Etude

Navigating Uncertainty in Medtech

Amid turbulence, medtech customers are prioritizing quality over cost, and category leaders are uniquely positioned to win them over.

Par Mayuri Shah, Todd Johnson, et Cate Miller Goldstein

First published on mars 19, 2024
min


At a Glance In the current period of uncertainty, medtech customers prefer suppliers that help address their toughest challenges to those that just offer the lowest prices. Historically, medtech winners following downturns have been category leaders that strategically build scale in targeted segments vs. absolute scale. Medtech companies can pursue category leadership by developing innovative value propositions, surgically cutting costs, and reallocating resources to mission-critical activities. Since 2020, companies around the world have been struggling to clear constant hurdles, including the pandemic, supply chain shocks, geopolitical uncertainty in key markets, historic labor shortages, surging inflation, and more. Conventional wisdom says that during periods of economic stress or uncertainty, customers trade down, gravitating toward lower-cost (and often lower-quality) products and inciting a race to the bottom. And yet, in medical technology, the race to the bottom never kicked off. Instead, particularly during the peak pandemic years from 2020 to 2022, medtech customers launched a flight to quality for products and services. During the shock of Covid-19, they scrambled for security of supply, predictability, and sustained strategic relationships rather than zeroing in on price. Even as the pandemic-induced clamor subsided, healthcare providers’ wants and needs endured. Today, they are asking for more from their medtech suppliers, not less. As they navigate ongoing uncertainty, they want suppliers to help address their toughest challenges around labor shortages, physician recruitment and retention, procedure volume, systems interoperability, clinical data, shifting sites of care, digital transformation, artificial intelligence (AI), and more. Emerging from this time of turbulence, winners will be those that answered these calls from customers in new ways. They will step up their customer engagement and innovate in products, services, and commercial models. By working closely with providers to achieve better patient outcomes, higher clinician engagement, and improved financial performance, these industry leaders will further their market share and reap the rewards. The category leadership imperative Who is best positioned to come out of the current climate unscathed or, better yet, on top? We only need to look at previous downturns and periods of uncertainty to see what doesn’t work (see Figure 1). Figure 1 In times of uncertainty, critical choices separate leaders from laggards In a state of unease, companies often pause bold moves or focus on cost cutting. Sometimes, they make short-term decisions to hit earnings targets, but, as a casualty, impede their long-term growth. Bain research shows that some medtech companies do the opposite—and that they are more likely to outperform their peers during and after times of turbulence. For instance, after the 2008 global financial crisis from 2010 to 2015, one set of companies grew at a 5% compound annual rate compared with zero growth among other medtech players. These winning firms are category leaders. Category leaders are companies that seek to achieve leadership positions in the targeted segments in which they play. Given that the correlation between absolute scale and profitability in medtech is quite weak, these players strategically build scale in specific markets, developing products and services for a defined set of end users. Meanwhile, those that dilute their focus with multiple follower positions or businesses that aren’t sufficiently related to their core strategy typically struggle to sustain returns from innovation and meaningfully strengthen their customer relationships. As a result, category leaders tend to be more profitable than more distant followers. Recent disruptions have only enhanced the value of category leadership. Bolstered with strong products and inventories as well as deep knowledge of their accounts, category leaders were uniquely positioned to continue serving their most strategic customers at the height of the pandemic. For example, when a customer struggled with short-staffed labs after Covid-19 hit, one medtech company knew the people, products, and services so well that it was able to stay on the ground, working directly in the labs to keep them open and running. Such above-and-beyond acts solidified customer loyalty. Times of uncertainty also breed innovation, and those that move first are best positioned to become category leaders. Consider, for instance, how players such as Thermo Fisher, Abbott, and Siemens Healthineers quickly developed Covid-19 diagnostic tests, spurring new businesses to answer new needs. These pioneers are now looking to utilize the same capabilities to lead new markets, such as in-home diagnostics. In the current environment, category leaders are capitalizing on their respective market scale and playing offense. They are creating ecosystems of connected products, commercializing their data and digital offerings, supporting customers in expanding to new sites of care, harnessing generative AI and machine learning for productivity, and, importantly, developing integrated value propositions for products and services to creatively solve customers’ biggest problems. Rather than pulling back, they are doubling down. Are you a category leader? To start, medtech companies need to understand their competitive position and value proposition. They can determine if they have meaningful category leadership by asking a few questions: Are we defining categories simply by the products we manufacture? If so, how can we redefine them through the eyes of customers rather than engineers? What is the breadth of our customers’ buying authority? How much influence do clinicians have vs. procurement leaders? Do we have access to the most important customers—including academic medical centers, integrated delivery networks, and alternate sites of care—in each segment? Does the given category overlap with other parts of our portfolio? Do our products logically fit in our sales representatives’ portfolios? How do our competitors’ portfolios look? Do they compete in parts of the category that we do not? What happens if we define the market differently? How does that affect our position? How will the boundaries of this category change over time? How can we avoid taking a static view? For current category leaders Achieving category leadership is important, but it doesn’t guarantee reaching full potential. Even category leaders must continuously redefine the category, reinvest in their position, and remain dedicated to creating long-term customer value. Embrace an insurgent mindset. Many organizations eventually fall victim to the growth paradox as defined in Bain’s The Founder’s Mentality: “Growth breeds complexity, and complexity is the silent killer of growth.” Not all complexity, however, is harmful; it’s needed to expand products, customer segments, and geographies, creating tangible value. But often, as medtech companies scale, complexity goes unchecked, weakening customer focus, particularly on patients and clinicians. To avoid falling victim to the growth paradox, companies can systematically trim non–value-added complexity. Only then can they capture the full benefits of their scale. There are several ways to get started: Give commercial general managers ownership, and establish accountability at the category and customer levels. Focus on geographic markets that support profitable growth, and exit those that can’t deliver sustained economic returns. Retire unproductive SKUs, such as legacy product generations and nonstrategic SKUs that came with acquisitions, to lower costs and accelerate growth. Integrate systems and standardize core functional processes, particularly following M&A. Broaden the definition of innovation. Industry leaders—including Boston Scientific, Danaher, Stryker, and Thermo Fisher—have excelled through moves to maintain and grow their category leadership positions, define new businesses, and strategically meet customer needs. Some of that is achieved through organic product innovation, although inorganic innovation—for instance, through business development and M&A—is increasingly responsible for growth at scale. M&A can help identify adjacent categories and round out capabilities. It can also grant access to emerging technologies, jump-starting leadership before a market is well established. Consider Boston Scientific acquiring BTG and Lumenis to reinforce leadership in interventional medicine and urology, respectively; Danaher acquiring antibody supplier Abcam to bolster innovation and discovery; or Stryker acquiring Mako in the nascent days of robotic surgery. Across industries, we know that following times of uncertainty, the companies that come out on top have been those that pursued proactive M&A pipelines. There’s a scarcity of attractive assets today, so it’s important to move now. Beyond M&A, customer engagement is critical to continued growth. Category leaders are deploying proprietary data as a product feature rather than a standalone revenue stream to bolster their products’ value proposition and encourage customer retention. They are also investing heavily to move beyond the R&D phase of generative AI and will soon deploy user-facing technologies that improve the customer experience and engagement. Finally, tomorrow’s winners will find innovative ways to address rapidly changing customer needs. For instance, when hospitals couldn’t take on as many surgeries during Covid-19, Stryker worked to place Mako surgical robots in ambulatory surgery centers. Similarly, to address the shift in sites of care, Siemens Healthineers is partnering with major hospital systems to deliver not only imaging equipment but also a suite of related services, such as technology repair and imaging optimization. For aspiring leaders For companies without clear category leadership positions, the path to success looks a bit different. Determine your unique value proposition. Companies can start by identifying where they have a clear “spike”—that is, a distinct, differentiating competitive advantage. It could be customer intimacy within a certain segment, a tech competency, or access to a particular channel. Without a spike, a company may find that its only source of differentiation is low pricing, which isn’t sustainable—particularly given customers’ flight to quality. Vault your spike into category leadership. A differentiating spike serves as the point of departure on a long-term journey to category leadership. Aspiring leaders can articulate how their spike brings value and propels their business in a tangible way. They can frame their advantage as a category, rather than an individual offering, and build from there. Refocus your portfolio. Future category leaders will start divesting and exiting products, geographies, and customer segments that distract from their unique spike. That’s not easy, but it critically supports further investment in their competitive advantage. The best will regularly revisit their investment posture and adjust accordingly. For all medtech companies No matter their category leadership status, all medtech companies should be investing and innovating throughout the turbulence. Of course, the financial implications are more difficult right now. The pressures to make quarterly and annual goals don’t subside in the face of uncontrollable external shocks such as input cost inflation, labor shortages, or geopolitical disputes. But three themes can help executives pursue or advance category leadership despite challenging growth and margin expectations: They can lead with innovation, extract costs, and liberate trapped resources. Lead with innovation. Innovation is always the best way to drive outsized returns. Category leaders stay committed to their R&D priorities, even in the face of near-term margin pressures. They also position themselves as the partner or acquirer of choice for emerging assets, especially in today’s AI revolution—staking a claim now can command a sustained competitive advantage. But beyond products and tech, winners will find innovative ways to engage and partner with customers, further differentiating their value proposition. Extract costs. This is not about across-the-board cuts, which usually help in the short term but inflict damage in the long run. Leaders will home in on true complexity reduction by surgically cutting unproductive activities. Industry leaders will also dive into generative AI–based productivity tools to streamline arduous tasks, cutting costs without cutting muscle. Many are finding that they can rapidly increase the efficiency of repeatable and resource-intensive processes, such as product servicing, call centers, and regulatory writing. Liberate trapped resources. Not all opportunities are created equally. Nor do all businesses, regions, or functions deserve the same level of resources. Yet too many organizations are reluctant to prioritize growth opportunities if it means neglecting others. But the uneven distribution of resources only hurts their chances at achieving category leadership. Winning players will continuously prune their portfolio, reallocating scarce resources to the activities that matter most. Five years from now, the industry will have a new set of leaders—namely, those that separated themselves from the pack during this period of uncertainty. These won’t be the companies that hunkered down and played it safe, assuming that incremental innovations and adjustments would be enough; these leaders will be the companies that took bold action, made step changes in innovation and productivity, and met customer needs in truly differentiated ways. And these category leaders could hold their positions for decades to come.

At a Glance

In the current period of uncertainty, medtech customers prefer suppliers that help address their toughest challenges to those that just offer the lowest prices.
Historically, medtech winners following downturns have been category leaders that strategically build scale in targeted segments vs. absolute scale.
Medtech companies can pursue category leadership by developing innovative value propositions, surgically cutting costs, and reallocating resources to mission-critical activities.

Since 2020, companies around the world have been struggling to clear constant hurdles, including the pandemic, supply chain shocks, geopolitical uncertainty in key markets, historic labor shortages, surging inflation, and more.

Conventional wisdom says that during periods of economic stress or uncertainty, customers trade down, gravitating toward lower-cost (and often lower-quality) products and inciting a race to the bottom.

And yet, in medical technology, the race to the bottom never kicked off. Instead, particularly during the peak pandemic years from 2020 to 2022, medtech customers launched a flight to quality for products and services. During the shock of Covid-19, they scrambled for security of supply, predictability, and sustained strategic relationships rather than zeroing in on price.

Even as the pandemic-induced clamor subsided, healthcare providers’ wants and needs endured. Today, they are asking for more from their medtech suppliers, not less. As they navigate ongoing uncertainty, they want suppliers to help address their toughest challenges around labor shortages, physician recruitment and retention, procedure volume, systems interoperability, clinical data, shifting sites of care, digital transformation, artificial intelligence (AI), and more.

Emerging from this time of turbulence, winners will be those that answered these calls from customers in new ways. They will step up their customer engagement and innovate in products, services, and commercial models. By working closely with providers to achieve better patient outcomes, higher clinician engagement, and improved financial performance, these industry leaders will further their market share and reap the rewards.

The category leadership imperative

Who is best positioned to come out of the current climate unscathed or, better yet, on top? We only need to look at previous downturns and periods of uncertainty to see what doesn’t work (see Figure 1).

In times of uncertainty, critical choices separate leaders from laggards

In a state of unease, companies often pause bold moves or focus on cost cutting. Sometimes, they make short-term decisions to hit earnings targets, but, as a casualty, impede their long-term growth.

Bain research shows that some medtech companies do the opposite—and that they are more likely to outperform their peers during and after times of turbulence. For instance, after the 2008 global financial crisis from 2010 to 2015, one set of companies grew at a 5% compound annual rate compared with zero growth among other medtech players. These winning firms are category leaders.

Category leaders are companies that seek to achieve leadership positions in the targeted segments in which they play. Given that the correlation between absolute scale and profitability in medtech is quite weak, these players strategically build scale in specific markets, developing products and services for a defined set of end users. Meanwhile, those that dilute their focus with multiple follower positions or businesses that aren’t sufficiently related to their core strategy typically struggle to sustain returns from innovation and meaningfully strengthen their customer relationships. As a result, category leaders tend to be more profitable than more distant followers.

Recent disruptions have only enhanced the value of category leadership. Bolstered with strong products and inventories as well as deep knowledge of their accounts, category leaders were uniquely positioned to continue serving their most strategic customers at the height of the pandemic. For example, when a customer struggled with short-staffed labs after Covid-19 hit, one medtech company knew the people, products, and services so well that it was able to stay on the ground, working directly in the labs to keep them open and running. Such above-and-beyond acts solidified customer loyalty.

Times of uncertainty also breed innovation, and those that move first are best positioned to become category leaders. Consider, for instance, how players such as Thermo Fisher, Abbott, and Siemens Healthineers quickly developed Covid-19 diagnostic tests, spurring new businesses to answer new needs. These pioneers are now looking to utilize the same capabilities to lead new markets, such as in-home diagnostics.

In the current environment, category leaders are capitalizing on their respective market scale and playing offense. They are creating ecosystems of connected products, commercializing their data and digital offerings, supporting customers in expanding to new sites of care, harnessing generative AI and machine learning for productivity, and, importantly, developing integrated value propositions for products and services to creatively solve customers’ biggest problems. Rather than pulling back, they are doubling down.

Are you a category leader?

To start, medtech companies need to understand their competitive position and value proposition. They can determine if they have meaningful category leadership by asking a few questions:

Are we defining categories simply by the products we manufacture? If so, how can we redefine them through the eyes of customers rather than engineers?
What is the breadth of our customers’ buying authority? How much influence do clinicians have vs. procurement leaders?
Do we have access to the most important customers—including academic medical centers, integrated delivery networks, and alternate sites of care—in each segment?
Does the given category overlap with other parts of our portfolio? Do our products logically fit in our sales representatives’ portfolios?
How do our competitors’ portfolios look? Do they compete in parts of the category that we do not?
What happens if we define the market differently? How does that affect our position?
How will the boundaries of this category change over time? How can we avoid taking a static view?

For current category leaders

Achieving category leadership is important, but it doesn’t guarantee reaching full potential. Even category leaders must continuously redefine the category, reinvest in their position, and remain dedicated to creating long-term customer value.

Embrace an insurgent mindset. Many organizations eventually fall victim to the growth paradox as defined in Bain’s The Founder’s Mentality: “Growth breeds complexity, and complexity is the silent killer of growth.”

Not all complexity, however, is harmful; it’s needed to expand products, customer segments, and geographies, creating tangible value. But often, as medtech companies scale, complexity goes unchecked, weakening customer focus, particularly on patients and clinicians.

To avoid falling victim to the growth paradox, companies can systematically trim non–value-added complexity. Only then can they capture the full benefits of their scale. There are several ways to get started:

Give commercial general managers ownership, and establish accountability at the category and customer levels.
Focus on geographic markets that support profitable growth, and exit those that can’t deliver sustained economic returns.
Retire unproductive SKUs, such as legacy product generations and nonstrategic SKUs that came with acquisitions, to lower costs and accelerate growth.
Integrate systems and standardize core functional processes, particularly following M&A.

Broaden the definition of innovation. Industry leaders—including Boston Scientific, Danaher, Stryker, and Thermo Fisher—have excelled through moves to maintain and grow their category leadership positions, define new businesses, and strategically meet customer needs. Some of that is achieved through organic product innovation, although inorganic innovation—for instance, through business development and M&A—is increasingly responsible for growth at scale.

M&A can help identify adjacent categories and round out capabilities. It can also grant access to emerging technologies, jump-starting leadership before a market is well established. Consider Boston Scientific acquiring BTG and Lumenis to reinforce leadership in interventional medicine and urology, respectively; Danaher acquiring antibody supplier Abcam to bolster innovation and discovery; or Stryker acquiring Mako in the nascent days of robotic surgery.

Across industries, we know that following times of uncertainty, the companies that come out on top have been those that pursued proactive M&A pipelines. There’s a scarcity of attractive assets today, so it’s important to move now.

Beyond M&A, customer engagement is critical to continued growth. Category leaders are deploying proprietary data as a product feature rather than a standalone revenue stream to bolster their products’ value proposition and encourage customer retention. They are also investing heavily to move beyond the R&D phase of generative AI and will soon deploy user-facing technologies that improve the customer experience and engagement.

Finally, tomorrow’s winners will find innovative ways to address rapidly changing customer needs. For instance, when hospitals couldn’t take on as many surgeries during Covid-19, Stryker worked to place Mako surgical robots in ambulatory surgery centers. Similarly, to address the shift in sites of care, Siemens Healthineers is partnering with major hospital systems to deliver not only imaging equipment but also a suite of related services, such as technology repair and imaging optimization.

For aspiring leaders

For companies without clear category leadership positions, the path to success looks a bit different.

Determine your unique value proposition. Companies can start by identifying where they have a clear “spike”—that is, a distinct, differentiating competitive advantage. It could be customer intimacy within a certain segment, a tech competency, or access to a particular channel. Without a spike, a company may find that its only source of differentiation is low pricing, which isn’t sustainable—particularly given customers’ flight to quality.

Vault your spike into category leadership. A differentiating spike serves as the point of departure on a long-term journey to category leadership. Aspiring leaders can articulate how their spike brings value and propels their business in a tangible way. They can frame their advantage as a category, rather than an individual offering, and build from there.

Refocus your portfolio. Future category leaders will start divesting and exiting products, geographies, and customer segments that distract from their unique spike. That’s not easy, but it critically supports further investment in their competitive advantage. The best will regularly revisit their investment posture and adjust accordingly.

For all medtech companies

No matter their category leadership status, all medtech companies should be investing and innovating throughout the turbulence.

Of course, the financial implications are more difficult right now. The pressures to make quarterly and annual goals don’t subside in the face of uncontrollable external shocks such as input cost inflation, labor shortages, or geopolitical disputes. But three themes can help executives pursue or advance category leadership despite challenging growth and margin expectations: They can lead with innovation, extract costs, and liberate trapped resources.

Lead with innovation. Innovation is always the best way to drive outsized returns. Category leaders stay committed to their R&D priorities, even in the face of near-term margin pressures. They also position themselves as the partner or acquirer of choice for emerging assets, especially in today’s AI revolution—staking a claim now can command a sustained competitive advantage. But beyond products and tech, winners will find innovative ways to engage and partner with customers, further differentiating their value proposition.

Extract costs. This is not about across-the-board cuts, which usually help in the short term but inflict damage in the long run. Leaders will home in on true complexity reduction by surgically cutting unproductive activities.

Industry leaders will also dive into generative AI–based productivity tools to streamline arduous tasks, cutting costs without cutting muscle. Many are finding that they can rapidly increase the efficiency of repeatable and resource-intensive processes, such as product servicing, call centers, and regulatory writing.

Liberate trapped resources. Not all opportunities are created equally. Nor do all businesses, regions, or functions deserve the same level of resources. Yet too many organizations are reluctant to prioritize growth opportunities if it means neglecting others. But the uneven distribution of resources only hurts their chances at achieving category leadership. Winning players will continuously prune their portfolio, reallocating scarce resources to the activities that matter most.

Five years from now, the industry will have a new set of leaders—namely, those that separated themselves from the pack during this period of uncertainty. These won’t be the companies that hunkered down and played it safe, assuming that incremental innovations and adjustments would be enough; these leaders will be the companies that took bold action, made step changes in innovation and productivity, and met customer needs in truly differentiated ways. And these category leaders could hold their positions for decades to come.