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For medtech companies, the battle to cut costs is about to get even more intense. A recent Bain & Company survey shows 80% of medtech executives saying they expect to face “high” or “very high” cost pressure in the next two to three years as the industry adapts to changing market conditions. The consolidation of hospital networks and professionalization of purchasing teams are just two of the trends putting pressure on prices.

These changes are prompting many companies to consider a more radical approach to cost management—zero-based budgeting (ZBB)—which can deliver up to 25% in cost savings when implemented broadly across an organization. Yet despite these potential gains, medtech companies have been slow to deploy the method. Bain research shows that among medtech executives who are familiar with ZBB, 70% of them view it favorably, but only 15% report having implemented a large-scale program across their companies. Executives who are hesitant to deploy ZBB say they worry about complexity and sustainability and are unfamiliar with how the tool works.

Leadership teams do often misunderstand zero-based budgeting. Companies that reap significant cost savings know that ZBB is not a mere cost-cutting tool, but a major shift in cost-management philosophy. The goal of a ZBB effort is a high-performance culture with an ownership mindset. It is the difference between going on a crash diet to shed a few pounds and committing to lifestyle changes that improve overall health and promote weight-loss in the process.

Why is it so effective? ZBB offers leadership teams vastly improved visibility and accountability. It helps them see exactly what is being spent and who is spending it, and an overview of the day-to-day activities that generate costs. Those insights are a huge advantage for medtech companies, which traditionally have had difficulty tracking their spending, given their global reach and multitude of business units with separate P&Ls competing in different therapeutic areas. Although 80% of medtech companies have undertaken major cost programs over the past five years, only 10% reported achieving all of their goals, according to Bain’s 2018 Zero-Based Budgeting in Healthcare Survey.

Read the full article on In Vivo.

Patrick O’Hagan is a partner with Bain’s Healthcare practice in the Boston office. Jason Evers is a partner with Bain’s Healthcare practice in the Chicago office.