Guidant Corporation

Established in January 1994

Created from the spin-off of 5 companies from Medical

Devices and Diagnostic Division -> generate value by

reducing costs and creating competencies
Design, produce, and sell medical devices
Product

: pacemakers, defibrillators, catheters, and

devices for minimally invasive abdominal surgery

Guidants Main Businesses

Business unit
1. Cardiac Rhythm Management (CRM)
2. Vascular Intervention (VI)
3. Minimally Invasive Surgery (MIS)
Sales organizations
4. Western Hemisphere Sales
5. European Operations
6. Pacific Rim Sales

Guidants Business Unit

Cardiac Rhythm
Management
(CRM)
President : Jay
Rac
Combination of
Cardiac
Pacemakers,
Inc. and Health
Rhythm
Technologies
Product : cardiac
pacemakers,
defibrillators,
and leads

Vascular
Intervention (VI)
President :
Ginger Howard
Combination of
Advanced
Cardiovascular
Systems, Inc.
and Devices for
Vascular
Intervention, Inc.
Product :
catheters

Minimally Invasive
Surgery (MIS)
President : Jay
Watkins
Predecessor :
Origin
Medsystems
Product :
laparoscopy

GUIDANTS STRATEGY

Global product
innovation

Economic
Organizational partnerships with
excellence
customers
worldwide

Global Product Innovation

Family approach to speed product development
Create common platform to incorporate core features and

functions -> adapt derivative products rapidly to enhance

technological performance and add new features.
Platform development takes 2-3 years and involves

significant leaps in innovation and technologies.

Risk : new technologies and advances are subject to

careful scrutiny

Economic Partnerships With

Customers Worldwide
Build strong relationships with physicians and healthcare

administrations
Develop a direct salesforce in markets (Japan and

Europe)
Reorganize sales function to establish closer relationships

with customers, understand better the economics

underlying their operations, and gain economic efficiency

Organizational Excellence
As a culture in which all employees function as owners of

Guidant
Create employee commitment to the new Guidant Corporation
(not each of the 5 original medical devices companies)
Core theme to work with for the eight strategic design teams:
Build CostEffective
Administration

Create a Stream
of Novel Business
and Products

Build Competence
Leverage
to Ensure Speed
Minimize Risk of
Manufacturing
to Regulatory
Regulatory Actions
Assets
Approval

Influence Public
Policy Important to
Our Business

Leverage Sales
and Distribution

Optimize Global
Presence

Shareholder Value
Capital market as the ultimate judge of Guidants ability to
create shareholder value
To achieve double market value in 1999, there are six
specific financial goals:
Maintain
capital
expense
below
depreciation

Sales growth
greater than
competition

Decrease
effective tax
by 1% per
year

25% Debt to
Equity

Decrease
Improve gross
OPEX 2% of
margins
sales per year

Consistent
value

Create strong
reputation

DESIGNING THE SYSTEM

1.

Performance Measurement System

drive the innovation and value ceation

2.

Belief systems
communicate core company values

3.

Risk management system

prevent misbehavior

Performance Measurement
System
Measuring economic value to align incentive system
Incentive system objective:

1. to align the motivation of employees

with the creation of market value
2. have every person at Guidant benefit from the
success of the company

Performance Measurement
System
Economic Value Addes is
A new indicator to measure the progress towards the
creation of shareholder value
Residual income = Net income CC
= Net income (AA-ACL)*13,5%
CC = Cost of Capital
AA = Average Assets
AVC = Average Current Liabilities

Performance Measurement
System
10% of compensation was
contingent upon increases in
this residual income measure
for Guidant
60% of their compensation
linked to stock performance
through stock ownership and
stock options (as part of the
long term compensation)
The incentive structure would
facilitate
communication,
learning and mobility across
divisions

Performance Measurement
System
The bonus was adapted to the
changing needs of the division
and based on the divisional
performance.
The employees contribution
was invested in a diversified
fund
Next, would be necessary to
fine-tune the incentive system
to reflect unit performance more
heavily
than
corporate
performance.

Belief System
Communicating Core Values

to reduce the potential of undesirable behavior

by distribued a 32-page Code of Conduct among its
employees
Guidants mission

statement and core values were

powerful vehicles to remind people what they were
working for (a firm reminder of the foundation upon which
economic value must be created)

Belief System

Risk Management System

Managing risk of the heavily regulated environment and

the sanctions from Food and Drug Administration (FDA) to

ensure the health-delivery standards was safe
FDA required:

- detailed information on the characteristic of new

medical device products and the manufacturing
process
- Guidant to inform the agency of any changes in
products, manufacturing process and sales material

Risk Management System

A new compliance function (Chief Compliance Officer)

was created to address this important control issue

Each of the business units where compliance officers

assumed a critical role, the same structure was duplicated

A corporate audit function also established to document

organizational processes, identify best practices across

the company, perform process engineering and ensure
the internal controls accomplished their objectives.

FUTURE

Recommendation
avoid the over stocking and upgrade the devices regularly
according to the market need, comply with the statutory

requirements
implement the new products through innovations to

increase the organizations profitability and decrease the

operational cost
handle the HR through balanced incentive system