Product Planning and Strategy

Professor Bravo
10/13/10

Harvard Business School Publications Case: Hospital Equipment Corporation

Hospital Equipment Corporation made a surprising strategic choice in 1980 by reducing

its commitment to the growing nursing home bed market to focus their attention solely on the low

growth acute care hospital bed market. This was an extremely risky choice for HEC, as the

nursing home bed market was growing steadily, and was projected to continue to grow, according

to demographic information. On the other hand, the acute care hospital bed market appeared to

waning, as it seemed that replacement beds would serve as the vast majority of the market

moving forward. Furthermore, the replacement bed market did not appear to be promising, as the

typical life cycle of a hospital bed was seventeen years at the time. Thus, HEC would not be

replacing beds very often and would have a low market share.

The acute care hospital bed and the nursing home bed differed significantly from one

another in 1980. Hospitals wanted beds that were designed to assist in patients’ recovery, while

nursing homes wanted simply designed, cost-effective beds. At this point in time, the nursing

home bed market was far more appealing than the hospital bed market, as nursing home beds

were both easier and less expensive to produce. The hospital bed market, on the other hand, was

far less appealing at this time, as hospital beds require more costs to improve upon the current

beds by adding new features and increasing value. Regardless of how appealing the nursing

home bed market was in 1980, HEC made the decision to aggressively dive into the hospital bed

market. Although the decision was risky, it made sense. HEC reasoned that the combination of

the growth of the nursing home bed market and HEC’s departure from the nursing home bed

would cause HEC’s competitors to focus their efforts on the nursing home bed market, thus

allowing HEC to take over the hospital bed market.

Although the hospital bed market did not appear very attractive, it actually provided a lot
more flexibility for HEC. Entering the replacement business allowed HEC to provide “distinctive

products, features and supporting services.” This allowed the firm to expand its position in the

hospital bed market by creating new features and researching customer needs. HEC’s core

competency is that they understand what their customer needs, even more so than the customer

knows their own needs. HEC performed extensive market research on how patients and

physicians wanted their hospital beds to be like, which enabled HEC to successfully make the

best possible hospital bed.

Fortunately for HEC, their choice to enter the hospital bed market proved extremely

effective. Despite the looming threat of declining demand, the number of in patient beds

continued to rise in the beginning of the decade and HEC became the dominant provider in the

hospital bed segment. Its two other competitors had focused solely on the growing nursing home

bed market, which ended up benefiting HEC. HEC successfully expanded its product lines by

creating new bed features and more specific bed designs, which also proved to be very profitable.

Many hospitals began adopting HEC’s innovations, many of which became market standards.

The innovations included instant CPR positioning, sideguard patient-to-nurse station

communications, a special night-light as well as many other items that made the hospital more

efficient and effective. These products began being seen as high value, selling units in the range

of $2500-$3500 which increased profits and enhanced the HEC name. Nursing home beds were

selling for exceptionally lower, at less than $1000 per bed. In focusing its efforts solely on the

hospital bed market, HEC successfully took over the hospital bed market, while facing virtually

no competition.

Market research played the largest role in coming up with new product ideas by

understanding the customer’s needs better than the customers themselves. The sales team built

relationships in the hospital market to gain feedback on specific customer needs. HEC’s sales

force could gather data on each hospital’s stock of beds, recommendations, and other pertinent

information. This data as well as performance and cost data about HEC’s product lines was
combined to generate new product ideas especially for product improvements.

HEC connected with its customer through its customer service group, the marketing

managers, and senior management. The senior management met with customers and observed

their needs first hand. Through all these different outlets to the customer, HEC was considered to

have the best access to all parts of hospital administration of any company selling to that market.

This was a definite advantage for coming up with new product ideas that would be just what the

customer needed. The market researchers had to go beyond just knowing their customer. They

went into the hospitals to learn how the hospitals made money and they would regularly follow

nurses around as they took care of patients. This gave the market researchers a deep

understanding of the daily practices within the hospital environment and how patients, nurses,

and doctors interacted around the hospital beds.

With all this information, HEC had to come up with a system to use the data most

effectively. Ann Fuller, the Director of Market Research, explained how the creation of product

management teams for each of their product platforms with members from sales, marketing,

engineering, service and purchasing was successful in organizing all the product information.

Each group was responsible for collecting feedback on their products from people in their

functional organization. The teams would then meet monthly to integrate the information and

plan future products. These processes allowed for insights into new products such as keeping the

head of the bed close to the wall and the “communication sideguard.”

The development process for new products began with identifying a general market

opportunity and then briefing the Vice President of Marketing, Tricia Wudel. Once the initial

product concept was created, Wudel went to HEC”s Vice President of engineering, Eliot

Anderson, to find out technological constraints and then produce a refined product concept.

Anderson first delegated responsibility to Eric Haglund to make a detailed product design, and

then Haglund’s engineers would collaborate with technicians to create mock products and

ultimately full working prototypes of the new models. Once executives had approved these
working prototypes, Wudel would assemble a field evaluation. The field evaluation would allow

for feedback on the new products, the prototypes would be revised, and then another more

extensive trial would be conducted. Feedback again would be incorporated to the design before it

was completed.

Another way to come up with new product ideas was through the individuals at HEC.

Eric Haglund believed that the over-bed table could have a wider use. He went to senior

management himself and was able to get approval and some money, but it was not enough. He

went to his friends in marketing to help him develop product specifications and then took the

project to engineering to design the parts to hospital standards. Prototypes were built and in the

same way that groups at HEC developed product concepts, Haglund’s prototypes were sent out to

be evaluated by customers. Haglund made appropriate changes according to the customer’s input

and eventually his product did well in the market. Haglund had to be persistent to get senior

management to finally recognize that his product concept was worth it.

Furthermore, another HEC employee, Peter Baird, at the time the head of the marketing

product development group, developed an idea and would work on it in his spare time. The idea

became HEC’s Horizon headwall system, a system to organize medical gas services and patient

instrumentation in the hospital room. He was able to use resources from the development group

without corporate approval and then introduced the product at a new concepts conference. Baird

took a risk and was able to get Stanford University Medical Center to install his Horizon

headwall system. This went well and the product went into the traditional development path and

was formally launched. Baird has said that if he “needed formal approval to build the headwall

prototype, it might have never happened” (p.7). This shows that sometimes with new product

concepts, individuals must take their own initiative if it is a good idea because senior

management or other coworkers may not recognize the potential until they have seen a prototype.

The traditional path to new product concepts is not the only way.
 In the future, there are multiple strategies, which HEC could utilize in developing new

product ideas moving forward. Given that HEC put substantial amounts of time and effort into

developing and improving hospital beds and the hospital bed replacement cycle, they could

leverage their strengths in bed design in entering a new market. For example, HEC’s hospital

beds were designed to assist in patient recovery; therefore, HEC could leverage their design

expertise in entering the market for in-home therapeutic beds for elderly or handicapped

individuals. In addition, HEC could utilize technology that it developed for hospital beds and

apply it to other types of equipment within the hospital. For example, instead of remaining

confined to the patient rooms in hospitals, HEC could apply their various technologies to

operating room equipment or recovery unit equipment.

HEC’s task force was effective in communicating with all levels of administration in the

hospitals, with which they worked; however, the task force did not speak with administration

extensively about needs for products. HEC’s task force could both speak with and observe all

types of surgeons, nurses, and assistants, in order to identify needs for new products or product

improvements in all levels of administration. Furthermore, HEC’s task force could perform a

problem analysis by asking hospital employees about problems they have with current equipment.

Such a strategy would effectively utilize lead user strategy, end user strategy, and problem

analysis in developing new product ideas. Furthermore, in developing product ideas for

equipment outside of patients’ rooms, HEC could use multiple determinant gap maps to identify

new product opportunities base on a myriad of possible attributes. Finally, HEC could make

further product improvements and new generations of products through trade-off analysis, which

would determine which levels of various attributes in hospital equipment are most important to

the hospital staff. HEC could also utilize this process in entering the in-home therapeutic bed

market, in that they could measure attributes such as adjustability of bed, size of bed, most

preferred features, stiffness of bed, etc. The aforementioned processes can be used in continuing

HEC’s growth in the future.

challenge the assumption that there is no more potential for growth in the hospital room market.

There is validity in the argument that the hospital room market will continue to grow in the future

as science becomes more advanced and more diseases and illnesses are treatable. These

improvements will enable people to stay alive longer and thus, the demand for hospitals and

hospital rooms will increase. In addition, the baby boomer generation is quickly approaching the

age which they may require hospital assistance, spiking demand. Also, more intense surgeries

will require longer recovery and more specialized needs. Patients will require longer hospital care

and quality, long lasting beds. As scientific research about proper recovery progresses, there is

more knowledge of what type of bed individual patients will require. Therefore, there may be a

developing market for more customized beds as hospitals become designed for specialized

treatments. As with any strategy, this proposition has both advantages and disadvantages.

The advantages of this strategy include:

• Provide HEC with further opportunity for growth in a market in which they are already
established.
• Enable HEC to stay true to themselves and focus on their key strengths as a company.
• Allow HEC to best meet the needs of their customers by focusing only on the hospital
room market.
The disadvantages of this strategy include:

• Steele may be correct when he argues that the hospital room market has reached full
potential and is exhausted.
• With the growth in hospital room demand, hospitals may seek alternate ways for housing
patients rather than increase expenditure on capacity and beds, such as at home care and
virtual patient care.
• By remaining solely in the hospital room market, HEC may miss possible opportunities
to expand elsewhere, causing them to lose their competitive advantage.
The second strategy presented by management involves growing the company by

acquisition. This would require HEC to acquire other manufacturing companies both in the
hospital room production and other hospital furniture and supply markets. HEC is well know in

the hospital segment and has a strong brand name that they could use as an asset when growing

by acquisition.

The advantages of this strategy include:

• Enables HEC to create new product lines, which will bring in additional sales and

revenue.

• Allow HEC to expand their brand name to associate with more than hospital beds.

• Allow for hospitals to partake in one-stop shopping for their furniture and hospital room

needs, thus increasing HEC’s presence in the market, customer relationships and product

reliability.

The disadvantages of this strategy include:

• Risk spreading their brand too thin.

• As HEC’s business focus shifts, it may take away from their core business and their

ability to create exceptional hospital beds, which meet the needs of patients, may fall

behind their competition.

• Risk deteriorating HEC’s brand, known for quality and reliability, if they are not as

exceptional in their new line of products.

As previously stated, HEC could utilize the technology used in the creating of hospital beds

and hospital bed features, in order to enter new markets. For example, there is demand for in-

home therapeutic beds for the elderly, injured, and handicapped, who do not require constant

doctor attention in a hospital. HEC could leverage its strong hospital-related brand name in order

to differentiate its in-home therapeutic beds from competitors’ beds.