Benzinga | Sep 1, 2020 05:17PM EDT

Medtronic 8-K Shows Co. Implementing New Operating Model Designed To Make Co. 'more nimble and competitive organization focused on accelerating innovation, enhancing the customer experience, driving revenue growth, and winning market share...'

Medtronic today announced that it is implementing a new operating model designed to make the company a more nimble and competitive organization focused on accelerating innovation, enhancing the customer experience, driving revenue growth, and winning market share, while at the same time more efficiently and effectively leveraging its enterprise scale. This new operating model will simplify Medtronic's organizational structure and accelerate decision-making and execution. These changes will be supported by incentives and rewards aligned to the operating model and its objectives.



Focused, Accountable, and Empowered Operating Units



Medtronic is reorganizing its current Groups to create highly focused, accountable, and empowered Operating Units (OUs), each formed from Medtronic's existing businesses and organized around specific therapy areas. The OUs are designed to move the company even closer to its customers and to increase the agility, speed, and efficiency of the organization. Under the new operating model, OU leaders will have decision-making authority and full responsibility and accountability for their individual businesses and markets to fuel innovation, accelerate growth, and win in the marketplace. Specifically, OU leaders will have full P&L responsibility, control their own product development and clinical resources, and direct their own sales organizations in the company's larger geographies.



Leveraging the Enterprise Scale, Expertise, and Resources



Medtronic is consolidating Operations at the enterprise level -- including the company's global manufacturing, supply chain and facilities -- to provide greater service to the new, empowered OUs and better leverage the company's enterprise scale to realize greater efficiencies and capitalize on its global reach.



Medtronic will also establish Technology Development Centers (TDCs) in areas where the company has deep core technology competencies that are leveraged by multiple OUs. While R&D resources will be primarily embedded within the OUs, TDCs will focus on continuous development and efficient sharing of advanced technologies and capabilities across OUs to accelerate innovation and supplement product development efforts.



In larger geographies around the world, Medtronic's regions will help coordinate sales activity with the company's largest customers across OUs. And, in smaller geographies, including many emerging markets, Medtronic's regions will form dedicated sales organizations that leverage the company's scale, but move with the same agility as its smaller, local competitors.



Effective Date



The company will transition to this new model beginning in its fiscal third quarter and will be fully effective at the start of its fourth quarter of fiscal year 2021. The company is also currently assessing the impact of these changes to the external reporting of its segments and will provide an update, if changes are necessary, prior to the start of its fiscal fourth quarter.



Simplification Restructuring Program



As a result of these changes, the company is initiating a Simplification Restructuring Program, which is expected to incur total pre-tax costs of approximately $400 - $450 million, the majority to be recognized by the end of fiscal year 2022. The Program is expected to result in cost savings starting this fiscal year, with annualized ongoing cost savings of approximately $450 - $475 million realized by fiscal year 2023, designed to enable reinvestment to drive future revenue growth and to strengthen the company's ability to deliver strong long-term earnings per share growth.