Device manufacturers experiencing declining growth or narrowing margins may need to reevaluate their commercial models.
The rules of the road are changing for the medical-device industry. While strong demand, demographics, and value still generate interest and investment, shifting expectations are placing a heavier burden on commercial organizations. The most visible of these changes may be the new US medical-device tax, yet a number of other trends are threatening margins and flattening growth estimates. Increasing government-sponsored comparative-effectiveness research, narrowing provider margins, changing utilization patterns, and evolving patient and physician expectations all combine to create an environment where device manufacturers should reevaluate their commercial model to ensure that it remains relevant and responsive.
While none of these trends are new, there is a new urgency to getting a more relevant commercial model right. A commercial transformation has the potential to decisively shift the competitive balance of power in the industry. Although the specifics can vary by company, the following elements are hallmarks of a commercial transformation:
- a multiyear effort designed to improve both commercial performance and the health of the organization
- a program driven by marketing and sales but strongly cross-functional
- adoption of a customer-centric mind-set across all functions
- a focus on building sustainable commercial capabilities and better-run processes
Commercial transformation implies going beyond half measures. Past efforts that simply added (or cut) marketing dollars or sales reps might have provided short-term benefits but did not touch the underlying sales and marketing model. A true commercial transformation addresses the entire B2B commercial engine, including new approaches to targeting specific customers, constructing product and brand value propositions, reaching chosen customers, and maximizing the overall value captured from each.
Is now the right time to launch a transformation initiative?
A transformation should be considered if declining growth or narrowing margins results from any of the following:
- Inconsistent execution exists despite having great pockets of commercial excellence in the organization.
- Physician and patient insights are not embedded into the commercial process.
- Gold-standard new-product development processes are inconsistently followed.
- Limited investment in new-product launches leads to underperformance relative to what was forecast.
We’ve seen the investment in true commercial transformation pay off, with some companies increasing operating income by as much as ten times the cost of the transformation program in the first year (see sidebar, “Transformation case study”).
Key transformation success factors
So what does it take to capture the benefits of a commercial transformation? Here are six core requirements for success:
Avoiding stalled transformation
Driving a commercial transformation requires true leadership; in the absence of that leadership, transformations inevitably stall, never achieving the primary goals. Additional “failure modes” can result from the following:
- Inability to scale up after initial pilot success. It’s easy to throw resources at a pilot and get short-term performance improvement; however, many organizations fail to move from pilot to scale. The reason is that they lack the change resources, efficient talent, and full senior-leadership commitment to ride out the peaks and valley associated with near-term earnings pressure.
- Lack of organizational talent to run the transformed model. When we work with organizations, we often find a range of talent profiles. It is important to invite the most flexible commercial “athletes” to lead the transformation team—that is, those who can transition to the new way of working—and avoid investing in those who will not buy into the change. Too often there is an assumption that an organization can take existing talent and plug them into a new model, which is generally not the case. What does work is finding the few employees who can succeed in the new world, training them, and embracing new talent with a similar mind-set.
- Lack of sustained, unwavering commitment. At the launch there is often a lot of energy associated with transformation and early pilots. However, unlike an operations-focused transformation, where management can see an immediate impact to the bottom line, commercial transformations require more patience. One client used a consistent cadence of communication across businesses to keep transformation on everyone’s radar screens and employees energized. This in turn helped develop self-sustaining momentum. These updates were usually accompanied by a brief message from the CEO or the marketing leads, which underscored continued leadership sponsorship for the transformation.
While implementing the six success factors and avoiding the three failure modes are critical for a program’s overall success, a detailed plan must take into account both company and product specifics. When done well and with the appropriate focus, commercial transformations are one of the most productive ways to achieve a change in performance.
Published in partnership with McKinsey & Company