MGB-610 STRATEGIC MANAGEMENT of

HEALTHCARE ORGANIZATIONS

DIVERSIFICATION STRATEGIES ADOPTED BY

HEALTHCARE ORGANIZATION

Submitted by
S. Anand (191206005)
INTRODUCTION:
Diversification is adding new related or unrelated products/services outside the
organization’s core business. Many hospitals have added hospice care as the increasing number
of baby boomers are living longer and insurers began reimbursing for this type of care.
Diversification, at the level of the individual organization, is generally seen as a risky alternative
because the organization is entering relatively unfamiliar markets or business. Whereas at the
societal level it is sometimes thought of as a means of increasing the concentration of power
among fewer firms. Therefore, managers engaging in diversification seek synergy between
strategic business units (SBUs).

There are two types of diversification

1. Related or concentric diversification

2. Unrelated or conglomerate diversification

RELATED DIVERSIFICATION:
Involves adding new, similar products/services that are outside the organization’s core
business. This is also called as concentric diversification as the organization develops a “circle”
of related business.

The general assumption underlying related diversification is that the organization will be
able to obtain some level of synergy between the core business and the new-related product or
service.

UNRELATED DIVERSIFICATION:

It involves adding new products or services unlike the organization’s core business. It
generally involves semi-autonomous divisions or strategic service units. This type of
diversification has found to increase the pressure on top management in the areas of decision
making, control and governance.
HILL-ROM

Hill-Rom headquartered in Chicago is a dominant manufacturer of hospital beds in the United

States. The company controls almost 70-90 percent of the hospital bed market.

Hill-Rom traces its medical innovation roots to 1915 when Dr. Francis Welch and William Noah
Allyn developed the world's first handheld, direct illuminating ophthalmoscope, and established
Welch Allyn. This device paved the way for future innovations that would continue to help
practitioners provide better patient care. In 1927, William (Bill) A. Hillenbrand had a
revolutionary idea to "bring the home into the hospital" by offering hospitals wooden furniture to
help create a warmer, more comfortable environment. In October 1929, as the United States
plummeted into the Great Depression, Bill founded Hill-Rom and persuaded hospitals to furnish
their private rooms with his wooden furniture for six months free of charge. If they weren’t
satisfied, they could simply return the furniture. After the trial periods, none of the furniture was
returned, and some hospitals placed orders for more. Almost 60 years later, researchers at the
University of Minnesota began developing a therapeutic device that would replace manual chest
percussion therapy to help clear excess secretions from Cystic Fibrosis patients’ lungs. Years
later, this device developed into the Monarch Airway Clearance System. In 1982, David W.
Mortara, PhD, founded Mortara Instrument, which grew to become a leading provider of
diagnostic cardiology solutions. Today, these products continue to enhance patient care with
trusted diagnostic algorithms, flexible EMR connectivity and enhanced security features. In
2005, Trumpf Medical developed the world's first OR lights with LED technology. These
medical lighting innovations enable optimal and consistent lighting conditions for surgeons and
clinicians. Most recently, in 2008, Trey Lauderdale, Oscar Callejas, Benjamin King and Rob
Campbell founded Voalte on the vision of simplifying communications and improving
collaboration, workflows and outcomes across the healthcare system. Today, the unique mobile
platform is used by more than 200 healthcare customers with more than 84,000 devices. Fast
forward to present day: these products and technologies, along with others, have united to form
today’s Hill-Rom.
It is a leading global technologies company with three major global business: Patient Support
Systems, Surgical solutions and Front-Line Care. With more than 10,000 employees and partners
in more than 100 countries world-wide, the company states that its focus is on improving clinical
and economic outcomes in eight core areas: advanced mobility; wound care and prevention,
patient monitoring and diagnostics, surgical safety and efficiency, respiratory health, patient
support systems, surgical solutions and front line care. Hill-Rom pioneered in making hospitals
safer and more comfortable for patients.

DIVERSIFICATION THROUGH ACQUISITION

The company expanded its portfolio through acquisitions by purchasing Allen Medical, the
world’s leading manufacturer of accessories for operating room tables. On December 16 th2011, it
acquired Volker, a German company that is a leader in the production of long-term care beds.
The company was acquired for a price of $85 million. It also acquired Liko a Swedish firm
specialising in products for the safe lifting and transferring of patients in health care settings. In
2012, the it acquired a British company named Aspen, that manufactures surgical blades and
scalpels for $400 million. Trumpf Medical, a German company specializing in the production of
advanced operating room products and services as well as innovative lighting technologies,
cameras and surgical assistance was acquired in the year 2014 for $250 million. In 2015 the
company continued to diversify by making its largest acquisition, Welch Allyn, the company that
developed the first direct illuminating hand-held ophthalmoscope and manufacturers other
instruments to assist physicians in examining patients for $2 billion. Today, Hill-Rom is a fully
integrated medical technologies company with revenues of $2.7 billion.

Hill-Rom has a diverse but remarkably interrelated portfolio ranging from hospital beds to
operating room beds, patient mobility equipment, physician exam equipment and medical
supplies. Over the years the company has been involved in related diversification.

JOHNSON & JOHNSON

Johnson & Johnson is an American multinational corporation founded in 1886. Johnson &

Johnson is headquartered in New Brunswick, New Jersey, the consumer division being located
in Skillman, New Jersey. The corporation includes some 250 subsidiary companies with
operations in 60 countries and products sold in over 175 countries. Johnson & Johnson operates
over 250 companies in what is termed "the Johnson & Johnson family of companies" The
company operates in three broad divisions; Consumer Healthcare, Medical Devices and
Pharmaceuticals. Its common stock is a component of the Dow Jones Industrial Average and the
company is ranked No. 37 on the 2018 Fortune 500 list of the largest United States corporations
by total revenue. J&J is one of the world's most valuable companies. Johnson & Johnson's brands
include numerous household names of medications and first aid supplies. Among its well-known
consumer products are the Band-Aid Brand line of bandages, Tylenol medications, Johnson's
Baby products, Neutrogena skin and beauty products, Clean & Clear facial wash
and Acuvue contact lenses.

Johnson & Johnson was founded by three brothers in New Brunswick, New Jersey in 1886. The
company started its business operations by introducing a line of ready-to-use surgical dressings.
Surgical dressings are used to cover a wound to promote healing and prevent further harm. The
company published Modern Methods of Antiseptic Wound Treatment. It was considered to
be one of the standard texts for antiseptic surgery in 1888. In the same year, the company also
introduced its commercial first aid kits to help railroad workers. Later, it became standard in
treating injuries. The company transformed into a publicly traded company in 1943. It had a
listing on the NYSE in 1944. The company’s common stock has also been part of the Dow Jones
Industrial Average since 1997. As of 2014, the group had ~126,500 employees at over 275
Johnson & Johnson operating companies. The total revenue from all three business segments was
over $74.3 billion in 2014. It had net earnings of about 22% of the total revenue.

DIVERSIFICATION THROUGH ACQUISITION

Johnson & Johnson has expanded its portfolio by acquiring several companies. In the year 1998,
it acquired a company named DePuy Synthes which offers one of the world’s most
comprehensive portfolios of orthopedic products and services in the areas of joint reconstruction,
trauma, spine, sports medicine, cranio-maxillofacial, power tools and biomaterials. In 1999, J&J
acquired a biotechnology company named Centocor Biotech Incorporation which was later
renamed as Janssen Biotech Inc. This biotechnology company develops and markets products to
treat cardiovascular, autoimmune diseases and cancer. It is also engaged in a number of other
biotechnology research projects. In 2001, ALZA Corporation, a research based pharmaceutical
company and a leader in drug delivery technologies was acquired by J&J for a price of $11.07
billion. In 2003 a biopharmaceutical company that discovers, develops, manufactures, and
commercializes novel human therapeutics named Scios was acquired by J&J for a price of $2.32
billion. Vogue International one of America’s leading manufacturers and distributors of salon-
heritage hair care and other personal care products was acquired by J&J in 2106. Vogue has
represented a refreshing and innovative point of difference in a saturated hair care industry. In
the year 2016, J&J acquired Abbot Medical Optics whose products serves patients who wear
contact lenses or need relief from dry, irritated eyes. Abbott offers multi-purpose and hydrogen
peroxide contact lens cleaning systems that provide powerful disinfection capabilities, and are
recommended by physicians for safe, effective contact lens cleaning. Abbott’s lubricating eye
drops provide long-lasting relief for those who suffer from occasional or chronic dry eye
symptoms. In 2016, Actelion Pharmaceutical company headquartered in Allschwil near Basel in
Switzerland was acquired by J&J for $29.54 billion. Actelion focuses its efforts on
manufacturing drugs that treat rare diseases. J&J has been involved in related diversification over
the years.

MERCK & CO.

Merck & Co., is an American multinational pharmaceutical company and is one of the

largest pharmaceutical companies in the world. Merck is incorporated in New Jersey. The
company was established in 1891 as the United States subsidiary of the German
company Merck, which was founded in 1668 by the Merck family. Merck & Co.
was expropriated by the US government during World War I and subsequently established as an
independent American company in 1917. While it operates as Merck & Co. in the United States
and Canada, the original Merck based in Darmstadt holds the rights to the Merck name
everywhere else. Merck & Co. is the world's seventh largest pharmaceutical company by market
capitalization and revenue. Its headquarters is located in Kenilworth, New Jersey. The company
ranked No. 78 in the 2018 Fortune 500 list of the largest United States corporations by total
revenue. Merck & Co. traces its origins to its original German parent company Merck, which
was established by the Merck family in 1668 when Friedrich Jacob Merck purchased a drug store
in Darmstadt. In the 19th century, the Merck company evolved from a pharmacy to a major
pharmaceutical company and introduced the commercial manufacture of morphine.

Through prescription medicines, vaccines, biologic therapies and animal health products, Merck
& Co. work with customers and operate in more than 140 countries to deliver innovative health
solutions. They also demonstrate commitment to increasing access to health care through far-
reaching policies, programs and partnerships. Today, Merck continues to be at the forefront of
research to advance the prevention and treatment of diseases that threaten people and
communities around the world - including cancer, cardio-metabolic diseases, emerging animal
diseases, Alzheimer’s disease and infectious diseases including HIV and Ebola.

DIVERSIFICATION THROUGH ACQUISITION

In December 2019, Merck acquired a biopharmaceutical company named ArQule which is

engaged in the research and development of targeted therapeutics to treat cancers and rare
diseases. Merck acquired this company for $2.7billion. Calporta Therapeutics is a portfolio
company of COI Pharmaceuticals, a venture-pharma entity established by venture capital firm
Avalon Ventures. Merck expanded its portfolio by acquiring this company in November 2019 for
$576 million. The company develops small molecule agonists of transient receptor potential
cation channel, mucolipin subfamily, member 1 (TRPML1) to treat lysosomal storage diseases
and neurodegenerative disorders. Rigontec a pioneer in accessing the retinoic acid-inducible
gene I (RIG-I) pathway, part of the innate immune system, as a novel and distinct approach in
cancer immunotherapy to induce both immediate and long-term anti-tumor immunity was
acquired by Merck in 2017 for $465 million. Antelliq one of the world’s leading animal
intelligence group, providing world-class devices for animal identification and traceability was
acquired by Merck in December 2014 for $2.1 billion. In 2018 Merck acquired an Australian
biotechnology company Viralytics which is working in the field of oncolytic viruses, that is,
viruses that preferentially infect and kill cancer cells. The company's oncolytic virus product,
called Cavatak, is currently in clinical trials in metastatic melanoma and other cancers. Merck
also acquired several other companies such as Tilos therapeutics, Peloton therapeutics, Immune
Design, Rigontec etc. Merck & Co. has been involving in diversification by merging and
acquiring several companies that are having products and services similar to the organization’s
core business.

ANTHEM INC.

Anthem, Inc., is a provider of health insurance in the United States. It is the largest for-
profit managed health care company in the Blue Cross Blue Shield Association. Anthem is
ranked 33rd in the Fortune 500. The company operates as Anthem Blue Cross in California,
where it has about 800,000 customers and is the largest health insurer. It operates as Empire
BlueCross BlueShield in New York State and as Anthem Blue Cross and Blue Shield in 10
states.

The company was formed when WellPoint Health Networks Inc. and Anthem, Inc. merged in

2004 to become the nation's leading health benefits company. The parent company originally
assumed the WellPoint, Inc. name at the time of the merger. In December 2014, WellPoint, Inc.
changed its corporate name to Anthem, Inc. The Anthem brand is built on a foundation of trust –
it’s the name consumers are most familiar with as a trusted health care partner through our
affiliated health plans. Anthem companies deliver a number of leading health benefit solutions
through a broad portfolio of integrated health care plans and related services, along with a wide
range of specialty products such as life and disability insurance benefits, dental, vision,
behavioural health benefit services, as well as long term care insurance and flexible spending
accounts.

Anthem’s strategy is driven by their focus on achieving the following objectives:

1. Create the best health care value in our industry.

 
2. Excel at day-to-day execution.
 
3. Capitalize on new opportunities to drive growth.
Anthem, Inc. affiliated health plans have created a variety of PPOs, HMOs, various hybrid and
specialty products, network-based dental products and health plan services that combine the
attributes consumers find attractive with effective cost control techniques. Employer groups and
individual members can select from basic as well as comprehensive plans to meet their specific
needs.

DIVERSIFICATION THROUGH ACQUISITION

Anthem has been involved in diversification by acquiring 19 companies. On June 2019, Anthem
acquired Beacon Health optics which provides best-in-class behavioral health solutions for
regional and specialty health plans. Aspire Health, a healthcare company situated in  United
States that focuses on providing support for patients with serious illnesses was acquired by
Anthem in 2018. Amerigroup is a trusted health insurance partner that offers Medicare and
Medicaid coverage. Amerigroup covers 7.7 million seniors, people with disabilities, low-income
families and other state and federally sponsored beneficiaries, and federal employees in 26 states,
making it the nation’s largest provider of health care for public programs. This company was
acquired by Anthem in 2012 for $4.9 billion. 1-800 Contacts Inc. is an American contact lens
retailer based in Draper, Utah. The brands that 1-800 Contacts use includes Johnson &
Johnson Vision Care, Ciba Vision, Bausch & Lomb and Cooper Vision. Anthem Inc. acquired
this company in 2012. Simply Healthcare Holdings, a company that provides managed care
services for people enrolled in Medicaid and Medicare programs in Florida through its
subsidiaries was acquired by Anthem in December 2014. Anthem also acquired America’s 1st
choice, Care More Health Plan, Speciality Health etc. Over the years Anthem is expanding its
portfolio by involving in concentric diversification.