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Abstract In 2002, Respironics, Inc. was at a turning point in its history. Changing market conditions, increased regu- lation and growing competition prompted executive management to commission a project to develop a sus- tainable business strategy capable of delivering consis- tent and predictable growth. This paper outlines the major steps, decision points, and challenges encoun- tered during the creation and implementation of this strategy. Particular emphasis is placed on the central role articulating a “Strategic Intent” played in achiev- ing success.
Background Respironics, Inc. is today the recognized leader in pro- viding innovative solutions to the treatment of sleep and respiratory disordersi. Established in 1976, the business built a reputation of bringing several innova- tive solutions to patients, helping them sleep and breathe easier. Most notably, the first commercially available treatment for Obstructive Sleep Apnea (OSA), a respiratory ailment resulting in interrupted breathing cycles during sleep, was introduced and ad- vanced by Respironics. Through its first 20 years, the business grew as awareness of sleep disorders and their treatment began to grow. The business a?racted the a?ention of both the medical device industry and Wall Street as it demonstrated steady growth and was named one of the 200 Best Small Companies by Forbes Magazine. In 1998, with over 1000 employees and five operating facilities in the US and two international fa- cilities, Respironics had captured market leadership in each of its core markets. However, in 1999 after a major acquisition, Respironics began to see market share slip and therefore lost the confidence of Wall
Street as the stock slipped to an all time low of $7 per share. The Board of Directors took immediate action to correct course and brought in a new CEO to lead the business. As Respironics’ products are sold mainly through distributors, the company began to differentiate themselves from their competitors by pro- viding unique services to support the growth of their customers’ businesses. Many of these medical equip- ment distributors were locally owned and operated “mom & pop shops” who provided medical equip- ment, such as walkers and oxygen, to patients within their local community. As the competition for prod- ucts and services increased between these medical equipment companies, Respironics assisted these busi- nesses by providing them with business plans, mar- keting programs, financing, and service arrangements designed to enhance their business. Respironics fo- cused on the needs of the customer and began to re- gain market share and the confidence of Wall Street.
The Board of Directors was not satisfied with this fi- nancial turn around alone. As they assessed the mar- ket conditions and the growing number of competitors for the core OSA market, they were concerned that even these positive changes would not sustain the de- sired growth. Therefore, they challenged executive management to develop a sustainable strategy for long-term growth and implement that strategy to drive results in all business units. They tapped the head of the largest operating division to lead this pro- jectii and appointed him Chief Strategic Officer (CSO). He tapped into several individuals from across the business as well as externally, to assist him in shaping and implementing that strategy. In hindsight, the process can be described in five major steps.
Strategic Intent: A Key to Business Strategy Development and Culture Change James W. Ice, Respironics, Inc.
O R G A N I Z A T I O N D E V E L O P M E N T J O U R N A L
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Step One – Define the Desired Strategic Outcome The greatest challenge of creating and implementing meaningful strategy was to identify the outcomes of a successful strategy in an operational way so as to di- rect action and enable the measurement of results. Respironics, as a publicly traded company, desired that their strategy would yield long term growth and a positive perception by investors. Specifically, the de- sire of the management was to be seen by the market as a “buy and hold” stock, one that yielded greater long term value by holding onto the stock rather than trading it. The new CSO engaged a third-party re- search organization to help uncover the performance criteria that would lead an investor to perceive Respironics as a buy and hold company. The objective was to be seen as a company that engendered trust and provided the investor with the long term condi- tions for success. Research yielded the following three performance criteria that long term investors desired, financial performance, (including annual revenue growth in the mid-teens), operational excellence, in- cluding cash generation and operational expense con- trol, and value creators such as consistent and predictable growth performance, sufficient breadth and scope of company products and services, and demonstrated management team capability and credi- bility.
These factors became the scorecard of performance as Respironics considered the development of an endur- ing business strategy. It was during phase one that the CSO engaged the internal OD and HR resourcesiii. The initial project connection came in the form of a request to assist with one specific value creator, demonstrated management team capability, by developing a more robust succession planning process. During the con- tracting phase of this initial engagement, the larger project was outlined, and a new integrated approach for succession and leadership capability development to support the initial request was delivered. However, this initial entry point provided the opportunity to share with the CSO new ideas, processes and tools to assist with the larger project. He quickly took us into the inner circle of development and execution. This access and confidence allowed us to suggest concep- tual frameworks (e.g. strategic intent; key competen- cies); assist with data collection and analysis (e.g. S.W.O.T.) and facilitate the communication and inte- gration of the resulting strategy toward culture change as described below.
Step Two – Assess the Current State To understand our current state in each of the buy and hold performance criteria, a careful analysis of the strengths, weaknesses, opportunities and threats (S.W.O.T.) was completed within each of the four op- erating divisions. These conversations with business leaders across the business units revealed environ- mental and operational concerns. New competitors had entered the market, governmental regulations had placed greater pressure on profit marginsiv and con- flicting priorities characterized the businesses. As a business built primarily around engineering compe- tencies, Respironics had developed complex design and development processes. However, when asked, there appeared to be no clear answer to the most fun- damental strategic decision: “What should the scope of our products and markets be?” The rapid growth and market pressure had yielded a company splintered in focus and product portfolio. Without a clear strategic driving force, what we began to call strategic intent, the individual businesses were heading in a dozen dif- ferent directions based on their recent market/product history and/or their perception of their current opera- tional strength. It was clear that within the current competitive environment and with so many environ- mental issues in flux, neither of these perspectives were sufficient to inform a strategy that would antici- pate the rapidly changing conditions, challenge status quo and deliver the expected financial performance of a growth oriented company.
Step Three - Determine the Strategic Intent A company’s driving force, or strategic intent, informs and shapes how a business defines itself and where it finds its unique strategic advantage. A clear strategic intent gives managers a rallying point around which to make decisions about the future of their organiza- tion and to assess product options and market deci- sions. Without it, they lack the understanding of the central driving force of what the business is trying to achieve and are forced to rely only on history for deci- sions about the future. We found this concept best ar- ticulated in a model presented by Tregoe and Zimmerman (1980) describing a taxonomy of nine strategic areas which shape the overall strategic inten- tion of the business.
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Although each of these strategic areas are critical to the success of any organization, the authors suggest that each company needs to consider which of these strategic areas will serve as the core driving force for that business. Once decided, strategic intent then serves to inform all other decisions about the future of the business. Companies that are unclear on which strategic intent drives their business or try to operate
from multiple strategic intents will produce conflicting priorities, wasted resources, indecision and frustration in the workforce and then confusion in the market- place. When priorities conflict and scarce resources must be allocated, managers need to know how to make the tough decision. They need a touch point which shapes the future and explains the past. The articulation of the driving force in the business is
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Strategic Area Definition Examples 1. Products Offered Focused on the current product mix, look for
ways to improve or extend current product capabilities and achieve higher penetration of current markets
Ford motor Company Bank of America Metro-Goldwyn-Mayer, Inc.
2. Market Needs Provides a range of products to fill current or emerging needs of identified markets; devel- ops new products/services; searches for new markets with characteristics similar current
Gille?e Company Merrill Lynch & Co. Inc
3. Technology Offers only products/services that emanate from or capitalize on its technical capability; seeks new applications for its technology
E.I. DuPont de Nemours Honda
4. Production Capability
Leverages production know-how, processes, systems and equipment; two-types: commodity – characterized by long runs and economies of scale; job-shop – produces a wide range of products which utilize its pro- duction know-how;
US Steel Corporation International Paper Co
5. Method of Sale Established primary method for convincing customers to buy its products and determines products, markets and geographic scope on the basis of this method of sale
Avon Product, inc. AMWAY EBay
6. Method of Distribution
Leverages strong distribution channels to deliver products; determines product mix, customers and geographic scope based on existing channels
McDonald’s Corporation COMCAST
7. Natural Resources Develops products through the use or conservation of natural resources
Gulf Oil U.S. Forest Service
8. Size/Growth Determines the products and markets service based on the desire to become larger or smaller; may push into unrelated markets if potential for size/growth exists; often an in- terim driving force
Li?on Industries (1950-60s) General Electric
9. Return/Profit Desires for specific levels of return drive the product and market decisions of this organi- zations; will change market scope in order to achieve its return/profit requirements
R.J. Reynolds Industries Tyco International
Table 1. Taxonomy of Possible Strategic Intentions
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different from a mission and/or vision statement. While a mission or vision statement may define the as- piration or purpose of the company, the strategic in- tent articulates how we are going to leverage the company resources and strategic alternatives to ac- complish this goal. A common mission considered from the different strategic perspectives articulated in this taxonomy would yield very different courses of action. As each perspective leverages a different strategic imperative, it sets different priorities, recom- mends different investments and shapes different cul- tures. Therefore, the articulation of a strategic intent for a business informs all other strategic decisions to follow.
There are numerous examples of organizations that have leveraged each of these strategic intents as their primary driving force toward success. Honda has suc- cessfully leveraged their deep understanding of en- gines (technology) and applied them to markets from lawn mowers to portable generators to automobiles. General Electric has built its substantial reputation on its passion to grow and return a profit and to be first or second in each market in which it chooses to com- pete. Within the medical device industry examples of great success with businesses that have focused re- sources around one of the defined strategic intents can also be found. While no single driving force guaran- tees success, it does help to articulate the core assump- tions and priorities of the business, informs leadership for decision making and defines for the workforce the source of their unique chosen competitive advantage.
Our SWOT analysis discovered that six of the nine strategic intents described in this taxonomy were iden- tified by business leaders as driving critical decisions within their businesses. The assumptions and behav- iors of some leaders suggested that greater penetration of current products was the driving force for our busi- ness, while for others leveraging our distribution channels, advancing our technology, maximizing our production capability or mergers and acquisitions (i.e., growth) were identified as the single most important determinant for strategic direction and investment of resources. When Respironics’ executive management considered each potential strategic driver within the context of the markets served, the company’s history/origins, and the core beliefs of the business they realized that many strategic intents were viable for Respironics. However, it was determined that a “Market Needs” strategic intent best described the core decision making criteria and the type of culture the executive management desired for this medical de- vice company. This strategic intent leveraged the company’s passion for improving the lives of patients,
for providing novel solutions to clinicians and for pro- viding programs to enhance the business capabilities of the home health care product distributors. It would also challenge the business to understand and antici- pate the needs of the markets and to design and de- liver new solutions. This decision represented a conscious shift in focus in a company that had built its reputation on engineering success and innovation to a business focused around markets and their needs. Yes, the engineering efforts were intended to address specific market needs, but over time the business had encoded the engineering DNA so far into the organi- zational fabric that product specifications, product fea- ture choices, delivery dates and sometimes even the “go to market” strategies were defined by the research engineers - not those closest to the market. Over time Respironics had focused on developing engineering as a core competency of the business and this strategic in- tent called for marketing to be the differentiating com- petency for the business. This single decision of the driving force (strategic intent) for the business would require re-education and re-tooling across the entire business.
Step Four - Articulating the Strategic Vision Along with the consideration of the desired outcome and the strategic intent, a business strategy must con- sider a complex set of interacting factors, including: the industry’s history and structure, the companies (and competitors) capabilities and the markets in which the firm chooses to compete . How you define your market shapes your view of the world. It be- comes the aperture through which you view every- thing. Define it too narrowly and you miss market opportunities; define it too broad and you dilute re- sources and risk losing market penetration.
For Respironics, the OSA market had long been con- sidered our primary market by both Wall Street and our own leaders. This perspective may have come from a ‘products offered’ mentality as 80% of our rev- enues were generated through OSA related products. A ‘market needs’ strategic intent would call us to care- fully reconsider our assumptions about the markets we serve. For example, our market research discov- ered that 50% of people in the US alone describe them- selves as a “problem sleeper”. Most of these individuals did not have OSA and many would con- sider a medical device as an alternative to drugs to as- sist with sleep. So we began to talk about the needs of the problem sleeper rather than the OSA patient – ex- panding our potential market ten fold. The Allergy and Asthma division reframed their historical declin- ing market of nebulizers and flow meters into an
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emerging market of using the respiratory system to deliver drugs into the body. Rethinking the markets we serve required us to redefine operational strategies, R&D projects, and who we considered our competi- tors.
The company vision statement needed to also reflect this new focus.
To be the worldwide leader at anticipating needs and providing valued solutions to the sleep and respiratory markets.
Although the new vision was quite simple, each word was carefully crafted to communicate something spe- cial about the desired market position (worldwide leader), the strategic intent (anticipate and provide valued solutions) and the desired markets (sleep and respiratory) for Respironics. This strategic shift re- quired communication to the management, the em- ployees, our suppliers, our customers and Wall Street. In order to explain the new behaviors required of the workforce, three key competencies were articulated along with the vision to illustrate the new way to thinking.
1. Market Foresightvi - Exploiting deep insights into the trends in technology, demographics, regulations, and lifestyles to re-write rules and create new competitive spaces, sensing both opportunities and threats
2. Learning Agility - Aggressively learning and applying the new skills/knowledge required to be successful within new, changing or uncertain conditions
3. Teaming - Leveraging available resources and capabilities (internal/external) to execute and achieve defined goals
Through an integrated communication plan (e.g., visu- als, meetings, on-boarding and performance manage- ment alignment with strategic objectives and language) we a?empted to touch each associate with a clear and consistent message of the strategic direction of the business and their role in achieving this vision – spreading both the language and excitement of the new strategy. To assist with the dissemination of the message/behaviors we identified, trained and commis- sioned influence leaders from across the business to serve as agents for change within their own work en- vironments.
Step Five – Walk the Talk – then Talk about the Walk Executive management took immediate action to re- organize/create strategic business units designed to focus on exploiting existing and emerging markets . Perhaps the most significant demonstration of the exe- cution of this strategy was how executive management chose to allocate resources and invest their money – against the strategic intent. Aligning resources into market segment based strategic business units, invest- ing in emerging markets, funding market research and product development, M&A, and strategic compe- tency development, are just a few business decisions resulting directly from the selection of a market needs strategic intent – demonstrating their willingness to walk the talk. These decisions, as well as personnel decisions (senior staff replacements, leadership devel- opment), were communicated to the employees and the market at large within the context of how they support the implementation of the strategic intent and alignment (or lack there of ) with the business strategy – a steady drum beat of walking the talk and talking about their walk.
Perhaps the greatest challenge in implementing this market needs strategic intent was in shaking loose the grip of the historical culture, characterized by highly engineered processes designed to maximize the design and development of products rather than the develop- ment of markets. While these design engineering processes are critical for a market needs company as well, conflict often arose between marketing leader- ship and engineering leadership as to who had the final call on product design, features and development priorities. It took time to build the competencies and develop the trust required for the group to accept the new accountabilities of the product manager - ac- countable to define the market need in such a way to direct the work of the engineer’s energy and creativity.
While this implementation is a journey not a destina- tion, significant progress has been made since its initi- ation in 2002. Respironics’ revenue has grown from $450M to $1.2B as we have expanded our product of- ferings, developed our Research & Development pipeline, maintained leadership in our core markets, and acquired several businesses and/or technologies. Ninety-six percent of our associates report they under- stand where the company is headed and the strategic Vision for the companyviii. The language of strategic intent, market needs and the three key competencies are now part of the company’s day-to-day business lexicon as excitement is building about the opportuni- ties ahead.
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Conclusion Beginning with the challenge to build a sustainable strategy for long term growth, a five step strategic de- velopment process was executed. Central to this strat- egy was the definition of a ‘strategic intent’ for our business. Our strategic intent informed and shaped how our business defined itself and where it intends to find our unique strategic advantage. Our strategic in- tent has given managers a rallying point around which to make decisions about the future of their organiza- tion and to assess product options and market deci- sions. We believe this strategy can differentiate us from competitors and prepare us to anticipate and adapt to the challenges that lie ahead.
References Tregoe, B. B., & Zimmerman, J. W. (1980). Top
Management Strategy: What it Is and How to Make it Work. New York: Simon & Schuster.
Author’s Reflection I have served as the Director, Organizational Develop- ment for Respironics since 2002. In this role I report directly to the Chief Human Resource Officer (CHRO), who is a member of the executive staff. I have over- sight accountability for all Talent Management activi- ties and processes for the enterprise. These include organizational development; talent acquisition, per- formance management, executive succession, manage- ment development, engagement and retention, and strategic competency development.
The most difficult challenge faced in this project was how to evolve a historically successful engineering- based organizational culture to a culture focused more on the unique and emerging needs of the market and customer, rather than the features of products deliv- ered. The existing culture was strong and ingrained in the a?itudes, assumptions, and processes of the day- to-day decision making at Respironics. Introducing the concept of strategic intent facilitated the dialog of new assumptions, processes, and behaviors in light of the market needs as strategic intent. This discussion, along with the introduction of the key competencies, market foresight, learning agility, and teaming, which were selected specifically to drive the defined strategic intent, provided a language to describe the new expec- tations and required behaviors. The unique advantage I had as an internal consultant to this project was a deep understanding and respect for both the history
and success of the current culture. This allowed me to challenge the status quo from a less threatening per- spective, as a member of the family, so to speak. Addi- tionally, the strong sponsorship and support of the chief strategic officer, CHRO, and the board of direc- tors generated the willingness from other executives and leaders, even those most ingrained in the old cul- ture, to consider the required cultural changes.
When tackling a project like this, I have come to be- lieve that defining a new language is critical to ge?ing people to think differently about old behaviors. The unique advantage of the internal consultant is that they can leverage organizational history and stories to illustrate and expand the new language to break down some of the resistance to the desired change.
Author’s Bio James W. Ice joined Respironics as the Director of Or- ganizational Development in 2002. In this role he has oversight accountability for the OD, executive devel- opment, talent management, and talent acquisition ini- tiatives across the enterprise. Over his 20 year career, Jim has held several internal OD and HR roles for Alcoa, Allegheny Energy, and HealthSouth Healthcare Systems. In addition, Jim served six years as the Vice President of Professional Services for Success Factors, Inc., a human resources consulting and software com- pany, consulting to over 200 leading companies on business strategy and alignment of human capital. He holds a BA from West Virginia University in Psychol- ogy, a MS from Purdue University in Organizational Communication and is completing his EdD at the Uni- versity of Pi?sburgh. He is a frequent speaker at pro- fessional and academic venues. He can be contacted at: jim.ice@respironics.com
Endnotes i These disorders include treatments for obstructive sleep apnea (OSA); asthma; chronic obstructive pulmonary disease and restric- tive lung disorders. ii This project was assigned as a development opportunity and to assess the candidate’s ability to think and lead strategically – a con- dition for success as the primary successor to the current CEO. iii At the initiation of this project the internal support resources were both new to the business – CHRO, less than 9 months; Director of OD, less than 3 month iv Governmental reimbursement limits set by Medicare directly im- pact the price of each unit sold. v Schoemaker, P. J. (1992). Corporate Strategy. MIT/Sloan Manage- ment Review, Vol 34, No 1, pp. 67-81
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vi Adapted from Hamel, G. and Prahalad, C. K. (1994 ). Competing for the Future. Boston Mass: Harvard Business School Press. vii This process continues today as the markets continue to evolve and dictate the organizational structures required to support their development. viii As measured by the annual Employee Engagement Survey
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