Companies will encounter greater competition and need to prepare itself for the Global uncertainties ahead. To remain a great efficient and effective company, it needs to overcome much greater challenges. Remaining competitive will entail cutting costs by tweaking processes, driving hard bargains and negotiating creative partnership deals. A great company will need to have sustainable economic clout and strong “franchise value”.
The question now is how do you evaluate a business? What should we look for?
These assets refer to both the tangible and intangible in nature; such as brands, patents and appropriately talented people with the right attitude which makes the company unique, capable of delivering products or services that truly meets customers’ needs.
To strive in the industry, every player needs to attract and retain customers. As a result, each and every player needs to stay focused on their niche in providing unique services, that they do the best, compared to the rests. Innovative and creative in every aspect is the play plan, from convenience, comfort to leisure.
As such, technology is also playing a significant role in driving ever increasing disruptive changes; better, efficient and faster. Those who want to lead must set the trend.
In the service sector, impregnable intangible assets are of crucial importance than tangible assets. This refers to their core competencies that are unique so much so that other players find it difficult to replicate, thus they are able to charge a much higher price (such as IBM consultancy services) or it can be due to an innovative process which enables a business to deliver solutions more effectively and affordably compared to others.
Scale Of Advantage
In a crowded market, it is clear that costs have to come down especially for those who cater to the masses. This may invite us to look for a business model that can sustain its business in the long term. One excellent example is Narayana Hospital (NH). It has replicated the Wal-mart approach with significant success. With a humble beginning from a 280-bed hospital, NH has, in the past 14 years, grown to become a 26-hospital network with 6,900 beds across 16 cities employing more than 13,000 people and 1,500 doctors. This fantastic results delivered by the first hospital which begun with a model that tied affordability and quality. It has so far performed over 100,000 cardiac surgeries. About 12 % of all cardiac surgeries done in India are performed at this hospital and 50% of its patients are from the economically weaker sections.
With its innovative process, NH has been able to achieve this marvelous feat by bringing the cost of surgery down significantly. Interestingly, NH’s cost of cardiac surgery is significantly lower than what it was in India 13 years ago. Yet the lower cost has not come at the expense of quality. Its mortality rate (1.27%) and infection rate (1%) for a coronary artery bypass graft procedure is as good as that of US hospitals.
The interesting question is how did NH manage to successfully tie affordability and quality together? This is none other than its wholehearted commitment to purpose, which inspires their employees to achieve the impossible. Hence, it attracts people who buy into this vision by providing high tech, high quality care to all, irrespective of means. Be mindful that an important element of innovation is to accept failures and take corrective measures for learning and growing is another new trend and are principles advocated in the Balanced Score Card.
Coupled with its model that leveraged economies of scale, performing a medical procedure repeatedly improves a doctor’s skill and reduces errors. At NH, doctors operate as teams and each team has a specialist, junior doctors, trainees, nurses and paramedical staff. Each team member specialise in each function that leaves the specialist free to perform more surgeries. No surprise that a surgeon, on average, performs four surgeries a day, six days a week, to 24 surgeries. This is far higher than the number performed in any hospital globally, and dramatically reduces cost.
In line with the rule of 80:20, one of the key unique features in NH is that physicians work for fixed salaries, yet are required to perform more surgeries, in line with the win-win formula for both doctors who improve his/her skills that help NH to bring down the cost per procedure. This breaks the convention of cardiac surgeons who typically are paid per surgery and their costs constitute the most significant proportion of the hospital’s total expenses.
We may safely come to conclusion that the hospitality industry needs more process innovation than product innovation. We may not need a magic power or a new procedure but instead requirements that lower the cost of hospitality attention and make it more widely available and accessible. This premise of economies of scale is not radical. No doubts that NH has created a very distinct model to take cardiac care to the masses.
High Switching Costs
Banks traditionally have been able to charge nosebleed fees to their customers because people are not bothered much with the hassle of switching banks, but it may not be true anymore. Similarly, switching costs may be high for companies and individuals that rely on the software or network effect. Otherwise, it may be tough for the company to retain its customers.
Unless companies are able to engage effectively with its customers and potential ones, ultimately they must deliver what customers are truly seeking. One excellent example is i-Pod which enables it to accommodate much more songs than bulky walkman, marking the disappearance of the gadget long ago from the market. This trend will continuously happen in the future at a much faster pace.
Sound System & Strategies
For instance, NH is in the hospitality industry which involves heavy capital in nature. To maintain positive cash flow is another key success factor which cannot be ignored. As such, several viable solutions for not to tax its cash flow unnecessarily such as equipment leases based on usage basis, getting suppliers to deliver consumables just in time and buildings designed to keep costs low, are required.
A sound system such as setting up a central buying unit (CBU) and standardised purchase of consumables and devices are other clues to look for. Keeping track for improving efficiency, energy savings such as eco buildings and eco environment friendly features and sharing best practices is the new way to strive for excellence in the industry.
The new trend is shifting to an asset light model for expansion by not investing in land or building. One excellent example is Uber. Hotels continue to grow by providing quality hospitality to its mass tourists and travelers.
Overall, NH well illustrates the point of how well the company changes to meet the challenges of a more turbulent environment ahead. Its management team cannot afford not to continuously seek new ways to improve their services in every aspect to remain relevant and strive in the industry. The strategic change must be adequate and appropriate in response to the external changes especially in today’s dynamic environment. How well placed are the integration of its human, physical and financial resources? Looking beyond the financial statement is the way ahead. Always remember that energy flows where intention goes. Energy is one of the clues that reflect good quality management team apart from integrity and intelligence, as advocated by Warren Buffet.