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Andy Kach
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Brian Chapman
Principal
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Good Fences Make Good Neighbors—Why Contracting Is Critical to Medtech

Posted by Brian Chapman on October 27, 2015



iStock_000017871482_SmallWe spend a lot of time talking about how important it is for key account managers to find areas of mutual value, create tailored solutions, innovate for their important accounts and develop programs that are cutting edge. In fact, this is a really good idea because it explores areas of new value and creates relationships that go well beyond the transactional ones needed to sell a commodity product. We eschew focusing too much on pure rebates and prices because it gives away value. I still believe this, but sometimes a great contract can go a long way. Good fences make good neighbors.

Consider the situation where you as a supplier can provide new services, take on new responsibilities or ensure delivery of key metrics for a hospital. These things are extra value and there is sales upside here. But not every company has a portfolio conducive to these arrangements or the resources to deliver on these big promises.

I have lately become more convinced about the role of a good contract, pricing structure or rebating program. I used to look at rebating as an evil, wasn’t even convinced that it was necessary. But the world is changing as providers, payers and especially manufacturers consolidate, and portfolios age.

We ran a workshop recently to help a device company figure out how to penetrate some really key hospital systems that were competitively held and they were on the outside looking in. What struck me was just how challenging it has become to drive big change. Hospital systems are getting more and more locked up with contracts that provide disincentives to even run trials of competitive products. They are becoming more willing to award increasingly restrictive terms to fewer suppliers. Being able to get in clinically and grow your way into relevance at an account is getting harder and harder. In the end, we eventually settled that it was nearly impossible on products alone. The most viable opportunities to penetrate the competitive strongholds came from leveraging the business in an adjacent division where there had previously been no meaningful cooperation.

Winning in this highly contracted world now has several key success factors:

Scale of business to drive relevance at the system (but only if you know how to use it). A big company that can’t put together a deal across its businesses is actually at a disadvantage to a smaller one that can. This coordination is critical and we now see the big players starting to respond by aligning top management. It’s only a matter of time until they get their act together.

Systems that support clean operations and effective analytics. A common, single, unique definition for “customer” can sound ridiculously simple but many large and venerable companies fail this first test. Next the ability to create and deliver specific pricing and contractual arrangements without errors. Then the ability to report progress, reinforce value and make compliance visible and easy. Lastly, scenario planning to enable to business leaders to simulate and examine a deal. These are critical capabilities for the future.

Talent that can build relationships to earn the opportunity to propose, the chance to negotiate and the courage to enforce compliance. Our industry largely lacks key account management talent to implement in the high-leverage situations. Competition for key account management talent has become fierce.

I will be presenting at the third annual Medical Device Contracting and Strategic Accounts Conference in San Diego, Nov. 2 and 3 of this year, on the topic of building key account management capability. I hope to tackle a few of the dilemmas posed above and offer some practical solutions.  

Topics: Brian Chapman, contracting, strategic accounts

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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