Case Type: Growth Strategy
Case Style: Interviewer Led
Industry: Healthcare
Case Type: Growth Strategy
Industry: Healthcare
Case by Alvarez & Marsal
Roche Diabetes Care Inc. is a leading provider of blood sugar monitoring systems and insulin pumps for laboratories. They specialize in manufacturing laboratory equipment and offer a broad range of diagnostic tests and systems which play a pivotal role in the ground-breaking area of integrated healthcare solutions. Their products cover the early detection, targeted screening, evaluation and monitoring of a variety of health issues.
R&D division at Roche has recently created two different prototype devices to test blood sugar level for home users. First prototype called Model 1 is a complete testing kit in itself; operates on batteries and include components like testing strips, analyzer device and integrated monitor to display results.
Second prototype Model 2 comes with only testing strips and mini-analyzer device (without display unit). This device needs to be connected to smartphone via Bluetooth for displaying test results. These results can be auto logged, shared over mail etc directly via company’s proprietary mobile app.
The company has budget to manufacture only one of these prototypes and thus have hired you to identify which of these prototypes can bring in more growth for it. They are also interested in understanding if these devices can increase in customer engagement by providing additional value added services.
Practice with Case Partner: Format
This is an interviewer led growth strategy case where the candidate is required to help Roche Care in selecting either of the two Diabetes testing prototype model 1 or 2 for the final production and launch.
Additional information (To be provided only on request)
- The client Roche Care is a medium size medical equipment manufacturing company operating in Houston, Chicago & Dallas.
- Roche has revenues of $300 million in 2018 and has seen a 5% slide in market for each of the last three years
- The US medical equipment market as a whole is pegged at $3 billion in 2018
- Major competitors of Roche Care are all currently exploring similar devices and operate in same geographies as Roche
- Useful life for both of these technologies is 5 years
Instructions for driving the Case Interview
Candidate is expected to solve this case by answering following questionnaires, led by the interviewer or the case partner.
Question 1: What are the parameters that you would consider in deciding which prototype i.e. Model 1 or Model 2 should client productionize & launch?
Notes for Interviewer: Candidate should focus on the cost of production, time to market & expected revenues for each of these models and should conduct a comparison study.
Following heads are expected to be highlighted by the candidate. The list is a must but not exhaustive. Brownie points for candidates who are able to add other meaningful heads to the following-
- Market Size
- Expected market share
- Ease of Operability/ Customer preference (Customer adoption rate)
- Initial Investments
- Operating margins (Price, COGS, Operating Cost)
- Time to market (Time required to develop each prototype into final product)
- Production Capability (Inhouse vs Outsource)
- E.g. Model 2 requires mobile app development; therefore it is quite possible that Roche may need to outsource this development and thus may not have full control on its timely delivery
- Competitors Product & Offerings
- Regulatory considerations
A good candidate should be able to provide a decent framework for analyzing revenue & cost structures for both the prototypes. Parameters listed under possible answer section can be referred for evaluation. An excellent candidate should be able to provide meaningful parameters beyond this list.
Question 2: Share the following exhibits with the Candidate and ask him to analyze the market potential of both the prototypes.
5 Year Projections
Additional information with exhibits (To be provided on request)
- Exhibit 1: Potential customer base refers to the overall diabetes patients in the region of Houston, Chicago & Dallas
- Exhibit 1: Potential market size refers to the diabetes patients who need to track sugar level regularly
- Roche Care will have to outsource Technology (i.e. Mobile app development) in case it opts for Prototype 2.
- Prototype 1 can be developed 100% by Roche Care using indigenous technology & skill set
- Assume variable costs & revenue per unit doesn’t change over the period of 5 years
- Adoption rate for Prototypes 1 & 2 as highlighted by Exhibit 1 represents the overall total penetration by the end of 5 years
Notes to Interviewer: Using exhibit 1, candidate should be able to calculate the expected market share for both the prototypes. Exhibit 2 & 3 carries data for deriving profitability of these prototypes.
Derived values from exhibits are expected to be as follows –
- Expected patients that Roche can convert as customers using Prototype 1: 150,000
- Expected patients that Roche can convert as customers using Prototype 2: 100,000
- Gross margin per unit for Prototype 1: $80
- Gross margin per unit for Prototype 2: $340
- Gross margin (per unit) = Revenue (per unit) – Variable cost (per unit)
- Gross margin (per unit) = Revenue (per unit) – Variable cost (per unit)
- Prototype 1 is expected to result in Net Loss of $1,000,000 over its useful life of 5 years
- Prototype 2 is expected to bring in Net Profit of $15,000,000 over its useful life of 5 years
- Net Profit/ Loss = Per unit gross margin * Converted customers – Fixed Costs
Backed with numbers, the candidate should be able to conclude & recommend launching Prototype 2 as the best growth strategy option for Roche Care.
Data from above exhibits can be summarized in tabular form as follows –
On running the analysis –
Thus, its not even profitable to produce Prototype 1. Quantitatively speaking Roche Care should proceed with the production & launch of Prototype 2.
Question 3: Highlight the pros & cons of selecting the Mobile based solution (Prototype 2) over the Complete testing kit (Prototype 1)?
Notes to Interviewer: The question is aimed at identifying qualitative benefits associated with the launch of Prototype 2 (Mobile based solution).
Following list under possible answer section captures a few pros & cons of using Mobile solution. A good candidate will highlight these without much support and an exceptional one will push beyond this list.
Pros of using a Mobile Solution
- Sugar level needs to be checked and logged regularly for Diabetic patients. Therefore, auto-logging & report sharing features in Mobile app can turn out to be a boon for customers. (With Model 1, customers will be required to manually maintain daily/weekly records)
- Other value-added features supporting future medical devices can be added to this mobile platform. Thus, in long run, Roche can develop it as a complete healthcare app based solution for its home users
- Better adoption rates and comes with easy to scale option
- New features (e.g. in app consultation with doctors, appointment booking etc) can be added later and pushed to customers via software updates on the go
- Easily fits in customer’s lifestyle (Mobile, Flexibility)
Cons of using a Mobile Solution
- Mandatory for customers to own a smartphone
- Device is sold at premium (expensive for customers)
- High maintenance cost (Mobile technology keeps upgrading. Client will be required to consistently invest in upgrading and maintaining the app)
- Additional dependency on a third-party vendor to support and enhance app features
- Additional regulatory considerations (like regulator may impose restrictions for collecting patients’ data via mobile phone)
Question 4: Having finalized the solution to market; Roche Care now seeks your help in identifying the state in which they should run the pilot for this product.
Share the following exhibits and the narrative with the candidate.
Research teams at Roche Care has surveyed 10,000 potential customers in each of the cities of Houston, Chicago & Dallas and have come up with the following insights.
Additional information with exhibits (To be provided on request)
- Exhibit 4: Interested users represent the customers who are considering signing up
- Exhibit 5: Brand perception is based on a customer survey comparing different similar companies. It captures how Roche Care’s products & offerings are perceived in the region in terms of support & quality
- Exhibit 6: % adoption rate represents the expected year on year growth rate (new sign ups) in the surveyed cities
- Assume all the three cities have similar number of target customers to start with.
Notes to Interviewer: Considering all the three exhibits, a candidate may recommend Houston (preferring long term strategy) or Chicago (preferring short term strategy) for the pilot program.
Both the answers are correct provided the candidate justifies his recommendation.
Inferences from the shared exhibits can be drawn as below –
- Exhibit 4: Houston & Chicago looks lucrative as they both have good number of interested potential customers
- Exhibit 5: Houston and Dallas looks preferred choice because of better brand perception
- Exhibit 6: Houston is a better choice for long term engagement because of highest adoption rates over next 5 years; However, over short period of 3 years, Chicago is expected to provide better returns because of higher adoption rates in the period.
Considering insights from all the three exhibits, I would recommend Roche to run the pilot in Chicago. The reason being –
- Chicago has got the highest % of potential buyers
- And in short run, the adoption rates for the device is maximum in Chicago (i.e. running pilot program here can bring in immediate cash inflows for Roche). If successful, Mobile solution can be launched to other cities within the next 1-2 years.
Question 5: Ask the Candidate to summarize his recommendations.
A good recommendation should conclude launching Prototype 2 and highlight its benefit both quantitatively and qualitatively. An excellent recommendation will also include risks involved in the Launching Prototype 2 along with an action plan.
Roche Care wanted to identify which device (i.e. Prototype 1 or 2) would fit in aptly as part of their future growth strategy & launch. I would recommend Roche to go-ahead & launch Prototype 2 (the mobile solution) because –
- It is expected to bring in more profits for the organization as compared to other prototype
- Mobile based solution is more futuristic & scalable; An entire range of value-added healthcare services & offerings can be created around it by integrating other existing & future medical devices with the app.
Further, Roche should run the pilot for this prototype in Chicago as the city provides highest potential customer base and best adoption rate amongst available options.
Plan of Action
- Production planning for inhouse device manufacturing
- Selection of suitable vendor for Mobile app development.
- Software vendors from India & Vietnam can be assessed for cheaper development
- Devising the right marketing strategy for increasing product awareness amongst potential customers
- Identifying & setting up appropriate distribution channel
Risks Involved in the Launch
- Customer data privacy issues must be handled carefully as per regulatory guidelines
- Dependency on third party vendor for app development by delay the launch