Medtronic’s M&A strategy explained by CFO Karen Parkhill

By Jim Hammerand

Karen Parkhill drew on her experience in the banking industry to offer Medtronic a prognosis as the COVID-19 pandemic started rippling across the globe.

Medtronic CFO Karen Parkhill

“When the pandemic hit, we didn’t know how bad, how long it was going to affect us,” Medtronic CFO Karen Parkhill told MDO and MassDevice in a recent interview. [Image courtesy of Medtronic]

Parkhill, Medtronic’s CFO and EVP, was CFO of JPMorgan Chase’s commercial banking business during and after the 2007-2008 financial crisis, and then served as CFO at Comerica before joining Medtronic in 2016 under former CEO Omar Ishrak.

“When the pandemic hit, we didn’t know how bad, how long it was going to affect us,” Parkhill said in an interview with Medical Design & Outsourcing. “We needed to quickly decide whether we were going to cut back on R&D, on manufacturing, on our employee base. I took the lessons learned from stress tests in the financial services sector and quickly showed that Medtronic had the financial stability to withstand very severe stress from COVID.”

She said Medtronic kept its plants operating at full capacity, kept personnel in place without cutting pay, and worked with suppliers and customers to help them through the crisis.

“We built great credibility and a stronger long-term relationship with our suppliers, our customers and our employees as a result,” Parkhill said. “I look back on the very early stages of the pandemic with a lot of pride that Medtronic was able to handle it the way we did.”

Jason Weidman, Medtronic SVP and president of its coronary and renal denervation business, said Parkhill complements her financial smarts with compassionate and caring leadership. “When something difficult is going on or there’s a really tough situation we’re dealing with, one of her first questions is always going to be, ‘How is the team doing?’ ”

CEO Geoff Martha described her as a steady-handed and compassionate leader in a statement shared with MDO.

“Throughout her tenure, Karen has led by example and enabled teams to innovate and share ideas, feel understood, and achieve results,” Martha said. “I have been consistently impressed by Karen’s commitment to the Medtronic Mission and dedication to achieve excellence — and doing so while embracing the highest ethical and quality standards.”

Parkhill also played an important role in communicating with The Street, according to Ryan Zimmerman, managing director, equity research – medical technology at BTIG.

“We think that Karen has done a strong job of communicating clear expectations to The Street in an ever-changing environment. Many of Medtronic’s markets are fluid quarter to quarter as a result of the elective nature of surgery, so it does present a challenge in terms of forecasting,” Zimmerman said.

Parkhill, who is leading Medtronic’s restructuring initiatives, discussed leadership, culture and innovation with MDO in the conversation below, which we’ve edited for brevity and clarity.

MDO: Can you explain Medtronic’s two big reorganization projects and offer any updates?

Parkhill: Enterprise Excellence was a program that we started under Omar to have our functions be more cost-effective (and) plant consolidation to enable more cost-effectiveness in our general operations — and ultimately use that savings to reinvest and help ensure that we delivered our bottom-line commitments. We’re not completely finished. We’ve got another year to go, but we’re nearing the end. On top of that, we put Simplification, a new program under Geoff’s leadership around driving the operating model changes and simplifying our org structure. It was really about enabling our business units — we call them operating units — to be at the center of the new organization. It’s been very powerful for Medtronic to get rid of the old group structure because we had many companies operating within Medtronic, and they each had their own infrastructure. Every group president had their CFO, their head of HR, their legal person, their quality person, all these functions around them. We’ve simplified that whole structure, put what we needed at the operating units, and got rid of the overhead.

MDO: What does that do for you as CFO?  

Parkhill: I have much greater transparency and insight into what’s going on down in our businesses rather than that being clouded through the group structure. It enables me to be more effective as a CFO and in our capital allocation process, ensuring that we truly are driving our capital to our highest and best use, and that we’re driving it toward the greatest growth opportunity and holding our leaders accountable when we’re investing in these great growth opportunities to ensure we ultimately achieve them. I think it’s done wonders for the organization and particularly in my role. The CFO role is supposed to be a highly strategic role, and there’s no other role in the company that has the purview of the CFO. And with that purview, the role can and should be wide and strategic because you understand the past and you’re looking forward to the future and you’re helping to shape the future as we plan and forecast and budget.

MDO: How does the reorg affect R&D and innovation?

Parkhill: It encourages innovation and greater accountability around that innovation. We have driven the amount of dollars that we put toward R&D higher in this new structure. We now have about 8% of our revenue in R&D, a little bit higher than before. From a dollar perspective, we had the highest dollar increase in R&D than we’ve ever had. Much of that R&D is innovation yet to come. But our pipeline is super strong. And if we talk about just two key things in our pipeline that the external world likes to focus on a lot, it’s both RDN [renal denervation to treat hypertension] and the Hugo robot.

MDO: What kind of cultural changes have come from the reorg, and how has leadership made that happen?

Parkhill: We have a new Medtronic Mindset. It’s about being bold, moving with speed and decisiveness, focusing on greater competitiveness where we’re driving a focus on not just performance against our internal plans, but performance against the external market and driving increased market share. Those are underlying the big cultural changes. We’re talking about it all the time: We’re talking about boldness, we’re talking about making decisions quickly, and simplifying the org structure has helped us do that. We’re tracking and monitoring and talking about market share all the time now, which we didn’t do before. That helps drive the cultural shift as well.

MDO: Is market share the biggest metric to determine whether this is successful?

Parkhill: It’s an important factor, but we’re also measuring things like our organization health through surveys. We want to make sure that we’re at best-in-class levels in org health, and since we put this new operating model in place, we’ve had the highest org health scores we’ve ever had, and in many categories have achieved world-class status. So market share, org health, ensuring that we’re delivering on our external commitments, and most importantly, driving our revenue growth higher and sustaining it. We had historically been delivering 4% to 5% annual revenue growth, and our external commitment is five plus. I would put great emphasis on that plus because with the pipeline and the focus on market share, our key focus is to drive it much higher than 5%.

MDO: What does this cultural shift and reorganization mean for suppliers and vendors?

Parkhill: They’re going to grow with us, which is important. We have a new head of operations, and I think he’s going to bring even greater discipline and move us — from an operations perspective — to best in class. In our industry, I would say our operations have never been the best-in-class kind of operations that happen in other industries, and we’re focused on moving to that. So our suppliers and our vendors will grow with us, but we’ll also want to make sure that they’re innovating with us. And those that are innovating with us are the ones that will have greater business from us as we probably work to consolidate some of our vendors.

MDO: Martha has said the reorg could open the door for more contract manufacturers if your business leaders can make the cost-benefit case up the chain. Have you seen much of that yet?

Parkhill: Not yet. We have a decent number of contract manufacturers today, and that could grow in the future. I think we’ll always have a mix of contract manufacturing in our own manufacturing, so as we grow, both grow.

MDO: What are you looking for in external partners?

Parkhill: We like partners that innovate as fast or faster than we do, that focus on a partnership with us. It’s a relationship. It’s not a service that they provide and they get a fee. It’s a long-term relationship where they understand Medtronic on a deeper level, understand where we’re heading and are a part of helping us get there, and also part of understanding problems and issues that we face and helping us solve them.

MDO: We’ve seen a lot of executive departures during the reorganization. How much turnover was expected, and how much was unrelated?

Parkhill: Whenever you do a major reorganization like we’ve done, you just expect some turnover. The percentage of turnover that we had was definitely expected. On an individual basis, some of it was the right turnover, and then some of it was regrettable, but you’re always going to have that when you’re a strong company like Medtronic and you breed talent and the external world sometimes wants to poach that talent. From a retention perspective, we do a really nice job. We retain a lot of our strong talent, and they are incredibly motivated under this new operating model because they have greater responsibility and accountability.

MDO: How do you think about making sure you have the right people in the right places, from recruiting and retention to turnover and succession?

Parkhill: We have a very robust talent management process that includes knowing each individual’s aspirations and making sure that we’re helping them achieve their aspirations within Medtronic. We do that really well. We also have very robust succession planning, as you can expect from a company of our size and stature, and not just at the very top echelons of the company. It goes all the way down into the company. From a talent recruitment perspective, we are constantly scouting talent. When we find great talent, sometimes we don’t have the exact role to slot them in, but we’ll create roles and take risks with that external talent so we’re constantly building that pipeline of both internal and external talent.

MDO: You’ve supported Medtronic’s early career rotation program. What do you hope to achieve, and what advice can help other companies launch their own?

Parkhill: Early career is so important to build your culture and your talent pipeline from the ground up. Medtronic had — when I first joined — not as robust of an early career program. Now it’s much more robust. We’re doing early career hiring outside of colleges and putting people through rotational training programs, and they’re ultimately feeding our open positions once they finish that program. We’re seeing great success. The talent you can get from colleges and universities today is tremendous, and we’re really focused on driving a diversity of talent. We’ve got a new partnership with the Thurgood Marshall College Fund where we recruit at colleges that we may not have gone to in the past, and we also help support the educational expense of that diverse talent. We’re seeing good success, and every good company should have a good early career strategy.

MDO: It can’t be that expensive to fund, can it?

Parkhill: That’s where finance comes in. Oftentimes, our early career programs were not funded because the businesses thought it was too expensive. They wanted to put their dollars in R&D. But the reality is we have open positions all the time and we’re hiring headhunters to do the external recruiting to fill beyond early career positions, when if we just reallocated that dollar to fund an early career program, it can easily happen. We had finance work with each of the businesses to prove that out and ultimately ended finding the dollars without needing to add extra dollars to start this program.

MDO: What have you learned about yourself and about Medtronic while leading the reorganization over the last few years?

Parkhill: We did this reorg in the midst of the pandemic, and we were all on Zoom calls together. Ex-com (the executive committee) spent endless hours on Zoom calls designing the new operating model. What I learned in that process is never underestimate the power of what we can do even under extreme circumstances. That’s what I personally take away, and I think the organization takes it away too. We not only designed this new operating model via Zoom, but we implemented the whole thing via Zoom, and the new operating model meant that we put people in brand-new positions according to our new structure, all the way down the organization. And we did all that via Zoom.

Executive editor Chris Newmarker contributed to this report. 

Source: Medical Design & Outsourcing