Abstract

"“Respironics: The Growth of an Innovative Enterprise (until Financialized Philips Got Hold of It)”"

Matt Hopkins, SOAS University of London (matt.hopkins101@yahoo.com)

From 1971 until 2008 Respironics, a “New Economy” firm headquartered in Murrysville, Pennsylvania, grew into a leading producer of medical devices for sleep and respiratory disorders, with 4,900 employees and over $1 billion in revenues when it was sold to Philips in early 2008. In this case study I document Respironics’ innovative growth under the strategic control founder Gerald E. McGinnis. The theory of innovative enterprise (TIE) provides the theoretical framework for an analysis of the social conditions of strategic control and financial commitment as they related to individual and then organizational effort. In a contribution to the TIE, I find evidence that who exercised strategic control, and how the firm’s growing financial resources were allocated were important factors in explaining Respironics’ 36 years of growth via “retain and reinvest”.
Respironics’ success in creating shareholder value did not shield it from the “market for corporate control”, rather it served to make the company an attractive acquisition target. In 2008, Philips, a Netherlands-based iconic “Old Economy” firm, made a bid for Respironics’ outstanding stock that insured it would take control of the firm. Under Philips’ management, Respironics’ innovative capabilities led in 2014 to a contract to supply ventilators to the U.S. Strategic National Stockpile. With the advent of the COVID-19 pandemic in 2020, Philips’ failure to fulfill the contract exposed how, in combination with inept government negotiation, the company’s financialization put profits ahead of the pandemic. A subsequent worldwide recall of millions ventilators and facemasks in recent years provides additional evidence that Philips’ quest to “maximize shareholder value” has led to underinvestment in Respironics, as well as large financial losses and significant layoffs. The Respironics’ case shows how acquisition can become a path to financialization and, given time, an erosion of innovative capabilities and loss of market share.