information systems
Information Technology Management ITSS 4370 Assignment #2 – MDCM, Inc.
MDCM, Inc. Background Briefing
NOTE: The assignment follows
this briefing!
Who is MDCM?
“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
Corporate Background
• For more than thirty years, 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.
• Although the firm’s corporate domicile was in the United States, it had nineteen foreign subsidiaries with locations in thirty-five cities.
• Its U.S. arm, MDCM Corp., was the oldest and largest subsidiary and was an FDA-registered firm. It had facilities in eight states, including New Jersey, Ohio, Colorado, and California
MCDM Corporate Family
US Canada Mexico Brazil Argentina
Germany UK France Italy
Poland Austria
Philippines Malaysia Indonesia
How MDCM Worked
• MDCM deliberately selected opportunities that allowed it to work closely with customers.
• By working together with customers, MDCM optimized designs for manufacturability, thus reducing the manufacturing costs to their lowest level.
• The company’s motto of “absolute commitment to delivering quality parts and assemblies on time” had produced tremendous customer satisfaction.
Corporate History
MDCM made its first major acquisition, of Sentrex in the UK, in 1987. By the 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. These companies all became wholly owned subsidiaries of MDCM, Inc. MDCM’s management maintained that the acquisitions allowed the company to spread its operational excellence while keeping the foreign companies autonomous enough to be able to better serve their local customers. This strategy also enabled MDCM to further its relationships with its largest customers, who were also becoming more globally focused.
Corporate History
By the late 1990s it was clear that synergy gains from the acquisitions could not be realized without major changes in organization and operations. Even though MDCM was the largest company in the industry, it had the worst operating and profit margins. An audit of the company’s suppliers found that it was buying similar parts and materials from many sources all over the globe. Manufacturing was so poorly coordinated that many facilities sat idle for months while others were running overtime. The sales departments across the subsidiaries were in such disarray that sales managers would sometimes find that they were bidding against each other for the same account. Such practices clearly did not make use of the company’s scale.
Corporate History
Despite a major organization overhaul in 2000, the company was only able to slow its decline in market share and profit losses. MDCM lost four of its ten largest customers between 1998 and 1999. Although it continued to excel in customer satisfaction, high internal costs did not allow MDCM to price competitively against smaller, more efficient rivals. In 2000 the company reported its first fiscal year loss in more than twenty years.
(See next slide: Five-Year Selected Financial Data.)
Five-Year Selected Financial Data ($ in thousands)
Operating Results FY2001 FY2000 FY1999 FY1998 FY1997 Net sales 4,329,446 4,203,346 3,965,421 3,671,686 3,307,825 Cost of goods sold and occupancy expenses, excluding depreciation and amortization 1,768,374 1,637,384 1,475,120 1,317,072 1,175,957 Gross margin 2,561,072 2,565,962 2,490,300 2,354,614 2,131,868 Depreciation and amortization 340,216 315,015 294,406 272,598 245,584 Operating expenses 2,243,472 2,039,520 1,942,400 1,798,519 1,635,017 Net interest expense (income) 1,210 1,256 1,333 (75) (2,975) Earnings before income taxes (23,826) 210,171 252,161 283,572 854,242 Income taxes (8,101) 71,458 84,474 94,997 284,463 Net earnings (before restructuring expenses) (15,725) 138,713 167,687 188,575 533,901 Restructuring expenses 82,223 152,223 — — — Net earnings (after restructuring expenses) (97,948) (13,510) 167,687 188,575 533,901 Cash dividends paid — — 79,503 79,503 79,503 Per share data Net earnings—basic (0.11) (0.02) 0.19 0.21 0.60 Net earnings—diluted (0.11) (0.01) 0.18 0.20 0.58 Cash dividends paid — — 0.09 0.09 0.09
IT at MDCM
• Enter Shawn Atkins, the newly hired CIO. Atkins, a graduate of the Naveen Jindal School of Management, realized the importance of including the top executives in the information technology (IT) strategy and planning.
• When Atkins arrived at MDCM, he could not believe what he was seeing.
• 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. Hundreds of platforms and standards were used across the company with many highly customized systems from different IT shops at the subsidiaries. He found 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 inventory at MDCM
• Financials. Many different legacy systems handled all financial reporting and accounting, including accounts payable, accounts receivable, payroll, and billing.
• 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.
Highlights of the History of IT at MDCM
• MDCM’s recent growth had been through acquisitions. Historically, the company had no focus on IT integration before or after acquisition. Each location remained essentially as it was before it became a part of MDCM.
• Phone, fax, and limited e-mail were the primary communication media.
• Regular financial updates were manually exchanged between the subsidiaries and headquarters.
• There was no integrated MDCM network worldwide and there was only limited networking within regions/countries.
• Across MDCM there was a wide variety of packaged, customized, and self-developed software applications.
• There was limited use of the Internet as a means of networking and communications for suppliers and customers.
• There was no single centralized view of MDCM’s overall IT assets or capabilities.
Global IT locations
• U.S. = 8 • Canada = 3 • Mexico = 2 • United Kingdom = 3 • France = 2 • Germany = 2 • Poland = 1 • Austria = 1 • Italy = 1
• Japan = 2 • Taiwan = 3 • Brazil = 1 • Argentina = 1 • Philippines = 1 • Malaysia = 1 • Indonesia = 2 • Australia = 1
MDCM-B Case Assignment
NOTE: This is a group case.
Read the MDCM (A) case for background and history. This assignment is based on the MDCM (B) case. You and your team are the IT executive management committee working with the CIO of MDCM.
Based on the information given in the case and the company background briefing (attached), prepare a recommendation to the MDCM Corporate Board regarding which projects MDCM should include in its portfolio. Your recommendations should be in the form of a Memo to the Corporate Board in the form of a single .docx file.
For purposes of class discussion, the data in the case is deliberately presented at a high level, so where details are not given, feel free to make assumptions based on your experience. Please document any assumptions in an Appendix to your memo.
Your Deliverable: Memo to the Corporate Board
• Your deliverable should be a memo to the Executive Committee containing, as a minimum, the following information • title and group members,
• your weighted scoring model (questions #1-3)
• your completed Portfolio Application Model Matrix (from Question #4), and
• your proposed funding table (from Question #5).
• your explanation or rationale justifying the recommendations for funding the projects.
• Appendix with any assumptions documented
• Appendix describing contributions of each team member
• Remember, this is a memo for management. It should be succinct, but include your rationale and any supporting appendices that you feel are necessary. This memo should address the following five questions:
MDCM-B Case Assignment
• Questions 1 and 2 guide you through preparing a weighted scoring model for the proposed projects at MDCM. If you are not familiar with the weighted scoring model, a good explanation can be found at
http://www.appliedmanagement.com/templates/2013/Weighted %20Scoring%20Sheet%20Template.doc
MDCM-B Case Assignment
1. For your weighted scoring model, identify the criterion that you will use in Question #2 below to evaluate each possible project. Assign weights for each criteria. You might choose to make the total of the weights add to 100. Be sure to assign weights for scoring the "value to the business" that you will use in Question #2 below to evaluate each possible project.
Your scoring criteria must include MDCM's strategies of improving information flow, reducing operating costs, improving customer service, increasing operational efficiency, and improving employee productivity; but you may choose to add additional criteria. Assign weights to each of these criteria (Note that the MDCM strategies are roughly presented in decreasing importance, but you should decide the specific weights for each criteria selected).
Your group may also add additional criteria (please see the grading rubric).
Note: The employee internet portal has been placed on hold, and should not be evaluated.
MDCM-B Case Assignment
2. Evaluate each project in terms of the criteria that your group developed. Use the weights to provide a score of "value to the business" for each potential project. Examine each potential project and assign a score of "value to the business" for each potential project. Then you should calculate a weighted score for each project/criteria pair.
3. For each project, estimate the likelihood of success for each project. You should use the "DICE" calculator from Boston Consulting Group (at http://dice.bcg.com) to help you do this. Please present the DICE results only in very compact form (just the numbers) or your answers will become too immersed in details. In any event, the DICE framework cannot give you all of the answers for this question. You will have to use a mixture of guidance from the framework, your own general knowledge, and perhaps even some guesswork to answer it.
Infrastructure teams at MDCM are in a state of flux as technology changes, so they are likely to be less cohesive and not as high-performing as the applications development teams.
MDCM-B Case Assignment
4. In Exhibit 3 of the Case, a Portfolio Application Model Matrix is presented for evaluating the cases. Take the results you derived above in #2 and #3 and plot each proposed project on that matrix. Your matrix should show a dotted line separating those projects that you recommend from those that you do not recommend funding.
Be sure to note that the dotted line is not fixed, but is your selection frontier. Projects on one side of the line are selected, the others are not of sufficient priority to be selected.
5. What projects would you fund, and in what order? Present a table that shows the order in which they will be funded. Justify why you are recommending the project in that order.
NOTE: Please be sure to explain or justify any projects that you may move into the list of projects you would fund because of dependencies, rather than their Portfolio Application Model Matrix scores.
Example Portfolio Application Matrix Model
0 Ability to Succeed 100
0
V a
lu e
t o
t h
e B
u si
n e
ss
10
0
AB NOTE: A dashed line represents the cutoff point (frontier) between those projects that MDCM should fund – to the top and right – and those it should not fund – to the left and bottom.
D C
Grading Rubric
Memo (acceptable) - 90% Memo (exceeds) - 10%
Business format - memo / grammar / presentation
List of projects Weighted Scoring model used?
Weights assigned
Deduction - if company strategies not assigned weights
Value to business determined
Likelihood of success estimated
Portfolio Application Model Matrix
Funding recommendations
Justification Additional criteria used beyond company strategies from assignment
Very strong rationale or justifications for choices given
15 5 10 10 -5 10 5 15 10 10 5 5