Stryker Corporation

2725 Fairfield Road
Kalamazoo, Michigan 49002
U.S.A.
(616) 385-2600
Fax: (616) 385-1062
Web site: http://www.strykercorp.com

Public Company
Incorporated: 1946
Employees: 10,974
Sales: $1.1 billion (1998)
Stock Exchanges: New York
Ticker Symbol: SYK
NAIC: 339112 Surgical & Medical Instrument Manufacturing; 339113 Surgical Appliance & Supplies Manufacturing; 339111 Laboratory Apparatus & Furniture Manufacturing; 621399 Offices of All Other Miscellaneous Health Practitioners

Stryker Corporation develops and manufactures specialty surgical and medical products for health care markets around the world. The company’s product lines include various powered surgical instruments, orthopedic implants, trauma systems for use in bone repair, endoscopic systems, and patient care and handling equipment such as stretchers and hospital beds. Stryker also provides outpatient rehabilitative physical therapy through its Physiotherapy Associates Inc. subsidiary, and is engaged in clinical testing of a patented bone growth protein through its Stryker Biotech subsidiary. The company is broken into ten discrete operating divisions: Howmedica Osteonics; Stryker Endoscopy; Stryker Instruments; Stryker Medical; Physiotherapy Associates; Stryker Pacific; Stryker Europe; Matsumoto Medical Instruments; Stryker Americas; and Stryker Biotech. Each division operates as its own entity and produces its own line of health-related products or services.

1940-77: Innovations in Patient Care

Stryker Corporation was founded by Dr. Homer Stryker, an innovative orthopedic surgeon from Michigan. Stryker, born in 1894, started his medical career as a general practitioner in his hometown of Kalamazoo. After spending eight years in general practice, however, he decided to enter the field of orthopedics. He spent three years in an orthopedic residency at the University of Michigan Medical School at Ann Arbor before returning to Kalamazoo in 1940 to practice his new specialty. He was 45 years old.

As an orthopedist, Stryker discovered that some of the medical products used in his field were less effective than they could be—in terms of both caregiver efficiency and meeting patient needs. While this was, no doubt, a common complaint of many physicians, Stryker’s response was somewhat atypical. He began designing new devices to replace those that he found inefficient. His first such device was the Wedge Turning Frame, a mobile hospital bed with a frame that pivoted from side to side. This turning frame, which came to be known in the industry as the “Stryker Frame,” allowed doctors to position injured patients as needed while still keeping them immobile. When his invention proved to be successful, Stryker formed the Orthopedic Frame Company, the predecessor to Stryker Corporation, to manufacture and sell the beds.

Stryker continued to pursue his medical career while at the same time overseeing his small company. As before, he found various aspects of patient care that needed improvement, and, as before, he designed and built solutions. One of his next inventions was the Cast Cutter, a motorized saw that cut through patients’ casts without cutting the skin underneath. As his company grew and began to manufacture a more diverse line of medical devices, Stryker insisted that each product either improve the efficiency of the caregiver or reduce the cost of providing treatment. In 1946, the name of the company was changed to Stryker Corporation.

Stryker’s son, Lee, became president of the company in 1955, and continued to run it in much the same fashion as had his father. Stryker worked to improve and market the company’s line of hospital beds and stretchers, which made up almost 70 percent of its total sales. He also focused on the development of a series of innovative medical devices, including the first medical pulsed irrigation system and the first flume evacuator for bone cement. As Stryker grew the company’s product line and sales presence, he maintained a very centralized form of management, keeping a close hold on all decision making.

In the mid-1970s, one of his top-down decisions had very negative results. After tinkering with his salespeople’s compensation arrangement, switching them from commission to salary, Stryker found himself with virtually no sales force at all. While it was still in the middle of this sales force crisis, the company was dealt an even worse blow. Lee Stryker was killed in a plane crash in July 1976.

It was into this turbulent atmosphere that Stryker’s new CEO, John W. Brown, entered in 1977. Brown, a 43-year-old native of Tennessee, had previously been in charge of a subsidiary of Bristol-Meyers Squibb that manufactured surgical instruments. When he was first offered the Stryker position in 1976, he declined. He was happy at Squibb, satisfied with his progress and thoroughly entrenched in the corporate culture. The Stryker board was persistent, however, offering Brown a second chance at the CEO position in 1977. That time he accepted, although apprehensively.

1977-83: John Brown’s Company

Brown had definite ideas about what Stryker needed, and he moved quickly to realize them. One of his first moves was to rebuild the decimated sales force, changing the compensation structure back to commission. He also set up a formal budget, worked to trim operating costs, and established a procedure for managerial goal-setting. After instituting more formal management controls, Brown turned his focus to Stryker’s product line. In addition to expanding its line of surgical power tools, Brown added a new category to the company’s product line with the 1979 acquisition of Osteonics Corp. The three-year-old Osteonics was a maker of hip implants for joint replacement surgeries.

Also in 1979, the Stryker family decided to sell some of their stock in the company, and Stryker was taken public. It was at this time that Brown announced an ambitious goal for the company: a 20 percent annual growth rate from then on. He chose this goal because he had been told that emerging growth companies had growth rates of no less than 20 percent. Brown did not soft-pedal his expectations, referring to his 20 percent growth goal as “the law” and demanding that each and every employee do his or her part to achieve it.

Overall, Brown’s early years at Stryker were not smooth ones. His style of management and straightforward attitude clashed with many of the existing executives, and his changes were not always met with enthusiastic acceptance. Rocky transition notwithstanding, Brown delivered on his promises; Stryker consistently showed no less than 20 percent annual growth. In 1981, it was named to the Forbes list of the Best 200 Small Companies in America, where it would remain for ten years straight.

1983-85: Sweeping Changes

While Stryker was struggling through its own personal transitions, the health care industry itself was undergoing even greater upheavals. Since the passing of the Medicaid and Medicare bills in the mid-1960s, health care costs had skyrocketed. Between 1970 and 1980, U.S. annual medical care expenditures had more than tripled, triggering a social and governmental backlash. Concerned with excessive spending under the Medicaid and Medicare plans, the federal government began looking for ways to control those costs. In 1983, the Reagan administration instituted a new payment system for hospital patients on Medicare, which was designed to reduce unnecessary treatments and hospitalizations. Under this system, the Prospective Payment System, hospitals were reimbursed for the cost of care determined by diagnosis rather than by length of hospitalization or actual services performed.

The Prospective Payment System took its toll on hospitals and on patients. Many treatments and procedures that had formerly required hospital admission became outpatient procedures. Hospital admissions dropped, patient stays became much shorter, and health care providers had to look for ways to contain their own costs. Unfortunately for Stryker, fewer hospital admissions meant the need for fewer hospital beds, the company’s main source of revenue. To offset this slowdown, Brown led Stryker into new product areas that would be less affected by health care cost controls.

One such area was biotechnology. In 1985, Stryker entered into a long-term collaborative research program with Creative BioMolecules, Inc. The purpose of the collaboration was to develop an implant that utilized an osteogenic protein. The protein, OP-1, occurred naturally in humans and helped to promote natural bone growth and healing. Using DNA engineering, Stryker and Creative were able to produce this protein and began testing its use in animals. Early trials indicated that OP-1 stimulated the formation of new bone when it was implanted in bony areas that were not healing properly. A year later, Stryker again added to its product portfolio with the acquisition of Syn-Optics, Inc. Syn-Optics specialized in endoscopic systems—medical video cameras, light sources, powered instruments, and disposable materials used in minimally invasive surgical procedures. Unlike the hospital bed market, the demand for endoscopic equipment was growing rapidly. Endoscopic procedures, which were usually done on an outpatient basis, were increasingly replacing traditional, more invasive procedures for a wide range of diagnostic and surgical applications. Stryker’s newly acquired endoscopy business soon became one of its fastest growing divisions.

Company Perspectives:

The goal of Stryker Corporation is to become a stronger competitor in the global medical marketplace by designing, manufacturing, and distributing products that support physicians and hospitals as they seek to provide quality patient care at affordable cost.

As the company’s product line grew more diverse, Brown made a radical departure from Stryker’s traditional management style. He completely decentralized the company, breaking it into several fully autonomous operating divisions. Each division head became responsible for setting the division’s goals, establishing its manufacturing operations, and managing its sales and marketing efforts. Brown believed that in a business operating in diverse markets, decentralization was a natural choice. “Decentralization allows each division to run like its own business, and make quicker decisions about product and strategy,” he said in a November 1994 interview with Sales & Marketing Management. “We want each autonomous division to enjoy all the thrills of success and all the anxieties of failure. There’s nothing like running your own business,” he observed.

1986-97: New Products, New Divisions

One byproduct of Stryker’s decentralization was a closer relationship between sales staff and customers. Whereas previously sales reps had been responsible for selling the whole gamut of Stryker’s products, the decentralization allowed them to narrow their focus. They became better acquainted with a smaller product portfolio and thus better able to understand and respond to their customers’ needs. From these closer customer relationships, salespeople began to garner ideas for new products and for ways to improve existing ones. Stryker responded to this influx of product ideas by sinking more money into research and development. Between 1986 and 1991, the company almost quadrupled its research and development (R&D) budget, and doubled its product line.

The 1990s ushered in a flurry of acquisitions for Stryker. In 1992, the company acquired Dimso S.A., a French maker of spinal implant systems used for patients with degenerative spinal diseases and spinal injuries. Another acquisition followed in 1994, when Stryker bought a majority interest in Matsumoto Medical Instruments, Inc. Matsumoto was one of the largest distributors of medical devices in Japan. Also in 1994, the company purchased a product line called Steri-Shield from a private company. Steri-Shield was a personal protection system that helped protect operating room personnel from infectious diseases. Stryker entered the market for orthopedic trauma treatment systems in 1996 with the acquisition of Osteo AG. The Switzerland-based Osteo was a maker of equipment used to set bone fractures.

At the same time Stryker was expanding via acquisition, its existing businesses were meeting Brown’s goal of growing by 20 percent each year. The company’s revenues steadily ratcheted up, increasing from sales of $280.6 million in 1990 to $980.1 million in 1997. Net earnings followed suit, from $33.5 million in 1990 to $125.3 million in 1997. Its consistent success won high favor from Wall Street pundits, industry analysts, and even a U.S. president. In 1992, President George Bush paid a visit to Kalamazoo to recognize Stryker for its achievements. “Stryker is celebrated across the nation and around the world for the quality of your work and the excellence of the management, the way it’s handled,” Bush said in an address to Stryker employees. “You’re leaders in an innovative industry that makes our country proud.”

1998 and Beyond: Becoming a Big Player

Near the end of 1998, Stryker acquired Howmedica, the orthopedic division of Pfizer, Inc., for $1.65 billion. Howmedica developed and manufactured specialty medical products used to treat musculoskeletal disorders. Its main products included hip and knee implants, bone cement, and trauma systems for bone repair. Through its subsidiary, Leibinger, Howmedica also manufactured products and instruments used in craniofacial surgery. Howmedica was integrated with Stryker’s Osteonics division, which was renamed Howmedica Osteonics.

The purchase of Howmedica was highly significant in that it transformed Stryker from a small player into a very large one. Brown’s decision to make this jump had much to do with the changing face of the health care marketplace. For the past several years, a trend toward consolidation had been sweeping the industry. Increasingly, independent hospitals and surgery centers were being absorbed into large health care conglomerates. As a result, purchasing power was often centralized—and physician preference became less significant than economies of scale. Stryker, who had built its sales approach on personal relationships with individual decision-makers, realized that it could not compete effectively as a small company any longer. “Larger institutions and buying groups are demanding ever-higher quality at ever-lower cost, and they prefer to deal with clearly identified market leaders,” Brown wrote in his 1998 letter to shareholders, adding “In this environment, only companies that offer scale and superior efficiency will succeed.”

As Stryker wound down its sixth decade in business, it remained true to its growth goal. Although the purchase of Howmedica broke its 21-year streak of 20 percent net earnings increases, the company expected to return to its historical growth rate as early as the year 2000. Its long-term growth strategy centered around the global marketing of diversified product lines with an orthopedic core. With well-developed markets in the United States and Asia, Stryker planned to improve its position in Europe, Australia, and the rest of the world. It also planned to continue aggressively developing and marketing new, innovative products within its key markets, as well as improving and expanding its existing lines.

Principal Divisions

Howmedica Osteonics; Physiotherapy Associates; Stryker Biotech; Stryker Canada; Stryker Endoscopy; Stryker Europe; Stryker Instruments; Stryker Japan; Stryker Latin America; Stryker Leibinger; Stryker Medical; Stryker Pacific; Stryker Trauma.

Further Reading

“Bigger Niche at Stryker,” New York Times, December 16, 1980.

Brewer, Geoffrey, “20 Percent—or Else,” Sales & Marketing Management, November 1994, p. 66.

Gowrie, David, “Giving Back the Ability to Walk,” Hackensack (New Jersey) Record, October 28, 1998.

Jones, John A., “Stryker Keeps Moving with Strong Research Commitment,” Investor’s Business Daily, January 20, 1992.

Kramer, Farrell, “Stryker Becomes a Synonym for Consistency,” Investor’s Daily, July 6, 1990.

Rogers, Doug, “Stryker Skillfully Handles a Steady Run of New Products,” Investor’s Daily, March 21, 1991.

Sawaya, Zina, “Focus Through Decentralization,” Forbes, November 11, 1999, p. 242.

Seebacher, Noreen, “Stryker Products: Just What the Doctor Ordered,” Detroit News, May 6, 1991.

Stavro, Barry, “The Hipbone’s Connected to the Bottom Line,” Forbes, December 3, 1984.

Stroud, Michael, “Stryker: Another Play on Endoscopy Boom,” Investor’s Business Daily, October 25, 1991.

—Shawna Brynildssen

Stryker Corporation

2725 Fairfield Road
Kalamazoo, Michigan 49002
U.S.A.
(616) 385-2600
Fax: (616) 385-1062

Public Company
Incorporated: 1946
Employees: 3,951
Sales: $557 million
Stock Exchanges: NASDAQ
SICs: 3841 Surgical and Medical Instruments; 3842 Surgical
Appliances and Supplies

The Stryker Corporation is a leading niche producer of medical supplies, including endoscopic systems, orthopedic implants, powered surgical instruments, hospital beds and stretchers, and physical therapy centers. Founded by a surgeon in the early 1940s, Stryker remained a small family-owned business for nearly 40 years. In the late 1970s, the company went public under new management, and Stryker subsequently achieved a remarkable record of steady growth, facilitated by a strategy of cautious innovation, the perfection of existing technologies, and expansion of its markets to include customers on five continents.

Stryker was founded in 1940 by Dr. Homer Stryker, an orthopedic surgeon who practiced medicine in Kalamazoo, Michigan. In 1941, Stryker hired his first employee, and began to market his first two products, a walking heel, and a frame that allowed a patient to be turned in bed. The young company’s most important product came four years later, when Dr. Stryker introduced a device to cut plaster casts, easing their removal, which would soon become standard throughout the orthopedics field. In the year following this breakthrough, 1946, Stryker incorporated his fledgling business.

Over the years, the company brought several other medical advances to market. In 1955, Stryker introduced its 1300 Series of electric motor powered instruments for use in orthopedic surgery. Also that year, L. Lee Stryker, Homer’s son, took over the management of the company. In 1959, Stryker introduced the Circ-O-lectric Bed, which made long-term immobilization less uncomfortable for patients. Invented by Homer Stryker, this bed featured a mattress suspended between two large metal rings, which allowed the angle of the bed to be adjusted to a wide variety of different settings. Gradually, Stryker earned a reputation as a leader in its field.

Five years later, Stryker continued its innovation in the hospital bed field when it introduced a hydraulic stretcher, its Model 390. In 1966, Stryker updated its electric motor powered surgical instruments with its 1400 Series of pneumatic powered instruments. The following year, the company came out with a line of very small, micro-powered instruments, for use in more delicate surgery.

In the 1970s, Stryker continued to offer customized stretcher beds for use in hospitals and nursing homes. The company’s InstaCare/SurgiBed Series was introduced in 1974. Stryker also introduced its first pulsating lavage, a pump used to clean wounds during surgery. In 1975, Stryker embarked on its first drive to expand its markets beyond U.S. borders.

Stryker remained a family-owned and operated company until 1977. At that time, L. Lee Stryker, who had been president and chief executive of the company, died. He was replaced by John W. Brown, an executive with the Squibb Corporation, another medical equipment company. When Brown joined Stryker, the company was a middle-of-the-pack medical equipment maker, which sold products primarily to the American market. Brown agreed to become president of the company with the understanding that Stryker’s board of directors would authorize a stock offering to the public, so that the company could upgrade its product line to become more competitive and also step up its expansion beyond the United States.

One of the first initiatives Stryker undertook at Brown’s direction was the company’s entry into the arthroscope market. Brown was attending a medical conference when he saw a display of orthopedics instruments that allowed surgeons to make a small cut in the skin, and insert a narrow, optical tube into the knee to inspect soft tissue and determine whether surgery was necessary to repair an injury. Previously, surgeons had needed to make a six-inch diagnostic incision in order to inspect ligaments and muscles, which did not show up on X-rays. In addition to permitting diagnosis of knee injuries, arthroscopic tools could also be used during operations to repair problems.

At the time that Brown discovered arthroscopic devices, several other companies had already entered the field. Nevertheless, Stryker proceeded with its own product development. Stryker made it a policy to perfect or modify existing technology, rather than make risky pathfinding breakthroughs. Assured that there was a future in arthroscopy, the company created its own three-inch long, three ounce microcamera, which transmitted images from inside the body to a video screen in the operating room. This made surgery easier and also allowed operations to be videotaped, as a safeguard against malpractice suits. Sports medicine proved a fruitful ground for sales of arthroscopic equipment, and the technique gained free publicity with each big-name athlete who underwent the procedure. Soon, sales of arthroscopic equipment were growing at a rate of 25 percent per year, providing one-fifth of Stryker’s earnings.

In accordance with its agreement with Brown, Stryker announced its initial public offering of stock at the end of March 1979, when shares in Stryker were offered on the market for $6 each. In May 1980, Homer Stryker died at the age of 85, leaving the title of company chairperson to Brown. Stryker’s principal product became its motor-powered surgical instruments, and the company made the bulk of its profits by replacing instruments used in the United States and also looked for strong growth in demand for its devices overseas.

Later that year, the company used the proceeds of its stock sale to purchase the Osteonics Corporation, a start-up company which had created a unique design for artificial hip joint replacements. With replacement hips produced by Stryker’s competitor, surgeons had to speculate on which size would fit the patient before the surgery took place. Stryker’s product, however, allowed surgeons to switch different sizes of the hip socket once part of the implant had been put in place. This allowed for greater flexibility and a better fit with the existing bones. Stryker began to market its universal head replacement for artificial hips in 1980, and the company was able to seize a significant part of the market for artificial joints from its larger competitors.

During this time, Stryker sought to market products to fulfill narrow needs within the medical community. “We’re a ‘niching’ company,” Brown explained to the New York Times, noting that “We have special niches in our marketplace. As long as you’re offering a superior product, there’s going to be a place for you.” By 1983, Stryker’s continued growth had driven the value of its stock from $6 to $39.50. The following year, however, concerns about changes in health care regulations had caused that price to drop by half. Although Stryker’s arthroscopic and bone implant businesses were growing steadily, 40 percent of its income was derived from more conventional medical equipment, such as stretchers. In the uncertain climate, demand for these standard items had flattened.

Nevertheless, in the mid-1980s, Stryker began to expand its product line through a series of acquisitions. On the first day of 1985, the company purchased Favro B.V., which it renamed Temfa Stryker. Also in that year, Stryker began to fund a long-term effort to create human osteogenic protein, a substance that helped the body to create bone. In 1986, Stryker acquired the video camera properties of SynOptics, Inc., augmenting its operations in the arthroscopic optics field. By the end of the year, Stryker’s sales had reached $121 million, yielding earnings of $10 million.

In March 1987, Stryker purchased Adel Medical Limited, a privately-held company that manufactured hospital maternity beds. Paying $8.5 million for Adel, Stryker hoped to strengthen its standing in the specialty bed market. One month later, Stryker also acquired the Hexcel Medical Corporation. Hexcel, based in California, was developing carbon composites and polymers that could be absorbed by the body for use in orthopedics devices. This purchase was intended to complement Stryker’s Osteonics Corporation and provide a boost to its efforts in the reconstructive bone products market. Stryker believed that demand in this market was shifting from products made of metal alloys to devices made of polymers, which provided superior elasticity, and better compatibility with the body’s own tissues. Stryker’s osteonics group introduced its first total knee implants in 1987.

While Stryker augmented its osteonics operations, the company’s medical supplies branch experienced difficulties and started to slip in growth. This unit, which accounted for 20 percent of Stryker’s revenues, produced specialty beds and stretchers purchased by hospitals. One of its beds, an electric bed designed for use in intensive care units, was found to have some flaws in its design, and, from 1987 to 1988, Stryker redesigned the entire bed and replaced all existing units of the product.

In 1988, Stryker moved into a new field, when it began to distribute the dental implant line of Quintron, Inc., in conjunction with its own line of powered oral surgery instruments. Two years later, Stryker bought Driskell Bioengineering, the subsidiary of Quintron which made these products. With this move, the company strengthened its standings in the rapidly growing dental implant market. By the end of 1988, Stryker’s earnings had risen to $15.9 million on revenues of $178.6 million.

The following year, those figures rose again, as Stryker recorded sales of $225.9 million and earnings of $19.2 million. By this time, Stryker had seen 13 straight years of earnings growth that topped 20 percent, as the company stuck to its strategy of entering niche markets and developing superior products for those needs. “What we’re good at is ascertaining the needs of the markets and responding to them,” Brown told Investor’s Daily. In doing so, Stryker relied on a combination of internal development and small, carefully-chosen acquisitions. Among Stryker’s strongest lines of business were its osteonics products, where it held eight percent of the $900 million market.

Stryker continued its strong growth in 1990. The company’s endoscopy division, which had previously concentrated on devices for use in joint surgery, began to market its products for use in abdominal surgery as well, primarily for gall bladder removals, representing a dramatic increase in the potential market for these tools.

At the end of 1990, Stryker received notification from the U.S. Food and Drug Administration (FDA) that it would be permitted to sell a new hip stem implant, which was coated with a special substance that aided bone fusion. This product had been in use in Europe for four years and had been undergoing tests in the United States for two years. During this time, Stryker’s financial results were strengthened by the settlement of a patent infringement suit, in which Zimmer Inc. paid Stryker $10 million. Among Stryker’s more innovative offerings during this time were physical therapy facilities, called “work hardening centers,” which the company began to open in the southeastern United States.

Stryker funded further product innovations with $20.7 in research spending in 1990 alone. “We grow by cranking out product innovations,” Brown told The Detroit News, observing that the company experienced “not revolutionary changes, but evolutionary ones, like you see in the auto industry. The idea is to improve performance. We’re not always the first on the market with a product, but we’re seldom last. What we try to do is get a good feel for whether something is a good idea or not. A lot of new designs fail. We like to stay one fad behind.”

That policy, combined with a long-term research effort, paid off for Stryker in November 1991, when the company received FDA approval to begin clinical trials in humans of its new bone-growth implant. This device, a joint project of Stryker Biotech and Creative BioMolecules, Inc., a Massachusetts biopharmaceutical research company, combined OP-1, a human recombinant osteogenic protein, with a carrier that could be absorbed by the body. If successful, this device, a natural extension of the company’s hip and knee replacement business, promised to product high sales for a long time to come.

By the end of 1991, Stryker was enjoying a strong boom in growth, as the market for endoscopic tools took off. Sales of Stryker’s endoscopy division grew by more than 60 percent to $70 million. Stryker had become the second largest American maker of arthroscopic tools, as well as the second largest maker of powered surgical instruments, the second largest manufacturer of hospital emergency room beds, and the fourth largest producer of orthopedic implants. In addition, the company had made substantial progress in its effort to become an international supplier, as 31 percent of its sales came from areas outside the United States. Stryker ended 1991 with sales of $364.8 million, which yielded earnings of $33.1 million.

Stryker continued to expand its product line in 1992, when the company’s French subsidiary purchased the spinal implant business of Dimso, S.A., and its subsidiaries in France and Spain, known collectively as the Dimso Group. Stryker paid $13 million for these properties. This company became a part of Stryker’s European subsidiary.

Another Stryker alliance with a European company went awry a year later, when Haemocell, a British maker of a blood-cleansing machine, terminated Stryker’s exclusive American license to distribute the product, after sales targets failed to be met. Despite this setback, Stryker ended 1993 with sales of $557 million, and earnings of $60 million. For the seventeenth year in a row, Stryker’s management had met its target of 20 percent annual growth in earnings.

Among the initiatives Stryker took in order to meet this target was the culmination of a two-year program to produce a general hospital bed, which the company named the MPS Primary Acute Care Bed. Along with the company’s initiative in spinal implants, this marked the second new area of business Stryker entered in 1993, in an effort to assure future growth, despite general anxiety about high health care costs. In addition, Stryker restructured its manufacturing process for artificial hips and knees, in order to increase output and lower costs by eliminating several layers of management. To produce future savings, Stryker also invested in high-tech manufacturing equipment for its other divisions.

In June 1994, Stryker announced that it had purchased 31 percent of its Japanese distribution partner, Matsumoto Medical Instruments. This followed the company’s August 1993 purchase of 20 percent of Matsumoto, bringing Stryker’s share to 51 percent. The company paid $90 million for controlling ownership in the company, which was based in Osaka. By the middle of the year, Stryker was predicting 1994 sales of $640 million. With its remarkable record of growth and a strong portfolio of products, Stryker appeared well-situated to continue its strong success in the coming years.

Principal Subsidiaries

Osteonics Corporation; Physiotherapy Associates, Inc.; Stryker Deutschland GmbH (Germany); Stryker France; Stryker Japan K.K.; Stryker Far East, Inc.; Stryker Canada, Inc.; Stryker Sales Corporation.

Further Reading

“Bigger Niche at Stryker,” New York Times, December 16, 1980.

Jones, John A., “Stryker Keeps Moving With Strong Research Commitment,” Investor’s Business Daily, January 20, 1992.

Kramer, Farrell, “Stryker Becomes Synonym for Consistency,” Investor’s Daily, July 6, 1990.

Rogers, Doug, “Stryker Skillfully Handles a Steady Run of New Products,” Investor’s Daily, March 21, 1991.

Seebacher, Noreen, “Stryker Products: Just What the Doctor Ordered,” Detroit News, May 6, 1991.

Stavro, Barry, “The Hipbone’s Connected to the Bottom Line,” Forbes, December 3, 1984.

Stroud, Michael, “Stryker: Another Play on Endoscopy Boom,” Investor’s Business Daily, October 25, 1991.

—Elizabeth Rourke

Stryker Corporation

2725 Fairfield Road
Kalamazoo, Michigan 49002
U.S.A.
Telephone: (269) 385-2600
Fax: (269) 385-1062
Web site: http://www.strykercorp.com

Public Company
Incorporated: 1946
Employees: 15,891
Sales: $4.9 billion (2005)
Stock Exchanges: New York
Ticker Symbol: SYK
NAIC: 339112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing; 334517 Irradiation Apparatus Manufacturing

Stryker Corporation, founded by an orthopedic surgeon, makes the vast majority of its annual sales in the worldwide orthopedic implant and equipment market. Other business segments include the global endoscopic market, domestic outpatient rehabilitation services market, and the North American medical bed and stretcher market. Descendants of the founder own about one-quarter of the company.

1940–77: INNOVATIONS IN PATIENT CARE

Stryker Corporation was founded by Dr. Homer Stryker, an innovative orthopedic surgeon from Michigan. Stryker, born in 1894, started his medical career as a general practitioner in his hometown of Kalamazoo. After spending eight years in general practice, however, he decided to enter the field of orthopedics. He spent three years in an orthopedic residency at the University of Michigan Medical School at Ann Arbor before returning to Kalamazoo in 1940 to practice his specialty. He was 45 years old.

As an orthopedist, Stryker discovered that some of the medical products used in his field were less effective than they could be, in terms of both caregiver efficiency and meeting patient needs. While this was, no doubt, a common complaint of many physicians, Stryker's response was somewhat atypical. He began designing new devices to replace those that he found inefficient. His first such device was the Wedge Turning Frame, a mobile hospital bed with a frame that pivoted from side to side. This turning frame, which came to be known in the industry as the "Stryker Frame," allowed doctors to position injured patients as needed while still keeping them immobile. When his invention proved to be successful, Stryker formed the Orthopedic Frame Company, the predecessor to Stryker Corporation, to manufacture and sell the beds.

Stryker continued to pursue his medical career while at the same time overseeing his small company. As before, he found various aspects of patient care that needed improvement, and, as before, he designed and built solutions. One of his next inventions was the Cast Cutter, a motorized saw that cut through patients' casts without cutting the skin underneath. As his company grew and began to manufacture a more diverse line of medical devices, Stryker insisted that each product either improve the efficiency of the caregiver or reduce the cost of providing treatment. In 1964, the name of the company was changed to Stryker Corporation.

Stryker's son, Lee, who became general manager in 1955 and then president of the company in 1969, ran it in much the same fashion as had his father. Stryker worked to improve and market the company's line of hospital beds and stretchers, which made up almost 70 percent of total sales. He also focused on the development of a series of innovative medical devices, including the first medical pulsed irrigation system and the first flume evacuator for bone cement. As Stryker grew the company's product line and sales presence, he maintained a very centralized form of management, keeping a close hold on all decision making.

In the mid-1970s, one of his top-down decisions had very negative results. After tinkering with his salespeople's compensation arrangement, switching them from commission to salary, Stryker found himself with virtually no sales force at all. While it was still in the middle of this sales force crisis, the company was dealt an even worse blow. Lee Stryker was killed in a plane crash in July 1976.

It was into this turbulent atmosphere that Stryker's new president and CEO, John W. Brown, entered in 1977. Brown, a 43-year-old native of Tennessee, had previously been in charge of a subsidiary of Bristol-Meyers Squibb that manufactured surgical instruments. When he was first offered the Stryker position in 1976, he declined. He was happy at Squibb, satisfied with his progress and thoroughly entrenched in the corporate culture. The Stryker board was persistent, however, offering Brown a second chance at the CEO position in 1977. That time he accepted, although apprehensively.

1977–83: JOHN BROWN'S COMPANY

Brown had definite ideas about what Stryker needed, and he moved quickly to realize them. One of his first moves was to rebuild the decimated sales force, changing the compensation structure back to commission. He also set up a formal budget, worked to trim operating costs, and established a procedure for managerial goalsetting. After instituting more formal management controls, Brown turned his focus to Stryker's product line. In addition to expanding the line of surgical power tools, Brown added a new category to the company's product line with the 1979 acquisition of Osteonics Corp. The three-year-old Osteonics was a maker of hip implants for joint replacement surgeries.

Also in 1979, the Stryker family decided to sell some of their stock in the company, and Stryker was taken public. It was at this time that Brown announced an ambitious goal for the company: a 20 percent annual growth rate from then on. He chose this goal because he had been told that emerging growth companies had growth rates of no less than 20 percent. Brown did not soft-pedal his expectations, referring to his 20 percent growth goal as "the law" and demanding that each and every employee do his or her part to achieve it.

Overall, Brown's early years at Stryker were not smooth ones. His style of management and straightforward attitude clashed with many of the existing executives, and his changes were not always met with enthusiastic acceptance. Rocky transition notwithstanding, Brown delivered on his promises; Stryker consistently showed no less than 20 percent annual growth. In 1981, it was named to the Forbes list of the Best 200 Small Companies in America, where it would remain for ten consecutive years.

COMPANY PERSPECTIVES

At Stryker, we believe results speak louder than words. Since the Company's founding in 1941, that philosophy has made us a leader in the worldwide orthopedic market and placed us at the forefront of medicine's most promising solutions. Today we are one of the preeminent medical products and services companies in the world.

1983–85: SWEEPING CHANGES

While Stryker was struggling through its own personal transitions, the healthcare industry itself was undergoing even greater upheavals. Since the passage of the Medicaid and Medicare bills in the mid-1960s, healthcare costs had skyrocketed. Between 1970 and 1980, U.S. annual medical care expenditures had more than tripled, triggering a social and governmental backlash. Concerned with excessive spending under the Medicaid and Medicare plans, the federal government began looking for ways to control those costs. In 1983, the Reagan administration instituted a new payment system for hospital patients on Medicare, which was designed to reduce unnecessary treatments and hospitalizations. Under this system, the Prospective Payment System, hospitals were reimbursed for the cost of care determined by diagnosis rather than by length of hospitalization or actual services performed.

The Prospective Payment System took its toll on hospitals and on patients. Many treatments and procedures that had formerly required hospital admission became outpatient procedures. Hospital admissions dropped, patient stays became much shorter, and healthcare providers had to look for ways to contain their own costs. Unfortunately for Stryker, fewer hospital admissions meant the need for fewer hospital beds, the company's main source of revenue. To offset this slowdown, Brown led Stryker into new product areas that would be less affected by healthcare cost controls.

One such area was biotechnology. In 1985, Stryker entered into a long-term collaborative research program with Creative BioMolecules, Inc. The purpose of the collaboration was to develop an implant that utilized an osteogenic protein. The protein, OP-1, occurred naturally in humans and helped to promote natural bone growth and healing. Using DNA engineering, Stryker and Creative were able to produce this protein and began testing its use in animals. Early trials indicated that OP-1 stimulated the formation of new bone when it was implanted in bony areas that were not healing properly.

A year later, Stryker again added to its product portfolio with the acquisition of Syn-Optics, Inc. Syn-Optics specialized in endoscopic systems: medical video cameras, light sources, powered instruments, and disposable materials used in minimally invasive surgical procedures. Unlike the hospital bed market, the demand for endoscopic equipment was growing rapidly. Endoscopic procedures, which were usually done on an outpatient basis, were increasingly replacing traditional, more invasive procedures for a wide range of diagnostic and surgical applications. Stryker's newly acquired endoscopy business soon became one of its fastest growing divisions.

As the company's product line grew more diverse, Brown made a radical departure from Stryker's traditional management style. He completely decentralized the company, breaking it into several fully autonomous operating divisions. Each division head became responsible for setting the division's goals, establishing its manufacturing operations, and managing its sales and marketing efforts. Brown believed that in a business operating in diverse markets, decentralization was a natural choice. "Decentralization allows each division to run like its own business, and make quicker decisions about product and strategy," he said in a November 1994 interview with Sales & Marketing Management. "We want each autonomous division to enjoy all the thrills of success and all the anxieties of failure. There's nothing like running your own business," he observed.

KEY DATES

1941:

Homer Stryker starts medical products business.

1946:

Orthopedic Frame Company is incorporated.

1964:

Name is changed to Stryker Corporation.

1969:

Lee Stryker, son of Homer, becomes company president.

1977:

John W. Brown heads company, a year after Lee Stryker is killed in plane crash.

1979:

Company completes initial public offering, enters into orthopedic implant market.

1983:

New Medica payment system undercuts sales to hospitals.

1985:

Company embarks on collaborative research into osteogenic protein (OP-1).

1986:

Company enters arthroscopy and endoscopy fields via acquisition.

1992:

Stryker buys French spinal implant system maker.

1993:

Stryker gains part ownership of a Japanese medical device business.

1996:

Company enters trauma market with acquisition of Swiss company.

1998:

Company nearly doubles in size through acquisition of Howmedica.

2001:

OP-1 is launched commercially.

2002:

Sales reach $3 billion; company is listed on Fortune 500.

2004:

Stryker enters artificial disc market.

2005:

Stephen P. MacMillan succeeds Brown as CEO.

1986–97: NEW PRODUCTS, NEW DIVISIONS

One byproduct of Stryker's decentralization was a closer relationship between sales staff and customers. Whereas previously sales reps had been responsible for selling the whole gamut of Stryker's products, the decentralization allowed them to narrow their focus. They became better acquainted with a smaller product portfolio and thus better able to understand and respond to their customers' needs. From these closer customer relationships, salespeople began to garner ideas for new products and for ways to improve existing ones. Stryker responded to this influx of product ideas by sinking more money into research and development. Between 1986 and 1991, the company almost quadrupled its research and development (R&D) budget, and doubled its product line.

The 1990s ushered in a flurry of acquisitions for Stryker. In 1992, the company acquired Dimso S.A., a French maker of spinal implant systems used for patients with degenerative spinal diseases and spinal injuries. Another acquisition followed in 1993, when Stryker bought an interest in Matsumoto Medical Instruments, Inc. Matsumoto was one of the largest distributors of medical devices in Japan. In 1994, the company purchased a product line called Steri-Shield from a private company. Steri-Shield was a personal protection system that helped protect operating room personnel from infectious diseases. Stryker entered the market for orthopedic trauma treatment systems in 1996 with the acquisition of Osteo AG. The Switzerland-based Osteo was a maker of equipment used to set bone fractures.

At the same time Stryker was expanding via acquisition, its existing businesses were meeting Brown's goal of growing by 20 percent each year. The company's revenues steadily ratcheted up, increasing from sales of $280.6 million in 1990 to $980.1 million in 1997. Net earnings followed suit, from $33.5 million in 1990 to $125.3 million in 1997. Its consistent success won high favor from Wall Street pundits, industry analysts, and even a U.S. president. In 1992, President George H. W. Bush paid a visit to Kalamazoo to recognize Stryker for its achievements. "Stryker is celebrated across the nation and around the world for the quality of your work and the excellence of the management, the way it's handled," Bush said in an address to Stryker employees. "You're leaders in an innovative industry that makes our country proud."

BECOMING A BIG PLAYER

Near the end of 1998, Stryker acquired Howmedica, the orthopedic division of Pfizer, Inc., for $1.65 billion. Howmedica developed and manufactured specialty medical products used to treat musculoskeletal disorders. Its main products included hip and knee implants, bone cement, and trauma systems for bone repair. Through its subsidiary, Leibinger, Howmedica also manufactured products and instruments used in craniofacial surgery. Howmedica was integrated with Stryker's Osteonics division, which was renamed Howmedica Osteonics.

The purchase of Howmedica was highly significant in that it transformed Stryker from a small player into a very large one. Brown's decision to make this jump had much to do with the changing face of the healthcare marketplace. For the prior several years, a trend toward consolidation had been sweeping the industry. Increasingly, independent hospitals and surgery centers were being absorbed into large healthcare conglomerates. As a result, purchasing power was often centralized, and physician preference became less significant than economies of scale. Stryker, who had built its sales approach on personal relationships with individual decision-makers, realized that it could not compete effectively as a small company any longer. "Larger institutions and buying groups are demanding ever-higher quality at ever-lower cost, and they prefer to deal with clearly identified market leaders," Brown wrote in his 1998 letter to shareholders, adding, "In this environment, only companies that offer scale and superior efficiency will succeed."

As Stryker wound down its sixth decade in business, it remained true to its growth goal. Although the purchase of Howmedica broke its 21-year streak of 20 percent net earnings increases, the company expected to return to its historical growth rate as early as the year 2000. Its long-term growth strategy centered around the global marketing of diversified product lines with an orthopedic core. With well-developed markets in the United States and Asia, Stryker planned to improve its position in Europe, Australia, and the rest of the world. It also planned to continue aggressively developing and marketing new, innovative products within its key markets, as well as improving and expanding its existing lines.

Late in the 1990s, Stryker Corporation was developing and manufacturing specialty surgical and medical products for healthcare markets around the world. The company's product lines included various powered surgical instruments, orthopedic implants, trauma systems for use in bone repair, endoscopic systems, and patient care and handling equipment such as stretchers and hospital beds. Stryker also provided outpatient rehabilitative physical therapy through its Physiotherapy Associates Inc. subsidiary, and was engaged in clinical testing of a patented bone growth protein through its Stryker Biotech subsidiary. The company was broken into ten discrete operating divisions: Howmedica Osteonics; Stryker Endoscopy; Stryker Instruments; Stryker Medical; Physiotherapy Associates; Stryker Pacific; Stryker Europe; Matsumoto Medical Instruments; Stryker Americas; and Stryker Biotech. Each division operated as its own entity and produced its own line of health-related products or services. In 1999, annual sales reached $2.1 billion, and by January 2000 Stryker's earnings had rebounded from the Howmedica purchase.

GOING FOR FLUID MOVEMENT: 2001–05

Brown's formula for success continued to produce results. Michael A. Verespej wrote for Chief Executive (U.S.) in June 2002: "Last year Stryker's net income increased 21 percent, matching the compounded annual growth rate of the past decade and pushing its 25-year compound growth rate to near 24 percent. In this year's first quarter, net earnings were 27 percent higher than the first quarter of 2001. 'They are hitting on all cylinders right now,' asserts Katherine Martinelli, medical technology analyst in the New York office of Merrill Lynch. 'Their earnings are well above the industry average of 13 to 14 percent.'"

External factors favored Stryker in the early years of the new century. With many high growth technology companies down and out, investors began flocking to the medical equipment sector. Stryker and its competitors stood to be the beneficiaries of ailments inherent to an aging U.S. population; moreover, they engaged in product sales relatively independent to swings of the economy.

While demand for knee and hip replacements was expected to continue to grow, pricing faced a drop-off. The cost of implants had risen an estimated 90 percent since the early 1990s, according to Business Week Online. In terms of product development, the industry was keyed in on improving existing products.

The device manufacturers continued to be attentive to crucial relationships with surgeons inserting their products. Patients, meanwhile, benefited from technology changes, undergoing less invasive procedures using longer lasting and more maneuverable artificial joints.

Stryker and competitor Zimmer Holdings Inc. engaged in advertising directed at the public in the fall of 2003. Golf legend Arnold Palmer touted Stryker's ceramic and titanium implant in a television ad run during 60 Minutes. Departing from industry norm, ads for the complex medical device drew critics. According to the New York Times, patient advocates voiced concerns over the lack of information about risks inherent to such implant surgery. The Food and Drug Administration required pharmaceutical companies to follow strict guidelines for their ads, but the agency regulated ads for artificial hearts and pacemakers, only, with other devices falling under the Federal Trade Commission rules.

Historically, device makers marketed their products to surgeons, often making first contact during their medical training. Many of the leaders in the field helped companies improve their products and also trained students in implant procedures.

John Brown relinquished his management position at the end of 2004. During his 27 years at the helm, Stryker produced average annual earnings growth of 22 percent. The anticipated change put pressure on the stock during the later half of 2004. Additionally, investors were cashing in on the recent upswing in stock price. Costs related to the purchase of a spinal device company and delays in a new product also took a toll, according to Business Week.

Former pharmaceuticals executive Stephen P. Mac-Millan succeeded Chairman Brown as CEO. MacMillan joined Stryker in June 2003, coming from Pharmacia Corp. Prior to that he marketed consumer products, including Tylenol, for Johnson & Johnson. He envisioned a new source of growth through biotech products, such as OP-1, which was commercially launched in 2001. Selective additional acquisitions and increased in-house product development rounded out his game plan for Stryker.

However, the competition had plans in motion. Johnson & Johnson's DePuy and Zimmer had introduced products comparable to Stryker's longer lasting, higher priced ceramic and titanium joints. OP-1, although used in Europe and Asia, had FDA approval for only very limited use as U.S. clinical trials continued.

Although Stryker held a 24 percent share in the artificial hip and 19 percent in the artificial knees markets, artificial spine disk products brought on board through the 2004 SpineCore, Inc. acquisition were still in clinical trials. Powerhouse medical device maker Medtronic Inc. held nearly half of the spinal products market.

Orthopedics remained Stryker's biggest moneymaker midway through the first decade of the twenty-first century. Stryker and DePuy led the market followed by Zimmer. While Stryker continued along a track of solid growth other factors came into play. "Actually, 20 percent earnings per share growth is our second most important metric," MacMillan told the New York Times in March 2005. "The most important thing we need to do is to make sure we continue to run the company in an ethical manner where we don't bend the rules to meet our goals."

The Justice Department had begun looking into the practices of large orthopedics manufacturers in 2005 in respect to their relationships with hip and knee surgeons, as well as medical students. DePuy, Biomet Inc., and Stryker were among the companies under scrutiny. As for the highlights of the year, Stryker's net sales and net earnings continued their upward trajectory.

                              Shawna Brynildssen

                         Updated, Kathleen Peippo

PRINCIPAL SUBSIDIARIES

Howmedica Osteonics.

PRINCIPAL COMPETITORS

DePuy, Inc.; Smith & Nephew plc; Zimmer Holdings, Inc.

FURTHER READING

"Bigger Niche at Stryker," New York Times, December 16, 1980.

Brewer, Geoffrey, "20 Percent—or Else," Sales & Marketing Management, November 1994, p. 66.

Feder, Barnaby J., "A Parts Supplier to an Aging Population," New York Times, March 26, 2005, p. 1C.

―――――――, "Subpoenas Seek Data on Orthopedics Makers' Ties to Surgeons," New York Times, March 31, 2005, p. C12.

Gowrie, David, "Giving Back the Ability to Walk," Hackensack (New Jersey) Record, October 28, 1998.

Jones, John A., "Stryker Keeps Moving with Strong Research Commitment," Investor's Business Daily, January 20, 1992.

Kerwin, Kathleen, and Michael Arndt, "Knees and Hips—And Now What?" Business Week, December 6, 2004, p. 64.

Kramer, Farrell, "Stryker Becomes a Synonym for Consistency," Investor's Business Daily, July 6, 1990.

"Medical Technologies Company Reports Q4 2005 Net Sales Up 10.6% Over 2004," World Disease Weekly, February 9, 2006.

Peterson, Melody, "Campaign for Medical Device Bypasses Doctors," New York Times, October 30, 2003, p. C1.

Rogers, Doug, "Stryker Skillfully Handles a Steady Run of New Products," Investor's Business Daily, March 21, 1991.

Sawaya, Zina, "Focus Through Decentralization," Forbes, November 11, 1999, p. 242.

Seebacher, Noreen, "Stryker Products: Just What the Doctor Ordered," Detroit News, May 6, 1991.

Stavro, Barry, "The Hipbone's Connected to the Bottom Line," Forbes, December 3, 1984.

Stroud, Michael, "Stryker: Another Play on Endoscopy Boom," Investor's Business Daily, October 25, 1991.

Tsao, Amy, "Online Extra: Biomet and Stryker: Stocks with Legs," Business Week Online, April 21, 2003.

Verespej, Michael J., "Recession? What Recession? Southern Gentleman John Brown Achieves 20 Percent Earnings Growth Annually—No Matter What," Chief Executive (U.S.), June 2002, pp. 45+.