This report provides an analysis of the current internal and external environments faced by Cochlear Limited and presents recommendations for the recalibration of Cochlear’s future strategic direction. This analysis follows a review of background information including the 2018 Annual Report which showcases Cochlear’s strong revenue growth based on driving global growth for cochlear implants while historically rewarding shareholders with a growing dividend stream.
The environment that Cochlear operates in has been analysed using well established theories of strategic management and planning which has resulted in the development of the following recommendations for the Cochlear’s future strategic direction.
Recommendations
- Form a diversified Global Employee Task Force to evaluate Geographic Focus
- Examine organisation structure and align management structure and reporting
- Develop a unique proposition that targets development of the ageing population
- Evolve the business model and seek out and develop strategic partnerships
INTRODUCTION
An analytical SWOT analysis (ref A Humphrey) has been used to identify the strengths, weaknesses, opportunities and threats that Cochlear Limited faces. The internal environment has been analysed to identify organisational strengths and weaknesses and the external environment has been examined to determine, opportunities and threats.
To formulate recommendations and to maximise the benefits of the SWOT Analysis the LISA Framework (ref S Pandya) has been used to develop recommendations to: leverage or capitalise on organisational strengths; improve on weaknesses with a view to minimising impact; seize opportunities emerging in the market; and based on awareness mitigate threats to the organisation.
This analysis has then been used for the development of SMART (Reference …. (Specific, Measurable, Achievable and Time Bound) recommendations for strategic redirection.
STRENGTHS
Cochlear Limited manufacturers and distributes cochlear implantable devices for the hearing impaired. They sell products in over 100 countries providing service and products in the United States, Asia Pacific, Europe, the Middle East and Africa through a diverse global workforce of 3,500 people focused on transforming the lives of people with hearing loss. “The knowledge, expertise and passion of our employees are key to our future and the focus on delivering excellence for our customers is an important part of our success and our market leadership position” (2018 Cochlear Annual Report p X). A strength of Cochlear is its global reach diversified workforce and resulting in-depth market knowledge. This strength should be leveraged to ensure resources are being allocated to markets offering the most opportunity.
Recommendation 1
Form a diversified Global Employee Task Force meeting over a 6-month period that culminates in a presentation to Senior Management – tasked with identifying and prioritising geographic growth areas for cochlear implants. Identifying and recommending a recalibration of Cochlear’s current geographic focus.
WEAKNESS
At present the Organization structure is compatible with existing business models. With the recent rapid expansion of the Cochlear sales, expansion of manufacturing into China, the potential for geographic change and a move to a more analytical style of business in the aged customer sector, meaning the current organisation structure may limit expansion compromising Cochlear’s historic successful expansion into new markets.
Recommendation 2
The organisational structure should be examined to ensure it meets emerging operational requirements with recalibrating finanicial analysis to ensure it reflects current priorities and the new organisational structure.
OPPORTUNITY
Most implants are currently targeted at the paediatric market with Cochlear implants well established as the hearing aid of choice for children in developed markets as evidenced by 60% penetration in developed markets and 10% in emerging markets.
Studies have shown however that hearing loss is linked to an ageing population (American Journal of Epidemiology, 1998). This presents an opportunity to expand the current 3% penetration in the seniors’ market – on the basis that ageing populations will provide inherent growth. For example, in Japan the number of elderly people aged over 65 accounts for more than 16% of the 12.1 million people (World Population Review, 2019) dwarfing the children’s market. Recognised that this is a difficult market to penetrate as hearing loss in the elderly community is progressive and the ultimate recipient not fully understanding the potential benefits of a cochlear implant.
Recommendation 3
Work with Governments over a 12-month period to develop a tax effective unique selling proposition that supports building awareness of the benefits of cochlear implants. Through public campaigns on improving the quality of life through hearing: as well as using analytics and marketing technology to create direct relationships with both consumers and their carer’s in the early stages of hearing loss.
THREATS
Cochlear dominates the US$1.2 billion global cochlear implant market but competition is intensifying particularly in China. The fastest growing implant market worldwide, accounting for around a tenth of global demand. Where for example Nurotron a Hangzhou-based company founded in 2006 licensing technology from the University of California (J Smyth Financial Times 2018) is slashing prices to gain market share while also expanding outside China. The threat from these new entrants is not just to market share but also to historic levels of funding for research, development and ultimately profitability. To minimize the threat of “new entrants encroaching on the emerging China opportunity where government tenders have provided newcomers an entry point based on price” (C Kallos, Morningstar, 2018) Cochlear will need to evolve its business model with initiatives such as its ties with Apple that streams sounds from iPhones and partnering with the Sichuan Government to establish a Hearing Research Centre.
Recommendation 4
Environmental scanning plays a major role in strategic change by providing the information to recognize the emergence of threats (Raman Muralidharan, 2003). To minimise threats Cochlear must continue to evolve its business model seeking out and developing mutually beneficial relationships with public health administrators, and associations of local doctors and surgeons for product recommendations. Focusing on the quality of the Cochlear product to informed customers thereby boosting brand recognition and distinguishing Cochlear from lower cost competitors.
CONCLUSION
This report has analysed the internal and external environments of Cochlear Limited. Theories such as SWOT (Strength, Weakness, Opportunities, Threats), enhanced by LISA (Leverage, I…. S…..,) have provided a framework for strategic analysis and the development of four recommendations for the recalibration of Cochlear Limited’s strategic direction – forming a road map for realising Cochlear’s ambitions in the market by recalibrating the strategic steps necessary for future success.
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