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Developing Capabilities to Thrive in the Economic Downturn
Despite current economic woes, foreign buyers see good opportunities for acquiring U.S. medtech companies.
November 1, 2008
7 Min Read
Masloski: Multiple opportunities.
Because the medical technology industry has weathered tough economic times before, some might be led to believe that many of today's challenges can be managed using the same old toolkit. There are many indications, however, that this recession is far more serious than previous downturns, with some sectors already feeling the chill.
For example, those companies whose business is tied to consumer discretionary spending, such as those in the aesthetics market, are experiencing slowdowns. Businesses dependent on capital equipment budgets are also under stress, including, in particular, companies in the diagnostic imaging market.
Much of the medical device industry makes products that support medically necessary procedures, and in the past this area has been somewhat insulated from harsh economic conditions. However, as increasing numbers of consumers personally shoulder a greater share of healthcare costs, and as the scale of the economic slowdown becomes more far-reaching, even companies in these areas are understandably concerned.
With the industry undergoing such major shifts, medical technology companies need to prepare for even tougher economic times ahead. One of the most viable strategies is to invest in building marketing and sales capabilities.
Capability building is the process of enhancing an organization's ability to perform important functions, with the goal of improving financial performance and reinforcing the overall health of the company. When difficult economic times require companies to achieve their financial targets with the same or fewer resources, while assuming minimal risk, capability building can be a particularly attractive strategy.
There are multiple opportunities for medical-technology companies to improve their marketing and sales capabilities. Enhancing capabilities in five areas in particular can help companies prepare for and even thrive in economic storms similar to the current downturn.
New Product Launch
Most medical device companies have developed strong capabilities for creating incremental product innovations. However, planning, coordinating, and executing a major launch can pose challenges on a completely different scale. Despite the high stakes involved, many companies lack codified best practices to help drive the process.
A common source of problems is the sheer scale and complexity of the enterprisewide coordination and project management required for major launches. Often, members of the product launch team have competing responsibilities that distract them at critical points in the launch process. Also, because product launches can span a long period of time, team composition frequently changes, and knowledge is lost.
Two effective strategies for building this capability are establishing a product launch ‘center of excellence,'—a role or roles within the marketing organization responsible for maintaining best practices, and creating a ‘book of launch' to codify those best practices.
Sales Force Optimization
For most medical-technology companies, the sales force is by far the single largest investment in driving revenue. Yet many organizations do not fully optimize their investment on a regular basis. Common opportunities include the following.
Designing sales territories to optimize market coverage while ensuring full utilization of sales force capacity.
Providing account and physician targeting support to make certain that marketing and sales force efforts are focused on the best customers and prospects.
Optimizing the ratio of expensive sales representatives to less-expensive support roles such as clinical specialists, developmental representatives, telesales, and so on.
Companies that consistently optimize their sales forces can realize incremental revenue growth of 5–10%. These processes are very often managed by experienced sales operations or marketing analytics staff who are responsible for maintaining the appropriate skills internally or contracting expertise as necessary. A strong relationship with an external partner can also provide an effective way to incorporate this capability.
With ballooning budget deficits and major healthcare reforms on the horizon, continued pressure on reimbursements and, consequently, increased pricing pressures are likely. Many business-to-business companies outside of healthcare have adopted value-based sales and marketing strategies as an effective way to counter price erosion.
The goal of value-based strategies is to shift the conversation with the customer away from issues such as price, features, and benefits, and onto a focus on the total value provided by the product. By doing this, firms with superior value propositions will command a greater market share and often higher prices, as well. In assessing whether a company is implementing an effective value-based strategy, there are several best practices that should be considered, including the following.
Develop a clear, well-defined and compelling economic value proposition for hospitals, Integrated Delivery Networks (IDNs) and payers.
Ensure the total value offering—including product performance benefits, services, and education—meets customers' needs.
Determine whether customers view the total value offering as distinctive when compared with those of competitors;, if necessary, modify the offering to ensure that they do.
Explore providing creative programs or services that customers will value and that will position the company to gain more leverage in pricing discussions.
Devise ways to become an integral part of customers' operations, such that being replaced by competitors would be difficult.
Design and build a sales force that is capable of implementing a value-based strategy.
Training alone is typically insufficient to enable the traditional medical device sales force to sell on economic value. There may need to be changes in the design of the sales force, such as the addition of new selling and support roles.
Developing the capability to execute value-based strategies can be quite challenging, requiring a highly coordinated sales and marketing approach and often a significant retooling of the sales force. However, it is one of the most effective ways to avoid commoditization and to grow sales and profits in competitive markets.
In many medical-technology markets, product differentiation in the eyes of the customer is declining, and price competition is fierce. Price erosion for existing products can be as high as 5% or more per year. The process for making discounting decisions in the heat of competitive battle is often reactive and the decision criteria inconsistent.
One common misconception about medical product pricing is that companies always give their best prices to their largest customers, or to the customers that represent the greatest share of their business. In fact, this is rarely the case, as decision criteria often vary based on changing priorities and conditions. Also, stakeholders in the discounting decision process sometimes have competing goals and objectives. To make matters worse, consolidated information and reports for tracking compliance and competitive activity are uncommon.
Since any slowdown in price erosion drops directly to the bottom line, companies that improve their price management capability can realize significant benefits,.
Sales Performance Management
Most sales forces accommodate a considerable range of results across various sales representatives, suggesting that there is a large upside for companies that can elevate the performance of their below-average salespeople. During performance reviews, however, it is not unusual for sales managers to struggle to identify those things that a poor-performing sales representative must do or change to be more successful. Sales competency models are often too general to be helpful in identifying what behaviors and practices need to be changed or improved.
As a result, managers often let quantitative sales results drive their assessment of representatives. Performance reviews tend to focus on the numbers (or lack of them) and not on the behavior changes needed to drive a different outcome. For most salespeople, therefore, the performance evaluation process holds little value for coaching and staff development, and change is not forthcoming.
Most sales performance management processes can be improved by understanding, articulating, and managing to the specific competencies required of representatives to move the sales process forward. By coaching sales reps on the right sales processes and competencies, managers can help build the capabilities of the sales organization and improve performance not just among the below-average representatives, but among the above-average representatives, as well. The productivity of the entire sales organization can be lifted, driving better financial results for the company.
At a time when looming economic uncertainty is pressuring the industry, medical technology companies must find ways to become more efficient, agile, and robust. Developing the internal capabilities to succeed in the areas discussed above can have a tremendous positive impact on a company's ability to remain competitive.
Undertaking initiatives in all five areas may be unrealistic and, in some instances, even unproductive. However, understanding the costs and benefits of building capabilities within each, identifying those that will drive the greatest value, and investing in those areas, can help make the difference between simply weathering the storm and actually thriving in these dynamic times.
Pete Masloski is a principal and leader of the medical products and services practice at ZS Associates (Evanston, IL), a global management consulting firm specializing in sales and marketing consulting, capability building, and outsourcing. He can be reached via e-mail at [email protected].
© 2008 Canon Communications LLC
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