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IW 50: The Art of Making the da Vinci

Nov. 10, 2010
Intuitive Surgical approaches manufacturing with an innovation-first mindset.

It's fitting that Intuitive Surgical Inc. is headquartered in Sunnyvale, Calif., in the heart of Silicon Valley. The maker of the da Vinci robot-assisted surgical system is approaching $1.5 billion in annual revenue with a total workforce of fewer than 1,600 people. Approximately 320 of them are involved in the company's manufacturing operations, according to Augusto "Gus" Castello, Intuitive's senior vice president for product operations.

That's "a remarkably low headcount" for a product manufacturer, asserts Castello -- especially one whose flagship product requires 10,000 discrete components and more than 1 million lines of software code.

"Most manufacturing companies that are considered to be very profitable, or at least using their resources in an effective way, probably generate about $300,000 to $350,000 of revenue per employee," Castello says. "And here we're at almost $1 million of revenue per head. It's the sort of ratio that software companies have."

It's the sort of ratio achieved by a company with a high level of self-awareness. Intuitive Surgical knows what its core competence is -- developing robotic technologies for minimally invasive surgical procedures -- which is why "on the manufacturing side of the business, we are very focused on innovation, and supporting innovation," Castello explains.

"Our goal in manufacturing is to enable [the company] to introduce very innovative products for minimally invasive robotic procedures in record time," Castello says. "That's the only way that we believe that we're going to stay ahead of the competition."

Intuitive Surgical's da Vinci robot-assisted surgical system replicates the movements of the surgeon's hands, making it easier for surgeons to perform complex procedures. To Castello's point, Intuitive launched the second-generation da Vinci system -- the da Vinci S -- in about three years. It took the company about the same amount of time to launch the third-generation da Vinci Si in April 2009, even though "the feature content was much, much richer," Castello says.

"We don't want to be leapfrogged," Castello says. "We want it to always be ahead of what the competition might throw at us, from both a product-feature standpoint as well from a cost-benefit standpoint to the hospital."

With time to market so critical to the company's business model, Castello explains that manufacturing "will bend over backwards" to introduce a product on schedule, even if "the price or the cost contentthe material-content cost and labor-content costand perhaps even some of the service aspects of it, might not be ideal."

"What's important is to introduce it and to get feedback from the doctor," he says. "So first and foremost the product has to be efficacious. It has to be reliable. And then we'll work through the bugs in manufacturing."

Castello makes no bones about the fact that Intuitive is a "product-driven, engineering-driven company," and the company farms out a good portion of its production to several contract manufacturers in the Bay Area. However, Intuitive performs certain key operations -- such as manufacturing of the robotic arms for the da Vinci system and final product integration and testing -- at its plant in Sunnyvale, and makes its EndoWrist surgical instruments at its high-volume, low-mix plant in Mexicali, Mexico.

Gus Castello: "Our goal in manufacturing is to enable [the company] to introduce very innovative products for minimally invasive robotic procedures in record time." During the development of the da Vinci Si, Intuitive conducted more than 700 simulated surgical procedures at its Sunnyvale facility (although Castello emphasizes that the procedures involved props -- not animals or humans). The simulations helped the company assess whether the new system met its quality standards.

"We had a lot of folks working seven days a week and weekends and evenings here just to be able to compress that [timeline] and to make sure that we have the right information available to us so we can make the decision as to whether or not this new system was ready for primetime," Castello explains.

Since hitting primetime, adoption of the da Vinci Si has been brisk. In fourth-quarter 2009, da Vinci Si sales represented 79% of Intuitive's system revenues. Sales of the da Vinci Si helped push the company's full-year revenue to $1.05 billion in 2009, up from $874.9 million in 2008.

In third-quarter 2010, Intuitive's overall revenue increased 26% year-over-year to $344 million, while net income increased 43% to $87 million. Through the first three quarters of 2010, Intuitive already had reached $1.02 billion in sales.

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