Emi Case Study: Poor Financial and Strategic Payoffs

Q1: As a board member of EMI, I will not vote for the £6 million capital request to enter the scanner business due to its low appropriability of returns.

Poor financial and strategic payoffs.

Financial payoff will likely to be poor due to insufficient product demand. With a $400,000 price point, the scanner is affordable to only the “largest and financially strongest” institutions. Additionally, it only displaces two existing diagnostic imaging equipment i.e. head and brain imaging. Quantity demanded in this emerging industry is likely to be low. With sales potential remaining uncertain due to a high price point and the lack of a strong market need, it renders the capital investment unjustifiable.

EMI lacks the necessary complementary resources. The scanner business requires new resources and capabilities due to the difference in manufacturing process from its existing electronics product line. The former involves subcontracting whilst the latter adopts a job-shop mode. EMI needs to gain manufacturing capabilities to integrate the resources into a functioning system as well as marketing capabilities.

Lacks prior experience in the North America medical products sector. Without in-depth working knowledge of the industry context, EMI is likely to face multiple difficulties in its expansion foray.

Even in the scenario whereby the scanner business succeeds initially, long-term strategic payoff is unlikely to happen as initial success will attract imitation from competitors. Barriers are low for some competitors as they have “considerably greater technical capabilities and resources”. Such competitors might even improve on the technology. Next, the technologies harnessed involves codifiable knowledge and low complexity i.e. quite “well known and understood”. For the aforementioned reasons, competitors can easily imitate the product. EMI’s first mover advantage is not significant as the lead time will not help it in establishing a dominant market position.

All in all, I will not vote for the capital investment due to a lack of visibility