Large medtech companies aspire to innovation and efficiency through scale and diversification. However, despite their profitability, these strategies have not always succeeded in increasing shareholder value.
In the complex landscape of medtech, diversification presents unique challenges. Unlike other industries, the slow adoption of new products and the management of various business models hinder value creation. Companies that manage to overcome these obstacles rely on targeted strategies. For example, effective resource reallocation and adapting management styles can transform diverse portfolios into engines of growth. Additionally, the ability to spin off or refocus activities allows for maximizing the performance of each unit. Finally, using financial strength to invest in innovations or strategic partnerships opens up new opportunities. These approaches, when well executed, can truly revitalize the value of large medtech firms.

The large medtech companies are often seen as pillars of innovation and efficiency in the healthcare sector. However, the size and diversification of these multinationals can sometimes hinder their ability to generate shareholder value. So, are these giants too big to succeed, or can they overcome these challenges to revitalize their growth and profitability?

Why does diversification pose a problem for large medtechs?

In many industries, diversification is a key strategy to stimulate innovation and efficiency. Large diversified companies often manage to streamline their fixed costs, leverage their balance sheets, and build strong relationships with their customers, thereby generating superior returns for shareholders. However, in the medtech sector, this diversification does not bring the same benefits.

Structural reasons play a crucial role. The slow and cautious adoption of new products, as well as the different business models necessary to manage various types of products, make diversification less effective. Despite their high profitability, large medtechs have not been able to improve shareholder value at the same pace as in other industries. Learn more about the impact of Trump’s tariffs on medtechs.

What are the obstacles to resource reallocation in large medtechs?

One of the main advantages of large diversified companies is their ability to efficiently reallocate their resources. In sectors like enterprise software, this strategy works well due to strong competitive barriers. However, in medtech, rapid innovation and competitor initiatives can quickly erode these barriers.

Large medtechs must invest heavily in R&D, product development, and business initiatives to maintain their market leadership position. Consequently, sales, general, and administrative expenses (SG&A) increase almost at the same rate as those of high-growth companies, thus limiting the room to generate additional profits. Find out how the patient voice can transform innovation.

How do business model synergies fall short?

The medtech industry is extremely fragmented, with no single technology segment representing more than 10% of the total market. Geographically, the United States dominates with 40% of global sales, followed by China with nearly 15%. This geographical and sectoral fragmentation poses challenges for large diversified companies that must manage portfolios covering multiple markets and regions, each requiring distinct business models.

For example, a business unit specializing in innovative implantable devices will require a different approach than one focused on moderately innovative capital equipment. Imposing identical corporate standards on these disparate units can paralyze their ability to retain specialized talent and respond quickly to competitive moves. Read the inspiring story of the Hôtel-Dieu in the medtech sector.

Why can diversification limit the growth of medtechs?

Contrary to popular belief, diversification does not only reduce performance volatility but can also suppress growth. In a diversified company, it is unlikely that all business units will thrive simultaneously, which limits the overall growth potential. Moreover, the markets in which large medtechs operate are often mature and of limited size, making them vulnerable to slowdowns and disruptions.

Between 2022 and 2024, only three of the 30 fastest-growing medtech segments surpassed $3 billion, indicating that flagship products rarely have a significant impact on the performance of large companies. Explore the impact of data restrictions on health.

How does the slow adoption of new products affect large medtechs?

Innovations in medtech, while important, can take years to become profitable. During the initial years, companies must invest in clinical trials, physician education, care team training, and developing new product versions. Meanwhile, user adoption progresses slowly, which dilutes margins before revenues can significantly increase.

Investors tend to be more lenient towards small companies by valuing their promise of future growth, unlike large companies which must prove their profitability quickly. Technologies like surgical robots and neurovascular thrombectomy devices have demonstrated this phenomenon, where early iterations generate little revenue despite high valuations. Discover the biography of Hypokr and its revolution in medtech.

What strategies can unlock the value of large diversified medtechs?

To overcome the challenges of diversification, large medtechs can adopt several targeted strategies:

Allow business units to adopt their own management styles: By allowing each business unit to determine its organizational structure, compensation schemes, and strategic planning cycles, companies can promote rapid decision-making tailored to the specific needs of each unit. For example, Stryker uses a decentralized management model that allows its leaders to manage their business end-to-end.

Increase focus through divestitures or spin-offs: Evaluating whether each business unit would be more competitive as an independent entity is crucial. Successful divestitures require proper timing and readiness, as well as sufficient transparency for investors. Recent divestitures have increased by 30% over the last 24 months, demonstrating a trend towards a more concentrated portfolio.

Utilize the balance sheet to create growth opportunities: Rather than maintaining financial flexibility without leveraging it, large companies can invest in strategic acquisitions or innovative partnerships. Boston Scientific, for example, has used its balance sheet to become a successful venture capital investor, developing early relationships with innovators and facilitating the launch of start-ups. Hologic, on its part, has preferred to collaborate with other companies to build potentially disruptive innovations.

How can large medtechs foster an innovation culture?

An innovation culture is essential for large medtechs to unlock their potential. Encouraging an entrepreneurial mindset within business units, while maintaining strategic coordination at the corporate level, fosters the creativity and agility needed to respond to rapid market changes.

Establishing flexible support structures and encouraging experimentation can promote the emergence of new ideas and technologies. Moreover, integrating feedback from patients and healthcare professionals into the innovation process ensures that developed products genuinely meet clinical needs.

What are successful examples of large medtechs overcoming these challenges?

Some large medtechs have already demonstrated that it is possible to overcome the obstacles of diversification. Stryker, for example, by adopting decentralized management, has succeeded in maintaining agility and innovation within its various business units. Boston Scientific has indirectly supported innovation by investing in promising start-ups, leading to strategic acquisitions and the expansion of their product portfolio.

Another example is Hologic, which has used partnerships to integrate disruptive technologies without burdening its internal structure. These successes show that by adopting tailored strategies, large medtech companies can not only survive but also thrive in a competitive environment.

How to align management of large medtechs with shareholder expectations?

To align management with shareholder expectations, large medtechs must transparently communicate their growth and diversification strategies. This includes clear disclosure of investment priorities, divestiture plans, and innovation initiatives. By demonstrating a commitment to targeted value creation strategies, companies can reassure investors about their capacity to generate sustainable returns.

Additionally, involving shareholders in strategic decisions and gathering their feedback can strengthen trust and alignment on the company’s objectives. A robust corporate governance, focused on transparency and accountability, is also essential to maintain investor trust and attract new capital.

What is the importance of open innovation in large medtechs?

Open innovation allows large medtechs to collaborate with start-ups, universities, and other external partners to accelerate the development of new technologies and solutions. By adopting an open approach, companies can leverage external expertise and quickly integrate innovations without having to develop them in-house, thus reducing costs and time to market.

This strategy also promotes flexibility and adaptability, allowing large medtechs to respond more rapidly to market changes and customer needs. By fostering a culture of open innovation, companies can not only enhance their product portfolio but also strengthen their long-term competitive position.

How do emerging technologies influence large medtechs?

Emerging technologies, such as artificial intelligence (AI) and machine learning, play an increasingly crucial role in the medtech sector. However, the adoption of these technologies can be complex for large companies due to regulatory constraints and product development requirements.

Large medtechs must invest in advanced technological infrastructures and train their teams on the new skills needed to fully exploit the potential of AI and other technologies. Furthermore, collaborating with technology partners and start-ups can facilitate the integration of these innovations and enable a faster and more efficient digital transformation.

It is also essential to comply with strict regulations surrounding health data, which can hinder the development of AI in medtech. However, by finding a balance between innovation and compliance, large medtechs can leverage emerging technologies to improve their products and services while adhering to safety and privacy standards.

In summary

Large medtech companies face unique challenges due to their size and diversification. However, by adopting targeted strategies such as decentralized management, strategic divestitures, and open innovation, they can overcome these obstacles and unlock significant value for shareholders. The key lies in agile management, a culture of innovation, and constant adaptation to market and technology changes.