10

Executive Summary:

Introduction:
New federal regulation, shifts in consumer spending, and changing demographics have
dramatically altered the healthcare industry. Thus, GE Healthcare Systems (GEHS) must develop
a competitive strategy, integrated across the business, to maintain its market share and long-term
profitability.

Background:
GE Healthcare is a $17 billion division of GE. Healthymagination is a major business unit within
GE Healthcare, developing medical imaging equipment and devices to hospitals and clinics
around the world.
Primary revenue: equipment sales ($7.5 billion for 2010), and services ($4Billion)
Main modalities: X-Ray, CT, MR, Molecular Imaging, Ultrasound
Competitors: Philips Healthcare, Siemens Healthcare, Toshiba Medical
Customers: a diverse range of medical facilities

Figure 1- 1980

The new product introduction (NPI) that was used in early 1980 was more focused on
engineering-driven culture. There were numbered stages that represented milestones that needed
sequential beginning from product concept to final clinical evaluation. See figure

M0: It involved the formation of a group of multi-functional program team which consisted of
technical engineering experts. Marketing and product specialist experts
M1: It is determining the product capability. Putting estimation for economics of manufacturing
the product. As well as the expected schedule for the product.
M2: It was about the supply chain and production coordination issues.
M3: A small amount of the new product were manufactured and they were shipped to selected
customers, tested the reliability of the supply, service and sales organizations.
M4: Warranty and service contracts discussed with the customers.
M5: Release of the responsibilities for the team in order to move to another program or project.
ME: The product need to be clinically validated.
MV: The product performed to the specification made.
MS: The release of the product to the sales team in order to sell across the globe.
In the mid 90s the group evolved its NPI in a strategic filter that focused on solving a clinical
relevant problem with a demonstrable improvement in imagine quality which the clinician would
recognized, it was necessary that the product had a wide range of applications.

However, the leaders thought about a more incremental innovation which would align to
customers clinical. This was the Healthymagination Value Creation Process for measuring value
creation and delivery.
The new milestone needed the team to choose a primary dimension for product excellence which
were cost, quality or access. These three dimensions needed to show a 15% improvement in
order for healthymagination to approve and validate.
This initiated the need to make a pre-MO stage that was critical for the success of the product
validation.
1- Identify a target segment, state what problem the team was trying solve for the customer
in terms of cost, quality or access. If there are a lot of stakeholders involved like payors
and patients then value preposition is made to each party separately.
2- Explanation on how the solution provided an identification of the problem, this would
allow recognition of standard care and realizing the benefits of each product feature and
how does it add value to customer.
3- Evaluate barriers:
a) Value creation through 4 primary areas: Technology, Product Economies, Evidence
Generation and economics value quantification.
b) Value delivery in 4 areas: Supply Chain, Market access, Sales & distribution and
service installation)
Each area received a red,yellow or green rating that signified on the level of difficulty
and uncertainty (high, moderate and low respectively) in achieving the goal. Another
task was the post-launch process for positioning the product which depended on the
customer segment.

Assessment of product portfolio:

Every product was represented by a circle and this indicated the size of investment put on it. It
was placed on a two by two matrix which involved of technological uncertainty and market
uncertainty.
Technology uncertainty: Risks involved in developing a product which might not meet the design
requirements, performance expectation.
Market uncertainty: Respond of the market to the product assuming that the product was without
any technological uncertainty. It focused on examining whether the product targeted a new
geographic area or new uses in existing markets.
Marketing Key:
Healthymagination had a significant effect in highlighting marketing central and strategic
function as the customer interface. It evolved the value preposition to become a more customer
oriented since it all began with pre-process of understanding the customer need, hence maximum
value creation. This allowed the need to understand why certain customers value different
benefits and how to find the most customer-relevant, differentiated path.
New Product Development:
There were several products that needed to be evaluated and validated by healthymagination:
However, the team required a healthy contribution margin from each to cover the fixed costs of
development and other costs. To make a good analysis of the margin, the price was based on a
multiple of marginal costs of production, the multiple ranged from 1x for inexpensive devices

that would be cheaper and cost few thousand dollars to 8x for top end products priced at over
100,000.
Product Concepts:
-

HepEcho: general imaging customers focusing on diagnostic imaging for the liver.
Teemax: ultrasound product used in heart surgeries that demonstrated 4D rendering of

mitral valve.
UltraLipo: ultrasound product for body-sculpting intended for cosmetic purpose.
Omega: affordable ultrasound system for scanning pregnant women.

In order to evaluate each product, a SWOT (Strength, Weakness, Opportunity, and Threat)
analysis was need for each product based on the data given.
HepEcho:
Strength:

Weakness:

-Based on LOGIC E9 architecture ( advanced tools

-Expensive Investment of 36$ million

in radiology, basic imaging)

-Customers are only hospitals since its price is

-Bundle volume navigation which allows more

of 120,000$ per unit.

accurate biopsies or follow-up treatments.

Opportunities:

Threats:

-Japanese Market since high mortality of 32,000

-Competition with FUSION capabilities that

deaths each year from this disease and its

merges Ultrasound and images with CT and MR

increasing

images for a more complete view.

-Current products dont meet Japanese hepatologist

expectations to detect and treat this disease (Liver
cancer)
-Market estimation of 400$ million in Japan only

Teemax:

Strength:

Weakness:

-Use of 4D for rendering Mitral valve

-Team wasnt sure if it meets healthymagination

-Provides high quality representation of the heart in

criteria of 15% improvement in quality

motion
-Cutting-edge product

Opportunities:

Threats:

-Large top-end market with a potential of over a

-Significant uncertainty in meeting cost targets.

billion dollar.

-Philips serving the market with Live 3D TEE

-Would be the first 4D product maker (First Mover

product which was promoted as The GPS of

Advantage)

Surgery

UltraLipo:
Strength:

Weakness:

-High price estimation for the product:

-Lack of a clinically relevant benefit (Wont

120,000$

improve health)

-Technology required is simple compared to

the advanced capabilities at General Electric
Healthcare Ssystem.

Opportunities:

Threats:

-Over 2 million lipsuction procedures) were

-No manufacturing site had received US FDA

performed worldwide.

approval.

- 1 billion market estimation

-Out-of-pocket expenditure by patients,

- Brazilian market was a large and thriving

insurance providers wont cover cosmetic fat

market, treatment would cost 1500$ and

removal procedures.

providers had a high margin profit.

-Brazilian economy and doubt in hospitals

purchasing such a high cost product.

Omega:
Strength:

Weakness:

-Affordable (3000$) per unit and easy to use.

- Significant uncertainty in achieving sales

-Ability to reduce the risk of pregnancies

targets in Indonesia.

Opportunities:

Threats:

-Indonesia rate of birth: 18 new for every

-Hurdle in making product economics work,

1000 people in 2010 (Midwives has

the midwives would need to earn a living

significant role)

using this product since the product might be

- Hospitals charge ten times more than a

viewed as a large financial commitment.

midwife (45$ per case)

- 230 million people in Indonesia, there are 26
midwives for every 100, 000 people. Then we
have (230 million x 26/100,000)= 59,800
midwife
-2000 obstetrician/gynecologist located in urban
areas and are needed for services.

Financial Evaluation:
Break-even analysis formula is to calculate the amount of sales that equates revenues to expenses and
the amount of excess revenues, also known as profits, after the fixed and variable costs are met.

HepEcho:
-

Initial Investment: 36$ million

Selling Price/Unit: 120,000$
Marginal costs of production: 1x for inexpensive devices that would be cheaper and cost
few thousand dollars to 8x for top end products priced at over 100,000.

Then Marginal Cost: 120,000/8x= 15000$

Breakeven Point= 36$ million/ 120,000-15000 = 343 Units.
Teemax:
-

Initial Investment: 36$ million

However there wasnt data on selling price.

UltraLipo:
-

Initial Investment: 10$ million

Selling Price/Unit: 120,000$

Marginal Cost: 120,000/8x= 15000$

Breakeven Point= 10$ million/ 120,000-15000 = 95 Units.
Omega:
-

Initial Investment: 6$ million

Selling Price/Unit: 3000$

Marginal Cost: 3000$/2x= 1500$

Breakeven Point= 6$ million/ 3000-1500 = 4000 units

Since we already had a calculation of 59,800 midwife (Indonesia), then we would expect
profitability since they expect that 1 or 2 out of 4 would buy this product. We expect 14950 at
least to purchase this product which would create 3000$ * 14950 = 4 $ million in revenue.
This allows us to assess the product portfolio:
Red: High Certainty
Yellow: Moderate
Green: Low Certainty

Atlhough Healthymagination criteria that involved reduction of 15% in cost, improvement

of 15% in quality and 15% in access is getting GE Healthcare a better targeting of its

products to the customers.

Still, it faces the challenge of missed opportunities for growth markets, the in ability to fill
the 3 dimension in 15% will cause many products to only stay as concepts and not be
produced. Moreover, much of the analysis is based on estimation that might not be of earning
to the company, so the uncertain earnings are still a risk put on every product validated by the
healthyimagination. Also, the cost of marketing would rise highly since apart from R&D, the
company needs to establish valuation and future expectation of the products to each
stakeholder and it passes through an evaluation that takes longer time.
Never the less, the pros are huge and the strategy itself tackles the cost, quality and access. It
creates measurable metrics and reduces the risk of sunk costs.
Porter 5 Forces: Diagnostic Imaging
Threat of new entrants: It is low since the industry is already concentrated with few players
and the capital cost is high to get into this industry.
Threat of substitutes:
Competitve Rivalry: It is high since competitors are always driving innovations to make their
products cheaper and more valuable to the customers (hospitals, payers, clinicians)
Buyer Power: It is moderate
Supplier bargaining power: It is low since GE is a strong brand and name in the industry and
its cost of production is well considered. They are always trying to get partnerships with
companies like Intel for Health Homes and

Recommendation:

I would recommend the 15-15-15 strategy performed by GE since it illustrates the

importance of customer focus instead of engineering focus where it used to only
market whatever product it had. However, now it goes into evaluating each product

and validating that it fits Healthymagination cirteria.

I would recommend the company to invest in HepEcho since its SWOT informed
about the chance of helping patients in Japan and the high demand needed for this
product would still create a market share though the FUSION product already is in

the market.
I would recommend the company not to invest in the Teemax since it might not fit the
15% cost and it still needs more innovation to make it compete with the Philips

product already in the market.

I would recommend the company not to invest in Ultra-lipo until FDA approval to the
manufacture it but it might be a consideration for the long run of the company since
there is a high market share in Brazil and USA .The providers of this service would

love the product because it gives them back high margins of profit.
I would recommend the company to invest in Omega if GE is able to create an
assured pre-ordered devices for this product by the midwives in order to be sure
about the product initiation. The product draws on reducing risk in pregnancy which
helps in making lives better.

References:

VINEET KUMAR, V. KASTURI RANGAN (2012). Healthymagination at GE Healthcare

Systems. Harvard Business School ,9-512-039.
Paul C.Nutt (2001) Why Decisions Fail , Berret Koehler
Christensen (1997) The Innovators Dilemma, Harvard Business School
McGrath (2000) Product Strategy for High Tech Companies (Second edition), McGraw Hill
Education