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The medical industry is undergoing rapid and pervasive change. New approaches to patient-centered care will address the whole of their lives rather than focusing on specific episodes for treatment. The traditional medical equipment technology (MET) market is therefore likely to lose more and more of the growth potential it has displayed over the past decade. It is therefore crucial for companies in the sector to find new approaches to maintain growth as disruptive innovation in this high-tech area becomes increasingly hard to achieve.
Companies will instead need to adapt and develop new business models to meet healthcare systems changing demands. They will need to align and build up their own capabilities, evaluate models of innovation and new partnerships that can help to unlock future growth opportunities.
The aim of this point of view is to outline three future top growth opportunities for medical equipment manufacturers in the context of the healthcare megatrends driving the industry today and in the future.
In this point of view we will explain why the next generation of healthcare providers could possibly be a traditional furniture trader like IKEA, how internet-based R&D will uncover previously hidden sources of knowledge and what joint production could mean for hearing –aid manufacturers.
The annual growth rate of the medical equipment technology market was comparably high ten years ago. However, the markets’ percentage growth rate has slowed in recent years and is not expected to experience substantial increases in future growth.
Yearly growth rate of the medical technology industry (2003-2013, in %)1
Megatrends are broad social, economic, political and technological changes that will exert a wide and powerful influence on future developments in an industry. Carefully identifying how the major changes we have identified will influence the healthcare industry is essential in order to shape how goods and services will be offered in future.
To remain competitive in the high-tech medical equipment market demands continuous innovation. Today, R&D accounts for an average of 9-10% of OEM’s revenue2, with companies trying to leverage the whole healthcare eco-system – including state institutions, universities, hospitals and other technology vendors – for innovation. Partnering programs, joint ventures and R&D centers within emerging markets can help to boost product development and variety as well as enhancing cost structures and price points.
Increasing use of portable devices as well as better accessibility to data through ultra-fast networks is enabling healthcare consumers to move towards connected health. Governments around the world see connected health as critical to improve citizens’ access to high quality, lower-cost healthcare. For example, patients with chronic diseases will be able to access services and advice from wherever they are, freeing them from dependence on having to access services from one location. The future challenge will be to develop fast and secure mobile applications that are built around the needs of specific patients and tailored to particular use-cases. Analysts expect nearly 250 million individuals to download fitness and healthcare applications by the end of 20143. Identifying the optimal communication channels will be crucial in the future, as patients have already started to seek information about treatments and medication online.
Each individual patient’s biology is becoming more and more important. Personalized medicine is a high potential, fast growing market owing to the significant developments made in gene sequencing technologies. Current systems need to be adapted to ensure that they are able to handle, share and analyze the data arising from these analyses. A patient-tailored approach will result in more effective treatments and, in the longer-term, lower costs.
Healthcare data analytics will depend on having access to data created across the entire healthcare ecosystem. The industry is moving from a traditional model built on regulatory approval and selling to claims, to one of medical evidence and proven economic effectiveness through improved analytically-derived insights. This shift will open the opportunity to drive competitive advantage by creating a robust analytics capability and harnessing integrated ‘real world’ patient level data.1 Source: Figures are taken from Accenture (2011): High Performance Study - ReinventingMedical Technology for a Dramatically Different Future, page 4
2 Source: Accenture Research 2012
3 Mobile Healthcare Opportunities, Juniper Research 2012
Securing growth as the industry develops will require a new approach. Products are well developed and offer a huge variety of features to meet customers’ needs. Competitors are catching up through innovation and state of the art technology. Therefore to grow in this fast developing industry, MET companies need to pursue new strategies. Promising alternatives to differentiate include unconventional and intelligent partnering between various industries and leveraging the ‘frozen’ knowledge available on the internet.
Rather than looking for growth opportunities in existing business models and markets, companies need instead to identify the potential for disruptive innovation. The largest growth opportunities are where new markets evolve, rather than from following existing paths. Being able to imagine how the world will look and people will behave before they actually do so is the key to future success. For example, there was little market or demand for electronic tablets before Apple released its iPad. In the first year of its release (2010), Apple sold 14.7 million devices and the demand for tablets has been constantly increasing, with worldwide demand for tablets estimated to be 118.9 million in 2012. Apple’s sales are expected to be 73 million worldwide, a market share of 61.4%4. This share is largely attributable to the company’s first mover advantage and its image as an innovator.
A new approach can unlock new and previously hidden opportunities. On the other hand, failing to take notice can hit established businesses hard. For example, when voice over IP calls were launched, they revolutionized the way people communicate. Some established telecoms businesses underestimated the trend and failed to spot how the introduction of this service opened a new business model, lowering costs per call by billing the volume of data instead of the connection time.
Accenture’s deep experience of the medical equipment market equips us to spot the development of trends and opportunities in the market. Accordingly, based on our research, we have identified three gamechanging growth opportunities, that we believe will fundamentally shift the market and stakeholders’ perceptions of the healthcare eco-system.
Integrating medical devices with home furniture is one possible future growth opportunity. However, it’s a field in which device manufacturers could face serious competition from furniture makers themselves. Producing integrated home devices that enable customers to monitor their own health data accords with the trends of chronic diseases, an ageing society and connected health. But the chance to innovate is not restricted to medical device manufacturers. It could be that furniture makers, such as IKEA, could also tap into this emerging market and gain first-mover advantage over established medical technology businesses.
In line with the general trend towards consumerization, the provision of healthcare will increasingly take place outside of hospitals and other healthcare institutions, moving to where the patient is: at home. Traditional home furnishings will have built-in devices that can monitor and measure a wide range of health indicators, accumulating and analyzing data and uploading results to appropriate medical professionals and, for example in the event of adverse readings, immediately contacting a doctor to attend.
Being first mover into this future space could provide medical device businesses with decisive advantage to develop and expand their own activities, products and services. Waiting too long could see them struggling to catch up and competing for a smaller share of the market. Furthermore, evolving capabilities in this field offer a breakthrough prospect for numerous solutions in addition to traditional healthcare. It could provide interoperability and remote diagnostics to healthcare professionals and clinical research study. It could become an interactive pool of data, bundling and integrating a large number of diverse elements. These could include live patient data, doctors’ appointment scheduling, nutritional protocols, patient insurance cards and digital clinical records. By providing services like these through integrated home devices, medical equipment technology providers could position themselves as the vital connector between patients and healthcare institutes and regulatory governmental institutes.
Each year, the data added to the internet is equivalent to two zettabytes (two billion terabytes). The scale of available data threatens to make classical scientific method of research obsolete5 as all the data required is already available through open sources via the internet. Today, one gene chip can save information of about all 20,000 human genes and there is data of more than one million readouts of those gene chips available on the internet. Additionally, more than 30,000 breast cancer digital sample results are available within the Library of Medicine6 – just one of a large number of similar sites. Finding medical research and measurements through the internet is as easy as booking a flight. To remain a leading business, adapting and using this source of innovation as efficiently as possible is crucial.
5Source: http://www.wired.com/science/discoveries/ magazine/16-07/pb_theory - Chris Anderson on the Wired Magazine
6Source: Atul J.Butte ,MD, PhD, Stanford University
‘Melting’ the ‘frozen’ knowledge available through internet-based research will enable a company to use data and results quicker and more purposefully than others. This option further enables companies to reduce costs of in-house R&D and offers the opportunity to extend investments towards a wide field of external sources (partnering with precise internet-research experts is one possible alternative). Lowering the cost structure of products by reducing research costs can also help solve the innovation trap issue.
Both data and its analysis are, thanks to the internet, increasingly commoditized, with costs set to fall dramatically in the future. For example, sequencing an individual’s genome to identify possible risks for diseases and create a treatment plan are only a few clicks away. Accordingly, companies and individuals now have unprecedented access to research, analysis and services. Medical technology businesses have the opportunity to create services and tools that can connect their clients to data sources, preparation and processing services that will position them as information service providers for hospitals, medical professionals and even directly for patients.
Sales volumes usually depend on the size of the addressable market and the vendor’s position relative to competitors. While medical equipment technology companies improve their market position by optimizing product features, their cost base or by enhancing their portfolio by providing value added services, only a few attempts have been made to increase the absolute volume of the market. That is largely because optimizing within existing market boundaries is generally less expensive than growing the market itself. As long as the medical equipment industry has margins above other industries the justification for investments to grow beyond existing markets are likely to remain scarce. However, increasing competition from new players entering the market will lead to greater pressure on margins. One response is to increase product volumes, lowering unit costs and expanding the addressable market for a particular device. Enhancing the overall market not only enables companies to increase their sales in absolute figures but also to gain competitive advantage against other OEMs by taking a bigger relative share within the enhanced market.
Markets are limited by the ability and/ or willingness of customers or healthcare organizations to spend more. In both mature and emerging markets there are price limits for each product category beyond which customers are unwilling to go. On the other hand, the high costs of certain medical technologies confirm that they remain out of reach to many customers. One example is sophisticated hearing aids. High-end inthe- ear (ITE) or in-the-canal (ITC) hearing instruments are usually sold for more than €2,000 and are therefore generally accessible to patients with private insurance only. In emerging markets, the target group for these devices is even smaller owing to lower incomes. On the other hand, margins are much higher compared to the older behind-the-ear technology because of specific domain knowledge that is part of these miniaturized devices.
Industries such as consumer goods show that differentiation within a specific product category is either driven by brand perception or by the software that runs on devices. Washing machines, for example, in Europe are manufactured in facilities that are shared by more than one vendor. In fact, leading European white goods manufacturers have established a few common production sites in low cost countries where different brands are manufactured on the same assembly lines. The cover plate is the only differentiation within a certain category of appliances. Similarly, for mobile phones the available hardware is – with a few exceptions– industry standard and potentially available to all OEMs. The user experience for each device is driven by the operating system’s functionality and user friendliness. Much the same applies to standard personal computers: nearly all devices are exchangeable within allowed configurable configurations. Since the late 1990s a PC hard disk has standard connectors and data protocols, which gives consumers the freedom to select from multiple vendors. Moreover, standard PCs are not only used at home or in office environments but also in check-in counters at airports, in ticket vending machines or – as embedded devices – in industry control units.
Adapting these examples to the medical equipment technology industry segment shows that the hardware of hearing devices could be jointly developed across all major OEMs and manufactured in specialized sites following a cost- and risk-optimized sourcing strategy. Contract manufacturers could operate three global hub factories in Europe, Americas and Asia Pacific where the hearing devices are produced with optimized logistics and highly specialized personnel using the latest hardware technology available. Products would be differentiated by the faceplate mounted on in-the-ear devices, the style and color of the behind-theear body and/or the packaging. This would significantly lower the unit costs of production. In this way medical equipment manufacturers would be able to significantly lower end-customer prices by keeping current margins and therefore address completely new customer segments. This fundamental change would have a profound impact on business and operational models. The criterion for success would be to develop better software than the competition, which requires a fundamental change from the way medical equipment technology companies work today.
To prosper in this fast changing future, medical equipment technology companies will need to carefully evaluate and forecast fundamentally new market approaches and merge these into their present business models and strategies. The three growth opportunities we have identified can be seen as examples for the nature of how growth could be achieved. Sustainable growth requires a radical change in behavior in order to variously design new products, create new business models or offer cheaper, simpler or faster solutions to the customer. Companies will need to carefully analyze the opportunities this changing market presents, and ensure that they redirect and review their investments to ensure they can maintain performance and create sustainable businesses for a future that looks very different.
Armin MeißnerGlobal Industry Managing Director Medical Equipment Technology +49 89 93081 68392
Burkard SchemmelProgram Manager Medical Equipment Technology +49 30 89047 68705
About Accenture:Accenture is a global management consulting, technology services and outsourcing company, with more than 246,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$25.5 billion for the fiscal year ended Aug. 31, 2011. Its home page is www.accenture.com.
July 23, 2012
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