Large-scale mergers and acquisitions continue to be a trend shaping the medtech industry. This year alone, two multi-billion dollar acquisitions (Abbott/St. Jude Medical is complete and Becton Dickinson/C.R. Bard is pending) aimed to create large medtech organizations with broad portfolios and businesses spanning many therapy areas and hospital departments. Several other billion-dollar deals have also made headlines in recent months. These combined entities should be in a strong position to articulate a portfolio value proposition that can help providers improve the quality and outcomes of patient care.
In theory, well-integrated medtech companies should be able to leverage their combined strength to successfully create value for customers and drive synergies and growth. But historically, many organizations that have grown through large acquisitions are finding that their attempts to build a synergistic portfolio approach have simply created greater exposure to price pressures. Contracting discussions, especially with the most powerful healthcare provider customers, are limited to pricing and bundling rather than creating shared value from contracting across a broad portfolio.
Many of the issues that medtech organizations contend with in bringing a broad portfolio value proposition to market can be traced back to internal challenges. Organizations across the medtech industry face some common pain points following M&A activity, although some manufacturers have had more success than others in overcoming these:
1. Value proposition development as a downstream effort: Product development, especially in medtech, starts with the clinical idea or the device feature, and moves from there. A slow-moving pipeline “supertanker” full of clinical innovation and features-driven R&D processes limits the flexibility to pivot toward an outcomes-centric value proposition. Juxtaposed against a rapidly changing healthcare market, medtech’s clinically driven R&D processes take many years to progress and don’t leave much room for flexibility or reinvention.
Moreover, the development of an outcomes-based value proposition often isn’t built into R&D processes or into upstream marketing activities. This oversight can lead to the development of a clinically driven message accompanied by superficial links to outcomes and “bolt-on” services that don’t fit comfortably with the product. Even more rarely will these elements complement a broader portfolio, especially one born out of a large-scale merger. The questions “How will this fit in with the rest of our portfolio?” or “What services or support will be needed to make these outcomes truly achievable?” are often asked too late or not at all.
This approach leaves little flexibility to move away from the product, features and price messaging of the “luxury goods” model. Consider Johnson & Johnson’s announcement to launch the CareAdvantage offering to support value-based care within its medical device business. Occurring years after the integration of DePuy and Synthes (and attempting to span the rest of the J&J portfolio), this is a good example of a service offering created long after the products have been researched, developed and launched. I’m left with a few questions: Will this offering be widely adopted? Will it complement the broad portfolio in a well-integrated manner? Will it demonstrate the value that the combined portfolio of J&J devices can offer to providers?
2. Business unit silos remain after integration: Disconnected silos of businesses—including those that exist long after the “integration” is complete—can hinder a portfolio approach, especially when structures, metrics or politics come into play between divisions or businesses. Sales teams may not be structured or aligned to create account teams that focus on the same customer in a coordinated manner, leaving customers confused or frustrated at the lack of a single point of contact with a manufacturer or the lack of a consistent message between reps from the same company. Moreover, coordinated teams may struggle to collaborate effectively if archaic back-end systems fail to present a single view of a customer, especially when rebate payments are due or contracts are up for renewal. The larger an organization—and the more acquisitions it has taken to build it—the greater the risks of fragmentation and failing to commercialize the value of a broad portfolio of products and services. In some cases, these silos can hinder the performance of some businesses such that they end up being sold or spun off later: Becton Dickinson’s recent spinoff of its respiratory solutions business is a good example here.
3. Cross-functional collaboration: Historically, medtech marketers have tended to focus their strategies on specific products rather than on the portfolio. This creates a gap in offerings and messaging during sales execution, when a sales organization is tasked with selling the entire portfolio. The approach limits the opportunity to demonstrate the value that a combined portfolio could bring to a provider’s outcomes and bottom line. Strategic or corporate accounts teams are often further disconnected from division sales teams and from marketing, leaving them with little other than pricing as a bargaining chip during customer negotiations.
When seeking to successfully leverage your portfolio of products and services with providers, consider whether your organization is facing any of these challenges. Overcoming these issues is an important step toward providing consistent and coherent support that enables your customers to deliver value in outcomes and quality of care. Do you have any strategies that have worked for your organization?