Coloplast A/s - Organizational Challenges in offshoring

Executive summary 

      Coloplast is a Denmark-based international company which specializes in developing, manufacturing, and marketing medical devices and other services associated with the medical field, in line with the objective of improving people’s lives. Coloplast specializes in five key areas which include; continence care and ostonomy products which are under the chronic care division while the others are wound care, breast care and skin health care products and these are categorized under the strategic business unit.

In ensuring that it improve productivity and meet the dynamic consumer needs, the company set out its objective which involved increasing efficiency and effectiveness in production. One of the strategies used to achieve this objective was the choice of relocation of part of production to Hungary in order to minimize costs and increase efficiency in production because Hungary is a low cost area.  However, certain challenges were experienced when executing this strategy and these will be discussed and analyzed in this essay report.  I have come up with some solutions and alternatives to the problems and these will also be discussed in this essay report and finally there are recommendations I came up with for the implementation plan for this strategy.

Coloplast decided to implement an off-shoring strategy so as to be different, be highly competitive as well as meeting the dynamic market needs.   However, when Coloplast was implementing this strategy, there were several issues the company encountered and the first was the organizational structure.  Because of the changes in the organizational structure of its Danish and Hungarian production plants, lots of problems arose between employees which resulted in serious organizational and managerial challenges.  However, the management resolved these differences by allowing the employees to openly discuss issues affecting them.

      Another issue that Coloplast had was knowledge management and this became a big problem since they kept little or no documentation on inconsistencies in equipment operation as well as the problem of standardization of systems in place for internal procedures.  Employee motivation and lack of communication is the third issue and this is as a result of the resistance to change which many employees face.  The management resolved this problem by providing direct and adequate information as well as being honest on the impending relocation ahead of time in order to reduce anxiety among employees.  The last issue is local sourcing of materials from the Danish branch which led to an increase in costs by over 60%.  This problem can be solved through local sourcing in future

   Issues Identification

   Organizational structure:

      One of Coloplast biggest challenge was the incorporation of the Hungarian production facilities into the overall Coloplast organizational structure which is practiced in Denmark.  The fact is that Coloplast has a decentralized organization structure, the new production facility in Hungary has become a big problem in terms of communication and control because of the distance from the other Danish facilities. This also affected the documentation of planning and standardization of production systems, though the process operators in Denmark knew how to handle inconsistencies in operation of equipment but this knowledge was not well documented in manuals.

Knowledge management:

      The new production facilities at Hungary posed a big challenge to Coloplast in terms of transferring knowledge to local employees. The Company had an initial plan to train the Hungarians employees in Denmark but this plan failed due to complications arising from Danish unions. There was the issue of the difference in the organizational culture of the Hungarian employees and Danish employees. Hungarian employees had worked in multinationals and had different organizational cultures. This made the Hungarian workers’ skills to be underestimated and it also created some misunderstandings.  On the other hand, Danish workers could also not learn useful skills from their Hungarian counterparts due to this challenge.

Employee motivation and communication:

      When the management at Coloplast decided to relocate to Hungary, this affected motivation of their employees towards work.  The reason is because lots of employees were not motivated whenever there are changes in the organization due to opposition to organizational change, fear of loss of job or even reducing hours of work. 

Local sourcing:

      When Coloplast decided to set up the Hungarian production units, most of the emphasis had been on streamlining the production processes, and this affected their managerial resources.  However, this has led to the neglect of other available opportunities which Coloplast could have taken advantage of, such as local sourcing of materials and machines.  For instance, the granulate material which Coloplast uses in production was sourced from its branch in Denmark.  Coloplast Denmark had purchased it from suppliers in Germany who had in turn bought it from a producer in Hungary. Coloplast would have saved over 60% of the cost had it bought the material directly from the supplier in Hungary and would have affected their profit margins positively.  This instance provided Coloplast with future consideration on the importance of local sourcing when off-shoring.