STRYKER CORPORATION: CAPITAL BUDGETING

BACKGROUND OF THE CASE:

Stryker Corporation was founded in 1941 by Dr. Homer Stryker, an orthopedic surgeon in Kalamazoo,
Michigan who was also the inventor of medical tools and devices designed to improve surgical
procedures and/or help patients recover from them more quickly and effectively. In the late 1970s,
marked the beginning of a remarkable growth, which set and met the ambitious 20% growth target per
year through a combination of invention, organic growth, and strategic acquisitions. Growth of 20%
became the habit and corporate slogan, “20% growth forever” as articulated by John Brown one of the
company’s previous president CEO.
Stryker’s organization is highly decentralized and characterized by a complementary culture summarized
as “Focus, Freedom, and Accountability” in which the investment process begins in decentralized
divisions where marketing, production, and technological specialists proposed projects within their
divisions for the upcoming year in accordance with multi-year strategic planning.

STATEMENT OF THE PROBLEM IN RELATION TO THE ASSIGNED TOPIC

In 2005, a comprehensive redesign and modification of the Capital Expenditures Requests (CERs)
approval process took place. This initiative introduced more formal and standardized procedures,
necessitating a higher level of rigorous analysis and documentation. As part of this transformation, a
Capital Committee was established, comprising key executives such as Stryker's CEO, CFO, Treasurer,
Controller, General Counsel, VPs for Tax and Business Development, and the Director of IT.
Consequently, the number of CERs requiring centralized approval experienced a significant reduction,
decreasing from approximately 300 per year to around 30 per year.
This new system that needed heavy corporate involvement somewhat clashed with the decentralized
organization and entrepreneurial culture that it’s been described as painful by the employees.

SWOT Analysis:

Strengths:

1. Consistently high growth rates for the last 10 years based on its financial data, indicating a strong
performance.
2. Well-diversified product portfolios, including joint replacement implants, trauma products, spinal
surgical devices, neurologic and endoscopic equipment, and more.
3. Successful track record as one of the world's leading medical technology firms.
4. Accretive mergers and acquisitions that have provided operational synergies and cost efficiency,
enhancing profitability.
5. Thorough staff work is carried out in the processing of Capital Expenditure Requests (CERs).
6. Standardized CERs are utilized for each project, facilitating evaluators in assessing and
comparing similar projects effectively.
7. Increased in Working Capital.

Weaknesses:
 1. Dissatisfaction among employees due to the modifications in the Capital Expense Request (CER)
process, leading to a drop in morale and motivation.
2. Slowing down of internal capital project requests after the modifications in 2005.
3. Lack of information regarding specific weaknesses or challenges faced by the company.

Opportunities:

1. Growing demand for medical technology and equipment worldwide.

2. Potential for further expansion through strategic partnerships or acquisitions.
3. Advancements in technology that can lead to the development of innovative products.
4. Increasing focus on healthcare and medical advancements globally.

Threats:

1. Intense competition from other medical technology companies.

2. Regulatory changes that may impact the industry.
3. Economic fluctuations and their potential impact on healthcare spending.
4. The Great Global Recession.

ALTERNATIVE COURSES OF ACTION:

1. To maintain the new procedure for the Capital Expenditure Requests (CERs) and to provide
training sessions for the employees on the preparation of CERs and Capital Budgeting.

Advantages:

 Streamlined the CERs because of the comprehensive study made by the requestors prior to its
submission.
Disadvantages:

 Additional corporate expenses for the trainings.

 Dissatisfaction amongst employees regarding the modification process of CERs.

2. To revert back to its former process for the preparation of Capital Expenditures Requests.

Advantages:

 It was proven and tested through time.

 It is aligned with the company’s decentralized organization and entrepreneurial culture.
Disadvantages:

 Too many CERs.

 The process might be obsolete.
 3. To assess and analyze the current process for CERs to determine its bottleneck.
Advantages:

 Identify the underlying causes of employee dissatisfaction.

 Enable policy adjustments to address delays in CERs.
 Identify other implementation-related issues.
 Streamline the CERs because of the comprehensive study made by the requestors prior to its
submission.
Disadvantages:

 It will take time to review, evaluate and adjust the process.

 Availability of manpower for the additional task might be a challenge.
 The company may incur additional expenses with the process.

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