Ned Lipes is Executive Vice President, Stryker Corporation.
Until recently, Ned headed Stryker Orthopaedics, a global leader in orthopaedic
implants. Over the past 15 years, Ned has achieved consistent annual earnings
growth of 20%. He has lead Orthopaedics through a transformation from process
to cellular manufacturing, an acquisition, and successful game-changing innovation.
Stryker Orthopaedics is recognized as having a mission, vision, and values
brought to life through its people. In this interview, Ned offers insight
into his thinking on managing for aggressive growth and building an inspired
organization of people.
Interview conducted by Doug Berger, Managing Partner of INNOVATE LLC.
||The focus for this interview
is Breakthrough Innovation - where executives are taking their
companies outside the traditions of the company, outside the performance
levels, and in new directions. Sometimes they are changing the very
nature of the enterprise, their leadership actions, and behaviors that
support it. Think about a few accomplishments that make you proud.
We will use them as springboards for the conversation.
I was proud
of the work we did -- in transforming our manufacturing operations
in the implant business. In 1998, we received the Industry Week award
for top 10 plants in the country. In 1990-1991, we would have gotten
an award for one of the worst 10 plants.
If we paint
the before and after picture, what would I have seen if I walked
in the door in 1989 and then in 1998?
In 1989 we
had a very functionally organized plant. The focus of the plant was
around processes. All people good in CNC (computer-numerical control)
were grouped in one process area, all the people who were good in
turning equipment in another. People whose skills were very specialized
didn’t understand the big picture -- they understood their
part of the equation. Marketing gave forecasts to the production
planning people, who came up with production plans. Every now and
then, we would score a goal -- the forecast would match the production
plan. Our average lead-time on our most popular item was 5 months
from purchase order to finished goods.
In our business where relationships with customers are so vital,
our sales force was afraid to build new relationships; they didn’t
have confidence that the product would be there. Before we could
hold our sales force accountable for excellent performance, we
had to get our support for the sales forces to a level of excellence.
Our whole industry was known for struggling to meet new product
deadlines. We were one of the worst in the business with our high
Today, we are totally cellular-based manufacturing; organized
around product. Within each product family, a cell leader has total
responsibility for everything required. S/He has all the equipment
needed, all the engineering and quality support to make the product.
It all sits right there on the factory floor, not in an office
somewhere. He is basically the president of his own business controlling
everything he needs to make that product.
People are cross-trained and know how to do many steps to make
that product. Work in-process inventory is gone; lead-time has
gone from months to hours; and everyday, everybody in each team
knows how well that team is performing in meeting customer requirements.
If there was a quality issue, they see it immediately, not 3 steps
into inspection. We gave people in the cell total control over
their work and physical environment. The first two years were the
huge cultural transformation.
It probably took a year before we started to see some benefits;
two years before we began to crack the human potential. Within
a year, we got the benefits of circling the wagons. We got the
process piece quickly. It took two years before we started to see
the benefits of people helping each other out, and realizing this
could be improved in a different way. Moving service levels from
50-55% to 80-85% took 6 months to a year. However, getting to 95%
plus took 2-3 years.
Our definition of success became different. It involved a lot
of communication and coordination, not just excellence in doing
your own job. We had to change the whole thought process of the
people in the manufacturing area.
How has that
given you a competitive advantage?
now have the confidence they need to go after new business. They
can support their existing customers knowing that ‘I don’t
have to worry -- the device will be there.’ There is still
a very high service component required, but knowing the product is
going to be there gives them so much more confidence in doing their
In the late 1990’s, the industry knew that we were significantly
better than anyone else in supplying our sales reps with product.
We were able to recruit top sales reps that were running away from
companies with lower service levels. They came to us because we
had service levels of 98-99%. At the end of the day, the real competitive
advantage is what it allows our sales force to do.
When you came
into the plant, did you come in knowing this was the situation and
this was what you wanted to do?
was in manufacturing. I love manufacturing plants. I had learned
from experience the frustrations of functional organizations. I had
seen good team-based cellular approaches -- although nothing quite
as comprehensive as what we did.
I had an idea of where I wanted to go. I needed to have someone
working for me in that area. As President, it wasn’t my job
to go in and do it. I needed to find someone who shared my vision.
I recruited a Vice President of Operations with a lot of experience
in cell-based manufacturing; the two of us hit it off. We made
sure that his vision and mine matched. I said “go to it” and
he took it, ran it, and kept me updated. I had the opportunity
to applaud his results and stand behind him.
you say were the few things that your vice-president kept his eye
on to bring about the transformation?
thing that made the most difference was his first staff meeting with
his team. We had been talking about cells for a long time. I was
not able to get his predecessor to make the commitment to jump off
the cliff. In his first staff meeting, the VP said,
are not going to talk about whether or not we are going to cells.
The decision has been made; we are moving forward; let’s
get on board and work the timeline.’
That alone told the whole organization that
it is not a question of “if” any more. This is the
vision; so let’s get on with making it happen.
on the side of the head’ realizations that you should have
known but didn’t?
see how deep and painful that valley was going to be when we went
to cells. We couldn’t go from one mountaintop to the next mountaintop.
We had to go through a valley. When you are changing the culture,
it is naïve to think you are only going to get better. We got
worse. I could have prepared our organization for that pain -- it
looked like we didn’t know what we were doing. If we told people, “We
were going to make these changes, and things will be tough for a
while as we get going,” we would have had a lot more credibility.
We had no credibility for 6 months until the sales force began to
I also didn’t see that good people, who had done an outstanding
job in the functional environment, couldn’t immediately fit
in the new environment. For example, the new cell leaders, who
were now presidents of their own business, were challenged to manage
inventory levels, costs, schedules, training, and vendors all at
once; they weren’t used to that. We made some very poor decisions.
that you made the right call?
There was never
a doubt in my mind about going to the team-based approach. I didn’t
know how far I could push it but I knew we could significantly improve
the product manufacturing level. We took a lot of heat from our selling
organization. My job was to take the heat off the operations folks,
and still sell that vision to the folks outside. ‘We recognize
this is a big problem, and yes it is getting worse. Here is the vision
and it is going to get a lot better.’ There were not a lot
of believers early on. I was selling -- we were going to get better
-- just as fast as I could. I was new and hadn’t established
a lot of credibility.
Do you have
a similar story to tell about your insights on the sales side?
It was readily
apparent that the key to our success was in the field. The orthopaedic
business is like the investment banking business. Our sales reps
have strong relationships with our customers. When a sales rep leaves,
they can take many of their customers with them. At the end of the
day, what drives this business is the quality, the motivation level,
and the drive of the selling organization.
I focused my attention in building relationships and credibility
in the field, understanding the market, getting to know our key
customers, and understanding what was really going to drive our
sales force. I did a lot of windscreen time with the sales reps.
I spent time in surgery with our key customers. I went to our sales
school and graduated #1 in my class, to demonstrate my own commitment
to learning about the products. I was able to talk with the customers
at the same level as our best sales reps, which gave me the credibility
with our customers. It gave me the opportunity to listen to customers,
see the kinds of opportunities they saw, and really comprehend
what they meant.
All sales organizations
have the top tier, bottom tier and middle tier. Is that your sales
situation and where do you see the leverage points for growth?
More than one-third
of our organization are excelling and are outstanding, doing a wonderful
job. We gear most of our programs for those people. The marketing
support and products we develop are for that top tier. They are successful
not only because they know how to sell and have relationships with
their customers, they know how to use the support the company gives
The scorecard is growth, and I am looking at how we are going
to maximize growth over the whole system. Our philosophical belief
is if we can take our best players and help them continue to be
stars; we will get more growth than by leaving them alone or turning
B players into A players. If I take my top performers, who are
selling $3, 4, 5 million and help them get another $1 million growth,
I am doing better than if I tried to help a rep doing $1 million
grow by 20-25%. Pure economics says my growth engine is top performers.
I want product development and marketing focused on this tier.
We want to attract the best sales reps. We are constantly improving
the sales rep base, looking for those who drive for growth, not
those satisfied with where they are today. The challenge of sales
leadership is to work the middle and bottom performers into the
top group or work them out.
No matter how well we make the product, no matter what the quality
level, the marketing programs, if the sales rep is not successful
nothing else makes any difference. So, everyone in the company
has to be focused on how we can make sales reps more successful
-- to lead their territory.
in your business have you developed products, which at the time that
you brought them into the market were considered disruptive. They
didn’t follow the natural evolution of product improvement.
a product 1½ years ago, that was a departure in technology
and in marketing. Historically one side of the implant was metal
and one side high technology polyethelyne (plastic). You could get
debris over time that may cause problems. The new material, ceramic
on both sides, virtually eliminates the debris. We did a clinical
study to demonstrate the efficacy of the product. One of the patients
in the study was Jack Nicklaus.
Nicklaus had his hip replaced with a ceramic insert, as did 2/3
of the patients in this study. We launched this innovative technology
and for the first time in our industry, we marketed to patients
and surgeons. Jack was a perfect partner for Stryker - a very ethical,
straightforward honest and tough competitor. He matched our view
of Stryker very well. Our goal was to use the Nicklaus commercial
to get people asking their doctors “tell me about this ceramic
implant and if it is right for me.” Unlike the drug industry,
medical devices had never used direct-to consumer campaigns.
It has been difficult to quantify the impact of our marketing
campaign, but every surgeon I travel with has patients that say ‘tell
me about the Nicklaus implant.’ We changed the playing field,
and had outstanding success our first year. We changed the device
like it required a shift in mindset. How did you go about having
Stryker people embrace this different way of doing business?
It really started
with our more robust strategic planning process about 3 years ago.
Out of a more rigorous analysis of the market environment, we developed
a better understanding of our patients. It became apparent to us
that patients were playing a much more active role in selecting their
surgeons, based upon information they got from the Internet or the
newspapers on technologies and new procedures. Surgeons told us that
patients were coming in with stacks of papers from the Internet.
Anecedotally, a surgeon in Tampa would have patients fly in from
all over the United States because of his website.
The leadership team said this is a strategic change that will
impact our business. While the leadership team bought into the
need, we were initially split as to whether this bold gamble made
sense. Our surgeons were split. We had a couple of real passionate
champions inside the company, who drove the entire leadership team
to embrace this new idea. And, we had the opportunity to pitch
the story to Jack, who liked it too.
Nicklaus jumped out as an exciting, yet intimidating opportunity.
. Our marketing budgets are typically created around professional
trade journals and selling to surgeons. Competing for ad space
was a whole different level of expenditures and expertise. We didn’t
know how to work with ad agencies.
We had a lot of selling up to the parent company at Stryker to
convince them that this new strategic approach was an appropriate
investment of millions of dollars. Stryker had always been solidly
grounded in technology - solidly grounded in science - in clinical
results. To be on the cutting edge in direct-to-consumer was a
risk. Yet, it fit with the changing factors in our business. We
were committed to doing it right - from an educational perspective
that would not damage the reputation of the company or the industry.
This was a great opportunity to take a leadership position on.
We knew that we would do it right.
Ned, how do
you think about competing against yourself?
is unique and the Chairman, John Brown, has a track record that I
don’t think many CEOs have achieved. We have grown this company’s
earnings 20% a year over 25 years. It is a track record that has
taken us from $100 million to over $4 billion this year. It is exciting
to be part of this growth. John Brown leads the company by driving
us to think about how to achieve 20% every year, not by asking what
the growth number will be. We know the number has to be at least
20%. The question is - how am I going to achieve it. When the bar
is set high, it changes the thought processes of everyone in the
By setting the bar so high, you can’t be sloppy in any
area. You can’t just do well in sales and not have great
new products; you can’t have great new products without a
quality system. The industry may grow at 5-6% or 15-18%. But your
target is 20% every year. That forms a tremendous amount of internal
competition to hit or exceed that number every year.
With our industry growing at almost 20% right now, we have a different
challenge. We now have to make sure that we are taking market share.
We can’t pat ourselves on the back if we are growing 20%
if we are losing market share.
When you think
about achieving financial and strategic success year after year,
what are the few things you have your eye on – the things you
have to get right.
and the sales force. Beyond that, we are looking for what is going
to make a significant difference from a patient perspective - something
that will dramatically improve the clinical results or the clinical
experience for the surgeon. Our efforts are focused on how we are
going to improve the implant's performance. Our definition of product
success forces us to think about what would be a quantum leap not
just a me-too.
We have another game changer coming out later this year. We want
a few blockbusters that are going to change the nature of the business,
plus the product maintenance ones that keep you in the game.
You are very
passionate about Stryker and its business. How have you brought this
passion to life?
have a leadership academy that we started 4-5 years ago; three executives
and I each teach a ½-day session. We are taking the organization
through it. I take a ½-day in the Leadership academy to inspire
people with my vision of what a leader does. I am a passionate believer
that the most important element of leadership is the Leadership Mantle:
I happen to be a Civil War buff and I use a lot of Civil War video
clips and stories to demonstrate good leadership and bad leadership.
I like the Civil War because you saw such a dramatic impact from
leadership - from good leadership on both sides and from poor leadership
on both sides. It was amplified due to the lack of technology.
like a leader
like a leader
in the right place at the right time
the game face
the most passionate cheerleader for the vision of the company
to inspire other people to share your vision and strive towards
I share the passion for the business. We bring patients in every
year to stand up in front of our people, who made their implants,
to tell their stories. The story is about their knee or hip pain,
or the cancerous tumor that was removed; and they talk about how
this procedure changed their life. It is so powerful and motivating
for our people -- it’s someone’s life being changed.
That’s our job. We are on a mission. Our people understand
they are helping people walk again.
We had a girl who was 18 years old who had a cancerous tumor
removed. She got up and thanked people for allowing her to be a
normal 18 year old. Her mother said “thank you for allowing
my daughter to walk.” There wasn’t a dry eye in the
place. When she walked onto the factory floor and went to the cell
where they made her implant, it was not only powerful for the cell,
it was powerful for her to meet the people, see what they had done
to make the product for her. It was just phenomenal to see how
that motivated both the patient and the people on the team.
If leaders are walking apostles of that vision, constantly talking
to people about improving patients’ lives, and driving to
improve our performance so we do a better job of improving lives,
then we have engaged our workforce. People are passionate about
making a difference. To me, that has been a core part of our success;
we have been blessed with a leadership that is so passionate about
what we do. It extends right down to the factory floor. When you
walk out on the factory floor, they tell you about the patients
that have come through and what part they played in helping the
person have a successful life. For me, that is the most exciting
part of leading this company.
I want people working for me who are working in this business
to make a difference. When I was president of this company, every
month I would meet with all the new employees who had been here
for 90 days. I would talk to them about our company mission, our
values, and how important it was that they share that passion.
It makes a difference to be working at Stryker. You need to wear
passion on your shirtsleeves.
I want to thank
you for demonstrating both the passion for the business and passion
for having the business make a difference. For you one energizes
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