Innovation Management (BMAN 71471)
Case: NewWay Medical – the South African Medical Device Manufacturer
(This version, November 2020)
Read the case study
[N.B., while based on a real company, NewWay Medical is a fictitious and developed for teaching]
NewWay Medical is a South African company based in Port Elizabeth / Nelson Mandela Bay, a major city and sea port on the south coast of South Africa, with strong transport links into the rest of South Africa and neighbouring countries. NewWay was established in 1991, initially as an importer of medical devices including patient monitors used in hospitals and clinics.
This business has been successful, such that NewWay has grown to employ over five hundred people in South Africa. It has been primarily involved in the importation and distribution of medical equipment from western countries (principally Germany and the US), and the training of medical personnel to work on this equipment, although it is now seeking to develop and manufacture its own brand of equipment oriented to the South, and Southern-, African market.
This is because NewWay has found that there are challenges with importing western equipment into South and Southern Africa, including that the equipment tends to be expensive with highly sophisticated features. High prices limit the demand for the equipment, while the sophisticated features mean that training is necessary to incorporate the equipment into practice.
While initially there was a substantial demand for this equipment in South Africa’s largest and best resourced hospitals, particularly in the country’s major cities, the budgets of hospitals in the country’s smaller cities and more remote locations tend to be substantially lower; this is also true of most hospitals and clinic in neighbouring countries. It is also physically more challenging to reach these locations, and to provide the training and support necessary to properly incorporate the equipment into the existing activities of hospitals. To some extent, other local manufacturers have addressed this part of the market, but their equipment is typically far below the sophistication of the imported equipment.
The company’s founders are Mr and Mrs Phiri. Mr David Phiri is a businessman who has other business interests, including manufacturing and import/export businesses; Mrs Agnes Phiri, meanwhile, is a consultant paediatrician. They started NewWay for both business and social reasons. Mrs Phiri in particular recognised that importing advanced medical equipment into South and Southern Africa would help to save and improve lives. While not a philanthropic venture, NewWay is expected to ‘pay its own way’ (i.e., at least break-even) rather that earn substantial profits.
Partly because they are busy with other things, and partly as a challenge to their only child, the Phiris have asked their 29 year old daughter, Grace, to examine the situation and offer a solution, or set of solutions, to the future development of NewWay and its product and service offerings.
Grace has spent some time on the project. She has studied the use of the equipment in hospitals, and followed the installation and training teams. Among other things she has identified what appears to be a disjuncture between the sophistication of the equipment and its utilisation. Put simply, most of the time, the majority of the functionality of the equipment is only used occasionally. That is, the use of the equipment seems to follow the 80:20 rule, such that 80% of the time only 20% of the capabilities of the equipment are being used.
To complicate matters it is not always the same 20% that is used, but Grace estimates that at least some of the capabilities of the equipment are hardly ever being used. Yet, she considers, this must surely add to the cost of the equipment. What if the equipment was developed which had two-thirds of the capability but cost half as much? That would surely allow NewWay to reduce its prices, cover its costs, and earn a modest profit to reinvest into the business. The question, of course, is which two thirds to retain, and which third to omit.
This made Grace wonder whether the equipment could be decomposed into modules. If, hypothetically, a piece of equipment could be divided into set of modules, then a customer could buy a subset of these (along with a base or core module), with less than complete functionality.
Or the customer could buy a basic system and then add to it, as funds allowed and/or in alignment with the most pressing local needs. This would allow customers to both build systems and to configure systems in accordance with their circumstances. Another alternative would be to base the business not on selling the products but renting them; effectively medical equipment as a service. A challenge here is that training is required in order for each part of the system to be incorporated into practice.
Grace then made another observation. She considered that one of the reasons that medical equipment is so expensive is that its developers need to recoup the money they have spent on R&D. Furthermore, because not all R&D leads to successful new products, developers need to cover the costs of their failures as well as their successes. New features are therefore particularly expensive because they are a way of recouping recent R&D costs.
Grace considered that NewWay should not pioneer new technologies, but should instead seek to act as a fast follower, if necessary and possible, by licencing new technologies from the originator.
When new features emerge, NewWay should try to quickly assess whether or not these are truly valuable to its target customer base of smaller hospitals and remote clinics with lower budgets and, if sufficiently valuable, NewWay should develop a “me too” version that could be added as a module to the company’s existing equipment.
Next, Grace reflected that to be really successful both as a business and in terms of social impact, NewWay should look beyond South Africa, and especially its larger cities and relatively prosperous areas.
Many technologies remain out of reach for the poorest and most remote locations in the Southern Africa, and the continent more generally; a truly “bottom up” approach should start with focusing on clinics and hospitals in such places.
Remembering the work of Medecins Sans Fontieres with refugee communities, Grace wonders whether that charity, or another, would be interested in working with NewWay to develop medical equipment for situations where budgets are extremely tight and trained medical personnel are largely absent.
Grace’s parents have asked her to pitch her insights and ideas to them. She argued that NewWay’s innovations should both:
1. Focus on providing value to the customer, primarily by understanding what doctors, nurses and other unqualified practitioners really value, as well as what purchasers and hospital/clinic administrators care about, rather than emphasising technological enhancements and attributes; and
2. stress a “high performance-to-price ratio”, such that NewWay products are not intended to be the best in the world, but rather to be “the best for the price and the cheapest for the quality”.
Impressed, Mr and Mrs Phiri have asked her to work up the proposal in more detail. It is at this point that she has turned to you for help.
Your task is to help Grace to develop her proposals, which have three elements:
⦁ Applying modularity to NewWay’s product offerings
⦁ Developing medical equipment innovations for remote locations in poor countries
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