Coloplast Case

Executive Summary

Coloplast is a Danish company that aims to be the preferred source of medical devices and associated services. The company specializes in five business areas: Ostomy; Continence Care; Wound Care; Skin Health; Breast Care. Both Ostomy and Continence Care are targeted at people who have undergone an Ostomy surgery rerouting their intestinal outlet through the abdominal wall, or who experience problems controlling their bladder or bowel movements. The Wound Care area produces a variety of dressings to treat difficult-to-heal wounds, and the Skin Health division produces antifungal creams, lotions, cleansers, and moisturizers to support the natural processes of the skin. Finally, under the Amoena brand, Coloplast operates as the largest European supplier of external breast forms for women who have undergone mastectomies. Also for this group, the company marketed an assortment of specially designed bras and swimwear. In order to minimize costs, improve productivity, and meet consumer needs, Coloplast undertook a strategy which involved moving its operations off-shore to the European city of Tatabánya, located in the western part of Hungary. This project had received the attention and support of the top management and despite the encouraging development of the production unit, there were crucial issues that arose. This report analyzes these issues and through various alternatives, recommends the best possible solution in order for Coloplast to move forward.

1

Immediate Issue

The organizational structure that is practised in Denmark is decentralized and as they need to incorporate this philosophy and culture into another country that has a different culture, language, and skill set, there are bound to be disputes in communication and control.

People Management

When plans were formulated by management to relocate to Hungary, the employees were startled at first. Naturally, employees tend to become de-motivated whenever there are imminent changes in an organization.

Knowledge Management

Training is required for the employees in Hungary as they are not as skilled as the workforce in Denmark. Also, complications arose from Danish Unions when the Hungarian employees moved to Denmark. Finally, because the Danish employees are already skilled, they can't learn anything from their Hungarian counterparts.

Communication

Standard Operating Procedures (SOPs) are not written in a manual for the employees in Hungary to learn from, and the other problem is that both speak different languages so a mediator is necessary.

Local Sourcing

Time has been invested in streamlining production processes in Hungary so much that cost savings have been missed out. For example, the material which Coloplast uses in production originates from Hungary, but is purchased from a German supplier. Coloplast could save over 60% of the cost by directly buying from the supplier in Hungary.

2

Qualitative Analysis

Despite the company's attention to innovation and marketing of new products, some products enjoyed very long product-life cycles. Coloplast still sold Ostomy products that hardly deviated from those produced 30 years earlier. These products were utilized by private consumers in their homes, where stability and conformity were important parameters. Coloplast needed to confront certain risk factors at the macro level, including reimbursement policy changes, price pressures due to wholesaler concentration and powerful insurance companies, harmonization of health care systems resulting in lower prices in high-price countries, and escalation of parallel importing. During this off-shore project there were two levels of challenges - the transformation of organizational structures and systems to facilitate the relocation of production processes, and human resource aspects, such as limiting attrition rates, transferring knowledge effectively and limiting social hardship.

Quantitative Analysis

Coloplast needs to continuously expand on its production facilities as it experiences a 10% organic growth from its customer base. In terms of revenue, in 2004 Ostomy and Continence Care contributed 39.4% and 23.6%, respectively,