Harvard Business School
July 8, 1997
We’ve Got Rhythm! Medtronic Corporation’s Cardiac Pacemaker Business The legacy of Medtronic Corporation, the company that created the cardiac pacemaker industry, is a proud one. Starting from its earliest pacemakers, which had to be carried outside the body, Medtronic had achieved dramatic improvements in the functionality, size and reliability of these devices. In so doing it had extended the lives, and improved the quality of life, for hundreds of thousands of people in whom pacemakers had been implanted. The pacemaker has been designated as one of the ten most outstanding engineering achievements in the world over the past 50 years, along with the digital computer and the Apollo 11 moon landing. 1 Medtronic, which in 1995 booked operating profit of $300 million on revenues of $1.7 billion, had been founded in 1957 in Minneapolis, Minnesota by Earl Bakken, a researcher and inventor who had to his credit patents on several of the crucial technologies that led to the modern heart pacemaker. Pacemakers were small, battery-powered devices which, when implanted within a patient, helped a malfunctioning heart to beat in a steady, fixed rhythm. Because Medtronic was the first entrant into the pacemaker field and built a strong technological lead, it enjoyed a substantial portion (over 70%) of the market share for cardiac pacing through the 1960s. Building upon Medtronic’s legacy of leadership was not easy, however. In the face of increasing competition, rapid technological change and tightening market and regulatory demands for product quality, Medtronic saw its market share cut by more than half between 1970 and 1986. Though it had invested heavily in technology and product development over this period, much of that investment had been unproductive. Many projects failed to produce product designs that could be launched competitively, and the features and functionality of most of the products the company was able to launch, lagged the competition. Several key employees left the company, seeing greater opportunity to develop their new pacemaker product ideas in new start-ups rather than within Medtronic. These competitors proved much faster than Medtronic at developing new products that advanced the state-of-the-art in pacemaking. Medtronic was also pummeled by two major product recalls related to product quality problems. Observers felt the company would have lost even more of the market during this period, were it not for its strong worldwide salesforce and the lingering legacy of its brand reputation amongst surgeons, the primary customer group.
1 This citation was made by the National Society of Professional Engineers in 1984.
Professor Clayton M. Christensen prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Some of the data and names in this case have been disguised to protect the proprietary interests of the company. Copyright © 1997 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. 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 permi ssion of Harvard Business School.
We've Got Rhythm! Medtronic Corporation's Cardiac Pacemaker Business
Management changes which were initiated in the late 1980s, however, had sparked a dramatic reversal in the company’s fortunes, and by 1996 the company had regained its position of product and market leadership. By all accounts, it was in front and pulling away from its competitors. On a pleasant Minneapolis spring afternoon in 1996, several members of the team that...
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