Medical Device Link.

Originally Published MX March/April 2006

TOPSPIN

Financial skills training can show personnel on all levels how to better a medtech company's bottom line.

John Scott and Joe Beilein

When a company produces 50,000 different medical products and employs 38,000 people worldwide, communicating a clear, consistent business strategy, especially in terms of financial goals and objectives, is imperative to its continuing success. Yet coordinating this strategy can prove challenging among a broad employee base with dramatically varying areas of functional expertise. Even more challenging is demonstrating to individual employees the effect their decisions can have on a company's bottom line.

Tyco Healthcare (Mansfield, MA), one of the largest medical device and service companies in the world, is one of four Tyco International business units. To help manage and coordinate its vast human component, Tyco International created a learning council. The council includes five members of the corporate staff as well as representatives from each business segment, including healthcare. This group meets regularly to share best business practices and to ensure that learning initiatives in all sectors support Tyco International's four corporate goals established at the executive level: growth, teamwork and culture, operational excellence, and financial strength and flexibility.

As part of a larger whole, Tyco Healthcare is charged with finding ways to give these expansive goals tangible meaning throughout its corporate structure, down to the level of the individual employee. Identifying innovative training programs, particularly in regard to developing employee understanding of financial concepts, has proven an effective way to align the interests and attitudes of a diverse workforce.

Training for Change

Training, particularly programs that provide employees with a broader understanding of Tyco's direction, is a key component in meeting corporate goals. Tyco Healthcare offers numerous technical and professional programs aimed at improving knowledge and job performance, as well as developmental programs for nurturing managerial skills and aspirations. These programs include leadership training for newly appointed managers and operations training for those on the manufacturing level, as well as programs that promote organizational savvy and are designed to improve a manager's ability to influence others.

John Scott is vice president of organization development for Tyco Healthcare (Mansfield, MA), and Joe Beilein is a principal with Advantage Performance Group (St. Louis), a human-performance consulting network and Celemi solutions provider. (click to enlarge)

Those forms of training are crucial to the success of medical device manufacturers. Managers in the medtech industry often are technical professionals with advanced academic degrees, but few possess extensive financial, managerial, or personnel experience or training. One solution to this problem would be for a company to hire managers with MBA degrees and backgrounds in medical technology. However, if a company wants to retain high-potential personnel and maintain a healthy mix of existing and new talent, it is also desirable to develop employees from within an organization. This requires providing managerial and financial training to employees with little experience in these areas.

Determining the best way to provide financial training to technical professionals is not easy. Tyco Healthcare considered a variety of options, including e-learning programs, lecture-based courses, and several business simulations. Most of the programs it evaluated were too generic and had little relevance to the medical technology field. In addition, none of the alternatives offered much opportunity for collaborative learning, which is one of the most effective ways to nurture meaningful interaction aimed at solving a specific problem.

The Simulation Solution

Surprisingly, a training tool Tyco started using a few years ago as a means of explaining earnings before interest and taxes (EBIT) has also proved to be one of the most effective programs for developing the type of basic financial skills Tyco seeks to instill in all its employees. The course, called Finance for Nonfinancial Professionals, is an adaptation of a business simulation called Apples & Oranges, which explains financial concepts in a hands-on manner. The simulation was created by Celemi (Malmo, Sweden), a business consulting and training service provider.

Figure 1. In the Finance for Nonfinancial Professionals training course, each team completes a profit-and-loss statement and balance sheet for its model company. These reflect the financial impact of the team's decisions throughout the simulated year. (click to enlarge)

In Finance for Nonfinancial Professionals, a facilitator leads teams composed of four employees, often from varying backgrounds, through several business cycles of a model manufacturing company. The model is designed to mirror the realities of the medical technology business. Each team makes its own decisions on how best to deal with the challenges in production, inventory, and collections it confronts as it maneuvers its marker across a board-game-style work mat. The challenges team members face are similar to those confronted by a company in its day-to-day business. Payroll, taxes, and interest on loans need to be paid. At the end of each cycle, which represents a simulated year, the team completes a profit-and-loss statement and a balance sheet (see Figure 1). These ultimately reflect the financial impact of their decisions, and the outcomes are then compared with real Tyco annual reports, which makes the experience more meaningful.

The exercise demonstrates the challenges faced by various departments within a company. Team members see how overproduction results in excess inventory. They see how borrowing capital without the business to sustain growth overextends a company, thereby making it difficult to keep interest and principal payments current, meet payroll, or invest in new materials or technology to sustain growth. Those are just a few of the scenarios in which many of the teams inadvertently find themselves. Such scenarios prompt discussions about strategies to get their companies out of these less-than-favorable situations. They also foster appreciation for the real-life challenges Tyco Healthcare faces.

Some of the best results are seen when people from different departments are placed on the same team; for example, sales managers might find themselves working in partnership with production managers. At some point, the sales managers inevitably realize that although making unlimited deliveries to a hospital each day might be good for the customer, it is not good for the company when the cost of such service exceeds the benefits. Similarly, nuclear pharmacy managers appreciate the importance of juggling the short half-lives of their products with the high costs of delivery. This is especially true in times of rising fuel prices, when the financial impact that miscalculations can have on the bottom line is most evident. Managers come to realize that although they like to keep a well-stocked inventory to immediately fill customer requests, tying up cash flow in this manner can be a misuse of company capital if there's not enough cash at the end of the day to meet expenses.

Spreading the Word

None of the other training programs Tyco evaluated even came close to energizing a group and stimulating the same level of thought and discussion among the participants that the simulation format does. The design of the one-day course fosters teamwork across diverse groups with varying company functions by mixing employees from different departments. By allowing them to collaborate, the simulation increases participants' understanding of the company as a whole and how all employees in various roles make a difference.

The power of financial simulation is not lost on the participants, especially those with weaker financial backgrounds. After completing the exercise, many employees have commented on how the simulation shows the downstream impact of business decisions by visually tracking the flow of money with markers as it moves in and out of the business on a playing board.

Through follow-up interviews, Tyco Healthcare has found that employees who have completed the Finance for Nonfinancial Professionals course view financial sheets much differently when they return to their offices or labs. Rather than searching only for the bottom line, they now analyze inventory options and consider different routes to get products out in a more timely manner. Feedback indicates that the course has helped shift participants' perspectives from narrow technical views to more-effective global business approaches. It helps them understand that a company's success relies on managing the flow of cash and accumulating capital as quickly as possible.

What began as a modest training tool has now become one of Tyco's highest-rated programs. It continues to yield additional benefits, such as fostering corporate unity and highlighting the bottom-line impact of customer service. Furthermore, there is now a direct connection in employees' minds between the learning points of the simulation and each of Tyco's four corporate initiatives: if you don't understand costs, you can't fuel growth; if you want operational excellence, you need to understand the financial metrics. In addition to fostering teamwork and building common culture and communication, the simulation helps employees make the best decisions for financial strength because they understand the financial concepts and how they affect performance.

Although still used primarily in the healthcare segment of Tyco, word of the financial skills program's popularity has spread to other segments, and personnel outside of healthcare have started attending sessions. To date, more than 1000 Tyco employees throughout the United States and Europe have participated in the course, and Tyco expects that number to continue to grow as it continues to benefit from building financial acumen.

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