It is always good to learn from other industries.
In a study from PricewaterhouseCoopers (PWC), a project team from Stanley Black & Decker (SB&D), was recognized as a “high-leverage innovator,” a company that outpaced other industry members in terms of financial success while downsizing spend on R&D.
The R&D team at SB&D was in the field performing observational research and detected a pain point when watching contractors use SB&D products. Some tools required higher voltage than commonly used hand tools. The go-around for contractors was to use other forms of power generation, but that solution was awkward, loud and time-consuming at best, and high risk in the worst case. The observational research led to the development of the DeWalt platform of FlexVolt cordless tools and battery packs. The DeWalt FlexVolt has been rewarded in the best way possible - professional contractors have voted with their dollars and sales have gone up by $300 M since 2016.
It wasn’t as easy as designing all cordless tools with a common voltage. The installed base of higher voltage tools was well-established and contractors didn’t like the high switching cost to the FlexVolt system. In response, the R&D team utilized new technologies being developed for the motor-battery interface so that the FlexVolt system identifies the voltage of the tool and switches to it. This single-battery platform meets all the unmet needs of the contractors and creates a new platform for the FlexVolt next generation.
Medtech companies have constraints that SB&D does not have for fast leap-frog innovation like regulatory, reimbursement, etc. However, the authors cite SB&D’s unswerving focus on the development of market leading tools, all while using its R&D budgets more cost-effectively than its competitors.
Who are the Medtech “High-Leverage Innovators” and what do they spend on R&D?
List includes some bio/pharma that specialize in drug delivery
|
Company Name |
Industry |
Country |
Revenue |
R&D spend |
R&D spend as a % of revenue |
|---|---|---|---|---|---|
|
Medtronic |
Healthcare |
Ireland |
$29.7 |
$2.2 |
7.4% |
|
Thermo Fisher Scientific |
Healthcare |
United States |
$18.3 |
$0.8 |
4.1% |
|
Mylan |
Healthcare |
United States |
$11.1 |
$0.8 |
7.5% |
|
Essilor |
Healthcare |
France |
$7.5 |
$0.2 |
3.0% |
|
Grifols |
Healthcare |
Spain |
$4.3 |
$0.2 |
4.9% |
|
Hologic |
Healthcare |
United States |
$2.8 |
$0.2 |
8.4% |
|
Lupin |
Healthcare |
India |
$2.7 |
$0.4 |
13.2% |
|
ResMed |
Healthcare |
United States |
$1.8 |
$0.1 |
6.5% |
|
Sysmex |
Healthcare |
Japan |
$2.2 |
$0.1 |
6.2% |
How much R&D Spend?
The PWC report stated that the R&D spend among all industries (not just medtech) they identified as the “Global Innovation 1000” rose in 2018 by 11.4%, to a collective $782 B. PWC went further, separating out the most highly innovative corporations. The results? The 88 organizations that judged most innovative saw sales increase by 2.6 times more than their industry peers in the Global Innovation 1000. These innovators saw their market capitalization increase by 2.9 more while their R&D expenditures (as a percent of sales) was significantly lower than the median seen by other companies in their respective industries.
Medtech must innovate to survive
PWC forecasted in 2017 that healthcare would probably achieve the largest increase in R&D spend in 2018. Substantial increases in R&D spend in computing and electronics kept these industries at the top of the list, with healthcare continuing to grow at a steady pace. R&D spend in healthcare has grown from ~$90B in 2005 to a projected $182 B in 2020, a CAGR of 4.8%.
What do these healthcare innovator companies do?
The PWC analysis shows that top innovator organizations have six critical qualities.
Innovation strategy is closely integrated with business strategy.
The organization’s culture embraces innovation.
Leadership walks, talks and rewards innovation.
Innovation comes from an unswerving attention to insights from product consumers.
Project choice is strictly controlled at the beginning of the innovation process.
These organizations superbly manage the first five qualities above and have made them generate exceptional customer experiences that can disrupt their markets.
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Medtech price sensitivity analysis
M&A third party analysis
References
1. https://www.strategy-business.com/feature/What-the-Top-Innovators-Get-Right?gko=e7cf9
Medical Vector Image created by Olga_spb, from Freepik.com