Academic journal article Journal of the International Academy for Case Studies

Resmed: Waking Up to Sleep

Academic journal article Journal of the International Academy for Case Studies

Resmed: Waking Up to Sleep

Article excerpt

CASE DESCRIPTION

This is a case for a class on Strategic Management. The case focuses on ResMed, the second largest manufacturer and marketer of sleep equipment. The case describes a successful company in a very high growth, and dynamic industry with constant threats from substitute products outside the industry. The case allows for a comprehensive strategic management analysis at the industry and firm level. The case is appropriate for senior level undergraduate and graduate students. The case is designed to be taught in two class hours and is expected to require approximately 4-5 hours of outside preparation time by students.

CASE SYNOPSIS

The case begins with the change in leadership (from the founder and CEO, Dr. Farrell to Keirnan Gallagher). The new CEO has to take stock of the company and decide whether to continue in the same direction or craft a new path. Of special consideration is whether to continue in their narrow but successful niche or to diversify. The industry is growing rapidly, but there are constant threats of substitutes. The firm recently had a product recall and its major competitor has just been taken over by a large European firm. Since the takeover of its rival, and change in leadership, the stock price has been dropped.

A key component of the company's competitive success and strategy is its innovation. The case provides information on various aspects of the firms operations - from design, manufacturing to marketing and sales. The firm faces a challenge, not so much of competition within the industry, but of a need to influence overall industry demand. This is accomplished by providing information about the health problems of sleep apnea to various groups.

INTRODUCTION

It was March 1st 2008, and just two months since Kieran Gallarme had taken over as President and CEO from the company's charismatic founder, Dr. Peter Farrell. Gallarme, who was 44, and a graduate of Harvard Business School, had joined ResMed in 2003. It had been a long day, and as Gallahue was getting into bed, he reflected on the company that he was now leading. The sleep equipment market was growing at 15-20% per annum, with only a 10%> market penetration. ResMed and its major competitor, Respironics, controlled 75% of the market. ResMed had its 40th consecutive quarter of increased revenue growth, and most financial indicators looked good. However, there were clouds on the horizon. Net income had declined last quarter, primarily due to a voluntary product recall in April. Prices were dropping due to competitive bidding practices by Medicare. In December 2007, Philips Electronics NV, a Dutch company and the world's biggest manufacturer of patient-monitoring systems, announced its purchase of ResMed's major competitor, Respironics, in its largest ever acquisition. Kiernan wondered how this new development would affect his company.

At a more fundamental level, he thought about the fact that while the product offered by their industry (the airflow generator) was the best solution to a significant sleep disorder - sleep apnea, they were not curing the disorder. Further the product was cumbersome to use. Everyday new cures or solutions were touted, but as yet none were as good as the airflow generator. Was ResMed vulnerable with its focus on just one product? Although Farrell would continue to be involved with ResMed as Chairman of the Board, he would move out of center stage and there was now an opportunity for change. Should he continue the direction set by Farrell or chart a new course? As Gallarme mulled over these issues, he glanced at the clock. Will Gallahue sleep well? Should he?

SLEEP AND HEALTH

Good sleep is essential for good health. Sleep apnea, a common sleep disorder, occurs when breathing stops for 10 seconds or longer. Sleep apnea is caused either because a person's windpipe squeezes shut (obstructive apnea) or because the brain's timer for breathing has a problem (central apnea). …

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