We will be making a presentation entitled Strategic Planning: Not Just for the Big Guys at Money Smart Day at the Fed on April 23, 2009. This interactive session for small business leaders will provide a practical framework for the critical task of strategic business planning, which includes performing situational analysis (where are we now), strategy formulation (where are we going), and implementation planning (how do we get there). Topics will include market analysis, customer value propositions, resource allocation, and financial projections.
This one-hour presentation starts at 11:00 at the Federal Reserve Bank at 27th and Main in Kansas City. If you are interested in attending, please register by April 17. Registration is now open at http://www.kansascityfed.org/kcmoneysmart/fedday/.
Tuesday, April 7, 2009
Loss Leaders
A recent exchange on a professional network got me thinking again about loss leaders. The exchange was started by someone asking for studies that measured lifetime value (my term, not theirs) of maternity patients to a hospital's bottom line. It was clear that someone was being challenged about the lack of profitability from maternity cases when measured as a standalone service. The person was rightly seeking objective support for the argument that these patients left the hospital feeling good about their experience, which directly led them to seek care for themselves and their families when future medical needs arise. Hence, while the maternity services may not appear to be profitable, the long view would suggest otherwise. Sometimes, this is called looking for downstream revenue.
The exchange was lively, to say the least, but no published studies were cited and no definitive conclusions were reached. However, one respondent did reference an internal study, which failed to prove the case. In this study, services in one medical specialty did not necessarily lead to services in another. Consumers are much more active in their selection of providers and base their decisions on study and their physician's recommendations far more than favorable personal experience in one service segment. Another respondent suggested that the lag time between a mother's delivery and her need for hospital services to treat serious medical conditions was so great that she would not put much credence in an experience that may have occurred decades ago.
We often talk about loss leaders, particularly in the not-for-profit arena. Sometimes this talk is just an excuse for failure to tackle systemic causes of poor financial performance. Often it is a genuine philosophical position rooted in the belief that a hospital must provide comprehensive services to all patients, regardless of financial return.
Regardless of mindset, our radar should always go up when people start talking about loss leaders. Good data does need to be collected in an attempt to place a long-term value on patient categories. However, we must always remember that these categories are subjective. Do we draw the circle around medical specialty, deparmental responsibility, or service line? In the case above, perhaps we lose money on maternity but make an acceptable return on women's services of which maternity is but one component. Regardless of how we draw the circle, every service needs to be evaluated at the management responsibility level to make sure it is operating as efficiently as it can given service goals and requirements, and those goals and requirements need to be routinely re-evaluated in the context of the organization's strategic plan.
The exchange was lively, to say the least, but no published studies were cited and no definitive conclusions were reached. However, one respondent did reference an internal study, which failed to prove the case. In this study, services in one medical specialty did not necessarily lead to services in another. Consumers are much more active in their selection of providers and base their decisions on study and their physician's recommendations far more than favorable personal experience in one service segment. Another respondent suggested that the lag time between a mother's delivery and her need for hospital services to treat serious medical conditions was so great that she would not put much credence in an experience that may have occurred decades ago.
We often talk about loss leaders, particularly in the not-for-profit arena. Sometimes this talk is just an excuse for failure to tackle systemic causes of poor financial performance. Often it is a genuine philosophical position rooted in the belief that a hospital must provide comprehensive services to all patients, regardless of financial return.
Regardless of mindset, our radar should always go up when people start talking about loss leaders. Good data does need to be collected in an attempt to place a long-term value on patient categories. However, we must always remember that these categories are subjective. Do we draw the circle around medical specialty, deparmental responsibility, or service line? In the case above, perhaps we lose money on maternity but make an acceptable return on women's services of which maternity is but one component. Regardless of how we draw the circle, every service needs to be evaluated at the management responsibility level to make sure it is operating as efficiently as it can given service goals and requirements, and those goals and requirements need to be routinely re-evaluated in the context of the organization's strategic plan.
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