By Vera Franz and Mark Dennehey
The interlocking forces of innovation, product design, time-to-market, cost-cutting, and competition in the medical device sector have prompted companies to examine their development, manufacturing, sourcing, and other processes.
In a recent survey of senior executives and representatives from medical device and pharmaceutical companies in Europe and the United States, the PA Consulting Group—an independent firm with expertise in healthcare and life sciences, among other sectors—reviewed what the critical factors for success are today when developing innovative and compliant products faster and at lower cost.
The survey also analyzed what participants felt were the barriers to reducing time-to-market and cost-to-market activities, including identifying how their company currently views these issues, what changes they might plan to improve their processes, and how they view their competitors.
Survey participants represented both medical device/technology companies and pharmaceutical companies with a medical device division. Medical device products included class I, class IIA, class IIB and class III. More than half of those surveyed netted revenues of greater than $5 billion, with the remainder evenly divided at less than $250 million, $250 million to $1 billion and $1 billion to $5 billion.
When asked to prioritize their top concerns in product development, the highest rankings were given to product innovation (66%), reducing time-to-market (56%), and efficient product development (44%). In many cases, the desire to develop more innovative medical devices was seen as a need to offer more user-friendly applications, integrate multiple features, and yield higher patient safety and survival rates.
Those surveyed identified two strategies to achieve such product innovation and efficient product development: improving the reuse of technology and following stricter competency-based sourcing methods. These approaches were seen as reducing both time-to-market and cost-to-market. Moreover, any increased efficiency in product development was viewed as yielding a decrease in product costs and an uptick in profitability.
A third approach highlighted during the survey was to take an integrated solution, thus underscoring the vital role that collaborating with another company can provide for product innovation. Case in point: French healthcare company Sanofi is partnering with Google to develop small, connected medical devices that continuously collect diabetes-related data as a way to find new treatments. This effort achieves the goal of innovation and efficiently lowering product development costs through collaboration.
With an eye to reducing time-to-market over the next five years by, on average, 25%, survey participants had ambitious goals. Nonetheless, few have made much progress to achieve their goals.
Furthermore, participants agreed that maintaining competitive in the marketplace is a key reason for reducing time-to-market. In fact, two-thirds of those surveyed said that the greatest benefit a time reduction would yield is defending their market position. Additional benefits are the ability to respond quickly to market demands and to attract new customers.
Deconstructing the Data
On the other side of the ledger, increasing profits is another key benefit of reducing cost-to-market. An overwhelming number of respondents—81%—said that reducing cost-to-market would most benefit their company by generating a greater profit margin. By similarly focusing on how to increase competitive advantages and produce higher revenue, participants indicated that lowering product costs trumps long-term goals, such as attracting new customers or entering new markets.
To lower costs, companies may consider efficiency-minded programs to enhance their financial market position and achieve savings. Another strategy to reduce time- and cost-to-market is to effectively reuse technology. These steps include standardization of parts and systems, as well as reusing components to reduce the regulatory and validation processes.
What’s more, respondents indicated that a major hurdle affecting the time-to-market and the cost-to-market was internally based. More than half of those surveyed identified shifts in their companies’ priorities, plus changes in product requirements or unclear product requirements, as significantly impacting product development processes.
To a large extent, participants reported that they are engaged in a high number of activities that are pursued in-house and outsourced. For the most part, there is little distinction between the efforts conducted purely by colleagues or purely by suppliers in what is known as “mixed activities.” This suggests that companies are not focusing on their core competencies and are managing suppliers of varying levels of service and knowledge.
A focus on core competencies in product innovation and development, marketing, and sales within the company—coupled with outsourcing of other processes—would reduce the overall level of mixed activities and drive down the time and cost of product development. Some of the activities that are most often outsourced are manufacturing, medical/clinical research, human factors, and prototyping.
Surprisingly, most participants rated their development capabilities rather low (2.5-3.5) on a scale of 1 to 6. Moreover, they rated their competitors consistently higher than their own current status and even their projected future state.
This suggests that achieving the goals of reducing time and cost may not be solely achieved by internal improvements, but also by implementing a corporate acquisition strategy and by facilitating closer collaboration with suppliers and partners.
Overall, respondents seemed to be aware of the gap between their companies’ own capabilities and that of their competitors—and further recognized that both lack best practices. The delay in adoption of best practices in outsourcing, as well as management’s need to better communicate goals, are among the issues that need to be addressed to reduce time-to-market and cost-to-market.
Other best practices, which were not extensively analyzed in the report, include modularization, knowledge management, open innovation, and design-to-cost—all of which are key drivers to reduce time- and cost-to-market.
Companies that wish to improve product development, significantly lower their time-to-market and cost-to-market, and foster the most innovative and compliant products should pursue the multi-pronged approach detailed below:
- Evaluate core competencies, set clear targets, and prioritize these as a business strategy.
- Review the sourcing and collaboration strategy for all other activities, as well as manage suppliers and partners consistently to ensure strong performance.
- Promote smart innovation by designing devices that decision-makers will deem innovative in a future setting.
- Implement a modularized and integrated product development process, including early compliance and risk evaluation.
- Instill a culture that focuses on time, cost, and innovation; measure these elements, reuse technology, and allow room for employees to innovate.
Taken together, these strategies would elevate the product development process and permit companies to best exert their core competencies. Similarly, responsibly managed outsourced services would have the combined effect of reducing time-to-market and cost-to-market, while generating a competitive advantage and increased profitability.
Vera Franz and Mark Dennehey are executives at the PA Consulting Group, an independent consulting firm with offices around the world. For more information, contact chief editor Keri Forsythe-Stephens at [email protected].