strategy in that it may lead to customer dissatisfaction and confusion. This however can be remedied by the introduction of customer-focused strategies such as after sale services such as the maintenance of the equipment. There is also need for Ohmeda to ensure that it hires new salespersons immediately. The new salespeople would then have to be trained to fulfill the cut-off dealer positions. The management of Ohmeda has to ensure that it pushes the new recruits by motivating them.
It is imperative to comprehend that regardless of the decisions made by Rountree, the best time to change the model of the business is after the acquisition by BOC group. Advancement in technology means that there would be technological changes all around the market and being a market leader in any venture is a positive step for the business.
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