Strategic Decision Making - A Case Study Review

Contents

i. Abstract

1.0 Strategic Decision Making Process at ADMECO AG
1.1 Problem Description/Objectives
1.2 Distribution
1.3 Assessment Method with MAVA
1.4 Alternatives
1.5 Criteria
1.6 Scoring
1.7 Weighting
1.8 Sensitivity Analysis
1.9 Recommendation; Course of Action

2.0 Reflection on the use of MAVT
2.1 Comments/Discussions on the Process of analysis
2.2 Alternatives the “Even Swaps” Method Comments
2.2.1 Making an Even Swap
2.3 Lessons Learnt

3.0 Case Study Review
3.1 Case Study Background
3.2 Discussions & Comments
3.3 Conclusion

4.0 References

i. Abstract

This paper describes the potential benefit of decision analysis, a process helping decision makers to gain a deeper understanding of their complex issues they face. Especially in the world of corporate business many decisions are complicated and need to consider a wide range of criteria and issues. Multiple Attribute Value Analysis (MAVA) addresses the issues of problem structuring as a useful support for decision making in practice, and for this purpose I will use V.I.S.A¹ software to document and structure the decision making process. This paper is divided into three chapters/tasks.

- Chapter 1: Reports on an investigation into ADMECO’s strategic decision making process
- Chapter 2: Reflections on the use of Multiple Attribute Value Theory (MAVT)
- Chapter 3: A descriptive analysis of a case study: Giving up the smoke: A major institution investigates alternatives to being sited in the city

1.0 Strategic Decision Making Process at ADMECO AG

ADMECO AG² is a small medical device company offering concepts and solution for the hospital market, in particular, operating theatres and clean room environments. Its strategy is based on factors such as market penetration, the patent status of products , the regional location of their major customers, their financial strengths, and the resources the company can bring to bear on changing market opportunities.

1.1 Problem Description/Objectives

At present, ADMECO sells its product through direct and indirect sales/marketing channels to 23 countries. The company has a small 2 person direct sales force, with one representative for Germany & one for Switzerland. For all other export areas, the 26 employee company is too small to directly sell its product into international markets and therefore relies on independent service distributors, who sell, install and service ADMECO’s products on an exclusive basis to the hospital operating room environment in their markets.

ADMECO’s short-term goal is to extend its distribution sales networks of well-trained and well-equipped representation in the USA into the most singles largest medical device market, making up 42% (MEDISTATi) of the market share world-wide.

By utilising distributors/OEM’s, ADMECO can generate growth at a reasonable pace and obtain excellent sales results. In the past, the determining factors in selecting these channels were quality of direct service, effectiveness in targeting geographical markets and specific customers.

The objective is to identify a distributor/OEM company best suited to represent ADMECO in the USA. The Multiple Attribute Value Theory (MAVT) will be used to offer a methodical approach in order to support and validate options.

1.2 Distribution

A strong distribution/sales network in the USA is one of the key elements for ADMECO’s growth strategy, but not a long-term solution. The initial strategic marketing approach takes advantage of the fact that the distributors/OEM³ are already involved with parallel products.

In the USA, there are more than 1,200 nationally active Medical Equipment Distributors/OEMs, mostly selling surgical equipment products.

The most important innovation in healthcare over the past 10 years is not just the devices themselves, but the change in the methods of contracting for healthcare products and services. It would be useful at point to divide ADMECO’s sales structure into 1st, 2nd & 3rd tiers, where the distributors need to be seen as an extension of the (1st tier) sales force and hence viewed as a 2nd tier sales level, selling to hospitals, outpatient centres and physician network markets; the 3rd tier level is then the manufacturers rep. selling veterinarian, chiropractor level.

1.3 Assessment Method with MAVA

The non-compensatory approach (described in chapter 1.4), does not involve trade-offs between high and low assessments of decision alternatives based on the attributes measuring performance in relation to an objectives. As mentioned above, an appropriate method here would be the compensatory approach, the Multi Attribute Value Analysis (MAVA), which can be combined with the V.I.S.A. software in order to further visualise the decision-making process enabling a thorough exploration of the implications inherent in change, the priorities and values (Belton, Wright 2001ii).

1.4 Alternatives

In order to make complex choice manageable we applied non-compensatory strategies such as elimination by aspects (EBA), described by Tversky (1972iii), to identify the most important criteria in the process. For ADMECO, key factors related to whether or not the company faced a competing product line and had national coast to coast sales coverage were weighted upon.

In this way, we were initially able to narrow down the 1,200 possibilities to 736; in a further step, by taking the level of sales coverage and service into consideration, we were left with 5 principal choices. The table below summarises these 5 companies/networks we will examine further.

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Table 1: Alternative Companies

By applying the non-compensatory strategies, I could see how both EBA and Satisficing (Simon, 1979iv) work in practice; other decision strategies such as conjunctive, disjunctive and lexicographic were not considered.

1.5 Criteria

The next step in the process involved developing a value tree from the overall objectives of distribution (Level 1), with a decision taken on the three main criteria (Level 2). The potential distributor has to be strong in the specific areas, e.g., corporate, service, sales & marketing. Level 2’s criteria were further broken down into subcriteria (Level 3) representing a mixture of measurable and appreciated criteria (i.e., track record of OR sales, FDA/regulatory, sales engineers, logistics, sales network, product offering, geographical reach, marketing focus, customer service). The Level 3 criteria complete the multiple attribute hierarchy since at this point we felt it was not necessary to break it down further

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Table 2: Value Tree

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Table 3: Criteria detail

1.6 Scoring

In this section we evaluate the performance of alternatives against its attributes. To illustrate the scoring we used the direct rating of local scale from 0 to 100. The alternative that does best against an attribute is given a value of 100, and the least appealing rated 0 - which, of course, does not mean it is bad in any absolute sense. The scale uses incremental steps of 10.

The tables 4.1 to 4.9 below show each attribute in comparison with the distributor overall specific organisational data and rate the outcomes accordingly.

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¹ Belton, Val., V.I.S.A (Visual Interactive Sensitivity Analysis software) , Visual Thinking International, 1986-2001

² ADMECO AG (www.admeco.com) est. in 1981, headquarter in Hochdorf, Switzerland, employees 26 people

³ OEM - Original Equipment Manufacturer