The First Million Bucks

By Dan Edwards

Published in February 2011

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The First Million Bucks

[ NB This article was published in European Medical Device Technology in February 2011: http://www.emdt.co.uk/article/first-million-bucks ]

Medical device companies spend around 1 million euros at the front end of every device development project to get to a product concept that they believe in (at least on paper). Some spend it better than others.

Understanding the innovation mandate At Sagentia, we recently conducted research amongst 20 big-name medical device companies to identify areas of best practice in front end innovation. Our intent is to share that insight and help companies get the most out of their investment. First, we should clarify our definition of front end: it is the set of activities that deliver a bulletproof investment case around a product concept that will release the multimillion euro budgets required for downstream product development (system design, detail design, prototyping, clinical trials, transfer to manufacture and so forth). Although everybody agrees that innovation is a major contributor to competitive edge, it doesn’t follow that everybody does it well. Some organisations are innovation sophisticates, whilst others struggle to make sense of how to nurture opportunities into strong product concepts that warrant further investment. Sophistication is required of both market and technology research methods. Importantly, being good at one is no indicator of being good at the other. So, how can a medical device company achieve the best value from its first million euros? In this article, we discuss a series of best practices to answer that question. Executives who operate at the front end need to recognise what type of innovation mandate they have so that they can put in place an appropriate structure to support it. Although all companies have an underlying innovation mandate that is part of their corporate strategy, not all can articulate their mandate well. So whilst all front end executives are usually able to directly relate their role to an overall financial growth agenda, only some are able to point to a link between their company’s competitive position and their particular innovation programme. An example of such a link would be “we aim to be number one in Chinese laparoscopic surgery, and hence we are undertaking this kind of research.” Businesses that have a competitive strategy that requires them to be number one or two in a given medical market must deliver product and service differentiation to that market. In this situation, the group or individual operating at the front end needs to be a front end sophisticate and should both understand the challenge and feel confident and justified in seeking funds for projects that don’t have a guaranteed outcome. The best

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front end innovators in these types of businesses will operate in that zeitgeist—they live it, breathe it and feel entirely comfortable with it. Recognising radical A sophisticated approach is an absolute prerequisite for any front end innovation that hopes to deliver a new market benefit or technology. The data upon which these breakthrough products are based, and upon which decisions are made, are usually very thin. This is the nature of disruption—if a precedent existed, the innovation wouldn’t be radical. If usual screening rules were applied in these situations, budget requests to support these endeavours would be rejected out of hand. Consequently, governance of high-risk activities calls for an alternative approach, and it needs to be recognised from the outset that the project being evaluated will need to be handled differently. We believe that three elements are necessary to ensure this happens: people, tools and processes. First, it is essential that the leaders of front end work are people with experience and an understanding of the high-risk profile and decision-making required. Moreover, we need these individuals to sympathise with both marketing and R&D. Such individuals are rare. Second, a correct set of tools must be used, and we have a toolbox to share later in this article. And last, processes must be designed both to nurture and adequately vet a high-risk project portfolio. People: marketing vs R&D Most executives come with either an R&D sensibility or are rooted in marketing. Few R&D innovators cross the floor into marketing; those that do are a rare breed and are to be treasured. Even fewer marketers move into R&D. This lack of common ground has been a problem for years and it remains so today. The shortfalls apparent in both marketing-led and R&D-led innovation are all too obvious. Marketing-led innovation falls short in generating solutions and, in some cases, relies too much on “two-day creativity workshops” to respond to months of careful market research. There are better tools available, as outlined in Table I. The corollary is also true: R&D-heavy teams leading innovation efforts are often blind to the range of market research tools available at either the opportunity-scanning or topic-specific market research steps. Awareness and acceptance of these gaps is critical, and efforts to share tools and bridge gaps will significantly improve outcomes. Process 1: a four-step programme Are organisations systematic or serendipitous about how they initiate a programme? Anecdotal evidence tells us that the use of systematic analysis is very much on the increase in the medical device industry. The stereotypical image remains of a CEO popping his head around the door to R&D, scratching his chin and proclaiming, “We need to be bigger in imaging” (in a small number of instances, this is still the case). However, it is encouraging that this haphazard approach is diminishing rapidly. The CEO instruction was, in reality, filling a void. Now that the analytical tools exist, they are being used at the expense of top-down instruction. Developing this point further, a better approach is to follow a simple but clearly defined four-step programme.

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1. Opportunity scanning. Information is sampled across a range of topics (clinical procedure, clinician group, market trend or even technology opportunity) with the goal of identifying a theme to exploit. This is the stage which, until recently, was fulfilled by the “visionary CEO.”

2. Topic-specific market research. Having settled on a topic, data is sought to qualify the opportunity hypothesis. This data takes two forms: quantitative data on the size and growth of the topic and qualitative data on the target user’s subtle needs relating to it.

3. Solution generation. In solution generation and filtering, we explore both technology and design.

4. Concept profiling. This is the final stage, when the concept is bullet-proofed prior to governance scrutiny, ensuring that all stage exit criteria are addressed.

Process 2: a bullpen of opportunities Our research indicates a shift in the medical device industry (and other sectors such as consumer products) towards a bullpen, where projects are gathered together and viewed as a whole. The bullpen portfolio approach—as opposed to a traditional process that considers individual projects in isolation and on their own merit—has been shown, on aggregate, to improve success rates. Here’s why: Competition (not between teams, per se, but between market opportunities) should be encouraged in order to get the best results out of projects. A discipline is established that kills foundering projects and swiftly reassigns budgets into awaiting projects. It will help ensure that R&D budgets are fully spent. A common misconception among middle managers is that underspending R&D budget is a good thing. We disagree with this position, arguing that an underinvestment in R&D is an underinvestment in growth.

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Tools Organisations seem to focus on those areas of front end innovation, where they have internal resources and proven strengths. For example, depending on who is running the show—i.e., marketing or R&D—the focus will be weighted accordingly. This approach is limiting and forces sponsors to make decisions with incomplete evidence. Companies should consider their areas of weakness and explore the full range of tools available to address them. Table 1 shows an aggregation of tools that may be used by front end innovation executives in large, sophisticated medical device organisations.

Table I: Toolbox by category

1. Opportunity scanning

2. Topic-specific market research

3. Solution generation

4. Concept profiling

Buy and peruse industry reports

Ad hoc clinician chats

Scan call centre logs

Scan competitor recalls

Drinking fountain innovation topics

Scan FDA logs

Scan blogs/chat rooms

Medical advisory panels

Scan clinical outcome data by disease and therapy

KOL interviews

Ethnographies

University alliance

CarePath mapping Human factors analysis

Advisory panels

Cross-functional internal team assessments

Market size assessment (using secondary data)

Market size assessment (build bottom up with primary data)

Validate customer-need assumptions with VoC

Ideation sessions

University alliance

Technology landscaping

IP white spaces

Technology selection

Concept embodiment using morphological mapping

Preliminary concept vision (graphics)

For high-risk technology—proof of principle demonstrator (not full prototypes)

IP check

Regulatory check

Reimbursement check

“Business case”

Paper prototypes – (storyboard) test with VoC

Proof-of-concept prototyping

Preclinical with animal models

Prepare evidence collection request

Concept lock-write spec

Go to market strategy

Pilot (get customer to pay)

Materials testing

It is encouraging to note the sheer diversity of tools that are now available, coupled with the fact that many of these tools are new to the medical device industry. On the market research side, for example, CarePath mapping is a tool to determine triggers for replacing entire medical procedures in light of the move towards preventative rather than curative interventions. On the

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R&D side, technology landscaping is a means to explore technology solutions from adjacent industries for application in a medical setting. In some instances, these tools are deployed and managed directly by the medical device company. For some of the more specialist tools, or where adequate in-house expertise and resources do not exist, outside consulting services are being retained. Indeed, the ratio of internal spend (salary and benefits) to external spend (consultancy) averages 1:3. In other words, of that 1 million euros described earlier, 750,000 is being incurred as a direct expense. Beyond VoC research All companies point to needs as the single most important innovation driver. Over the past 20 years, Voice of the Customer (VoC) has become the established industry mantra. Questioning its validity was seen as verging on the heretical. Change, however, is on the horizon. While there is still appropriate reverence for the opinions and insights voiced by clinicians, there are definite shortcomings associated with listening only to customers: Clinicians are sometimes poor at self-reporting. Recognising that most thought is unconscious, what amount of false reporting or noise do we introduce when we interview (rather than observe) a clinician? Practitioners are often blind to disruption. Clinicians’ intellectual investment in the current standard of care (a given procedure) will often render them blind to, or simply unaware of, the potential for disruption at a procedural level. Key opinion leaders—a particular segment of the clinical population that is commonly sought out—are sometimes the wrong voices to listen to. Less skilled clinicians and users are an overlooked constituency and a larger market segment. The overarching point is that the tool and its applicability need to be fully understood. Before initiating any research, a prudent innovator should have a hypothesis as to where insight will come from and choose a research method (or methods) accordingly. Take laparoscopic gall stone removal for example. If ethnographic research is undertaken in isolation, insights will be gained into the limitations of current technologies. This will lead to ideas for new gall stone removal technologies. But there may well be an entire procedure-disruption angle. There may be a yet-to-be-discovered drug that will obviate the need for surgery entirely by preventing a stone from forming in the first place. If you have a surgical tools franchise that serves this market, you may miss a billion-euro disruption to your annual revenue. Conclusion With typical medical device budgets for front end work around the 1 million euro mark, it is clear that industry recognises the crucial position this early activity occupies within the innovation function. The key, however, is to make this investment valuable. Perhaps the single largest determinant of the practices one ought to adopt is competitive stance. Put bluntly, a company aspiring to lead in its sector will need to be more sophisticated in its front end execution than a company adopting a fast-follower competitive strategy. If a business unit expects to be the disruptor in its market niche, it will need to consider many of the practices and tools described here. The tools can be broken into groups: those that will take you to new needs and procedures (markets) and those that will take you to new solutions (technologies). If an innovation function is being led by a marketing executive, it would behove said executive to consider sophisticated solution research and creation tools. It is not enough to simply hand off a marketing brief to the company’s line extension technology team—it’s likely that they will dilute the opportunity with business-as-usual solutions. There is more to solution building than

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brainstorming workshops. Similarly, R&D-led functions should challenge their own level of market interrogation wisdom to see how aware they really are of the unmet needs of their customers. There is more to market research than clinician interviews. To front end sponsors perhaps reading this, we would counsel to let your front end innovation function mature into the delivery engine it needs to be to address your competitive agenda. Perhaps there are some governance and operational practices that can be adopted from those discussed here. A strong message from our research is that we ought not allow organisational structure legacy and tradition impede performance. To the front end doer, we would recommend looking at the toolbox you are drawing from and the bias that your background brings to the challenge. There are several tools listed in this report that might warrant a trial run. Dan Edwards is Vice President at Sagentia Harston Mill, Harston, Cambridge CB22 7GG, UK Tel. +44 1223 875 200 Email: dan.edwards@sagentia.com www.sagentia.com If you are interested in receiving the complete Sagentia research report, please contact Dan Edwards by e-mail, dan.edwards@sagentia.com

Sagentia Ltd Harston Mill Harston Cambridge CB22 7GG UK

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Sagentia

Sagentia is a global innovation, technology and product development company. We provide outsourced R&D consultancy services to start ups through to global market leaders in the medical, industrial and consumer sectors. With global headquarters in Cambridge, UK, and US headquarters in Cambridge, Massachusetts, Sagentia works with clients from front end market needs analysis through to transfer to manufacture. We deliver innovation around new technologies and new generation products and services that provide commercial value and market advantage. The company also assists business leaders to create strategies for technology, innovation and growth.

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