Marconi bets future success on glamour modalities and IT

February 14, 2001

Rather than cover all modalities or move beyond radiology to offer ancillary medical devices as some major vendors have done, Marconi Medical Systems is trying to grasp specific opportunities in medical imaging. Key among them are the high-tech

Rather than cover all modalities or move beyond radiology to offer ancillary medical devices as some major vendors have done, Marconi Medical Systems is trying to grasp specific opportunities in medical imaging. Key among them are the high-tech high-margin products, CT and MRI. Clearly expendable was x-ray, which the company dropped late last year (SCAN 9/27/00).

"We moved away from x-ray because it was not making money for us. Customers buy x-ray products as if they were at (a department store)," said Fred Parks, president and CEO of Marconi Medical Systems. "We're not going to compete in a market like that. We are moving to the high end in CT, nuclear medicine, MRI, and RIS/PACS."

The company has lagged behind in nuclear medicine, failing to predict the current surge of interest in PET and, consequently, not having a dedicated PET scanner ready for sale. But this may soon change. Marconi is believed to be developing a dedicated PET system for release later this year.

Tying the glamour modalities together is an information technology backbone designed to build on the strengths of Marconi Medical Systems' parent, Marconi Corp., which specializes in communications and IT. Cherry-picking product lines would seem counterintuitive to the underlying strategy of IT, which calls for the linking of all digital imaging modalities, as well as other information sources. But Marconi executives have a different view. Rather than information technology supporting the sale of imaging modalities, IT is an end in itself.

"We are moving from a modality-specific company to an IT company, yet we are still supporting the same kind of customers," Parks said. "Our customers are high-tech junkies."

The company has shifted its R&D focus to higher ticket items, he said. Marconi engineers concentrate on the big picture, designing systems that accomplish sophisticated tasks. Other companies supply the components that make the system work.

"If somebody else can do it better than we can, we will buy from them," said Eliezer Tokman, senior vice president of product strategies.

The equation works in the other direction, too. Marconi is open to being a supplier to other companies. Certain components developed by Marconi may appear in competitors' products. To achieve an economy of scale, the company is willing to collaborate on the development and supply of these components. Such a collaboration is already in place with Siemens for the sharing of components in multislice CTs, Tokman said. This technology-swapping has not had an adverse effect on CT sales by Marconi or Siemens, because both companies distinguish their products at a higher level, such as clinical applications and computer systems.

"We always want customers to see a difference, but the time to market is also an important issue so that we can provide customers with different choices over shorter intervals," Parks said. "If that means going outside a little more, so be it."

Some competitors argue that successful companies must offer a diversified product mix. A one-stop shopping mart is the goal, satisfying all the needs a customer may have and bundling products to offer bigger discounts. A selective product line, however, has not dissuaded customers from working with Marconi, Parks said.

The company occasionally gets requests for equipment it doesn't produce. Marconi handles them by calling in other vendors.

"If we need to provide x-ray, we doÑthrough strategic alliances," he said.

But x-ray is not the only hole in Marconi's portfolio. Diagnostic ultrasound holds substantial interest for customers, and the opportunity to fill that need through alliances has narrowed with consolidation decimating the ranks of once-independent ultrasound vendors. Marconi chose not to participate in the M&A mania to snap up these companies because ultrasound, like x-ray, has minimal potential for profit, a fact demonstrated by the balance sheets of ATL and Acuson when they were stand-alone companies. The root problem is market saturation, and acquiring an existing vendor would not have resolved that problem, Parks said.

"Why would we want to merge an outside organization into our company to address an overcapacity industry?" he said.

Marconi is not opposed to making mergers and acquisitions, but they will be done for a purpose other than diversification.

"They are less likely to involve modalities and more likely to be on the information side," Parks said.

Marconi's strength in IT will be multiplied by capitalizing on opportunities involving the Internet, Parks said. Customer satisfaction with the Internet is quite low, partly due to early expectations being too high. Reality is beginning to settle in, and in the next few years, the number of successful installations will increase. Satisfaction will grow and demand for Internet-based solutions will rise.

Fitting IT into the existing pattern of workflow is essential, according to Tokman. Communications must include images and patient information while connecting radiologists and referring physicians.

"There are established steps that are completed (in the practice of medicine) regardless of the site," he said. "We need to develop software packages that direct workflow in these ways so as to provide the right information to RIS/PACS."

Marconi is also using the Internet to improve its own bottom line. The company's Healthcare Products Group (HCP) has set itself the goal of conducting at least half of its sales via e-commerce. The savings could be substantial. This group offers more than 20,000 different consumables and ancillary products, generating about a third of the company's annual revenue.

Marconi is also adjusting its approach to the development and sale of imaging systems. Company strategists are focusing on disease rather than modality. Oncology is a primary consideration, Tokman said. MRI, CT, and nuclear medicine are inherently suited to the detection of cancer. Image fusion initiatives at the company are seeking to combine data from these different modalities for both diagnostic purposes and radiation therapy planning. Cardiology is another focus for all three modalities. Other priorities include trauma and noninvasive disease screening.

In keeping with this disease-centric model, the company has adjusted its research collaborations to work more closely with luminary sites. The goal is to streamline and focus research efforts on applications likely to provide a good return on investment. These are such emerging applications, as the use of CT and MRI for cardiac studies.

"We are investing a lot of money and we expect sales back from it," Parks said.