Archive for February, 2010|Monthly archive page

Can Pharmacies Save Healthcare?

Dialysis, aisle four. This reality may not be as far-fetched as it sounds.

The delivery of healthcare must change if payers are to cope with rising costs and patients are to access quality services in an easy and timely fashion.  One way to achieve this is to allow Pharmacies to offer more healthcare services.  According to Booz & Co., a consultancy, Drugstores are well positioned to play a critical role in efficiently providing basic healthcare services to a wide number of people.

The macro trends are positive. Patients are demanding greater choice, more information and increased access to care. Large retailers like Walmart, CVS and Walgreens are already tweaking their retail models beyond just offering aggressive dispensing discounts.   Finally, Canadian and U.S. governments are targeting innovations  like electronic medical records and new service models to deliver meaningful cost reduction and improvements in patient care. 

The Drugstore channel has innate advantages relative to traditional healthcare suppliers like physicians, clinics and hospitals. For example, Pharmacies are ubiquitous (each US citizen lives within 2.36 miles of a drug store); Pharmacists are highly trusted (they are among the most trusted healthcare providers); Drugstores are very convenient (most are in plazas/malls with lots of free parking) and; most major drugstore retailers enjoy a lower cost footprint (e.g., minimal fixed costs, low union penetration) than other providers like hospitals.   Most recently, Pharmacies have played an important role in providing cost-effective immunizations, whereas 85 percent of physicians found immunization reimbursements inadequate.

Most importantly, the Pharmacy channel can improve patient care for millions of people.  Pharmacists can leverage strong customer relationships to improve treatment compliance and counselling. Moreover, drugstores can serve as a single source for many healthcare needs, minimizing the time lag between diagnosis and treatment. 

Delivering new healthcare services represents a game-changing opportunity for smart, agile Pharmacies to increase customer share of wallet, build brand equity & loyalty and improve operating efficiencies.  Can they do it?

Important challenges stand in the way of implementation and profits.  For example, there are: regulatory impediments (limiting the types of services pharmacies can provide); incompatible IT systems that prevents integration; old store formats that complicate implementation and; cultural/staff issues that hinder change and prevent stakeholder collaboration.  As an example, pharmacists may be reluctant to alienate prescribing physicians who may view drugstores as new competition.  All of these issues will have to be addressed before pharmacies can enter the business.

What could a new retail model look like?  It all depends on what patient/consumer segments are targeted.  For example, retailers can focus on delivering critical services to the chronically ill (e.g., diabetes management) or they concentrate on maintenance programs for healthy or at-risk customers (e.g., wellness programs).  Drugstores are already experimenting with in-store clinics, wellness programs, health screenings, and disease management services.  In one notable program, the city of Asheville, N.C., has been using local pharmacists to provide free counseling to diabetes patients, generating substantial savings and health improvement.  Additional pilot programs will be needed to identify the high potential/low risk service offerings.  As well, Pharmacies can leverage useful learnings from other retailers (e.g., Apple, Loblaw) on how to combine disparate service offerings under one roof.

Given compelling advantages, it is likely that Pharmacies will play a significant role in future healthcare delivery.  The big question is: what will the business model look like and how will it ultimately benefit patients and payers.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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Crowdsourcing: The Kids aren’t Always Right

One of the most interesting management tools of the past few years is Crowdsourcing (also known as open source development, peer production and collective intelligence).  First coined by Jeff Howe in an article in Wired magazine, Crowdsourcing uses the power of the internet to leverage a dedicated community of users to undertake important business activities like software programming & testing, data analysis, and product support.  Properly executed, Crowdsourcing can help firms reduce production & service costs, gain valuable insights and improve the speed of their business especially when mated with social media technologies 

Crowdsourcing programs have been successfully implemented in a variety of areas including the development of the Linux operating system and Wikipedia, the online encyclopedia. Commercially, Apple depends on thousands of users to deliver product support.  Procter & Gamble has asked amateur scientists to find a new detergent dye that changes colour when enough has been added to dishwater.  Finally, Unilever used crowdsourcing techniques to find new creative ideas for one of its UK brands.

Despite some noteworthy successes, Crowdsourcing may not deliver on all its promise.  For example-

Quality Results Could be Elusive

The majority of what the crowd generates is usually of poor or inconsistent quality.  Finding the diamonds in the rock takes lots of time, expertise and effort. All too often, there is little of value to be mined in the first place; many users and experts are simply unwilling to provide their services to companies at no cost. Finally, community-based activities are susceptible to faulty results arising from targeted, malicious work efforts.

Implementation is Not Easy

You don’t just sit back and rely on the crowd to handle important tasks.  Implementing Crowdsourcing is hard work requiring patience, active collaboration and project management.  According to Jimmy Wales, one of Wikipedia’s co-founders,“Any company that thinks it’s going to build a site by outsourcing all the work to its users completely misunderstands what it should be doing. Your job is to provide a structure for your users to collaborate, and that takes a lot of work.”

Costs & Risks are Higher than Anticipated

Crowdsourcing may not necessarily yield all the promised savings as significant management effort is needed to create the appropriate structure, manage & filter the input, and ensure project momentum.  Furthermore, utilizing crowds of strangers for mission-critical activities (e.g., customer support and software design) introduces the possibility of brand and legal risk.  For example, leveraging external users comes with no written contracts, nondisclosure agreements, or employee agreements.

Given the challenges, what can organizations do to maximize the return on Crowdsourcing programs?

1.  Your crowd is often unpaid so make it fun and easy for them to engage your firm.  When necessary tailor incentives to attract the most effective collaborators;

2.  Focus Crowdsourcing efforts against a specific, measurable task versus larger, more nebulous objectives;

3.  To find the diamonds, ensure you develop and apply key evaluation criteria which are enforced by a centralized, internal authority;

4.  Activity often comes in spurts so make sure your IT infrastructure has sufficient peak load capacity;

 5.  Make certain your culture is receptive to new ideas and collaboration;  your organization needs the right structure, people and process to manage Crowdsourcing initiatives.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Marketing Surveys: Be Careful What You Ask For

Gaining a deep understanding of consumer needs is the mantra of many companies, who spend hundreds of millions of dollars searching for rich insights and to better understand competitive position.    Sadly, I often cringe when looking at the results of some of this product research. All too often what appears to be an objective market survey – those multi page questionnaires deployed in the mail, online or in person – ends up yielding  bias-ridden and overly pessimistic results with limited value. 

Misleading or inaccurate feedback has serious implications for B2C and B2B firms who, in part, base investment decisions and marketing strategies &  tactics on consumer and prospect feedback.  Obviously, well-intentioned researchers do not intend to generate poor survey results, so why does it happen? According to research produced at Stanford and other universities, weak survey results arise primarily from two factors:  1) the role that advanced survey notification plays on what consumers say in their feedback and; 2) an innate bias and artificiality common in many questionnaires.

The Stanford study concluded that notifying consumers to anticipate an upcoming survey will very often lead to unexpected, and generally negative, results.   In essence, warning respondents in advance that there will be questions on a product will lead them to believe they need to focus on negative aspects about the product, thereby consciously or unconsciously skewing the feedback. Most consumers want to be honest, and even helpful, when they participate in a survey. However, for many consumers, being helpful means being (constructively) critical or at least offering suggestions for improvement, as opposed to simply stating their opinions, good or bad. 

Moreover, other research undertaken by Stanford and Rice Universities found that asking consumers to compare two or more brands yielded more negative brand feedback than consumers who undertook themselves to compare brands.  Consumers who were asked to compare became unusually cautious and less objective. As one of the researchers said, “The mere fact that we had asked them to make a comparison caused them to fear that they were being tricked in some way.”

Furthermore, many consumer surveys ask respondents to do and provide explanations for things they would never do in real life.  As such, these surveys create an artificial reality that lacks relevancy and the ability to really understand what drives behavior. For example, how many customers go into stores or visit a web site and then evaluate it based on 10 variables?  Moreover, how many consumers can peer into their sub-conscious to understand why they act in certain pre-wired ways?

Not surprisingly, the Stanford research is at odds with conventional marketing wisdom and prior academic work which found that querying consumers just prior to shopping or encouraging buyers to compare products on the shelves was likely to yield the best quality feedback.

By no means am I suggesting that businesses should not listen to consumers or completely do away with marketing surveys.  Rather, listening to consumers must be tempered with healthy skepticism and supported by a variety of feedback sources.  Some strategies could include-

1.  Improve survey design and execution by removing pre-warnings, minimizing the number of variables to measure and eliminating “artificial” and leading questions;

2.  Utilize multiple research tools to gain richer, more relevant insights.  These tools should balance quantitative and qualitative (e.g., focus groups, 1:1 interviews) approaches;

3.  Overlay surveys with ethnography (e.g., “day in the life” studies) and anthropology to explore sub-conscious drivers of behavior.

For further information on our services and work, please visit the Quanta Consulting Inc. web site.

Recession Lessons #3: Just-in-Time Management as Best Practice

It’s never been harder to be a C-suite executive.  Since the start of the recession, every firm has been forced to operate in an extremely difficult and uncertain environment.   Specifically, customer demand is soft and volatile; access to credit is tight; supply chains are at risk and; brands are vulnerable to social media-powered consumers and interest groups. At the same time, the pressure to make your numbers and follow good governance has not diminished.

This turmoil has significant implications on management and leadership practices.  For example, demand volatility gives managers less time to make bigger decisions.  Uncertainty creates a dearth of actionable information and shatters conventional wisdom, hampering efforts to set priorities and allocate capital.  Interconnectedness in areas like supply chains and counter-party obligations triggers 3rd party and system-wide risks that can not always be predicted or mitigated in the short term.  Despite recent stability, some sectors continue to operate in highly uncertain environments including Financial Services, Manufacturing, IT and Raw Material suppliers. 

Historically-proven approaches to management (e.g., consensual decision making, yearly strategic planning and matrix-driven execution), born in more stable and predictable times, are no longer as effective or relevant in periods of confusion.   Many companies might consider adopting new ways of decision making and managing, at least for the short term.

Most leaders can benefit in some way from newly emerging management best practices that have evolved over the past 18 months.  These situation-influenced structures, processes and habits could be described as just-in-time, adaptive or dynamic management.  Below, I outline some of the more successful new approaches and strategies.  Separately, other thought leaders are studying this area including McKinsey. 

  1. SWAT teams – In place of process-heavy & collaborative strategic planning and program management, a dedicated team of experienced senior leaders (the smaller team the better as long as key functions, lines of business and skill sets are included) is convened to monitor and manage key activities during periods of uncertainty.   These activities would focus on ensuring key customer retention, supply chain stability and mission-critical program management. 
  2. Rolling budgeting – A quarterly and dynamic process of managing spending, financial scenario planning and tight capital allocations replaces a yearly, formalized event which often is overly-reliant on questionable assumptions and macro economic variables as well as being cumbersome to execute.
  3. Strategy simulations – War gaming various market scenarios is an excellent way to drive immediate, real-world thinking.  War games help gage potential competitive moves, align around threats & opportunities and catalyze bias-free, fact-based thinking.
  4. Fact base updating – In times of uncertainty, making the right decisions at the right time requires having an updated information bank for mission-critical data such as customer/channel revenues, costs, and risk exposure as well as macro economic variables like exchange rates and input costs.

Paradoxically, corporate turmoil is also an ideal time to address internal structural, process and communication challenges.  For example, senior leaders could refocus their efforts on key strategic and leadership issues while empowering others to handle more tactical tasks.  Furthermore, a crisis is a great opportunity to goad internal communications, priority-setting and teamwork.

Companies can’t totally forecast the future and plan for every contingency.  However, they can improve decision making processes and structures to drive responsiveness, flexibility and speed. While I outlined a number of best practices, one size does not fit every organization and executives need to come up with the best structure, process and protocols to suit their firms.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Pharmaceutical Firms: Heal Thyself

Pharma executives have a lot to fret about these days.  Blockbuster drugs like Lipitor and Prozac representing $130B in revenue will soon come off patent.  Even though new drugs cost up to $1B to develop and market, there are no home runs in the launch queue that can easily close the gap.  Furthermore, tighter guidelines around marketing and educational practices are making it difficult to introduce new – too often me-too – drugs. As a result, the traditional pharma business model is increasingly being seen as broken.  David Blumberg, leader of KPMG’s pharmaceutical industry practice has said, “There’s a recognition that current models have a lower rate of return than they used to,” A recent newsletter from the Wharton Business School has some interesting thoughts on the challenges and possible fixes for the pharmaceutical industry:

Diversify drug portfolios

Pharma companies are moving beyond blockbuster drug strategies to include smaller patient populations and more specialized ailments.  One quick way to build the product portfolio is through drug licensing and marketing partnerships with IP-rich yet cash-poor firms.  For example, Pfizer recently licensed the worldwide rights to a treatment for Gaucher’s disease, a rare disease affecting thousands (not millions) of patients, from a small Israeli company. 

Extend R&D outsourcing and collaboration

Given its high cost and modest success rate, big pharma R&D is beginning to change. Breaking with historical practice, Eli Lilly now allows outside contractors to test the company’s most promising molecules.  GlaxoSmithKline has decided to let its smaller biotech partners do more of its early-stage development work.  GSK has also taken the additional step of using the venture capital model to allocate investment funding; GSK scientists now must pitch their ideas to panels of company executives and external  experts to secure project funding.

Improve M&A and partnering capabilities

If partnering is expected to propel future R&D and marketing success, drug companies need to improve two key capabilities.  First, firms need to adopt M&A best-practices in identifying, evaluating and engaging high-potential, synergistic equity partners.  These competencies can be crucial to securing first-mover advantage for key IP that best addresses product and R&D gaps.  Part of this approach could involve placing several small equity bets on early stage companies in order to secure early exposure into promising science.  Furthermore, to enter new markets, protect existing market shares and leverage scale economies, big pharma firms should pursue more ownership of complementary generic drug manufacturers.  Secondly, more partnerships will require pharma companies to get better at integrating and working with smaller or dissimilar companies who often bring very different operating styles and business requirements. 

Change the research paradigm

Today, billions of research dollars are targeting a host of big market diseases including Alzheimer’s and Cancer.  However, it may all be for naught as a historically-successful research model may not be suitable for some of these disease’s scientific challenges.  According to Daniel Hoffman, an industry consultant, “It’s questionable whether the scientific paradigm of medicinal chemistry that has resulted in huge successes in areas like cardiovascular drugs can be as productive in the future.”  To address these challenging illnesses, a new R&D paradigm will be needed to find, germinate and leverage critical IP and processes wherever it is found globally. 

Although many pundits contend it will be difficult to develop meaningfully better drugs than the current blockbusters, some firms still believe that concentrating on well-understood science offers the best return vs risk trade-off as compared to big market drug R&D.   Specifically, Novartis AG has abandoned a “big market” disease strategy in favor of ailments where the science is well understood, thereby improving the chances of finding treatments that work.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Will Social Networking Disrupt the Recruiting Industry?

It may just happen if companies begin to fully exploit the power of Social Networking (SN) and gain the confidence to make important hiring decisions without middlemen.  SN sites like LinkedIn and Facebook now lay bare the key information asymmetry traditionally enjoyed by recruiters, namely access to a large and hard to access talent pool. Given the open and global nature of SN, any HR manager with a browser can now scan large, social & specialized networks for talent.  For example, Facebook has over 350M members worldwide. LinkedIn, more of a business networking site, boasts over 43M members.  These social networkers don’t just join, they also loiter and interact. According to Nielsen, a market research company, American SN users spend an average of 6 hrs per month socializing and networking, in fact more time than they spend on e-mail.  As a result, millions of  users can easily connect with employers and job opening through active and passive job searchs (via automated notifications). 

Moreover, many firms are beginning to realize that embracing SN could result in significant cost savings through the elimination or reduction of recruiter fees.  Recruiters typically charge between 20% and 30% of base salary for each placement, which for a Fortune 500 company could add up to a large amount of money per year.  According to The Economist magazine, some companies are already using SN to reap substantial savings and get superior results. For example, Intel claims to have saved millions of dollars in recruiting fees by using LinkedIn versus headhunters.  US Cellular reckons it saved over $1M in 2009 and got good candidates faster by using LinkedIn.  Even if firms continue to use recruiters, SN provides HR managers with a powerful weapon to reduce headhunter fees especially if they feel that the recruiter is accessing the same SN sites as they are – which in fact they do. 

Ubiquitous talent, easy access and lower cost are not the only advantages of SN.  Most users make available to corporate recruiters a rich trove of personal information, much of it regularly updated, templated for quick review and enabled by powerful search engines that makes it easy to find very specialized individuals. Finally, SN sites utilize sophisticated “add a contact” functionality to easily leverage a visible referral network and access prospects.  Clearly, SN represents a major opportunity for organizations to get more recruiting value at less cost.  

Of course, HR departments will have some issues with this new model.  For one thing, not every prospect, particularly of the mature vintage, is an active user or even a social networker.  Among those that are active in SN, many users (often the senior people one searches for) utilize strict privacy settings to prevent strangers from accessing their personal information.  Finally, there is always the concern that personal profiles are inaccurate, necessitating a certain amount of due diligence by the corporate recruiter.

For the reasons mentioned above, SN sites will never completely replace good recruiters.  Challenging hires (due to profile or risk) and over-burdened HR departments will still benefit from another layer of objective human screening.  And, humans being creatures of habit, will continue to employ recruiters who they perceive to be the best hiring resource.  However, given SN’s early success and medium-term potential, the recruiting industry will need to quickly adjust their strategies if they are to sustain market share and margin.

For more information on our services and work, please visit the Quanta Consulting Inc., web site.

Using Operational Innovation to Beat Competion

In today’s business environment, it is difficult to out build, out market, or out price your competition over the long term.  One reason is that all firms are bedeviled by the same situational factors including:  market maturity, overcapacity, tight credit,  globalization and rapid technology diffusion.

One area that can still help firms leapfrog competition is operational innovation (OI).  OI is the secret sauce that enables a company to out-operate its peers over the long term.  OI takes many forms but it is essentially a creative retooling of a firm’s operating model.  For example, how companies buy & use inputs, deliver & service products and enable & motivate operational staff.  On a going basis, a strong operating model minimizes costs, improves service levels and enhances customer satisfaction. Organizations with OI as a core competency have typically generated superior financial returns, created industry barriers to entry, and built leading market share positions.  (One caveat:  business success often has many fathers so it would be irresponsible to attribute all gains solely to operational improvements.)

OI is not limited to certain markets or types of firms.  It is found in both high growth, dynamic markets like IT and Life Sciences as well as mature, traditional industries like Manufacturing and Financial Services.  In my experience and research, OI occurs in 2 fundamental ways  i) through the launch of a disruptive and compelling new business model (think Dell, Nucor, Cisco) or ii) through continuous and impactful operational improvements that over time dramatically enhances capabilities and cuts costs (think Progressive Insurance, Walmart).   For more perspective on what some organizations have achieved with OI, check out this Harvard Business Review article on how OI is driving business results.

Given its proven, transformational track record, why don’t more firms prioritize OI?  For one thing, there are powerful strategic and cultural barriers.  Often, the operations group does not get the same prestige or resources as other departments like finance, sales & marketing and R&D.  In addition, many senior executives adopt a passive attitude around operations like “if it ain’t (really) broken, don’t fix it,” especially if client retention is a key metric.  As well, revamping an operating model requires considerable multi-functional collaboration, change management expertise and perseverance, all scarce qualities when coping with day-to-day business exigencies.  Finally, game-changing OI is especially difficult when there are major internal constraints like union resistance, management bias (CEOs in many companies rarely have strong operational backgrounds) and cultural challenges.

Despite the issues, every company can take some important steps to catalyze OI thinking.  For example,

  1. Learn from others – Following and exploiting emerging technologies (e.g., Cloud Computing) and best practices from outside your industry is one of the best approaches to capturing potential innovations   
  2. It’s the system stupid – All too often, timid and siloed executives default to improving specific elements of the operating model (e.g., manufacturing) versus taking a holistic, breakthrough-focused approach  
  3. Create a fertile environment – OI germinates with the right internal conditions.  For example, successful innovators like 3M and Google cultivate a risk taking, innovation-centric culture, which includes a top-down mandate, sufficient resources and formalized incentives
  4. Target the Medium Term – Many OI initiatives fail because the time horizon is unrealistic for total quality planning and execution.  Specifically, short term deployment goals rarely feature enough time for proper study and implementation.  Furthermore, long term goals often flounder due to a lack of business momentum, management changeover or insufficient resources.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Backshoring: Which Manufacturing Should Return to North America?

Do a few high-profile decisions to bring manufacturing back to North America, known as Backshoring, mark the beginning of a new trend?  It may be according to strategy+business, a Booz&Co. newsletter, and some savvy firms are leading the way. For example, NCR has decided to return production of its most sophisticated ATMs from Asia to Georgia, citing the need for production to be closer to its innovation center and customers.  In another decision, GE CEO Jeffrey Immelt recently announced that his firm will be repatriating production of hybrid batteries and advanced water heaters from China back to the US. 

Some modest corporate moves do not herald a reversal of offshoring, one of the most popular corporate strategies of the last 20 years. However, the business case for offshoring has changed and recent developments should catalyze executives to consider backshoring for high value products.  Here’s why.

Labor cost is not as critical as it used to be.   In many capital & innovation intensive industries like cars, healthcare and aerospace, the proportion of labor to total costs has been steadily decreasing to, in some cases, no more than 10% of total delivered cost.  As a result, the need to produce in the least expensive labor market has ebbed. 

Asia is not as inexpensive as it once was.  Due to rising compensation rates and exchange rate changes, many regions of China and India now feature similar labor rates to what you would find in many parts of North America.  Moreover, skilled worker turnover rates and labor productivity in many Asian regions are often worse than what you will find in North America.

North American manufacturing continues to maintain some natural advantages versus Asia.  Backshoring allows manufacturers to improve product delivery times (by shrinking transit distance), minimize management costs (by reducing travel expenses) and cut transportation charges (by eliminating oceanic transit).  

Other Asia-related costs have risen dramatically.  Key input costs like transportation, office and insurance have increased substantially due to oil price increases, soaring real estate and piracy risks.  Furthermore, key raw material costs (e.g., plastic, steel) have risen precipitously over the past couple of years.  Finally, the reliance on a few Asian and North American transport hubs has multiplied supply chain vulnerability due to potential security concerns, union problems and capacity constraints.

Tight links between customers, R&D and production is more crucial today.  As was the case with NCR, designers and customers in industries such as medical diagnostics, telecom and IT want manufacturing close by so they can more easily collaborate on product design, testing and integration. For perspective, leading Japanese manufacturers learned this lesson early in the 1990s and now rarely offshore anything but commodity products.  

Offshoring remains difficult.  After many years of offshoring, savvy executives have discovered that for many products, the drawbacks of outsourcing outweigh the benefits.  For example, certain issues like IP protection, management control and organizational integration are often too problematic with offshore production.  For low revenue products or with smaller firms, it may simply be less hassle in the long term to backshore.

There is no doubt that overseas production will continue to deliver superior savings for many labor intensive, low value-add products, especially when companies are manufacturing for the local market.  However, when considering where to manufacture high-value, innovation-driven products, the business case for backshoring is looking increasingly more compelling.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.