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The mission of Stryker’s Capital Expenditure Requests (CERs) is to standardize and
formalize the capital budgeting process. CERs established a formal process of requesting
capital expenditure and its approval. The mission of the capital budgeting process is to
support cash flow targets and maintain Stryker’s 20% growth benchmark.
At Stryker, all project proposals are first discussed at the division level. The division
analyzes project proposals for completeness and then prioritizes them as part of the
division’s operating plans and budget. As a part of prioritization, proposals are negotiated
within the division. Project plans must contain goals for revenue, operating profit, and cash
flow that are both achievable and consistent with corporate targets (20% growth).
Otherwise, they will automatically not be selected. Project proposals also involve tradeoffs
between spending on existing businesses and new initiatives. This system, however, also
leaves potential holes in the process where “pet" projects with highly clouted sponsors
may get approved. Through this iterative processes, about two third of the project
proposals do not make it to the CER stage.
CERs at Stryker are influenced by corporate finance theory. Any submitted CER should
show the net present value (NPV), internal rate of return (IRR) and payback period for the
corresponding proposed project. These are the fundamental methods for ranking project
proposals in corporate finance theory. The CER should also list the risks associated with
the proposals and depict a sensitivity analysis for them. In the case of merger proposals,
income and cash flow commitments, best and worst case income, and cash flow figures
should be accompanied in the CER. All these stem from corporate finance theory. At the
same time, the project proposals at Stryker are driven by its culture of being decentralized
and making each division accountable. The proposal value dictate the level at which the
CER is approved. Not all projects are therefore analyzed at the corporate level, potentially
presenting an opportunity for cannibalism among the divisions.
One could argue that Stryker’s past growth could be attributed to the growth of the medical
industry and aging baby boomer population more so than their own internal processes and
strategies. Regardless, this growth has enabled a culture within Stryker to expect nothing
less than a 20% growth rate. CERs which are not in line with this corporate target will not
be considered. In the current Stryker setup, project proposals that are geared towards safety
and regulations have to go through a lot of paper work. With the current approval system it
