Medtronic Xomed: Change at "People Speed"

FUNDAMENTALS
Medtronic Xomed:
Change at "People Speed"
Robert W. Hall
Background on Vigorous Companies
Medtronic Xomed is the fourth in a series of top performing companies called "vigorous," a term coined to describe a
business unit that in total seems to be thriving in tough global competition. As many companies have found, sustained lean
manufacturing, while essential, is not all that is required. Customers must be impressed enough to pay for fair treatment of all
other stakeholders, and environmental responsibilities should not be neglected. To endure in this status, the leadership must
build a culture that is always pushing the envelope in many directions, never satisfied with the status quo, and never complacent.
Postulated is that a vigorous company must do well in three performance categories: process improvement ("lean everything"), innovation, and external responsibility. Trying to think about all this at once hurts the head, but it is achievable. To do
it, the capability has to build up over time by developing the total workforce and its working culture, reducing the seemingly
impossible and conflicting demands to rules for work, and a way of life that integrates many best practices into something
relatively simple. Real people can actually do it. One reason for this series is to find vigorous operating companies that embody
striving for a "B rating," or better, on the cultural scale shown below. The Medtronic Xomed story is best interpreted in that
context.
Class
Process Improvement
Innovation
External Responsibility
A
Process improvement routine; eliminates
waste from all-new processes very early.
Capable of transforming its
industry; can adapt business
model to innovate.
Unified by social mission; serves all
stakeholders well; resilient to
change/surprise.
B
Autonomous improvement; embedded in
the culture.
Innovate by collaborating; part
of everyone's job.
"Outside in;" much more customer
focused.
C
Integrated core operations; directed
improvement; still coaching the tools.
Structured new product/ service
development; some collaboration.
Serves customers well; great quality,
efficiency, and delivery.
In Brief
Medtronic Xomed has won both a Shingo Prize and an IndustryWeek Best Plant's Award. By regarding it as a cultural
change, conversion to lean manufacturing has been a change "from the heart as well as the head." Also proficient bringing new products to market, Xomed works with physicians to improve medical practice while carefully developing its field
force to avoid blurring the line between science and commerce.
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M
edtronic Xomed specializes in
medical devices for the ear, nose,
and throat (ENT), as well as niche
ophthalmic (eye) products; many are for
surgery; some are for diagnosis or treatment. Well known for trying to experience
the needs of doctors and surgeons first
hand, Xomed gives them what they want,
and helps them devise something better —
sometimes building custom orders for
those with a little different technique in
mind. Consequently, the ENT product line
has greatly expanded over the past ten
years. Xomed's strategic objective is market leadership in devices used "above the
torso," relying on three core competencies:
• Direct sales and distribution in the
United States.
• Speed and quality in manufacturing to
"out-service competitors."
• Research and development of new
products and variations.
On the way to market, new medical
devices must jump many hurdles.
Someone, somewhere — often a surgeon —
must develop a new device, or at least be a
partner in development. If experimental
use shows promise, device modification
may be necessary before other physicians
and surgeons can learn to use it. Before
offering it for general use, a new device
must have FDA approval in the United
States, and approval by comparable agencies in other countries. Xomed tries to
work closely with approval agencies, plus
ECRI, an independent health services
research agency that tracks the performance of medical devices in use, and which
is very influential in the field.
External Responsibility
Medtronic Xomed's field, medical and
surgical devices, is tightly regulated, and in
addition, filled with ethical minefields. To
negotiate this terrain, Xomed complies with
Medtronic's strict Code of Conduct and
Business Conduct Standards, thoroughly
training its field representatives to conduct
their activities according to it. What can and
cannot be done for customer enticement
and interpreting clinical trial results is carefully proscribed.
Everyone who deals with customers
and other external parties is annually
retrained using scenarios depicting situations in which what you should do is not
obvious. Much more than merely reading a
code, scenarios engrain ethical judgment in
how people behave.
To develop or discover new devices,
Xomed is active at the forefront of treatment. For example, they invested in a focus
group of doctors and patients to review
sleep apnea, a condition that has no known
cure or effective alleviation, trying to
About Medtronic Xomed
The Medtronic mission statement well captures why its Xomed Division exists:
"To contribute to human welfare by application of biomedical engineering to alleviate pain, restore health, and extend life."
Headquartered in Jacksonville, FL, the Xomed Division's devices primarily work on peoples' heads: ear, nose, and throat (ENT),
and ophthalmology (eyes). The Jacksonville operation produces about 3200 end items and distributes 6000 more — 900 orders
a day to about 30,000 customers in 120 countries. Most sales, promotion, and R&D are in Jacksonville, but there are two other
operational locations; Mystic, CT for surgical sponges and MicroFrance in St. Aubin le Moniel, France for specialized micro-surgical
handheld instruments.
By expanding its offerings, Xomed now believes that it is the only full service ear, nose, and throat (ENT) company in the medical
device business. Some of the more innovative products in Xomed's lineup are:
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Target Volume 20, Number 1
Nerve Monitoring Equipment: The NIM-Response™ Nerve Integrity Monitor™ System, along with its associated line of disposable electrodes and nerve stimulators, allows surgeons to monitor nerves during surgery, dramatically improving patient safety
and recovery by reducing the chance of unnecessarily compromising or severing nerves.
Powered Systems for Sinus Surgery: The XPS® 2000 Microresector System, and recently introduced XPS 3000 System, (flexible, powered systems) improves the precision of least-invasive surgery, decreases surgical time, and improves post-operative
recovery. Most of these units, including control boxes and the disposable micro-shaver blades, are produced in Jacksonville.
Fluid Control: The Merocel® surgical sponge is used for surgical packing and for various applications in ophthalmology.
sponges originate in the Mystic, CT plant and are finished and packaged in Jacksonville.
Image Guided Surgery, or IGS: Surgeons have many applications for the LANDMARX EVOLUTION™ ENT Image Guidance
System. Obviously, performance improves when a surgeon can guide from a screen an internal procedure that cannot be seen
directly.
Otology: Ventilation tubes and middle ear prostheses for the treatment of chronic ear infection and disease continue to see
improvements. Notably, Xomed now offers the Meniett® 20 Pressure Pulse Generator for treatment of Ménière's Disease, a particularly debilitating disease of the inner ear.
Ophthalmology: The primary line is equipment for tonometry, measurement of the inter-ocular pressure of the eye, but also
includes several devices for cauterization, corneal transplant surgery, management of ocular hypertension caused by glaucoma,
and LASIK surgery.
Timeline history of the Medtronic Xomed Division:
1970
1978
1982
1989
1994
1996
1997
1998
1998
1999
2000
2001
2002
Company is founded in Cincinnati as "Xomox," making ear ventilation tubes, the bread and butter of the business for
many years.
Bristol-Myers Squibb buys Xomox, intent on broadening the product line into medical instruments as well as expendables.
Operation moves to Jacksonville.
Move into the present plant location. In the 1980s, Xomed attempted, with limited success, to implement elements of
Total Quality Management and lean manufacturing.
Bristol-Myers merges Xomed with Treace Medical and moves production of ear ventilation tubes into the Jacksonville
facility.
Warburg Pincus buys Xomed from Bristol-Myers Squibb. Xomed is merged with Merocel® (surgical sponges).
Warburg takes Xomed public. The Treace brothers assume management and begin an aggressive program to develop
and introduce new products.
Introduce the XPS 2000 powered surgical system line (micro-shavers), which revolutionizes ENT surgery.
Enter the Image Guided Surgery (IGS) and the biomaterial markets. These too take off, and Xomed starts to become
what it is today.
Acquire MicroFrance (better entrée to European markets).
Acquired by Medtronic; becomes Medtronic Xomed. The Mentor ophthalmic line is merged with Xomed and moved to
Jacksonville.
Development of lean manufacturing begins to accelerate.
Purchase the Meniett™ portable pressure-pulse generator for Ménière's Disease symptoms from Pascal Medical AB.
The Medtronic Xomed plant wins both a Shingo Prize and one of IndustryWeek's 10 Best Plants Awards.
Today the Xomed Division expects to grow revenue at a rate of about 15 percent annually. It serves nearly 50,000 physicians and
22,000 hospitals, and is clearly the market share leader in a market dominated by a large number of small companies. Some of
them create innovative products, but lack resources to take them to a global market, so there is opportunity to grow by acquisition as well as through internal development.
As a division of Medtronic, Xomed is relatively low-to-medium in volume and high mix in product. Most other Medtronic divisions are higher volume and lower mix.
The core of operations is the Jacksonville headquarters, with 150,000 square feet and 550 employees. Jacksonville production
occupies only 50,000 square feet of the facility and 300 of the employees, but accounts for about 80 percent of all Xomed revenue. Organization of complex production operations is based on 48 different value streams; non-production operations are
organized more functionally. Simplification of the burgeoning complexity of offerings is critical to Xomed sustaining itself as a
full service provider in the ENT field.
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understand sufferers' true needs. They
concluded that present technology cannot
do much better alleviating the condition,
but that Xomed might be able to field a
device to improve its diagnosis.
Culture Building
Inside Xomed, the component of
Xomed's working culture with the greatest
longevity is the operating people at
Jacksonville and elsewhere, often called the
"money earners" because they create the
billable shipments. Among senior managers, ten years is a long tenure; ownership
changes and several acquisitions took a
toll. But some of the "money earners" can
remember moving into the Jacksonville
facility in 1982 — and earlier. Despite all
the changes, no managerial regime ever subjected Xomed workers to broken promises,
pay reductions, or layoffs. Consequently,
their reservoir of trust in management was
never drained.
"Money earners" are pleasant, open,
eager to talk, and very serious assuming
responsibility. Any of them will say that
peoples' health and sometimes their lives
depend on the quality of their processes.
They seldom rush; doing everything just
right is more important than speed — quality before output, always.
However, as can be seen from the
timeline in the box copy, change is a way of
life for Xomed's money earners. Everything
— products, managers, ownership —
changed for them more than once in the
past decade. No one is "hung up in the
past," longing for bygones.
In the 1980s, under Bristol-Myers
Squibb, Xomed attempted to install various
techniques for process improvement:
Teams, Total Quality Management (TQM),
JIT, and other buzzwords of that time.
These were pushed, not from the top, but
by middle managers without long tenure,
so disjoint programs appeared and disappeared. TQM, for example, lasted about a
year. Although the operative workforce
learned to doubt the staying power of these
programs, each of them stimulated teamwork, so that over time the working culture
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Target Volume 20, Number 1
became more collaborative. In contrast
with the more cosmopolitan managers, this
"stable" workforce shared a long cultural
apprenticeship prior to managers beginning a push toward integrated, sustained
lean manufacturing.
When Jerry Bussell, now vice-president,
global operations, arrived in 1992, he
immediately began work to build a culture
of trust. His first confab with upper management stressed culture change — no
swift transformation, but a gradual
increase in empowerment to those doing
the work, making change fun, not a threat.
Jerry's first themes were derived from
Stephen Covey's Seven Habits, followed by
stimulating people to create skits and open
up. But the most important ingredient
solidifying trust was making sure that management commitments to the workforce
were upheld.
As this cultural migration proceeded,
more and more managers began to see the
value of lean manufacturing. One objective
was to achieve market dominance by having customer service unmatched by the
competition. Another was to offset the
complexity of product line proliferation
with process simplification. Xomed frequently refers to two plants, one for product, and one for paperwork. The paperwork satisfies QSRs (FDA Quality System
Requirements), and allows any field problems to be traced, but the paper factory
need not be inefficient.
By 2000 a critical mass of lean thinking
managers had formed, ready to aggressively
implement an integrated version of lean
manufacturing. They started in classic fashion, mapping value streams.
Process
changes came rapidly: cells, pull systems, 5S
visibility, failsafe methods, and of course,
grassroots problem solving methods.
Soon Jacksonville operations were
organized into value streams, and by 2003
there were 48 of them. Each value stream
had a manager responsible for processes
supplier-to-customer. Previously many of
them were called business unit managers.
Team leaders for each value stream handle
most of the daily work, freeing the value
stream managers to interact with cus-
tomers and suppliers — and lead process
improvement for a total enterprise.
But this rapid transformation was
made possible by the history of trust building in the culture. They were ready for the
big paradigm change -— from taking direction to taking initiative. Managers no
longer "tell them what to do;" they say, "It's
your area; show me the best way to perform the work." For managers as well as
money earners, that was a profound cultural change.
This change was promoted by having
people see and feel it, making it fun, not
threatening, stimulating them to openly
identify with the change. A typical bit of
exhibitionism was a 5S dance. Symbolically repeated, the dance and other insider
rites say, "I'm with it (the changed method
of work), and you're with it, so we're with
it."
People opened up, got a little silly
together, and bonded as a team to make
changes stick. (Almost everywhere, active
teams adopt "cool" monikers and use internal terms that outsiders might consider
quirky. Xomed went a little beyond that.)
By reaching people emotionally, outward displays of enthusiasm change collective behavior. Pure intellectual acceptance
of lean tools and principles may not touch
people enough to actually change their
behavior. Bussell refers to this as the heart
of change.1 That heart is the cultural hook
on which the lean tools are hung.
Transformation is not fully complete,
but in three years they have come a long
way, as shown in Figure 1. The improvement in line fill rate has been particularly
important to Xomed's drive to best all competitors in customer service.
From training to IT, Xomed's leadership and staff supports lean operations.
Exactly what to do has not always been
anticipated, so for instance, major IT
changes friendly to fast flow operations
were still pending in 2003. Tooling, maintenance, and manufacturing engineering
assign people to support particular value
stream lines. Cost accounting reports are
by value stream. Rotating these assignments occasionally has proved to be a stimulus to problem solving by putting fresh
eyes on old problems.
Production and distribution of the
devices has been relatively "leaned out,"
but more remains to be done. For example,
in 2003 Jacksonville began to aggressively
remove waste from the "paper factory."
Jacksonville, the biggest operations
center, is the core of lean transformation, but
advance is not limited to that location.
Culture change at other locations is roughly
A Few of Medtronic Xomed's Lean Manufacturing Accomplishments
1998
2003
Line fill rate (percent orders complete shipped on time)
80%
96%
Average manufacturing cycle time, start to finish
23 days
6 hours
Work in process inventory turns
16
230
Rework as a percentage of revenue
0.14%
0.06%
Sales per square foot*
$1818
$2800
*Not shown in these numbers, an external warehouse was also eliminated.
Figure 1.
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comparable. For example, MicroFrance
experienced a 58 percent productivity
improvement in five years, while order leadtimes dropped from 16 weeks to two days.
Xomed's objective is not fast lean conversion, but sustained — and sustainable — lean
conversion.
tioner a penny. And songs like, "Hit the
road Muda; don't come back no more, no
more …." Executives take the same training, learning to participate in the funky customs that socialize learning.
Nothing
builds confidence like a senior manager
acting as goofy as you feel when trying to
learn how to work in a whole new way.
Training and Development
Executives at Xomed credit Rick
Kundert and Lea Carter for developing
training to establish a sustained, cheerful
"search for excellence." They made the
change fun and introduced new ideas at a
rate that made it possible for people to
actually use them.
The first round of training for lean
manufacturing was mostly big picture
"edutainment," using simulations to
demystify it — removing the fear of specific
techniques to implement, like 5S and cell
building. Round two goes into more depth
on established tools, like value stream
mapping and problem solving methods.
Quality training starts with simple statistics.
People learn to use tools they know before
learning more. Few people within Xomed
are trained on advanced methods such as
Design of Experiments.
Previously, ambitious programs at
Xomed failed by trying to change too much,
too fast. Now the objective is to project
from a solid understanding of what Xomed
actually is toward what it must become.
Training is personalized; everyone has a
training record.
So do departments.
Knowledge gaps moving forward are
addressed by more training.
The key to success of the recent
approach is eliminating various fears: looking stupid, being out of step with the group,
making mistakes, and so on. There's little
need for separate "touchy-feely" development because Xomed teaches techniques
as behavior modification. People learn to
"actually work and think the language of
new methods." Training sessions initiate
socializing customs that carry on long after
the training, for example, the lean handshake and Penny Five: If someone cannot
recite the steps of 5S, they owe their ques12
Target Volume 20, Number 1
Non-Operational Process
Improvement
Beyond the factories and laboratories, Xomed's lean revolution has begun to
cascade into other functions, anxious to
catch up. The time for new product introduction is being trimmed; Xomed has had
numerous doctors touring their facilities
express a sincere interest in running a
"leaner practice."
The field agents were one of the first
to benefit from the push to eliminate waste.
To give the reps more time with customers,
and less paperwork and drive time, Xomed
developed a sales support system using
Palm technology. Using it, reps have at
their fingertips the complete pricing structure, rosters of phone numbers, doctors'
billing codes, extended warranty information, brush-up instructions on anatomy and
surgical techniques, and more. The system's database of cross-references with
competitive products is particularly useful.
Previously, if a rep wanted to substitute a
Xomed product for a competitors' — as
when it failed or broke — she often had to
plow through manuals for hours to be sure
that a Xomed product could substitute for
it. Now a rep can usually seize any such
opportunity by quoting a substitute within
five minutes or less.
More systems like the Palm sales support are contemplated, but for them to be
effective, professionals need to understand
lean tools and principles in a personal context. As with the money earners, a "socializing version" of training for professionals
in IT, R&D, sales, and accounting is being
developed — very carefully. More issues
must be addressed than for operations personnel moving product. Xomed wants to
build a base, not a backlash.
Suppliers and Distribution
Today Xomed manages about 500
suppliers and 10,000 item numbers in their
total system, end-to-end. Besides shipping
items produced in their own factories,
Xomed purchases items from suppliers for
redistribution.
Few of Xomed's suppliers are strong
in lean manufacturing, although there are
exceptions. For example, Dannaher, which
supplies small motors, is a well-known
lean company from whom Xomed has
taken some operational cues, for example
emulating Dannaher's policy deployment
process. However, most suppliers are
small shops with specialized products, so
working with them to smooth out operations is a sizeable challenge. Xomed is just
beginning to make substantive progress in
supplier development.
About 30 suppliers are currently on
ship-on-demand status. Only packaging is
now handled dock-to-stock (straight to the
point of use with no stops and no inspections), but many other items are candidates, and the goal is to have 95 percent of
all supplied items go straight to production.
Certifying supplier process quality is
slow work. Two supplier quality engineers
are educating suppliers and working this
issue, but before Xomed can dramatically
shorten the inbound pipeline of material,
many more suppliers must be able to ship
defect-free materials. Without this, dockto-stock cannot happen.
Relations with many suppliers are
quite good. For example, if Xomed needs a
modified material for new product development, they are responsive — nimble and
imaginative, if not quick. And Xomed provides suppliers computer visibility of their
stock on hand, and uses min-max stock
levels to trigger re-shipments. This greatly
reduced stockouts and diminished on-hand
inventory by 25 percent.
But dock-to-stock is a big step beyond,
involving much more than visibility and
logistical procedures. For this step, culture
change is again the key ingredient. Supplier
capabilities are not expected to improve
with the snap of a finger, and Xomed is start-
ing with internal reorganization, shifting
responsibility for ordering and shipment
from a central purchasing department to the
value stream organizations. This move will
shorten the "communication distance"
between Xomed's "money earners" and the
operating personnel of suppliers.
On the outbound side — distribution —
the "communication distance" to customers has already been shortened. The
Jacksonville distribution center uses a heijunka box to initiate rounds of order picking
on a 15-minute takt time. Just as if circulating around a production cell, order pickers fill each order by walking past
sequenced locations of the 500 highest volume items, working from pick lists autogenerated by each order. Using this "flow
system”, 99.9 percent of all incoming
orders ship at least partial the same day,
and 96 percent of them ship complete.
Distribution is tied to production by a pull
system that signals manufacturing value
streams to replenish stock that has been
shipped.
This innovative system was a major
step in Xomed being able to "out-service"
competitors while reducing space and
investment consumed by finished goods by
half. As great as that improvement is, total
inventory turns are only about four, so
much opportunity remains. Xomed is challenged to dramatically reduce this further
because many items are low volume with
irregular demand.
Research and Innovation
Xomed's R&D department, headed by
Craig Drager, concentrates on keeping
Xomed in the technical lead in ENT and
related devices. Most of them work on product concept and development. Although
Xomed does not do basic research on fundamental science, they do search the world
for promising technology. One person
spends nearly full time tracking down interesting phenomena, and Xomed could create
a new product right from scratch.
However, this is not a highly productive approach. Most new product ideas
come from outside Xomed. R&D seeks
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technical solutions to promising problem
opportunities, selecting projects that
advance Xomed's market and technical
leadership. Xomed does not want to be
surprised, and forced into defensive, reactive product development. Projects are prioritized based on:
•
•
•
•
Strategic fit in the product/service offerings
Leadtime to develop
Anticipated financial return
Resources required.
To assure that engineers pay close
attention to projects, Drager limits them to
no more than two projects concurrently.
Xomed can't afford to have time conflicts
delay moving a hot new product to market.
To avoid compromising either quality or
time-to-market with not-invented-here
(NIH) issues, Xomed contracts expertise
when needed. For example, they will contract an expert in high speed micro-motor
design if that is not a specialty of anyone on
staff. Since being purchased by Medtronic,
Xomed has also found advantages in working with corporate R&D or other Medtronic
divisions' R&D, tapping their experience
and talent in areas new to Xomed, as for
example in implantable devices, in which
other Medtronic divisions are technical
leaders.
No product development project has
totally bombed — been dropped or recalled.
Few have missed their expected market target. The combined judgment of senior
management has worked well picking winners. The same is true of adding new products through acquisition. "Due diligence"
includes an assessment of how to integrate
different operations and work cultures into
Xomed.
Today, Xomed integrates new products
into their operational system much better.
They carefully develop process standards for
products developed in-house; for those
acquired, they validate standard procedures
from elsewhere and translate them into the
formats used within Xomed. This practice
simplifies life inside Xomed, and leaves
much less complexity to explain during
audits by standards or regulatory groups.
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Target Volume 20, Number 1
Development or conversion of standards is
done by cross-functional teams that include
"money earners."
To pass regulatory approval, development projects always had to be well documented. Now, in order to "take the air out"
of project completion times, Xomed works
harder validating processes at each stage of
a project, which forces them to ask the right
questions earlier and earlier, and wastes
less overall project time by reducing the
number of bad assumptions made to compensate for incomplete information. This
begins before project inception, by validating user specifications (what the customer
really needs). Further along, but well
before launch, both the design specs and
the process specs must be validated —
including such considerations as whether
suppliers have the capacity to provide new
parts. However, project information flows
remain a bit "convoluted." IT is working to
remove waste from the project information
system.
The Cultural Foundation
Inside Xomed there is little doubt that
conversion to lean manufacturing, which is
still in progress, accelerated around 1999
because it was preceded by a lengthy ramp
up of cultural development among the
operations personnel — the "money earners."
Intense conversion was not an
intense shock because changing work
habits had become fun, and therefore nonthreatening. No "money earners" had to be
dismissed because they could not adapt. In
most cases, their work became easier, and
after adjusting to it, much less confusing.
Xomed's lean conversion tools and
the sequence in which they were introduced are similar to those used by many
other organizations. But Xomed is more
successful than most because of the patient
development of the culture for it. Within
Xomed, change goes at "people speed."
Jerry Bussell says that culture is the
foundation on which all lean progress has
been built. The cultural shift has proceeded the furthest with the "money earners,"
while the cultural shift among the staff,
Organizational Vigor Ratings by the A-B-C Framework
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First Issue 2004
Medtronic Xomed's A-B-C Rating:
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Target Volume 20, Number 1
thus far, primarily supports the "money
earners." Lean conversion has only begun
to progress in non-operational processes,
where the opportunities are at least as
great as those in operations. Xomed has
the challenge of making changes in "work
think" as non-threatening to professionals
as it was for the money earners.
Robert W. Hall is editor-in-chief of Target and
a founding member of AME.
Footnote
1. Bussell's expression is from the title of a book by
John P. Kotter and Dan S. Cohen, The Heart of
Change, Harvard Business School Press, Boston,
MA, 2002. However, his earliest efforts were based
on Stephen Covey, The Seven Habits of Highly
Successful People, Simon & Shuster, New York, 1998;
followed by skits and role playing to draw people out
and decrease their fear.
© 2004 AME® For information on reprints, contact:
Association for Manufacturing Excellence
www.ame.org
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