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MDCM, Inc. (A): IT Strategy Synchronization

Submitted by:

Section-B, Group-1

Aiswarya B S
Pooja Gupta
Sangeeta Bori

 MDCM, Inc., one of the world’s largest contract manufacturers for medical devices
 The firm practically pioneered close partnership arrangements with its customers and
shared risk and reward
 The company’s motto of “absolute commitment to delivering quality parts and
assemblies on time” had produced tremendous customer satisfaction
 By 1974 it had the largest market share in the United States at 42 percent. MDCM’s
market share continued to grow and was a dominating 54 percent by 1985
 Despite its dominant market position in the mid-1980s, MDCM’s profit margins began to
erode because of its consolidated customer base, which gave MDCM little pricing power
 Manufacturing was so poorly coordinated that many facilities sat idle for months while
others were running overtime
 It had just announced its fifth consecutive quarterly loss
 The firm posted revenues of $1.12 billion with net losses of $33 million for the second
quarter of 2002
 Max McMullen as CEO for 2 years this was yet another agonizing episode for him
 Company’s lackluster record of the next twelve months were critical in proving that these
promises could indeed be kept
 McMullen called a meeting of MDCM’s senior executives to discuss the situation
 CFO - Sharon Leis, Vice president of marketing and sales - Pat Perry, COO - Michael Shed,
Newly hired CIO - Shawn Atkins

Medical device contract manufacturing is our business. That’s why we named the
firm MDCM.

—MDCM, Inc. chairman and CEO Max McMullen,

2001 Annual Report

 MDCM, Inc. was founded in 1972 and focused was to provide an end-to-end package of
medical device contract manufacturing services
 It was Pure contractor in the business that did neither research and design nor marketing
for the products themselves
 MDCM, Inc. had specialized in medical device contract manufacturing and assembly,
clean room medical injection molding, and the design and fabrication of specialty
assembly equipment for medical device manufacturers for 30 years.
 Through a joint venture it offered complete printed circuit board assembly, including
through-hole and surface-mount, employing state-of-the-art equipment
 MDCM was renowned for its ability to produce highly customized versions of this
equipment for unique applications
 Firm’s corporate domicile was in the United States
 It had 19 foreign subsidiaries with locations in 35 cities
 Oldest and largest subsidiary was its U.S. arm, MDCM Corp and an FDA-registered firm
 It had facilities in eight states, including New Jersey, Ohio, Colorado, and California
 MDCM made its first major acquisition, of Sentrex in the UK, in 1987
 In mid-1990s MDCM had made more than twenty major acquisitions. The acquisition
targets were all non- U.S.-based companies that had competencies in contract
manufacturing similar to MDCM’s

Horizon 2000

 In 2000 Max McMullen was promoted to CEO. McMullen Because he was known for his
marketing skills and sales tenacity, industry insiders wondered whether he could fix
MDCM’s problems
 The company was reorganized to share a single brand across all subsidiaries (e.g.,
MDCM France, MDCM UK, MDCM Canada) and make each subsidiary responsible for
the customers located in its region
 The marketing and sales functions became centered on the new regional subsidiaries,
each customer was assigned a sales manager who would supervise and coordinate all
the customer’s accounts
 McMullen pushed through initiatives to aggregate materials purchasing and reduce the
number of suppliers from thousands to hundreds, another major operational change
was outsourcing all of MDCM’s inbound and outbound logistics
 Most aggressive move in Horizon 2000 was the reorganization of the production
facilities, this change required MDCM to move away from its tradition of locating
manufacturing and design facilities close to its customers and also needed to ensure
that all of the new facilities were certified and approved

 Changes in Horizon 2000 took advantage of MDCM’s scale and global presence.
McMullen saw it as a way to align the company’s organizational structure to its strategy
and deliver quality end-to-end contract manufacturing services anywhere in the globe

 It took more than two years to implement Horizon 2000 fully, the company’s headcount
was reduced by more than 30 percent
 McMullen did not recognize until 2002 that such tight coordination required a much more
sophisticated IT capability
 McMullen hired Shawn Atkins to be the CIO of MDCM in 2002 and assigned tasked with
solving the IT problems introduced by Horizon 2000 and the acquisition binge of the 1990s

Information Technology at MDCM

 Corporate IT had been responsible for the overall IT budget but had not overseen projects,
investment decisions, or long-term planning
 Atkins saw bloated costs from seriously flawed practices
 Many projects that sometimes overlapped and sometimes contradicted each other. An
alarming 80 percent of the IT budget went to maintenance, there had been no successful
implementation of any major systems since a new accounting system in 1995
 IT chaos caused huge lags in information flow among departments, suppliers, and logistics
 This led to inaccurate forecasts, scheduling headaches, and bloated inventory everywhere
in the supply chain
Following is a high-level snapshot of the number of disparate systems and platforms at MDCM:

 Financials. Many different legacy systems handled all financial reporting and
accounting, including accounts payable, accounts receivable, payroll, and
 Human resources and benefits administration. HQ Lawson in the United
States and several legacy systems worldwide.
 Sales forecast, pricing, invoicing. Fifteen different custom legacy systems.
 Materials requirement planning. Many different systems. MDCM U.S. had
been using systems from Glovia and Manhattan Associates.
 Logistics and transportation. Five different legacy systems.
 Duty and custom inspections. Eight different custom systems.
 E-mail. No standard infrastructure. Multiple platforms, including POP mail,
Lotus Notes, and Microsoft Exchange.
 Networking. No capabilities to access across the subsidiaries because of
incompatible protocols.
 Operating systems. DOS and Windows (3.x, NT, 2000) for employee
desktops. MVS, AIX, HP/UX, and Sun Solaris for enterprise systems.
Databases. Oracle, Sybase, Informix, and DB2.

 MDCM was also challenged by the numerous locations where the systems were housed
 Atkins was able to identify twenty-three key managers whom he regarded as capable IT
leaders in spite of the system and infrastructure disarray
 He also faced with nothing short of a complete overhaul of both the infrastructure and
 MDCM to become one global company, he argued that it was necessary to have one
global IT infrastructure
 First step, Atkins needed to work with the executive management team and match an IT
strategy to the overall corporate strategy
 Atkins successfully convinced the senior executive team that a daylong meeting was
necessary to figure out the overall strategy and direction of IT
 The session was as much about being able to clearly articulate the strategy and business
priorities for MDCM as it was about developing the right IT plans
Strategy Goals

The first strategic goal of MDCM is to operational costs; currently, the company has a bloated
working capital and the least cost efficient structures in the industry. This implies that the
company needs significant operational and cost improvements.

The second strategic goal of the company is to increase its revenue and profitability; it is
apparent that MDCM had faced five consecutive quarterly losses because of the lack of an
effective cost and operational improvement strategy leading to shrinking margins for eight
successive quarters.

The third strategic goal is to improve its operational efficiency through enhancing information
flow, which will in turn facilitate employee productivity.

The fourth strategic goal is to align the company’s IT initiatives with the firm’s corporate

There is the need to have an understanding of how IT plays a significant role in the achievement
of the strategic business goals.

Strategic Responses

The strategic responses that MDCM can deploy should focus on lowering prices to attain
competitive advantage.

 This requires MDCM to reduce its operational costs and exploit this position to adopt a
low pricing strategy in order to have an edge over its competitors.
 The second strategic response entails adopting high degrees of product differentiation,
which can be used as a platform for establishing competitive advantage over rival firms.
Product differentiation will also be helpful in addressing the threats posed by buyer
 The third strategic response entails establishing good relationships with customers by
ensuring that the firm meets the demand of customers in terms of quality standards, price
and quality specifications.
 It is apparent that poor information flow is a significant issue causing all the problems in
the firm; this implies that the foremost critical tactical objective for MDCM is to integrate
IT in its strategic goals.
 A decision to overhaul an entire information system of a company and replace it with
another requires critical assessment and consideration.

Such modification and restructuring will definitely affect the employees in the IT departments as
well as the IT professionals some of whom may require new training on how to apply the new
systems in their daily duties.

 MDCM has only 195 IT professionals it would therefore be preferable if the company
determined the most crucial changes that should first be implemented. The company also
has a budget of 56.1 million dollars.
 It was however estimated that the entire revamping process would require close to 175
million dollars. It is thus apparent that the company may not have the financial
capabilities to implement the entire project in one go.
 ERP Implementation would be the first IT strategy to consider for implementation.
Adoption of the ERP system in the company will enable all the departments’ functions to
be integrated through simplifying of information accessibility and saving
 ERP implementation will also strive towards streamlining and upgrading of the
collaboration system. Collaboration systems such as emails will be improved to allow for
effective communication across the company.
 Determining effective ways to manage internal purchasing is another way of ensuring
that costs are saved. This can be done through the implementation of a system to
consolidate such purchases.
 Thus by implementing EPR in phases to cater for costs, the company will have achieved
most of the twelve project listed. They include consolidation of the data centers,
standardizing the server and collaboration of communication systems.
 Coordination
 IT Duopoly