Featured case: NayaMed (A)

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The case

Who – the protagonist

Aarnav Sendutta, General Manager, NayaMed.

heartbeat

What

NayaMed, part of Medtronic, was formed to distribute Medtronic’s economy range of heart pacemakers and defibrillators – devices that ensure the proper functioning of the heart.

Why

Hospitals were looking to purchase at the economy end of the product range and there was strong pressure on medical staff to choose the least expensive products. In Europe, for example, governments responsible for healthcare were facing the increased cost pressures of ageing populations. Typically, hospitals were told they could buy the same amount of pacemakers as the previous year, but for a lower overall cost.

When

Arne Larsson The first external pacemakers were developed in the 1950s. In 1958, one was implanted in a patient for the first time.

Medtronic was founded in 1949, initially as a medical equipment repair shop by Earl Bakken and his brother-in-law, Palmer Hermundslie. 

NayaMed was created following extensive market research carried out by Medtronic in 2009. By 2014, General Manager, Aarnav Sendutta was facing the challenge of how to grow the fledgling company.

Where

NayaMed initially operated from its Lausanne base in Switzerland, targeting only Italy, Germany and Sweden. The decision to focus on Europe was based on the fact that European hospitals were facing increasing cost pressures.

Key quote

‘If the medtech sector is to continue to reward investors and generate value that outperforms the overall market, it will need to fundamentally rethink its operational and sales cost structures.’ – BCG (Boston Consulting Group) ‘medtech’ report, 2014

What next?

The NayaMed business had grown, generating US $4 million in its second year, but further growth was proving very tricky to achieve. With 50 years of experience and reputation, medics knew they could trust Medtronic products, but at the economy end of the range it had strong competition from rivals. In addition, Medtronic management and reps saw NayaMed as a threat and would even tell customers that its devices were junk, unlike genuine Medtronic products. Aarnav had to find solutions – and time was not on his side.

 
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NayaMed (A)
Ref 315-105-1
NayaMed (B)
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Teaching note
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The authors
Authors

Costas Markides, Daniel Oyon and Lisa Duke

Costas, Daniel and Lisa explain why their case goes beyond some traditional textbook answers to common challenges.

Facing a common challenge

The case covers a topic that many organisations and businesses face, including newspapers, airlines, banking, insurance, and telecoms: how to manage a second business model in the same industry, especially when it is disruptive to the first one.

More complicated

We chose to make this a case series because we wanted to show students that answers to managerial challenges can be more complicated than those given in textbooks! For example, the typical answer that academics give to the question of how a firm can compete with two business models at the same time is to say that the second business model should be grown in a separate unit. 

But case (A) describes how Medtronic did exactly this by creating the NayaMed unit, yet the strategy was not successful. Why not? What else is required beyond the textbook answer to create a separate unit and compete successfully with two business models? This is what case (B) explores.

nayamedActive support

One key learning point from NayaMed (A) is that simply creating a separate unit to grow a second business model is not enough to ensure success. The second business model is disruptive to the main business model of the firm so managers will always find ways to undermine it. As well as separation, the second business model needs active support from the leaders of the firm.

Managing conflict

PacemakerThe case also demonstrates that conflicts between the two business models can and should be managed – not ignored in the hope that they will go away. For example, the big conflict in this case is that NayaMed was cannibalising the customer base of Medtronic. It needed to minimise this conflict, for example, by targeting small or rural hospitals where Medtronic was not doing business or countries where it did not have a big presence.

Emotional commitment

QatarAs NayaMed demonstrates, it’s important to exploit synergies between the two business models even when they are kept separate. The case identifies several ‘integrating mechanisms’ that could be used. It also shows that it’s very important to not only communicate a strategic decision, but to sell it to employees so they are emotionally committed to it.

About the authors

Costas Markides is Professor of Strategy and Entrepreneurship and Robert P Bauman Chair in Strategic Leadership and Executive Education Faculty Director at London Business school.
e cmarkides@london.edu

Daniel Oyon is Professor, Department of Accounting and Control at HEC Lausanne
Daniel.Oyon@unil.ch

Lisa Duke is a Research Associate London Business School, and Consultant in Strategy & Leadership
lduke@london.edu
tw @LSDuke

 

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