The simple definition of innovation is a new method, idea, or product. To the majority, innovation is typically associated with the latter. But there are actually four main types: product, process, marketing, and organizational innovation. In the medical device industry, innovation is so closely tied to science and technology that sometimes the other innovation strategies become overlooked. Although these various strategies are not mutually exclusive, there is a time and place where a certain innovation strategy is more advantageous than the others. The following discussion will focus on product and process innovation and its role in driving bottom-line growth in multinational medical device companies.
For medical device companies, product innovation means the development of new or redesigned products or services. Being able to charge a premium is among the many benefits of developing an innovative product. The product innovation strategy works best for regions that have a better economy and are more open to adapting new technologies. For example, Germany is a relatively wealthy country with fewer health care cost constraints, which lets them adopt premium-priced devices. They also have a reimbursement system dedicated to experimental products, encouraging the use of new product innovations. This is why many novel medical devices are launched in Germany earlier than in the rest of Europe. For places like Germany, a product innovation strategy works quite well.
In contrast, for regions that are strongly cost constrained and slower at adopting new technologies, product innovation might not be the best strategy. In the Latin America countries, the ongoing economic instability has made them extremely conservative in their health care spending. Their strong cost constraints put limits on their medical device purchases, especially premium-priced devices. So it’s more common to see a faster rate of adoption of new medical devices in regions like Germany than in regions like Latin America.
That’s not to say product innovation isn’t important in Latin America. But perhaps, for companies operating in regions like Latin America, process innovation should play a larger role in the business strategy. Process innovation, meaning a new or improved method of production or delivery, can directly affect a company’s costs. Let’s take Olympus’ growth strategy as an example. Part of their strategic plan to drive growth in their medical business unit is to improve manufacturing functions. By investing in “consolidating dispersed manufacturing functions” (as described in its Annual Report), Olympus will be able to improve production line efficiency. Reducing processing time and costs is a great strategy that can help organizations achieve efficiency during their manufacturing process.
This strategy allows the company to either improve profit margins or to make their devices less costly. The latter is becoming increasingly important as health care budget cuts, particularly in developing countries like Latin America, have resulted in a strong demand for lower-cost medical devices. The benefits of process improvement, passed down to the purchaser and end-users, translate to cost savings. In regions where price plays such a large role in the purchasing decision, process innovation is a great way for companies to optimize manufacturing, without sacrificing the quality of their devices, and become more competitive in their market.
The strategy a company should adopt is highly dependent on where and how you want to play. Implementing a combination of innovation strategies is necessary in order to succeed in the medical device market. The key is to find the right proportion of each that works for your organization’s needs.
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