Emi and the Ct Scanner

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The top management of EMI should decide to patent the technology of CT scanner and license it to major players in medical diagnostic imaging market in the US, instead of manufacturing it by EMI itself.

X-ray is the “standard” for medical industry in 1972, with GE and Picker as the market leaders in US. Although CT scanner is potentially a disruptive innovation to transform diagnostic imaging, its success relies on high adoption rate by hospitals and reputable medical professionals. What EMI needs to do is to establish CT scanner as the “new standard” for diagnostic imaging, and licensing the technology will dramatically improve the pace of adoption.

Market Analysis (1972)
TechnologySet up costMarket sizeApplicationsMarket leaders X-ray$100,000$350 millionStandard; responsible for critical medical decisionSiemens Philips
GE (30% US market)
Picker (20% US market)
Nuclear Imaging$75,000$50 millionComplement or replace X-ray diagnosisNuclear-Chicago Picker
Ultrasound$30,000Very smallO&GPicker
CT scanner$400,000$68 million *Neurology
* Estimated based on 170 CT scanners required

As the set up of a CT scanner costs 3 times more expensive than that of a conventional X-ray, it represents significant investment from the hospitals. Without prior experience and marketing channels, it will be difficult for EMI to penetrate the market and reach the “tipping point” swiftly. Both GE and Picker have strong resources and technical capabilities to research new technology. They will be interested to license CT scanner to provide a comprehensive product range and preserve existing market share.

Licensing also represents a “risk-free” option for EMI. With an estimated licensing cost of 10% of the revenue, EMI can potentially achieve $6.8 million earning without having to incur the substantial capital investment. On the contrary, if CT scanner fails to become the industry standard, EMI’s bottom line is not impacted at all....
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