Many medtech companies pride themselves on their broad product portfolio and ability to address a variety of customer needs. However, if a portfolio becomes too bloated, they can incur huge costs to “keep the lights on,” create complexity for customers and sales reps, distract resources from innovation, and create potential external risk for the company and its executives.
Medtech companies should be aggressive in challenging the relevance and profitability of their portfolio and make the difficult decisions to retire products frequently. Not only can it drive stronger long-term growth, but it may also bring a near-term improvement to company profitability. Who wouldn’t want that?
A strong historical focus on top-line growth has driven companies to add products to address specific country or customer needs. Some new products address sizable market opportunities, while for others the opportunity is small. Often a portfolio has expanded over time as companies have merged and combined their product lines.
Another reason stems from the historical practice of adding products to the sales rep’s bag to capitalize on related opportunities in a single customer visit. For example, in orthopedics, companies believe that having a “big bag” offers a competitive advantage.
In some companies, we see a lack of global governance over this process, where local commercial organizations have been allowed a direct line to the new product development process. For example, one entrepreneurial country manager was fighting for a big tender and felt that a new product was needed to win the business. He called an R&D manager friend, who helped get the new product developed and released. The custom solution helped the country manager win the deal, but the annual cost of keeping the product alive is close to the value of the tender itself. Because the product was so highly customized for this situation, no other customer or business unit wants to sell it.
The benefits of a broad portfolio are clear: the ability to address a variety of customer needs, availability of a broad “package” to win against competitors, and just plain old more stuff to sell to drive revenues. However, there are many other implications, both externally and internally.
From the customer perspective, a broad portfolio can be a negative. Sometimes it means that a product is back-ordered, so it takes a long time to receive. The buying process can become complicated with so many choices, including many that address similar use cases. From the sales rep’s perspective, it can be nice to offer the customer a wide variety of options, unless they cause the narrative to become complicated and unwieldly—with too many things to learn about and keep straight. In some cases, a large portfolio available for a single visit works out, but in others—where the acquiring company didn’t fully understand the customer buying process—the synergy isn’t there.
Internally, there are several implications across functions. R&D is forced to sustain the portfolio, which may distract resources and budget from growth opportunities like innovation. Supply chain becomes challenged in its ability to drive out cost in the plants. Quality assurance must spend time on remediation.
We believe that someone should be responsible for balancing the internal forces with the needs of the customer or commercial business, and that this someone should be marketing. Marketing can lead an objective assessment of portfolio relevance and long-term viability by synthesizing external data—including evolving customer needs, market dynamics and the competitive landscape—along with internal data on the true costs of keeping a product line alive, including well-understood facts like revenue, gross margin and growth rates. Armed with this objective view, marketing can work with cross-functional partners to facilitate the best portfolio management decisions.
How can this be done?
- Incorporate a proactive and potentially aggressive retirement plan into the portfolio strategy. Include it as part of a long-range planning or corporate strategic planning exercise and work it into the annual operating plan process.
- Create an assessment that includes the future global opportunity for each product, the use cases and the true financials—not just what shows up in the business unit’s P&L but also the “hidden costs” that might exist in other functional P&Ls in a matrixed organization, such as quality or supply chain or commercial regions.
- Identify the opportunities for retirement. Often there are obvious, “no regret” opportunities where there is low growth potential, high cost to sustain and overlapping use cases with other products.
- Understand the implications of retirement and develop mitigation plans. For example, if there’s an existing tender in Sweden for a product prioritized for retirement, determine how to address those obligations—even if it means sourcing from a competitor. This may be a tough conversation with the country manager, but it’s the best thing for the company.
- Communicate, communicate, communicate. Internally, communicate with cross-functional teams and local commercial organizations. Even if the company has a clear business case for retiring a product, it’s still critical to involve local teams who will be negatively affected and to find the win-win that is likely there. For example, retirement frees time for innovation, and who doesn’t want innovation? Externally, communicate with customers, tender authorities, regulators and other relevant stakeholders—not just on the legal issues, but also on timing and what the company will do instead. It’s fairly common in other industries for products to be retired, so customers may not be as upset as you fear.
- Implement the plan. After all the hard work is done, the company needs to have the courage to follow through. Define the project plan, have a project manager and ensure that everyone lines up across the functions to do their part.
Retiring products is not an easy decision. It means taking something with revenue and removing it from the market. It may mean not addressing a customer use case that you could address. But taking this step can have real and positive impact—on the P&L, on the customer, on cross-functional teams and on the ability to drive innovation.