Our accounting system has been fine for many years, but it looks as though my goal to put more decision-making responsibility in the hands of our sales subsidiaries may require some changes. We certainly seem to have some problems that aren’t going to go away by themselves.
The speaker was Ernesto Gallardo, COO for Santaló, S.A., a manufacturer of prosthetic devices and durable medical equipment. Santaló, headquartered in Barcelona, Spain, had sales offices in 25 European countries and manufacturing plants in three. He continued:
Take a look at this memo [Exhibit 1]. Werner Hanson is one of our more senior CBU [country business unit] managers. If he says there’s a problem, there’s a problem!
In 1950, 30-year-old Jorge Santaló, M.D., began making a new prosthetic device for his patients who had lost legs during the Spanish Civil War. Using a lightweight metal, he produced the devices in his apartment in Barcelona’s Pedralbes district for use in his own medical practice.
Shortly thereafter, as word spread about the efficacy of the device, the demand for them far exceeded the needs of his own practice, and in 1960 he incorporated the business as Santaló, S.A. Growth continued, and in 1970, Dr. Santaló broke ground for a new manufacturing facility in Pedralbes. Following some additional growth over the next several years, Santaló had an initial public offering on the Spanish Stock Exchange in 1980.
Since its IPO, the company had developed a number of breakthrough prosthetic devices. The unifying characteristic of these devices was their combination of durability and light weight. Whereas many prosthetic devices were light, few could withstand the rigors of daily use. Similarly, those that could withstand the rigors of daily use were too heavy for most patients to wear all day. Santaló thus had captured a significant market niche for many of the elderly and also for some younger people who had lost limbs in motorcycle accidents, which were frequent in Barcelona and other large European cities.
Two years ago, Santaló had been ranked by Semana en Negocios, a weekly business magazine, as 42nd on its list of the “50 Best Spanish Performing Companies.” It also had been recognized as one of the “Most Admired Companies”in the health sector every year for the past ten years.
Santaló was building a product portfolio around two key groups—Prosthetic Products and Durable Medical Products (such as crutches and wheelchairs)—in an effort to form a strategically cohesive business mix.
Prosthetic Products Group. The PPG strove to consistently discover, develop, and market breakthrough prosthetics that improved patient health, especially in areas of unmet medical need. The group's primary focus was on translating innovative science into effective medical devices.
Durable Medical Products Group. The DMPG was striving to build leading businesses in hospital based devices for adults and children. It also was identifying ways to promote health through the linkage of devices with various forms of patient exercises. . . .
- What changes, if any, would you recommend be made to Santaló’s management control system?