Interview with Ned Lipes

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.

Doug:	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.
Ned:	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.
D:	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?
N:	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 backorder levels. 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.
D:	How has that given you a competitive advantage?
N:	Sales reps 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 job. 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.
D:	When you came into the plant, did you come in knowing this was the situation and this was what you wanted to do?
N:	My background 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.
D:	What would you say were the few things that your vice-president kept his eye on to bring about the transformation?
N:	The 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, ‘We 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.
D:	Any ‘whack on the side of the head’ realizations that you should have known but didn’t?
N:	I 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 see improvement. 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.
D:	Any doubts that you made the right call?
N:	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.
D:	Do you have a similar story to tell about your insights on the sales side?
N:	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.
D:	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?
N:	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 them. 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.
D:	Shifting gears, 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.
N:	We launched 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 industry.
D:	This sounds like it required a shift in mindset. How did you go about having Stryker people embrace this different way of doing business?
N:	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.
D:	Ned, how do you think about competing against yourself?
N:	Stryker Corporate 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 company. 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.
D:	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.
N:	New products 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.
D:	You are very passionate about Stryker and its business. How have you brought this passion to life?
N:	We 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: Looking like a leader Acting like a leader Being in the right place at the right time Demonstrating integrity Having the game face Being the most passionate cheerleader for the vision of the company Trying to inspire other people to share your vision and strive towards it 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. 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.
D:	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 the other.