Deepak Nath applies pressure at Smith and Nephew

Six months ago, Deepak Nath unveiled his second three-year plan as CEO of Smith & Nephew, the UK-listed medical supplies group that makes replacement hips, wound dressings, and cartilage implants. Its pledges of stronger growth and profits followed a familiar pattern, but for Nath, the announcement itself felt like an achievement.

“It was not a given, when we started the journey in 2022, that we’d be in a position to actually talk about the next three years,” he says.

When Smith & Nephew hired the former Siemens healthcare executive in February 2022, he became its fourth CEO in five years, inheriting a set of strategic and performance challenges that had been dragging on its share price.

“There was a burning platform,” he says. “It was very clear that we were underperforming.”

Nath used those circumstances to push a 12-point strategy for turning around the 170-year-old group, promising stronger growth, cashflows, and margins within 36 months. But as inflation and chip shortages hampered his efforts, shareholders grew impatient. In 2024, Nath was the target of a protest vote over executive pay at the company, activist investor Cevian Capital took a 5% stake, and one UK newspaper declared that Smith & Nephew’s CEO was drinking “in the last chance saloon.”

“The pressure was high,” Nath admits, but investors’ expectation that he bring a sense of urgency to Smith & Nephew’s problems was also understandable. “My approach was not to run away from that pressure, but rather to lean into it,” he says. By listening to the criticism, and using it to challenge himself and motivate his team to do better, “it actually ended up being a constructive thing, paradoxically.”

An all-in approach to performance improvement

Employees’ recognition that things had to change made Nath’s task easier, he says. But he was careful not to criticize everything his team had done before he arrived. “I didn’t come in there completely disrespecting the work that had gone on before,” he says.

Instead, he built his 12-point plan on foundations that were already in place, refining existing initiatives and adding others. “My messaging around that helped get the organization on board.”

Nath’s other most important decision, he believes, was to take a “hands-on” approach to the execution of that plan. Every two weeks, he chaired a four-hour meeting with members of his executive committee and leaders of key work streams. Together, they pored over data to monitor progress, and corrected course when necessary.

“The circumstances warranted that I be all-in,” he explains, and taking charge personally “allowed me to set an example of what I wanted to see, and what rigor looked like.” Nath had set a three-year goal, he says, but it was going to be achieved one quarter at a time, “and that meant attention to detail on a timescale that was measured week to week.”

Even with that oversight structure in place, “not everything worked out as we thought,” Nath says. He had expected his meetings would only be necessary for 18 months, but he ended up running them for four years. A surge in inflation in Smith & Nephew’s largest markets, disruptions in key supply chains, and Beijing’s decision to impose price controls affecting much of his company’s portfolio required unexpected changes of course.

“We started off with China accounting for about 7% of our business, and a significant chunk of our growth, and by the end of 2025, it was around 2%,” Nath explains. The sudden reversal of a market that he had expected to be a material growth driver “was nowhere in the plan.”

His response was to introduce zero-based budgeting, a ruthless approach to controlling expenses that got Smith & Nephew back on track to exceed its goals for profit, cash, and revenue growth, even as it narrowly missed its margin aspiration.

“Targets matter, targets are sacrosanct, and we’re going to do everything in our power to meet the targets that our investors have signed on to, that we set for ourselves,” he says.

A three-year plan with a longer-term goal

The medtech industry is a long-cycle business, Nath notes, so much of Smith & Nephew’s planning process is focused on deadlines five years from today. For investors, though, “five years is just too long a period of time, because nobody’s got a crystal ball that really looks out that far.”

Nath’s focus on a shorter horizon seeks to strike a balance. And when he began work on the three-year plan he unveiled last December, which he calls the RISE strategy, he sought to incorporate lessons he’d learned from his earlier planning exercise in 2022.

“The process and the rigor with which you approach the studying of the next plan is important … [and] this time around, we involved a broader cross-section of the organization,” he says.

Smith & Nephew will be rewarded for driving growth sustainably, which requires investments in innovation that will not pay back immediately, he explains, and he wanted to force more people in the company to understand the challenge of balancing that with short-term goals.

The second lesson Nath took from 2022 was that he needed “the humility to know that no one has the ability to predict the future.” What was important, he realized, was to ensure that the new plan was “pressure-tested” against a range of scenarios the company might encounter.

“We’re living through very exceptional macro times right now,” he notes.

Defending a portfolio in the face of ‘high expectations’

When Cevian became Smith & Nephew’s second-largest shareholder almost two years ago, it criticized the company’s poor record of shareholder value creation while hailing the potential in its “fundamentally attractive” businesses.

“We have high expectations for the board and management to realize this potential,” it added.

The hedge fund gave no details of how it expected Nath and his team to unlock the hidden value it saw. But many analysts interpreted its arrival as strengthening the case other investors had made for Smith & Nephew to spin off its orthopedics division, its largest but slowest-growing business.

Nath declines to comment on his conversations with Cevian, beyond saying that he has had “very constructive engagement” with the firm. “I’m humble enough to know that I don’t have all the answers and [am] open-minded enough to take ideas from a whole range of places,” he adds.

But he is standing by his company’s multi-business strategy. “With any portfolio companies, there’s always something going right, something not going right,” he concedes. “If you went back five or six years in our history, there were calls for us to spin off our wound business. You don’t hear that so much today,” with the division’s latest reported revenue growth hitting 6.6%.

Scale matters in medtech, Nath argues, because the industry’s companies make investments in research and development that may not pay off for 10 years, and their different divisions can learn from each other.

“You have biologics, you have robotics, you have software, you have AI, you have biomaterials, and you have… very different types of science and engineering, all of which need to be put together in order to deliver a solution that addresses a medical unmet need,” he says.

Portfolio companies must always be flexible about making adjustments to deliver long-term shareholder value, Nath says, but if they stay focused on delivering for patients and customers, “the financials will follow.” If Smith & Nephew can deliver on its RISE strategy’s targets, “that’s a record that’s very hard to argue with.”

The Ozempic effect on the knee replacement business

One question hanging over Smith & Nephew’s orthopedics division is whether the rapid adoption of GLP-1 medications, such as Ozempic, Wegovy, and Zepbound, will affect demand for the replacement joints it sells. The drugs, originally developed to treat diabetes, are now widely used to manage obesity, which is often a factor in knee and hip problems.

There are still too few years’ data to judge GLP-1s’ impact on long-term degenerative diseases, Nath says, but he sees no fundamental change in how many patients will need replacement joints “for the foreseeable future.”

In some cases, GLP-1s may boost demand, he adds, because a lot of patients who would benefit from a new knee “can’t get one because they’re simply too obese to undergo knee replacement.” And then there is Smith & Nephew’s fast-growing sports medicine business, he adds.

“As people lose weight, they are able to lead more active lifestyles. What you’re actually seeing is people are prone to sports or activity-related injuries,” which require its expertise in repairing torn tendons and ligaments. It’s another argument for the portfolio strategy, he says: “At a group level, it can cut both ways.”