Recent changes in the US health care ecosystem are having a profound and transformational impact on the medical technology industry. The Affordable Care Act has catalyzed changes in how med tech customers define value and which stakeholders are involved in decision making. While it has historically been a jewel of American manufacturing—one of the few domestic manufacturing industries that is a net exporter—med tech faces challenges to the legacy business models and strategic choices that these companies have used to excel in the past. More than ever, success requires a clear and consistent focus on delivering differentiated value and performance to customers.
The bar for demonstrating differentiated clinical and economic value is rising. The new “value bar” forces med tech companies to rethink how they can effectively create a product portfolio that will meet this ever-increasing set of expectations. It is no longer sufficient to demonstrate marginal product benefits for new product launches.
The customer landscape is also transforming. Payers have become more stringent in their criteria for awarding coverage and reimbursement benefits. Physician practices are being acquired by large health care systems with varied provider models. These trends mean that a more diverse set of stakeholders are involved in the decision-making process for med tech products. Hence, med tech companies’ focus has shifted from selling to individual doctors to influencing a broader set of stakeholders to support product adoption.
To account for these new realities, med tech companies accustomed to exceptional performance will need to adjust their formulas for innovation and success. Their leaders will need to understand the universal elements that lead to exceptional performance for any business in any industry and tailor them to the med tech industry’s unique characteristics.
Exceptional performance comes from three rules
Med tech leaders make critical decisions that impact employees, shareholders, patients, and the overall health care system. Their industry is much more complex than many others, which makes decision making even more challenging. This makes it important to make choices based on proven principles that lead to exceptional performance.
Various research efforts have tried to provide data-driven answers and guidance for creating an effective framework for success. The Three Rules, a 2013 book by Michael Raynor and Mumtaz Ahmed, brings discipline to the field by identifying three rigorous, research-backed principles that guide exceptional companies. The three rules are:
- Better before cheaper: Rather than competing solely on price, companies achieve sustainable success by focusing on delivering differentiated value.
- Revenue before cost: The advantages of higher revenue are more valuable and durable than the advantages of lower cost.
- There are no other rules: While other pursuits are important and contribute to a company’s success, they are ultimately the most successful when they fully align with and reinforce the first two rules.
How can the three rules be applied to the strategic decisions required to succeed in med tech? From a foundational understanding of the three rules, we can move forward to understanding how to apply the three rules’ lens to med tech-specific issues and strategies.