Toshiba shuns M&A mania in favor of strategic partnerships

Toshiba has resisted the urge to merge. Unlike other multinational vendors that have gotten caught up in the merger and acquisition frenzy, the Japanese company has chosen to focus on partnerships.

None is more obvious than the relationship Toshiba has struck with Siemens Medical, which covers ultrasound components and nuclear medicine cameras. But Siemens is not alone. Toshiba has stretched its arms around a slew of competitors, including workstation vendor Vital Images, PACS and film giant Agfa, and cardiac networking specialist HeartLab.

“We don’t have to own our partners to offer the best-in-class technology,” said John Zimmer, vice president for marketing at Toshiba America Medical Systems.

Rather than trying to find a place for all the equipment obtained when a company is acquired, or having to dispense with pieces that don’t fit, Toshiba has instituted a policy of picking and choosing products. The goal is to assemble a best-of-breed lineup, Zimmer said. Toshiba engineers customize the technology provided by partners, shaping the lineup to give customers solutions to clinical problems.

“There is a perception that bigger is better,” he said. “We think better is better.”

This anti-acquisition attitude is a switch from the boom years of the 1980s, when Japan Inc. was gobbling up just about anything from the U.S. Back then, no price seemed too high, as Japanese buyers sought real estate and collectibles for astronomical prices. When Japan slipped into recession, many of those properties were sold at enormous losses.

Toshiba may be determined to avoid making such mistakes, as executives profess awe at the prices being paid for acquisitions. But even without such exorbitant prices, getting an adequate return on investment from a merger or acquisition is difficult.

“Integrating different companies into your own culture is not a trivial pursuit,” Zimmer said. “Very few companies are able to do it successfully.”

Toshiba would rather invest in itself than make acquisitions, which have a habit of underperforming, he said. Enabling this strategy is a robust in-house R&D program, according to Zimmer, who points to trailblazing developments in multislice CT as proof. Quad-slice Aquilion and its lower priced brethren, including midtier but nonetheless multislice Asteion, have made Toshiba a major player in the North American CT market.

“We have not faced a huge technology gap,” Zimmer said. “Therefore, we have not needed to acquire companies for their technology.”

Some of Toshiba’s in-house expertise came from a past acquisition. Its purchase in 1988 of Diasonics’ MRI division provided the company with the R&D staff that developed Opart. This low-field superconducting open system breathed new life into Toshiba’s MRI offerings in the mid 1990s. Until then, Toshiba was foundering.

Ironically, this turn of events was not foreseen when the company decided to purchase Diasonics MRI. Rather, the acquisition was intended to create a critical mass of installed systems from which the Japanese company could reap service revenue until aging products were converted to new Toshiba sales. Neither happened, as independent service organizations swooped in to grab maintenance contracts and aging systems were replaced by competitors’ products.

Opart is the mainstay of Toshiba MRI in the U.S., as the company has segmented this product into multiple price performance points. Paragon supports advanced clinical applications, midtier Potenza handles routine studies, and Prodiga covers low-end uses found primarily in clinics.

In the last year, Toshiba has disassembled the team that produced Opart. As part of a reorganization, MRI manufacturing was transferred to Japan. The reason is simple economics, according to Masamichi Katsurada, president and CEO of Toshiba Medical Systems.

“We did this to consolidate our operations-to make them much more effective,” Katsurada said.

MRI manufacturing and R&D had been located in South San Francisco since the purchase of Diasonics MRI. This facility is now the site for R&D into all modalities served by Toshiba. In bringing its R&D into multiple modalities under one roof, Toshiba wants to improve its connection with clinical luminaries at universities in the U.S. The hope is that knowledge of clinical needs and projected capabilities from top clinical sites will guide the development of advanced technology.

“One of the frustrations of being an innovator is that medical technology tends to hit the market two or three years ahead of its time,” Zimmer said. “This allows competitors to view the latest, giving them time to copy it.”

Bringing advanced clinical users into the loop could lead to products that are more easily and quickly adopted by mainstream practitioners. Toshiba hopes to identify clinical needs so as to sculpt the appropriate technology and test products in clinically relevant settings, then refine its offerings to fit specific needs.

“Our luminary program is designed to provide a rapid response mechanism that feeds information directly back to engineering,” Zimmer said.

Advanced clinical research is concentrated in the U.S., but much is also done elsewhere, according to Katsurada. For this reason, Toshiba forges partnerships with luminaries in Japan and other countries as well.

“Applications depend very much on the individual countries,” Katsurada said. “Japan and Europe are very different from the U.S. But there is more (clinical) expansion in the states, especially through academic development.”

This program is built on a tradition of technological development and innovation at Toshiba. The company has scored a number of firsts, including the integration of solid-state video technology into x-ray fluoroscopy equipment. Efforts in R&F have led to Ultimax, a multipurpose x-ray system using a multidirectional C-arm and one-million-pixel charge-coupled device camera to support diagnostic R&F, nonvascular interventions, and angiographic procedures.

Japanese engineers were the first in the industry to come up with sound muffling technology in MRI. These hardware and software adaptations are embodied in the Excelart Pianissimo, which could awaken buyer interest in high-field Toshiba scanners.

“We are piloting things that customers want,” Zimmer said. “In MR, the real trend is toward patient-focused care.”

Quiet technology and open scanner design both fit the bill in MRI. In R&F, efficiency and productivity are the primary drivers. Here Ultimax is the answer, because the system maximizes the number of applications that can be done in a single room, Zimmer said.

Crucial to Toshiba’s strategy is coming up with the right answers under different circumstances. The cornerstone is making sure the customer is the ultimate beneficiary.