899 Cleveland Street
Invacare Corporation, one the leading manufacturers of home medical equipment in the world, focuses on supplying medical equipment and mobility products to people with disabilities and those who require home health care. Its product line ranges from commodes and electric beds to crutches and home respiratory systems. Invacare's innovative products have fueled its success. It was the first firm to produce a motorized wheelchair with computerized controls.
Incorporated in 1971 as a subsidiary of Technicare, a Cleveland-based medical equipment firm, Invacare mainly manufactured wheel chairs. But Invacare's slow sales, muddled management, and lack of new product development resulted in the company becoming a financial drain on Technicare. When Johnson & Johnson purchased Technicare in 1978, it decided to sell Invacare. The initial group of investors that arranged to purchase Invacare was frustrated in their attempt due to a squabble over the amount of control requested by the new chief executive officer. Then Malachi Mixon appeared on the scene.
Mixon, a 39-year-old head of marketing CT scanners for Technicare, former Marine Corps artillery officer who served in Vietnam, and Harvard Business School graduate, immediately decided to buy Invacare when he heard it was for sale. But with only $10,000 of his own money to invest, financing the acquisition of a company that cost $7.8 million seemed almost impossible. Undeterred, Mixon arranged for two real estate brokers to purchase Invacare's facility on Taylor Street, and then lease it back to the company. Then, Mixon arranged for a $4.3 million loan from First Chicago Bank. The remainder of the needed money came from his own resources, loans from friends, and issuing shares of stock to various local investors. While structuring the financing of Invacare, Mixon included a 15 percent interest in the company for himself.
When Mixon and his group officially assumed control of Invacare on January 2, 1980, the company had a low standing within the health care products industry. Sales were stagnant at approximately $20 million, far lower than the $124 million sales figure of its chief competitor, Everest & Jennings. Furthermore, Mixon's leveraged buyout resulted in a $6.5 million debt, and the high interest rate of nearly 25 percent was devouring Invacare's modest $1.2 million profits.
During the first year as chief executive officer at Invacare, Mixon devoted a significant amount of time to studying the company's product line. After eliminating the manufacture of those items that were either obsolete or unprofitable, he pushed Invacare's engineering department to develop highly innovative products. Mixon believed that Everest & Jennings, which had over an 80 percent share of the world's wheelchair market, was not only growing complacent with its position within the industry but was losing touch with its customers.
In 1982, Mixon's emphasis on new product development paid off when Invacare was the first in the industry to introduce a motorized wheelchair with computerized controls. Invacare's computer controls could be easily adapted to suit the individual needs and requirements of the severely disabled. The wheelchair quickly became an industry standard, and Invacare suddenly found itself in an intense competition with Everest & Jennings for the larger share of the wheelchair market.
Everest & Jennings responded to Invacare by reducing its prices, but cost-effective production methods enabled Invacare to match its competitor's prices. At the same time, Mixon had worked hard to improve Invacare's distribution network: inexpensive financing, volume discounts, 48-hour delivery, funds for cooperative advertising, and prepaid freight convinced more than 6,000 home health care dealers in the United States that Invacare was the better of the two companies. In a short time, Invacare had equaled and then surpassed Everest & Jennings' share of the wheelchair market. Invacare's ever-expanding product line, which now included items such as cardiovascular exercise equipment and oxygen concentrators, and its policy of stocking parts for the products of its competitors, soon placed the company in a league of its own.
In the beginning of 1984, it appeared that Invacare's rapid growth and enviable financial success would continue unabated. During that year, Mixon decided to enter the European market for home health care products, and acquired a British firm that manufactured wheelchair and patient aids and a West German producer of wheelchairs. Mixon also determined that it was an appropriate time to take the company public in order to underwrite the expenditures for Invacare's quick growth, offer employee stock options that would attract highly qualified managers, and provide Invacare's original group of investors with some liquidity for their initial stake in the company.
Later in 1984, however, Invacare was hurt by a series of unexpected events. When the company discovered it had less inventory than was reported in its books, it was forced to take a charge against earnings which resulted in a financial loss for the fiscal year of 1984. In addition, because of manufacturing defects in the company's oxygen concentrator, Invacare was forced to recall the product and suffered a loss of approximately $1.5 million in sales. To compound company problems, in 1985 the U.S. government changed its formulas for Medicare reimbursement. The new requirement led wheelchair dealers to sell more chairs than they leased, which resulted in a disincentive for dealers to purchase better built, but more expensive, reusable wheelchairs. Invacare's sales dropped precipitously, and its profitability was threatened. Not surprisingly, the company's initial stock, offered at $11 per share just one year earlier, plummeted to less than $4 by mid 1985.
Mixon was convinced that a significant part of Invacare's problems could be attributed to a lack of manufacturing efficiency and quality control problems. He was determined never to allow another Invacare product to suffer the embarrassment of a recall by the federal government. Mixon hired J. B. Richey, a former associate at Technicare and general manager of that company's magnetic resonance division, to rectify the manufacturing problems at Invacare. First, Richey concentrated on finding Invacare's quality control problems. The company's sales force was required to submit monthly reports detailing customer complaints about its products. With these reports, Richey then began to correct the problems which occurred during production.
Simultaneously, Richey implemented a program in statistical process control methods for company employees. Another quality control measure involved sending Invacare's own certified representatives to check the plants of its suppliers; this policy led to a reduction in the number of suppliers but a higher and more consistent quality of product parts. Richey's strategy paid off handsomely as Invacare reduced the rejection rate of its supplier's parts to less than two percent. But Richey had said numerous times that Invacare's goal should be to measure rejection rates as Japanese companies do--in parts per million. One of the most important aspects of Invacare's determination to improve the quality control of its products involved a switch from purchasing to manufacturing the electronic control systems on its motorized wheelchairs. Richey went directly to the National Aeronautic and Space Administration's (NASA) Lewis Space Center and purchased much of the equipment NASA used to tests its controls on the space shuttles. The result of employing such sophisticated quality control equipment led to the perception that Invacare's power wheelchairs were the most reliable in the industry.
With all its improvements in quality control, Invacare was well-prepared to meet an unexpected challenge in 1986. Wheelchair manufacturers in Taiwan started to sell their products in the United States that year at nearly 20 percent below the normal price structure. Invacare's response was to construct a new manufacturing plant in Reynosa, Mexico, in addition to its facilities in Elyria, Ohio. Although Mixon denied that there was a plan to shut down the Elyria plant or relocate jobs to Mexico, the consequence was that Elyria employees became more productive and efficient in light of the prospect of losing their jobs. Invacare's new plant in Mexico produced wheelchairs at a much lower cost and almost eliminated the Taiwanese manufacturers from the U.S. domestic market. With its quality control problems solved and no other company to challenge its dominance of the wheelchair market, Invacare grew quickly. In 1986, the company reported profits of $3.4 million on revenues of $111 million.
By 1989, Invacare's revenues jumped to over $186 million. An important aspect of its success was the decentralized management structure emphasized by Mixon. Each of the key officers in the company was given complete authority to make the changes necessary for the respective divisions they supervised to meet their sales goals. This organizational setup encouraged a fast-paced, high-pressure work environment, but management was given full authority to meet the dual responsibilities of efficiency and productivity. In addition, Invacare not only hired disabled people to help design and test its products, but the company provided a stock sharing plan for its employees that helped create a sense of ownership, empowerment, and accountability.
The next two years, 1990 and 1991, were watershed years for Invacare. In 1990, the company introduced a total of 53 new products, including significant innovations in wheelchair design with the introduction of microprocessors for power wheelchairs and the first wheelchair designed for use on airliners. Invacare also created its Action Technology division in which highly flexible wheelchairs made of light composite materials were designed for active users. By 1991, Invacare stock had climbed to $25 per share. That year, the company launched an advertising campaign to sell its products directly to consumers. Although still relying heavily on dealers to market its products, Mixon successfully anticipated that a large segment of the disabled population was looking for products allowing them to lead a more active life. Invacare reported revenues of more than $263 million for the fiscal year ending 1991. Invacare's successes made it one of top 50 firms to invest in during the decade of the 1990s, according to U.S. News and World Report.
In 1992, Invacare was known by industry analysts as the leader in manufacturing wheelchairs and home care medical equipment. The company was manufacturing a comprehensive line of wheelchairs, including pediatric and sports models, quad canes, scooters, and walkers in the most up-to-date ultralight materials. With its oxygen concentrators, medical beds, nebulizers, cushions and positioning systems, Invacare produced the broadest line of items in the home health care industry. The company had expanded to include 19 manufacturing facilities in the United States and over 10,000 dealers distributing its products throughout the world, including Mexico, Canada, New Zealand, and Europe. In 1992, international sales accounted for approximately 23 percent of Invacare's total revenues.
Invacare experienced another banner year in 1993. Sales increased to $365 million while earnings were reported at over $22 million. From 1979 through 1993, the company had achieved an annual growth rate of over 23 percent and was listed in Forbes as one of the 200 best small companies in America and in Business Week's "250 Companies on the Move." From October of 1991 to the end of 1993, Invacare made seven major acquisitions, including Canadian Posture and Seating Centre, Hovis Medical, Perry Oxygen, Poirier, Top End, Dynamics Controls, and Geomarine Systems, Inc. Although Dynamic Controls, a manufacturer of power controls for wheel chairs, and Geomarine Systems, a manufacturer of low air loss therapy mattress replacement systems, were important in expanding the company's product line and increasing the cost effectiveness of its manufacturing operations, it was the purchase of Top End Wheelchair Sports that was most significant. Top End products included road racing and tennis wheelchairs, and a water ski for disabled people. Top End Action wheelchairs were used in over 200 sports events during 1993, including the National Veterans Wheelchair Games, NBA-sponsored wheelchair basketball games, Easter Seals wheelchair tennis camps, and numerous other competitive and recreational sports events. The acquisition of Top End gave Invacare valuable exposure to the growing active user wheelchair market.
Invacare has been at the forefront of the debate on health care reform and Medicare reimbursement policy. Mixon has testified extensively before committees in both the Senate and the House of Representatives to lobby in favor of the economic and medical benefits of home care as opposed to institutional care. Of the 70 health care reform bills pending Congressional approval in 1993, 69 of them included legislation on the various services and equipment of home health care. Mixon admitted that passage of health care reform bills would directly benefit Invacare, but he cited statistics that convey a message other than self-interest: the cost to care for an infant born with feeding and breathing problems is $61,000 in a hospital and $20,000 at home; more than 90 percent of all people surveyed reported that they would rather be taken care of at home rather than at a hospital or institution; and demographic surveys taken by the U.S. Census Bureau indicate that there will be an ever-increasing demand for home health care equipment due to the fact that one out of every eight people in America is over the age of 65 during the 1990s--in contrast to one out of 25 over the age of 65 during the 1920s.
Invacare had six operating divisions in 1993: Home Care division, Rehab division, Aftermarket Parts division, Canadian division, European division, and Invacare Technologies division. The firm continued to hold the greater share of the home health care products market, but was seeing competition in the sports wheelchair market from Quickie Designs, a manufacturer of ultralightweight sports wheelchairs and a subsidiary of Sunrise Medical Inc. Despite the growing competition in the domestic and international wheelchair markets, industry analysts gave high marks to Mixon's management of Invacare and maintained that it was still the pre-eminent company in home health care products.
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