Ariel Lee

11/11/10

Mgmt 780

Professor Dali Ma
1. As of 1972, EMI should launch the CT scanner. After WWII, EMI's electronics division

was performing poorly and 2/3 of the firm's profits were derived from its "risky, even fickle"

music division. Under EMI's CEO Read, the CRL developed a revolutionary CT scanner that

created a strategic diversification opportunity to enter the medical equipment business.

Despite the challenges of adopting a new manufacturing process, limited knowledge of

North American market, and lack of medical product experience, the medical community already

showed significant interest in the product.1 Furthermore, the CT scanner had many advantages

over the other diagnostic imaging methods available.2 Assuming Powell is correct, a £6 million

investment for 50 scanners at $400,000 each would yield an impressive profit in the first year

alone. Thus, EMI must take the calculated risk of marketing the CT scanner as proactive

strategic positioning for the future.

EMI should continue to invest heavily – as much as ½ of available capital funding – in

its R&D while relying on vertical integration to cut costs for outsourcing complex scanner

components. The firm should begin by consulting with prestigious medical institutions to make

the technology relevant to physician users and then eventually branching out to smaller, non-

urban hospitals. Also, EMI should push to integrate CT scanner technology in medical school

curriculums, thus breeding familiarity among the next generation of users.

Even though competitors have greater expertise and market share of the X-ray industry,

EMI can enjoy a powerful monopoly over this device as a first mover. EMI should provide

enough knowledgeable and dedicated sales and service teams to make sure that customers are

satisfied with such a hefty capital investment. The key to successful implementation is to build a

positive reputation of superior technological expertise by maintaining intellectual control of CT

scanner and prioritizing quality in manufacturing.

2. 3 years after EMI marketed the CT scanner, the firm earned almost 20% of its corporate

total profits from its new business. Furthermore, future sales of 300 more units of the expensive

scanners were already guaranteed, so EMI appeared to face a profitable and successful future.

The trend of the market indicated that demand for CT scanners was around 350 units

annually; EMI hoped to retain 50% market share in subsequent years. But despite growing

consumer demand, analysts disagreed on financial forecasts.3 The US government began

campaigning against high medical costs and targeted CT scanners as an example. In addition,

customer satisfaction dropped, organizational issues intensified, and new entrants with both cost

and differentiation strategies surfaced. Therefore, while EMI was immediately successful in

creating a new market and implementing its unique product, the firm made the tragic error of

failing to subdue new entrants to maintain its monopolisitic advantage.

EMI addressed the service issue by offering free upgrades and improving service, but

the reactionary measures didn't slow competitors' momentum. Disagreements between CRL and

US subsidiary's views furthered increased organizational tensions and obfuscated plans for the

next generation of EMI CT scanners. And by relinquishing control of the medical equipment

business to the MGRC, the broader implication is that Powell can no longer effectively manage

this division of EMI.

Thus, EMI will inevitably lose its current position as a medical equipment leader

because it did not proactively suppress new entrants. Although the product market continues to

expand, market share will increasingly be seized by others. And because EMI lacks the medical

expertise of competitors such as GE and Siemens, the firm should refocus on its core music

business instead. Thus, Powell should keep enjoying the profits but must be prepared to sell off

the business when the opportunity arises.

Footnotes:
1
As of 1970s, neurologists had few diagnostic imaging tools. Most evaluations relied on
electrophysiology to measure brain signals or behavioral assessments based on animal models.
Furthermore, oncologists used broad chemotherapeutic treatments that could not target localized
brain tumors. EMI's CT scanner provided such specialists with a non-invasive way to obtain
clear images from multiple directions of a patient's head.
2
Ultrasound is safest because it emits no radiation but also produces the lowest resolution
images compared to other technologies mentioned in the case. X-rays produce a less
comprehensive image when compared to the CT scanner. Nuclear imaging subjects both patients
and clinic staff to radioactive compounds, which has a high potential for adverse effects.
3
The MRI would eventually be developed in the late 1970s. MRI machines have similar imaging
capabilities when compared to the CT scanner but uses a safer technology based on an induced
magnetic field that unlike CT scanners do not subject patients to high doses of X-rays. Recently,
studies have shown that patients who have undergone CT scans demonstrated a significantly
higher rate of cancer when compared to the general population. Although the case makes no
mention of these issues, some members of the medical community have now begun advocating a
trend against using CT scanners.