Four years ago, when Mike Mahoney was just another rising star in the Johnson & Johnson universe, the powers-that-be at Boston Scientific knew they needed a game-changer.
Times were not good at the Natick, Mass.-based medical device giant. For several years following the $27 billion Guidant acquisition, Boston Scientific had been mired in a prolonged slump. Crippling debt from the Guidant deal pushed the company from stock market darling to “Fallen Angel” – Wall Street parlance for once-high-flying firms whose credit rating is reduced to junk bond status.
If that was not bad enough, regulatory issues, a series of costly, high-profile recalls and a slowdown across key product lines had all but halted the growth trajectory at Boston Scientific.
Although share prices by 2011 were mired under $6 apiece (down roughly -87% from a peak of nearly $45 per share in 2004), a series of moves by CEO Ray Elliot, a renowned turnaround artist who helped reverse the fortunes of Zimmer Biomet, laid the foundation for a recovery. Boston Scientific refinanced the debt load and, in a surprise move that September, announced that Mahoney would be its new CEO after serving a yearlong stint as president to comply with a non-compete agreement with J&J.
With the stock at about $5.14 per share in early November 2012, Mahoney officially took the reins like a character straight out of central casting and set about transforming Boston Scientific. Starting with a bold decision to sell its Natick, Mass., headquarters and move to smaller digs in nearby Marlborough, Mahoney spearheaded a three-year drive that’s seen BSX shares rebound more than 262%. The stock posted a high of $18.62 apiece June 1, and the company is guiding for consistent top-line growth.
Mahoney was ready to look back at the turnaround and declare it closed when MassDevice.com sat down this June in Marlborough for our DeviceTalks show, which attracted 200 industry executives. Interestingly, he told that the most important move he made didn’t directly concern the balance sheet: Instilling a corporate culture that got employees excited about improving patients’ lives proved to be key.
Below is a transcript of Mike’s conversation with publisher Brian Johnson at the June DeviceTalks event, edited for clarity.
Brian Johnson: We met three years ago, when you were just about to take this job. Or you were in the job, but you weren’t ready or weren’t yet the CEO, the big guy.
Mike Mahoney: When you say I wasn’t ready, what do you mean? What exactly do you mean by that? What exactly are you talking about? [laughter]
Johnson: You weren’t ready to be called CEO. How about that? You’ve now spent two years as CEO of Boston Scientific. I’m just wondering, personally what has this experience been like for you?
Mahoney: You are going to make me cry. Is that the goal? [laughter]
What’s the experience like? I love it. When I joined almost three and a half years ago, it was a tough decision. I left a great company, but I was very excited about the opportunity here, and to this day I can say I just love what I do. As I mentioned before, we all get to impact patients, and it’s a wonderful industry, and I work with a fantastic team here. There is nothing I’d rather do than work for Boston Scientific and help drive innovation and work with this team. I hope I’m here for a long time, so I’m hoping this isn’t the last interview.
Johnson: I think you will be judged by your performance, so you should be here for a long time.
You had a mandate: Return the company to growth. What were some of the ways you said, “I’m going to achieve those goals,” and have you met them?
Mahoney: We definitely delivered on that, the commitments we made externally, and at our Investor Day recently we gave longer-term commitments that were pretty bold and talked about growing faster than our competition and growing in the strong mid-single digits and driving operating margin improvement and driving double-digit EPS growth. That’s all good. We talk about a turnaround, I guess we did turn around the performance, but really what we did is unlock the potential and the capabilities of the team of 25,000 employees here.
We did some structural things, we enabled the organization to move a little bit faster by expanding the number of reports and the speed of the company. We did a lot of simple things on just reinvigorating what it means to work here, we established values for the company. I can talk about that all night long. Of couse you want to make money, but most employees want to feel great about the company they work for, proud of the company, pride when they are talking about the company with their family and friends, and they want to have a career. They want to feel really good about it.
A lot of what we did to turn around the company, a lot of portfolio things we can talk about, most of it was the culture of the company. How do we hire great leaders? How do we enable greater speed in the company, faster decision-making, more empowerment, more pride in the company and a winning spirit? The biggest element of the turnaround was, I think, the cultural impact and really unleashing the talent in the company. That’s always been there. It went through some dark days for a few years, but it’s always there – it’s just more bringing that out again.
Johnson: How much of that did you discover during the year you spent learning the company before taking the CEO role?
Mahoney: I was in a detention for a year, I wasn’t able to take the job because I wasn’t ready, apparently [laughter]. Then I got my badge, and I was ready to go. I learned a lot – it was actually a very unusual circumstance to be guaranteed the job, but technically not having the job. I worked with [interim CEO] Hank Kucheman, he was terrific, and the one year was terrific because I was able to focus just on our businesses and learn our portfolio and learn our people and learn our talent and our capabilities.
I didn’t have to work with investors, analysts, lots of those things that take up a lot of time. I was just able to focus purely on the talent of the company. When you can dig in that way and put your time there, it was a big advantage.
Johnson: I guess it’s safe to say you’ve met the objectives you set for yourself in the first three years.
Mahoney: We have. A few years ago, we hadn’t grown for about four years in a row, and we’ve grown, I don’t know how many quarters in a row now, eight or nine or so. We gave a pretty strong guidance for 2015 and ’16, ’17 and ’18. The company is growing and really what we focused on, like a lot of you do, we focus first of all on talent and we made some changes to the senior leadership team, brought in great local leaders for the emerging markets and in Asia and in Europe.
We sped up the operating processes of the company, we reduced down a lot of bureaucracy in terms of the amount of reporting and decision-making and things that had to take place to improve decision-making. We spent a ton of time in the pipeline, we took some bets that have worked out great in the pipeline in CRM with the S-ICD device, with Watchman, the only product that helps patients reduce the risk of stroke who have afib. We’ve got a great structural heart program that’s really early on. We’ve got a very exciting pipeline that we worked on.
I spent most of my time focused on the culture of the people and the pipeline. That’s what we do, and we were growing, we are investing in a lot of emerging markets because we were a little bit late in some of those markets. Now we are doing very well, we are building lot of capabilities there with market-appropriate products and training and leveraging capabilities across BSC. We reinvigorated our BSC venture firm, and we made about 20 investments in smaller, really promising exciting companies over the past two years.
To answer your question, we have delivered on our commitments in terms of the turnaround, and are essentially raising the bar. Our third value is high performance. Part of the performance we have met, but that’s yesterday’s news. The performance expectations we have now are much higher than they were three years ago.
Johnson: Right, because I know you said the turnaround is complete.
Mahoney: We don’t like to talk about it anymore because it’s old news.
Johnson: Right, but I do think it’s such a good story, you probably want to keep banging that way for awhile.
Mahoney: I’m proud of it, but I’m sincerely more happy for the employees who have been here for a long time.
I had the honor of meeting, I can’t remember her name, but she was a clinical employee for Boston Scientific in her thirty-year anniversary of the company. I was able to give her a plaque, and I had never given somebody a thirty-year award before.
The company had always been great, and we went through a downturn, and we are really on a great run that will be sustainable. I’m really happy for the employees who had been here for a long time, because they tell me that. They say it’s so great to be part of a company that’s winning again, that’s fast, that’s innovating. That’s what’s most fun for me. It sure feels good for me, but when you give somebody a thirty-year award, she gives you a big bear hug, that’s much better.
Johnson: How about personal goals? I know you’ve led divisions, you’ve also been CEO of another company, never one as big as this, so did you have personal goals, like “I don’t want to become this type of person.”
Mahoney: You don’t want to be “That Guy.” When I took the job, I had a lot of goals.
To this day I still say this is the dream job for me, and I really want to be here for quite a while. My goals when I first started were really simple: They were to return the company to growth, restore what I call the winning spirit among our employee base, and develop a pipeline again where customers can count on us and really need us.
I think we’ve really established that. The company is growing nicely, we were 6% in the first quarter, we have the guidance this year for about 6% again. There is a lot of margin improvement of the company, so we are delivering it financially. I’d say I’m excited about the goals that we established.
Johnson: And you haven’t become “That Guy.”
Mahoney: No, no, I don’t think so.
Johnson: Winning spirit. It’s a motto that’s all over this building. But beyond the motivational phrase, what is it, what does it mean to you?
Mahoney: It’s funny, a couple of quick stories. When I first joined the company, we had our headquarters in Natick. The first day I showed up for work – I couldn’t interview at Boston because I was at a competitor – my first day, I showed up at the job at Natick, and I didn’t have a badge so I couldn’t get through security. So I had to call my admin, and she came down to pick me up. The Natick building was a nice facility at one time, but it was essentially half empty. It was a bit outdated, and it didn’t have a vibrancy and a speed and a culture that you want.
My first board meeting, I said, “We want to make these changes in personnel, and we want to sell that corporate headquarters and move.” That was the first board meeting. That went well [laughter].
But I felt that, culturally, that’s a big deal. It was a place that when you walked around, it wasn’t a team that was winning and there wasn’t transparency and there wasn’t collaboration, and it was really old-school. Thankfully we got MathWorks to buy the property. Our headquarters is now a third of the size it used to be. Before it was just much too large.
That’s important, but back to the winning spirit. What I quickly saw in the company was an opportunity, it sounds old-school, to re-establish what Boston Scientific means. We worked together to create a fresh mission statement, “Advancing science for life,” and we worked with the team to create values, much like many small companies would do. At Boston Scientific, we talk about caring, we talk about meaningful innovation, we talk about high performance, globalization, diversity. And then the team said, “We only use five.” I said, “Winning spirit is my favorite one, so I’m just going to throw in the winning spirit as number six.”
But we did that, and it sounds weird for a larger company like Boston Scientific, but the chance to re-create that in the very beginning with our employees and establish that we are a special company and we are going to make great things happen and help patients and win in the market, and drive the heck out of stock performance as well for a long time.
What I often say is only a maybe a small percentage of employees really care about the stock price. Most employees want to be part of a great company, where they have engagement and they are proud of it. The winning spirit was important to me, because the first few meetings I went to, we are very, very heavy in bureaucracy. We would do a business review and the binders were two feet thick, and I’ve got a lot of ADD, I couldn’t get through it. Things were just slow, and so we added the winning spirit. It’s a phrase I learned from Jeff Immelt years ago at GE.
What it really means to me is we want employees who are leaders, whether they are in supply-chain, quality, R&D, regulatory clinical, who see opportunities everywhere, who aren’t afraid to take chances, who are willing to make tough decisions and are comfortable with being a power. There are a few companies that are bigger than ours, but I think we can be the fastest-moving company in device.
We pushed that winning spirit attitude, and some folks weren’t comfortable with making decisions quickly and not having the two-foot binder. We use that winning spirit as a way to see opportunities, and have courage to make decisions, and move faster as a company. I think speed wins, not size wins. I think we are starting to generate that momentum.
Johnson: That came from Jeff Immelt, that phrase? The winning spirit, you didn’t coin that.
Mahoney: No, I actually stole it [laughter].
Johnson: That’s worked for you.
Mahoney: I love it, I like it.
Johnson: You live that in your personal life as well?
Mahoney: I came in 95th in a 5K in our town out of about 110 people. I was fast [laughter].
I’m like many of you in this business. It changes a lot. I’m very competitive, and I want so much for a company to be uniquely good. That’s what motivates me, and I’m very restless about the performance of our company, and I care about employees. I guess I live it pretty well.
Johnson: Let’s switch a little bit to the market. You’ve spent a considerable amount of time in your career dealing with the interaction between hospitals and suppliers. In particular I’m referring to your time running the global healthcare exchange. Recently you said, “We are not going to pretend to be a solutions company.” But clearly the industry is moving toward the service model – we are seeing it from a lot of your competitors, frankly – and we saw that big Philips Healthcare deal recently, where they’re moving beyond just selling imaging equipment and bundling services in there. What’s driving this push toward the service model?
Mahoney: The reason I said it is, I just want to be clear with our employees and our team that we are a medical device company and we make disruptive innovation to help patients, and that’s going to a drive a significant portion of our revenue and income forever.
Regarding solutions and services, I worked for GE when I first came out of school, and that company is very advanced, from servicing competitors’ equipment, to financing equipment, to outsourcing radiology labs, providing lean optimization. I’m very familiar with it, and also from being at J&J.
At Boston Scientific, we are medical device company, but many of our businesses, before solutions became more the buzzword, have been very active in providing services and solutions within their business unit. We do have a capability at Boston Scientific called Advantix – we offer a number of solutions. We don’t market it as heavily as some companies do, but our solutions are really pointed at the businesses. In our urology business, whether you talk about our remote stent trackers – because believe it or not, physicians forget to pull urethral stents out – you actually can track them remotely. There’s all kinds of things in our heart failure business, our CRM business.
We do a lot with heart failure analytics with our remote monitoring capabilities, we’ve done two or three recent joint ventures to provide cardiovascular analytics to customers. We have heart failure projects going on at that same hospital involved with Philips. We have a number of solutions within our Advantix portfolio, but they are aimed toward logical services or productivity benefits that are tied to our products.
They are typically focused on cardiovascular for our ICD business and our PI business. Whether it be lean optimization, billing practices that we assist with, we help our patients with Watchman, help develop their stroke programs. We enabled these, but we don’t have a vision for outsourcing, we don’t have a vision of buying hospitals or buying cath labs or outsourcing cath labs. We don’t think most customers want that, and so we focus on other services that make sense for our portfolio.