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Strategy
Dementia, one of the fastest-growing mental health-related diseases around the globe, has been increasing in the UAE for the last fifteen years, which has influenced the business idea of dementia bracelets for elderly people. People with dementia suffer from memory loss and require close attention since they also tend to have multiple bodily sicknesses complicating the dementia situation. Considering all the facts, it can be said that close monitoring of such patients will help them improve their physical health, secure their nutrition, and reduce the risks of contamination and restlessness. The actual problem lies within the monitoring system of the patient, as it would be impossible to perform monitoring all the time. Another challenging task is to keep people with dementia under control. Additionally, hospitalisation of the patient has significant adverse effects on the individual. Thus, the best way is to ensure appropriate health care for the patient at home (Phelan et al., 2012). The research of the situation has opened an opportunity to think about a product that could improve the quality of life of people with dementia in the UAE.
To solve this complex problem, my company (proposed) has developed an innovative product idea. The firm plans to produce an elderly kit bracelet that should be worn on the patient’s hand. The bracelet will be connected to a cloud system which will do the task of monitoring. With the help of a specialised application (mobile and PC), caregivers (family members, nurses, and healthcare service providing organisations) will be able to monitor the patient effectively. The bracelet will send emergency signals when the patient is at risk to caregivers who are supposed to look after the patient. It is believed that the product will help ensure better care for people with dementia in the UAE.
Business overview
The proposed business has the potential to ease the suffering of thousands of elderly in the UAE. Additionally, rapid technological development around the world is making life easier than before, and as an outcome of this trend, people rely more on electronic devices. The idea involves clever integration of information technology and a physical product; however, a proper strategy is required for the success of the business.
Vision: The vision of the company is attaining superiority in providing technical support to people with dementia across the globe.
Mission: The mission of the firm is to produce a superior-quality dementia kit bracelet for assisting in the monitoring of people with dementia and sell them in the UAE market.
In order to achieve the mission successfully, the company must ensure effective integration of the following policies:
- an efficient production system;
- well-organised marketing plans;
- proper financial plan;
- logistics management.
Production system
The dementia kit bracelet will require an automated production facility where physical bracelets will be produced. Moulded plastics, bonded materials, and copper will be the main raw materials for manufacturing the bracelet kit; a network device and GPS trackers will be outsourced from a third party mobile IC producer in South Korea. A risk sensor will be produced by a group of software engineers who will work in the technical team of the firm. For product development, prototyping, and testing, a dedicated research and development facility will be installed.
Marketing plan
Although the product will have countless advantages for people with dementia and their caregivers (family members and nurses), it is currently unknown to its potential buyers. There are 9 million people in the UAE; it is assumed that around 2% of the population are suffering from the disease, which means the number of potential customers for the product will be around 180,000 (The official portal of the UAE Government 2017). Moreover, the number of patients is increasing at a significant rate, which is positive for the business. To sell the bracelet to all those people, it is required to convince patients’ families. Since the product is made for people with dementia, the niche marketing strategy would be the most appropriate. It is found that product awareness is one of the most important tools of marketing, generating purchase intention among customers. Business managers should put their effort not only in enhancing the product quality but also in increasing brand awareness among the target customers as a strong positive relationship is found between awareness and buying intention of people (Malik et al. 2013).
Employing this idea can be the most effective way of generating sales of the specific dementia bracelet. In order to increase awareness of family members of people with dementia about the benefits of the kit bracelet, a clear demonstration will be required. The first step to the marketing approach will be collecting the information concerning family members of people with dementia from different hospitals and healthcare providing institutions in the UAE. The second task will be to inform all these potential buyers about the advantages of the product. Simultaneously, a digital marketing campaign (video, email, and healthcare blog) will be initiated. After that, a telemarketing campaign will be needed to push the sales of the bracelets. Another important tool of the marketing program will be CSR activities: the company will take initiatives to donate bracelets to some people with dementia. It is found that CSR is a cost-effective and influential form of marketing, which increases the profitability of a firm and acts as a signal of product quality (Servaes and Tamayo 2013). Furthermore, a B2B marketing approach will be considered to establish a profitable venture with different healthcare centres in the country.
The implementation of the marketing plan is likely to have a significant impact on the sales of the bracelet during the first year of operation. The company is expected to capture around 25% market share in the first year, another 35% will be covered in the next year, and 25% – in the third year of operation. In the third year, the company plans to come up with a new marketable healthcare device for people with dementia in the UAE and to expand the bracelet business internationally. The international expansion will increase the sales by 35000 additional units of bracelets approximately during that year.
Finance
The financing of the firm will follow a leveraged approach. It is estimated that the initial facility establishment will cost around $13 million. To finance the amount, $8 million will be collected from the shareholders, and the rest of the $5 million will be funded with long-term debt. The expected cost of equity is 15%; the cost will be 10% for the long-term debt. Therefore, it can be estimated that the cost of capital for the company will be 13%. Further analysis of the project’s expected financial situation is shown in the financial section of this report that explains how the project will add value to the assets of investors.
Logistics Management
Management of product distribution and raw materials will be problematic and costly for the company. To avoid the problems, the collection of raw materials and distribution of products will be managed through a third-party logistics support provider (3PL) company. Using 3PL will reduce the logistics cost substantially, making the delivery system efficient and secure.
Market Opportunity
The market is completely new for the intended products, which will create a first-mover advantage and offer some lucrative opportunities to grab. The actual market size of the product is expected to be around 40 million annually in the UAE. A survey was conducted to see the marketability of the product, which was conveying a green signal. A significant number (86.9%) of respondents showed a positive attitude towards the product. A positive perception of health care professionals is also observed from the study. In contrast to that, a significant number of the medical organisations didn’t show their interest in the product, which probably happened due to their lack of knowledge. This threat can be turned into an opportunity through a product awareness campaign. In their study, Torres and Kunc (2016) found that direct marketing approaches help CEO’s comprehend the best marketing practices and recognise the best supply channel. Another important opportunity revealed by the research is the market growth potential. It is found that the number of patients with dementia in the UAE is increasing at a notable rate. Also, the customers are realising the need of having a quality technical product to solve the monitoring problem of people with dementia due to the high cost of employing a nurse to do the same task. Satisfying this acute need for a mechanical monitoring device for people with dementia at a lower cost than nursing care appears to be a real option with substantial economic worth.
Industry Analysis
Analysis of the industry involves both the external and the internal analysis. Without assessing the macro-environmental factors related to a bracelet business, it would become quite impossible to manage the business efficiently. To illustrate the significance of the external environment, especially in the context of innovation, Baranenko et al. (2014) concluded that the external environment governs the development of innovative capabilities of modern production-based firms. They also mentioned that needs, possibilities, and alternatives are the key variables that regulate the external environment of a business. The proposed business idea is developed considering the needs of an alternative product for people with dementia as well as the future possibilities of the industry. Therefore, the external environment of the business will be crucial to the success of the firm.
External Analysis
The external factors that have a significant impact on the business operation are political, economic, environmental, social, technological, and legal issues. The political condition of the UAE is stable and supportive of establishing a technical products manufacturing firm. Furthermore, there will be governmental support in establishing this type of production facility. It implies that obtaining a license for the business would be relatively easy. The economic condition of the country is a perfect match for establishing an innovation-based manufacturing firm. The economy is favourable for introducing a new health care product.
Similarly, the social condition is suggesting growth in the number of elderly people, which is exhibiting a possibility that can be explored to create new business opportunities. Technological aspects of the UAE are quite intriguing; the people like using innovative and technical products. In other words, anything made with advanced technology will be purchased and used by the majority of the population in the UAE. The proposed device and the production facilities do not pose any threat to the environment of the country, which implies that the environmental issues should not affect the business. Finally, the laws and regulations of the country do not create any barriers to starting a business. Therefore, it can be stated that the external environment of the UAE will be assisting the proposed business idea to succeed in the market.
Internal Analysis
A short summary of Porter’s Five Forces Analysis:
- Barriers to Entry. There are no acts as a deterrent against new competitors. There are no high capital requirements, no limited access to the channels of distribution. High costs of licensing on products and getting patents on technology must be considered.
- Supplier Power. The suppliers will not affect business performance influencing the quality and price of the final product since the variety of suppliers is big enough to change a supplier if necessary.
- The Threat of Substitutes. There can be substitutes such as computerised small medical stations and robots or other types of remote control systems.
- Buyer Power. The power of buyers is high enough to allow such purchases of home health care products. The goal is to set a comfortable price for the product. However, buyers can demand lower prices, higher quality, or additional services, or search for substitutes available for the product.
- The Degree of Rivalry. The degree of competition among existing firms is low now but will constantly get higher; the company will minimise the competitors’ influence in 5 years.
Value Chain
A system of inter-reliant actions often generates trade-offs that must be settled with an appropriate strategy to gain a competitive advantage (Porter and Millar 1985). A strong value chain system would make the firm capable of offering the best value propositions to its customers. The value chain is a conventional framework to plan the value-creating activities within a firm (Johnson et al., 2014). The company plans to create value through efficient management of inbound logistics, operations, outbound logistics, marketing and sales, and after-sales support. Also, the firm will continuously improve its infrastructure, human resources, and procurement policy to ensure an efficient value chain.
The bracelet will be produced in the established production facilities, where most of the production functions will be automated. The only thing that the production process will require is the proper input of required raw materials, which will be managed with a hybrid operations management strategy. A certain amount of raw materials will be held in a warehouse facility to avoid production inconsistency, while the suppliers will replenish the stock through an electronic reordering system. Once the bracelet is made, it shall be carried to the IT facility where the network device will be installed. Simultaneously, a group of software engineers will work on the development of the application that will keep track of the device and report data to the person who is monitoring it. Once the device is ready to get connected to the network, it will be sent for testing and quality checking. Each product will be tested before packing for the final delivery. The packaged product will be delivered to the customers through a predetermined third-party logistics provider. In addition to that, a dedicated support team will help the customers with after sales support services to ensure superior utility from the product.
Value Proposition
The package of utilities that are offered to the customers and can include but are not limited to performance, design, customisation, handiness, and price is considered as the value proposition of a firm (Osterwalder and Pigneur 2010.). The customer’s psychology about the received value in return for their payment for the particular product is the perceived value (Zeithaml 1988). The value proposition is the core source of competitive advantage for this business project as it will offer a unique value for people with dementia – the primary user of the product. Among the utilisable apparatuses of a marketer, the value proposition is considered to be the best (Hudadoff 2009). The business will focus on establishing a proper value chain system that would help it to offer such a value proposition to its customer, which attains maximum customer satisfaction. The following bundle would be offered to the customer of the dementia kit bracelet to create a competitive advantage in the market:
- Improved life for people with dementia through active tracking.
- A permanent solution to the tension for the caregivers of patients.
- The kit is inconspicuous and indispensable.
- Technology for the health of people with dementia.
- Superior and error-free after-sales services.
Financial Plan
The initial production facility will require a good amount of investment to initiate the production process of the bracelet. According to the marketing plan, the company should have a capacity of 100,000 finished bracelets in a year to meet the demands generated by the promotional teams. To ensure such productivity, the company must produce 300 finished bracelets per day, which would be a challenging task for the firm. The production facility will require four sets of machinery which will cost around $800,000 per set. Each set of machinery will have a capacity to produce 100 finished bracelets every day. In order to reduce the investment risk, the firm will purchase 10,000 square feet of land in the business bay at the rate of $603 per square foot. The land will be used as collateral to generate $5 million in debt financing from the bank. The development of factories and buildings will require around $3 million. The working capital requirement for the project is estimated at 10% of the expected annual sales, which will be around $2.3 million. To sum it up, the initial layout for the project will be around $12.5 million.
Table 3: Initial Outflow.
The following balance sheet will provide a clear view of the financial position of the firm at the beginning of the operation. Approximately 80,000 shares of $100 will be offered to private investors. The debt amount will reduce the financing cost as well as the risk of loss. The loan will increase the value of the share to $162.5 even before the firm’s operation start. Although the debt will reduce the earnings, it would provide the firm with a leveraged benefit for boosting the shareholders’ earnings.
Table 5: Balance Sheet.
The expected cash inflows of the business are calculated under a set of assumptions. The cost of the bracelet is assumed to be $225 with a direct maintenance cost of $25 (DM $75, DL $110, MOH $45). The sales revenue of the bracelet will be $500 in the first year, $450 in the second year, and $420 in the third year. Also, the buyer is required to pay a $100 subscription fee for the cloud-based monitoring service, which will generate more revenue for the firm. The machinery will be depreciated in 8 years with no salvage value; the firm will follow the straight-line depreciation method. The firm will pay a flat 25% tax on its income from the second year; interest payment will be 10% per year on the book value of the loan.
The company will pay a yearly wage of $1 million and a salary of $2.2 million to its software engineers and technical teams. Another $500,000 will be the management salaries. Fuel and other overhead expenses will be around $25 and $20 per unit subsequently. According to the marketing plan, there will be around 180000 total people with dementia; the company will sell the products to these patients’ families. The selling quantity will be 45000 in year 1, 63000 in year 2, and 80000 in the third year. The selling and marketing budget will be $8 per unit of product. Under the above-mentioned assumption, the projected financial scenarios are presented in the following Table 6.
Table 6: Forecasted Income Statement.
Using the projected free cash flow, we can calculate the net present value of the project. We will get a positive NPV of $1,385,942; the internal rate of return will be 21.14%, which is more than the financing cost of 15%. In other words, the project will add significant value to the shareholder’s investments.
Risk Management
Management of the project risk involves finding the threats associated with the investment, examining the probable impact of the threats, and planning to minimise the risks. The strategic plan of a firm must incorporate a dynamic risk management policy (Di Serio et al., 2011). Start-up companies are usually exposed to a high level of uncertainty, which cannot be measured beforehand (Sommer et al., 2009). The future performance of a business depends on the efficient utilisation of uncertainty supervision tools. The bracelet producing company can face a number of threats raised from its internal and external environment.
Risk factors
The proposed firm can expect to experience a number of threats due to the inconsistency in its core functions, namely, operations, marketing, financial, and logistics management. Risks from operations may evolve from ineffective management of human resources, unplanned production schedule, inefficient hiring of IT personnel, poor quality control tools, and unsystematic monitoring of functions. These operational threats can have a seriously bad impact on the product quality, which will plunge the sales, and therefore, the value of the firm. Also, a proper contingency plan is to be developed for avoiding emergency situations, i.e. an increase in the price of raw materials, fuel, and others.
Similarly, an improper marketing strategy can create an opportunity for new entrants in the market, which will increase the market competition. As a result, the firm will lose market shares and will fail to meet the projected sales of the bracelets. Hence, the marketing plan should create a barrier to entry for its forthcoming rivals.
Financial risks are the most significant type of threat for an organisation, which is puffed up in the case of a start-up company. The company can face the threat of liquidation from weak working capital management. Also, inefficient use of the firm’s financial assets will result in a plunge in profitability, and unplanned financing will bring a lower value of the investment. Therefore, a proper capital and financial management policy will be applied to the business.
The logistics system can either create a threat of delayed production or delay the delivery of products; both will result in a poor customer experience which is a heavy threat to the brand value of a start-up firm. To avoid this particular threat, a warehouse will be used to store a contingent amount of raw material. Also, stock of finished products shall be kept to meet emergency situations.
SWOT Analysis
Understanding all the aspects that could either enhance the performance of a business or pose a threat to the success of the business is substantial. Both the internal and external elements of a business can have positive or negative impacts on its performance. The most widely used tool for identifying the external and internal elements that have an impact is the SWOT analysis.
SWOT analysis not only helps to identify different elements but also assists with strategic planning and managing the associated risks resourcefully. Overall, the value creation process is the strongest internal asset that enables the firm to offer a set of unique value propositions to its customers. Although some external threats seem to be uncontrollable, they can be managed sufficiently by exercising different opportunities and managerial options.
The Project Plan and Implementation
Most of the academic authors accentuate the implementation of the project’s implementation planning. A unique business idea with adequate resources has often failed to monetise the market opportunity due to poorly designed business structures. The proposed business plan is a well-structured business idea that has been modified in different stages of the project until it reached its best version.
References
Baranenko, S.P., Dudin, M.N., Lyasnikov, N.V. and Busygin, K.D., 2014. Use of environmental approach to innovation-oriented development of industrial enterprises.
Hudadoff, P. 2009. The customer value proposition – Differentiation through the Eyes of Your Customer. Applied Marketing Product LLC.
Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regnér, 2013. Exploring strategy text & cases (Vol. 10). Harlow: Pearson.
Malik, M.E., Ghafoor, M.M., Hafiz, K.I., Riaz, U., Hassan, N.U., Mustafa, M. and Shahbaz, S., 2013. Importance of brand awareness and brand loyalty in assessing purchase intentions of consumer. International journal of business and social science, 4 (5).
Osterwalder, A. and Pigneur, Y., 2010. Business model generation: a handbook for visionaries, game changers, and challengers. New York: John Wiley & Sons.
Phelan, E.A., Borson, S., Grothaus, L., Balch, S. and Larson, E.B., 2012. Association of incident dementia with hospitalizations. Jama, 307 (2), 165-172.
Porter, M.E. and Millar, V.E., 1985. How information gives you competitive advantage. Web.
Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: the role of customer awareness. Management science, 59 (5), 1045-1061.
Sommer, S.C., Loch, C.H. and Dong, J., 2009. Managing complexity and unforeseeable uncertainty in start-up companies: an empirical study. Organization science, 20 (1), 118-133.
The official portal of the UAE Government. (2017). Fact Sheet. Web.
Torres, J.P. and Kunc, M.H., 2016. Market opportunity recognition in the Chilean wine industry: traditional versus relational marketing approaches. Journal of wine research, 27 (1), 19-33.
Zeithaml, V.A., 1988. Consumer perceptions of price, quality, and value: a means-end model and synthesis of evidence. The journal of marketing, 2-22.
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