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High Tech -- And Handcrafted


It was the moment execs at Medtronic Inc. (MDT) had always dreaded. In early April, the medical-products maker had to recall thousands of defibrillators after learning that the devices, implanted in the chests of patients with heart disease, were taking too long to discharge a shock as their batteries aged and lost power. At least four people may have died and another may have been seriously hurt as a result.

Product defects are intolerable when hearts hang in the balance. As Medtronic Chairman and CEO Arthur D. Collins Jr. puts it: "A single quality issue can deep-six a business." Yet Medtronic didn't go down. In fact, the company is boosting its already-dominant 53% market share in cardiac devices. That's because the slipup was an aberration at an outfit that, over decades of manufacturing, has become the standard-setter for quality. Medtronic and its rivals "all make fantastic products," says Dr. Stuart M. Portnoy, a cardiac-device specialist at PharmaNet Inc., a Princeton (N.J). consultant. "But Medtronic probably has the best reputation."

Medtronic's good name is built on practices that are both dependable and counterintuitive. Where manufacturers in some industries rush to automate, Minneapolis-based Medtronic treasures its trained production staff. The $9 billion company's implantable devices are made from trusted materials -- not sexy new compounds. And it doesn't use the latest generation of microchips in its life-critical pacemakers and defibrillators. "These are not laptop computers," says Dr. Stephen Oesterle, Medtronic's senior vice-president for medicine and technology. For quality and safety reasons, "we will never be first to embrace the newest, coolest technology in these things."

NO FACTORY SECONDS

At Medtronic's parts plant in Brooklyn Center, Minn., bunny-suited employees in clean rooms sit for long hours at workbenches, peering into microscopes as they manually apply dots of silicone to an electrical lead or thread wires through tiny polyurethane tubes. There are also advanced machine tools and banks of computers, but for many fine tasks, the company finds that humans perform better.

Keeping heart-failure patients alive is a powerful incentive to do flawless work. Consider one of Medtronic's newest products, the InSync III pacemaker. This $12,000 device -- a silicon-packed sliver of titanium roughly the size of an analog stopwatch -- must be able to nudge a wayward heart back to a normal rhythm within 18 seconds at any moment, for up to six years, or the wearer may die of heart failure. "Nobody wants a factory second in this market," says Thomas J. Gunderson, an equity analyst at Piper Jaffray & Co. (PJC) "You've got to be near-perfect."

For pacemakers, incremental refinement has been the path to perfection -- not radical innovation. It took five years to develop the InSync III, which was approved by the Food & Drug Administration in February, 2003. At 77 grams -- slightly less than the weight of a king-size candy bar -- and just a quarter-inch thick, it is far sleeker than earlier models. Yet 80% of the hardware in the new model is "legacy" material, estimates Brian Urke, a Medtronic vice-president for quality. At least 50% of the software, he says, came from previous designs, too.

Once they had a prototype, Medtronic engineers followed with a battery of tests they call "shake, rattle, and roll" to see how much stress components could take before breaking. Afterward, engineers and production managers pinpointed what had failed, fixed it, and cranked the test up to the next level, watching for the next failure. In one test, the pacemaker withstood a force 40 times that of the earth's gravitational pull. A typical laptop conks out at 3 to 5 G's.

None of these tolerances can be achieved without crews of seasoned staff. "There are eyes on parts all the way down the process," says Connie Tucker, a 23-year veteran at Brooklyn Center. "You want to make sure your product is done right for the end customer because their life depends on it."

Quality also dominates discourse at CEO Collins' executive-committee meetings on Monday mornings. Every business unit gets audited at least once a year on quality, and the company regularly dispatches monitors to evaluate suppliers, too, says Dr. Susan Alpert, vice-president for regulatory affairs, quality, and compliance. Engineers also perform "autopsies" on almost all implanted devices returned to the company to gauge how well they held up -- and discover ways to make them better. "All of that feeds back in, so it's a constant improvement," says Alpert, a former director of the FDA's office of device evaluation. "It's part of the culture."

Increasingly, Medtronic is applying its trusted quality tactics in new businesses. In 2001, it pioneered a hybrid implantable device with wire leads to three chambers of the heart. It eases symptoms of heart failure by coordinating the pumping function of the ventricles, and also can treat a potentially lethal rhythm disturbance called fibrillation. The InSync line of pacemaker/defibrillators helped Medtronic grab over 50% of the U.S. market for implantable cardiac products, despite fierce competition from St. Jude Medical Inc. (STJ) and Guidant Corp. (GDT)

Implantable products aren't confined to cardiac care. Medtronic also sells InSync-like devices that deliver mild electrical pulses to the spine to treat intractable pain. Another family of products stimulates the brain to treat Parkinson's disease and other movement disorders. Epilepsy, obsessive compulsive disorder and depression are targets for future therapies. "We're just scratching the surface," says Collins.

No one can predict the manufacturing challenges that will arise as these devices evolve. Still, Collins says, Medtronic's strategy will be consistent: Build devices made of materials you understand, from components that never fail, using workers who are committed to zero defects. These values are deeply conservative. And even on medicine's distant frontier, they may provide the best signposts.

By Michael Arndt in Minneapolis


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