In most industries, there is a correlation between overall scale and profitability. Scale matters, the logic goes, because larger companies benefit from commercial influence and cost efficiencies.
In medtech, however, the correlation between scale and profitability actually is quite weak. Using Bain’s Category Leadership Index® (CLI) score, we quantified medtech companies’ leadership in the categories in which they compete. We compared the CLI scores with their relative market share (RMS), an indicator of scale, and what we found is telling: Profitability is more a function of category leadership. In fact, in 2019, there was almost no correlation between profitability and RMS, but there was a strong correlation between profitability and CLI.
Category leadership matters now more than ever: The consolidation of healthcare providers over the past decade will only accelerate in the wake of the pandemic. The number of individual hospitals making medical device buying decisions continues to dwindle as large integrated delivery networks (IDNs) centralize purchasing. As they reduce the number of vendors they use, hospitals will seek to ensure quality, consistency of supply, and a long-term partnership. And category leaders—with their clinical expertise, physician relationships, and strong procurement positioning—are likely to win the flight to quality.
Category Leadership Index® is a registered trademark of Bain & Company, Inc.