07.22.14
$9.02 Billion
KEY EXECUTIVES:
Kevin A. Lobo, President & CEO
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
David K. Floyd, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Neurotechnology
J. Andrew Pierce, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Trauma & Extremities
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
Wayne D. Dahlberg, President, Performance Solutions
NO. OF EMPLOYEES: 25,000
GLOBAL HEADQUARTERS: Kalamazoo, Mich.
Michael J. Mauboussin never really considered himself a lucky person. Like millions of other rational thinkers, he deemed luck to largely be a self-created fate rather than random and esoteric.
But a chance brush with Dame Fortune forever changed his outlook.
During his final interview with a top director at the long-defunct Wall Street investment banking firm Drexel Burnham Lambert Inc., Mauboussin spotted a trash can emblazoned with the Washington Redskins logo underneath the executive’s desk.
A die-hard football fan, Mauboussin spent his entire interview discussing the pair’s shared passion for the all-American sport, never once broaching the subject of banking.
Within days, he had scored a job offer. Months later, Mauboussin learned the Redskins fan vetoed reviews from other interviewers to hire him.
“My career,” Mauboussin wrote in his 2012 book, “The Success Equation,” “was launched by a trash can.”
Drawing from his more than 25 years of financial experience at investment firms like Legg Mason Capital Management and Credit Suisse—where he currently is managing director and head of global financial strategies—Mauboussin’s book explores the ways in which luck and skill collide in business, investing and sports (naturally). Business decisions like CEO pay or mutual fund investments often disregard the element of luck, assuming that prior successes solely are linked to skill.
But good fortune plays a more critical role in professional success nowadays, Mauboussin contends. The reason? Globalization and improved skill sets among the planet’s populace are causing luck to increasingly become the deciding element separating outcomes, he theorizes.
In his book, Mauboussin fittingly supports his hypothesis (dubbed the “Paradox of Skill”) with a baseball analogy involving Hall of Fame slugger Ted Williams, the last player to eclipse a .400 batting average for an entire season. While the game’s current players are just as talented as Williams, none have been able to achieve his feat because the profession as a whole has improved, thus narrowing the standard deviation of skill, Mauboussin explains.
“If you think about batting average for your season and your player, some level of skill plus some level of luck gives you your outcome. What’s happened generally is that the standard deviation of skill has gone down,” he noted in a March 2013 interview with Wharton School management professor Adam M. Grant. “Why? Because you’re recruiting players from the world now, versus from just parts of the United States. You’re training better. You’re coaching better...The point is this paradox of skill. We’ve seen the differential skill narrowing. We see it really all over the place. We see it in the world of investing. We see it in the world of business. I think it is very interesting. As skill improves, especially in competitive markets, luck becomes more important [in] determining outcomes.”
Indeed, luck may have had a bigger role in determining outcomes at Stryker Corp. last year, though President/CEO Kevin A. Lobo likely would argue otherwise. Yet the stark reversal of fiscal fortunes in 2013 is a bit puzzling, particularly since Lobo was still getting his feet wet leading the company (he assumed the top job on Oct. 1, 2012) and the various market challenges remained unchanged.
Two years ago, Stryker seemed trapped in a downward spiral: Its hip sales were flat, international sales were down 1.3 percent, Medical division revenue fell 4.3 percent, and exorbitant Rejuvenate and ABG II modular neck-hip stems recall charges stymied third-quarter Reconstructive sales and cut fourth-quarter net income by 37 percent. In addition, the company paid the federal government $33 million to close an investigation into its sales and marketing practices for the OtisKnee implant.
Last year, that downward slide came to an abrupt halt as revenues increased throughout Stryker’s three business segments and various product divisions. Whether the turnaround is attributable to self-made luck or Fors Fortis has yet to be determined, but Lobo takes partial credit in a letter he penned to shareholders, outlining the steps the firm took to shore up profits.
“In 2013, we met our primary objectives—achieved strong top-line growth, delivered solid operational earnings, expanded globally, and invested through R&D and acquisitions to strengthen our product and service offerings,” he reminded investors at the start of Stryker’s 2013 annual report. “After completing my first full year as CEO, I am excited about our company’s achievements and the progress we have made in strengthening our leadership in the medical technology industry.”
That progress was attained through a mix of acquisitions, product releases, and perhaps, a little luck.
Stryker bookended the year with two major purchases, acquiring Trauson Holdings Company Limited in March for $764 million and Mako Surgical Corp. in late December for $1.65 billion. The company also announced its intent in December to purchase Patient Safety Technologies Inc. for $120 million, adding to its portfolio a device that reduces the risk of surgical sponges being left in patients after surgery.
The Trauson deal gave Stryker an immediate leading foothold in China’s growing orthopedics market, a sector that will nearly double in size to $2.7 billion next year, according to Frost & Sullivan experts. Trauson, which posted $60 million in sales in 2011, is China’s largest manufacturer of trauma devices, specializing in reconstructive devices like pelvic plates and artificial joints. Boasting a network of more than 663 distributors covering 3,840 Chinese hospitals, Trauson leads the Middle Kingdom’s orthopedic market with a 5 percent sales share, ahead of China Kanghui Holdings Inc. (purchased by Medtronic Inc.) with 4 percent and a unit of Shandong Weigao Group Medical Polymer Co. at 3 percent.
Similarly, the Mako purchase provided Stryker with instant access to the robotic surgery market. And while the premium was hefty ($30/share), analysts claim the deal can give the company a competitive advantage over rival orthopedic implant manufacturers. The product is complementary to Stryker’s existing line of replacement hip and knee joints and could appeal to hospitals looking to improve procedural efficiency.
Founded in 2004, Mako develops orthopedic surgical systems as well as knee and hip implants for treating early to mid-stage osteoarthritis. Its Rio surgical system includes a robotic arm that improves the exact placement of artificial joints.
“Robot-assisted procedures have the potential to aid hospitals, third-party payers and patients as they may reduce costs by shortening hospital stays and recovery periods and may reduce the amount of rehabilitation and medication,” Stryker spokeswoman Yin Becker told the Wall Street Journal in an email. “We believe orthopedic surgical robotics provides an opportunity to expand and grow significantly from its position today and has the potential to become a game-changing technology longer term.”
Having closed the Mako deal in mid-December and disclosed its purchase of Patient Safety Technologies on New Year’s Eve, Stryker’s acquisitions added little to the company’s bottom line last year, boosting overall sales only 0.8 percent. The Trauson purchase, however, likely contributed to double-digit gains in emerging market sales, which constituted more than 7 percent of the company’s 2013 total revenues.
Surprisingly, respective geographic market growth was best in the United States, where proceeds jumped 5.7 percent to $5.9 billion, annual report data show. Europe, Middle East and Africa sales increased 3.9 percent to $1.3 billion, while “other” foreign markets (Canada and much of Latin America) offset the 1.2 percent slide in Asia Pacific revenue with a matching sales haul.
Overall, international revenue rose 1.3 percent in the year ended Dec. 31, 2013, helping Stryker boost net sales 4.2 percent to $9 billion and increase its net profit 2.9 percent to $6 billion. The company’s cash flow was up 14 percent compared with 2012, and its adjusted gross margin expanded by 30 basis points, excluding the impact of the Affordable Care Act’s 2.3 percent medical device tax.
“We delivered consistent results throughout 2013,” Lobo said in the annual report. “Our organic growth (excluding acquisitions and foreign exchange) of 5 percent was at the high end of medical technology. As I travel the world and see our progress, it is clear to me that we are well-positioned for the future.”
The main architects of Lobo’s rosy outlook are Stryker’s three business units, all of which posted solid gains last year.
Neurotechnology and Spine spearheaded the growth, surging 5.6 percent as reported to $1.6 billion due to improved product diversification and increased demand for Stryker’s neurotechnology devices. Such global desire propelled Neurotechnology division sales 8.7 percent to $915 million—the second-highest increase in the company. Spine, which has faced its fair share of challenges in recent years, climbed an impressive 2.1 percent to $743 million.
Likewise, hip and knee sales shed past woes to help buoy Reconstructive unit revenues 4.8 percent to $4 billion, annual report statistics indicate. Sales drivers included the Tritanium Cementless Baseplate for the company’s Triathlon knee system, which combines biologic fixation with Triathlon’s kinematics to provide surgeons with an additional option for cementless knee arthroplasty; and the Secur-Fit Advanced Femoral Hip Stem, designed to accurately restore biomechanics by leveraging the company’s Orthopaedics Modeling and Analytics systems. Consequently, knee proceeds rose 1.1 percent to $1.3 billion and hip sales jumped 3.2 percent to $1.2 billion.
Stryker’s Trauma and Extremities division posted the best year-on-year growth, surging 12.8 percent to $1.1 billion. Executives attributed the gain to the March launch of the Universal SmartLock Hybrid MMF (maxillomandibular fixation) system, an innovation that combines the strength and rigidity of arch bars with the safety and efficiency of MMF screws. The self-drilling, locking technology of the SmartLock system’s screws allows for purchase into both the bone and the plate for additional stability and also eliminates the need for interdental wiring that is required with arch bars.
The MedSurg unit trailed behind its sister segments in sales, garnering an additional 2.9 percent in revenue ($3.3 billion) compared with 2012 figures. Overall unit growth was down slightly from the 3.3 percent recorded in 2012, as a little misfortune (or misstep) led to flat revenue in the Instruments division. The bad luck took the form of a second U.S. Food and Drug Administration (FDA) warning letter over quality issues at a Portage, Mich., facility that manufactures its Neptune waste management system. The warning letter referenced quality system observations made during a November 2012 inspection and cited Stryker for failing to notify the FDA about a product recall and for marketing the Neptune waste management system without 510(k) clearance.
Fortuitously, the company received such clearance in December for its Neptune 2 system, a device that eliminates harmful exposure to fluids and smoke in the operating room. The closed system collects and disposes of surgical waste without operator assistance to prevent contact with infectious fluids and surgical plumes.
Fortunately for Stryker, Lady Luck stepped in to offset flat Instrument revenues with a 2.8 percent increase in Medical sales ($710 million) and a 5 percent expansion in Endoscopy proceeds ($1.1 billion).
KEY EXECUTIVES:
Kevin A. Lobo, President & CEO
Lonny J. Carpenter, Group President, Global Quality and Operations
Ramesh Subrahmanian, Group President, International
David K. Floyd, Group President, Orthopaedics
Timothy J. Scannell, Group President, MedSurg & Neurotechnology
J. Andrew Pierce, President, Endoscopy
James N. Heath, President, Instruments
William J. Huffnagle, President, Reconstructive
Vivian Masson, President, Trauma & Extremities
Mark H. Paul, President, Neurovascular
Bradford L. Saar, President, Medical
Spencer S. Stiles, President, Spine
Wayne D. Dahlberg, President, Performance Solutions
NO. OF EMPLOYEES: 25,000
GLOBAL HEADQUARTERS: Kalamazoo, Mich.
Michael J. Mauboussin never really considered himself a lucky person. Like millions of other rational thinkers, he deemed luck to largely be a self-created fate rather than random and esoteric.
But a chance brush with Dame Fortune forever changed his outlook.
During his final interview with a top director at the long-defunct Wall Street investment banking firm Drexel Burnham Lambert Inc., Mauboussin spotted a trash can emblazoned with the Washington Redskins logo underneath the executive’s desk.
A die-hard football fan, Mauboussin spent his entire interview discussing the pair’s shared passion for the all-American sport, never once broaching the subject of banking.
Within days, he had scored a job offer. Months later, Mauboussin learned the Redskins fan vetoed reviews from other interviewers to hire him.
“My career,” Mauboussin wrote in his 2012 book, “The Success Equation,” “was launched by a trash can.”
Drawing from his more than 25 years of financial experience at investment firms like Legg Mason Capital Management and Credit Suisse—where he currently is managing director and head of global financial strategies—Mauboussin’s book explores the ways in which luck and skill collide in business, investing and sports (naturally). Business decisions like CEO pay or mutual fund investments often disregard the element of luck, assuming that prior successes solely are linked to skill.
But good fortune plays a more critical role in professional success nowadays, Mauboussin contends. The reason? Globalization and improved skill sets among the planet’s populace are causing luck to increasingly become the deciding element separating outcomes, he theorizes.
In his book, Mauboussin fittingly supports his hypothesis (dubbed the “Paradox of Skill”) with a baseball analogy involving Hall of Fame slugger Ted Williams, the last player to eclipse a .400 batting average for an entire season. While the game’s current players are just as talented as Williams, none have been able to achieve his feat because the profession as a whole has improved, thus narrowing the standard deviation of skill, Mauboussin explains.
“If you think about batting average for your season and your player, some level of skill plus some level of luck gives you your outcome. What’s happened generally is that the standard deviation of skill has gone down,” he noted in a March 2013 interview with Wharton School management professor Adam M. Grant. “Why? Because you’re recruiting players from the world now, versus from just parts of the United States. You’re training better. You’re coaching better...The point is this paradox of skill. We’ve seen the differential skill narrowing. We see it really all over the place. We see it in the world of investing. We see it in the world of business. I think it is very interesting. As skill improves, especially in competitive markets, luck becomes more important [in] determining outcomes.”
Indeed, luck may have had a bigger role in determining outcomes at Stryker Corp. last year, though President/CEO Kevin A. Lobo likely would argue otherwise. Yet the stark reversal of fiscal fortunes in 2013 is a bit puzzling, particularly since Lobo was still getting his feet wet leading the company (he assumed the top job on Oct. 1, 2012) and the various market challenges remained unchanged.
Two years ago, Stryker seemed trapped in a downward spiral: Its hip sales were flat, international sales were down 1.3 percent, Medical division revenue fell 4.3 percent, and exorbitant Rejuvenate and ABG II modular neck-hip stems recall charges stymied third-quarter Reconstructive sales and cut fourth-quarter net income by 37 percent. In addition, the company paid the federal government $33 million to close an investigation into its sales and marketing practices for the OtisKnee implant.
Last year, that downward slide came to an abrupt halt as revenues increased throughout Stryker’s three business segments and various product divisions. Whether the turnaround is attributable to self-made luck or Fors Fortis has yet to be determined, but Lobo takes partial credit in a letter he penned to shareholders, outlining the steps the firm took to shore up profits.
“In 2013, we met our primary objectives—achieved strong top-line growth, delivered solid operational earnings, expanded globally, and invested through R&D and acquisitions to strengthen our product and service offerings,” he reminded investors at the start of Stryker’s 2013 annual report. “After completing my first full year as CEO, I am excited about our company’s achievements and the progress we have made in strengthening our leadership in the medical technology industry.”
That progress was attained through a mix of acquisitions, product releases, and perhaps, a little luck.
Stryker bookended the year with two major purchases, acquiring Trauson Holdings Company Limited in March for $764 million and Mako Surgical Corp. in late December for $1.65 billion. The company also announced its intent in December to purchase Patient Safety Technologies Inc. for $120 million, adding to its portfolio a device that reduces the risk of surgical sponges being left in patients after surgery.
The Trauson deal gave Stryker an immediate leading foothold in China’s growing orthopedics market, a sector that will nearly double in size to $2.7 billion next year, according to Frost & Sullivan experts. Trauson, which posted $60 million in sales in 2011, is China’s largest manufacturer of trauma devices, specializing in reconstructive devices like pelvic plates and artificial joints. Boasting a network of more than 663 distributors covering 3,840 Chinese hospitals, Trauson leads the Middle Kingdom’s orthopedic market with a 5 percent sales share, ahead of China Kanghui Holdings Inc. (purchased by Medtronic Inc.) with 4 percent and a unit of Shandong Weigao Group Medical Polymer Co. at 3 percent.
Similarly, the Mako purchase provided Stryker with instant access to the robotic surgery market. And while the premium was hefty ($30/share), analysts claim the deal can give the company a competitive advantage over rival orthopedic implant manufacturers. The product is complementary to Stryker’s existing line of replacement hip and knee joints and could appeal to hospitals looking to improve procedural efficiency.
Founded in 2004, Mako develops orthopedic surgical systems as well as knee and hip implants for treating early to mid-stage osteoarthritis. Its Rio surgical system includes a robotic arm that improves the exact placement of artificial joints.
“Robot-assisted procedures have the potential to aid hospitals, third-party payers and patients as they may reduce costs by shortening hospital stays and recovery periods and may reduce the amount of rehabilitation and medication,” Stryker spokeswoman Yin Becker told the Wall Street Journal in an email. “We believe orthopedic surgical robotics provides an opportunity to expand and grow significantly from its position today and has the potential to become a game-changing technology longer term.”
Having closed the Mako deal in mid-December and disclosed its purchase of Patient Safety Technologies on New Year’s Eve, Stryker’s acquisitions added little to the company’s bottom line last year, boosting overall sales only 0.8 percent. The Trauson purchase, however, likely contributed to double-digit gains in emerging market sales, which constituted more than 7 percent of the company’s 2013 total revenues.
Surprisingly, respective geographic market growth was best in the United States, where proceeds jumped 5.7 percent to $5.9 billion, annual report data show. Europe, Middle East and Africa sales increased 3.9 percent to $1.3 billion, while “other” foreign markets (Canada and much of Latin America) offset the 1.2 percent slide in Asia Pacific revenue with a matching sales haul.
Overall, international revenue rose 1.3 percent in the year ended Dec. 31, 2013, helping Stryker boost net sales 4.2 percent to $9 billion and increase its net profit 2.9 percent to $6 billion. The company’s cash flow was up 14 percent compared with 2012, and its adjusted gross margin expanded by 30 basis points, excluding the impact of the Affordable Care Act’s 2.3 percent medical device tax.
“We delivered consistent results throughout 2013,” Lobo said in the annual report. “Our organic growth (excluding acquisitions and foreign exchange) of 5 percent was at the high end of medical technology. As I travel the world and see our progress, it is clear to me that we are well-positioned for the future.”
The main architects of Lobo’s rosy outlook are Stryker’s three business units, all of which posted solid gains last year.
Neurotechnology and Spine spearheaded the growth, surging 5.6 percent as reported to $1.6 billion due to improved product diversification and increased demand for Stryker’s neurotechnology devices. Such global desire propelled Neurotechnology division sales 8.7 percent to $915 million—the second-highest increase in the company. Spine, which has faced its fair share of challenges in recent years, climbed an impressive 2.1 percent to $743 million.
Likewise, hip and knee sales shed past woes to help buoy Reconstructive unit revenues 4.8 percent to $4 billion, annual report statistics indicate. Sales drivers included the Tritanium Cementless Baseplate for the company’s Triathlon knee system, which combines biologic fixation with Triathlon’s kinematics to provide surgeons with an additional option for cementless knee arthroplasty; and the Secur-Fit Advanced Femoral Hip Stem, designed to accurately restore biomechanics by leveraging the company’s Orthopaedics Modeling and Analytics systems. Consequently, knee proceeds rose 1.1 percent to $1.3 billion and hip sales jumped 3.2 percent to $1.2 billion.
Stryker’s Trauma and Extremities division posted the best year-on-year growth, surging 12.8 percent to $1.1 billion. Executives attributed the gain to the March launch of the Universal SmartLock Hybrid MMF (maxillomandibular fixation) system, an innovation that combines the strength and rigidity of arch bars with the safety and efficiency of MMF screws. The self-drilling, locking technology of the SmartLock system’s screws allows for purchase into both the bone and the plate for additional stability and also eliminates the need for interdental wiring that is required with arch bars.
The MedSurg unit trailed behind its sister segments in sales, garnering an additional 2.9 percent in revenue ($3.3 billion) compared with 2012 figures. Overall unit growth was down slightly from the 3.3 percent recorded in 2012, as a little misfortune (or misstep) led to flat revenue in the Instruments division. The bad luck took the form of a second U.S. Food and Drug Administration (FDA) warning letter over quality issues at a Portage, Mich., facility that manufactures its Neptune waste management system. The warning letter referenced quality system observations made during a November 2012 inspection and cited Stryker for failing to notify the FDA about a product recall and for marketing the Neptune waste management system without 510(k) clearance.
Fortuitously, the company received such clearance in December for its Neptune 2 system, a device that eliminates harmful exposure to fluids and smoke in the operating room. The closed system collects and disposes of surgical waste without operator assistance to prevent contact with infectious fluids and surgical plumes.
Fortunately for Stryker, Lady Luck stepped in to offset flat Instrument revenues with a 2.8 percent increase in Medical sales ($710 million) and a 5 percent expansion in Endoscopy proceeds ($1.1 billion).