Three years ago, BCG published the results of its landmark global benchmarking study that concluded that medical technology companies had been relying on an outdated commercial model, which we dubbed the “milkman” model.1 The industry’s high gross margins were masking unsustainably high costs and underdeveloped commercial skills. (See Still Deploying Milkmen in a Megastore World? Fixing the Medtech Commercial Model, BCG Focus, July 2013.) Recently, medtech leaders have asked us whether the industry has made progress in fixing the commercial model and where they should focus their business model innovation efforts.
In our comprehensive follow-up study, BCG surveyed 6,000 employees in commercial functions, conducted more than 100 interviews with senior leaders, and benchmarked financial and organization data for 100 medtech businesses (including 9 of the 10 largest companies) worldwide.
The results are remarkable. Overall, the industry has made little progress in remaking its commercial model and upgrading its skill levels. However, the companies that have acted on the recommendations of our original study are winning in the market and generating vastly superior shareholder returns. In fact, the latest benchmarking results show a bifurcation of companies. Some are breaking out of the pack, while others have not yet started and, thus, face an increasingly urgent need to change. In addition, the follow-up study identified promising opportunities for investing in innovative business models that focus on value-based health care, digitization, and lower costs. Global health care systems are struggling with highly variable patient outcomes and costs that are out of control. We believe that medtech is uniquely positioned to add substantial value by helping providers address these challenges.
Our first study highlighted a number of trends-including downward pressure on prices and drastic changes in buying processes-that were squeezing medtech companies’ gross margins. In the years since, these trends have strengthened. Power continues to shift from clinical buyers such as individual physicians to institutional decision makers at standalone hospitals, centralized bodies and committees in large hospital systems and buying groups, and regional and national government agencies and private payers that control access to an entire market.
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