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MX: Keeping New Ideas In Sight


Posted by rpark on March 19, 2012

Insight-driven innovation shows device companies a path to untapped market opportunities in a tangled business environment.


Why did UnitedHealth Group, a leading American healthcare insurance company, feature itself in a prominent booth at the 2012 Consumer Electronics Show in Las Vegas? Was the decision sensible? Ridiculous?

Try strategically innovative.

UnitedHealth Group (UHG) “recognizes that the healthcare industry is changing rapidly, its boundaries shifting." Brandon Rowberry, vice president of innovation development, says of the decision to exhibit at CES. "If we want to be a leader at the intersection of consumer technology and health, we must be where the important conversations, ideas, and insights happen. Many times those insights are found well outside our traditional industry walls."

UHG understands that to find new sources of growth in embattled markets it must make sense of changes already unfolding both inside and outside of its industry. Like Big Pharma, the medical device industry recognizes that its legacy business model is under assault. Shifting regulations, an aging population, longer R&D cycles, and shorter intervals of exclusivity make it apparent that success will not flow solely from past practices.

A recent IBM survey of global chief marketing officers reveals intense concerns about the increased complexity and pace of change.1 By their count, more than half of the CMOs IBM interviewed believe they are not prepared to cope, noting that “ironically, the escalating amounts of data that could give us a window on change have overwhelmed our ability to process it…. We’re drowning in data. What we lack are true insights.”

It’s clear then that device manufacturers need to adapt to evolving circumstances. One question remains: How will they make sense of the complex changes in their environment? The answer is found in the type of insight-driven innovation that companies such as UHG, Procter & Gamble, GE, and Praxair are using to their advantage. Similarly, device companies can discover new sources of value by using insight-based innovation to extend their business well beyond their direct customers.

Making Sense Of Change

What are insights? Here are some useful pointers.2 Insights:

•    Allow company leaders to see past the horizon and appreciate new opportunities that clarify the strategic implications of disrupting or changing the rules of the game.
•    Overturn accepted wisdom to reveal underappreciated and underexploited opportunities.
•    Build upon organizational competence.
•    Include the fringes by representing the organization’s collective imagination and not just the received wisdom of courtiers to the C Suite.
•    Provide clear and compelling reasons to “just do it” without conflicting interpretations.
•    Identify the company’s uniqueness and core competencies.
•    Identify discontinuities by looking to the world at large in a different way.
•    Differentiate by looking beyond the immediate customer, changing the rules of the game in the process and creating stakeholder insights.

Recent innovations by Procter & Gamble illustrate the benefits of identifying core competencies and discontinuities. Increasingly, the global consumer products giant is exploring avenues to leverage core business strengths through new and different business models. P&G is a global leader in fabric and laundry care, with over $82 billion in revenues. The Tide to Go stick for stain removal and the manufacturer’s highly concentrated detergent that greatly reduces water usage are two examples of P&G innovations. Through its FutureWorks business incubator, P&G now is exploring the use of Tide and another iconic brand, Mr. Clean, to determine whether the company can bring value to the dry cleaning and car wash industries, which total nearly $30 billion in U.S. revenue.

Why does P&G pursue these endeavors? After all, the company’s share of the dry cleaning and car wash industries is essentially zero. The answer is that, as an industry outsider, P&G can more easily break with business orthodoxies. For example, in retail dry cleaning and clothes washing, P&G can transform the customer experience from an environment of dark and tired strip malls to one of large, bright venues with the trusted Tide brand front and center. Certainly, its deep knowledge of the science of cleaning is critical to the venture.

In this context, P&G’s efforts are far from random. Rather, they build from rich insights in order to break from industry traditions and change the rules of retail cleaning. Most important, these efforts build from company strengths: P&G’s popular brands and unrivaled knowledge of fabric care. Beyond these new markets, P&G is also entering the health space with ventures such as MDVIP for personal healthcare management and Navigenics for genetic testing.

Identify Core Competence

In a similar fashion, Medtronic CEO Omar Ishrak recently announced a three-point plan to take the company to the next level. He plans to accomplish this task partly by cost-cutting and partly by building from existing competencies. For potential new businesses or acquisitions, Ishrak asks: “‘Are we in a growth market? Can we win? Is Medtronic adding enough value, or is the business better off on its own?’ We ask those questions internally on a regular basis, and we ask those questions externally on a regular basis.”

The main interconnected questions for device company executives are: what is our core competence? What is the company uniquely good at? And what new areas of growth does this view open up for the company? Another systematic source of useful insights is the ability of an organization to select broad, encompassing trends that it can influence or can use in uniquely helpful ways—should the company choose to leverage them.

For a long time the medical device industry has acted on the twin trends of aging populations and technologies packaged in ever smaller sizes. Still, there are underexploited opportunities. One example is “aging in place.” This preference among senior citizens in the developed world to remain in their homes presents significant new opportunities. By its very nature this is a disruptive innovation. Another opportunity is telemedicine enabled by dramatic improvements in low-cost communication technologies coupled with remote but skilled labor in India and elsewhere.

Eyeing a different disruption, GE is investing millions to develop software capabilities so that it can integrate intelligence across its product portfolio. In healthcare, the company aspires to bring greater value to its customers through information. If someone in the medical device industry doesn’t have the foresight, will an outsider be prescient enough to spot the trends industry insiders don’t see and successfully challenge device industry incumbents? Will Apple have to be the company that brings a data revolution to the patient–provider relationship through iCloud? What other trends are waiting to be exploited?

Whatever the answers, the ideal trend for any device company is the one that it can leverage better than its competitors, not only because company leaders paid attention and chose to act on it before the competition did, but also because it fits with what the company does uniquely well. In other words, the trend suits the organization’s core competencies.

‘Web’ Of Stakeholders

It’s well known that the medical device industry operates in a complex web of stakeholders—from economic buyers to users; from legislators to regulators; from competitors to alliances. It is an environment in which the manufacturer is at least two steps removed from the user of the product, making it particularly difficult to appreciate the nuanced ways in which different stakeholders shape the consideration, purchase, and use of the product.

For companies that can see and sell through this complex web, however, great rewards await. Take Praxair, the industrial gas provider. From a humble starting point, Praxair changed its medical oxygen business by reimagining the traditionally large, heavy oxygen bottle into a smaller, lighter integrated modular valve-and-gauge assembly. Praxair did so by understanding a web of different needs. Caregivers were frustrated by the complexity of sorting through different types of tanks, each with its own regulator. The cumbersome design stood in the way of doing what caregivers love: helping patients. For supply chiefs, that complexity meant higher costs that kept them locked in a mindset of focusing only on the price of a commodity product—oxygen. And CFOs faced huge frustrations over the incidences of loss charges, as caregivers either forgot to post a charge or neglected to do so while attending to an urgent patient need. Praxair’s Grab ‘n Go system changed all that, providing a simple, easy-to-use, lightweight container that is so simple the caregiver can just grab it and go help the patient.

The Cleveland Clinic, already focused on making step-change improvements to the patient experience, was the first test site for the new product. The results of this trial foreshadowed the success Praxair would enjoy. Nurses’ productivity increased. Work accidents decreased. And Praxair leveraged its new understanding of the business—from selling gas to serving the needs of those who deal with the gas—into an entire new area of opportunity in home medical devices. The company that used to sell only commodity gas to hospital purchasing departments built the capability to sell a different type of value to a different buyer mix, changing its business model over time.

Today, medical device companies face the prospect of changing their business models not because they want to but because business-as-usual is lacking enough value to make a bottom-line difference in current market conditions. Like UHG, Praxair, and P&G, medical device companies can discover new sources of value and modify their business models to deliver it.

References
1. IBM Global CMO Study, 2011.
2. Innovation to the Core, Harvard Business Press (2008), 78–80. Additionally, please refer to Chapter Three (34–84) for more detailed definitions and guides to creating the insights described in this article.

Peter Skarzynski is lead author of Innovation to the Core and a founding partner of ITC, a global strategic innovation consultancy. He can be reached at skarzynski@itcbusinessgroup.com.

 

 

 

 

 

 

Jorge Latre is a founding partner of ITC. He can be reached at latre@itcbusinessgroup.com.


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