Customer Excellence: Business Model Innovation for MedTechs


Published on

Gone are the days when hospital-based doctors are blindly spending funds on the latest and greatest medical products and technologies without a second thought to the price tag. Low margins, combined with an increasing mix of less profitable patients and growing provider competition, are forcing hospitals and other medical providers to simultaneously control costs and improve outcomes. L.E.K. Consulting believes there is huge opportunity for medical device and medical technology partners to innovate and move away from solely focusing on product innovation and product sales. To be successful, they must evolve towards a new “Customer Excellence” model.

Our new Executive Insights report highlights:

- How healthcare executives are responding to increased pressure to contain costs and improve efficiencies
- Opportunities for MedTechs to offer “Customer Excellence”
- Four fundamentals of a true customer-centric model

L.E.K. highlights best-in-class MedTech companies such as GE Healthcare, Fresenius, Alcon and Novo Nordisk that are successfully offering broad product and service solutions around targeted disease areas. Developing a true “Customer Excellence” model, paired with “Product Excellence,” allows MedTech companies to be truly valued partners, delivering seamlessly integrated solutions to help solve hospitals’ challenges and win in the future.

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Customer Excellence: Business Model Innovation for MedTechs

  1. 1. EXECUTIVE INSIGHTS VOLUME XV, ISSUE 3 Customer Excellence: Business Model Innovation for MedTechs If cost was not an issue, would you select the newest prod- tional efficiency and enhance integrated care. L.E.K. refers to uct with the latest advances, or continue to use a lower-cost MedTech’s ability to address hospitals’ needs through a strategic alternative with slightly lower performance? Historically, U.S. portfolio of valued products and services as “Customer Excel- hospital-based doctors generally insisted on the latest and great- lence” and believes that this will play an equally important role est medical products, despite their higher costs, thereby helping in the future as “Product Excellence.” fuel major medical technology advancements. For example, the basic hospital beds of the past have been replaced by beds that An Inflection Point in Hospital Priorities, can weigh and monitor patients and minimize patient risks such with Big Implications for MedTechs as ventilator-associated pneumonia, pressure ulcers or falls. The expanded features and benefits of today’s highly sophisticated Low existing hospital margins, combined with an increasing mix beds would likely amaze the ICU physician of the past, but the of less-profitable patients (e.g., those covered by government $10,000 price tag may be even more shocking, raising questions payers) and growing provider competition are forcing efforts to about what is a “must have” versus a “nice to have.” contain costs and improve efficiencies. Our annual L.E.K. Strate- gic Hospital Priorities Study reveals that healthcare executives are Importantly, the landscape is changing dramatically as hospitals responding in a number of ways, including: and other healthcare providers face growing pressures to simul- taneously control costs and improve outcomes. To help achieve • Continuing aggressive supplier negotiations to manage these needs, hospitals are looking beyond incremental product costs improvements and are seeking medical device and medical tech- nology partners that can help solve their challenges in broader • Increasing usage of Group Purchasing Organizations and more holistic ways. (GPOs) L.E.K. Consulting believes that this reflects a significant change • Shifting purchasing decision-making from individual in how MedTech companies should position themselves and clinicians to hospital administrators focused on economic focus their innovation efforts. MedTechs’ traditional focus on cost/benefits product innovation, combined with a traditional commercializa- tion approach (i.e., armies of product-oriented sales), needs • Rationalizing suppliers to drive standardization and to evolve to a new type of “Customer Excellence” that more volume discounts directly addresses hospitals’ requirements to increase opera- Customer Excellence: Business Model Innovation for MedTechs was written by Stuart Jackson, Global Managing Partner of L.E.K. Consulting, and Jonas Funk, Vice President at L.E.K. Consulting. Please contact us at for additional information.L.E.K. Consulting / Executive Insights LEK.COM
  2. 2. EXECUTIVE INSIGHTS • Continuing to invest in healthcare IT systems tailor their messages to different hospital segments, articulate value propositions more effectively and revamp sales efforts to • Increasing spending on outsourced services (e.g., vendor reduce focus on individual clinicians to target the right deci- management, outsourced pharmacies, device reprocess- sion makers. Our most recent 2013 Strategic Hospital Priorities ing) to improve operational efficiencies Study found that “Product Excellence” is still critical (and often is just table stakes for consideration), but that metrics related • Increasing willingness to pay premiums on labor-saving to “Customer Excellence” are growing in importance far more products (e.g., ready to use drugs) and/or products with rapidly. Purchase decision-making criteria are shifting towards demonstrated ability to save larger, downstream costs factors such as “ability to share risk,” “help engaging patients,” (e.g., HAIs, lengthy hospital stays, re-admissions) and “offering full solutions” (see Figure 1). These are new areas and, indeed, new opportunities for forward-thinking MedTechs. Providers, pressured to also improve outcomes, are simultane- Conversely, hospitals are expecting to place relatively less em- ously attempting to integrate care – both within individual phasis on “product quality” alone or sales-rep relationships in institutions as well as broader networks. They are doing so by the future. increasing collaboration across departments and stakehold- ers, and investing in information technology (IT) systems and Pursuing customer excellence as we are describing represents third-party data providers that enable improved understanding a major departure from traditional MedTech practices. Most of optimal treatment protocols. But, as access to information MedTechs are only beginning to recognize the need for big technologies expands, many hospitals find themselves in grow- changes and few have actually implemented such changes. Not ing mountains of data and without partners to help make sense surprisingly, hospital executives indicate that MedTechs usually of the data. do not currently offer full solutions. Among the exceptions, GE Healthcare is often highlighted as a customer-centric company that understands that selling products is just a small part of Opportunities for MedTechs to Offer meeting customers’ needs. Fresenius in dialysis, Alcon in oph- “Customer Excellence” thalmology and Novo Nordisk in diabetes are also often viewed To address these challenges, hospitals are looking for MedTech as best in class by wrapping broad product and service solutions partners that can offer full solutions to address broad problem around targeted disease areas. areas (e.g., labor inefficiencies, hospital acquired infections, medication error management) or provide more comprehen- Four Fundamentals of Customer Excellence sive solutions for specific disease areas (e.g., diabetes, heart disease). For example, U.S. hospitals spend about $1 trillion in What does a customer-centric MedTech organization look like? labor costs each year (about 10 times the spending on medi- L.E.K. believes this approach should be centered on the follow- cal devices and supplies) and are highly receptive to MedTechs’ ing principles: solutions that can help reduce labor costs. These solutions should include broad and relevant product portfolios as well as 1. Develop a deep understanding of hospital needs and associated value-added services that can expand the value of their challenges that your company can help solve, as well as the products themselves (e.g., clear cost-benefit analysis, best how these needs vary across hospital segments. MedTechs practice consulting, flexible pricing/financing models, perfor- should strive to be more like consumer products companies in mance guarantees/risk sharing). understanding customer segmentation and needs. MedTechs should not only strive to offer full solutions, but 2. Develop integrated portfolios with value-added ser- increasingly will need to effectively communicate them to the vices that map to real-life problems facing hospitals. As part appropriate audiences. This requires MedTech companies to of this, MedTechs may need to look themselves in the mirror toPage 2 L.E.K. Consulting / Executive Insights Volume XV, Issue 3 LEK.COM
  3. 3. EXECUTIVE INSIGHTS Figure 1 Hospital Priorities Shift Toward More “Customer Excellence” Metrics Ability of the company to share risk Hospitals are increas- Help engaging patients (e.g., patient education) ingly looking for MedTech partners that Full “solution” partnership can offer “Customer Excellence” (e.g., Providing financing through sharing risk, offering a lender partner or directly full solutions, helping engage patients, etc.) Reimbursement support Clinical data / medical economics / analytics Cost benefit value proposition Portfolio breadth Cutting-edge technology Professional education and training Going forward, hospitals are less interested in Ease of doing business incremental product improvements without Product quality significant clinical and/or cost improvements or in Sales rep relationship more sales rep visits Service provided by the sales representative 0 2 4 6 8 10 12 14 16 18 20 22 Percent Change in Importance Source: 2013 L.E.K. Strategic Hospital Priorities Study determine what they can and can’t do on their own; strategic cialists (product specialist, health economics specialist, clinical partnerships to fill capability gaps (e.g., IT, outsourced services, specialist). disease management) may be required to develop broader solu- tions. These four key steps enable “Customer Excellence” (see Figure 2). When paired with “Product Excellence” (identifying 3. Clearly articulate your value proposition, including the technologies and transforming them into high-quality and quantification of the total costs /benefits of your solutions. differentiated products), MedTechs are able to offer truly Hospitals will have a hard time doing this properly on their own, attractive solutions to their customers that help solve hospitals’ so MedTechs need to be more proactive in doing so. challenges. To be clear, customer excellence is not a substitute for product excellence, but rather is increasingly required to 4. Ensure that your value proposition is presented to the right fully activate it. The MedTechs that can successfully innovate audience by the right team. For many MedTechs, this may around product excellence AND customer excellence will be mean reorienting selling models to leverage a single account those that offer the most attractive solutions, and therefore win manager for a hospital supported by a team of targeted spe- in the future.L.E.K. Consulting / Executive Insights LEK.COM
  4. 4. EXECUTIVE INSIGHTS Figure 2 The Evolution from Product to Customer Excellence 1 Deep understanding High quality/ of customer needs differentiated products 2 Broad, integrated portfolio with value- added services Most attractive Scale economies in Product Excellence solutions R&D and production Customer Excellence for customers 3 Clear Articulation of Value Proposition Identification of attractive new 4 Presentation to technologies Right Audience by Right Team Source: L.E.K. analysis L.E.K. Consulting is a global management For further information contact: International consulting firm that uses deep industry Boston New York Offices: expertise and analytical rigor to help 75 State Street 1133 Sixth Avenue Auckland clients solve their most critical business 19th Floor 29th Floor Bangkok Boston, MA 02109 New York, NY 10036 Beijing problems. Founded 30 years ago, L.E.K. Telephone: 617.951.9500 Telephone: 646.652.1900 Chennai employs more than 1,000 professionals Facsimile: 617.951.9392 Facsimile: 212.582.8505 London in 21 offices across Europe, the Americas Chicago San Francisco Melbourne and Asia-Pacific. L.E.K. advises and sup- One North Wacker Drive 100 Pine Street Milan ports global companies that are leaders 39th Floor Suite 2000 Mumbai in their industries – including the larg- Chicago, IL 60606 San Francisco, CA 94111 Munich est private and public sector organiza- Telephone: 312.913.6400 Telephone: 415.676.5500 New Delhi Facsimile: 312.782.4583 Facsimile: 415.627.9071 tions, private equity firms and emerging Paris entrepreneurial businesses. L.E.K. helps Los Angeles Shanghai business leaders consistently make better 1100 Glendon Avenue Singapore 21st Floor Sydney decisions, deliver improved business per- Los Angeles, CA 90024 Tokyo formance and create greater shareholder Telephone: 310.209.9800 Wroclaw returns. Facsimile: 310.209.9125 L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2013 L.E.K. Consulting LLCPage 4 L.E.K. Consulting / Executive Insights Volume XV, Issue 3 LEK.COM