The increasing commercial awareness of healthcare providers across Europe is forcing the medical technology industry to update its own commercial models. Rohan Fernando and Roz Lawson of ZS Associates argue that medtech companies need a more coherent and customer-focused sales strategy to succeed in the EU market.
Medical technology companies are often saddled with chaotic sales force structures across Europe. Because of how they have evolved, a company's sales force in one country may scarcely resemble its counterpart across the border. This prevents them from effectively executing their commercial strategies, and often leads to lack of alignment with important stakeholders. Payers and buying groups are becoming more powerful in Europe, and many medical products companies are struggling to address their needs - in part because of their own chaotic commercial structures.
While different national structures are not unusual, we have found they are often unnecessary and reflect local historical evolution rather than business need. With the increasing importance of commercial stakeholders, and with increasing cost pressure and need to drive margin, there is no better time for device companies to look purposefully at their sales structures. Redesigning these structures often requires a new role focused on commercial stakeholders, such as a key account manager (KAM).
Companies that adopt more 'rational' commercial structures - in which differences across countries are driven by a clear business rationale and meet the needs of economic buyers - are better able to execute their sales strategies and to position themselves for changes in their markets.
This article outlines the challenges that medical device companies in Europe face with their multiple sales force structures. It illustrates why companies should analyse their sales force structures to make sure these correctly reflect their strategy and the buying process.
Inconsistent sales models
It is common for medical device companies to have a European sales and marketing strategy. However, the same company often approaches customers using different sales models, depending on the country in which they are doing business. We have seen this often - for example, one medical technologies provider has separate sales representatives for two product lines in the UK, combined representatives in France, an additional senior representative role plus distributors in Spain and agents in Italy. As odd as this 'chaos' may appear, it is common throughout Europe.
There are several reasons for this variability. Structures have evolved over time through local management decisions and acquisitions. In some cases, the individual salespeople's skills have determined the approach. Furthermore, rapid business growth has meant that many such structures went unchallenged. Because of successes in each country, corporate management saw no reason to question individual national structures.
It is not that companies' sales structures today are 'right' or 'wrong' - rather, the sheer diversity we see in the market indicates that companies have not truly and objectively examined their sales structures.
What is the impact of this lack of purposeful assessment of sales structure?
• Companies have difficulty executing their strategies. Most device companies have regional strategies for key commercial levers such as pricing, positioning and segmentation. By going to market without a co-ordinated plan, companies struggle to execute these strategies effectively.
• Companies' sales structures may be a poor fit with their customers' buying process, which results in lost opportunities. This is especially true where there have been changes in the market, such as the increasing power of hospital buying groups in Germany.
• Companies miss out on the sales force effectiveness and efficiency gains that a homogeneous sales structure across Europe can bring, such as improvements in targeting and incentive plan design.
Case study 1
For one company, its approach in the UK - focusing on a specific product with a dedicated commercial team - led to the highest sales in Europe. But in France, the selling strategy meant that representatives discussed several products with their customers in each call, and the company's incentive plan did not focus effort on one product over another. As a result, the company's French sales were well below those in the other big European markets.
Different structures in different nations can subvert a company's sales performance, as each country may have different structures, incentive plans and sales processes. These differences become engrained in how representatives interact with customers, and the results can be as uneven as they are disappointing.
Of the many device companies we have worked with in Europe, almost all had significant opportunities to improve their commercial structures. The time is right for companies to examine their disparate sales structures and take account of market changes and their own strategy.
From strategy to structure
Two key drivers, the customer buying process and the company selling strategy, should inform decisions about sales force structure. If a company examines its strategy and end-user buying patterns closely and finds them consistent across markets, then a consistent structure also makes sense.
The customer buying process is often more similar than variable, even if the titles and positions of the customers vary by market. Although mechanisms for evaluating products may differ, key usage and purchasing drivers are similar across markets. Buyers in any market need to make the same purchasing decisions. Healthcare funding is under scrutiny in all markets, and some kind of cost-benefit analysis is required at every level. Purchasing drivers usually include whether the technology delivers a clinical benefit, a decrease in costs or an increase in value-in-use - whether the customers make that assessment in Spain or in Germany.
Sometimes buying processes do vary by country. For example, companies selling ostomy products interact with different customer groups in Germany from those in the UK. In Germany, 'bandagists' sell medical and healthcare supplies that pharmacies do not. In the UK this group does not exist, and community nurses largely manage ostomy home care. This observable and important difference in the buying process may be a good reason to have different sales structures in the two countries.
If the buying process is often similar, what about the selling strategy? This is frequently consistent across countries, because most device companies have chosen to adopt regional sales and marketing strategies across key levers such as pricing, positioning and segment strategy. They recognise that there are more similarities than differences in customer needs, and devise strategies to market their products in similar ways across countries.
Sceptics may accept that different countries' buying processes are similar, but still question the need to restructure. Even if market changes have occurred beneath their feet, they argue, what are the real benefits of spending the time and money to establish a consistent sales structure across the continent? Hasn't the current model worked well enough?
The biggest benefit of changing to a more consistent sales model is being able to execute the strategy effectively. This is true whether the company is launching a new product, defending market share or targeting a different group of customers. A well-considered structure allows companies to manage cross-border influences - Key Opinion Leaders, conferences and websites often transcend national boundaries. A consistent structure also allows companies to improve their sales force effectiveness and focus their resources on the most profitable markets and customers.
As economic buyers become more important, companies need the right structures to manage these stakeholders effectively. That often requires a change in their commercial model - for example, adding a new role such as a KAM to focus on these commercial stakeholders. What this means is discussed below.
Case study 2
One company was planning to launch a new single-use surgical device to different target customer groups in different countries. Through market research the company identified that the buying processes of these customer groups were similar across Europe, so the company chose a common strategy.
As a result, it was able to position the new device consistently across countries. By selecting a specific group of target customers, it was able to minimise the risk of cannibalising existing sales. The product was launched consistently and successfully in each market.
The economic buyer
We have argued that the customer's buying process and the company's selling strategy should determine the sales structure. But the buying process has changed in many device markets with the emergence of important commercial stakeholders such as purchasing groups, hospital administrators and, in Germany, buying groups. How should companies alter their selling strategies to capitalise on these changes?
One valuable approach is key account management. The idea behind KAM is straightforward: empower a single salesperson to lead a major ('key') account, such as a government payer, hospital chain or buying group. As they are charged with handling institutional accounts, KAMs can help the company to deal with the emergence of commercial stakeholders in making purchasing decisions - many medical technology companies have plenty of clinical representatives, but few commercial ones.
A KAM has the experience, skills and gravitas to make a value-based business case to senior decision-makers. What makes the KAM structure ultimately different is that it enables the medical device company to offer its full value proposition to the client, rather than a series of individual product pitches. KAMs often work across a portfolio, bringing a wider range of product and service solutions to the customer. The KAM co-ordinates resources from within the organisation as needed to meet customer needs and to maximise the value of individual accounts.
Via KAMs, companies can develop a partnership with customers to generate mutual benefits rather than working as independent (and sometimes adversarial) entities. Since KAMs can represent a company's entire product portfolio, they bring clients a wider range of solutions, and can co-ordinate corporate resources to meet customer needs in ways previously not possible. Salespeople with the right commercial skills can unlock opportunities that clinical sales representatives often fail to crack.
Case study 3
For example, one medical supplies company had relied on clinical specialists for each of its business units. These people were highly skilled, often with a background in a hospital or nursing setting. However, they lacked commercial capabilities - negotiation skills, analytical ability or business acumen - and were losing out to competitors who were engaging with commercial stakeholders more effectively.
The company decided to introduce KAMs to focus on large hospitals and buying groups. The KAMs typically spoke to customers who were one or two levels higher up in the decision-making hierarchy. As well as discussing the whole portfolio of products from across the different business units, they were able to discuss non-product solutions - which opened the door to some innovative value offerings, such as taking over supply and logistics for an entire class of products.
This helped the customer by removing a time-consuming activity, and helped the company to better demonstrate its product benefits through access to usage data. The clinical representative would not even have been allowed to have that kind of conversation.
Yes, we KAM
The KAM structure is not without challenges. Many medical device companies (and pharmaceutical companies) have added KAMs but have struggled to make them effective. Common issues include the following:
• Integration with the wider sales force. Many companies have struggled to define how KAMs should integrate with representatives, first-line managers and the local marketing department. They need to define these people's respective roles, responsibilities and co-ordination points.
• Recruiting and retention. Many companies have difficulty finding and retaining the right people to be key account managers. A top salesperson will often not succeed as a KAM.
• Pay and benefits. KAMs are often not given the same kind of pay and benefits as a first-line sales manager, even though their responsibilities may be similar or greater in scope.
• Resources and value proposition. Many companies make the mistake of assuming that since KAMs are smart they will automatically figure things out, rather than taking the time to understand what KAMs require in terms of process, resources and support to be effective.
All of these problems are surmountable with adequate focus and some patience - a successful KAM structure may take a significant amount of time to develop fully.
In the end, however, the benefits of a well-integrated KAM structure are enormous. KAMs are creating industry-leading business models, influencing senior non-clinical decision makers and breaking down traditional sales barriers. Resources need to be directed towards both clinical and non-clinical customers - getting this balance right will be a differentiator of performance for medical technology companies in Europe.
Leaders of medical device companies in Europe often inherit chaotic commercial structures, with operations in one country bearing little resemblance to those in another. These structures are the result of historical evolution that has often gone unchallenged for years.
These inconsistent structures inhibit companies from implementing their strategy effectively, and from capturing opportunities with important emerging commercial stakeholders. Companies should examine their commercial structures and make sure they reflect the buying process in their key markets and their own strategy. This may often require some restructuring and the addition of new roles such as KAMs to interact with important non-clinical stakeholders.
Companies that focus on designing effective commercial structures will be winners in the medium term. They will be better able to manage the key customer stakeholders and to implement their own strategies.
Rohan Fernando is the Managing Principal of ZS Europe and is based in London. He has consulted with numerous medical device and pharmaceutical companies in sales force strategy, integrations/mergers, targeting, compensation, product launch strategy and customer segmentation.
Roz Lawson is a London-based Manager at ZS Associates. She has worked with medical and surgical products companies in Europe on sales force strategy, structure and sales effectiveness projects.
ZS Associates is a global management consulting firm specialising in sales and marketing consulting, capability building and outsourcing. It has assisted more than 700 clients in 70 countries. ZS Associates has experience across a broad range of industries, including medtech, pharma and biotech.
What makes the KAM structure different is that it enables the medical device company to offer its full value proposition to the client, rather than a series of individual product pitches. KAMs often work across a portfolio, bringing a wider range of product and service solutions to the customer.