For Manufacturers Who Stay Grounded, the Sky is the Limit in Open Innovation
By Marco Bafan, Nerac Analyst
In today’s explosive medical devices industry ($75 billion in the U.S.), the benefits offered by successful outsourcing and co-development are reaching a plateau that is simply hard to overlook. Industry’s leading companies have long recognized that successful outsourcing increases revenues, provides flexibility and improves product quality while reducing costs and speed-to-market challenges.

Intense competition and advancing technologies continue to make outsourcing in medical devices a necessity for success. Areas that are particularly attractive in outsourcing include industrial design, prototyping, mechanical engineering, design planning and branding. Investment in such areas can result in avoidance of inappropriate product solutions and improved functionality. Before outsourcing, however, manufacturers need to fully examine their internal practices and projects to determine the areas best suited for external partners.

Internal Care
As a general rule of thumb, pre-defined planning, an organized product development process and documentation, as well as establishment of an effective communication protocol is quite essential in successful outsourcing. Well-planned outsourcing can free up internal resources, shifting the focus towards projects with higher priorities that can be executed and resolved internally. By doing so, companies can reduce and manage their internal R&D expenses more efficiently. The need for recruiting and training new staff for each project can also be eliminated or minimized.

Partnership Protocols
Choosing the right outsourcing partner requires careful planning and sweating all the details. Companies need to look at how parameters like business model, innovation process and intellectual property management can affect outsourcing and the success of a product. Linking the company’s business model to the IP management and innovation process is imperative. Ownership and all legal concerns need to be addressed during initial contractual discussions through non-disclosure agreements, competitive exclusivity agreements or other arrangements. Some common proactive approaches like patent mapping can add critical knowledge to IP strategies, particularly when analyzing the entire value chain.

In open business models, IP is also leveraged beyond its use for defensive reasons. IP should be an active participant in strategic planning, utilized to create more values. Revenue increase through licensing opportunities, joint ventures and spin-offs can also ultimately broaden market opportunities and simultaneously reduce R&D expenses. Some innovators, particularly smaller companies, deliberately choose to open up their technologies by sharing portions of their IP. This can create standards (intellectual commons) and increase awareness of opportunities among other companies.

Market Intricacies
The complexity of medical devices is constantly increasing. As the reimbursement environment continues to be a strong driver of innovation, designers are now leaning more towards minimally invasive devices, particularly for the management of chronic diseases such as diabetes. Increasingly, designers need to leverage solutions from various industries to meet market demands (such as minimally invasive devices) and to improve end user requirements.

Similarly, various technologies are now expected to be seamlessly incorporated into single solutions. For instance, current in-vitro diagnostic devices usually combine mechanical, optical, electronics, software and process engineering, as well as chemistry development. It is safe to say that innovative medical products will continue to rely more on multiple concepts and technologies for differentiation and success in the market.

Outsiders Add Value
Design firms can add valuable expertise to improving ergonomics and usability, assessing healthcare economics and dissecting the regulatory environment. Specialty firms can help R&D groups produce higher quality devices that decrease customer support requirements and help to secure regulatory approvals, resulting in reduced exposure to product liability claims and recalls.

It’s important to find a design firm that has a strong understanding of a medical device manufacturer’s unique needs. Equally important is viewing the design firm as part of the company’s business goals, versus a per-project resource. When treated as an investment that has specific return expectations, the company will be determined to investigate all outsourcing options instead of signing on the lowest bidder.

Make the Right Moves
While innovation is a business necessity for companies, how to innovate effectively is far more important. An open business model does not imply that the internal R&D should close down, nor does it mean R&D should be outsourced completely. A business model that leverages external resources and technologies to complement existing R&D projects is the best approach to staying competitive in the medical devices market. In an open business model environment, a company can generate opportunities and technologies that might take years and millions of dollars to develop internally.