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
Guidant’s 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
Guidant’s Business Unit
Cardiac Rhythm
Vascular Minimally Invasive
Management
Intervention (VI) Surgery (MIS)
(CRM)
• President : Jay • President : • President : Jay
Rac Ginger Howard Watkins
• Combination of • Combination of • Predecessor :
Cardiac Advanced Origin
Pacemakers, Cardiovascular Medsystems
Inc. and Health Systems, Inc. • Product :
Rhythm and Devices for laparoscopy
Technologies Vascular
• Product : cardiac Intervention, Inc.
pacemakers, • Product :
defibrillators, catheters
and leads
GUIDANT’S 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 Cost- Create a Stream
Leverage Sales Optimize Global
Effective of Novel Business
and Distribution Presence
Administration and Products
Build Competence
Leverage Influence Public
to Ensure Speed Minimize Risk of
Manufacturing Policy Important to
to Regulatory Regulatory Actions
Assets Our Business
Approval
Shareholder Value
Capital market as the ultimate judge of Guidant’s ability to
create shareholder value

To achieve double market value in 1999, there are six

specific financial goals:
Maintain
Decrease
Sales growth capital
effective tax
greater than expense
by 1% per Create
competition below Consistent
year strong
depreciation value
reputation
Decrease
25% Debt to Improve gross
OPEX 2% of
Equity margins
sales per year
 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
Incentive of the

performance
Global Guidant’s
business heads 60% of their compensation
(Compensation of linked to stock performance
the ten senior through stock ownership and
managers) 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.
Bonus Structure

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

• Guidant’s 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

1995 Managing the market pressures of the IPO

●

and making Gudant a solid company

1996
Four managers evaluated whether the system s put in place
●

would shape the appropriate culture to drive Guidant forward as

a successful medical devices company

Next
Long term planning (a well excuted planning system required a
●

significant time commitment and possibly an environtment

stable enough to look 2-3 years into the 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