Synthes 1

1. Situation Analysis:

A. Nature of Demand

The products in discussion are ‘bioresorbable’ internal fixation devices. These devices are surgically placed to stabilize broken bones, aiding in allowing the body to heal itself.

Internal fixation devices in the past had been made of stainless steel or titanium, but with problems resulting from those permanent devices, an innovative approach is being considered. Bioresorbable implants are a possible replacement to the original implants that would eliminate the need for removal, which has shown to be a problem for traditional implants.

The Association for the Study of Internal Fixation (AO) formed in 1958 to improve and standardize the state of internal fixation. Over time, companies were formed to help the AO vision, with Synthes forming to serve and distribute to North America.

Synthes management asked a Harvard Business Team review board to evaluate the potential for moving forward with bioresorbable internal fixation devices. The purpose of this case was to see how feasible and beneficial it would be for Synthes to enter the bioresorbables market.

B. Extent of Demand

In 2000, internal fixation device sales were near 541.5 million dollars, with an additional 5% annual growth. In cases of trauma where there was damage that required aligning bones, most often internal fixation devises were needed. Some of the parts included in this were plates, rods and screws.

The use of the stainless steel or titanium products was vital to surgeons. They were also had a feasible price. The need from bioresorbables came from the implants needing to be removed. The need for removal is based on varying factors. Pain the patient deals with, visibility, and the fear of metal in the body. Growth could also be hindered in children due to leaving it in. Another concern with leaving them in is it could interfere with X-rays and MRI’s.

C. Nature of Competition

Synthes had stayed in the shadows in bioresorbable products, while other competitors had stepped up to the plate in advance.

The HBS had established three different groups to categorize the competitors. Heavyweights included companies that were huge producers of orthopedic devices and had running marketing lines of bioresorbable implants. Johnson and Johnson was one of these. They had pioneered bioresorbables with their Orthosorb pins in 1987. At 2001 tallies, J&J was highly invested in bioresorbable technology.

Biomet was another heavyweight. Although they are smaller than J&J, they still had a strong pull on the market. In 2000 they neared one billion dollars in sales focusing in trauma, maxillofacial and joint replacement. Their strongpoint is the introduction of ReUnite line, which is so far the most extensive line of bioresorbables on the market.

Specialists are competitors that make only bioresorbables. These include Bionx and Macropore, with both companies’ sales totaling 3.6 million dollars.

Smith & Nephew is considered a potential competitor; not yet having the power to be a strong competitor, but definitely having the potential to get there soon.

D. Environmental Climate

Technological trends continue to advance. Competitors in this field have put much emphasis into advancing polymers research. With Johnson & Johnson and Biomet already having lines of bioresorbable products on the market (Orthosorb and ReUnite, respectively), competition is investing time and money into the advancement of implant material, which makes for a competitive climate.

Technology is ever-improving. After the first and second generation polymers, advancements in materials are improving, regardless of whether Synthes joins in on the advances or not. It is possible for another company to be in the process of making advanced product, and have the competitive edge over Synthes.

E. Stage of Product Life Cycle

According to Wasson’s Market Life Cycle, Synthes has evolved into a grounded company that seeks to positively influence market share. Synthes as a whole is in between the Competitive Turbulence and Saturation stages. Competition, while present, is somewhat stable and not allowing many new entrants into the arena. While still competing with other companies such as Johnson &Johnson and Biomet, Synthes’ sales are almost half of the entire trauma implant manufacturers. There is a small expected increase in sales, but the outlook for a substantial growth of new consumers does not appear to be definite. The client base is secure.

Internal fixation devices as a whole are in the Competitive Turbulence stage, approaching Saturation. In 2000, Fractures that resulted in fixation devices neared 713,000 patients. The market as mentioned before had sales of roughly 540 million dollars, with an annual increase. Intelligence Focus is constantly looking for improvements

The actual bioresorbable segment is in the Market development stage. Surgeons who have a large say in purchasing power of the products still need a great deal more information and trial before Although other companies have introduced first and second generation bioresorbables to strengthen market niche. Synthes’ participation in these efforts was minimal, as they focused primarily on improving their standard devices, staying away from the newer bioresorbable craze. First and Second Bioresorbables did not accelerate in sales as originally planned.

The Product Life Cycle of the technology of the bioresorbables, a relatively new line in a mature technology (implants) is still in the Market Development stage. While some of the second generation polymers used in the bioresorbables have proved to be successful in areas like Sports medicine, where sales neared 100 million per year, the technology had not progressed far enough to really make an impact on weight bearing devices that companies like Synthes strive to develop. However, Johnson and Johnson has already had its Orthosorb pins on the market for some time. Those lightweight supplies are in more of the rapid growth stage, as they put themselves on the line early, and have seen 2.6 million dollars in revenue as a result. However, strong, weight bearing polymer technology is still in the works. Research and development are a primary cost for this stage. As third generation polymers successfully prove themselves to the surgical market, it is likely that this new technology will move to the Rapid growth and Competitive turbulence cycles. Technology so quickly advances, so as product improvement increases, so too will the steps in the product life cycle.

F. Cost Structure of the Industry

Synthes was formed in 1974 from the strong desire of AO to develop advanced techniques for internal fixation.

Synthes already has the facilities to do the work. They also have the engineers and others needed to work on the products

However, for this to take place, 20 million dollars and a team of 20 to 30 professionals would be needed to make this happen.

Once the initial investment is made in the bioresorbable research and development, the products will be in a variable cost state.

G. Skills of the Firm

Synthes has long been known for quality and commitment. AO is very respected, and many surgeons view Synthes as a sister in this success. They do have the skills and experience to apply the steps mandatory to work on bioresorbables.

Synthes Maxillofacial have money and time invested in bioresorbables, which shows experience in the progress of polymer research.

Synthes Osteobiologics and AO have been working on advancing the science of polymers and techniques that would be necessary in bioresorbable manufacturing.

Stratec, an AO company that operates similarly to Synthes, had been manufacturing bioresorbable trauma implants. Synthes could benefit from its sister company’s progress in the market.

The HBS team held that Synthes could equate or exceed the quality of the markets bioresorbables, given the right investment amount.

H. Financial Resources of the firm

With Synthes North America sales over 500 million dollars, estimated revenue of 250 million, and the suspected amount of necessary research and development estimated at 20 million dollars, the outlook looks like the company does have the necessary financial resources to implement this program. Funds appear to be available now.

I. Distribution Structure

Synthes distribution is selling to the medical field. They entail 5,000 hospitals and 20,000 orthopedic surgeons. Synthes’ sales force is one of reputable notion. Often Synthes reps are in contact with those they sell to on a weekly basis, if not more often. Synthes has a very positive relationship with its client, as the distribution structure is in good tact. Since the company has a strong hold on distribution practices, channel competition is healthy, yet not overly threatening.

II. Problems and opportunities

A. Key problem areas

1) In research, Surgeons, the primary potential consumers of the products, doubt the efficacy of the bioresorbable products

2) Consumers will likely stop purchasing bioresorbables and negatively label Synthes if their bioresorbables result in faulty experiences, possibly negatively affecting current sales.

3) Synthes must play catch up in this particular field, as competitors have been actively working on bioresorbables.

4) Polymers with which to make these devices have not advanced enough yet to satisfactorily compete with traditional components

B. Key Opportunities

1) Resorbables could ultimately replace many of the internal fixators.

2) With all of Synthes’ resources, they could ‘match or surpass’ current devices on the market within 3 to 5 years.

C. On Balance, the situation is

Somewhat favorable: While Synthes has catch-up work to do on bioresorbables, they have the financial resources and reputation to prosper in this market.

III. Generation and evaluation of alternative marketing program

Objectives Defined for Alternative 1

1.1 Synthes will not move forward with research on bioresorbables. The company will focus instead on improving their clinically proven mature devices. They will continue to market to medical field, primarily focusing on surgeons and hospitals.

1.2. The volume to be sold will be the current sales, expecting an excess of over 275 million dollars in sales.

1.3 Profit Analysis:

Of the three alternatives, Alternative 1 will be the least costly to carry out. Costs equal roughly half of the sales, resulting in the remaining revenue.

• $275,000,000 in sales

• (Less) $137,500,000 in costs (roughly half of sales)

____________________

• $137,500,000 Gain

Objectives Defined for Alternative 2

1. Synthes will quickly develop and market a line of bioresorbables utilizing available polymers. They would focus this line’s evolution based on noted successful bioresorbable products. Once in the market, they could continue researching products ideal for weight bearing devices. They will market to the medical field, primarily focusing on surgeons and hospitals that are interested in the use of bioresorbable implants

1.2. The volume to be sold in traditional products will be the same as current sales, expecting an excess of over 275 million dollars in sales. With the addition of the new bioresorbable lines, Synthes expects to sell an additional 10% in new product sales (27.5 million dollars)

1.3 Profit Analysis:

With the recommended 20 million dollars needed for research and development, and additional 10 million needed for the new product launch, this alternative has the most expenses.

• $302,500,000 in sales

• (Less) $151,250,000 in original costs (roughly half of sales)

• (Less) $20,000,000 in additional research and development costs

• (Less) $10,000,000 in additional costs for a new advertising product launch

____________________

• $121,250,000 Gain

Objectives Defined for Alternative 3

1. Synthes will invest more into research and development. While working on improving a new line of bioresorbables, they can take the ‘wait and see’ approach. The funds would be directed on bettering the product, not on marketing. If and when the bioresorbables become accepted in the marketplace, the company will be ready to move forward with promoting their new products. They will market to the medical field, primarily focusing on surgeons and hospitals that are interested in the use of bioresorbable implants in the future, after materials and products have been intensely researched successfully tested.

1.2. The volume to be sold will be the current sales, expecting an excess of over 275 million dollars in sales.

1.3 Profit Analysis:

• $275,000,000 in sales

• (Less) $137,500,000 in costs (roughly half of sales)

• (Less) $20,000,000 in additional research and development costs

____________________

• $117,500,000 Gain

Marketing mix/program decisions for Alternative 1

1. Product-

Synthes will continue to manufacture and increase development of traditional titanium and steel implants, to be the leader in traditional implants. There will be changes in current products to improve implants.

2. Distribution Decisions

Synthes will distribute to current customers, as they are very reputable and extremely dependable to the surgeons that rely on the sales team’s knowledge and expertise.

3. Promotion Decisions

Synthes uses brand loyalty along with their established heritage in the AO foundation to keep customers interested.

Their promotional monetary allowance, although not increasing, will now be focused on proving to industry leaders that there improvements to traditional implant devices far surpass competitors’ harried introduction of bioresorbables that have not been found conclusively effective.

4. Price decisions

Synthes will keep competitive pricing, with minor increases where necessary. Since the names Synthes and AO are synonymous with quality, consumers will pay set prices as they know quality will be delivered.

Pros of Alternative 1:

The benefits of this approach are that if the third generation of polymers prove to be a relative failure, Synthes does not have a tarnished name because they were not involved in the promotion of the possible third level of failures for bioresorbables. This could help the company keep customers based on being conservative and not adhering too quickly to trends. They could also gain from improving traditional titanium-like pieces. Synthes could become more advanced in the tried and true products, while other competitors will be investing all of their recourses in a possible failure. They also see a financial gain of over 137 million dollars, which out of the three alternatives, is the estimated highest.

Cons of Alternative 1:

The negative repercussions of this alternative are evident. If competitors succeed with their bioresorbables, Synthes could be years away from catching up. With current estimates of years to catch up in bioresorbables, if they were to use this alternative and not be up to date with bioresorbable research, this could put them at a great disadvantage for being even further behind on a possible successful competitor’s bioresorbable implant break through.

Marketing mix/program decisions for Alternative 2

1. Product-

Synthes will continue to manufacture its traditional implants, but will focus on the research and development of advanced polymer bioresorbables. They will continue to improve their bioresorbables, but quickly enter the market with their current available knowledge and developments. They will monitor progress and make changes according to how the target accepts their new line of bioresorbables.

2. Distribution Decisions

Synthes will distribute to current customers. The surgeons that have bought their traditional pieces will be interested in trying the large company’s newest development.

3. Promotion Decisions

Synthes will take advantage of the fact that many surgeons view the company as the best in the business, and encourage them to use the new bioresorbable products.

Their additional 10 million dollars will be spent on an advertising campaign. The sales force that is in high regard with their consumers will guide the surgeons and hospitals though the new products benefits. A major selling point will be that the new products have eliminated the first generation polymer’s sterile abscess problem. The advances that have been made on the materials will be highly promoted.

4. Price decisions

Synthes will slightly increase the cost/selling price ratio. The company wants the consumer to associate the slightly higher price as in increase in quality, as in the market development life cycle stage.

Pros of Alternative 2:

The benefits of the second alternative include: If consumers first try this trustworthy company’s bioresorbable line, they could stick with whom they trust. Synthes would continue selling the traditional line, which has been received well by surgeons. With a financial gain of over 121 million dollars, this is still a satisfactory level.

Cons of Alternative 2:

If the new line of bioresorbables are not satisfactory, this could cause huge damage. As stated before, negative reviews in this industry are not easily forgotten. If there are many occasions where these new products cause abscesses or any other negative outputs, Synthes will likely be branded as a company that too quickly put out a product that was not properly tested. Surgeons could even consider the entire Synthes Establishment has lost credibility by so quickly going with the flow and not being more prepared.

Marketing mix/program decisions for Alternative 3

1. Product-

Synthes will continue to manufacture and sell its traditional implants. They will also be highly involved in the research and development of advanced bioresorbable implants, but will not sell or promote the new bioresorbable line.

2. Distribution Decisions

Synthes will distribute to current customers. The surgeons that have bought their traditional pieces will be interested in trying the large company’s newest development,

3. Promotion Decisions

Synthes will promote the traditional pieces, and let consumers know research and development is in progress. The main factor they will perceive to the customers is that the products will not be introduced on the market like many of its competitors until it is satisfactorily tested and ready for the surgeons to use.

4. Price decisions

Synthes will maintain prices at the current levels, even slightly decreasing them as is common in the Competitive turbulence and Saturation life cycles.

Pros of Alternative 3:

This alternative is conservative in that it is not entering the market with a product that is not tested thoroughly. It is also proactive in that if bioresorbables quickly catch on, research and development that is currently being carried out will prevent lag time. Synthes will not be far behind in its bioresorbable progress, yet it is still protected if the competitors’ current bioresorbables on the market fail. In essence, Synthes can learn from others mistakes.

Cons of Alternative 3:

This alternative has the lowest financial gain in comparison out of the three alternative routes mentioned.

IV. Decision

As technology increases, advancement in the polymers used for bioresorbables will likely continue to improve. Of the alternatives mentioned, I would recommend Alternative 3. The positive possibilities outweigh the negatives. While they continue to make a solid product, Synthes will be investing in valuable knowledge, while not being to forward in an area that still has major tweaking to do before presenting a product to consumers.

While the company continues to makes its customers happy with its thriving products and support, it will be preparing for the future of bioresorbables.

In conclusion, research and develop bioresorbable technology, but do not promote until further knowledge indicates a safe introduction into the surgical implant market.