Medtech Industry Must Change its Business Model to Survive and Thrive

By November 28, 2013
medtech companies

The medical technology industry was for several decades at the forefront of innovation, but it now needs to re-assess itself and find new ways to innovate in the new healthcare environment.

In a healthcare ecosystem which today rewards innovative service models based on delivering better care at lower cost across a broad patient population, the very concept of innovation needs a re-think. A report from the Health Research Institute of multinational professional services firm PwC, entitled ‘Medtech companies prepare for an innovation makeover’, reveals that profit margins in the sector are shrinking, while at the same time it is becoming increasingly difficult to satisfy customers through innovation. In fact 64% of the executives from medical technology companies surveyed for the report said they saw innovation as a competitive necessity today, while 81% were expecting a new innovation cycle to emerge within five years. New competitors are raising the stakes as well: at least 18 new companies have entered the Medtech space in the United States over the past year.


Value no longer purely linked to the device


The report’s authors stress that merely “adding nifty features to existing products is not enough to warrant a price increase.” They argue that Medtech companies ought to be focusing more on service and business model innovations that meet new industry demands, rather than betting on incremental product improvements. The Medtech executives polled were almost twice as likely as executives across all industries to say that product innovation was their top priority in the coming year (46% compared to 29%), while only 8% said that business model innovation was next year’s priority. The problem could be one of scale in a market that is worth an estimated $349 billion worldwide. The fact is that traditional companies have been slow to invest in social and mobile technologies, to make use of analytics technology and take advantage of the Cloud. Only 14% of the Medtech executives surveyed said that they currently coordinate innovation processes for maximum efficiency.


Wanted: the right partners and innovation measurement systems


Medical sector companies will have to create an “innovation operating model that separates breakthrough and radical innovation from the incremental innovation necessary to support the core business,” states the report. To do so, they will need to collaborate with other industries so as to obtain a 360° view of the patient, integrate into the broader health ecosystem and develop new payment models. Medtech companies need to make these moves urgently, but it will not be easy, warn the authors. Sector executives admit that it is hard to find the right partners with whom they can collaborate and currently only a third of all products and services are the result of co-creation with customers or external partners. Moreover, if these companies want to understand the new innovation parameters and share their insights with all stakeholders, they will need to measure innovation in new ways – i.e. using forward-looking metrics capable of demonstrating to shareholders the changing role and nature of innovation in this field, says the PwC HRI report.

Legal mentions © L’Atelier BNP Paribas