An Industry in Full Disruption: How Digitization is Transforming MedTech

Digitization’s Impact: A Breaking Wave

Digitization has come (relatively) late to the medical devices industry, but it is now here. Building since the beginning of the last decade, breaking through with the crisis of COVID, the ‘resultant vector’ of disruption will accelerate as we move deeper into the 2020s.

The ultimate imperative is to have a leadership team in place that can leverage innovative technologies within the context of a broader strategic vision. Those stewarding medtech companies will thus have to (often radically) rethink their approach not just to technology, but to their business models, talent, and transformation of mission and culture.

Digitization will inexorably separate medtech companies into ‘winners’ (those able to transform themselves internally to differentiate their offerings in a dramatically expanded market as they have the opportunity to become market places with a suite of devices and a number of indication areas) and those companies falling behind (who will either be acquired or forced into transactional portions of the value chain).

The key differentiator between market leaders and also-rans will be visionary technology-savvy leaders that are able to navigate a rapidly evolving market landscape. They will understand the organization’s role in a shifting ecosystem that features new competitors, new stakeholders, and entirely new possibilities for connected health care, particularly vis-à-vis reengineering the experience of patients and leveraging their data to build stronger partnerships with patients, payors and providers (figure 1).

Figure 1: The migration of the medtech enterprise

A Burning Platform for Industry Incumbents

The current market players are at a stark crossroads where survival will mean adapting to an industry whose accelerating velocity increasingly resembles that of the technology sector. Medtech CEOs are publicly committing to being among the first to complete this digital transformation – showing that they’re putting enough force behind it.

The window of time for companies to make this transformation is closing; those legacy players that simply attempt to consolidate existing profit pools will be swamped by more tech-savvy competitors.

The current ‘core’ medical technology industry as of 2020/2021 has an estimated sales size of $400 billion (figure 2). By 2030 the market is projected to double in size, along with all-but-inevitable new market entrants. Many of these new market entrants will help the ‘core’ medtech companies transform successfully, even further differentiating the winners and fueling the war for talent.

Spurred by these ongoing disruptions, the flourishing companies will be those agile enough to navigate increasingly turbulent markets via five key capabilities:

01. Tapping into an Expanding and Evolving Ecosystem

02. Shifting to a Connected-Health Model

03. The War for (Technology) Talent

04. Flexible ‘Buy, Build or Partner’ Strategy

05. Digital Leadership: An Urgent C-suite Priority

Figure 2: Projected growth of the medtech landscape

Tapping into an Expanding and Evolving Ecosystem

The medtech landscape is changing around four themes:

Digital: There is a need for interconnectivity to become a digitally enabled organization as well as to enhance the enterprise through the increasing use of data; Organizations are moving from backbone infrastructure to using AI, data, analytics to influence the direction of treatment.

Patient experience: Organizations need to understand how data relates to better patient care as patients are becoming more sophisticated and there is an increase in focus on connectivity between health care providers and patients. There is a need to develop IT solutions to allow for this personalized level of care. Medtech organizations own the patient workflow and shift from a hospital to a consumer orientation. Brand value will become increasingly important as patients interact directly with an organization’s digital platform.

Home care and hospitals: Where healthcare will occur is changing:

Treatment is moving into the home expanding patient pools through continuous care, wearables, and connected devices.

The hospital footprint is moving away from chronic care to a more acute setting. There is a need to integrate products into hospital systems to improve care.

Data monetization: Companies see an increased demand from the healthcare market to demonstrate clinical value with analytics and there is a desire from organizations to own and generate patient care data.

As the capabilities of the leading players in the medtech industry expand, they will transform their relationships with key stakeholders (figure 3), with opportunities increasing in tandem with expectations.

Working with these stakeholders allows for synergistic learnings across relationships and channels. Companies that can leverage data for predictive/analytic capabilities are poised to identify value-add opportunities across their entire range of strategic partnerships. This begins with the critical step of improving patient outcomes/adherence to drive value to patients themselves as well as the health care providers that serve them.

Direct interface with patients constitutes both a special opportunity and a special problem: On the one hand, it allows for leveraging of vital data flow along the value chain, but it also places pressure on medtech providers to provide value directly to patients through a B2C framework for which they must fast-cycle specialized software development and service.

Figure 3: Expansion of organizational capabilities in relation to key stakeholders

Shifting to a Connected-Health Model

Technological capabilities have reached a critical mass on multiple fronts, bringing a competitive advantage to any medtech company that can effectively harness the data with a focus on data interoperability as well as successful AI/ML platforms.

To date, most of the hype around digital has focused on AI/ML platforms that operate in siloes, which very few companies have successfully built at scale. In addition, organizations have traditionally underinvested in their data foundation (data governance, quality, interoperability, etc.).

While key market players have become adept at the ‘legacy’ model of creating hardware and software products, many leadership teams will experience difficulty with the change management that is required to migrate to a frictionless digital business platform, accelerate products’ time to market, and build deep engagement across customers and business partners.

This is especially true since a robust technology strategy involves integrating three key elements: (1) transforming patient experiences and improving patient outcomes to (2) access vast arrays of patient data that can then (3) be leveraged by AI/machine intelligence/algorithms to provide ‘virtuous circle’ feedback loops to add value to relationships across the entire expanded ecosystem. 

The War for (Technology) Talent

Legacy medtech companies face the classic ‘how to build the plane while it’s taking off’ problem. The central element in any such solution is a transformed talent management strategy, usually placing a premium on external hires, particularly those with technology skills.

Coming out of the pandemic, the market for technology talent is very frothy. Strong digital leaders receive daily outreach from recruiters. A key to attracting technology leaders is a public stance and commitment to the digital transformation of the business—not just of the organization’s technology leadership. In addition, it is imperative to take advantage of the digital grounds in your own company and identify talent that can quickly take up these new technologies, business models, and engagements.

Technology talent will look for organizations where their talent, insight, and background are valued and recognized (figure 4). In order to retain technology talent, organizations need to provide this recognition as well as exciting career options.

Although technology talent may be recruited, they can only be retained if they feel part of an enterprise that reflects their own values and visions. Technology leaders should be empowered to have an instrumental role as culture changers within the organization. In addition, both the executive committee and the broader C-suite need to demonstrate a full commitment—internally and externally— that they are willing to change the organization’s culture.

The question for medtech companies is therefore how to prepare a landing ground for new hires that either provides them with the organizational culture they’re seeking or allows them to participate in its creation to drive talent retention and engagement.

Figure 4: Mismatch between legacy medtech companies and digital talent

A Flexible ‘Buy, Build, or Partner’ Strategy

Even the most agile medtech company is unlikely to achieve its ambitions solely through organic growth; there are good reasons why M&A activity in this sector is now approaching frenzied levels.

Such M&A deals aren’t just about the formal IP, they’re about the talent, as acquiring that talent within its own natural ecosystem is sometimes the only way to harness its full value.

The optimal strategy for many companies is likely to be a hybrid model of in-house incubators and external acquisitions, either integrated or held at arm’s length from the legacy enterprise (figure 5).

However, it’s not just black or white with regards to organic and inorganic growth. It is equally important to build an effective ecosystem that surrounds the company. The edges of the company boundaries fluctuate and are becoming grayer as the number of partners of the organization expands. Key to the strategy here is OpenAPI that will allow your ecosystem to add services on the platforms for better customer engagement and satisfaction.

Indeed, many companies are opting for an explicit ‘two-track’ model whereby the core and the frontier businesses are managed under different sets of expectations, in particular with regards to speed-to-market.

Figure 5: Hybrid strategy for digital transformation in medtech

Digital Leadership: An Urgent C-suite Priority

All of these factors—the technology, the talent needed to steer that technology, the reengineered relationships with patients, the more expansive approach to the market ecosystem—will depend on the caliber of the leadership stewarding this transition.

Successful leadership teams will be those able to ask hard questions regarding their own capabilities: for many such teams, the key insight they will bring to this industry disruption is the recognition that they don’t have the entirety of the expertise required; this may be particularly true at the board level, which might need to diversify its knowledge base and actively seek out the ‘digital native’ perspective in its deliberations.

In the intensifying scramble for leadership talent, fast-cycling of succession planning/ finding ‘force multiplier’ internal moves will be vital, but most companies will also have to aggressively go external to seed their leadership with hires directly from (adjacent or otherwise) technology sectors.

Organizations will need talent that is willing and able to challenge the organization with the ability to break some glass to change the organizational mindset and culture. One individual will not be able to lead the transition alone – it needs to be a broad-based organizational reckoning and passion instilled from the top and driven by the board and C-suite.

Questions for the Board/C-suite

• Do we have a digitally-savvy leadership team to support our digital agenda?
• Do we have capabilities at the C-suite level and within the board to steer the enterprise through the next industry transition into new business models?
• If not, how do we get those capabilities?
• How do we organize ourselves around our digital agenda?
• How do we scale our many digital initiatives or ‘1000 flowers blooming’?
• How do we leverage the groundswell in our organization?
• Do we need more digitally-savvy board directors?
• Do we need a chief digital/technology officer?
• How do we become a magnet for digital talent?
• Are our next generation of leaders ‘digitally conversant’?
• How do we take advantage of the fact that the next generation of leaders have grown up in a completely digital world?
• Do we have the feedback loops and a mindset in place to ensure the organization doesn’t ‘tune out’ (and force out) new hires who get it?
• To what extent are we hardwiring comfort with ambiguity into ongoing leadership development programs?

Authors

Wolfgang Bauriedel is a senior member of Russell Reynolds Associates’ Technology sector. He is based in Boston.
David Krahe is a senior member of Russell Reynolds Associates’ Medical Devices and Diagnostics practice. He is based in Dallas.
Sarah Flören is a member of Russell Reynolds Associates’ Healthcare sector. She is based in Amsterdam.