The Orthopedic Motor Market: Minnesota Micromotors, Inc. and Brushless Motor Technology Minnesota Micromotors, Inc. (MM), based in Minneapolis, was a manufacturer of brushless, direct current (BLDC)1 motors used in orthopedic medical devices. Devices utilizing MM’s motors were typically used by orthopedic surgeons in large bone surgery, reconstructive surgery, trauma surgery, and sports medicine procedures. MM sold approximately 97,000 motors a year and had a 9% share of the $137 million U.S. medical motor market for orthopedic and neurosurgery devices. (See Exhibit 1A.) MM was a division of privately held Fractional Motors Limited, which had revenues of $350 million (just over $12 million, or 3%, generated by MM) and 1,300 employees (45 employed by MM). MM’s revenues had been growing in line with the industry average rate of 5.5% over the prior threeyear period; however, the most recent quarterly financial data showed a decline in revenue. Although senior management was pleased that MM had just turned a modest profit after several years of losses, there was concern about recent potential market share loss. The BLDC motors in which MM specialized offered several advantages over brushed DC motors, including greater efficiency and reliability, less noise, longer lifetime (no brush erosion), and relatively lower electromagnetic interference. Given that a BLDC motor required no airflow for cooling, its internal components could be entirely enclosed and protected from dirt. BLDC motors were better suited to applications needing a wide speed range — for example drill systems, used in orthopedic bone surgery that must perform at 10,000 to 95,000 revolutions per minute. Fractional Motors viewed MM as a strategic division in its corporate portfolio because of the long-term growth potential in high-end medical and orthopedic devices markets. The segment of the motor industry in which MM operated was highly competitive, with over 100 participants. Manufacturers were divided into three tiers: vertically integrated, multinational tier 1 companies that produced many types of motors; tier 2 companies that specialized in either brushed DC, BLDC, or universal motors technology; and small, privately held tier 3 companies that were niche providers like MM and that produced only BLDC motors for orthopedic uses. Smaller motor manufacturers like MM sought to distinguish themselves from their competitors by offering original equipment manufacturer (OEM) customers domain knowledge, customer service, product functionality, and compatibility with other automation products. In 2009, one of MM’s major tier 3 competitors introduced a high torque, BLDC motor line. These multilayer coil BLDC motors were precision-engineered to reach higher temperatures without compromising motor function. The industry average net price of the competitors’ motors was $118.
Orthopedic OEM Market and Purchasing Criteria
1 MM produced fractional horsepower motors, which had a power (machine strength) rating between 1/200 and one
horsepower (1 HP). The fractional horsepower DC motor market was divided into brushed and brushless DC motors. Brushed DC motors used a mechanical system of stationary metallic contacts (“brushes”) to transfer electrical energy. By contrast, brushless DC motors used an electronically controlled commutation system. ________________________________________________________________________________________________________________ Professor Das Narayandas of Harvard Business School and Heide Abelli (MBA 1993) prepared this reading for use with the Marketing Simulation: Managing Segments and Customers (HBP No. 3341). Copyright © 2009 Harvard Business School Publishing. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business Publishing....