Stryker 2009 Annual Review

As we have grown in revenue, competitiveness and scale, we’ve become a leader in a vital industry, facing ever-higher expectations for our products and the performance of our operations. We have mobilized to prepare for a new level of performance in an increasingly complex world, and our evolution continues. In 2009 and going into 2010, what matters most to us—and to our customers—is quality, innovation and costs. These three areas are how we are delivering for today and investing for the future.

Quality

Quality is not just an objective, it is a discipline. And it cannot simply be the domain of manufacturing in an organization like ours. It includes everything about our products, from design and material sourcing, to the clinical experiences of healthcare providers and the patients they serve. For the last couple of years, we have been executing on an aggressive plan to standardize and dramatically improve our quality systems throughout all our manufacturing divisions. While we have made meaningful progress to date, there is still significant work to do before we reach the higher goals we have established for ourselves.

In September, we took the additional step of creating the position of group president, global quality and operations, naming a seasoned Stryker executive, Lonny Carpenter, to the position. In this role, which reports directly to me, Lonny is responsible for establishing and executing company-wide quality, manufacturing, procurement and logistics strategies. His two primary objectives will be to quickly advance our quality systems to the top of our industry, and to drive down our overall operating costs and inventory levels.

Innovation

In our quest to improve the lives of patients and caregivers, we continue to develop innovative products and solutions. We are fortunate to have a trusted, intimate role in the professional lives and abilities of caregivers—the healthcare professionals and hospital administrators we serve every day. This close relationship has inspired many of our products and put life-changing technologies in the hands of clinicians and hospitals. Our ability to “speak the same language” as surgeons, nurses and hospital administrators has led us to innovations that help healthcare professionals deal with cost pressures and compete in their market through improved efficiency and value-added services. As we evolve, we are becoming smarter and more disciplined in the way we connect our clinical knowledge and caregiver relationships with our R&D efforts and our marketing and sales activities.

Costs

We are removing the barriers to organizational efficiency. Our company was built with a spirit of independence and entrepreneurship, in which individual businesses developed their own practices, support systems and functions. In our evolution, we are retaining that entrepreneurial spirit, but asking business leaders to focus on their customers and markets, where they have the greatest insight and can drive the greatest value. In support of this approach, we are deploying resources and systems across the company to standardize and serve the needs of these businesses. Higher-level expertise can bring greater consistency and efficiency to areas such as compliance, quality assurance, information technology and human resources. Standardization and shared services in these areas not only offer bottom-line benefits today; they position us to be much stronger operationally and financially when the economic environment improves.

Delivering for today and investing in the future also calls on us to take a fresh look at how we measure our progress and hold ourselves accountable. For years, we strived— and succeeded—at delivering annual 20% earnings per share (EPS) growth. But as we’ve grown, diversified and matured, and as our customers continue to experience ongoing cost pressures, that single financial metric has become less sustainable. So we’ve adopted a new lens for viewing our overall performance and are developing measurements to benchmark ourselves more effectively and relevantly against our industry peers. Importantly, a key tenet of our long-term performance—high growth—remains firmly in our DNA.