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.
- 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
Interview Transcript Format
Candidate
As I understand, our client Roche Care wants to identify which testing kit prototype; 1 or 2 can bring in better growth opportunity for them?
Interviewer
Thats’ Correct !!
Candidate
How is medical equipment market performing in the US? Where does Roche Care stand?
Interviewer
US medical equipment market was worth $3 bn in 2018 and is growing steadily over years. Roche Care, on the other hand has witnessed 5% slide for last three years each. Their revenue in 2018 was $300 mn.
Candidate
As far as the two prototypes are concerned, Is the client expecting any specific growth target?
Interviewer
No, they just want to know which of the two prototypes if converted into final product will be more successful in the market.
I would like you to start by highlighting the parameters that you would consider in deciding which growth strategy i.e. Model 1 or Model 2 should client adopt, productionize & launch ?
Candidate
Sure. Expected revenue & cost structures for both the prototypes over their lifetime is required to be analyzed and compared for this kind of decision making.
The parameters that can be considered broadly are –
- 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
Is there any useful life associated with any of these products?
Interviewer
Major technology upgrade in every 5 years is quite common in this industry. You can assume same for these devices as well
Now please have a look at the below exhibits and tell me which prototype 1 or 2 has greater market potential in your opinion?
5 Year Projections
- 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
Candidate
Data from above exhibits can be summarized in tabular form as follows –
Lets run the analysis on the above data –
Thus, its not even profitable to produce Prototype 1. Quantitatively speaking Roche Care should proceed with the production & launch of Prototype 2.
Interviewer
You said quantitatively speaking; Can you highlight the pros & cons of selecting the Mobile based solution (Prototype 2) over the Complete testing kit (Prototype 1) qualitatively?
Candidate
Following list captures a few pros & cons of using Mobile solution (Prototype 2) –
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)
Interviewer
Okay great. Having finalized the solution to market; Roche care now seeks your help in identifying which state should it run the pilot for Mobile solution.
Refer to the following exhibits for additional data.
- 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.
Candidate
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.
Interviewer
Can you please summarize all your case findings for CEOs brief?
Final Recommendation
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