Medical Device Link.

Originally Published MX May/June 2005

COVER STORY

Moderated by Steve Halasey

It's rarely news outside industry, but it's a big deal when the leadership of a major medtech corporation changes hands. So it's understandable that this year's annual meeting of industry association AdvaMed (Washington, DC) devoted a special session to commemorating a rare and bittersweet event: the simultaneous retirement of three medical technology leaders who have contributed mightily to the growth of their own companies and to the advancement of industry.

Retiring CEOs Ron Dollens (Guidant Corp.), Jack Wareham (Beckman Coulter Inc.), and John Brown (Stryker Corp.) share insights on leadership and change in the medical device industry. (click to enlarge)

Such key executives generally don't leave easily or quickly, as the gradual pace of these three retirements demonstrates. John W. Brown of Stryker Corp. (Kalamazoo, MI) retired his position as CEO in January, remaining as chairman of the company's board of directors. Ronald W. Dollens, president and CEO of Guidant Corp. (Indianapolis), announced his intent to retire last year, but agreed to remain with the company until the completion of its acquisition by Johnson & Johnson (New Brunswick, NJ). Approved by Guidant stockholders at the end of April, that deal is expected to close in the third quarter of this year. John P. Wareham of Beckman Coulter Inc. (Fullerton, CA) turned over his duties as president in December 2003, retired as CEO in February of this year, and relinquished his position as chairman at the beginning of April.

At the AdvaMed meeting, presentations by each of the three executives were followed by a special CEO panel moderated by MX editor in chief Steve Halasey. During this Q&A session, the executives commented on leadership trends affecting the medical device industry, the qualities of leadership needed in today's business environment, and the challenge of keeping up with shifts in public policy. This issue's cover story presents excerpts from this CEO panel.

MX: Some of those who closely watch the behavior of corporations in the United States and around the globe have argued that we are now in a period in which leadership is endangered, and they point to some of the recent corporate scandals as evidence of that emerging crisis. Do you agree that we are in a period of management or leadership crisis, and what examples would you point out as indicators that we are in that situation—or not?

John W. Brown: I don't think we have a crisis in this field. If you step back and look at the leadership in medical devices, it's pretty good. By comparison with some of the other industries, there have been few cases of scandal or people trying to do anything that's unethical or illegal. So I'd say our industry is well represented by its management overall.

Ronald W. Dollens: I guess I would say almost the opposite. I think we’ve got a crisis, but it is a crisis of management, not of leadership.

It's partly a definitional thing, but I think the two are very different. Management skills are transferable. They are skills that can be learned: planning, controlling, budgeting, staffing, decision making. By contrast, leadership is knowledge-based. Leadership is about vision, about getting alignment within an organization, and about getting constructive results.

When I look into organizations, I find that the shortcomings are predominantly in the areas of management skills. In most examples where people fail, the failing is really in not having a good management process in place; not in what I would define as leadership.

"If you have a passion for the customer, and you understand customers better than they understand themselves, I think you've got the secret for success."

John P. Wareham: I honestly have to be in between those views. Ron's got a point, in that there is a difference between leadership and management.

On the other hand, another dimension is the incredible transparency of our jobs today. There is a strong tendency for the short term and the sound bite to start driving leaders. Consequently, leaders need a lot more endurance today than they did 20 years ago. I'm not sure our current situation reflects a dearth of leadership so much as it does a change of environment.

Personally speaking, what qualities of leadership have been most important to you during your careers?

Brown: My personal philosophy is that the great leaders serve their organizations, set great examples, and are consistent. These are really old-fashioned characteristics that we each learn at our mother's knee. Leaders that exhibit these characteristics will get the hearts and the minds of the organization, and that's what it's all about.

Dollens: I think the most difficult part of being a leader is what I would call the alignment piece. And the ability to do it well probably builds on the characteristics that John was talking about.

It is not that hard—if you really work at it and if you're good at it—to do the vision piece, to do the strategy piece. But it can be very difficult to get the rest of the organization to understand that it is in their best interests to go where you think they ought to go. Accomplishing this requires the leader to have built credibility throughout the organization, so that employees will follow.

And it's never good enough for the leader to talk about the company's direction just once. You will have to talk about it so often that you will bore yourself—literally bore yourself—in order to convince the organization's employees that the company's direction and destination are in their best interests. So obviously, in this regard, leadership is defined by the followers.

Wareham: The vision piece is very important. And being able to communicate that vision is also important.

But there's also a need for perseverance, because institutional resistance to change can be huge. When I first began showing our biomedical testing continuum, people thought we were crazy. We were trying to change an engineering company into a biomedical testing company, and that just wasn't in the culture.

Leaders have to pursue their vision, and they have to sell it, and sell it, and sell it. And then, once you've sold it and everybody says 'What a great idea I had,' you have to resist it. You have to start resisting it yourself, or it can go too far and get out of control.

So selling the vision and perseverance are two major leadership qualities.

Were there particular experiences in your own lives from which you drew leadership skills of importance?

Brown: When I'm speaking to our management leadership classes, I often use the example of an incident that happened to me when I was about three years old, which I recall very vividly.

You understand, I grew up in west Tennessee on a dirt farm. My father had been in the auto industry and had been laid off during the great crash and depression. He and his brother had a 40-acre red clay farm on which they were growing truck crops—particularly tomatoes—that they would load onto an old flatbed truck and take into town to sell.

So one Saturday morning they were loading tomatoes onto the back of the truck, and they were working hard and dripping with sweat. And while I was watching them, I began thinking about what was going to happen next. Because I knew that when they went into town we could go to a feed and supply store, and we could get some ice cream. At this particular store you could get a double cone for a nickel.

So I was thinking about this ice cream, and I kept wandering up close to where my father was working. And finally he turned to me and said, 'Son, get out of the way.' So I got out of the way. They continued working, but I wandered up again, and a few minutes later my father said again, 'I told you, get back.' So I got back.

A few minutes later I wandered up again. But this time, my father reached down and picked up an old tire-pump hose and came up with an Agassi kind of backstroke, and caught me across the backside—I mean, he just really flailed me. I screamed to high heaven; but I didn't cry, because I knew if I cried I'd get hit again.

The point being, when people are really hard at work, stay out of their way.

And to be honest, I've watched it over and over in young managers trying to make the transition Ron was talking about, from being managers to becoming leaders. They don't know for sure whether they're managers or leaders. They want to be called leaders, but they're trying to manage. And they're in the way. And they would be so much better off if they just stepped back.

Dollens: When I'm in front of our group I use a story about when I was with Advanced Cardiovascular Systems, which was Eli Lilly's California operation before we formed Guidant. In fact, I've told the story so many times that our group is tired of hearing it.

But, we had a young guy running the pilot plant. He was about 30 years old, and the rest of the senior management team was 40-50 years old. But this young fellow was far and away the most insightful person on the whole team. He didn't say much, but when he did it was just incredibly well thought out.

So I went to the CEO at the time, and I asked, 'What is it about this guy? He's got a level of maturity, insight, and understanding far beyond his years.' The CEO didn’t hesitate long. He said, 'Ron, he's had great experiences, and he was awake during all of them.'

And I think this speaks to John's point, that not all of the formative experiences are going to take place at work. They're going to be at lots of different times and in lots of different places.

When you are dealing with people in an organization, it frequently happens that two sets of people have exactly the same experiences and yet they are far removed from coming to the same conclusion about what the experiences meant. But when you are a manager, it is absolutely important to get alignment in your organization. So it's equally important that, as the organization has experiences, you're willing to expend the time to talk about what was learned.

Wareham: What comes to my mind when I think about this is the customer. I think you have to know your customers better than the customers know themselves. Because that's what we do; we anticipate.

I grew up in a small town in Iowa. My dad was a pharmacist who had a local pharmacy, and he was very customer oriented. We used to work there until five o'clock in the afternoon on Christmas Eve. Dad used to walk outside and see if anybody else was left on the street before he’d go home, because he wanted to make sure that that last customer was taken care of. So, if you have a passion for the customer, and you understand customers better than they understand themselves, I think you’ve got the secret for success.

What is the best training ground for the next generation of leaders? Is it possible in today’s environment for next-generation leaders to follow in your footsteps, to come up the way that you did?

Dollens: Yes, absolutely. I've mostly been in a large corporation, but I've done a lot of work with people in early-stage companies, so I've kind of been on both sides. I feel strongly that having a chance to be in a large corporate entity that cares about its employees and is willing to expend resources for their development is hugely important.

The only challenge one has with an early-stage company is that you're hiring a horse for the course. Whatever you gain, you gain by doing that job; and people aren't spending a whole lot of energy trying to teach you anything else.

So, some of us were in large corporate entities—at least before we got a chance to do something a little smaller—and I think that our personal development was advantaged by that.

In today's environment, would you recommend coming up in a pharma company to get into the medical device arena?

Dollens: Yes, well, pharma is going to be tough. It's a tough business. But do I think pharma companies have historically done a great job developing people? Absolutely; if you were to look across our industry and ask people to raise their hand if they have had any pharma experience—and I think many are even my competitors—you might be hard-pressed to find any that didn't.

Brown: I was with Squibb, so I can't disagree.

Wareham: I think that pharma was a great training ground. All three of us came through some pharmaceutical company—all different companies, but we all went through them. But I'm not sure it's going to be that way in the future. From that point of view, maybe the industry has lost something.

On the other hand, I think our companies are getting to the size now where we can afford to support the people-development processes that we were all exposed to when we were younger. So I'm not sure there’s going to be a problem.

Is it possible today for the leaders of emerging, start-up companies—the fellow who is fresh out of the lab or the clinic with a great idea—to actually grow a business and become a business leader? How does that person learn this business?

"When you are a manager, it is absolutely important to get alignment in your organization. So it's equally important, that, as the organization has experiences, you're willing to expend the time to talk about what was learned."

Dollens: It is possible. But I get hugely frustrated by the fact that nobody today wants to grow a company. There's not one medtech company in Silicon Valley today that plans to be there three years from now. If they are there three years from now, it's because the business didn’t work out.

Now that's probably a slight overstatement. But when these companies put their business plan together, they put their exit strategy on the front page. So there is a certain level of frustration that these companies are all about wealth creation; they're not about trying to create something.

It would be hugely refreshing to have a conversation with somebody who said 'I'm going to put something together, and I plan for it to be here 25 years from now.' But that's not a conversation you ever hear.

Jack suggested that the environment has changed, and in turn has changed some of the requirements for corporate leadership. In the device industry in particular, what skills are required now that might not have been 20 or 30 years ago?

Brown: Well, to begin with, the competition is tougher today than ever. If you go back 25 to 30 years, it was pretty well accepted back then that certain companies dominated their industry, and there was no particular effort made to knock them off. Today, it's a brawl every day in the marketplace. So I think the competition is much more intense today than it was a few years ago.

Does that lead to the possibility that salespeople and corporate management might be tempted to do something they might otherwise not do?

Brown: The temptations to violate the rules are greater today than ever, but there are guidelines available. That's one of the wonderful things about this organization. By compiling the AdvaMed code of ethics and putting in place all the training and support activities that have been created, AdvaMed has really brought to the forefront—to the investment community, the clinical community, and to those of us in industry—that there is a set code that we all should be trying to follow.

Dollens: Jack mentioned the issue of transparency, which has changed a great deal. In the early years after Guidant became a public company, we had to introduce securities analysts to clinicians, because they didn’t know any of them. So we would go to a meeting or set up a dinner for them, and put some docs around the table so that the analysts could ask questions about different therapies or different products.

That situation has now migrated to such an extent that not only do analyst firms have a number of consulting clinicians on their payroll, there has been a time or two when the analysts had the answers to my clinical trials before I had the answers to them. And that is a disastrous situation.

When you're in that situation, the job becomes all about going hour by hour, day by day. The average tenure for a CEO at a Fortune 500 company is already just 4.5 years. So, in the future, having a CEO in a job at a Fortune 500 company for more than 10 years is going to be a rare exception.

Brown: No!

Is it important that companies in this industry take the opportunity to translate their leadership skills from company leadership to industry leadership?

Dollens: Well, yes, if you believe that such involvement is fundamentally important to your company. And if it is, then you don't have any other choice; you’ve got to be able to get involved. Shaping public policy is a great example of that.

But it's not some kind of philanthropic orientation. It is just a matter of understanding what factors are going to determine whether or not your business is interesting. And if it turns out that something like health policy will dictate that, then you had better be willing to expend your energy and become involved. Because you just can’t let someone else carry that water for you.

Wareham: I think it's very important that companies have an ability to speak out and put their best foot forward as an companies. The diagnostics industry is a perfect example of one in which the technology revolution has been astounding. Yet it has been considered a cost center within most of our customers and has not been appreciated as much as it should have been. I think our industry—particularly the diagnostics industry—needs to educate not only securities analysts, but also physicians and hospital administrators; and I think that's something that is very important.

John, is that equally true in the orthopedics and wound-care sectors?

"My personal philosophy is that great leaders serve their organizations, set great examples, and are consistent. These are really old-fashioned characteristics that we each learn at our mother's knee."

Brown: I think so.

My impression is that the medical device industry's knowledge of itself and understanding of policy and business issues has increased significantly since the medical device arena was first regulated. Do you share that impression, and what's the future for business in that light?

Dollens: I would start from the regulatory side. When this organization was called the Health Industry Manufacturers Association, our entire focus was on FDA. And we had to pass the hat to do anything special with regard to payment issues. And we had to get invited to go to either Europe or Japan.

Now, think about how that has changed. Today, it is not about FDA, it is about the Centers for Medicare and Medicaid Services (CMS). FDA may dictate how successful you're going to be. But CMS will dictate whether the environment exists at all for you to be successful.

And the influence of this change is not merely a U.S.-centric kind of thing. We are increasingly aware that what happens in Europe and Japan is fundamentally important not only to our business, but for what's going to happen in the United States.

So this organization has changed immensely. And the industry has become much more astute, I think, understanding that.

Wareham: There's no doubt that you can have technical successes and commercial failures because of reimbursement. Particularly in the IVD industry, that's the case. It can take five, six, or even seven years to get any kind of reimbursement.

Do you see the trend toward globalization continuing without change or abatement in pace?

Wareham: Yes. We have all witnessed the phenomenal growth that's going on in China today, and many of us are participating in that growth. Certainly, this is a global business.

Brown: It starts really with clinical practice, and clinical practices are also going global. And as a result of the electronic age, clinicians in Sydney are in touch with clinicians in Stanford and New York and London and so on. So in every specialty, there's a group of elite clinicians who are now driving clinical practice around the world. And it's just a matter of time before that, in turn, affects us as medical product suppliers.

Copyright ©2005 MX