Coloplast a/S – Organizational Challenges in Offshoring - One Pager
COLOPLAST A/S – ORGANIZATIONAL CHALLENGES IN OFFSHORING
Coloplast one of today’s leading suppliers for medical devices and associated services, was established in 1957 in Denmark. The company operates in 5 business areas: ostomy, urology (continence care), wound care, skin health and “Amoena”, for external breast forms. In 2004, 92.5% of the total group profit derived from the chronic care divisions ostomy and continence care, which have very stable product lines. However, as a part of the company’s 2008 strategy consideration revenues were supposed to be ensued by a total of 20% of products established within the past 4 years, dating no further back than 2004. Coloplast is one of the companies that were born globally. In the year of its foundation already every second ostomy bad was being exported, by 2005 97% of its revenue was generated outside of Denmark. Until 2001, the company had six major production facilities within Denmark. In 1999, the management level, for the first time, took a closer look at the idea of offshoring its production to a low-cost location. During the following thorough evaluation period the organization carried out extensive feasibility studies and interview Danish companies, which had already offshored to one of the locations in question. The evaluation committee undertook field trips to Poland, Ireland, Czech Republic and Hungary. Eventually, it had been decided to offshore to Hungary. Coloplast’s managers where aware of the language barrier on the Hungarian side as well as the social impact problems due to the redeployment of Danish employees, hence they took precautions to avoid work stoppages; they introduced an open and honest communication policy. The substantial one-off costs could be minimized by transfer or reassignment of employees in combination with the usage of voluntary attrition and early retirement. However, the offshoring process uncovered and amplified the weaknesses of the decentralized organization. The management
Coloplast one of today’s leading suppliers for medical devices and associated services, was established in 1957 in Denmark. The company operates in 5 business areas: ostomy, urology (continence care), wound care, skin health and “Amoena”, for external breast forms. In 2004, 92.5% of the total group profit derived from the chronic care divisions ostomy and continence care, which have very stable product lines. However, as a part of the company’s 2008 strategy consideration revenues were supposed to be ensued by a total of 20% of products established within the past 4 years, dating no further back than 2004. Coloplast is one of the companies that were born globally. In the year of its foundation already every second ostomy bad was being exported, by 2005 97% of its revenue was generated outside of Denmark. Until 2001, the company had six major production facilities within Denmark. In 1999, the management level, for the first time, took a closer look at the idea of offshoring its production to a low-cost location. During the following thorough evaluation period the organization carried out extensive feasibility studies and interview Danish companies, which had already offshored to one of the locations in question. The evaluation committee undertook field trips to Poland, Ireland, Czech Republic and Hungary. Eventually, it had been decided to offshore to Hungary. Coloplast’s managers where aware of the language barrier on the Hungarian side as well as the social impact problems due to the redeployment of Danish employees, hence they took precautions to avoid work stoppages; they introduced an open and honest communication policy. The substantial one-off costs could be minimized by transfer or reassignment of employees in combination with the usage of voluntary attrition and early retirement. However, the offshoring process uncovered and amplified the weaknesses of the decentralized organization. The management