Commercial Operations Outsourcing Can Help Medical Device OEMs Cope With Customer ConsolidationCommercial Operations Outsourcing Can Help Medical Device OEMs Cope With Customer Consolidation

By Bret Caldwell, Principal, ZS Associates

Suppose one of your medical device company’s most loyal customers has merged with another health system. Overnight, you have a new set of stakeholders and buyers, who may have long-standing relationships with your competition. To keep your existing sales and take advantage of new sales opportunities, you need improved access to key decision makers including C-suite executives, senior management, value analysis committees, and other administrators.

Given recent market conditions, if you haven’t already encountered such a situation, it’s probably only a matter of time before you do. Access to these healthcare industry decision makers has become crucial for many medical device and diagnostics companies. That’s where an unlikely solution—outsourcing commercial operations—can help OEMs gain access to high-level executives and key administrators within providers and integrated delivery networks (IDNs).

Outsourcing commercial operations including territory alignment, customer relationship management (CRM), business intelligence and reporting, and incentive compensation administration can result in more robust customer and sales insights, greater agility to react to market changes, and lower costs. Outsourcing can help OEMs better identify which stakeholders they need to target, understand their specific needs, and provide insight on how they can meet those needs—information that is crucial to access and sales success.

Consolidation epitomizes the “new normal” in the medical device industry. As providers consolidate and form IDNs, accountable care organizations (ACOs) and regional purchasing coalitions (RPCs), decision-making power is consolidating and shifting from clinicians to purchasing, administrators, and C-suite executives.

Provider consolidation, like many other industry trends of late, has made an already-difficult market even more treacherous. New product revenue at medical device OEMs has fallen due to longer FDA approval processes. Customer budgets are strained, and providers are reticent to buy new products that don’t provide sufficient clinical and/or economic value. And complicating matters further, patients have become active consumers. Add to this list of woes the medical device tax, and it becomes essential for medical device companies to have a better understanding of their customers’ needs, stronger territory management, CRM systems that facilitate team selling, and, most of all, enhanced analytics capabilities. They need better insights faster and at a lower cost. Outsourcing can play an important part in achieving these goals.

According to a July 2013 Frost & Sullivan report on trends in the medical device industry, there is a need to “overhaul sales strategies to optimize for a consolidated customer base” that is “driven by outcomes and value.” Key decision makers are driving this focus on outcomes and value, and they are making it a priority throughout their organizations. If you can show top executives of an IDN the clinical value and cost savings of purchasing more product categories from your company, it can put you in a significantly stronger negotiating position.

Of course, these improvements depend upon actually having access to these stakeholders to understand their needs and tailor sales approaches to meet those needs. To get to that level, medical device companies need just-in-time data and analytics that provide better insights than ever before. This puts increasing pressure on commercial operations to be agile and flexible while maintaining high quality.

Many device makers have outsourced areas such as manufacturing, R&D, and other functions for years, but far fewer have experimented with commercial operations outsourcing, despite successful examples in many other industries. There has been some movement in this direction, however, according to preliminary results from a ZS benchmarking study on outsourcing commercial operations at medical device companies. Of the companies surveyed, about 50% outsource at least one function of their commercial operations, including business intelligence and reporting, territory alignment management, master data and information management, and incentive compensation administration. More than one-quarter outsource at least two such functions.

But there are still significant opportunities in outsourcing commercial operations. Although it was the third most commonly outsourced function, only 12% of companies surveyed by ZS reported that they outsource their big data analytics, which often includes mining patient-level data and social media data, to outside venders. Traditionally, medical device companies have not relied on analytics to grow sales, and many have not developed the operational capabilities to thrive in the environment of consolidation in decision-making.

Case Study

A case in point involves a medical technology company that was growing—and trying to develop its analytics in parallel—but found itself unable to cope with the dynamic market landscape surrounding it. The company had more than 80 data sources, but was unable to integrate the data quickly and derive insights that its sales force needed to keep up with the competition.

As providers consolidated and decision-making consolidated with it, the company needed even better analytical capabilities to sell to these new stakeholders. However, its commercial operations couldn’t quickly deliver the necessary data and analytics to its sales force, putting additional pressure on its already strained commercial operations.

With the help of a consulting firm, the company was able to outsource the analytics arm of its commercial operations. In doing so, the company gained capabilities and speed it could not have generated on its own: the outsourced operation was able to integrate many data sources but also developed data dashboards to highlight opportunities, as well as measure sales and marketing progress with its customer base.

Outsourcing had a profound effect on this company’s commercial operations. It had a streamlined, automated data management function that reduced errors and turnaround time. In addition to gaining improved tools to facilitate conversations with its biggest customers, it reduced operational costs by a quarter, and project cycle times dropped 70%.

Overcoming Fears

Medical device companies can expect little relief from the difficult market conditions facing the industry. Consolidation is not going to suddenly reverse itself, and payers are going to remain skeptical of new products that add only incremental value. Customers’ focus on value and outcomes looks like a permanent change. Medical device companies cannot hope these issues solve themselves.

Outsourcing commercial operations is not a panacea to sales and marketing issues raised by these trends: Outsourcing cannot make payers change policies or cure underlying issues with products or management. But it can deliver cost-effective ways of coping with these changes, and it serves as an invaluable tool for keeping or gaining access to C-suite executives and other key decision makers.

Many companies may doubt the wisdom of outsourcing commercial operations. Some are worried they’ll lose control of data, or won’t have the same access to information, or they think lower costs equal lower quality of work. When pharmaceutical companies first encountered market pressures similar to those the medical device industry is experiencing now, they were similarly reticent. But the companies that embraced outsourcing developed market advantages over the ones that did not, and today many (if not most) pharmaceutical companies outsource at least some portion of their commercial operations.

To be clear, device companies need to look at much more than outsourcing to address shortcomings in their sales and marketing operations and to make sure they are dealing effectively with market shifts embodied in customers consolidating and cutting their budgets. But in many ways, outsourcing commercial operations makes it possible for medical device and diagnostics companies to be better prepared to tackle these challenges. Not only will the increased capabilities, greater flexibility, faster turnaround time, and lower costs help sales teams access key decision makers at their most valuable clients, but outsourced commercial operations can give companies the sophisticated analytics, cost cushion, and breathing room to cope with the entirety of market issues that affect their sales and marketing organization.

Bret Caldwell is a principal at ZS Associates in Evanston, IL. He focuses on medical products and service clients and has an extensive range of experience with sales and marketing issues and commercial operations.

Corrections: This article has been updated with new statistics provided by ZS Associates. It was previously reported that only 16% of companies surveyed by ZS reported that they outsource their big data analytics. That number is 12%.

It was previously reported that of the companies surveyed, more than half outsource at least one function of their commercial operations. That number is "about 50%."