A Strategic Management analysis of Cochlear ltd using tools like PEST, 5 Forces, Core competencies, Value Chain Analysis and recommendations.

1. Cochlear Ltd
Global leader in profound
hearing implants
Prepared by:
Jack Ng

2. NOTE to Students
• This is my effort to guide you in your analysis
• It is by no means a complete analysis
• You MUST prepare your own to differentiate
from others and achieve competitive
advantage.

3. What is Cochlear implants
• Cochlear implants are surgically placed
electrical device that receive sound and
transmit the resulting electrical signals to
electrodes implanted in the cochlea of the ear.
• The signals stimulate cochlea, allowing patient
to hear.
• It is also known as Bionic ear.

4. Parts of cochlear implant
• External
– Microphone
– Speech processor
– Transmitter
• Internal
– Receiver and stimulator
– An array of up to 22 electrodes

7. Cochlear implant hearing solutions
• Unlike hearing aids which merely amplify sound, a cochlear
implant bypasses the damaged part of the ear and
stimulates the auditory nerve directly.
• A sound processor is worn outside the body and uses
microphones to pick up sounds.
• The sound processor converts sounds into coded signals
that are sent to the implant inside the body.
• The implant receives the coded signals from the processor
and sends the signals to electrodes that are in the cochlea.
• The electrodes simulate the hearing nerve which carries
the signals to the brain creating the perception of sound –
just as it would for someone with normal hearing.

8. Cochlear’s vision is to connect the hearing impaired to a
world of sound by offering life-enhancing hearing solutions.
Cochlear Corporation’s vision

9. Cochlear Corporation’s values
Customer satisfaction
We meet or exceed customer expectations by actively seeking to understand their
requirements, responding to their needs in a timely manner and continuously
improving our processes and offerings.
Mutual respect
We work in a supportive and cooperative manner, respecting diverse opinions,
personalities and styles.
Performance
We are committed to achieving Cochlear’s overarching goals through high-
performing individuals and teams.
Continual improvement and innovation
We monitor the quality and reliability of our products and services and take the
initiative in optimising work methods, systems, processes and designs.
Professionalism
We act with integrity and in the wider interests of Cochlear.

10. An important hearing loss segment
Hearing Aids
 Cochlear Implants

Large group of people with high-
frequency hearing loss using hearing
aids that are not effective
Hearing Aids
The Solution – Cochlear’s Hybrid system

11. Even with a hearing aid…
They suffer from:
• Major communication difficulties
– Speech comprehension especially in
noise
– Environmental sounds: doorbells,
birds, sirens etc
• High levels of dissatisfaction in their
performance with hearing aids

12. Hybrid = the best of both
• Use a hearing aid where it is
most effective (ACOUSTIC)
• Use a cochlear implant only
where it is absolutely necessary
(ELECTRIC)
• Hybrid = Acoustic + Electric
Hearing Aid CI

13. Hearing with the Cochlear Hybrid System

14. Normal
Moderate
Severe
Profound
Mild
Moderate
to Severe
Pitch in Hertz (Hz)
125 250 500 1000 2000 4000 8000
Loudnessin
Decibels(dB)
0
20
40
60
80
100
120
 
Hybrid – completing your hearing experience
Hybrid hearing aid Hybrid cochlear implant

15. • Cochlear has received approval to start selling its hybrid
hearing implant in the US, opening up the medical device
maker’s market to adults with partial hearing loss, as opposed
to only the profoundly deaf. 21 Mar 2014
Hearing with the Cochlear Hybrid System

16. Benefits of Cochlear Implants
• Most perceive loud, medium and soft sounds.
• Many understand speech without lip-reading.
• Many can make telephone calls and
understand familiar voices over the telephone
• Some can enjoy music
Source: www.indicure.com.ng

17. Potential Growth
• Medical device maker Cochlear will begin
selling in Europe a re-approved version of its
hearing implant that was recalled in
September 2011 after the product began
failing in a small number of recipients. 02 JUN
2014

18. Concentric Growth
• Cochlear has opened a new Melbourne clinic,
moving into post-surgery care of implant
recipients for the first time, which its CEO
hopes will enable medical teams to focus on
new patients and test new ideas. 28 May JUN
2014

19. Critical Competitive Issues
• Medical device maker Cochlear is losing
market share to Swiss rival Sonova, analysis of
a strong yearly result from Sonova has said,
reporting more than 50 per cent revenue
growth in its hearing implant division. 22 May
JUN 2014
What can Cochlear do? Strategy?

20. Cochlear Ltd Facts
• Cochlear estimates it has a market leading share
of implantable hearing solutions, including
approximately 65% share of cochlear implants.
• 250,000 customers to date.
• Cochlear’s business model includes supporting
these customers with innovative and compatible
products, through the sale of sound processor
upgrades and accessories and ongoing product
support.

21. Cochlear Ltd Facts
• Cochlear has a deep geographical reach, selling in
over 100 countries.
• Cochlear has a direct presence in approximately
20 countries and uses distributors and agents in
the balance.
• The proportion of Cochlear’s sales to end
customers by region is approximately: Americas
40%, EMEA (Europe, Middle East and Africa),40%
and Asia Pacific 20%.
• Can increase the share of Asia Pac?

22. Cochlear Ltd Facts
• In the United States, medical costs run from
US$45,000 to US$125,000; this includes
evaluation, the surgery itself, hardware
(device), hospitalization and rehabilitation

23. Cochlear Ltd Revenue 2013
• Sales of cochlear implant units were up 16% to 26,674.
• Sales revenue was up 1% from that for last year to
$715.0 million. In constant currency terms (ie restating
F12 at F13 foreign exchange rates), sales revenue was
up 3%. (It seems the price is lowering, competition?)
• Americas sales revenue of $284.4 million declined 4%
• EMEA sales revenue of $283.0 million decreased 1%
• Asia Pacific sales revenue of $147.6 million increased
20% (i.e. growing market!)

24. Cochlear Ltd products
• Cochlear offers a range of advanced solutions
to address different types of hearing loss such
as:
• cochlear implants, designed to help those
people with moderate to profound
sensorineural hearing loss; and
• bone conduction implants, designed to help
those people with conductive hearing loss,
mixed hearing loss or single-sided deafness.

25. Cochlear Ltd Sale
• For the financial year ended 30 June 2013
(F13), 89% of Cochlear’s sales revenue was
from cochlear implant (Nucleus) products and
11% from bone conduction (Baha) products.

26. Take a break, Let me play you a song

27. Define Industry
• NOT anymore just severe-to-profound
sensorineural deafness
• Cochlear has received approval to start selling
its hybrid hearing implant in the US, opening
up the medical device maker’s market to
adults with partial hearing loss, as opposed to
only the profoundly deaf. 21 Mar 2014

28. Define Industry
• What is the implication of the approval to sell
hybrid hearing implant in the USA?
• One it is approved by the US Food and Drug
Administration (FDA) in USA, it will be used as
a reference of approval for other agencies e.g.
Europe (CE), Australia (TGA), Singapore (HSA),
Japan (PMDA) i.e. high chance and faster
approval by other countries.

29. Define Industry
• Define Industry: A cochlear implant that helps
partial hearing loss, severe and profound
profoundly (completely) deaf person to have a
sense of sound.
• It is different from a hearing aid because it
helps to compensate for damaged or non
functional parts of the ear, while a hearing aid
Amplifies sound.

30. Customers
• 50% children (12 months - 17 years);
• 50% adults *
* FDA survey of venders 11/2001
http://www.nidcd.nih.gov/health/pubs_hb/coch.htm#c

31. Potential Customers
• 16 in 1,000 people are severely to
profoundly deaf
• 80 in 1,000 elderly adults (>70 years) are
severely to profoundly deaf.
• New market for adults with partial hearing
loss, as opposed to only the profoundly
deaf. (21 Mar 2014)

32. Sales Barriers
• The barriers to increasing the penetration of
the candidate base include:
• awareness of implantable solutions as a viable
option;
• patient motivation;
• lack of clear referral paths;
• affordability and funding availability; and
• clinic capacity.

33. PEST - Political
• Cochlear sales hit as US government tries to
limit health costs, 07 JUL 2014.
• The US regulatory body that administers
Public Healthcare for the Poor and Elderly may
stop paying for bone anchored hearing aids, in
a potential blow to medical device company’s
growing Baha division.

34. The political/legal environment
• Regulation is significant. Cochlear implants are
considered as medical devices and must be
approved for use by each country health
authorities: the US Food and Drug
Administration (FDA), Europe (CE), Australia
(TGA), Singapore (HSA), Japan (PMDA)

35. The political/legal environment
• Example: On 24 July 2002 the FDA issued a
notification that it had reports of a link between
cochlear implants and bacterial meningitis (a
potentially fatal infection of the lining of the
surface of the brain).
• Cochlear responded to the crisis quickly and
claimed that the infection was related to a design
change by their competitor, Advanced Bionics,
that created ‘dead space’ within the ear, thus
providing a home for bacteria.

36. The political/legal environment
• In the United Kingdom, the NHS covers
cochlear implants in full, as does Medicare in
Australia, and the Department of Health[54] in
Ireland, Seguridad Social in Spain and Israel,
and the Ministry of Health or ACC (depending
on the cause of deafness) in New Zealand.

37. PEST - Economic
• Asia is the fastest growing economic region
and the largest continental economy by GDP
PPP in the world. China is the largest economy
in Asia and the second largest economy in the
world.
• GDP growth Per capita: 7.9% (2010)
• Asia Pacific sales revenue of $147.6 million
increased 20%

38. PEST - Economic

39. PEST - Social
• Companies to benefit from an ageing population
• There is a silver lining to Australia’s rapidly
growing ageing public profile, part of a trend that
could be worth up to $US15 trillion ($16 trillion)
worldwide, and includes locally listed names such
as AMP, Challenger and Cochlear, a new report by
Bank of America-Merrill Lynch has found. 11 JUN
2014
• The new lifestyle of watching movie and listening
music on smart phone, MP3 players, tablets on
the go….

40. PEST – Social - Ethical Dilemmas
Imagine that you and your spouse are deaf. Your child is born
without hearing. Would you go forward with the implant? What
are all the issues you would consider?
Would your reasoning change if you both could hear?

41. PEST – Social - Deaf Culture
• Deaf Culture is linguistically unified through American
Sign Language (ASL)
– ASL is not a manual translation of English
– ASL has its own syntax, morphology, and vocabulary
– ASL does not have a written correlate
• Deaf individuals share an identity based on a culture
rather than a medical diagnosis
• “Deafness, particularly when early in onset, confers a
life experience that is radically different owing to a
systematically different language base not shared by
the majority of hearing culture” (Niparko, 2009).

42. Deaf Culture and Cochlear Implants
Conflict of Cross-Cultural Values
Child as Recipient Impact on Deaf Culture
• Parental Authority- Hearing
parents who implant deaf
children are viewed as “ill-
founded” and “ill-fated” in
their decision
• Deaf do not view deafness as a
disease, and it is unethical to
operate on a healthy child
• CIs fail to foster language
acquisition in children born
deaf (Lane & Bahan, 1998).
• Socio-cultural genocide
• Undermines the survival of
Deaf culture

43. Deaf Culture and Cochlear Implants
• Advocates for Deaf individuals
– The National Association of the Deaf
– The World Federation of the Deaf
– This cross-cultural conflict is without a resolution that is morally
valid (Lane & Bahan, 1998)
– Research is needed to determine why some children with CIs
are successful in the hearing world and other are not
• Clinical trials
• High quality, generalizable results

44. PEST - Technology
Countries by smartphone penetration

45. PEST - Technology
• The artificial regeneration of hair cells within the
cochlea seemed to be a long way away
• Clearance by FDA for the implant of hybrid
hearing solution.
• High speed mobile internet and coverage,
enabling the use of connected mobile devices for
watching of movies and music on the go.
• U.S. sales of premium stereo headphones ($100+)
grew 25 percent in units in Q1 2013 year-over-
year, accounting for 95 percent of the revenue
growth for the total headphone market

46. Five forces
• Threat of new entrants (Low)
• Threat of substitute products or services (Low/moderate?)
- Hearing Aid, Hearing Amplifier or “Personal Sound Amplification
Products” (PSAPs). (re: attached notes), Sign language, Interpreter
(Human, voice to text software)
• Bargaining power of customers (buyers)
- Doctors & Clinics (high), end customers (moderate?)
- e.g. IndiCure (Slide#137) offers special discounted prices to
customers.
• Bargaining power of suppliers (low?)
• Intensity of competitive rivalry (high?)

47. Threats of new entrants (low)
• Even if a new drug is found, it is a lengthy
process for any approval by authority.
• The artificial regeneration of hair cells within
the cochlea seemed to be a long way away

48. Industry Analysis- Rivals (High)
• (USA) FDA approved:
– Cochlear Corporation: Nucleus
– Advanced Bionics: Clarion
– Med-EL: Combi-40+
– AllHear: AllHear single channel
• Antwerp Bionic Systems: Laura (now owned by Cochlear)
• MXM Laboratories: Digisonic
• (In Europe, Africa, Asia, South America, and Canada): Neurelec (France, a division
of William Demant)
• (some parts of the world ): Nurotron (China)
• (India): The Defence Research and Development Organisation
• (South Korea): The Seoul National University Hospital
• Each manufacturer has adapted some of the successful innovations of the other
companies to its own devices. There is no clear-cut consensus that any one of
these implants is superior to the others. Users of all four devices display a wide
range of performance after implantation.

49. Industry Analysis- Rivals

50. Industry Analysis- Rivals

51. Industry Analysis- Rivals

52. value chain analysis
Please construct one

53. Core Competencies
• 65% share of cochlear implants with 250,000 customers
• Cochlear has a deep geographical reach, selling in over 100
countries.
• Cochlear has a direct presence in approximately 20
countries and uses distributors and agents in the balance.
• Cochlear offers a range of advanced solutions to address
different types of hearing loss
• Cochlear has received approval to start selling its hybrid
hearing implant in the US, opening up the medical device
maker’s market to adults with partial hearing loss, as
opposed to only the profoundly deaf

54. Core Competencies
• Cochlear has started post-surgery care of
implant recipients , enable medical teams to
focus on new patients and test new ideas

55. Core Competencies
• COCHLEAR LAUNCHES NUCLEUS® PROFILE™
IMPLANT SERIES IN EUROPE 2 June 2014
• The thinnest implant body on the market.
• It has CE (for Europe) approval, waiting for
regulatory approval from other markets.

56. Core Competencies
• Strong presence in EMEA (Europe, the Middle
East and Africa), Cochlear Academy in
Mechelen, Belgium, established in 2004,
provides training for external customers and
internal staff so that Cochlear products can be
used optimally and with best results.

57. Market Potential
• TechNavio's analysts forecast the Global
Cochlear Implants market to grow at a CAGR
(compound annual growth rate) of 13.6 %
over the period 2011-2015

58. Corporate Growth Strategy
• Concentration Vertical Growth Strategy with
Forward Integration
• Cochlear purchased distributors in many
countries

59. Offices

60. Cost of Cochlear Implant Surgery
• Cochlear Implants and surgery cost much higher in western countries
as compared to developing countries
• The cost of cochlear implant surgery at NHS is approximately £40,000
and the device itself costs approximately £18,000 thus totaling to
£58,000 or approximately 90,000 USD.
• In India, the cost of Pre Surgery Tests –is about $1000, Implantation -
$5000 US Dollars, Cost of cochlear Instrumentation - $15000 to 25000
• It is more economical to get the surgery done in India as compared to
UK or USA.
www.indicure.com.ng

61. Cochlear Implant Surgery in India
• Excellent health care facilities
• State-of-the art hospitals
• Best of cochlear implant surgeons
• Affordable Cost
• English speaking hospital staff
• Peaceful recovery
• Scenic locations
www.indicure.com.ng

62. Cochlear Implants in India with IndiCure
• The most trusted medical tourism company
• Round the clock assistance
• Offers special discounted prices
• Prompt services
• Visa assistance and travel planning
• Complete transparency
www.indicure.com.ng

64. Stay Hungry, Stay Foolish
• Stay Hungry - Never be satisfied, and always
push yourself further.
• Stay Foolish - Do the things people say cannot
be done.

65. One last video

66. “Don’t ever let someone tell you, you can’t do
something. Not even me.”
~ Chris Gardner – On Pursuits Of Happyness

67. Jack Ng
Thank you for being
so wonderful!
Slide 67