The buying patterns of few businesses have experienced greater disruption in recent years than those inside the healthcare industry, where large providers are now hurrying to respond to the changing insurance requirements of their customers as dictated by the Affordable Care Act. And few companies are as determined to decipher the newly emerging patterns as Siemens Healthcare and its Molecular Imaging business. Join us when Nitin Gupta, CFO, Molecular Imaging, Siemens Healthcare, reveals a powerful new mandate for innovation management and the critical role that finance has played in putting the new framework into place.
How did finance in some ways educate your decision-making community? And by that we mean, certainly, your engineering team, which has always had a powerful influence over technology development and where to go next. How do you kind of educate the ecosystem?
Nitin: Absolutely an important question. We in Siemens Healthcare, a couple of years ago we started a project basically focused on innovation management and what is the CFO’s role in capital allocation? And as you can very well imagine, if you have a head of R&D who has been experienced for 30, 40 years in kind of hard-core technological area and he’s had a lot of successes, to have a discussion with him, it needs to be based on certain facts and it needs to be based on a certain structure.
So what we developed a framework to assess the risks and returns out of the R&D investments. Basically, we implemented KPIs to review R&D investments from an investor’s perspective, but in a very transparent manner.
There were a lot of benefits that we targeted to achieve and which we have achieved over the last 3, 4 years. What this framework does is that it provides an objective and structured approach to R&D allocations across different portfolios. It helps to balance the innovation perspective that is technological, and clinical benefits that we are known for, along with the financial merits for that particular investment.
It also provides governance, processes, and structured decision-making criteria on an individual project level. It facilitates fact-based discussions and decision-making. And, of course, it harmonizes the R&D planning, so to say, across different portfolios that we might have.
So this is the kind of framework. And how it works is basically that we collect all the relevant information from a particular project in four categories, the first one being the market, where we have KPIs like R&D cost for different price segments that we have. Market attractiveness, which basically means how much R&D cost do we need to spend in different market sizes versus other profit pools?
It could be future revenue drivers. Which segment of market is going faster? Whether it’s the high-end segment, or when you have mass procurement and you basically need a machine which is being used for high volume rather than clinical research machines. So markets are a very important perspective that we need to have when we talk about investments.