www.pwc.

com

Operating performance in
the Medtech industry: Trends
andimperatives
October 2012

PwC

With an era of high growth and profitability in the Medtech industry having given way to slower growth and flat profits,
operating performance is becoming a critical driver of shareholder value for Medtech companies. This report describes PwCs
Operating Performance Index for the Medtech industry, uses it to analyze trends in operating performance for the industry
and its various segments, and explains how this approach can help Medtech companies identify which levers to pull to improve
their operating performance.
The medical technology industry faces challenges on
many fronts. A sluggish economy and continued economic
uncertainty have depressed demand for medical procedures
and medical products. Increasing emphasis on healthcare cost
containment, as well as the effects of healthcare reform in
the United States, are raising questions about the overuse of
medical technology and putting downward pressure on prices.
Greater pressure to demonstrate clinical effectiveness and costeffective outcomes is raising the bar on medical innovation.
Increasing regulatory approval requirements and scrutiny are
contributing to higher uncertainty and cost of developing new
products. In the United States, a new medical device excise
tax is expected to have a significant financial impact on device
manufacturers.
All these factors have combined to introduce uncertainty and
shifts in the Medtech industry and its ecosystem. High growth
and profitability have given way to slower growth and flat
profits, and total shareholder returns for Medtech companies
have been declining over the last few years. It appears that
the industry is transitioning from the growth stage to a more
mature stage of its life cycle. In this environment, Medtech
companies must consider a fresh approach to creating
shareholder value.
Although there are many drivers of shareholder value,
operational excellence is a critical one in maturing industries.
PwC has therefore created an Operating Performance Index
(OPI) to better understand industry trends and identify
operational levers that Medtech companies can pull to improve
shareholder returns (see Sidebar 1 for details of the index).
The OPI incorporates several key operational drivers that
can be analyzed using publicly reported data. Drawing on
such data, we have analyzed the performance of 56 global
Medtech companies over the period 20052011.1 Our analysis
offers insight into performance trends in the overall Medtech
industry, in key industry segments (both over time and
comparing segments with one another), and among individual
companies. In particular, it elucidates:
Differences among segments in this diverse industry;
Benchmarks and peer-performance measures for individual
companies to compare their performance with others and
set high-impact improvement targets;
Unused or underutilized opportunities for improving
operating performance and driving shareholder value.

Sidebar 1: PwCs Operating Performance Index (OPI)

PwCs Operating Performance Index (OPI) for the Medtech
industry is a weighted composite of three primary and seven
secondary metrics for operating performance. These metrics,
drawn from publicly reported data, represent key operational
drivers of total shareholder return. We evaluated several metrics
often considered to be key indicators of operational performance
and ran a series of multivariate regressions to determine the
correlation of each candidate metric with total shareholder return.
The metrics selected for the OPI were chosen to cover different
areas of a firms business operations and were weighted based
on the strength of these correlations. The metrics were defined
such that high values correspond with high levels of operating
performance.
The components of OPI and their definitions are:
OPI Metric
Primary
Metrics

Secondary
Metrics

Description

Revenue Growth Rate Annual Revenue Growth

Rate
Operating Profit

Last Twelve Month

EBITDA Margin

Invested Capital
Productivity

Return on Invested
Capital

Asset Productivity

Revenue / Property, Plant

& Equipment

Labor Productivity

Revenue / Employee

Gross Margin

(Revenue Cost of Goods

Sold) / Revenue

SG&A Effectiveness

Revenue / Selling,
General & Administrative
Expense

Inventory
Management

Inventory Turns

Working Capital
Productivity

Return on Working Capital

R&D Impact

Annual Revenue Growth

Rate / (R&D/Revenue)

Using data from a population of 56 leading public companies in

the global Medtech industry, the OPI compares the performance
of a company with the population on a scale of 0 to 100. This
enables analysis of the Medtech industry as a whole, of particular
segments of the industry, and of individual Medtech companies
along the following dimensions:
Industry performance over time
Segment trends over time
Segment performance relative to other segments
Company performance over time
Company performance relative to peers

1 Source: S&P Capital IQ, PwC analysis

Operating performance in the Medtech industry: Trends and imperatives

On most dimensions measured by PwCs OPI, operating

performance in the Medtech industry has held relatively
steady over the period 20052011 (Exhibit 1 shows the
annual trend for each OPI element over this period). However,
there is notable change in some OPI elements. For example,
revenue growth rates have been declining significantlyat
a rate of approximately 12% per year. Average growth rates
dipped into single digits during the recession and, as of 2011,
revenue growth has failed to return to pre-recession levels
(see Exhibit 2). PwCs analysis also shows that revenue growth
rates among industry leaders and laggards are converging as
growth rates slow overall. Although revenue growth rates have
been declining, our analysis shows that Medtech companies
have maintained R&D investment at fairly steady levels as
a percentage of revenue. This has resulted in a significantly
declining trend in R&D impact, at a rate of 10% per year
(seeExhibit 1).
Although top-line growth has been slowing, the industry has
managed to achieve modest gains in operating profitability
over the last seven years (with the trend in operating profit
showing improvement at an average annual rate of 2%). This
suggests that Medtech companies are working to manage
costs and continuing to become more efficient. One area of
operating performance in which the industry demonstrated
significant improvement in 20052011 is labor productivity,
as revenue/employee increased at an average annual rate of
8%. Asset productivity has shown modest gains, reflecting an
increased focus on efficiency. Gross margins in the industry
have remained essentially flat. This indicates that companies
have been able to reduce their cost of goods sold (COGS)
to maintain gross margins amid the pricing pressures of
recent years. In other elements of OPI, however, industry
performance has shown a slightly declining trend. These
elements include invested capital productivity; selling, general
& administrative expense (SG&A) effectiveness; inventory
management; and working capital productivity. As industry
growth rates slow, these areas represent opportunities for
improving cost structures and operating performance.

Exhibit 1: Industrywide Trends in Operating Performance,

20052011

OPI Element

Annual Trend Relative to

2005 Baseline

Revenue growth rate

-12%

Operating profit

2%

Invested capital productivity

-2%

Asset productivity

2%

Labor productivity

8%

Gross margin

1%

SG&A effectiveness

-1%

Inventory management

-1%

Working capital productivity

-1%

R&D impact

-10%

Exhibit 2: Revenue Growth Rates, 20052011

70%
Annual revenue growth rate

Key industry findings

60%
50%
40%
30%
20%
10%
0%
-10%

2005
Top 10

2006

2007
Average

2008

2009

Bottom 10

2010

2011

PwC

Key findings about industry segments

Sidebar 2: Segmenting the Medtech industry

PwCs OPI shows wide variations in operating performance

trends among Medtech industry segments over the period we
have examined. (See Sidebar 2 for segmentation methodology
and definitions). As shown in Exhibit 3, the highest-performing
segments currently are in vitro diagnostics (IVD), implantable
devices, and diversified life sciences. The implantable devices
segment was the clear leader in 2005 but has been declining
gradually since then and has lost its edge over other industry
segments. The IVD segment, on the other hand, has steadily
improved to become the leading segment. Diversified life
sciences, meanwhile, has remained fairly stable. Operating
performance in medical consumables had begun to decline
even prior to the recession but has since regained lost ground.
Medical equipment, which was achieving stable operating
performance prior to the recession, suffered the sharpest drop
of any segment during the recession, but has since rebounded.

The Medtech industry is highly diverse and can be segmented in

various ways for different purposes. For example, segmentation
by disease states and intended use of medical products is useful
when looking at commercial markets and top-line opportunities.
However, segmentation based on the characteristics of products
and associated business operations yields greater insight into cost
structure and bottom-line performance, as companies making
similar products face similar operating and regulatory challenges.
When thinking about the industry from an operating perspective,
we find it useful to segment it in the following way:

Exhibit 3: Medtech Segment OPI Scores, 20052011

Segment OPI Scores

75
65
55
45
35
25
15

2005

2006

2007

2008

2009

2010

In Vitro Diagnostics

Medical Consumables

Medical Equipment

Implantable Devices

Diversified Life Sciences

2011

In vitro diagnostics (IVD): Products used to diagnose or

monitor medical conditions via non-imaging technologies.
These products typically include a combination of low-volume
equipment (software-enabled electromechanical instruments,
sometimes with fluid-handling capabilities and various
detection technologies) and high-volume single-use reagents.
Medical consumables: Single-use, disposable medical devices
such as general medical and surgical supplies, hospital
consumables, catheters, and wound care products. These
products tend to have relatively low regulatory requirements,
high-volume manufacturing, and low gross margins.
Medical equipment: Reusable equipment used for diagnosis,
monitoring, or treatment of medical conditions (e.g.,
medication delivery, patient monitoring, sterilization, hospital/
OR instruments and furniture, and imaging technologies
such as MRI and CT scans). These products typically include a
significant electronics component. They may be coupled with
software, complex fluidics, mechanics, biochemical sensors,
and/or radiation sources. Regulatory hurdles vary from quite
high (e.g., for oncology treatment) to relatively low (e.g., for
hospital beds).
Implantable devices: Products used to treat various medical
conditions via implantation in the human body (e.g.,
orthopedic implants, spine implants, stents, pacemakers, and
ICDs). These products are the most highly regulated of any
Medtech products and typically have high gross margins. Their
manufacture often requires special materials and is laborintensive and complex.
Diversified life sciences: Large companies offering a diversified
set of medical products including biopharmaceuticals, medical
devices and diagnostics, and drug-device combination
products.
Companies often make a variety of products within the healthcare
industry. In most such cases, we assigned a company to a
segment based on the product category from which it gets the
most revenue. We also categorized as diversified life sciences
a handful of companies that could not be classified on the basis
of one dominant source of revenue. Owing to lack of publicly
reported data, we excluded from our analysis non-public
companies (i.e., privately held or owned by private equity
firms) and the Medtech business units of conglomerates that are
diversified well beyond life sciences.

Operating performance in the Medtech industry: Trends and imperatives

Medtech Industry Segments and Companies Analyzed

In Vitro Diagnostics

Medical Consumables

Medical Equipment

Implantable Devices

Diversified
LifeSciences

Alere, Inc.

Becton, Dickinson
andCo.

CareFusion Corp.

Biomet, Inc.

Abbott Laboratories

BioMerieux S.A.

Coloplast A/S

Carl Zeiss Meditec AG

Boston Scientific Corp.

Allergan, Inc.

Gen-Probe, Inc.

CR Bard, Inc.

Conmed

Edwards
LifesciencesCorp.

Baxter International, Inc.

Illumina, Inc.

DENTSPLY International,
Inc.

Dragerwerk AG & Co.

KGaA

Integra Lifesciences

Bayer AG

Life Technologies Corp.

ICU Medical, Inc.

Elekta AB

Medtronic, Inc.

Covidien plc

Qiagen NV

Merit Medical
Systems,Inc.

Getinge AB

Smith & Nephew plc

Fresenius SE & Co KgaA

Sysmex Corp.

Paul Hartmann AG

Hill-Rom Holdings, Inc.

Sonova Holding AG

Hospira, Inc.

Teleflex Incorporated

Hitachi Medical Corp.

Sorin SpA

Johnson & Johnson

Terumo Corp.

Hologic, Inc.

St. Jude Medical, Inc.

Roche Holding AC

The Cooper
Companies,Inc.

Intuitive Surgical, Inc.

Stryker Corp.

Invacare Corp.

Synthes, Inc.

Mindray Medical
International

Zimmer Holdings, Inc.

Nihon Kohden Corp.

ResMed, Inc.
Sirona Dental Systems,
Inc.
Steris Corp.
Varian Medical Systems,
Inc.
William Demant Holding
A/S

PwC

Exhibit 4: Revenue Growth Rates by Segment, 20052011

Annual revenue growth rate

40%

In terms of operating profit (see Exhibit 5), implantable devices

(which has exhibited strong performance in this category since
2005) and IVD (which has improved dramatically over this
period) lead the pack.
Exhibit 5: Operating Profit by Segment, 20052011
35%
Operating profit margin %

Our analysis of annual revenue growth by segment (see Exhibit

4) shows that the challenges in achieving revenue growth in
the industry are being felt in every segment, none of which
has been able to return to pre-recession growth levels. The
sharpest drops in growth rates have occurred in segments
requiring high levels of capital investment, i.e., IVD and
medical equipment. We also find that revenue growth began
to slow in medical consumables and implantables even prior
to the recession. Although there was wide variation in the
growth rates in the different segments prior to the recession,
all segments have converged around single-digit growth rates
since the recession.

30%
25%
20%
15%
10%

35%

2005

2006

2007

2008

2009

2010

30%

In Vitro Diagnostics

Medical Consumables

25%

Medical Equipment

Implantable Devices

20%

Diversified Life Sciences

2011

15%

Overall, our analysis of operating performance over time

across all five segments of the Medtech industry yields these
key insights:

10%
5%
0%
2005

2006

2007

2008

2009

2010

In Vitro Diagnostics

Medical Consumables

Medical Equipment

Implantable Devices

Diversified Life Sciences

2011

The implantable devices segment has been the most

consistent top operating performer relative to other
segments, driven by significantly higher gross margins.
This advantage is declining, however, likely due to the
maturation of the cardiology and orthopedic implant
markets (both of which have been characterized by low
growth and reimbursement challenges) and changes in
purchasing dynamics and buyer behavior. The implantable
devices segment also has the highest SG&A expenses (due
to a high-touch sales model) and fewest inventory turns
(due to the practice of maintaining large field inventory
to support high service levels). Although this segment
continues to enjoy the highest profitability, its invested
capital productivity has been declining steadily.
The IVD segment has shown the most improvement, and
become a leader in operating performance since 2006,
driven by rapid growth. The growing importance of
molecular diagnostics and personalized medicine plays
a key role. Rapid operating profit improvements and
steady improvements in many areas of cost management
and operational efficiency have also helped drive the

Operating performance in the Medtech industry: Trends and imperatives

Operating performance in medical consumables has

consistently lagged behind the rest of the industry, although
the gap has closed in recent years with improvement in
segment performance after the economic downturn. This
segment continues to show low operating profit and low
revenue growth relative to others. The segment also ranks
among the lowest in several dimensions of overall efficiency,
exhibiting, for example, the lowest gross margins, poor
inventory management, low asset productivity, and
labor productivity that is significantly lower than that for
othersegments.
Medical equipment companies have been hit hardest by the
economic downturn. Although efficient compared with
other segments (with strong labor and asset productivity
performance and leading inventory management
performance), the medical equipment segment has been
hurt by its customers difficulties in accessing funds for
capital investments. This problem is evident in the sharp
drop in growth rates for medical equipment companies.
The diversified life sciences segment has been relatively stable
over the years compared with other segments, likely due to
its diverse product portfolio. The variation in the operating
performance of Medtech business units was apparently
mitigated by the performance of biopharmaceutical and
other business units in these companies. This segment
tends to have both high gross margins and high operating
profit. Although it ranks lowest in the industry in asset
productivity, the diversified life sciences segment has
leading performance in invested capital productivity, labor
productivity, and SG&Aeffectiveness.

Key findings about company performance

Amid these segment trends, how successful have individual
Medtech companies been in improving their operating
performance? Analyzing the trends in operating performance
over the 2005-2011 time frame (see Exhibit 6), we find that
each segment has improvers, decliners, and steady performers,
but the mix varies according to segment. For example, nearly
70 percent of the companies in the medical consumables
segment have shown improvement. On the other hand, only
about one-third of the companies in the diversified life sciences
segment and one-fourth of the companies in the implantables
segment have been improvers, while over 40 percent of the
companies in these segments have been declining. This shows
that different companies are able to achieve widely different
levels of operating performance amid the same environmental
context and macro trends.
Exhibit 6: Company Operating Performance over Time
Percentage of companies with improving, steady, or declining
OPI, 20052011

Percentage

sectors OPI performance. Note that most of the large IVD

companies are business units of diversified life sciences
companies or well-diversified conglomerates, which
are excluded from our IVD segment. Consequently, this
segment has smaller companies than the others, which may
help account for its high growth rates.

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

29%

33%

70%
33%

33%

25%

22%

33%

44%

42%

71%
20%

33%

10%
Medical
In Vitro
consumables diagnostics
Down

Steady

Medical
Diversified Implantable
equipment life sciences
devices
Up

Two leaders in operating performance

Intuitive Surgical
Intuitive Surgical, a medical equipment company, is the global
leader in the rapidly emerging field of robot-assisted, minimally
invasive surgery. Since its founding in 1995, Intuitive has achieved
consistent and rapid growth along many dimensions: revenues,
system installed base, types of surgery for which the system is
used, procedure volume, geographies, and profitability. Year-overyear revenue growth rates over the period 20052011 have ranged
from 20% (in 2009) to 64% (in 2006). Intuitives revenue growth
has been driven, in part, by its multiple revenue models: with its
da Vinci Surgical System, the company derives revenues from
system sales, per-procedure sales of instruments and accessories,
and annual service contracts. (Recurring sales of instruments and
accessories and annual service contracts accounted for 56% of
2011 revenues from the da Vinci system.) The company has also
invested heavily in clinical studies to demonstrate the effectiveness
of its products, and in surgeon education to facilitate adoption.
Consistently ranking number one in operating performance in the
Medtech industry, Intuitive has exhibited leading performance and
steady improvement in OPI from 81.7 in 2005 to 91.8 in 2011 (on a
scale of 0 to 100). It has shown a rare combination of high growth
and increasing operating profitability (from 32% in 2005 to 41%
in 2011). In addition, Intuitive has achieved a steady or, in some
cases, dramatic increase in several elements of the OPI during this
time framefor example, in invested capital productivity (from
11.3% to 18.6%), asset productivity (from $4.4 to $8.9 in revenue
per dollar of PPE assets), labor productivity (from revenues of
$543K to $913K per employee), and gross margin (from 67.5%
to 72.5%). This consistent and stellar performance has been
recognized by the market and Intuitives stock price has risen from
$18 to $511/share in the last ten years.
Illumina, Inc.
Illumina is a global IVD company that develops innovative arraybased solutions for large-scale analysis of genetic variation and
function. It has consistently been among the top performers on
the OPI, with average annual revenue growth of 64%, average
EBITDA margins of 25%, and average gross margins of 67% for
the period 20062011. Analysis of Illuminas performance across
a variety of factors reveals a clear theme: consistent growth with a
focus on operational execution. Illumina invests more in R&D than
many peers and has developed leading technological capabilities
in a nascent market, driving significant revenue growth. Illumina
management has demonstrated a unique ability to connect the
dots between market strategy, disciplined product development
operations, and a relentless focus on corporate renewal through
both organic innovation and tuck-in acquisitions. Illumina has also
worked to diversify revenue sources by, for example, creating a
services business targeted at the diagnostics market.
Illumina, which sells capital equipment (and disposables), has a
significant number of customers who are dependent on federal
funding. Recent turmoil in the financial markets and cuts in
federal spending have therefore affected the companys results.
With a continued focus on operational excellence, however,
Illumina has been able to launch a new platform, reduce
inventory, increase gross margins, and build backlog.

PwC

Company performance on the OPI also enables us to identify

industry and segment leaders and laggards in overall operating
performance. The top 10 companies we analyzed had OPI
scores in 2011 ranging from 91.8 to 59.7 on a scale of 0 to
100, while the bottom 10 had scores ranging from 32.6 to
16.2. The individual components of the OPI also help indicate
what leaders are doing that laggards are not. In particular,
industry leaders display strong gross margin performance and
high operating profits. They have also achieved operational
improvements in asset productivity and labor productivity
indicating a highly efficient operating modeland are
achieving better-than-average revenue growth despite the
challenges of the environment. What laggards have in common
are low revenue growth, weak gross margin performance, and
poor operating margins.

Four key levers for improving operating

performance
Exhibit 1 showed overall Medtech industry trends for different
elements of operating performance over the 2005-2011 time
frame. The industry performance results have been mixed. The
performance of leading Medtech companies in recent years
shows that despite a sluggish economy, pricing pressures,
turmoil in the financial markets, and other adverse factors, it
is possible to improve operating performance in some areas
and drive shareholder value. At the same time, high margins
relative to other industries, strong growth, long product life
cycles, and the high barriers to entry that the industry has
enjoyed in the past have caused many Medtech companies to
focus less on operating performance than they otherwise might
have, and therefore to lag behind firms in other industries in
adopting leading business-improvement practices. With the
outlook for the industry still uncertainowing to both the
economy and the still unknown impacts of healthcare reform
in the United StatesMedtech companies must respond with
new strategies, business models, and capabilities. In the near
term, four key levers for improving operating performance
should be the focus:

Operating performance in the Medtech industry: Trends and imperatives

Broaden innovation. A changing healthcare ecosystem

(characterized by, for example, shifts in pricing power from
device manufacturers to healthcare providers, and increasingly
sophisticated customers demanding total solutions) means
that Medtech companies must develop new offerings catering
to new ecosystem needs. In the past, innovation in the Medtech
industry has had a relatively narrow scope, being largely
technology driven, product based, and physician focused. In
the future, Medtech companies will need to take a broader
view of innovation. With the growing emphasis on healthcare
costs and quality, new product innovation may become less
important than, for example, clinical effectiveness, improved
patient outcomes, and/or improved healthcare efficiency. In
other words, Medtech players must address the needs of a
broader set of stakeholders including, healthcare providers,
payers, and patients, and innovate around new business
models and a broader set of offerings including, products,
associated services, and data/information management2.
Move up the productivity curve. With an average operating
profit improvement rate of 2% per year, the Medtech industry
has made slow but steady progress in operating profitability
over the period 20052011. Yet with increasing pricing
pressures, slowing growth, and threats to profitability such as
the impending medical device excise tax in the United States,
it is imperative for Medtech companies to keep taking cost
out of business operations and/or out of products in order to
protect their profit margins. Our analysis shows that several
operational performance measures, such as gross margins,
SG&A effectiveness, inventory management, and working
capital productivity, have remained essentially flat over
the last seven years. All of these areas represent significant
opportunities for improvement. Medtech companies can learn
from other operationally efficient industries (such as high tech,
consumer electronics, automotive, and industrial technologies)
and adopt their most successful practices3for example,
value engineering and strategic sourcing practices to improve
gross margins, or outsourcing to leverage external partners
and capabilities and make their cost structures more variable.
Medtech companies can increase the efficiency of their supply
chains and implement leading practices to improve working
capital and inventory management performance. They can also
improve their sales operations and reduce indirect expenses to
drive SG&A effectiveness.

Transform the go-to-market model. The ongoing,

transformational changes in the healthcare ecosystem are
having a significant impact on how medical devices are
bought and paid for. Medical device buyers are consolidating,
resulting in greater buying power. The influence of physician
preference is eroding even as new requirements for public
disclosure of physician relationships are being put in place.
Meanwhile, healthcare delivery and payment models are
evolving from fee-for-service to value-based systems4. These
factors are creating new decision makers and buying criteria
while also creating greater diversity across the customer base.
Savvy Medtech companies are therefore finding opportunities
to help shape decision processes and even change the basis
of competition in this new environment, while also focusing
their sales and marketing budgets on what are now the critical
segments of their markets in order to improve effectiveness.
Revitalize growth strategies. As industry growth in developed
regions slows and markets mature, Medtech companies must
explore new avenues for growth. Emerging markets offer one
set of opportunities for expansion. They provide greenfield
opportunities for serving large and growing populations as
well as access to talent and capabilities, often at significantly
lower costs (for example, for manufacturing, R&D, and
other operational areas)5. Developing new markets while
under pressure to improve SG&A effectiveness often requires
Medtech companies to shift spend from traditional markets
toward new and growing markets. (Several leading Medtech
companies have already established significant footprints in
emerging markets and are enjoying growth rates of 2030%.)
Companies are also considering a variety of inorganic growth
strategies. While traditional acquisition and integration
strategies are common, more creative strategies include open
innovation, corporate venturing, co-development through
partnerships and alliances, and a variety of in-/out-licensing
approaches. While some large Medtech companies already
employ a mix of these strategies, we expect a continued
increase in these activities as the industry matures and organic
innovation becomes more difficult.

2 Christopher Wasden and Brian Williams, Owning the Disease: A New Business Model For Medical Technology Companies, In Vivo: The Business and Medicine
Report, December 2011
3 Michael Blanchette, Linda Meloro, and Prashanth Prasad, Surviving the Cost Pressure Cooker, Medical Device and Diagnostics Industry, March 25, 2011
4 PwC, Unleashing value: the changing payment landscape for the US pharmaceutical industry, PwC Health Research Institute, 2012
5 PwC, Medical Technology Innovation Scorecard: The Race for Global Leadership, 2011 and Axendia, Inc., Walking the Global Tightrope: Balancing the Risks
and Rewards of Med-Tech Globalization, 2012

10

Deciding where to begin

Improving operating performance over so many different
dimensions obviously represents a tall order for Medtech
companies that have not had to focus on such areas in the past.
How to begin making the necessary improvements?
The first step for Medtech companies wanting to improve
their operating performance is to baseline and benchmark
against peer companies in the industry and in their own
segment. OPI provides a useful framework for evaluating the
different dimensions of operating performance. The primary
OPI metrics (revenue growth, operating profit, and invested
capital productivity) provide measures of overall operating
performance. Secondary OPI metrics can be used to establish
benchmarks and identify performance gaps and opportunities
for improvement in operational areas such as innovation
and product development, operations and supply chain
management, customer service and sales operations, and asset
and labor productivity.
An OPI-based review enables a rapid but broad evaluation of
operating performance that can help to identify significant
challenges and opportunities for improvement and help
a company determine which levers it needs to pull to
get significant gains in operating performance. With an
understanding of where operating performance stands most in
need of improvement, management can begin digging deeper
into these areas to determine what, in particular, is inhibiting
better performance and where to target initiatives for change.
If revenue growth, for example, is an area where baselining
and benchmarking point to a need and opportunity to improve,
and R&D impact is low, a company can investigate why it is not
getting more bang from its R&D spending. If the OPI-based
review also shows that SG&A effectiveness is low relative to
other companies in the same segment, management can begin
asking how it can use its sales force more effectively in the
changing industry environment. Similarly, if profitability is
shown to be an area where a company lags behind industry
peers and competitors, executives can dig deeper into OPI
elements such as asset and labor productivity and gross margin
to discover where and how to take out costs.
In an environment that is likely to remain difficult and
uncertain for years to come, the difference between winners
and losers in a mature Medtech industry will increasingly come
down to the basics of operating performance. OPI provides
a convenient framework for identifying key challenges and
opportunities for companies to improve operating performance
and drive shareholder value.

PwC

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About PwC
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Acknowledgement
We wish to acknowledge the important
contribution that Michael Blanchette
made to the development of this report.

Contacts
Sharad Rastogi, Principal
+1 (617) 530 4726
sharad.rastogi@us.pwc.com
Thomas Kozy, Director
+1 (847) 430 9059
tj.kozy@us.pwc.com

Michael Swanick, Partner

US Pharmaceuticals, Medical Devices,
and Medical Technology Leader
+ 1 (267) 330 6060
michael.f.swanick@us.pwc.com
Attila Karacsony, Director
+1 (973) 236 5640
attila.karacsony@us.pwc.com

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