Hot on the heels of a reorganisation at embattled Boston Scientific, St. Jude Medical, Inc. has now announced what it’s calling a “realignment” of its product divisions into two new operating units, which is coinciding with a reshuffle of its senior management.
Despite the reassuring language used in St.Jude’s recent quarterly financials release, which we covered here, there was no doubting the concern that some of the company’s problem children were just that, all of which prompted cuts in earnings outlook and with it the share price.
So what to do?
In what looks like a response to especially the ongoing decline in Cardiac Rhythm Management devices, where sales continue to flounder in the face of industry pressure and the Riata hangover, St.Jude has taken the radical decision to shoe-horn its previous four divisions into two. These will be called the Implantable Electronic Systems Division (IESD), which will encompass CRM and Neuromodulation, and the Cardiovascular and Ablation Technologies Division (CATD), which will encompass Atrial Fibrillation and Cardiovascular.
That’s part one. In addition the company will centralise several support functions including information technology, human resources, legal, business development, and many marketing functions.
The company offers reassuring words to its customers in its press release saying that its customer-facing United States and International Divisions will continue serving customers based on existing call points and specialties.
The new divisions will be under the leadership of Eric Fain (IESD) and Frank Callaghan (CATD). Fain and Callaghan will report to Group President Michael Rousseau.
And finally, as part of the reorganisation, three additional executive officers have been named: Donald Zurbay, Rachel Ellingson and Kathleen Chester. Donald Zurbay is now vice president, finance and chief financial officer, reporting to John Heinmiller, who is taking on an expanded role as executive vice president, overseeing the centralisation of the IT, HR, legal and business development functions. Rachel Ellingson has been named vice president, corporate relations, as Angela Craig assumes additional responsibilities as vice president, global human resources. Kathleen Chester has been named to a newly created role of vice president, global regulatory.
St.Jude’s estimates that the organisational changes will result in a reduction in pre-tax operating expenses by approximately $50-$60 million annually beginning in 2013, which will come mostly from consequential staff reductions of approximately 300 employees.
“The reorganisation we have announced today is part of a comprehensive plan to accelerate our growth,” said Daniel J. Starks, chairman, president and chief executive officer of St. Jude Medical. “We are focused on reducing costs, leveraging economies of scale, maintaining the highest level of quality, and funding our entire portfolio of new growth drivers.”
It’s interesting to contrast the St.Jude approach with Boston Scientific’s which is in some ways has adopted the opposite strategy by separating divisions which were recently merged. Bringing subspecialties together under one roof, while it looks like a smart idea from a cost perspective, has a habit of causing companies to lose their focus at the sales sharp end. It’ll be interesting to see how this reorganisation is received (the share price rallied somewhat after the announcement) and how it pans out.
On the centralisation of support functions, we’re wondering why, if this is do-able now, it wasn’t sensible before now?
Source: St.Jude Medical Inc., Business Wire