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The pressure to innovate device designs while keeping budgets in check is a familiar stressor for every orthopedic R&D team. It’s a segment of the industry that has a profound potential to increase profits and further patient outcomes, but leveraging strategic planning into new product revenue isn’t a straightforward exercise.
The orthopedic industry is going through a digital transformation. Navigating successful R&D projects requires understanding traditional practices while keeping an eye on ways that digital solutions are forcing manufacturers to transition from running medical device companies to heading medtech firms.
Doug Billings, Managing Director of MedTech Innovation and Product Development at Deloitte Consulting, boiled down the measure of success to a simple truth based on three decades of benchmarking data.
“Companies that win spend more money early to understand the market and de-risk product lifecycles,” he said. “They grow faster and better.”
Speed vs. Predictability
Billings described two metrics often used to measure the profitability and success of product development efforts.
The first involves determining how much of a company’s revenue is based on products launched in the last three years. For example, what percentage of 2022 revenue came from products launched in 2019, 2020 and 2021? Billings said this metric is the best way to isolate the impact new devices have on product portfolios.
The second metric is called predictable product goal achievement, which involves determining how often R&D teams hit the goals they set at the beginning of projects.
Billings studied 20 large, influential device companies and analyzed the way that speed and predictability metrics set the top five firms apart from the rest of the group.
He found that new product revenue for the top performers accounted for 23% of total earnings compared to an average of just 8% for the other companies. He also analyzed whether a faster time to market was related to the significant boost in revenue for top performers, and found that it was — but with a major caveat.
Speed is crucial to the success of high-performing product development teams, but it doesn’t serve as a powerful asset during the product transformational stage, when challenging tasks are completed.
“Top R&D teams are good at cranking out the subsequent steps,” Billings said. “They’ve got disciplined processes in place. That’s what drives higher revenue when you look at the data. So yes, speed does matter, but only for completing the easier tasks of product development.”
Billings urged R&D teams to view time as an input metric rather than an outcome measure. “Being fast isn’t necessarily good,” he said. “I’ve seen lots of companies get bad products to market fast.”
Product development doesn’t end when devices are launched, according to Billings. “Launching a product, commercializing it and achieving market stability is actually what counts,” he said. “The product development cycle runs from when the product is defined to when stable commercialization is achieved.”
In a field rife with budgetary and timeline pressures, R&D teams are often placed in the unenviable position of needing to push back against their colleagues and superiors when asked to rush certain aspects of the design process or compromise a project’s end goals.
Based on the stable commercialization metric that Billings highlighted, R&D teams won’t be doing themselves or their companies any favors by hastening the product development process or pushing devices through to market before they’re ready.
Companies that typically outperform the competition in moving fast to develop revenue-generating products don’t achieve process predictability, noted Billings. Baking predictability into every aspect of the R&D process is a specific approach that orthopedic companies take when they value expected results more than a faster time to market.
R&D teams that focus on predictability have lower rates of schedule slippage and spend less on sustaining engineering — the investments that companies make to maintain a product’s original performance once it is introduced to the market.
“But these companies don’t typically achieve high revenue from new products,” Billings said. “That’s an interesting dichotomy.”
Maintaining predictability often involves tapping into external resources to complete steps of a project for which R&D teams have little experience or need additional help.
“Predictability comes from working with outside experts and working with them well,” Billings said. “Finding the right suppliers in the market can help improve the aspects of product development that companies struggle with or help them achieve surge capacity, which prevents bottlenecks.”
Predictability creates a disciplined approach to project management that can also lead to a risk-averse mindset.
“If a team sets aggressive goals and comes up short, but the overall performance was good or above average, that’s not a predictable result,” Billings said. “But is that bad, or just a different way of working?”
He pointed out that his research didn’t find an overlap between companies that are top performers in new product revenue contribution and those that focus on achieving process predictability. Revenue contribution leaders are slightly less predictable, perhaps because they’re pushing hard to commercialize products to drive revenue. Companies that value predictability are often more conservative in their efforts to increase the bottom line.
But spending upfront money to de-risk the product development process ultimately provides more available funds to reinvest in innovation and advancing technologies. That should be the goal of any R&D team, regardless of whether they try to drive revenue through new product introductions or focus on running predictable product development projects.
“It’s a positive loop,” Billings said. “Establishing and maintaining that loop is key to being a consistently high performer in new product development.”
Failing Fast to Move Forward
The core finding of Billings’ research holds true, regardless of how fast R&D teams work or how much they prioritize predictability: Companies that invest in de-risking the front end of the product development process universally perform better than those that don’t.
However, R&D experts have a habit of ignoring the importance of spending early to reduce risks because they conflate design activity with progress. That’s a common and costly mistake.
Spending late to correct risks often results in companies frantically bringing products to market that are not ready for prime time. Early de-risking allows teams to achieve predictable results and reach project milestones faster.
Billings noted that the product development process is sometimes an exercise in experimentation and failure. He acknowledged that R&D teams might find it difficult to wait for the ROI of de-risking projects when they spend significant money without receiving feedback about the payoff until the end of the product lifecycle.
Successful companies have flipped that script.
“The key metric doesn’t measure how fast or consistently projects are completed. It involves figuring out if it can be done,” Billings said. “That requires reducing early risk. Fail fast and move on instead of continually plowing money into something your company can’t do.”
During visits with orthopedic R&D teams, Billings often notices that 80% of pre-design spending is allocated to project elements that companies have already mastered, while 20% is spent on the elements in which they lack expertise. That’s a backward strategy.
Billings said that he can typically find a 20% productivity improvement in an R&D budget simply by identifying funds that shouldn’t be spent in parallel to money that’s allocated to de-risking a project’s high-risk elements.
“That’s a huge gain in an industry with high regulatory risks and costs,” Billings said. “You’re not only saving resources, but you’re also repurposing them in a productive way.”
