Yes, a competitive advantage has a sound. I heard it last week during a management society breakfast meeting for a group I lead. It was given voice by the presenter, Said Hilal, CEO of Applied Medical Devices. It was clearly on display both in what he said and in the confidence with which he said it.
Given the current economic climate, it was refreshing to say the least. It was apparent to me that American enterprise is alive and well when in the hands of the right leaders.
Before I go further, a few facts.
In a season of economic turbulence, Applied Medical continues to experience 30% growth year in and year out. Today, it is a $250 million enterprise. Applied develops and manufactures specialized surgical products . It competes against the major players in the healthcare industry.
The company was founded in 1988 in a 700 square foot facility and now occupies five large buildings in the community of Rancho Santa Margarita, California. I took a tour of those facilities last Friday. Suffice it to say, everything I saw supported all that I heard during the presentation at our breakfast meeting two days prior.
With that as a backdrop, let me share a few of the things I heard and witnessed that made it clear why Applied Medical enjoys such a competitive advantage. The following comments come from the notes I scribbled while Said spoke–and may not be exact quotes. Where they are not, they capture the essence of what was said.
“In 2003, Applied Medical had a 3% market share in the medical device business,” Said explained while projecting these and other statistics on the screen. “By 2008, that figure had reached 21%. In 2009, we are approaching 29% market share.”
“While we may OWN market share, we OWE our market. We understand that and that is why we continue to find success.”
He explained, “We set out to determine how our organization could make a difference. We asked the question, ‘What does the customer want?’ We found out. The customer wanted enhanced clinical outcomes, improved choices and reduced costs. For most industries, especially ours, those are not compatible outcomes. However, Applied Medical’s chosen edge has been its proven ability to implement clinical advances coupled with superior value.”
Said continued, “When gurus and pundits talked about outsourcing, we instead relied heavily on integration.”
To Applied Medical, integration meant to become almost completely self reliant. (In fact, you could “almost” take the “almost” out of that sentence.) The company became its number one vendor and component supplier. That’s not a typo–as you move through the Applied operation, it becomes very apparent how self contained the company is. There is vertical integration at work that combines automation, cross training, internal supply chains, promise-based continuity, and superior team building all within the context of a university-like commitment to employee education. If something is needed, it is created–often right on the premises. Training rooms appear throughout every facility as a reflection of the heavy commitment Applied has made to nurturing an educated, competent, integrated workforce.
“We have worked hard on building the Applied Culture, which has two parts: the cultivating culture and the competency culture–bringing people in from the beginning to grow. That combination has been exceptionally effective.”
Said spoke about gross margin being the most important metric Applied focuses on, because it finances all other aspects of their business, including and especially their highly valued research. In that regard, Applied has organized its research in such a way that an engineer can conceive of something in the morning and have the prototype built and tested by the afternnon. Applied does what it calls “progressive R&D” that is fulfilled through enhanced processes and automation. This approach has resulted in the shortest supply line, fastest response and best value in the market.
There’s more, but you get the idea. This is a business that understands its role in the marketplace and is highly focused on delivering value in a consistently superior fashion.
So, from whence does this excellence spring? What is at the core of Applied’s success?
“We are different and we feel a passion about our difference,” Said asserted. “When you are different and succeeding, everyone wants to copy you. When you are different and not succeeding, no one cares what you are doing. Well, people pay attention to what we are doing.”
Said continued by explaining what he referred to as ”The Quiet Statistics.”
“We determined that the best way to enhance ownership’s wealth is by maximizing everyone’s interest. We never stop developing those that want to be developed. We are their avenue to the American Dream. We are not in the business of developing the next minimum wage job, we’re in the business of developing careers. When we develop careers, we develop our business.”
Such is the sound of a competitive advantage. Passion leads to focus. Focus breeds execution. Consistent execution leads to success patterns, which in turn engender a culture of confidence. That culture is at the heart of a competitive advantage, because culture is not copyable.
Every company that wants to achieve such breakthrough success, whether it is large or small, must develop this pattern. It must build upon a foundation that places a high value on a shared vision and mission. For that success to be sustained, a company’s approach to total rewards must reflect and support the strategy that emanates from that base. Employees must be able to envision a compelling future, there must be a superior work environment, there must be opportunities for personal and professional development, and there must be financial rewards that complement and reinforce the roles and expectations the company has of its people.
In the end, success is defined by those that experience it. In Applied’s case, there is no horizon to that success. What’s important is that the competitive advantage the company has built has placed it in the driver’s seat to determine exactly what the boundaries of its success will be. No outside institution, person, or condition will determine that for them.
Special thanks to Said Hilal and his group at Applied Medical for taking us “behind the scenes” and allowing us to better understand what a competitive advantage sounds like.