Marconi keeps PACS business going with skeleton crew

November 21, 2001

String of missteps caused demiseOnly a year ago, top executives at Marconi Medical were touting their PACS division as the company’s backbone and the key to future development. Today the division is barely functioning,

String of missteps caused demise

Only a year ago, top executives at Marconi Medical were touting their PACS division as the company’s backbone and the key to future development. Today the division is barely functioning, orphaned by Philips Medical’s purchase of Marconi Medical’s other assets. A skeleton crew keeps the remnants of the business going, but prospects for its revival are nowhere in sight.

Marconi’s former PACS division consists of a scaled-back technical team operating out of the company’s former headquarters in Cleveland, which are now owned by Philips. Marconi plc will continue to operate the unit until it is either sold or officially shut down, according to an industry source. Dozens of Marconi customers with comprehensive PACS, more than a hundred with Applicare workstations installed by Marconi, and several dozen who bought archives from the company before its demise are all stuck in limbo.

Marconi toppled because of a lack of demand for its PACS product and its PACS business unit. The company tried to package the unit for sale along with its other business entities, but Philips was not interested, according to a former Marconi executive. A top Philips executive insists, however, that Marconi did not offer to sell the PACS unit.

“PACS was not part of the deal,” said Allen Paul Smit, VP for strategy and business development at Philips Medical Systems. “We were told they were thinking of starting a hospital IT business of which PACS would be a part, so they didn’t offer it to us. We accepted that and negotiated for the other parts of the business.”

While the facts of the merger negotiations may be in dispute, the end result is not. Philips has not attempted to acquire Marconi PACS, even though the business is operating on premises now under Philips’ control.

In retrospect, the fate of Marconi PACS may have been determined long before the deal with Philips came into play. The PACS division had strong sales growth over its four-year existence, yet it never turned a profit, according to the former executive. The problems may have extended to the foundation of the business.

“Management did not organize the PACS division the same way as Marconi’s other modalities,” the executive said. “It was difficult for the sales organizations at Marconi to work closely with the division. I don’t think the PACS division ever had the buy-in from the entire organization.”

Keeping PACS separate from the imaging modalities and the Healthcare Products Division was initially intended to maximize exposure to sales channels. A side effect, however, was that none of the channels serving modalities established close working relationships with PACS. In response, company executives eventually folded PACS in with the equipment business, but PACS was never afforded the same sales resources as the modalities, said a source familiar with the strategy.

Marconi’s overall product strategy may have been part of the problem. The PACS division focused on integrating third-party software and hardware products. Serving as an integrator may have been a disincentive when promoting the division to prospective buyers, particularly Philips.

“Philips would have had to take over an existing customer base with a large amount of Applicare/GE workstations. These would have had to be transitioned to its own PACS, and that may have been deemed a time-consuming and problematic task,” said a former Marconi executive who is now an industry consultant.

The many products Marconi has integrated into its installations would have further complicated the task. These include archive software from Image Devices, hardware and software from Merge Technologies and Mitra (now a part of Agfa), and equipment from various PACS vendors, as well as computed radiography products from Fuji and Agfa.

The strategy to serve as a third-party integrator was inherently difficult to implement and may be difficult to maintain. Beyond the transfer of images, many PACS functions are not supported in DICOM communications and some of the functions linking an archive and the workstations require custom integration. Ongoing software revisions and hardware upgrades from different vendors used by Marconi must be managed to maintain optimal performance of the PACS. Applicare, for example, has revised its software several times since Marconi began integrating that company’s products, and some of those revisions required additional training of Marconi staff.

The integrator strategy raised profitability issues as well. Purchasing software from third parties while dealing with integration and service issues squeezed the PACS division, which was saddled with its own overhead concerns. Under these circumstances, Marconi PACS struggled unsuccessfully to turn a profit, according to the former Marconi executive.

Marconi’s decision about R&D spending for PACS may have been a strategic misstep. The company developed its own JPACS suite of Web-based image distribution products, which a dozen software developers worked on at one time. The Web server suite showed promise, but the technology failed to attract a strong following. Management targeted the key image distribution Web server product, JPACS Results, to referring physicians in the hope that referring physician demand would help drive sales, but that demand never materialized.

The division’s customer list, which includes the University of Utah, the Atlanta VA, and Bronx Lebanon Hospital, is a testament to the potential it once had. Marconi was also able to attract top industry veterans. Many have moved on to positions with major PACS vendors such as GE, Siemens, Talk Technology, Cedara, and Cerner.

“It’s a shame we couldn’t have continued,” said a former Marconi PACS salesperson. “We had a great technical team. We had satisfied customers using fully functional Marconi PACS. I wish we had been given more time.”