The in vitro diagnostics strategies of the 21st century

The reason is that a frictionless economy is taking place, a new world in which work, information and capital move easily, cheaply, and almost instantly. Companies are forging new, smoother relationships with customers, employees, and shareholders. We are also rethinking the role of capital (as it is traditionally understood), finding new ways in which companies can thrive with less and less financial resources.

Value creation happens in a new way as R&D and marketing are reinvented. New performance measurement systems are also being developed, as traditional ones are no longer able to capture what matters.

Many companies, which make most of their revenues by selling physical goods, have nearly all their products that are made by others, being able to coordinate large supply chains and using access to factors, rather than their own, to be able to increase or decrease production capacity according to changes in demand. This allows SMEs that do not have significant capital to compete with those who have them, as equals.

In my previous experience as CEO of an important company producing in-vitro diagnostic kits, I had to face dogmatic and “a priori” approaches, real “myths”, which often conflicted with good management rules.

Just to give some examples, there was the "myth" of the high level of vertical integration, the dogma of controlling the entire production chain, the pride of producing "at home" the raw materials to be used in the preparation of the product finished, and a certain snobbery aimed at despising those who bought supplies from outside as a "shopkeeper". Now, in a super-specialized market, talking about vertical integration only makes sense if this provides a market exclusivity - "We are the only able to produce these materials, thanks to our proprietary know-how" - or if this determines a significant competitive advantage. An advantage that can consist either in a higher quality of the finished product, keeping constant the net profit, or in a higher profit, keeping constant the quality of the finished product.

But if producing the raw materials at home do not guarantee either exclusives or competitive advantages of a qualitative or economic nature, this production superstructure will often and willingly constitute an additional cost that will determine more or less obvious diseconomies. It would be much better to outsource this phase of the production process, using suppliers who, to have a more marked specialization and to handle larger volumes, are able to supply with a better-quality product at a lower price. If anything, managerial innovation lies, in addition to the outsourcing (controlled from the qualitative point of view) of non-essential processes, in transforming those relationships between strategic suppliers and the company from a mere mercantile relationship - "I sell you raw materials and you pay me the invoice ”- in a synergic relationship, of collaboration on specific projects in which, by pooling mutual knowledge, it is possible to generate innovation on a technological, product and process level, and new market opportunities.

Another myth is constituted by the "mega-factory": the large real estate investment to unify several production structures which, between the pursuit of technological evolution and more or less justified aesthetic ambitions of many captains of industry, requires the use of important capital, often taken in debt.

This is an allocation of resources that will hardly produce incremental returns compared to the status quo, so the cash flows to service the debt will be taken from other sources, and subtracted from other more profitable uses, penalizing the creation of value. Unfortunately, the concept of economic profit, of Economic Value Added (hence the acronym EVA), at best remains on the books of corporate finance rather than finding concrete application in business plans; but in most cases, even today, in SMEs, when it comes to EVA, many still think it is referring to Adam's wife.

These myths often lead to giving too much importance to the use of financial capital and to its not always optimal allocation, as we have seen, and neglect intellectual capital (such as software, patents, copyrights, trademarks, know-how), the customer capital (in the form of relations with buyers) and, especially, human capital, which is fundamental in in-vitro diagnostics, much more than in other sectors.

To properly run the engine of an SME in the diagnostics sector, you need the “intellectual energy” that only a team of highly trained and motivated people can provide. But to attract human capital you need a motivating approach to business, very incentivising mechanisms of remuneration and directly based on everyone's performance ("I reward you for what you do, for the results you will be able to achieve"), and an appropriate location for the company.

Too often, in Italy, the country of a thousand of bell towers, provincialism continues to dictate the law. Thinking of attracting human capital and transferring it to remote places, even when pleasant for tourism but far from the infrastructural network and major university centres, is an illusion. It is the company that must be in the key points of the country, perhaps with lean and decentralized structures, where the largest pool of human capital resides, to attract the best skills. This postulates a business model that functions as a multilocation company, well-coordinated with each other. The monolith of the "mega-factory" no longer works, also because it is a big mistake to think that the best skills are willing to move to work in a factory located, as the British would effectively say, in the middle of nowhere.