Transcript of Operating performance in the medtech industry: Trends and imperatives
1. www.pwc.comOperating performance in the Medtech industry:
Trends andimperatives October 2012
2. 2PwCWith an era of high growth and profitability in the
Medtech industry having given way to slower growth and flat
profits, operating performance is becoming a critical driver of
shareholder value for Medtech companies. This report describes PwCs
Operating Performance Index for the Medtech industry, uses it to
analyze trends in operating performance for the industry and its
various segments, and explains how this approach can help Medtech
companies identify which levers to pull to improve their operating
performance. The medical technology industry faces challenges on
many fronts. A sluggish economy and continued economic uncertainty
have depressed demand for medical procedures and medical products.
Increasing emphasis on healthcare cost containment, as well as the
effects of healthcare reform in the United States, are raising
questions about the overuse of medical technology and putting
downward pressure on prices. Greater pressure to demonstrate
clinical effectiveness and costeffective outcomes is raising the
bar on medical innovation. Increasing regulatory approval
requirements and scrutiny are contributing to higher uncertainty
and cost of developing new products. In the United States, a new
medical device excise tax is expected to have a significant
financial impact on device manufacturers. All these factors have
combined to introduce uncertainty and shifts in the Medtech
industry and its ecosystem. High growth and profitability have
given way to slower growth and flat profits, and total shareholder
returns for Medtech companies have been declining over the last few
years. It appears that the industry is transitioning from the
growth stage to a more mature stage of its life cycle. In this
environment, Medtech companies must consider a fresh approach to
creating shareholder value. Although there are many drivers of
shareholder value, operational excellence is a critical one in
maturing industries. PwC has therefore created an Operating
Performance Index (OPI) to better understand industry trends and
identify operational levers that Medtech companies can pull to
improve shareholder returns (see Sidebar 1 for details of the
index). The OPI incorporates several key operational drivers that
can be analyzed using publicly reported data. Drawing on such data,
we have analyzed the performance of 56 global Medtech companies
over the period 20052011.1 Our analysis offers insight into
performance trends in the overall Medtech industry, in key industry
segments (both over time and comparing segments with one another),
and among individual companies. In particular, it elucidates:
Differences among segments in this diverse industry; Benchmarks and
peer-performance measures for individual companies to compare their
performance with others and set high-impact improvement targets;
Unused or underutilized opportunities for improving operating
performance and driving shareholder value.Sidebar 1: PwCs Operating
Performance Index (OPI) PwCs Operating Performance Index (OPI) for
the Medtech industry is a weighted composite of three primary and
seven secondary metrics for operating performance. These metrics,
drawn from publicly reported data, represent key operational
drivers of total shareholder return. We evaluated several metrics
often considered to be key indicators of operational performance
and ran a series of multivariate regressions to determine the
correlation of each candidate metric with total shareholder return.
The metrics selected for the OPI were chosen to cover different
areas of a firms business operations and were weighted based on the
strength of these correlations. The metrics were defined such that
high values correspond with high levels of operating performance.
The components of OPI and their definitions are: OPI Metric Primary
MetricsDescriptionRevenue Growth Rate Annual Revenue Growth Rate
Operating Profit Invested Capital ProductivityReturn on Invested
CapitalAsset ProductivityRevenue / Property, Plant &
EquipmentLabor ProductivityRevenue / EmployeeGross Margin(Revenue
Cost of Goods Sold) / RevenueSG&A EffectivenessRevenue /
Selling, General & Administrative ExpenseInventory
ManagementInventory TurnsWorking Capital ProductivityReturn on
Working CapitalR&D ImpactSecondary MetricsLast Twelve Month
EBITDA MarginAnnual Revenue Growth Rate / (R&D/Revenue)Using
data from a population of 56 leading public companies in the global
Medtech industry, the OPI compares the performance of a company
with the population on a scale of 0 to 100. This enables analysis
of the Medtech industry as a whole, of particular segments of the
industry, and of individual Medtech companies along the following
dimensions: Industry performance over time Segment trends over time
Segment performance relative to other segments Company performance
over time Company performance relative to peers1 Source: S&P
Capital IQ, PwC analysis
3. 3Operating performance in the Medtech industry: Trends and
imperativesOn most dimensions measured by PwCs OPI, operating
performance in the Medtech industry has held relatively steady over
the period 20052011 (Exhibit 1 shows the annual trend for each OPI
element over this period). However, there is notable change in some
OPI elements. For example, revenue growth rates have been declining
significantlyat a rate of approximately 12% per year. Average
growth rates dipped into single digits during the recession and, as
of 2011, revenue growth has failed to return to pre-recession
levels (see Exhibit 2). PwCs analysis also shows that revenue
growth rates among industry leaders and laggards are converging as
growth rates slow overall. Although revenue growth rates have been
declining, our analysis shows that Medtech companies have
maintained R&D investment at fairly steady levels as a
percentage of revenue. This has resulted in a significantly
declining trend in R&D impact, at a rate of 10% per year
(seeExhibit 1). Although top-line growth has been slowing, the
industry has managed to achieve modest gains in operating
profitability over the last seven years (with the trend in
operating profit showing improvement at an average annual rate of
2%). This suggests that Medtech companies are working to manage
costs and continuing to become more efficient. One area of
operating performance in which the industry demonstrated
significant improvement in 20052011 is labor productivity, as
revenue/employee increased at an average annual rate of 8%. Asset
productivity has shown modest gains, reflecting an increased focus
on efficiency. Gross margins in the industry have remained
essentially flat. This indicates that companies have been able to
reduce their cost of goods sold (COGS) to maintain gross margins
amid the pricing pressures of recent years. In other elements of
OPI, however, industry performance has shown a slightly declining
trend. These elements include invested capital productivity;
selling, general & administrative expense (SG&A)
effectiveness; inventory management; and working capital
productivity. As industry growth rates slow, these areas represent
opportunities for improving cost structures and operating
performance.Exhibit 1: Industrywide Trends in Operating
Performance, 20052011OPI ElementAnnual Trend Relative to 2005
BaselineRevenue growth rate-12%Operating profit2%Invested capital
productivity-2%Asset productivity2%Labor productivity8%Gross
margin1%SG&A effectiveness-1%Inventory management-1%Working
capital productivity-1%R&D impact-10%Exhibit 2: Revenue Growth
Rates, 20052011 70% Annual revenue growth rateKey industry
findings60% 50% 40% 30% 20% 10% 0% -10%2005 Top 1020062007
Average20082009Bottom 1020102011
4. 4PwCKey findings about industry segmentsSidebar 2:
Segmenting the Medtech industryPwCs OPI shows wide variations in
operating performance trends among Medtech industry segments over
the period we have examined. (See Sidebar 2 for segmentation
methodology and definitions). As shown in Exhibit 3, the
highest-performing segments currently are in vitro diagnostics
(IVD), implantable devices, and diversified life sciences. The
implantable devices segment was the clear leader in 2005 but has
been declining gradually since then and has lost its edge over
other industry segments. The IVD segment, on the other hand, has
steadily improved to become the leading segment. Diversified life
sciences, meanwhile, has remained fairly stable. Operating
performance in medical consumables had begun to decline even prior
to the recession but has since regained lost ground. Medical
equipment, which was achieving stable operating performance prior
to the recession, suffered the sharpest drop of any segment during
the recession, but has since rebounded.The Medtech industry is
highly diverse and can be segmented in various ways for different
purposes. For example, segmentation by disease states and intended
use of medical products is useful when looking at commercial
markets and top-line opportunities. However, segmentation based on
the characteristics of products and associated business operations
yields greater insight into cost structure and bottom-line
performance, as companies making similar products face similar
operating and regulatory challenges. When thinking about the
industry from an operating perspective, we find it useful to
segment it in the following way:Exhibit 3: Medtech Segment OPI
Scores, 20052011Segment OPI Scores75 65 55 45 35 25
15200520062007200820092010In Vitro DiagnosticsMedical
ConsumablesMedical EquipmentImplantable DevicesDiversified Life
Sciences2011 In vitro diagnostics (IVD): Products used to diagnose
or monitor medical conditions via non-imaging technologies. These
products typically include a combination of low-volume equipment
(software-enabled electromechanical instruments, sometimes with
fluid-handling capabilities and various detection technologies) and
high-volume single-use reagents. Medical consumables: Single-use,
disposable medical devices such as general medical and surgical
supplies, hospital consumables, catheters, and wound care products.
These products tend to have relatively low regulatory requirements,
high-volume manufacturing, and low gross margins. Medical
equipment: Reusable equipment used for diagnosis, monitoring, or
treatment of medical conditions (e.g., medication delivery, patient
monitoring, sterilization, hospital/ OR instruments and furniture,
and imaging technologies such as MRI and CT scans). These products
typically include a significant electronics component. They may be
coupled with software, complex fluidics, mechanics, biochemical
sensors, and/or radiation sources. Regulatory hurdles vary from
quite high (e.g., for oncology treatment) to relatively low (e.g.,
for hospital beds). Implantable devices: Products used to treat
various medical conditions via implantation in the human body
(e.g., orthopedic implants, spine implants, stents, pacemakers, and
ICDs). These products are the most highly regulated of any Medtech
products and typically have high gross margins. Their manufacture
often requires special materials and is laborintensive and complex.
Diversified life sciences: Large companies offering a diversified
set of medical products including biopharmaceuticals, medical
devices and diagnostics, and drug-device combination products.
Companies often make a variety of products within the healthcare
industry. In most such cases, we assigned a company to a segment
based on the product category from which it gets the most revenue.
We also categorized as diversified life sciences a handful of
companies that could not be classified on the basis of one dominant
source of revenue. Owing to lack of publicly reported data, we
excluded from our analysis non-public companies (i.e., privately
held or owned by private equity firms) and the Medtech business
units of conglomerates that are diversified well beyond life
sciences.
5. 5Operating performance in the Medtech industry: Trends and
imperativesMedtech Industry Segments and Companies Analyzed In
Vitro DiagnosticsMedical ConsumablesMedical EquipmentImplantable
DevicesDiversified LifeSciencesAlere, Inc.Becton, Dickinson
andCo.CareFusion Corp.Biomet, Inc.Abbott LaboratoriesBioMerieux
S.A.Coloplast A/SCarl Zeiss Meditec AGBoston Scientific
Corp.Allergan, Inc.Gen-Probe, Inc.CR Bard, Inc.ConmedEdwards
LifesciencesCorp.Baxter International, Inc.Illumina, Inc.DENTSPLY
International, Inc.Dragerwerk AG & Co. KGaAIntegra
LifesciencesBayer AGLife Technologies Corp.ICU Medical, Inc.Elekta
ABMedtronic, Inc.Covidien plcQiagen NVMerit Medical
Systems,Inc.Getinge ABSmith & Nephew plcFresenius SE & Co
KgaASysmex Corp.Paul Hartmann AGHill-Rom Holdings, Inc.Sonova
Holding AGHospira, Inc.Teleflex IncorporatedHitachi Medical
Corp.Sorin SpAJohnson & JohnsonTerumo Corp.Hologic, Inc.St.
Jude Medical, Inc.Roche Holding ACThe Cooper
Companies,Inc.Intuitive Surgical, Inc.Stryker Corp.Invacare
Corp.Synthes, Inc.Mindray Medical InternationalZimmer Holdings,
Inc.Nihon Kohden Corp. ResMed, Inc. Sirona Dental Systems, Inc.
Steris Corp. Varian Medical Systems, Inc. William Demant Holding
A/S
6. 6PwCExhibit 4: Revenue Growth Rates by Segment, 20052011
Annual revenue growth rate40%In terms of operating profit (see
Exhibit 5), implantable devices (which has exhibited strong
performance in this category since 2005) and IVD (which has
improved dramatically over this period) lead the pack. Exhibit 5:
Operating Profit by Segment, 20052011 35% Operating profit margin
%Our analysis of annual revenue growth by segment (see Exhibit 4)
shows that the challenges in achieving revenue growth in the
industry are being felt in every segment, none of which has been
able to return to pre-recession growth levels. The sharpest drops
in growth rates have occurred in segments requiring high levels of
capital investment, i.e., IVD and medical equipment. We also find
that revenue growth began to slow in medical consumables and
implantables even prior to the recession. Although there was wide
variation in the growth rates in the different segments prior to
the recession, all segments have converged around single-digit
growth rates since the recession.30% 25% 20% 15%
10%35%20052006200720082009201030%In Vitro Diagnostics25%Medical
EquipmentImplantable Devices20%2011Medical ConsumablesDiversified
Life Sciences15%Overall, our analysis of operating performance over
time across all five segments of the Medtech industry yields these
key insights:10% 5% 0% 200520062007200820092010In Vitro
DiagnosticsMedical ConsumablesMedical EquipmentImplantable
DevicesDiversified Life Sciences2011 The implantable devices
segment has been the most consistent top operating performer
relative to other segments, driven by significantly higher gross
margins. This advantage is declining, however, likely due to the
maturation of the cardiology and orthopedic implant markets (both
of which have been characterized by low growth and reimbursement
challenges) and changes in purchasing dynamics and buyer behavior.
The implantable devices segment also has the highest SG&A
expenses (due to a high-touch sales model) and fewest inventory
turns (due to the practice of maintaining large field inventory to
support high service levels). Although this segment continues to
enjoy the highest profitability, its invested capital productivity
has been declining steadily. The IVD segment has shown the most
improvement, and become a leader in operating performance since
2006, driven by rapid growth. The growing importance of molecular
diagnostics and personalized medicine plays a key role. Rapid
operating profit improvements and steady improvements in many areas
of cost management and operational efficiency have also helped
drive the
7. 7Operating performance in the Medtech industry: Trends and
imperatives Operating performance in medical consumables has
consistently lagged behind the rest of the industry, although the
gap has closed in recent years with improvement in segment
performance after the economic downturn. This segment continues to
show low operating profit and low revenue growth relative to
others. The segment also ranks among the lowest in several
dimensions of overall efficiency, exhibiting, for example, the
lowest gross margins, poor inventory management, low asset
productivity, and labor productivity that is significantly lower
than that for othersegments. Medical equipment companies have been
hit hardest by the economic downturn. Although efficient compared
with other segments (with strong labor and asset productivity
performance and leading inventory management performance), the
medical equipment segment has been hurt by its customers
difficulties in accessing funds for capital investments. This
problem is evident in the sharp drop in growth rates for medical
equipment companies. The diversified life sciences segment has been
relatively stable over the years compared with other segments,
likely due to its diverse product portfolio. The variation in the
operating performance of Medtech business units was apparently
mitigated by the performance of biopharmaceutical and other
business units in these companies. This segment tends to have both
high gross margins and high operating profit. Although it ranks
lowest in the industry in asset productivity, the diversified life
sciences segment has leading performance in invested capital
productivity, labor productivity, and SG&Aeffectiveness.Key
findings about company performance Amid these segment trends, how
successful have individual Medtech companies been in improving
their operating performance? Analyzing the trends in operating
performance over the 2005-2011 time frame (see Exhibit 6), we find
that each segment has improvers, decliners, and steady performers,
but the mix varies according to segment. For example, nearly 70
percent of the companies in the medical consumables segment have
shown improvement. On the other hand, only about one-third of the
companies in the diversified life sciences segment and one-fourth
of the companies in the implantables segment have been improvers,
while over 40 percent of the companies in these segments have been
declining. This shows that different companies are able to achieve
widely different levels of operating performance amid the same
environmental context and macro trends. Exhibit 6: Company
Operating Performance over Time Percentage of companies with
improving, steady, or declining OPI, 20052011Percentagesectors OPI
performance. Note that most of the large IVD companies are business
units of diversified life sciences companies or well-diversified
conglomerates, which are excluded from our IVD segment.
Consequently, this segment has smaller companies than the others,
which may help account for its high growth rates.100% 90% 80% 70%
60% 50% 40% 30% 20% 10% 0%29%33%70% 33%33%25%22%33%44%42%71%
20%33%10% Medical In Vitro consumables diagnostics
DownSteadyMedical Diversified Implantable equipment life sciences
devices Up
8. 8Two leaders in operating performance Intuitive Surgical
Intuitive Surgical, a medical equipment company, is the global
leader in the rapidly emerging field of robot-assisted, minimally
invasive surgery. Since its founding in 1995, Intuitive has
achieved consistent and rapid growth along many dimensions:
revenues, system installed base, types of surgery for which the
system is used, procedure volume, geographies, and profitability.
Year-overyear revenue growth rates over the period 20052011 have
ranged from 20% (in 2009) to 64% (in 2006). Intuitives revenue
growth has been driven, in part, by its multiple revenue models:
with its da Vinci Surgical System, the company derives revenues
from system sales, per-procedure sales of instruments and
accessories, and annual service contracts. (Recurring sales of
instruments and accessories and annual service contracts accounted
for 56% of 2011 revenues from the da Vinci system.) The company has
also invested heavily in clinical studies to demonstrate the
effectiveness of its products, and in surgeon education to
facilitate adoption. Consistently ranking number one in operating
performance in the Medtech industry, Intuitive has exhibited
leading performance and steady improvement in OPI from 81.7 in 2005
to 91.8 in 2011 (on a scale of 0 to 100). It has shown a rare
combination of high growth and increasing operating profitability
(from 32% in 2005 to 41% in 2011). In addition, Intuitive has
achieved a steady or, in some cases, dramatic increase in several
elements of the OPI during this time framefor example, in invested
capital productivity (from 11.3% to 18.6%), asset productivity
(from $4.4 to $8.9 in revenue per dollar of PPE assets), labor
productivity (from revenues of $543K to $913K per employee), and
gross margin (from 67.5% to 72.5%). This consistent and stellar
performance has been recognized by the market and Intuitives stock
price has risen from $18 to $511/share in the last ten years.
Illumina, Inc. Illumina is a global IVD company that develops
innovative arraybased solutions for large-scale analysis of genetic
variation and function. It has consistently been among the top
performers on the OPI, with average annual revenue growth of 64%,
average EBITDA margins of 25%, and average gross margins of 67% for
the period 20062011. Analysis of Illuminas performance across a
variety of factors reveals a clear theme: consistent growth with a
focus on operational execution. Illumina invests more in R&D
than many peers and has developed leading technological
capabilities in a nascent market, driving significant revenue
growth. Illumina management has demonstrated a unique ability to
connect the dots between market strategy, disciplined product
development operations, and a relentless focus on corporate renewal
through both organic innovation and tuck-in acquisitions. Illumina
has also worked to diversify revenue sources by, for example,
creating a services business targeted at the diagnostics market.
Illumina, which sells capital equipment (and disposables), has a
significant number of customers who are dependent on federal
funding. Recent turmoil in the financial markets and cuts in
federal spending have therefore affected the companys results. With
a continued focus on operational excellence, however, Illumina has
been able to launch a new platform, reduce inventory, increase
gross margins, and build backlog.PwCCompany performance on the OPI
also enables us to identify industry and segment leaders and
laggards in overall operating performance. The top 10 companies we
analyzed had OPI scores in 2011 ranging from 91.8 to 59.7 on a
scale of 0 to 100, while the bottom 10 had scores ranging from 32.6
to 16.2. The individual components of the OPI also help indicate
what leaders are doing that laggards are not. In particular,
industry leaders display strong gross margin performance and high
operating profits. They have also achieved operational improvements
in asset productivity and labor productivity indicating a highly
efficient operating modeland are achieving better-than-average
revenue growth despite the challenges of the environment. What
laggards have in common are low revenue growth, weak gross margin
performance, and poor operating margins.Four key levers for
improving operating performance Exhibit 1 showed overall Medtech
industry trends for different elements of operating performance
over the 2005-2011 time frame. The industry performance results
have been mixed. The performance of leading Medtech companies in
recent years shows that despite a sluggish economy, pricing
pressures, turmoil in the financial markets, and other adverse
factors, it is possible to improve operating performance in some
areas and drive shareholder value. At the same time, high margins
relative to other industries, strong growth, long product life
cycles, and the high barriers to entry that the industry has
enjoyed in the past have caused many Medtech companies to focus
less on operating performance than they otherwise might have, and
therefore to lag behind firms in other industries in adopting
leading business-improvement practices. With the outlook for the
industry still uncertainowing to both the economy and the still
unknown impacts of healthcare reform in the United StatesMedtech
companies must respond with new strategies, business models, and
capabilities. In the near term, four key levers for improving
operating performance should be the focus:
9. 9Operating performance in the Medtech industry: Trends and
imperativesBroaden innovation. A changing healthcare ecosystem
(characterized by, for example, shifts in pricing power from device
manufacturers to healthcare providers, and increasingly
sophisticated customers demanding total solutions) means that
Medtech companies must develop new offerings catering to new
ecosystem needs. In the past, innovation in the Medtech industry
has had a relatively narrow scope, being largely technology driven,
product based, and physician focused. In the future, Medtech
companies will need to take a broader view of innovation. With the
growing emphasis on healthcare costs and quality, new product
innovation may become less important than, for example, clinical
effectiveness, improved patient outcomes, and/or improved
healthcare efficiency. In other words, Medtech players must address
the needs of a broader set of stakeholders including, healthcare
providers, payers, and patients, and innovate around new business
models and a broader set of offerings including, products,
associated services, and data/information management2. Move up the
productivity curve. With an average operating profit improvement
rate of 2% per year, the Medtech industry has made slow but steady
progress in operating profitability over the period 20052011. Yet
with increasing pricing pressures, slowing growth, and threats to
profitability such as the impending medical device excise tax in
the United States, it is imperative for Medtech companies to keep
taking cost out of business operations and/or out of products in
order to protect their profit margins. Our analysis shows that
several operational performance measures, such as gross margins,
SG&A effectiveness, inventory management, and working capital
productivity, have remained essentially flat over the last seven
years. All of these areas represent significant opportunities for
improvement. Medtech companies can learn from other operationally
efficient industries (such as high tech, consumer electronics,
automotive, and industrial technologies) and adopt their most
successful practices3for example, value engineering and strategic
sourcing practices to improve gross margins, or outsourcing to
leverage external partners and capabilities and make their cost
structures more variable. Medtech companies can increase the
efficiency of their supply chains and implement leading practices
to improve working capital and inventory management performance.
They can also improve their sales operations and reduce indirect
expenses to drive SG&A effectiveness.Transform the go-to-market
model. The ongoing, transformational changes in the healthcare
ecosystem are having a significant impact on how medical devices
are bought and paid for. Medical device buyers are consolidating,
resulting in greater buying power. The influence of physician
preference is eroding even as new requirements for public
disclosure of physician relationships are being put in place.
Meanwhile, healthcare delivery and payment models are evolving from
fee-for-service to value-based systems4. These factors are creating
new decision makers and buying criteria while also creating greater
diversity across the customer base. Savvy Medtech companies are
therefore finding opportunities to help shape decision processes
and even change the basis of competition in this new environment,
while also focusing their sales and marketing budgets on what are
now the critical segments of their markets in order to improve
effectiveness. Revitalize growth strategies. As industry growth in
developed regions slows and markets mature, Medtech companies must
explore new avenues for growth. Emerging markets offer one set of
opportunities for expansion. They provide greenfield opportunities
for serving large and growing populations as well as access to
talent and capabilities, often at significantly lower costs (for
example, for manufacturing, R&D, and other operational areas)5.
Developing new markets while under pressure to improve SG&A
effectiveness often requires Medtech companies to shift spend from
traditional markets toward new and growing markets. (Several
leading Medtech companies have already established significant
footprints in emerging markets and are enjoying growth rates of
2030%.) Companies are also considering a variety of inorganic
growth strategies. While traditional acquisition and integration
strategies are common, more creative strategies include open
innovation, corporate venturing, co-development through
partnerships and alliances, and a variety of in-/out-licensing
approaches. While some large Medtech companies already employ a mix
of these strategies, we expect a continued increase in these
activities as the industry matures and organic innovation becomes
more difficult.2 Christopher Wasden and Brian Williams, Owning the
Disease: A New Business Model For Medical Technology Companies, In
Vivo: The Business and Medicine Report, December 2011 3 Michael
Blanchette, Linda Meloro, and Prashanth Prasad, Surviving the Cost
Pressure Cooker, Medical Device and Diagnostics Industry, March 25,
2011 4 PwC, Unleashing value: the changing payment landscape for
the US pharmaceutical industry, PwC Health Research Institute, 2012
5 PwC, Medical Technology Innovation Scorecard: The Race for Global
Leadership, 2011 and Axendia, Inc., Walking the Global Tightrope:
Balancing the Risks and Rewards of Med-Tech Globalization,
2012
10. 10Deciding where to begin Improving operating performance
over so many different dimensions obviously represents a tall order
for Medtech companies that have not had to focus on such areas in
the past. How to begin making the necessary improvements? The first
step for Medtech companies wanting to improve their operating
performance is to baseline and benchmark against peer companies in
the industry and in their own segment. OPI provides a useful
framework for evaluating the different dimensions of operating
performance. The primary OPI metrics (revenue growth, operating
profit, and invested capital productivity) provide measures of
overall operating performance. Secondary OPI metrics can be used to
establish benchmarks and identify performance gaps and
opportunities for improvement in operational areas such as
innovation and product development, operations and supply chain
management, customer service and sales operations, and asset and
labor productivity. An OPI-based review enables a rapid but broad
evaluation of operating performance that can help to identify
significant challenges and opportunities for improvement and help a
company determine which levers it needs to pull to get significant
gains in operating performance. With an understanding of where
operating performance stands most in need of improvement,
management can begin digging deeper into these areas to determine
what, in particular, is inhibiting better performance and where to
target initiatives for change. If revenue growth, for example, is
an area where baselining and benchmarking point to a need and
opportunity to improve, and R&D impact is low, a company can
investigate why it is not getting more bang from its R&D
spending. If the OPI-based review also shows that SG&A
effectiveness is low relative to other companies in the same
segment, management can begin asking how it can use its sales force
more effectively in the changing industry environment. Similarly,
if profitability is shown to be an area where a company lags behind
industry peers and competitors, executives can dig deeper into OPI
elements such as asset and labor productivity and gross margin to
discover where and how to take out costs. In an environment that is
likely to remain difficult and uncertain for years to come, the
difference between winners and losers in a mature Medtech industry
will increasingly come down to the basics of operating performance.
OPI provides a convenient framework for identifying key challenges
and opportunities for companies to improve operating performance
and drive shareholder value.PwC
11. pwc.com/us/pharma pwc.com/us/medtechAbout PwC PwC United
States helps organizations and individuals create the value theyre
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what matters to you and find out more by visiting us at
www.pwc.com/us.Acknowledgement We wish to acknowledge the important
contribution that Michael Blanchette made to the development of
this report.Contacts Sharad Rastogi, Principal +1 (617) 530 4726
[email protected] Thomas Kozy, Director +1 (847) 430 9059
[email protected] Swanick, Partner US Pharmaceuticals,
Medical Devices, and Medical Technology Leader + 1 (267) 330 6060
[email protected] Attila Karacsony, Director +1 (973)
236 5640 [email protected] 2012 PricewaterhouseCoopers
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