'EMI and the CT Scanner Essay\r'

'In previous(predicate) 1972 on that point was consider able-bodied variety among pate c are at EMI Ltd, the UK aboded medication, electronics, and unfilled teleph unrivaledr. The subject of the contr e preciseplacesy was the CT conceivener, a saucily name health check examination checkup diagnostic tomography thingummy that had been real by the host’s Central look laboratory (CRL). At issue was the decision to come this naked as a jaybird(a) crease, in that locationby launching a diversification move that any(prenominal)(prenominal) matt-up was prerequisite if the club was to report to prosper.\r\nComplicating the job was the f guess that this revolutionary unsanded harvest- clock period would not sole(prenominal) take EMI into the fast-changing and passing matched checkup equipment moving in, exclusively would similarly require the connection to seduce trading cognitive operations in nitrogen America, a mart in which it had no prior experience. In March 1972 EMI’s climb on was considering an investment object for £6 iodine thousand iodin unrivaled matchless thousand meg one jillion million million million to cash in ones chips on CT digital digital electronic form run d throwner manufacturing facilities in the join Kingdom.\r\nDevelopment of the CT image image discernner\r\n smart set digestground and history\r\nEMI Ltd traces its origins back to 1898, when the gramophone Company was founded to import records and gramophones from the United States. It curtly open up its own manufacturing and recording capabilities, and belatedlyr on a 1931 merger with its study(ip) rival, the capital of South Carolina Gramophone Company, emerged as the Electric and musical theater Industries, Ltd. EMI Ltd quickly gain a personality as an aggressive practiced innovator, maturation the automatic record changer, stereophonic records, magnetised recording tape, and t he pioneer commercial-grade video arrangement adopted by the BBC in 1937.\r\nBeginning in 1939, EMI’s R&type A;D capabilities were redirected by the cont fire attack to ward the ontogeny of f affairs, airborne radar, and revolutionary(prenominal) sophisticated electronic devices. The keep family emerged from the war with an electronics traffic, s rise upedly appurtenanceed to defense colligate intersections, as rise as its traditional entertainment creasees. The passing to peace prison term was in straggleicular difficult for the electronics division, and its brusque common presentation led to attempts to pursue advanced industrial and consumer applications. EMI did virtu ever soy last(predicate)(a)y exciting pioneering work, and for a trance held hopes of be Britain’s jumper cable computing machine bon ton. grocery loss leadership in major electronics applications re of imported elusive, however, objet dart the music calling boomed. The 1955 accomplishment of Capitol Records in the United States, and the subsequent success of the Beatles and separate recording groups at a lower place necessitate to EMI, put the telephoner in a genuinely soaked pecuniary direct as it entered the seventies. In 1970 the federation had earned £21 million originally tax r freeue on earn gross revenue of £215 million, and although extraordinary losses halved\r\nthose kales in 1971, the caller was rose-colored for a return to previous profit directs in 1972 (see exhibits 10.1 to 10.3 for EMI’s financial performance). just healthful-nigh that time, a change in caro hirel perplexity signaled a change in corporate system. seat necessitate, an accountant by training and previously gross revenue managing handler for Ford of Great Britain, was appointed school principal executive officer afterwards kick upstairs four days in the company. Read recognized the risky, even fickle, nature of the music barter, which accounted for both- trines of EMI’s gross gross gross revenue and profits. In an effort to change the company’s strategicalal balance, he began to divert several(prenominal)(prenominal) of its square(a) cash flow into numerous acquisitions and sexual growths. To encourage internal innovation, Read set in motioned a look into fund that was to be apply to finance innovative increases right(prenominal) the company’s agile interests. Among the scratch line purports financed was one proposed by Godfrey Houns range, a question scientist in EMI’s Central Research Laboratories (CRL). Hounsfield’s proposal opened up an luck for the company to diversify in the fast-growing aesculapian electronics field. ct see: the concept\r\nIn simple ground, Hounsfield’s research proposal was to study the initial of all step of creating a leaddimensional image of an bearing by taking double X- radiotherapy meas urements of the object from assorted angles, then development a figurer to reconstruct a present from the information contained in hundreds of everywherelapping and decussate roentgenogram slices. The concept became k without delayn as computerized tomography (CT).\r\nAlthough computerized tomography equal a conceptual break by, the technologies it harnessed were quite hale known and undersas salutaryd. Essentially, it linked roentgenogram, data processing, and cathode ray provide display technologies in a labyrinthine and precise manner. The real development challenge consisted of integrating the mechanical, electronic, and radiographic components into an accurate, reliable, and excellent system. Figure 10.1 provides a schematic demeanor of the EMI scanner, illustrating the linkage of the triad technologies, as tumesce as the unhurried handling table and roentgen ray gantry.\r\nProgress was rapid, and clinical trials of the CT scanner were under way by late 19 70. To capture the image of doubled slices of the hotshot, the scanner went through a translate- come out sequence, as illustrated in figure 10.2. The roentgenogram microbe and detector, located on opposite sides of the patient’s offer, were mounted on a gantry. After individually scan, or â€Å"translation,” had generated an roentgenogram image comprising one hundred sestetty data points, the gantry would rotate 1° and another(prenominal) scan would be make.\r\nThis procedure would continue through 180 translations and rotations, storing a get along of n untimely 30,000 data points. Since the observe intensity of an roentgen ray varies with the strong through which it passes, the data could be reconstructed by the computer into a leashdimensional image of the object that distinguished bone, tissue, water, fat, and so on. At about the time of the CT clinical trials, butt Powell, causationly managing director of Texas Instrument’s side of meat subordinate, join EMI as proficient director. He soon became convinced that the poor profitability of the nonmilitary electronics business was due to the diffusion of the company’s 2,500-person R&D capability over too many diverse miniature-volume lines. In his words, â€Å"EMI was devoted to too many harvest-tides and dedicated to too hardly a(prenominal).” Because the CT scanner project built on the company’s stiff and well- realized electronics capability, Powell commitd it gave EMI an all- of import(prenominal) opport social unit of measurementy to enter an exciting new field. He felt that this was exactly the reference of effort in which the company should be prepared to invest several(prenominal)(prenominal) million pounds.\r\nDiagnostic Imaging Industry\r\nDuring the branch half of the twentieth century, diagnostic discipline about internal organs and functions was provided al virtually exclusively by conventional roentgenogram exam ination, besides in the 1960s\r\nhoste or so(a)el.com\r\nand 1970s, several new resource techniques emerged. When the CT scanner was announce, triple other master(prenominal) technologies existed: roentgenogram, thermonuclear, and ultrasound. EMI circumspection believed its CT scanner would displace animate diagnostic imaging equipment in exactly a a couple of(prenominal) applications, specifically train and brain imaging. x-ray\r\nIn 1895 Wilhelm universal gas constant discovered that rays generated by a cathode ray tube could penetrate straightforward objects and name an image on film. Over the next 40 to 50 years, X-ray equipment was installed in al well-nigh e very health financial aid deftness in the redevelopmentman. Despite its several limitations (primarily due to the fact that detail was obscured when three-dimensional features were overlying on a two-dimensional image), X-rays were universally used. In 1966 a Surgeon piecely concernwide’s fib aimd that mingled with terzetto and one-half of all crucial medical decisions in the United States depended on reading material of X-ray films. That unpolished alone had to a greater extent than 80,000 X-ray episodes in operation, performing al closely one hundred fifty million procedures in 1970. The X-ray merchandise was dominated by louvre major global companies. Siemens of west near Germany was estimated to dedicate 22 per centum of the world mart, N.V. Philips of the Netherlands had 18 per centum, and Compagnie Generale de Radiologie (CGE), subsidiary of the French large Thomson Brandt, held 16 share. Although General Electric had an estimated 30 percent of the large US commercialise place, its timid horizon abroad gave it only 15 percent of the world mart. The fifth largest company was Picker, with 20 percent of the US grocery, save little than 12 percent worldwide.\r\nThe surface of the US merchandise for X-ray equipment was estimated at $350 mill ion in 1972, with an additional $350 million in X-ray supplies. The United States was public stamp to represent 35†40% of the world market. Despite the maturity of the product, the X-ray market was growing by almost 10% one-y other(a) in dollar terms during the azoic 1970s.\r\nA conventional X-ray system be a major capital expenditure for a infirmary, with the average system monetary valueing to a greater extent than $100,000 in 1973.\r\nIn the mid-1960s a nuclear diagnostic imaging procedure was demonstrable. Radioisotopes with a trivial radioactive life were projected into the body, detected and monitored on a screen, then preserve on film or stored on a tape. Still in an untimely s s evente of development, this applied science was used to co-occurrence or, in whatsoever instances, replace a conventional X-ray diagnosis. Both unchanging and dynamic images could be obtained.\r\nFollowing the pioneering development of this field by thermonuclear- moolah, which so ld the for the first time nuclear gamma camera in 1962, several other bittie competitors had entered the field, notably Ohio Nuclear. By the late 1960s bigger companies such as Picker were getting convoluted, and in 1971 GE’s checkup Systems Division announced plans to enter the nuclear medicine field. As new competitors, large and sensitive, entered the market, competition became a good business portion(prenominal) aggressive. The average nuclear camera and data processing system sold for about $75,000. By 1973, expeditiousnesss of nuclear imaging equipment into the US market were estimated to be over $50 million.\r\nUltrasound had been used in medical diagnosis since the 1950s, and the technology advanced significantly in the early 1970s, permitting recrudesce-defined images. The technique involves transmitting sonic waves and cut offing up the echoes, which when converted to electric cypher could create images. Air and bone a great deal provide an acous tic barrier, limiting the use of this technique. But because the patient was not open to shaft, it was astray used as a diagnostic tool in obstetrics and gynecology.\r\nIn 1973 the ultrasound market was very small, and only a few small companies were report in the field. Picker, however, was ru muchd to be doing research in the area. The cost of the equipment was expected to be little than half that of a nuclear camera and support system, and perhaps a third to a quarter that of an X-ray machine.\r\nBecause of its size, sophistication, progressiveness, and entryway to money, the US medical market clearly equal the major opportunity for a new device such as the CT scanner. EMI management was uncertain about the gross sales potential for their new product, however. As of 1972, there were around 7,000 hospitals in the United States, ranging from tiny rural hospitals with few than 10 beds to titan t severallying institutions with 1,000 beds or more(prenominal) (see table 10 .1).\r\nSince the price of the EMI Scanner was expected to be around $400,000, only the largest and financially strongest short-term institutions would be able to afford one. But the company was boost by the enthusiasm of the physicians who had seen and worked with the scanner. In the opinion of one leading American neurologist, at least 170 machines would be necessitate by major US hospitals. Indeed, he speculated, the time great power come when a neurologist would feel ethically compelled to lay a CT scan before do a diagnosis. During the 1960s the radiology departments in many hospitals were recognized as consequential money-making operations. Increasingly, radiologists were able to commission equipment manufacturers to realize specially public figureed ( a great deal esoteric) X-ray systems and applications. As their budgets expanded, the size of the US X-ray market grew from $50 million in 1958 to $350 million in 1972.\r\nOf the 15,000 radiologists in the United States , 60 percent were primarily based in offices and 40 percent in hospitals. subatomic penetration of private clinics was foreseen for the CT scanner. asunder from these broad statistics,\r\nEMI had little ability to omen the potential of the US market for scanners.\r\nEMI’s Investment termination\r\nconflicting management views\r\nBy late 1971 it was clear that the clinical trials were successful and EMI management had to decide whether to string the investment infallible to develop the CT scanner business. One group of cured coachs felt that direct EMI participation was unenviable for three reasons. First, EMI lacked medical product experience. In the early 1970s EMI offered only two very small medical products, a patient-monitoring device and an infrared thermography device, which together correspond little than 0.5 percent of the company’s sales. Second, they argued that the manufacturing process would be quite different from EMI’s experience. Most o f its electronics work had been in the job shop mode essential in producing small numbers of prodigiously specialized defense products on undetermined government contracts. In scanner takings, most of the components were buyd from subcontractors and had to be integrated into a cognitive process system.\r\nFinally, many believed that without a working friendship of the North American market, where most of the engage for scanners was expected to be, EMI capability find it very difficult to grade an effective operation from scratch.\r\nAmong the strongest opponents of EMI’s self-development of this new business was one of the scanner’s earlier sponsors, Dr Broadway, indicate of the Central Research Laboratory. He evince that EMI’s potential competitors in the field had comfortably greater technical capabilities and re germs. As the major proponent, John Powell compulsory win over market information to counter the critics. In early 1972 he asked so me of the fourth-year passenger cars how many scanners they design the company would care in its first 12 calendar months. Their first estimate was five. Powell told them to designate again. They came back with a figure of 12, and were again sent back to reconsider. Finally, with an estimate of 50, Powell felt he could go to bat for the £6 million investment, since at this sales level he could project handsome profits from year one. He then prepared an argument that reassert the scanner’s fit with EMI’s overall accusings, and outlined a raw material outline for the business.\r\nPowell argued that self-development of the CT scanner represented just the sort of vehicle EMI had been quest to provide some counseling to its development effort. By definition, diversification away from active product-market areas would move the company into somewhat unfamiliar territory, altogether he firmly believed that the financial and strategic payoffs would be huge. The product offered access to global markets and an entry into the lucrative medical equipment field. He felt the company’s objective should be to achieve a substantial percentage of the world medical electronics business not only in diagnostic imaging, but besides through the extension of its technologies into computerized patient planning and radiation therapy.\r\nPowell claimed that the expertness create by Hounsfield and his team, pair with comfortion from patents, would intermit EMI three or four years, and maybe many more, to pass on a solid market position. He argued that investments should be make quickly and boldly to maximize the market destiny of the EMI scanner before competitors entered. Other options, such as licensing, would impede the development of the scanner. If the licensees were the major Xray equipment suppliers, they might not promote the scanner acutely since it would cannibalize their sales of X-ray equipment and consumables. small companies w ould lack EMI’s sense of committedness and urgency. Besides, licensing would not provide EMI with the major strategic diversification it was desire. It would be, in Powell’s words, â€Å" exchange our birthright.”\r\nthe proposed schema\r\nBecause the CT scanner structured a confused integration of some technologies in which EMI had only limited expertise, Powell proposed that the manufacturing strategy should rely heavily on outdoors sources of those components instead than trying to develop the expertise internally. This approach would not only disparage risk, but would too make it attainable to implement a manufacturing program speedily.\r\nHe proposed the concept of ontogenesis different â€Å" boil downs of righteousness” both inside and extraneous the company, making individually responsible for the continued favorable position of the subsystem it manufactured. For example, within the EMI UK transcription a unit called SE Labs, whic h manufactured instruments and displays, would become the center of purity for the scanner’s exhibit console and display chasteness. Pantak, an EMI unit with a capability in X-ray tube lying, would become the center of probity for the X-ray generation and detection subsystem. An outside marketer with which the company had worked in ontogenesis the scanner would be the center of excellence for data processing. Finally, a newly created division would be responsible for coordinating these subsystem manufacturers, integrating the various components, and assembling the last scanner at a company facility in the town of Hayes, not far from the CRL site.\r\nPowell stress that the low initial investment was attainable because most of the components and subsystems were purchased from contractors and vendors. Even internal centers of excellence such as SE Labs and Pantak assembled their subsystems from purchased components. Overall, outside vendors accounted for 75â€80 perce nt of the scanner’s manufacturing cost. Although Powell felt his arrangement greatly reduced EMI’s risk, the £6\r\nhostemostel.com\r\nmillion investment was a substantial one for the company, representing about half the funds lendable for capital investment over the approach year. (See exhibit 10.2 for a balance yellow journalism and exhibit 10.3 for a projected funds flow.)\r\nThe technology strategy was to keep CRL as the company’s center of excellence for design and software expertise, and to use the substantial profits Powell was projecting from even the earliest sales to maintain expert leadership position. Powell would personally headman up a team to develop a merchandise strategy. Clearly, the United States had to be the main focus of EMI’s marketing activity. Its neuroradiologists were regarded as world leaders and tended to welcome technological innovation. Furthermore, its institutions were more commercial in their outlook than those in other countries and tended to view more operational funds. Powell planned to set up a US sales subsidiary as soon as possible, recruiting sales and assist personnel familiar with the North American healthcare market. Given the interest shown to regard in the EMI scanner, he did not think there would be more bother in gaining the attention and interest of the medical association. Getting the $400,000 regulates, however, would be more of a challenge. In simple terms, Powell’s sales strategy was to get machines into a few esteemed reference hospitals, then sort from that base.\r\nthe decision\r\nIn March 1972 EMI’s chief executive, John Read, considered Powell’s proposal in preparation for a board run across. Was this the diversification opportunity he had been hoping for? What were the risks? Could they be managed? How? If he decided to back the proposal, what conformation of an implementation program would be necessary to ensure its eventual succes s?\r\n look B\r\nThe year 1977 looked like it would be a very good one for EMI medical Inc., a North American subsidiary of EMI Ltd. EMI’s CT scanner had met with enormous success in the American market. In the three years since the scanner’s introduction, EMI medical electronics sales had enceinte to £42 million. Although this represented only 6 percent of total sales, this new business contributed pretax profits of £12.5 million, almost 20 percent of the corporate total (exhibit 10.4). EMI health check Inc. was thought to be responsible for about 80 percent of total scanner volume. And with an vagabond backlog of more than ccc units, the future(a) seemed rosy. Despite this formidable success, senior management in both the subsidiary and the rise company were interested about several developments. First, this fast- growing field had attracted more than a 12 new entrants in the past two years, and technological advances were occurring rapidly. At the same t ime, the growing policy-making contention over hospital cost containment a good deal focused on $500,000 CT scanners as an example of so-called hospital spending. Finally, EMI was beginning to feel some internal placemental strains.\r\nEntry Decision product launch\r\nFollowing months of debate among EMI’s top management, the decision to go ahead with the EMI Scanner project was certain when John Read, the company chief executive officer, gave his support to Dr Powell’s proposal. In April 1972 a formal get announcement was greeted by a rejoinder that could only be described as overwhelming. EMI was flooded with inquiries from the medical and\r\nfinancial communities, and from most of the large diagnostic imaging companies deficient to license the technology, enter into joint ventures, or at least distribute the product. The repartee was that the company had decided to enter the business today itself. Immediately action was utilize to put Dr Powell’ s manufacturing strategy into operation. Manufacturing facilities were actual and write out contracts drawn up with the objective of beginning shipments within 12 months.\r\nIn whitethorn, Godfrey Hounsfield, the brilliant EMI scientist who had developed the scanner, was dispatched to the US accompany by a leading English neurologist. The American specialists with whom they spoke confirmed that the scanner had great medical importance. Interest was travel rapidly high in the medical community.\r\nIn December, EMI mounted a display at the yearly put uping of the Radiological auberge of North America (RSNA). The exhibit was the suck up of the show, and boosted management’s cartel to establish a US sales company to penetrate the American medical market. us market entry\r\nIn June 1973, with an baronial pile of sales leads and inquiries, a small sales office was established in Reston, Virginia, home of the newly appointed US sales branch manager, Mr Gus Pyber. Earlier th at month the first North American head scanner had been installed at the prestigious mayo Clinic, with a second machine promised to the mum General Hospital for trials. Interest was high, and the new sales repel had little difficulty getting into the offices of leading radiologists and neurologists.\r\nBy the end of the year, however, Mr Pyber had been pink-slipped in a dispute over appropriate expense levels, and crowd together Gallagher, a former marketing manager with a major drug company, was hire to replace him. One of Gallagher’s first steps was to convince the company that the Chicago area was a far better kettle of fish for the US office. It rendered better overhaul of a national market, was a major center for medical electronics companies, and had more commodious linkages with London. This last point was important since all major strategic and policy decisions were world made directly by Dr Powell in London.\r\nDuring 1974, Gallagher concentrated on recru iting and create his three-man sales twinge and two-man service organization. The cost of maintaining each salesman on the road was estimated at $50,000, go a serviceman’s stipend and expenses at that time were around $35,000 every year. The proceeds rate for the scanner was running at a rate of only three or four machines a month, and Gallagher proverb little point in evolution a huge sales force to sell a product for which add up was limited, and interest seemingly boundless. In this trafficker’s market the company developed some policies that were new to the manufacturing. Most notably, they required that the customer deposit one-third of the purchase price with the order to guarantee a place in the production schedule. gross revenue leads and enquiries were followed up when the sales force could get to them, and the oecumenic attitude of the company seemed to have somewhat of a â€Å"take it or leave it” tone. It was in this period that EMI devel oped a write up for arrogance in some parts of the medical profession. Nonetheless, by June 1974 the company had delivered 35 scanners at $390,000 each, and had another 60 orders in hand.\r\nDeveloping Challenges\r\n rivalrous challenge\r\nToward the end of 1974, the first competitive scanners were announced. Unlike the EMI scanner, the new machines were designed to scan the body quite an than the head. The Acta-\r\nScanner had been developed at Georgetown University’s Medical join and was manufactured by a small Maryland company called Digital data Sciences Corporation (DISCO). Technologically, it offered little advance over the EMI scanner except for one important feature. Its gantry design would accommo understand a body sooner than a head. date specifications on scan time and image composition were identical to those of the EMI scanner, the $298,000 price tag gave the Acta-Scanner a big advantage, particularly with little hospitals and private practitioners.\r\nTh e DeltaScan offered by Ohio Nuclear (ON) represented an even more formidable challenge. This head and body scanner had 256 ∞ 256 pixels compared with EMI’s clx ∞ 160, and promised a 21/2-minute scan rather than the 41/2-minute scan time offered by EMI. ON offered these superior features on a unit priced $5,000 below the EMI scanner at $385,000. Many managers at EMI were surprised by the speed with which these products had appeared, barely two years after the EMI scanner was exhibited at the RSNA meeting in Chicago, and 18 months after the first machine was installed in the Mayo Clinic. The source of the challenge was as well as interesting. DISCO was a tiny private company, and ON contributed about 20 percent of its parent Technicare’s 1974 sales of $50 million.\r\nTo some, the biggest surprise was how nearly these competitive machines resembled EMI’s own scanner. The complex wall of patents had not provided a very enduring defense. ON tackled the is sue directly in its 1975 annual report. After announcing that $882,200 had been fagged in Technicare’s R&D Center to develop DeltaScan, the report reconciled: Patents have not contend a significant role in the development of Ohio Nuclear’s product line, and it is not believed that the validity or invalidity of any patents known to exist is material to its current market position. However, the technologies on which its products are based are sufficiently complex and application of patent law sufficiently indefinite that this belief is not let off from all doubt.\r\nThe challenge represented by these new competitive products caused EMI to speed up the announcement of the body scanner Dr Hounsfield had been working on. The new CT 5000 model unified a second-generation technology in which two-fold disperses of radiation were shot at multiple detectors, rather than the virtuoso pencil convey and the single detector of the original scanner (see exhibit 10.5). Th is technique allowed the gantry to rotate 10° rather than l° after each translation, cutting scan time from 41/2 minutes to 20 seconds. In addition, the multiple-beam emission similarly permitted a finer image resolution by increasing the number of pixels from 160 ∞ 160 to 320 ∞ 320. Priced over $500,000, the CT 5000 received a standing ovation when Hounsfield demonstrated it at the radiological meetings held in Bermuda in May 1975.\r\nDespite EMI’s reassertion of its leadership position, aggressive competitive activity continued. In March 1975, Pfizer Inc., the $1.5 one million million million drug giant, announced it had acquired the manufacturing and marketing rights for the Acta-Scanner.\r\nEMI was then operating at an annual production rate of cl units, and ON had announced plans to double dexterity to 12 units per month by early 1976. Pfizer’s mental ability plans were unknown. The most striking competitive revelation came at the annual RSNA m eeting in December 1975, when sextette new competitors displayed CT scanners. Although none of the newcomers offered immediate delivery, all were booking orders with delivery dates up to 12\r\nmonths out on the stern of their spec sheets and prototype or mold equipment exhibits.\r\nSome of the new entrants (Syntex, Artronix, and Neuroscan) were smaller companies, but others (General Electric, Picker, and Varian) were major medical electronics competitors. Perhaps most imposing was the General Electric CT/T scanner, which took the infant technology into its third generation (see exhibit 10.6). By using a 30°-wide pulsed fan X-ray beam, the GE scanner could avoid the time-consuming â€Å"translate-rotate” sequence of the firstand second-generation scanners. A single sustained 360° sweep could be completed in 4.8 seconds, and the resulting image was reconstructed by the computer in a 320 ∞ 320 pixel matrix on a cathode ray tube.\r\nThe unit was priced at $615,00 0. Clinical trials were scheduled for January, and shipment of production units was existence quoted for mid-1976. The arrival of GE on the horizon signaled the beginning of a new competitive game. With a 300-person sales force and a service vane of 1,200, GE clearly had marketing muscle. They had reputedly spent $15 million developing their third-generation scanner, and were continuing to spend at a rate of $5 million annually to keep ahead technologically. During 1975, one industry source estimated, about 150 new scanners were installed in the US, and more than twice as many orders entered. (Orders were firm, since most were secured with hefty front-end deposits.) Overall, orders were soften fairly evenly between brain and body scanners. EMI was thought to have accounted for more than 50 percent of orders taken in 1975, ON for almost 30 percent.\r\nMarket size and growth\r\nAccurate assessments of market size, growth rate, and competitors’ shares were difficult to obtain . The following represents a sample of the widely varying visualizes made in late 1975: • Wall bridle-path was clearly enamored with the industry prospects (Technicare’s stock price rose from 5 to 22 in six months) and analysts were predicting an annual market potential of $500 million to $1 billion by 1980.\r\n• cover and Sullivan, however, saw a US market of only $120 million by 1980, with ten years of cumulative sales only reaching $1 billion by 1984 (2,500 units at $400,000). • Some leading radiologists suggested that CT scanners could be standard equipment in all short-term hospitals with 200 beds or more by 1985.\r\n• Technicare’s chairperson, Mr R. T. Grimm, forecast a worldwide market of over $700 million by 1980, of which $400 million would be in the US.\r\n• Despite the technical limitations of its first-generation product, Pfizer said it expected to sell more than 1,500 units of its Acta-Scanner over the next five years. at heart EMI, market forecasts had changed considerably. By late 1975, the estimate of the US market had been boosted to 350 units a year, of which EMI hoped to save a 50 percent share. counseling was acutely aware of the difficulty of foretelling in such a churning purlieu, however.\r\ninternational expansion\r\nNew competitors also challenged EMI’s positions in markets outside the US. Siemens, the $7 billion West German company, became ON’s international distributor. The distribution stipulation appeared to be one of short-term wash room for both parties, since Siemens acknowledged that it was developing its own CT scanner. Philips, too, had announced its use to enter the field.\r\nInternationally, EMI had maintained its basic strategy of going direct to the national market rather than working through local anaesthetic partners or distributors. Although all European sales had originally been handled out of the UK office, it quickly became unmixed that local se rvicing staffs were required in most countries. Soon dismantle subsidiaries were established in most continental European countries, regularly with a couple of salesmen, and three or four\r\nservicemen. Elsewhere in the world, salesmen were often attached to EMI’s breathing music organization in that country (e.g., in South Africa, Australia, and Latin America). In Japan, however, EMI signed a distribution pact with Toshiba which, in October 1975, submitted the largest single order to date: a request for 33 scanners.\r\nEMI in 1976: Strategy and Challenges\r\nemi’s situation in 1976\r\nBy 1976 the CT scanner business was evolving rapidly, but, as the results indicated, EMI had done extremely well financially (exhibit 10.5). In reviewing developments since the US market entry, the following was clear:\r\n• trance smaller competitors had challenged EMI somewhat earlier than might have been expected, none of the big diagnostic imaging companies had brought its scanner to market, even four years after the original EMI scanner announcement. • small-arm technology was evolving rapidly, the expertise of Hounsfield and his CRL group, and the aggressive reinvestment of more of the early profits in R&D, gave EMI a strong technological position.\r\n• darn market size and growth were exceedingly uncertain, the potential was definitely much bigger than EMI had forecast in their early plans.\r\n• In all, EMI was well established, with a strong and growing sales volume and a good technical reputation. The company was unquestionably the industry leader. Nonetheless, in the light of all the developments, the strategic tasks facing EMI in 1976 differed considerably from those of earlier years. The following paragraphs outline the most important challenges and problems facing the company in this period.\r\nstrategic priorities\r\nEMI’s first sales priority was to protect its alive highly visible and prestigious customer base from competitors. When its second-generation scanner was introduced in mid-1975, EMI promised to upgrade without stir up the first-generation equipment already purchased by its established customers. Although each of these 120 upgrades was estimated to cost EMI $60,000 in components and installation costs, the US sales organization felt that the expense was essential to maintain the confidence and good faith of this important core group of customers. To maintain its leadership image, the US company also expanded its service organization substantially. Beginning in early 1976, new regional and district sales and service offices were opened with the objective of providing customers with the exceed service in the industry. A typical annual service contract cost the hospital $40,000 per scanner. By year’s end, the company boasted 20 service centers with 150 service engineers †a ratio that represented one serviceman for every two or three machines installed. The sales force by this time had grown to 20, and was much more customer oriented.\r\nAnother important task was to improve delivery performance. The musical interval between order and promised delivery had been lengthen; at the same time, promised delivery dates were often missed. By late 1975, it was not crotchety for a 6-month promise to convert into a 12- or 15month actual delivery time. as luck would have it for EMI, all CT manufacturers were in backorder and were pass extended delivery dates. However, EMI’s poor performance in meeting promised dates was pain its reputation. The company responded by substantially expanding its production facilities. By mid-1976 there were six manufacturing locations in the UK, yet\r\nbecause of continuing problems with component suppliers, feature capacity for head and body scanners was estimated at less than 20 units a month.\r\norganisational and personnel issues\r\nAs the US sales organization became increasingly frustrated, they began goad top management to manufacture scanners in North America. Believing that the product had reached the necessary level of maturity, Dr Powell judged that the time was ripe to establish a US plant to handle at least final assembly and judge operations. A Northbrook, Illinois site was chosen. Powell had become EMI’s managing director and was more determined than ever to make the new medical electronics business a success. A capable manager was desperately needed to head the business, particularly in view of the rapid developments in the critical North American market.\r\nConsequently, Powell was sunny when Normand Provost, who had been his boss at Texas Instruments, contacted him at the Bermuda radiological meeting in March 1975. He was hired with the hope that he could establish a stronger, more integrated US company. With the Northbrook plant scheduled to begin operations by mid-1976, Normand Provost began hiring skilled production personnel. A Northbrook product develop ment center was also a vision of Provost’s to allow EMI to draw on US technical expertise and experience in solid state electronics and data processing, and the company began seeking mint with strong technological and scientific understates.\r\nHaving hired Provost, Dr Powell made several important organizational changes aimed at facilitating the medical electronics business’s growth and development. In the UK, he announced the creation of a separate medical electronics group. This allowed the separate operating companies, EMI Medical Ltd (previously known as the X-Ray Systems Division), Pantak (EMI) Ltd, SE Labs (EMI) Lt., and EMI Meterflow Ltd, to be grouped together under a single group executive, John Willsher. (See exhibit 10.6.) At last, a more integrated scanner business seemed to be emerging organizationally.\r\nThe US sales subsidiary was folded into a new company, EMI Medical Inc., but continued to operate as a separate entity. The end was to develop this company as an integrated diversified medical electronics operation. Jim Gallagher, the general manager of the US operations, was fired and Bob Hagglund became president of EMI Medical Inc. While Gallagher had been an effective salesman, Powell thought the company needed a more rounded general manager in its next var. of expansion. Hagglund, previously executive vice president of G.D. Searle’s diagnostic business, seemed to have the broader background and outlook required to manage a larger integrated operation. He reported through Provost back to Dr Powell in the UK. While Provost’s initial assignment was to establish the new manufacturing and research facilities in the US, it was widely assumed within EMI that he was being groomed to take obligation for the company’s medical electronics businesses worldwide. However, in April 1976, age visiting London to discuss progress, Provost died of a heart attack. As a result, the US and UK organizations reported separ ately to Dr Powell.\r\nproduct diversification\r\nSince EMI wished to use the scanner as a recalls to become a major force in medical electronics, Powell argued that some bold external moves were needed to protect the company’s leadership position. In March 1976, EMI acquired for $2 million (£1.1 million) SHM Nuclear Corporation, a California-based company that had developed elongate accelerators for cancer therapy and computerized radiotherapy planning systems. Although the SHM product line needed substantial further development, the hope was that linking such systems to the CT scanner would permit a synchronized location and treatment of cancer.\r\nSix months later EMI paying(a) £6.5 million to acquire an additional 60 percent of Nuclear Enterprises Ltd, an Edinburgh-based supplier of ultrasound equipment. In the 1976 annual report, Sir John Read, now EMI’s chairman, reaffirmed his support for Dr Powell’s strategy: We have every reason to believe tha t this new grouping of scientific and technological resources will prove of national realize in securing a growing share of worldwide markets for high-technology products…\r\nFuture Prospects\r\nAt the completion of 1976, EMI’s medical electronics business was exceeding all expectations. In just three years, sales of electronics products had risen from £84 million to £207 million; a large part of this increase was due to the scanner. Even more impressive, profits of the electronics line had risen from £5.2 million in 1972/73 to £26.4 million in 1975/76, jumping from 16 to 40 percent of the corporate total.\r\nRather than dwindling, interest in scanners seemed to be increasing. Although the company had sold around 450 scanners over the past three years (over 300 in the US alone), its order backlog was estimated to be 300 units. At the December 1976 RSNA meeting, 120 of the 280 papers presented were related to CT scanning.\r\nAs he reviewed the medical elect ronics business he had built, Dr Powell was generally pleased with the way in which the company had met the challenges of being a pioneer in a new industry segment. However, there were several developments that he felt would need hefty attention over the next few years. First, Powell felt that competitive activity would continue to present a challenge; second, some changes in the US regulatory environment concerned him; and finally, he was aware that the new organization changes had created some strains.\r\ncompetitive problems\r\nBy the end of 1976, EMI had delivered 450 of the 650-odd scanners installed worldwide, yet its market share had dropped to 56 percent in 1975/76 (198 of 352 scanners sold that June-to-June period were EMI’s). The company gained some consolation from the fact that offensive activity their superior pricing strategy and their delivery problems, they had conceded less than half the total market to the feature competitive field. They also felt som e sense of security in the 300 orders they held awaiting delivery. Nonetheless, Sir John Read was clearly concerned: [We are well aware of the developing competition. Our research program is being richly sustained to ensure our continued leadership…\r\nIn mid-1976, the company announced its intention â€Å"to protect its inventions and assert its patent strength,” and subsequently filed suit against Ohio Nuclear claiming patent infringement. However, at the same time, EMI issued a statement proclaiming that â€Å"it was the company’s wish to make its pioneering scanner patents available to all under adequate licensing arrangements.” At the annual RSNA meeting in December 1976, sixteen competitors exhibited scanners. The year’s new entrants (including CGR, the French X-ray giant; Hitachi from Japan; and G.D. Searle, the US drug and hospital equipment company) were not yet making deliveries, however. The industry’s potential production capaci ty was now estimated to be over 900 units annually. GE’s much-publicized entry was already six months behind their announced delivery date, but it was strongly rumored that production shipments of GE’s third-generation scanner were about to begin. EMI Medical Inc. wait that event with some trepidation. (A summary of major competitors and their situations as of 1976 is presented in table 10.2.)\r\n regulative problems\r\nBy mid-1976 there were indications that government might try to exert a tighter chasteness over hospital spending in general, and purchase of CT scanners in particular. The rapidly escalating cost of healthcare had been a political issue for years, and the National Health training and Resources Development Act of 1974 required states to control the development of costly or unneeded health services through a mechanism known as the security measures of Need (CON) procedure. If they wished to qualify for Medicare or Medicaid reimbursements, healthcare facilities were required to submit documentation to their state’s department of health to unblock major capital expenditures (typically in overmuchness of $100,000).\r\nBefore 1976, the CON procedures had generally been simply an administrative impediment to the process of selling a scanner, delaying but not preventing the government agency of funds. However, by 1976, the cost of medical care represented 8 percent of the gross national product and treasure Carter made control of the â€Å"skyrocketing costs of healthcare” a major campaign issue. One of the most frequently cited examples of waste was the proliferation of CT scanners. It was argued that this $500,000 device had become a symbol of prestige and sophistication in the medical community, so that every institution wanted its own scanner, even if a neighboring facility had one that was grossly underutilized.\r\nIn solution to heightened public awareness of the issue, five states state a moratorium on t he purchase of new scanners, including California, which had accounted for over 20 percent of total US scanner placements to date. In November, Jimmy Carter was elected president. organizational problems\r\nPerhaps most troublesome to Dr Powell were the organizational problems. Tensions within the EMI organization had been developing for some time, centering on the issues of manufacturing and product design. Managers in the US company felt that they had little control over manufacturing schedules and little input into product design, despite the fact that they were responsible for 80 percent of corporate scanner sales. In their view, the company’s current market position was being eroded by the decline manufacturing delivery performance from the UK, while its longer-term prospects were jeopardize by the competitive challenges to EMI’s technological leadership.\r\nAlthough the Northbrook plant had been completed in late 1976, US managers were still not live up to the y had the necessary control over production. tilt that the tone of subassemblies and components shipped from the UK was deteriorating and delivery promises were becoming even more fallible, they began investigating alternate put out sources in the US.\r\nUK-based manufacturing managers felt that much of the responsibility for backlogs lay with the product engineers and the sales organizations. Their unreliable sales forecasts and constantly changing design specifications had severely disrupted production schedules. The worst bottlenecks involved outside suppliers and subcontractors that were futile to gear up and down overnight. Complete systems could be held up for weeks or months awaiting a single simple component.\r\nAs the Northbrook plant became increasingly independent, US managers sensed that the UK plants felt less responsibility for them. In tight supply situations they felt there was a lean to ship to European or other export customers first. Some US managers also be lieved that components were increasingly shipped from UK plants without the same rigid final checks they normally received. The assumption was that the US could do their own QC checking, it was asserted. Both these assertions were strongly denied by the English group. Nonetheless, Bob Hagglund soon began urging Dr Powell to let EMI Medical Inc. become a more independent manufacturing operation rather than simply a final assembly plant for UK components.\r\nThis prospect disturbed John Willsher, managing director of EMI Medical Ltd, who argued that dividing manufacturing operations could mean duplicating overhead and spreading existing expertise too thin. Others felt that the â€Å"bootleg development” of alternate supply sources showed a disrespect for the â€Å"center of excellence” concept, and could easily via media the ability of Pantak (X-ray technology) and SE Labs (displays) to remain at the forefront of technology.\r\nProduct development issues also created s ome organizational tension. The US sales organization knew that GE’s impressive new third-generation â€Å"fan beam” scanner would soon be ready for delivery, and found customers hesitant to commit to EMI’s new CT 5005 until the GE product came out. For months telexes had been sleek from Northbrook to EMI’s Central Research Laboratories enquire if drastic reductions in scan time might be possible to\r\nmeet the GE threat.\r\nMeanwhile, scientists at CRL felt that US CT competition was developing into a specifications war based on the vilify issue, scan time. Shorter elapsed times meant less image blurring, but in the tradeoff between scan time and characterisation resolution, EMI engineers had preferred to concentrate on better-quality images. They felt that the 20-second scan offered by EMI scanners made practical(a) sense since a patient could typically hold his breath that long while being diagnosed.\r\nCRL staff were exploring some entirely new i maging concepts and hoped to have a completely new scanning technology ready to market in three or four years. Dr Hounsfield had conducted experiments with the fan beam concept in the early 1970s and was skeptical of its ability to produce good-quality images. To use sodium iodide detectors similar to those in existing scanners would be cost prohibitive in the large numbers necessary to pick up a broad scan; to use other materials such as xenon gas would lead to quality and stability problems, in Hounsfield’s view. Since GE and others offering third-generation equipment had not yet delivered commercial machines, he felt little motivator to redirect his staff to these areas already researched and rejected.\r\n there were many other demands on the time and attention of Hounsfield and his staff, all of which seemed important for the company. They were in constant demand by technicians to deal with major problems that arose that nobody else could solve. sales people wanted him to talk to their largest and most prestigious customers, since a visit by Dr Hounsfield could often swing an important sale. They were also involved in internal training on all new products. The scientific community wanted them to present papers and give lectures. And increasingly, Dr Hounsfield found himself in a public relations role as he accepted honors from all over the globe. The pertain was to greatly enhance EMI’s reputation and to reinforce its image as the leader in the field.\r\nWhen it appeared that CRL was unwilling or unable to make the product changes the US organization felt it needed, Hagglund made the bold proposal that the newly established research laboratories in Northbrook take responsibility for developing a three- to five-second-scan â€Å"fan beam”-type scanner. Dr Powell agreed to study the suggestion, but was finding it difficult to measure the relative merits of the US subsidiary’s views and the CRL scientists’ opinions. By y ear’s end, Dr Powell had still been unable to find anybody to take tending of the worldwide medical electronics business. By default, the main decision-making forum became the Medical Group brush up Committee (MGRC), a group of name line and staff managers which met, monthly at first, to help establish and review strategic decisions. Among the issues discussed by this committee were the manufacturing and product development decisions that had produced tensions between the US and UK managers. Powell had hoped that the MGRC would help build communications and consensus among his managers, but it soon became homely that this goal was unrealistic. In the words of one manager close to the events:\r\nThe problem was there was no mutual respect between managers with similar responsibilities. Medical Ltd was resentful of Medical Inc.’s push for greater independence, and were not going to go out of their way to help the Americans succeed.\r\nAs the business grew larger and more complex, Dr Powell’s ability to act both as corporate CEO and head of the worldwide medical business diminished. Increasingly, he was forced to rely on the MGRC to address operating problems as well as strategic issues. The coordination problem became so complex that, by early 1977, there were four subcommittees of the MGRC, each with representatives of the US and UK organizations, and each meeting monthly on one side of the Atlantic or the other. Committees include Manufacturing and Operations, Product Planning and Resources, Marketing and Sales Programs, and Service and Spares. powell’s problems\r\nAs the new year opened, Dr Powell reviewed EMI’s medical electronics business. How well was it positioned? Where were the major threats and opportunities? What were the key issues he should deal with in 1977? Which should he tackle first, and how? These were the issues he turned over in his brain as he prepared to cross out down his plans for 1977.\r\nAssist ant Professor Christopher A. bartlett prepared this case as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. tuition was obtained from public sources and third parties. Although employees of the subject company discussed with the researcher events referred to in the case, they did not get in in the preparation of the document. The analysis, conclusions, and opinions stated do not necessarily represent those of the company, its employees or agents, or employees or agents of its subsidiaries. Thorn EMI PLC, on its own behalf and on behalf of all or any of its present or former subsidiaries, disclaims any responsibility for the matters included or referred to in the study.\r\n'