John P. Wareham

Diagnostic Insight, 1995 Interview

John P. (Jack) Wareham was born the second of three boys in a small town in Iowa, where his mother still lives and where his father was a pharmacist. Wareham credits his father as being a major influence in his life. "He was what I call a 'real professional pharmacist', who really thought he made a difference and knew how to help his customers. So I grew up with a great sense of the customer, and of course when you're in the retail business, it's hard work, long hours. I think he had a lot of influence on how I ended up running my career, because I always think instinctively about the customer." Following in his father's footsteps, Wareham earned his degree in pharmaceutical chemistry at Creighton University in 1964. While working as a pharmacist from 1964 to 1968, he earned an MBA in finance from Washington University. After receiving his MBA, he went to work for SmithKline Corporation, rising from Corporate Management Trainee in 1968 to Vice President of Beckman's Diagnostics Systems Group in 1984. When Beckman Instruments became a separate company in 1988, he became Beckman Group's Vice President, then became President and Chief Operating Officer in 1993. He lists his interests as golf, classical and Broadway music, and art, especially the styles of Monet and Renoir. He now plays golf well enough "that I don't embarrass myself". Wareham has been married for 30 years and has two children.

When Wareham became Vice President of Beckman's Diagnostic Systems Group under the SmithKline Beckman umbrella in 1984, it was, as Wareham puts it, "not in an expansive mode." In fact, the Diagnostic Systems Group did not have a renewal product for their main market, was losing business and was strategically threatened. Wareham immediately set to work to redirect the company, focusing on the core market, trimming away businesses and projects that were dissipating internal resources, and redesigning internal processes. In 1993, Beckman merged elements of its Bioanalytical Systems Group and Diagnostic Systems Group into a single unit, and implemented a planned reduction of 800 employee positions worldwide. And the retooling is continuing even today. Beckman Instruments, Inc ., with just under one billion dollars in annual sales revenue, had sales of over 500 million dollars in clinical chemistry and rapid diagnostics in 1994. The company began a restructuring process in 1993 that reduced operating expenses by approximately ten percent. Recent acquisitions will expand the size of the diagnostic business by twenty percent, adding both critical mass and strategic competencies to the core businesses. In the following interview, Wareham talks about how Beckman turned it around, and what he sees for the future.

Bauer: Many successful managers develop certain business tenets that work for them time after time. What tenets have you relied on in business situations?

Wareham: First, do a few things, but do them right. That means you have to make a lot of decisions of what not to do. I think there are always opportunities in those things you know well and can do well. But I think there are always just as many opportunities to hurt yourself by trying to do too much, knowing too little. Another thing I think is important is what I call "intelligent determination", which is really just good feedback loops to the marketplace and to the customers. It pays to find out what customers are thinking while they're still willing to buy your product, and not just when they stop buying. Another principle is to make sure that what you do with your investments will make a difference. I'm a firm believer in high market shares by designing products for major markets, and that you make sure that they're major products and major opportunities. It's important that you focus on a few things and get high market shares. But if your product line is stretched out like a week's laundry then I think you're going to end up with a profitability problem. I think that major market segments, high market shares, are the drivers. The last tenet isn't as philosophical: it's to avoid the "hoola-hoop" syndrome, falling for a short-term fad that has so much said about it that it appears to be a long-term trend. I think everybody in the industry has gotten caught up in that at one time or another. Formalizing your market intelligence to ensure that you're working with a trend and not a fad is an important tenet.

Focus on core clinical chemistry businesses

Bauer: When you took the helm of Beckman's Diagnostic Systems Group in 1984, it was a difficult time for the company. Competitors were targeting your aging ASTRA instruments, profitability was low and the company's replacement products were late. You made a lot of changes in the way Beckman did business, and you're still making changes. What changes have you made, and what effects did they have?

Wareham: Clearly, I felt we needed to work more on our core business, and that we needed to stop dissipating our efforts in too many directions. We needed to focus on a market segment that didn't have a global leader, then set our sights on having a major share of that segment. There were several things we did to achieve that. To start with, we had to forge the mindset that we would retake our position as an innovator in the industry. Dr. Arnold Beckman, the founder of Beckman Instruments invented the first pH meter, and developed the quartz spectrophotometer, which revolutionized chemical analysis. Later, the company created the innovative ASTRA STAT Chemistry System. So we felt we had a good historical foundation for again being an innovator in the industry. First, we focused our new product resources on a very few things, and in a market we knew fairly well. We stopped a lot of projects, and we sold several business units. Some were in chemistry, and some weren't. It was a variety of things. One that comes to mind is MicroMedia, which we sold in 1985. [Editor's note: MicroMedia was a manufacturer of micro biology products for bacterial identification and bacterial antibiotic sensitivity.] It wasn't part of our core business, we didn't understand it well, and we felt the technologies at McDonnell Douglas' Vitek and the market dominance of Baxter's Microscan made this market undesirable. For similar reasons we divested our Laboratory Information Systems business in 1986. A second thing we did was focus on new market segments. We saw random access chemistry analyzers as one of those new segments. Random access automation was threatening to displace the STAT and routine chemistry market segments, which were discrete segments at that time, but it was without a clear industry leader, at least a clear global leader. Third, we changed the way we used internal resources. We had become a little too decentralized, to the point where we weren't coordinating our efforts. Very little was formalized. In program management, for example, we were spending too much time and money supporting existing products and not enough time developing new ones, so we redefined the program management concept to de-emphasize or eliminate the support function. Basically, were trying to move product support out of R&D. We spent a lot of time formalizing our processes. We documented them for the first time. It took quite a bit of effort and was seen as bureaucratic but it was important for people to know what was expected of them. We formalized our market research. We formalized our product development approach. We took down a lot of internal organizational walls that had grown up over time, which allowed us to implement a lot of multi-functional teams. In the late 1980's we implemented project management for our development organization. What all this let us do was to combine the separate pieces of Beckman Diagnostics into a single system. We were pretty good at a lot of things, and we thought we could really make a difference. It wasn't just engineering, it was software, where we had some competencies and which we were building up at the time, and chemistry, which had traditionally been in the general purpose reagent business, but not in the systems reagent business, with the exception of ASTRA. We took these competencies and applied them to the system.

More recently, we've combined competencies from our Bioanalytical Systems Group and Diagnostic Systems Group. Some employees have called it a merger. I'm not sure I'd describe it as a merger. We have taken advantage of scale in some functional areas, but we have determinedly kept the customer focus at the front end of the business. So for the most part we still have separate thrusts in the major markets, including separate customer support groups and separate service organizations. We have leveraged other centralized support services: order processing, billing, manufacturing, staff support services. In some country markets where we don't have the scale we do have combined organizations, but even there we tend to have separate sales forces. We're least combined today in the U.S., with more consolidation in Europe, and we're most consolidated in the Far East. Our new approaches let us plan more deliberately for the future. For example, we were able to sequence our new product introductions to take advantage of market trends. We introduced the CX3 first to "catch the wave" of DRG driven test paneling, then moved on to the random access analyzers, the CX5 and the CX7, to capitalize on the developing random access market segment.

Bauer: In May, Beckman bought Genomyx, in August optioned rights to Biocircuits Immunoassay technology, and in September announced its planned acquisition of Eli Lilly's Hybritech. You've been very active in this area. Do you feel that it's a buyer's market for diagnostic properties?

Wareham: Immediately, Hybritech is an expansion of our rapid test business. They have a good franchise to complement our core business in fecal occult blood testing. In the long term, Hybritech also gives us life science and regulatory capabilities that we feel are critical to the continued success of our core chemistry business. We know there are a lot more opportunities for acquisitions and alliances that can supplement our internal efforts. There are more of them today than there have been in the eleven years that I've been in the industry. I've heard comments that potential acquisitions are undervalued. I wouldn't say that, but I think the reality of how you make money in this market has finally hit the players in the market. I think that's allowed more opportunities to become available. So I think the prices for acquisitions have come down a little bit. I wouldn't call them undervalued.

DRGs, Random Access were major shifts – Workstation consolidation will continue to redefine the clinical chemistry market

Bauer: As you look back on your 11 years in diagnostics, what do you feel were the most significant environmental shifts in the industry? And what do you think will drive us going forward?

Wareham: Well, it started with the DRGs, which drove a lot of the changes that have happened since. Because of DRGs, hospitals are driven by patient throughput, which in turn creates a need for more and faster testing. Random access was a major shift, because it redefined the clinical chemistry market. Workstation consolidation will likely do the same. In the future, physicians will be ordering more specific panels, and that will, in turn, drive work station consolidation. Another big shift has been the increasing globalization of the marketplace. For example, European and Japanese laboratories have been labor reduction insensitive in the past. We've been seeing it start to change for the last three years or so, and it's continuing today. In the future, I think there will be more focus on managing the entire process of patient care, what's called now "disease state management." Also, I think there will be more consolidation of individual laboratories into larger laboratories, to get economies of scale. Point of care technology may be another big mover of the future. But it's going to have to be economical, because there are other ways of doing the same thing. The economics have to be balanced with the opportunity. Something that's very important, is that the industry is becoming an industry. I would look for signs of us having uniform initiatives for the benefit of our customers and for the benefit of our customer's patients. And I think we're getting close. That's a lot different from where we were ten years ago.

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