Emi and Ct Scanner Business

Case Question 1

I would vote to enter the CT scanner business. To support my stand, I will utilise the basic framework for strategy analysis and Porter’s Five Forces, as well as analyse the profitability of this innovation.

Internal – Within the firm

As mentioned in the case, the appointment of John Read as the CEO of EMI signalled a change in EMI’s corporate strategy to focus on numerous acquisitions and internal development. This is evident in the creation of a new research fund to finance innovative developments outside EMI’s immediate interests. With the support of the top management, it would be a perfect time for EMI to enter the new CT scanning business as the risk of a lack of management buy-in is effectively removed. Furthermore, while EMI may not have the right resources to manufacture and sell the scanners efficiently to the target markets in 1972, as Powell argued, it would not be difficult for EMI to gain access to those resources simply by outsourcing or contracting vendors.

Profitability of Innovation

2 of the 4 key components of the regime do in fact support the notion that EMI would be able to enjoy a rather strong regime of appropriability, indicating that EMI will be able to capture the lion’s share of value created by this new innovation. Firstly, EMI can patent the technology behind the CT scanner to protect its property rights in this innovation and set a barrier to entry that prevents potential rival firms from competing directly in the same industry. With a patent, rival firms will not be able to imitate the technology behind the CT scanner even if the underlying technical knowledge is codifiable. Secondly, as the first mover, EMI will have a substantial lead time over potential rival firms to continue to develop the innovation and technology further so as to protect and gain an even larger competitive advantage in this field in the long run.

In addition, with the high selling price of each CT scanner, EMI will be able to cover the initial investment of £6 million simply by selling less than 20 units, which is even achievable in 1 year!

External Environment – Porter’s 5 Forces  

Customers – While there may be a lack of data to indicate the potential growth of this new market, we can infer from the growing the radiology market and profitability that CT scanners could very well proceed in a similar fashion. Furthermore, CT scanners are certain to be superior to existing technologies in applications such as head and brain imaging. Such applications concern vital organs and have little margin for error, hence there is potential for this to evolve into a niche industry.

Few Competitors – Due to the nature of the scanning industry (high start-up and R&D costs), there are few competitors. Furthermore, if EMI is able to market itself in a niche industry altogether, it will be able to differentiate the CT scanner even more and lower the threat of other competitors.

Low Suppliers/Buyers Power – As most of the components for manufacturing the scanner would be purchased from subcontractors, EMI has the ability to source for different subcontractors if their current one charges an unfavourable price. From the buyers’ perspective, the CT scanner is a new innovation and medical institutions have few alternatives that offer a similar quality.

Threat of New Entrants – As discussed above, patents would greatly reduce this threat.

Case Question 2

Starting from a high level view of the organisation, there could be differing views with regard to the new strategy. Some senior managers did not believe that EMI should make the investment in the CT scanner business. If the views of the managers do not align with the overall strategy of EMI, it could lead to some long-term undesirable effects within EMI such as lower motivation levels or even increased unhappiness that will have a negative impact on productivity and profits. This would be a challenging problem for EMI as it involves addressing the intrinsic motivation of its senior employees and mind-sets do not change overnight. If EMI is unable to achieve the buy-in of its senior employees in this regard, in a possible worst-case scenario, it may have to consider rethinking its strategy or letting some of its valued senior staff leave the company and forego some of its treasured talent and competitive advantage in the process.