Siemens bundles equipment with corporate philosophy

March 6, 2002

Chief executive aims to reengineer healthcare approachErich R. Reinhardt wants nothing less than to change the practice of medicine. Since taking the helm at Siemens Medical eight years ago, Reinhardt has steered the German company

Chief executive aims to reengineer healthcare approach

Erich R. Reinhardt wants nothing less than to change the practice of medicine. Since taking the helm at Siemens Medical eight years ago, Reinhardt has steered the German company away from selling equipment and toward providing solutions. This has happened, perhaps coincidentally, at a time when the term "solutions" has become so ubiquitous that it is easy to dismiss Siemens' efforts as so much lip service, just one more sound-good statement without substance.

What separates Siemens from many other companies is that Reinhardt and his colleagues really mean what they say. Reinhardt has turned solutions-based thinking into the cornerstone of the company's philosophy, imbued this philosophy in his staff, and in so doing changed the way this company thinks, acts, and speaks. Managers talk about processes not products. Try to lead them into a discussion of the relative merits of a product or modality, and the conversation turns inevitably to clinical problems and how to solve them.

"Everybody in the company has to look at (different circumstances) and understand what they mean to clinical workflow," said Reinhardt, president and CEO of Siemens Medical Solutions (SMS). "We have to understand where the equipment is operating and the workplaces in which it is used. We have to know its very specific requirements. We have to know what we can do to make the clinical process more efficient."

Typically, vendors sell products such as MR systems, CT scanners, or gamma cameras. They write service contracts to keep equipment running effectively. They measure efficiency by the percentage of downtime. Siemens wants to sell processes and measure efficiency by how well the users of its equipment perform.

"We offer the tools for our customers to optimize what they do," Reinhardt said. "We make it possible for them to do their work better."

SMS engineers focus on product designs that make healthcare more efficient and more effective. Marketing and sales staff relate how these products affect the healthcare process. Trainers work with customers to get the most from the equipment by educating them on the best use of these systems.

Training is a critical part of the internal adoption of this philosophy at corporate and customer levels. Staff need to buy into the Siemens philosophy to provide a foundation for the partnerships between company and customers that top management believes are crucial for its solutions to work. Siemens staff are directed to understand the exact requirements of their customers and determine how Siemens products can be used to improve performance at specific sites. This corporate transformation is the aim of Siemens' P3 program: people, processes, and product.

"We continuously invest in training programs, in education," Reinhardt said. "Within Siemens, we train from the top down and involve all our people, because you must get buy-in from all the people. This will not fly if an organization is not interested in change."

The top brass have bought into Reinhardt's ideas, appointing him in November 2001 to the managing board of Siemens AG. Prospective customers, however, may not realize they are buying into anything more than technology. If they don't know before they make their purchase decision, they find out during customer training, which includes a hefty dose of solutions-based thinking.

It does not come easily at first, Reinhardt acknowledged. Siemens and many of its customers are still in transition, he said. They are still getting used to the idea of a company with a grander ambition than to simply sell products.

"Not 100% of the market is interested in this," he said. "But I am convinced that we will be able to demonstrate with hard facts what (our customers) are able to achieve, and this will then accelerate the transition process."

The company's latest information technology, Soarian, provides the clearest example of Siemens' plan to reengineer medical practice. Soarian, which is part electronic record and part PACS, is designed to synchronize the workflow of all healthcare providers involved with every patient from admission to discharge. Smart user interfaces anticipate the needs of providers and assist them with algorithms that monitor the healthcare process, measure efficiency, and prompt actions to resolve problems before they arise (SCAN 10/31/02).

Reinhardt recognizes that before customers embrace Soarian or Siemens' philosophy of healthcare, the company must demonstrate that adoption improves healthcare. Four customers are putting Soarian through its paces this year. (General release of the product is expected in the first quarter 2003.) But Siemens' philosophy is on trial every day in every modality at every Siemens customer site.

"Our approach is more complex, more difficult, than the way we used to operate," Reinhardt said. "But we are building different relationships. In the past, we were a supplier to our customers. Now we are a partner to our customers. To be a partner means coming to an understanding."

The company's efforts are already showing tangible signs of success. Demand for Siemens' medical equipment has doubled in the past three years. A substantial portion of this increase can be traced to the acquisition of IT-oriented Shared Medical Services and ultrasound vendor Acuson, which has broadened the company's product range and expertise. The effect of solutions-based thinking, however, cannot be entirely discounted, as sales increased 60% in fiscal 2001 alone and the trend appears to be continuing.

The magnitude of the effort is hard to overestimate. Siemens is not trying to change the practice of medicine only in its own German backyard. Nor is it focusing just on the U.S. The solutions-based approach is being applied in every corner of the world. In fiscal 1999 and 2000, the U.S. accounted for 36% of medical sales, compared with 38% for Western Europe, according to the company. (About 15% of total sales revenues came from Germany alone.) Japan accounted for 8% of sales; Southeast Asia for 5%; Central and Eastern Europe for 3%; Latin America for 4%; and the rest of the world for 5%.

Medical Solutions is one of Siemens' fastest growing business units with sales in fiscal 2001 of Euro 7.2 billion ($6.3 billion) and earnings of more than Euro 800 million ($700 million). These results mark an extraordinary change in fortune. A decade ago, the company was struggling to keep its head above water. The medical division hit bottom in late 1993 when audits by the FDA uncovered deficiencies in manufacturing that led Siemens to temporarily shut down production lines for radiotherapy, patient monitoring, and ultrasound equipment.

Since taking the helm in early 1994, Reinhardt modernized company practices and rejuvenated product development. Today the company boasts that two-thirds of its products are less than three years old. Notably, the development of these products has been accelerated not to advance the technology but to solve clinical problems, Reinhardt said.

In an industry accustomed to thinking in terms of products, it is startling to come across a vendor with a philosophy such as Siemens'. The sales experience is similarly novel. Customers want to buy products, not processes, Reinhardt acknowledged. That makes the sale more difficult.

"But it is more fun," he said.