Medtronic and Flexibility

Chapter 8 introduces the strategy of maintaining flexibility and real options. With real options, the firm has the option to maintain flexibility in future investments by delaying part of the decision until a later date. Using the strategy of real options versus present value often makes investments more attractive due to the extra time a firm has to receive the benefits of a future venture. Medtronic is able to exercise flexibility in a few different ways. With many disparate divisions, Medtronic has opportunities to be flexible with product innovations, research and development, acquisitions and corporate facilities. One example is Medtronic’s acquisitions. The company has strategically bought several small companies that will reduce costs or improve profits, based on the acquisition. Some are hubs of research and development that would allow Medtronic to reap benefits of existing research and develop further projects in future years, one example of real options. Recently, Medtronic’s acquisition of Covidien has become an advantage for the company in many ways. For one, it is a successful firm and buying it out reduces global competition, initially strengthening its standing in the market. Another benefit of the acquisition is the reduction of costs due to using Covidien’s international headquarters’ location as a tax shelter. Inevitably, this decreases Medtronic’s uncertainty about future flows by automatically reducing tax costs. In addition, Medtronic will reap the benefits of future research and innovation from an already successful firm.