Part 6: Strategic Analysis Report on Implant Direct
Business Strategy Formulation
The previous sections identified the challenges from the external environment, competitive environment within the dental implant manufacturing industry, and internal environment through Implant Direct’s internal resources and value-chain process. Then, the strategy formulation began for Implant Direct to attain a competitive advantage in the industry. Since Implant Direct does not disclose its financial information publicly, and Danaher Corp, Implant Direct’s parent company, does not share Implant Direct’s financial separately, it is difficult to compare Implant Direct’s financial status versus the industry average to justify its competitive position. However, as long-time employees of the company attest that the company currently does not have a competitive advantage and needs to attain one.
Basis for Competition
According to IBISWorld (Curran, 2016), the Medical Device Manufacturing industry in the United States is in the growth stage. Since the Pepperdine library does not provide a specific industry report for the dental implant manufacturing industry, the IBISWorld report for the Medical Device Manufacturing industry is a close representation of the overall medical device manufacturing industry (the dental implant falls within the medical device industry.) Meaning, during this phase the industry is expecting strong sales, which attracts other rivals to the industry (hence, the high threat of new entrants as covered earlier.) During the growth phase, Implant Direct must build strong brand recognition, and offer differentiated products, while making sure the company has the financial resources to support a variety of value-chain activities such as marketing and sales, and research and development.
As covered earlier, Implant Direct is in a unique situation in the industry. Implant Direct during its early years could attract doctors (customers) from Nobel Biocare, Straumann, Zimmer Dental, by offering compatible products and All-in-One packaging products that included all the necessary products for the surgery at a competitive price through an easy and intuitive online experience. Here is an example of Implant Direct ads to target Zimmer Dental’s customers: “Zimmer Dental's 60% Discount Offers to Win Back Implant Direct Customer.” (Implant Direct, n.d.) Since the 2008 recession, the premium companies responded by improving their online services to their customers, introducing e-commerce similar to what Implant Direct had done in 2006, and either acquiring a smaller implant manufacturing company or they introduced a product line that competed directly with Implant Direct. Because the premium companies had a strong brand recognition in the industry and most doctors wanted to associate themselves with the premium companies (e.g., the Ferraris of the dental implant manufacturing), the premium companies not only were able to slow down their customer churn rates, they were able to attract Implant Direct’s customers. Additionally, more manufacturing companies from China, and Brazil have been entering the industry. They are competing strictly by price. Implant Direct cannot match their prices.
From the external forces analysis, it is apparent that not only is the aging population expected to grow, but more people will be on a fixed income. Additionally, the U.S. government may not be able to fund the Social Security Administration, Medicaid, and MediCAL. The efforts to repeal and replace the Affordable Care Act (ACA) has been on major news headlines since the Trump Administration began in 2017 due to its cost to the government. So, the external forces consistently highlight the importance of price and cost control. Dentists, on the other hand, are consolidating to form Dental Specialty Organizations (e.g., Heartland Dental, Smile Source, Western Dental, and more.) One of the main reasons dentists are consolidating is to have higher bargaining power over the suppliers (manufacturing companies.) So, Implant Direct’s customers are consistently negotiating on prices.
In recent years, Computer-aided Design, Computer-aided Manufacturing, and 3D Printing have empowered the dental implant manufacturing companies to custom manufacture dental implants specific to the patients who are receiving the implants. So, instead of mass manufacturing implants, the manufacturing companies custom develop the implant and abutment (crown) specific to the patients. In doing so, the recovery time post-surgery decreases drastically, since the doctor does not need to drill the patient's jaw a lot. Finally, the laser technology (e.g., DEKA Laser) enables dentists to cut patient’s jaw without bleeding. Therefore, the dental implant industry primarily competes by price (cost control) then differentiation. Price is important because of the external and competitive environment while differentiation enables Implant Direct to differentiate its products and services since the premium companies are pressing from the top, while the lower tier companies are pressing the firm from the bottom.
Strategic Options
The table below examines the five possible strategy options for Implant Direct. Given the firm’s objective, issues to address, basis of competition, sources of competitive advantage, and requirement for implementation.
Table 1 - Strategy Formulation (Wasilewski, 2017)
Implant Direct’s objective is to attain competitive advantage, and as mentioned above, dental implant manufacturing companies in the industry primarily compete on the basis of price (cost control) then differentiation. The following five strategies are evaluated to understand which strategy options will fit best to support Implant Direct’s objective.
Figure 1 - Customer Value perceived = Attributes / Price
Option #1: Differentiation through Superiority
Increase attributes and increase the price[FR1] . Increasing the price will not work for Implant Direct because of the external factors (e.g., fixed income, lack of government support) and rivalry in the industry. Premium companies are lowering their price, and Chinese companies are already providing lower price compared to Implant Direct.
Option #2: Differentiation through Enhancement
Increase attributes and price parity. This option might work for Implant Direct as the company currently follows this strategy and it encourages the firm to increase its attributes (e.g., product differentiation, increase its OTD, customer service, and support) while maintaining price parity. Since Implant Direct’s product prices are already low compared to most Western manufacturing companies, the company does not necessarily need to lower its product price to increase customer’s value perception and to meet the external factors.
Option #3: Simplification
Decrease attributes and decrease price. It is not easy for a U.S. based manufacturing company to go after a Chinese based company to compete strictly on price. In fact, Implant Direct does not necessarily have to pursue this option since the company has several attributes that would allow the company to differentiate itself. Additionally, if the company lowers its prices, it may not generate enough revenue to sustain its operating expenses, R&D, and technology system.
Option #4: Overall Cost Leadership (OCL)
Attributes parity and decrease price. While companies within the industry primarily compete on the basis of price (cost control), Implant Direct cannot lower its price to match the prices of the Chinese manufacturing companies. Additionally, the company does not need to lower its price since its product prices are already lower compared to most Western manufacturing companies. Even if the company decides to lower its prices, its competitors may decide to respond, resulting in a price war. Additionally, if the company lowers its prices, it may not generate enough revenue to sustain its operating expenses, R&D, and technology system.
Option #5: Combination
Increase attributes and decrease price. Implant Direct cannot lower its prices to 50% or more to match the price of Chinese manufacturing companies. Additionally, the company needs money to improve the deficiencies in its internal resources (RBV) and processes (VC) as described in the sections above. If the company lowers its price, the firm may not generate enough revenue to offset the cost of the operating expenses.
After evaluating the above five strategy options, Implant Direct should follow the differentiation through enhancement strategy to attain its competitive advantage in the dental implant manufacturing industry. The strategy does not require that the firm lowers its prices. It can maintain its price parity. In doing so, the firm should be able to focus on increasing customer value perception by improving the order delivery time, employee compensation, and increasing the company reputation.
Differentiation Through Enhancement
As explained and justified in the previous section, Implant Direct should pursue differentiation through enhancement strategy to attain its competitive advantage in the industry. In this section, the likelihood of success of this the strategy, given the number of external and internal challenges highlighted in the previous sections, is explained.
External
The aging population (people older than 65 years of age) demographic is the prime receiver of dental implants since their teeth start decaying due to their natural age and increase in medicine consumption. As a result, there is a vast number of people globally (2.1 billion people by 2050) who potentially need implants. As explained in the sociocultural section, the aging demographic is retiring at a large scale and switching to fixed income. So, while there are many potential implant patients available, they may not be able to afford the implant surgery out-of-the-pocket due to their income. Furthermore, the recent political and legal challenges such as the Trump Administration’s decision to renegotiate TPP and NAFTA are going to increase the cost of exporting dental implants outside of the United States. Thus, people outside of the United States will have even harder time to afford their implant surgery. The Republican Party’s current priority is to repeal and replace the Affordable Care Act. As reported by the New York Times, “G.O.P. Health Bill Would Leave 23 Million More Uninsured in a Decade, C.B.O. Says” (Pear, 2017) In summary, the sociocultural, political, and legal factors imply that not only the cost of dental implants may increase in the future, but many people also will not be able to afford the cost of their surgeries. These factors suggest that the dental implant manufacturing companies — including Implant Direct — must pay attention to their manufacturing and operations processes to control cost. Fortunately, due to the recent technological breakthroughs such as CAD/CAM and 3D Printing, the manufacturing companies can upgrade their manufacturing processes to take advantage of the latest technology systems. In doing so, not only could they potentially decrease the cost of their productions, but they can also introduce smaller, and custom made dental implants that could increase the healing process post-surgery. As a result, implant patients may be more encouraged to receive dental implants instead of a substitute treatment plan such as fixed-bridge, removable partial denture, and resin-bonded bridge since they cost less than implant surgery and do not require drilling. To overcome these challenges, Implant Direct should continue to follow the Danaher Business System to improve operating efficiencies continually. That company should also increase its investment in R&D to implement CAD/CAM and 3D Printing fully. Finally, investment in the technology department will increase operating efficiencies and promote productivities, which will result in cost savings.
Competitive
As the company has witnessed, it can no longer compete strictly on price. Since the industry is in the growth phase, not only is the rivalry intense among incumbents, the threat of new entrants is high, which could make rivalry even higher. The basis of the competition in the industry is primarily on price (cost control) and then differentiation. So, more companies are becoming conscious of their spending and the external factors. For instance, Zimmer Dental closed its manufacturing operations in Carlsbad, California (FierceBiotech, 2015) and Implant Direct consolidated its Calabasas and Thousand Oaks manufacturing facilities. (KaVo Kerr Group, 2014) These companies are consolidating to reduce their operating costs. Implant Direct’s advantage is that Danaher Corporation owns the company. Danaher manages over 400 manufacturing companies in different sectors including dental. In Danaher’s dental group, also known as KaVo Kerr Group, Implant Direct has over 30 sister companies that are manufacturing different products for dentists. So, not only does Implant Direct have access to Danaher’s secret sauce, Danaher Business System (DBS), the company has access to 30+ other dental manufacturing companies to share best practices. Thus, Implant Direct once again should continue to invest in DBS and increase its collaboration with its sister companies. The disadvantage that Implant Direct has been experiencing is related to its new leadership team. That is, many employees do not trust the President, and the CFO is not eager to invest in the technology systems. As a result, the company’s do not trust the leadership team and leave the company, resulting in the largest employee turnover the company has ever experienced. Additionally, more and more customers are becoming frustrated with the lack of inventory and back-orders leaving them to perform their dental surgeries. Thus, customer churn has become a major problem for the company.
Internal
Human Resources. Human Resource is a major internal factor that Implant Direct must address to pursue the chosen strategy. The company’s existing employee turnover, especially in its sales department, is not helping the company for the reasons explained earlier. Even though the dental industry is large, the community itself is not. That is, most salespeople, as well as dentists (customers), in a territory know each other and build a relationship. While the relationship building might help Implant Direct, when a sales rep leaves the company, usually the customers in that territory follow the sales rep and stop ordering from Implant Direct. While Implant Direct’s human resources department recruits to fill the empty positions, other sales reps are asked to respond to the customer’s inquiries. As a result, the sales reps are stretched thin resulting in more sales rep becoming frustrated with the company and customers in the other territories not receiving a timely response from their regional rep. Thus, the human resources management has a ripple effect on the entire organization. To address these challenges, Implant Direct may decide to:
1. Empower its sales reps by making sure they have access to accurate inventory data on their mobile phone or the computer when they are sitting at the doctor’s office
2. Invest in educating its sales reps to ensure they are familiar and comfortable with the new implant product lines and how they could help doctors and their patients
3. Evaluate sales rep’s territory size and compensation plan. In doing so, the company leadership team may regain trust in its employees and management team.
Technical. As explained in the earlier sections, Implant Direct’s Enterprise Resource Planning (ERP) has significantly hindered the organization’s growth in the recent years. For instance, the planning department is unable to perform the manufacturing planning so that they can provide an accurate forecast to the manufacturing department. As a result, while customers are waiting for their back-orders to arrive, the manufacturing department is producing so many implants that may not sell anytime soon. Furthermore, the sales department is unable to provide accurate sales forecast to the manufacturing department since each salesperson is using a different tracking system that they developed individually. Thus, there is no consistency among the reps around the world. As justified throughout this paper and through the company’s internal kaizen events, the management team at Implant Direct should invest in upgrading the ERP system so that not only can it be scaled to the company’s current expectation, but it can also be scaled up as the company continues to grow. Additionally, instead of different ERP systems and so many different systems that the sales reps have developed, the company should consider providing a global and consolidated environment where there is only one source of truth. In doing so, the planning and manufacturing department could consider one database to figure out what to manufacture instead of piecemealing the data from so many different sources.
Reputation. Since the industry rivalry and the threat of new entrants are high, Implant Direct must address the challenges surrounding its reputation in the industry. For Implant Direct to pursue differentiation through enhancement, at a minimum, the company’s reputation must provide a source of temporary competitive advantage and support differentiated strategy. Due to the company’s lack of investment in its technology system, sales and marketing initiatives, and high employee turnover, the company’s existing reputation is low. In fact, some customers believe that Implant Direct is a Chinese company. Implant Direct’s reputation cannot be restored easily within a few months. The longer the company waits to address the challenges surrounding its technology and human resources, the hard it might become for the company to restore its reputation in the industry.
In summary, for Implant Direct to pursue differentiation through enhancement strategy, the company must address the external, competitive, and internal factors. In doing so, not only will the company be able to protect its sources of temporary competitive advantage, but they can also transform its non-valuable sources (e.g., human resources) to become valuable.
[FR1]The attribute increase is greater than the increase on price as perceived by the customer.