Medical Device Link.

Originally Published MX January/February 2003

COVER STORY

Remolding a Leader

Interview by Steve Halasey

Martin D. Madaus,  president and CEO  of Roche Diagnostics,  on leadership  in the market— and in the boardroom.

Leadership counts—and not just on the bottom line. Company leadership can influence the direction of a marketplace and its investors, making available resources that would otherwise have gone into other sectors or industries. And personal leadership can encourage companies to take on challenges well beyond those of an already competitive marketplace.

But don’t take our word for it. Ask Martin D. Madaus, president and CEO of Roche Diagnostics Corp. (Indianapolis), the leader in the global market for in vitro diagnostics (IVDs). Rising through the ranks at Boehringer Mannheim (acquired by Roche in 1997), Madaus took over the helm of the company in January 2000. He arrived with a clear notion of the kind of company he wanted to lead, and rapidly set about putting his changes in motion.

Madaus’s efforts have paid off in the company’s bottom line—and elsewhere. During the past year, Roche has repeatedly grabbed top honors at a wide variety of awards presentations. In December, the company’s e-business unit received nine awards from the Forum for Healthcare Strategists (Chicago) for its e-healthcare initiatives. And in November, Frost & Sullivan (New York City) named Roche its company of the year in the field of clinical diagnostics, awarded the company a market engineering leadership award, and honored Madaus as the clinical diagnostics CEO of the year.

Honors have also followed the company’s products. In August, the National Association of Chain Drug Stores (Alexandria, VA) named Roche’s Accu-Chek Compact integrated blood glucose monitoring system the best product in home healthcare. And in June, the same product earned a gold award in the IVD category of the Medical Design Excellence Awards sponsored by Canon Communications llc (Los Angeles), publisher of MX.

In this excerpted interview with MX editor-in-chief Steve Halasey, Madaus discusses his vision for the IVD sector, and how he has gone about shaping his company to remain a leader in the field. The complete transcript of the interview can be accessed via the MX Web site at http://www.devicelink.com/mx.

MX: How does Roche view the current opportunities in the diagnostics marketplace?
Martin D. Madaus: Of course the diagnostics marketplace has many different segments, the largest of which are in the classical laboratory testing areas of clinical chemistry, immunochemistry, hematology, and so on. In these classical areas, we envision continuous growth in the single digits—4 or 5%. That level of growth isn’t too exciting, but these business areas are solid and they provide a good cornerstone. 

There can be some quite large differences in the levels of growth, depending on what new analytes we launch and whether we can bring effective automation and integration to the market. Because of the demand for such improvements, the market for diagnostics intended for use in central laboratories will continue to grow. 

What opportunities are emerging in new areas of the diagnostics sector?
The new area of molecular diagnostics is very promising for us and for the industry as a whole. Molecular diagnostics enable clinicians to perform diagnostic testing at the molecular level, and they are more sensitive and more specific than previously existing tests. Consequently, they enable us to go into completely new areas of diagnosis. 

Using molecular technologies, we can detect disease before disease symptoms occur. For instance, the use of molecular tests for viral load monitoring is already the standard of care today. 

In the future, we will move beyond the focus on testing for infectious-disease markers for HIV, hepatitis B, and hepatitis C, which currently make up the majority of the molecular tests used in the clinical diagnosis and blood-screening markets. In the near term, we’ll be expanding the use of molecular diagnostics into other infectious-disease areas, such as microbiology testing and sepsis testing. And then, more and more, we expect to move into genetic type-testing or pharmacogenomic testing.

These are promising areas that are very important for the future of diagnostics. Over the next year, we predict that this market will grow 15 to 20%, depending on the region.

Roche also has a strong presence in the field of point-of-care (POC) diagnostics, including home-use devices for blood glucose monitoring. How important are these areas to Roche and to industry as a whole?

Blood glucose monitoring is today the second-largest market segment in the industry, so this type of POC testing is critical. Moreover, it is continuing to grow, and over the next 10 years I think it has an opportunity to become the largest segment. So, for the future, glucose monitoring is absolutely paramount for the diagnostics industry and for Roche. 

There are other types of POC testing that are also important, but much less important. There’s coagulation monitoring, which is a good area. There is still a certain market for physician office testing. And there’s the hospital market for POC testing for critical, medically urgent parameters, which is also a smaller market. 

Four-Dimensional Leadership

In terms of revenues, the merger with Boehringer Mannheim made Roche the largest of the Big Seven companies in the IVD sector. When you were appointed president and CEO of the U.S. division of Roche Diagnostics in January 2000, what was your initial feeling about taking over the helm of such a market leader? 
By itself, market leadership—being number one—doesn’t have a lot of value to customers. Customers may think that it’s good to do business with the number-one, -two, or -three companies in the sector because they’re big, and that means they’re solid companies. But there are other factors that are just as important, or maybe even more important. 

Before my appointment, I had the advantage of having worked in the company in various functions. So when I took this position, I had some idea of what I wanted to change. One of the first things I wanted to do was to bring a strong customer focus to the organization, so that the company would be first not only in terms of market share, but also recognized externally as being first in terms of customer satisfaction. 
I also wanted to make the company number one in terms of its financial performance. That’s an important factor, because we reinvest a lot of our revenues into this business.

And finally, I wanted Roche to be recognized—internally and externally—as the employer of choice for the diagnostics sector, the company that everyone in the sector aspires to work for. That meant developing a strong focus on employee development and retention, and leadership development, so that we could become number one in our employees’ eyes. 

Since the summer of 2000, our mission has been to achieve the leadership position in all four of these dimensions: market leadership, financial performance, customer focus, and employee desirability. 

What have been the results of your efforts? 
They are certainly beginning to have an effect. For instance, we recently received the results of a survey conducted by the Lab Institute (New York City) to rate the services provided by vendors in the IVD sector. Of the seven companies included in the survey—including all of the other large IVD companies—Roche ranked highest by far. So I would say that our efforts to develop a customer focus are starting to produce some excellent results. 

How did you identify the areas in which you felt the company needed to change? Did you have a clear set of ideas even before you began the process? 
Yes. For example, I had some very clear ideas about changing the company culture. Because I had lived through the processes here, in various functions, it was very clear to me what needed to be changed. 

For the service portion of customer satisfaction, for instance, I looked at the various indicators from two points of view. First, what was it that people were measuring, and were those relevant indicators of our customer service? The answer to that question right away says something about a company’s customer focus. 

And then, if the measures are relevant, how is the company doing in comparison to other companies? In that realm, I felt there was clearly some room for improvement.

One can’t get a whole company to change overnight—especially a company the size of Roche. What was your first step? 
One has to take it one department or one business unit at a time. That’s very important, because if you open everything at the same time, it will fall on you. You won’t be able to recover. 

I started with our lab business, and basically reorganized the entire leadership team of that business. It’s important to get the right management team and leadership in place. Only after that task was finished could we begin to change the strategy for the business.

What was the nature of the process that you went through to identify necessary structural changes?
The various leaders of the company’s businesses and functions started out by defining what the major success factors were for their units. In other words, the units defined what was important to them. And from that basis, we attempted to define what was important to the company as a whole. 
As it happened, the group quickly came to a consensus that our customers were our most important success factor. And that consensus naturally led to the conclusion that we needed to focus more on our customers—and in many different ways. We needed to focus on our customers not only in the way we operated, but also in the ways we were structured—how our business units were aligned internally, and how our organization as a whole aligned with those of our customers. 

How did this play out for the other dimensions of the company in which you wanted to make changes? 
Every company has goals—especially quarterly and annual financial goals. But we decided that if we were to be successful with the changes we wanted to make, we would have to take a longer view. So we established a number of three-year goals that corresponded to each of the dimensions where we wanted to make changes: financial goals in different areas, customer-focused goals, and employee goals.

Senior management and management teams need common goals. Otherwise, all of the company’s activities are defined merely by functional or business-specific goals and initiatives that aren’t necessarily shared by all of the company’s employees. The goals and initiatives that we developed—financial goals, human asset goals, the supply-chain initiative, and so on—were all shared throughout the company. And that helps to create a good dynamic within the company.

Were the employees incentivized in some way to achieve the goals?
Yes, we have incentive plans for all full-time employees now. All together, that’s close to 3500 employees, and they all have incentive plans. 

Sharing Success

I assume that individual department heads are responsible for managing and measuring the achievement of these goals. Do you set up milestones in advance?
Yes, both. We set annual targets, which are basically milestones along the way, and at least once a quarter we update everyone on how we are tracking against those milestones. We call this performance sharing, because we basically share the success of the company if we achieve a certain target. 

Is there also a sense of risk-sharing among the company’s employees?
No, we don’t have that. Among senior managers there is always a component of the compensation package that is variable pay, and that component can always be counted on to act as an incentive. A manager whose department is not hitting its goals might get very little or no variable pay. So that component is at risk. But for the majority of employees, that’s not the case. 

For the performance sharing-plan to work well, it’s absolutely essential that we create among our employees a sense of transparency about what we want to achieve. We try to make it very clear what counts, and we encourage employees to think about how their work can have a positive impact on the performance-sharing plan. 

One danger with programs such as this is that they can easily come to be seen as entitlements. So it’s very important for us to communicate the nature of the performance-sharing plan among all our employees. We make it very clear that we have to earn this program every year. It’s not automatic. 

What kinds of ideas has the performance-sharing plan stimulated among the company’s employees? Are most of the ideas focused on new products?
A good half of the new ideas brought forward by employees are product ideas. 

Second to those, we’ve received a number of good service-related ideas. We certainly believe in the important value that services add to our products, so we’ve given a lot of emphasis to such service ideas. Some of those may result in the creation of small-business initiatives. 
We have received a few ideas for improving our processes, but not too many. 

What is the process that Roche uses to evaluate the commercial viability of a product idea?
We have a person who is responsible for business development. It is that person’s role to take the ideas and bring them through a filtering process. 
In North America, we have a growth board that meets once a month. That group conducts an overall business assessment of each idea, including a technology assessment, an investment assessment, and so on. On the basis of these mini business plans, the board assesses the ideas and decides which ones should be advanced. 

If the idea would involve a major transaction, we could potentially bring our global group into play.

Is it also important to communicate these internal performance goals among your customers?
Particularly in those businesses where we work very closely with customers, yes, we tell our key customers a lot. We invite key customers to a lot of advisory board meetings, and some customers act as sounding boards and help us to develop our business strategies. 
In an annual review, for instance, they might remind us that they had recommended we take certain actions over the course of the previous year. We could then review what we had done in response to that recommendation, and they could help us to determine whether we had responded appropriately. Sometimes they end up saying, “Well, it’s not enough.” 

The Next Challenge

In light of the process that you went through to reform Roche’s mission, what lessons can you offer to other companies—whether they are already market leaders, or smaller companies that aspire to be market leaders?
The number-one lesson is that there’s tremendous power in achieving alignment among a company’s senior leadership. Companies have to be patient, because this kind of aligned leadership doesn’t happen overnight. But if company leaders stay at it and work on it continuously, eventually it will happen. 

Another lesson is that companies should be prepared, once they’ve achieved a certain improvement, to think about what comes next. That’s the next leadership challenge—to be prepared to define and give direction to the company’s next steps. 

So this is an ongoing process that allows you not only to establish goals now, but to keep them fresh and updated in the future?
Yes, because if a company reaches a certain plateau and just stops, it will fall behind very rapidly. Company leaders have to be prepared to look ahead toward the next question, to figure out what the company’s next moves should be. 

Copyright ©2003 MX