It is a well-known fact that innovation is the true lifeblood of a medical device company. In an industry where approximately 80 percent of revenue for a medical device company comes from products introduced in the last five years, strategic growth requires continuous and efficient innovation.
Given the current challenging economic environment, uncertainty, and pressure around reimbursement guidelines and the impact of healthcare reform on device manufacturers in the U.S., medical device companies in developed nations are faced with a slowdown in innovation that makes the establishment of alternate methods of innovation an urgent necessity.
Cutting edge medical technology has traditionally been housed within developed nations. However, these nations no longer hold a monopoly on the infrastructure, human talent, tools, and resources required for the innovative design of medical technology. Also, the pain points that are more apparent in the emerging markets are not so clearly apparent in American- and European-based companies.
Infosys has long believed in the concept of a “Flat World” and that the expansion of computer and Internet technology has created a platform where intellectual work and capital can be delivered from anywhere.
Today, the traditional model of innovation that is used by several device manufacturers constitutes a central innovation hub (in the U.S. or Western Europe) that works with “outposts” in different geographies that operate as points of “glocalization” (tweaking centrally developed devices to be used in the local market) as directed by the central, controlling hub.
In the Flat World, we believe that the new model of global innovation envisions true innovation hubs distributed globally—a master innovation hub with spokes to multiple innovation hubs. Innovation hubs use the same core capabilities and concepts to innovate products and services for the markets in which they are located and are expected to contribute to the larger mission of the company.
Infosys believes that countries with “emerging markets,” such as the BRIC (Brazil, Russia, India, and China) countries, have tremendous potential to form these innovation hubs that go beyond glocalization and, most importantly, also be a source of significant market expansion for medical device manufacturers.
We have had several conversations with our clients on how to take advantage of these opportunities in emerging markets and form true innovation hubs. We believe that there are three significant challenges that medical device manufacturers will need to cope with in this endeavor:
- Building growth momentum
- Innovation for emerging markets
- Creating resource networks with an aim of lowering R&D cost
First, companies must establish large operations to achieve rapid growth. The patience of emerging markets to allow a gradual evolution over, say a decade, is very thin. Unless you grow fast, you become irrelevant very soon. This has significant implications on how these hubs are managed, the authority they have to make decisions, and, most importantly, the type of leadership that is chosen to lead these centers.
Second, innovation for emerging markets must go beyond mere glocalization. Companies need to innovate for emerging countries and their specific needs, including, but not limited to, lower price points.
Third, companies will have to strive very hard to create resource networks so that they can acquire the resources needed to build these innovation hubs. This is not easy for companies in a new territory where they lack brand recognition and the local knowledge for attracting and retaining talent. This also extends to even understanding the basic business environment like labor laws, tax laws, environmental standards, and regulatory norms.
An additional fundamental concept that needs to be understood is that most medical technology businesses in developed countries operate with business-to-business or business-to-consumer models. In emerging markets, a business-to-government model is often the most important because the government is usually the largest buyer of medical technology. Medical technology companies need to be clued into the larger aspirations that governments have with respect to rapidly developing their healthcare policy, workforce, payment models, and infrastructure.
An efficient way to cope with these challenges is to start by establishing innovation hubs with partners in emerging countries. Partnerships enhance a company’s R&D operations by effectively multiplying its expertise. Added multidisciplinary expertise allows a company to leverage the best practices of other industries to foster innovation.
In summary, medical device companies need take a Flat World view of their R&D and innovation efforts by leveraging the vast talent pool in emerging economies. The trick lies in not using these geographies as simply a cost arbitrage play to cater to a developed world-centric view, but more as true innovation hubs that can open up emerging markets as channels of revenue as well as reverse innovation that feeds into products being created for the developed world. It is also prudent to work with a partner that can help traverse the institutional voids that exist in these geographies.
It’s a brave new world out there and companies that are willing to flatten their innovation by using the expertise of markets where growth potential is greatest will be at a distinct advantage in this global marketplace.