Transformational cost reduction to compete in new medtech landscape

The Situation

After years of growth, Medical DeviceCo faced declining revenues and profit margins due to a combination of increasing pricing pressures and its maturing product portfolio. Past cost-cutting initiatives failed to keep pace with new industry realities.

The company realized that regaining its competitive edge required rebuilding its business model in response to four major trends:

• Hospital consolidation, with an increased focus on price-based purchasing
• A shift in purchasing decisions from physicians to hospital procurement departments
• Uncertainty around healthcare reform
• Medical technology tax

The bottom line: Medical DeviceCo needed to cut costs faster and deeper than planned without jeopardizing quality, with the goal of using savings to fund growth opportunities in emerging markets and through acquisitions.

Our Approach

Working collaboratively with the CEO, Bain deployed its performance improvement toolkit to develop a multi-prong strategy for transforming Medical DeviceCo into a cost leader.

An analysis by Bain showed that cost effectiveness would define healthcare winners in the increasingly price-sensitive landscape. But employee productivity at the medical device maker lagged behind competitors.

Bain helped senior executives identify both near- and long-term initiatives to boost productivity, reduce costs and create a new cost structure. The strategy included:

• Redesigning the commercial model to reflect growing purchasing power of hospital departments while also serving physicians' needs
• Fundamentally rebuilding the quality, IT and corporate overhead functions from a blank sheet of paper
• Lowering back-office functional expenses that exceeded competitor benchmarks
• Targeting offshore outsourcing opportunities across all business operations
• Conducting an outsider's perspective cost analysis of the organization to identify "out of the box" ideas

Our Recommendations

We recommended that the CEO and the senior executive team implement a comprehensive cost transformation plan to achieve its goals of improved financial performance and funding growth opportunities with cost savings.

The plan called for deploying five major initiatives:

• Redesign the commercial model to be more efficient and effective with all customer stakeholders
• Use zero-based budgeting to redesign Quality and IT functions from the ground up
• Provide lighter touch analysis of the rest of the expense base to support functional leaders in cost reduction
• Set up offshoring capability to enable more effective and efficient functional support and to tap global talent
• Turbocharge cost-reduction efforts with outside-in private equity view, leaving no stone unturned

The Results

With Bain's help, the sweeping transformation plan is quickly repositioning Medical DeviceCo as a healthcare cost leader. It is achieving quick wins and sustained savings while better meeting evolving customer needs.

• Savings of $300M—resources freed up for reinvestment in growth through acquisitions and emerging markets
• Implemented work plans and mobilized team for improved productivity
• Established program management office