MDCM IT Strategy Alignment

KEL170
MARK JEFFERY AND JOSEPH F. NORTON
MDCM, Inc. (A):
IT Strategy Synchronization
Introduction
MDCM, Inc., one of the world’s largest contract manufacturers
for medical devices, had just
announced its fifth consecutive quarterly loss. The firm posted
revenues of $1.12 billion with net
losses of $33 million for the second quarter of 2002. For Max
McMullen, this was yet another
agonizing episode since he took over as CEO two years earlier.
Despite major company
reorganizations, his promises to the shareholders for operational
and cost improvements had not
been realized. Given the company’s lackluster record, the next
twelve months were critical in
proving that these promises could indeed be kept.
Concerned, McMullen called a meeting of MDCM’s senior
executives to discuss the
situation. “Our jobs depend on what happens the next few
quarters. I know we have a good
strategy, but we need to get our implementation right,” he
explained.

CFO Sharon Leis responded, “Well, our margins have been
shrinking for eight consecutive
quarters. We’ve got too much in working capital, not to mention
one of the least efficient cost
structures in the industry. I can’t fix any of these things,
though, because by the time I get any
information, it’s often more than forty-five days old! In my
mind, we need to continue to cut
costs.”
Pat Perry, the vice president of marketing and sales, argued,
“Our marketing and sales staff is
actually really productive, maybe the best in the industry. But
we spend a lot of time on tasks that
could be done by customers using some type of self-service
technology. I’m talking about online
ordering and account management. It also kills me that the pilot
customer relationship
management system in France hasn’t done much for me. My
people can be twice as productive if
they’re getting information when they need it, not a week later.”
COO Michael Shed jumped in. “Our forecasts are terrible.
We’re spending almost three times
as much as we need on materials because we’re always
expediting orders from our suppliers.
When we do have the supplies, I can’t schedule my production
properly because I’m rushing
orders through to get customers what they want in time. I really
don’t see how we can deal with
an enterprise resource planning implementation this year in
conjunction with the mess that I’m
trying to fix. And don’t even get me started on our logistics
outsourcer.”
©2006 by the Kellogg School of Management, Northwestern

University. This case was prepared by Professor Mark Jeffery
and Derek
Yung ’03, in collaboration with Joseph F. Norton, Senior
Fellow, Center for Research on Technology and Innovation,
Kellogg School
of Management, and Principal, SOCHIN Consulting Group.
Cases are developed solely as the basis for class discussion.
Some facts
within the case have been altered for confidentiality reasons.
Cases are not intended to serve as endorsements, sources of
primary data,
or illustrations of effective or ineffective management. To order
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photocopying, recording, or otherwise—without the permission
of the Kellogg School of Management.
This document is authorized for use by Yanan Nie, from
8/26/2019 to 12/31/2019, in the course:
MSIS X501: Foundations Core - Bala, A. Dennis, J Dennis,
Clark, Frutiger and Ryan (Fall 2019), Indiana University,
Bloomington.
Any unauthorized use or reproduction of this document is
strictly prohibited.
MDCM, INC. (A): IT STRATEGY SYNCHRONIZATION
KEL170

At this point, everyone was looking at Shawn Atkins, the newly
hired CIO. Atkins, a graduate
of the Kellogg School of Management, realized the importance
of including the top executives in
the information technology (IT) strategy and planning. With a
mildly exasperated tone, he
responded, “Guys, I am just starting to put together the plan to
get IT turned around. I really need
your help and patience on this. If we don’t do our due diligence
we will never get this right. This
is not the time to just blindly cut IT spending. I need us to work
together as a team for the benefit
of MDCM. We clearly need to align our IT initiatives with our
corporate strategy. I need your
help to understand the primary strategic business goals and how
IT should support these goals. I
think we should do a daylong session and really hammer out the
details.”
MDCM, Inc.
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
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.
Founded in 1972, the company had a staff with decades of
experience in the design and
manufacture of medical products. The company’s focus was to
provide an end-to-end package of
medical device contract manufacturing services. As a pure
contractor in the business, it did
neither research and design nor marketing for the products
themselves. MDCM offered clean
room assembly as well as controlled environment and non-clean
room assembly and testing. The
firm’s machine shops were staffed with highly skilled prototype
machinists and had won many
industry awards for product quality. The company also assisted
customers with parts design for
manufacturability. Through a joint venture it offered complete
printed circuit board assembly,
including through-hole and surface-mount, employing state-of-
the-art equipment. In addition, the
company performed product sterilization through gamma and
electron beam irradiation as well as
ethylene oxide gas processes.
As an adjunct to its medical device contract manufacturing
services, the firm designed and
fabricated specialized equipment used in the assembly of
medical devices. MDCM was renowned
for its ability to produce highly customized versions of this
equipment for unique applications.
Company Position

MDCM was one of the largest companies in the contract
manufacturing and packaging
services sector of the medical devices industry. MDCM
recognized early that success as a
medical contract manufacturer depended on customers’ success
with the devices that the
company manufactured for them. The firm practically pioneered
close partnership arrangements
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KEL170 MDCM, INC. (A): IT STRATEGY
SYNCHRONIZATION
with its customers and shared risk and reward. This practice was
now commonly used by
MDCM’s competitors.
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.
MDCM’s early track record of winning over customers led to
tremendous growth. By 1974 it
had the largest market share in the United States at 42 percent.
MDCM’s market share continued
to grow and was a dominating 54 percent by 1985. Coupled with
the annualized sector growth of
12 percent in the 1970s and early 1980s, MDCM’s sales rose to
$1.15 billion in 1985. Although it
made several small acquisitions, the company grew primarily by
expanding its geographical reach
in the United States by opening new offices and manufacturing
facilities close to its largest
customers. In 1985, with the medical device industry
consolidating rapidly, MDCM derived
almost 40 percent of its revenues from eight of its largest
accounts.
Despite its dominant market position in the mid-1980s,
MDCM’s profit margins began to
erode because of its consolidated customer base, which gave
MDCM little pricing power.
Moreover, several foreign competitors were entering the U.S.
market with global capabilities that
MDCM could not match. Faced with the new competitive
landscape, MDCM shifted its growth
strategy.
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.
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.
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

Exhibit 1: Five-Year Selected
Financial Data.)
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MDCM, INC. (A): IT STRATEGY SYNCHRONIZATION
KEL170
Horizon 2000
In 2000 Max McMullen was promoted to CEO. McMullen, a
twenty-year industry veteran,
was the president of MDCM Corp. Americas and had long been
anointed to be the successor to
head the company. Because he was known for his marketing
skills and sales tenacity, industry
insiders wondered whether he could fix MDCM’s problems.
Upon his ascension to the presidency, McMullen and his new
management team embarked on
a huge company transformation dubbed “Horizon 2000.” The
company was reorganized to share
a single brand across all subsidiaries (e.g., MDCM France,
MDCM UK, MDCM Canada) and
make each subsidiary responsible for the customers located in

its region. In addition, the
marketing and sales functions became centered on the new
regional subsidiaries. Each customer
was assigned a sales manager who would supervise and
coordinate all the customer’s accounts.
Typically, the sales manager was located in the same region as
the customer’s headquarters. (See
Exhibit 2: MDCM Corporate Family.)
McMullen pushed through initiatives to aggregate materials
purchasing and reduce the
number of suppliers from thousands to hundreds. Another major
operational change was
outsourcing all of MDCM’s inbound and outbound logistics. To
ease this transition, McMullen
ensured that the outsourcer hired many of the ex-MDCM
employees who had been part of the
logistics group.
By far the most aggressive move in Horizon 2000 was the
reorganization of the production
facilities. McMullen chose to close older, more costly facilities
while expanding the capacity of
newer, more efficient ones. This change required MDCM to
move away from its tradition of
locating manufacturing and design facilities close to its
customers. Because production was
consolidated, MDCM also needed to ensure that all of the new
facilities were certified and
approved according to the highest standards to comply with
regulations for many different
countries.
The changes in Horizon 2000 took advantage of MDCM’s scale
and global presence.
McMullen saw it as a way to align the company’s organizational

structure to its strategy and
deliver quality end-to-end contract manufacturing services
anywhere in the globe.
It took more than two years to implement Horizon 2000 fully.
The company’s headcount was
reduced by more than 30 percent, and the process caused many
managers to worry about morale
and potential turnover. McMullen’s response was to boost the
average pay for all remaining
employees by 10 percent and double performance bonuses and
stock options.
Following Horizon 2000, information flow at the reorganized
MDCM became much more
crucial. Gone were the days when local managers performed
sales forecasting, budgeting, and
production scheduling. Sales projections from a customer in
Detroit could now affect the material
purchases in Taiwan and manufacturing schedules in France.
McMullen did not recognize until
2002 that such tight coordination required a much more
sophisticated IT capability. In 2002
McMullen hired Shawn Atkins to be the CIO of MDCM. He was
tasked with solving the IT
problems introduced by Horizon 2000 and the acquisition binge
of the 1990s.
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KEL170 MDCM, INC. (A): IT STRATEGY
SYNCHRONIZATION
Information Technology at MDCM
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.
The IT chaos caused huge lags in information flow among
departments, suppliers, and
logistics. This led to inaccurate forecasts, scheduling
headaches, and bloated inventory
everywhere in the supply chain. Often overtime and costly
expedited orders for materials were
necessary to meet customers’ demands because information was
slow to move through the
organization and between the company’s partners and suppliers.

Following is a high-level snapshot of the number of disparate
systems and platforms 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.
In addition to its large number of systems, MDCM was also
challenged by the numerous
locations where the systems were housed. (See Exhibit 3: IT
Overview and Locations.)
Despite the system and infrastructure disarray, Atkins was able
to identify twenty-three key
managers whom he regarded as capable IT leaders. He hoped
that with this core group of
managers he could lead an overhaul of IT at MDCM. To fix the
problems, Atkins was faced with
nothing short of a complete overhaul of both the infrastructure
and systems. For MDCM to
KELLOGG SCHOOL OF MANAGEMENT 5
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M
6
DCM, INC. (A): IT STRATEGY SYNCHRONIZATION
KEL170

KELLOGG SCHOOL OF MANAGEMENT
Atkins successfully convinced the senior executive team that a
daylong meeting was
necessary to figure out the overall strategy and direction of IT.
For Atkins the session was as
much about being able to clearly articulate the strategy and
business priorities for MDCM as it
was about developing the right IT plans. As he was preparing
for the meeting, Atkins thought,
“What is the strategy and what are the key business objectives
for the company?” He recognized
that only with a clear understanding of the business goals could
the correct decisions be made
regarding IT. “What are the right IT objectives to support the
company’s business goals?” Atkins
understood that the board would carefully scrutinize any IT
recommendations he would make, so
he needed to develop a solid proposal.
become one global company, he argued that it was necessary to
have one global IT infrastructure.
As a first step, Atkins needed to work with the executive
management team and match an IT
strategy to the overall corporate strategy.

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is
to
ri
ca
lly

, t
he
c
om
pa
ny
h
ad
n
o
fo
cu
s
on
IT
in
te
gr
at
io
n
be
fo
re

or
a
ft
er
a
cq
ui
si
tio
n.
E
ac
h
lo
ca
tio
n
re
m
ai
ne
d
es
se

nt
ia
lly
a
s
it
w
as
b
ef
or
e
it
be
ca
m
e
a
pa
rt
o
f M
D
C

M
.
•
P
ho
ne
, f
ax
, a
nd
li
m
ite
d
e-
m
ai
l w
er
e
th
e
pr
im

ar
y
co
m
m
un
ic
at
io
n
m
ed
ia
.
•
R
eg
ul
ar
fi
na
nc
ia
l u

pd
at
es
w
er
e
m
an
ua
lly
e
xc
ha
ng
ed
b
et
w
ee
n
th
e
su
bs

id
ia
ri
es
a
nd
h
ea
dq
ua
rt
er
s.
•
Th
er
e
w
as
n
o
in
te

gr
at
ed
M
D
C
M
n
et
w
or
k
w
or
ld
w
id
e
an
d
th
er
e
w

as
o
nl
y
lim
ite
d
ne
tw
or
ki
ng
w
ith
in
r
eg
io
ns
/c
ou
nt
ri
es

.
•
A
cr
os
s
M
D
C
M
th
er
e
w
as
a
w
id
e
va
ri
et
y
of

p
ac
ka
ge
d,
c
us
to
m
iz
ed
, a
nd
s
el
f-
de
ve
lo
pe
d
so
ft
w

ar
e
ap
pl
ic
at
io
ns
.
•
Th
er
e
w
as
li
m
ite
d
us
e
of
th
e

In
te
rn
et
a
s
a
m
ea
ns
o
f n
et
w
or
ki
ng
a
nd
c
om
m
un
ic

at
io
ns
fo
r
su
pp
lie
rs
a
nd
c
us
to
m
er
s.
•
Th
er
e
w
as

n
o
si
n g
le
c
en
tr
al
iz
ed
v
ie
w
o
f M
D
C
M
’s
o
ve
ra
ll

IT
a
ss
et
s
or
c
ap
ab
ili
tie
s.
K
E
L
L
O
G
G
S
C
H
O
O

L
O
F
M
A
N
A
G
E
M
E
N
T
9
8/26/2019 to 12/31/2019, in the course:
Bloomington.
IntroductionMDCM, Inc.Company PositionHorizon
2000Information Technology at MDCM

MDCM IT Strategy Alignment

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