“If you look at a snapshot of GE Healthcare it looks pretty good — $18 billion revenues, good margins, good earnings,” John Flannery, CEO of GE Healthcare, told onlookers last Friday at the New York Stock Exchange. “There’s a lot to like here, but the core issue is that we have not grown the operating profit margin of this business for a number of years.”
But with a new growth strategy in place, that may soon change.
The reason for the consistent operating profit margin can be partly credited to government funding issues as a result of the financial crisis and the pressure of the Affordable Care Act, but the other part is self inflicted. Flannery said that the business was not able to generate enough supply chain efficiency and engineering redesign.
“We just weren’t able to drive costs down enough in an environment that has evolved over the last five years,” he said.
There are a lot of ways GE Healthcare believes it can improve its business, especially in terms of product costs. The company has “attractive opportunities” in its ultrasound and life sciences business and in emerging markets, according to Flannery.
In its ultrasound business in particular, it plans to have every new product come down in cost by double digits while also increasing functionality and product value.
Digital is opening up a whole new space for them. “It’s not going to be a huge financial lever in the next two to three years, but we are investing heavily in this. This is going to drive productivity and outcomes in the industry,” said Flannery.
Data has exploded in the industry in the last 10 years, but it hasn’t been used in a very productive way yet. The next phase is to take that data and generate insights from it to translate into better outcomes for patients.
The company also plans to have a catalog of specific products that lays out a multi-year cost target for each of the products. It also had opportunities for margin improvements in its service business.
“We’re very confident in the clarity of what we need to do here — we’re very confident in the team we have executing this,” said Flannery.
