1 | MDT Confidential and Proprietary; Do Not Copy or Distribute Business Model Innovation at Medtronic Capturing the Growth Opportunity Global Innovation

1 | MDT Confidential and Proprietary; Do Not Copy or Distribute

Business Model Innovation at Medtronic Capturing the Growth Opportunity

Global Innovation Fellows, 2013Call number: 1-702-894-2305 or domestic at 1-866-794-1439 Conf Code: 9410201709Leader PIN (Katie): 498308


Discussion Topics

1.2.3.

Unlocking new sources of growth with BMI

BMI at Medtronic with Healthy Heart For All

What is BMI?

-2-


Evolution of Medtronic Strategy(VP Meeting May 2013)

Tighter op. mechanisms & alignmentExe

cuti

on

Gro

wth

S

trat

egie

s

Po

rtfo

lio

Syn

erg

ies

Stabilize Align Transform

Dec 2011 Today

Consistent growth and performance

Working capital

Convert to revenueEconomic Value

Globalization

CVG RTG Diabetes

Customer groupings

$$

Product cost & delivery

f ( )=

Services/ solutions

Value segment

New Therapies

-3-


1Revenue Growth on a constant currency basis Emerging Market Revenue includes revenues from Asia Pacific (except Australia, Japan, Korea, and New Zealand), Central and Eastern Europe, Greater China, Latin America, the Middle East and Africa, and South Asia.

1.0 billion

Real GDP growth2010 – 2030

The world's center of economic gravity is shifting east and south…Developing versus emerging countries: the match !

Population growth 2010 – 2030

Developed countriesDeveloping/emerging countries1

Population

MDT FY13 Revenue

MDT FY13 Revenue Growth1

5.4 billion

30%70%

5%95%

$1.9 billion $14.7 billion

+17% +5%

Total: +USD 95 trillion

Total: +1.4 billion people

-4-


Moving BMI from a mysterious art to more of a disciplined scienceHow to create, deliver and capture value?

Channels

Value Proposition

Partnerships

Profit Model …

Customer Experience

BMI can be built up systematically!What is BMI?

Discover top opportunities

for BMI

Blueprint solutions to seize identified

opportunities

Test and refine solutions to improve the odds of success

Scale the business and capture value

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Example of Business Model Innovation…

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Situations where Business Model Innovation is applicable

Situation

1. Non-consumption is a big barrier

2. Low end attacker

3. Technology alone does not offer the solution

Examples of BMI at MDTExamples from other industries

Expand Diabetes Therapy with a “Emerging Market Injection port”

Pacemakers & defibrillators, online.

Making high quality cardiac care available to all members of society

Making high quality cardiac care available to all members of society

Converting patients to pump therapy in all territories

ELR

-7-


A change of Business Model at Medtronic?

New Value Proposition:•Should we go into hospital economics area… •Medtronic have to accelerate intra-business collaboration to achieve sustainable growth in this high competitive market•Transform MDT from simple device delivery to value-enhancing partner (more value-added services)

New Products Portfolio:•Many new products in coming 5-10 years -> enter into the new attractive fields. •Sell pharmaceutical products ?•Sell more capital products ?

New Channels:•Web order for breakthrough technologies•Dealer consolidation or no dealer•Fewer sales reps and less direct case planning?


Applying for a job at IKEA


BMI Process

Discover top opportunities for business model innovation:

•Identify priority jobs-to-be-done

•Understand consumption barriers

Blueprint solutions to seize identified opportunities:

•Develop customer value propositions to address priority jobs

•Identify profit formula, key resources and processes required to deliver customer value proposition

Test and refine solutions to improve the odds of success:

•De-risk business model by testing key assumptions

Scale the business and capture value:

•Design a sustainable business model

•Acquire resources to scale

1 2 3 4

Proof of Concept

EVDefined Tested Delivered

-10-


Samsung's new Galaxy Tablet$599$799

Slate 500 tablet device of HP

$499 - $829 $120

Creating BMI is a dynamic process

Ipad of Apple Iped (made in China)

It's Not A Motto, It's A Mindset

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BMI Toolbox for Market Discovery New Toolkit

Process Manual

The BMI ToolboxCross pollinate with other management processes

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Business Model Canvas (BMC)Key Partners

•Who are our Key Partners?•Who are our Key suppliers?•Which Key Resources are we acquiring from partners?•Which Key Activities do partners perform?

Key Activities

•What are our core business activities?•What are our Key Activities to serve our current buyer segments?

•What value do we deliver to the customer?•Which one of our customer’s problems are we helping to solve?•What bundles of products and services are we offering to each Customer Segment?•Which customer needs are we satisfying?

Customer relationship•What kind of activities and initiatives do we have to do in order to establish and maintain our relationship with customers?•How are they integrated with the rest of our business model?

Buyer Segments

•For who are we creating value?•Who are our most important customers?

Core Capabilities & Resources

•What are our Key Resources, Assets and Capabilities to deliver our Value Proposition?•What are the core strenghts of our organisation?

Channels•What are the channels/ means that we use to reach our customers? How are we reaching them now?•How are these Channels integrated?

Cost Structure

•What are the most important costs inherent in our business model?

•Which Key Resources are most expensive?•Which Key Activities are most expensive?

Revenue Streams

•What are our direct and indirect revenue streams ?

•How much does each Revenue Stream contribute to overall revenues?

Value Proposition

ProfitProposition


What is Yahoo?Listen Yahoo is a great company that is very, very strong in content for its users, uses amazing technology to serve up what increasingly we think is going to be the web of one. For instance, on our today module in the front page, every 5 minutes we have 32,000 different variations of that module. So you don’t even know what I’m saying! In fact we serve a million different front page modules a day and that’s just through content optimization. And that’s just the beginning…Customized because we know the things you’re interested in. Maybe you don’t like light entertainment maybe you like a certain sports team, etc., etc. And our click through rate went up twice. So the point is, people come to us to find out what is going on with the world in a very nice quick fashion to do their communications, email, messenger, check-in on their teens. We all know about Yahoo finance. It’s a places where you can just get it together. It’s collated for you, it’s all the things as you’re moving, you can even get your social information there. Everybody moves through many websites in a day, Yahoo is one they always stop at.

What is AOL?AOL is planning on being the largest high quality content producer for digital media.

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Simple and powerful tagline

Customer Value Proposition


Business Model of NayamedKey Partners Key Activities Customer

RelationshipBuyer Segments

Core Capabilities & Resources

Channels

Cost Structure Revenue Streams

Value Proposition

ProfitProposition

12

3

4



Beta version of the BMI Knowledge Exchange Platformbmi.medtronic.com

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Active ManagementSponsorshipCommitment

Distinct but Linked

Organizations

Focus on learning

milestones

Differently Disciplined

Startup Funding

Guiding Principles for BMI Success

Active senior management

sponsorship, staying power and long term

commitment

Clear statement of key hypotheses and

focus on learning milestones

Smartly leverage core assets from BU’s without distracting the core or

constraining BMI efforts

Processes, decision criteria, and incentives are aligned to

rapidly getting to proof of concept with test-and-learn

iterative approach to fail fast and fail cheap

Dedicated start up funding for

experimentation and testing new ideas

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Revectoring the model through pilots and follow an emergent strategy in the face of uncertainty, is critical to BMI success

Flawed Strategy

Successful Strategy

Diamond Model

Hub Model

CityModel

Rental Program for GDM

Try Before You Buy T1/T2

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Discussion Topics

1.2.3.



What is BMI?

-21-


Diagnose the system

Define the Priority Job-to-be-done

Uncover population needs, unmet needs and pain points

Define potential solutions

Size the market opportunity

Next Map: Piloting & Prototyping

Create an Opportunity Map/ Needs Filtering

The BMI journeyIterative & dynamic process to uncover market opportunities

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Example of mapping of forces involved in obesity…

Source: Systems Innovation, Nesta, 2013

Diagnose the system

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Key stakeholders in the decision-making system (DMS) indeveloped countries differ from those in emerging countries

In India, the decision-making system is strongly influenced by patients and their families…

In Europe, MDT’s “customer” is defined as a multi-stakeholder, “decision-making system”…

Europe DMS

Implanter Technician

Purchaser Administrator

Dept. head Pharmacy

India DMS

PatientReferring

cardiologist

Patient’s family

Implanting cardiologist

Patient’s PCP

…with a broad set of clinical and economic jobs such as:

• Minimize time/expense of procurement process

• Benchmark clinical/financial performance vs. other centers

• Educate me on new products and procedures

…with new jobs-to-be-done influencing decisions such as:

• Understand costs and treatment options available to me

• Obtain an accurate diagnosis

• Know that my physician is credible and I can trust him

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Clinical need: I want a better way to perform ambulatory ECG monitoring for cardiovascular patients at risk of silent ischemia in order to improve its diagnosis and management.

Background -Ischemia often causes chest pain/discomfort -In silent ischemia – don’t feel pain -Therefore, suffer heart attack without warning -High-risk – previous heart attack -Multi-lead ECG signals can pick up silent ischemia

Problem -Holter monitor detects ischemia -But has some gaps (duration, leads, retrospective …) -Under-detection of silent ischemia prevalence

Market -Prevalence - ~785,000 first heart attack in 2009 (USA) -Incidence – total of ~200,000 silent ischemia/year (USA)

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Never assume you know anything... Always look

for patterns , themes and insights.

Go beyond customer’s expectation and focus on the "hole" rather than the

"drill“ to identify the underlying needs

Trust Action Over

Statements

Avoid the ‘Curse of Knowledg

e’

Get As

Close to

Context As

Possible

Focus on the

circumstances over

the demograph

icsFocus on the Jobs-to-be-done and get at the

root cause that is driving their needs

Don’t outsource your eyes…

Here are few tips that will help you make the most out of your fieldwork activities…

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How would you describe your health condition?

I am taking Zocor and supplements

Why do you describe as “moderate”?

I asked my doctor to prescribe it to me

I just found that my cholesterol is a little high

What are you doing about it?

Moderately healthy, could be better

Where did you get this product?

How did you know about this medicine?

My colleague recommended me to take this product

5 Wives and 1 Husband: Insight Generation technique

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Exubera was supposed to revolutionize diabetes care. Turns out patients aren't interested—it'll cost Pfizer $2.8 billion

• Massive miscalculation about how patients with diabetes manage their disease

• Exubera is about the size of a can of tennis balls (not something that can be used discreetly at a restaurant or party)

• Its dosage can't be adjusted as easily as injected insulin can

• It carries the risk of lung problems..• It’s at least 30% more expensive!• Etc.

“Perhaps next time Pfizer will do a little more homework to determine whether an innovative idea truly has a market.” Bloomberg Businessweek

-29-


People don't want to buy a quarter-inch drill. They want a

quarter-inch hole.


BMI focuses on unsatisfied and important jobs-to-be-done for successful, predictable and repeatable innovation

“Help me to deliver care to my patients”

“Help me to expand my knowledge”

“Help me to manage by finances”

“Help me update my

EMR system”

“Help me to train my

staff”

Example from the Physicians’ perspective

Understand and prioritize our clinical and non-clinical stakeholders’ needs

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[Customer] wants to [solve a problem] in [this context]

Five questions to ask are:•What kind of problem is the customer trying to solve, in a specific circumstance? •What (social, emotional, societal, etc.) criteria will the customers use to assess solutions? •What (functional or other) limitations take some solutions off the table? •How is the customer getting the job done now? •Is there an important job to be done that lacks an adequate solution?

It’s past pediatrician office hours and a parent suspects their child has strep

[Parent] wants to [have child tested for strep] [outside of physician office hours]

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CustomerValue

Proposition

What are the “JOBS” that we are trying to solve for our stakeholders?

Products &

Therapies

Jobs-to-be-done

TranslateImmediate

Results(needs)

End Results

(underlying needs)

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1. Reduce the amount of money I have to spend on healthcare2. Know that I will not be a financial burden on my family when paying for healthcare3. Obtain an accurate diagnosis4. Understand all the treatment options (and associated costs) available to me5. Know when I am at risk for a life threatening condition6. Maintain the same lifestyle I've had in the past while living with a device7. Save me time by having medical procedures done close to home8. Provide for my family while I'm being treated/recovering/living with a device9. Minimize my recovery time / get me back to work or my family as soon as possible10. Eliminate the need for follow up care11. Eliminate any worries that I have about my heart / live carefree12. Get the device that best fits my / my parent's needs, so I do not pay for features I do not need13. Know that my physician is credible and I can trust him14. Eliminate the need for me to see multiple doctors when I am being treated15. Know that the device I have received has been implanted properly16. Allow me, not my family (e.g. son or daughter) to pay for any major surgeries/devices I need17. Allow me, not my family (e.g. son or daughter) to make the decisions about my healthcare18. Help me get insurance coverage

Score*100%88%87%85%85%84%83%82%80%80%75%74%61%58%52%49%34%75%

Cost is barrier throughoutthe process and it extends

beyond devices:Consultation, diagnosis,procedure & travel costs

(individual & family).

RMPs are typically the first line of defense &

diagnostic capabilities areimportant; despite the

RMP’s lack of diagnosticskill, RMPs are usuallytrusted by the patient.

Many rural poor have the“fear of travel” barrier in

addition to travel costconcerns; many do not

want to receive anoperation and recuperateaway from home (>30km).

The “healthy worker”phenomenon exists withthe rural poor. RMPs &

patients believe that theyare healthier than urban

counterparts because theydo physical labor.K

ey F

ind

ing

s

Note: *Score is the JOBS opportunity score, which measures the gap between importance and satisfaction for a specific job. The jobs are ranked relatively to the first job score. Data is directional given small samples sizes (n < 30). Source: JOBS Survey, India Market Research, August, 2009

Identify Market-Opportunities using the Jobs-to-be-doneHHFA Jobs-to-be-Done: Rural & Can’t Afford

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Key Jobs-to-be-DoneI would like/ I wish ….

Indonesia Malaysia

Treated Patients

Untreated Patients

Treated Patients

Untreated Patients

To be able to afford the procedure 5.57 6.00 5.75 7.60

To reduce the waiting time for procedure 4.50 5.60 5.92 7.00

To have an easier/simpler system to apply for a welfare grant 4.79 5.00 5.42 7.00

To better understand the treatment options 4.79 4.70 5.67 6.80

To better understand the disease and procedure 5.14 5.30 5.83 6.60

To learn more about the procedure from other patients 4.29 5.90 4.08 5.80

To trust that my physician is offering all possible treatment options 4.93 4.90 5.92 6.40

To reduce the time to receive a diagnosis 4.71 5.30 5.25 6.60

To have different payment options 4.43 5.10 5.17 6.60

To remove my fear and anxiety surrounding the procedure NA 5.50 NA 6.60

My family and friends to better understand and accept my disease and condition 5.00 5.20 4.83 5.80

Average 4.8 5.3 5.4 6.6Variance 0.14 0.16 0.34 0.27

Identify Market-Opportunities using the Jobs-to-be-done

Opportunity Score: High opportunity Solid opportunity

Quantitative research undertaken with 17 Patients in Malaysia and 24 Patients in Indonesia to understand the patient pathway, from cardiac symptoms to implantation

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Target Stakeholders:

Target Demographics (e.g. Income level, age, health status, etc.) Size of target segment (e.g. # of target patients)

Key Barriers & frustrations Existing options/ Current Alternatives

Priority Jobs-to-be-done

Proposed Offering / Customer Value Proposition

Your value proposition is the way in which you articulate your offering to the target audience(s) – ‘the solution to their needs and barriers’

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• A large majority of diabetes patients have several concerns pertaining injecting insulin with primary being ensuring correct dose, pain, and selection of site

• 50% have fears related to insulin delivery• Only little over 1/3 discuss their fears with the provider

Insights

Problem Statement

Priority job-to-be-done

Potential Solution

How to develop new treatment option to reduce “fear of pricks” and fear of multiple injections?

I would like painless injections of insulin and a more comfortable experience

• Improved Adhesion for Hot Humid Climates• Soft Cannula Reduces Fear • Improved Breathability for Comfort• Accepts Longer & Larger Needles

InCite(New Injection Port )

Expand Diabetes Therapy with a “Emerging Market Injection port”

Turning conversations into insights, and insights into solutions!

-37-


Nintendo Game cube

XBox Playstation

The Video Games Industry

Who are the dominant customers of the videogame industry?

-38-


Jack, 10 years old

-39-


The 3 tiers of noncustomers

Your Market

“Soon-to-be” noncustomers

First Tier

Second Tier

Third Tier

“Refusing” noncustomers

“Unexplored” noncustomers

-40-



Who are the noncustomers?

1st Tier

(soon-to-be)

2nd Tier

(refusing)

3rd Tier

(unexplored)

-42-


Discussion Topics

1.2.3.



What is BMI?

-43-


How does a poor 45-year-old widow living in rural India obtain a high-end medical device?

• 45 year old widow and mother

• 3+ month history of daily black-outs and heart palpitations

• Son is family’s sole bread-winner and earns approximately $55 per month

• Unable to afford cost of an entry-level pacemaker at full price

If they manage to save $10 every month, it will take them 7 years to be able to afford a single chamber pacemaker

(US$800 – without the surgery)

-44-


45

A mix of physicians, patients & other players were interviewed to gain a holistic view of the Indian healthcare system - 100+ interviews across 21 locations

Mangalore

Kolkata

Jaipur

Bhopal

Mumbai

Chennai

Delhi

LucknowKanpur

Pota GaonMurad NagarMoti Nagar

Nivadi Gaon

Nilla

KhanugaonArjupur

Durgapur

Bangalore

NashikLasalgaon

Maduari

30 Patients

9 “Other” Players

• Jaipur Foot• Aravind & Aurolab• Microfinance• Telemedicine• Medical Students

• Single/ Dual Chamber• Premium Pacing• Low cost Pacing• Stents• No Device

64 Physicians

• Eps & IVCs• MD Cardiologists• GPs• RMPs• Alternative Medicine

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Rural & Can’t Afford: Care pathway and barriers

-46-


Patient population Patient referred to

Cardiologist in the hospitalAdoption of therapy

by the patient

Patient visits General Physician

• Lack of awareness amongst patients

• Disengaged patients

• Lack of physician knowledge

• Lack of diagnostic tools• Economics unfavorable

for referral physician

• Affordability/liquidity issues

• Anxiety of going through a procedure

30%75%60%

Why patients drop out of Care Pathway?

x% Dropout percentage

In the current care pathway patients drop out at each stage due to multiple barriers

-47-


Patient population

Patient referred to Cardiologist in the

hospital

Adoption of therapy by the

patient

Patient visits General Physician

Therapy Educator Patient CounselorPatient Outreach

AssociateHHFA team

How HHFA addresses

barriers

1. Patient awareness2. Physician education

and diagnostic tools

3. Patient outreach through screening camps

4. Patient counseling5. Low interest loans6. Tiered-service for

poor patients

HHFA addresses these barriers simultaneously through 6 key offerings

-48-


HHFA FY13 Launch Plan

Manpower (Total 37)

HHFA Partnered hospitals (Total 88)

Partner hospital characteristics•Cardiologist owned with few stakeholders•Low-medium utilization of cathlab capacity•Medium implanter skills•20-50 implants per month

9 11

CLUSTER 2Gujarat

Mumbai (HO)

CLUSTER 3Coimbatore

Kerala

37

88

4 15

CLUSTER 4HyderabadBangaloreChennai

6 27

CLUSTER 5Kolkata

Durgapur

7 9

CLUSTER 1Delhi

Punjab

11 26

-49-


HHFA Economic Benefits

Nber of footfalls and reduction in patient dropout

Total avoidable cost for

the patient

Diagnosticrevenue

Overall Revenue

Nber of footfalls in the hospital

Procedures due to financing and tiered services

Overall Revenue

Cost of irrelevant diagnostics,

consultations and emergency

Lost in productivity due

to persistent symptoms

+7.5% +0.5% +8%

Stakeholders’ PerspectiveMDT’s Perspective

HHFA performance FY13-FY17Cumulative revenue: $110 Mn

EBITRevenue

+7% +10% +15%

$500 $800 $1300

# Hospitals

# Hospitals$ Mn

HHFA Cumulative FY13-FY17

# Hospitals: 530 Revenue ($ Mn): 110

# Cities: 53 EBIT: 32

HHFA creates a Unique Economic Value Proposition by Customer Type

Physicians

Providers

Patients

-50-


“If it wasn't for this program I would not be alive today. Thank you so much!”

First Patient: A.K., 35

-51-


HHFA Replication ModelApplying HHFA Modules to resolve barriers for other therapies across markets

Across GeographiesAcross Medical Conditions

-52-


Four walls and a room full of experts

Stakeholders engagement model with

extensive fieldwork

Standalone solutions & best-in-class products

Integrated solutionswith a new Ecosystem

Creating a Unique Economic Value

Proposition by Customer Type

Before

Implanting physician as primary customer, strong

physician relationship

After

Changing mindset, behaviors and mechanisms are required to unlock new sources of growth…

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What’s next? Exploration…

1. Understand and prioritize our clinical and non-clinical stakeholders’ needs2. Re-shape our offering and designing new solutions and services3. Formulate market entry strategies

“if a solution is not affordable, then it is not a solution…”

Dr Devi Shetty, Narayana Hrudayalaya Group of Hospitals

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Documents

1 | MDT Confidential and Proprietary; Do Not Copy or Distribute Business Model Innovation at Medtronic Capturing the Growth Opportunity Global Innovation