How Stryker’s Margins Are Driven by Its CTG Program

Stryker is focused on driving the company’s growth through four key strategies: business unit specialization, acquisitions, international growth, and cost transformation for growth. For more on these strategies, read How Are Stryker’s Core Strategies Working Toward Its Growth?

Cost transformation for growth (or CTG) is a program that focuses on driving leveraged growth by structural cost optimization. To know more about CTG, read Exploring the Nuances of Stryker’s Cost Transformation for Growth. Some of Stryker’s peers, including Abbott Laboratories (ABT), Thermo Fisher Scientfic (TMO), and Zimmer Biomet Holdings (ZBH), have also executed programs aimed at reducing costs and improving margins in recent years. The iShares Core S&P 500 (IVV) holds approximately 0.21% of its total holdings in SYK.

In 2017, Stryker aims to focus on product life cycle management. According to Stryker, it has thousands of stock-keeping units, and 20.0% of them are driving 80.0% of its revenues. The company aims to optimize its product and geography sales mix. The transition involves discontinuing certain products in certain geographies and introducing new products. Stryker has started implementation of the program, which will continue for the next three years.

Stryker is also executing its global ERP (enterprise resource planning) platform, which focuses on shared services. The company aims to transition from 42 ERPs currently used by the company to one global SAP platform. The initiative will help reduce inefficiencies in the company’s various operational structures that have built up due to a large number of acquisitions over the last ten years. The program is expected to drive the SG&A (selling, general and administrative) expense leverage across the company. Near-term operating leverage is expected to be around 30 to 50 basis points annually.