CHICAGO — Both new businesses and established businesses can benefit from a thorough examination of their business models, because most likely there is room for improvement, according to a presenter here.
At its core, an O&P business serves customers, which can be clients, patients, referral sources, physicians and insurance payers. Consequently, O&P companies should adopt an inverted hierarchal pyramid model of service, which places the customer on top, according to Joyce Perrone, director, business development for De La Torre Orthotics and Prosthetics Inc., and consultant for PROMISE Consulting Inc. The customer is followed on the pyramid by sales, service and customer support, including clinicians, technicians and front office, customer-facing personnel.
“You don’t know how valuable that person is who answers the phone,” Perrone said.
Manufacturing and strategic business units that design, market and produce the products customers buy are next on the pyramid, followed by back office administrative personnel, managers and finally the chief executive officer at the bottom of the pyramid.
“It is an ego crusher” for those at the bottom, she said.
“The CEO is not at the top telling everybody what to do. It is about the voice of the customer, and your processes have to revolve about pleasing the customer, not about pleasing the CEO.”
A company in decline
A careful examination of an O&P business may reveal flaws in production processes or workflow, too much waste or worse, a company in decline, Perrone said.
“Whenever I go in to a practice as a consultant, I look at some of the warning signs to see if [a company] is in a death spiral,” Perrone said. Perrone explained some of the warning signs of a company teetering on the brink of dissolution, found in Avoiding the Corporate Death Spiral by Gregg Stocker:
Lost focus. When a company has lost its focus, customers and employees do not know why the company is in business and what they are attempting to accomplish. Although providing O&P care is an obvious answer, it is not the only answer, Perrone said.
She said businesses often create misguided mission statements to define their values or their goals of being a business, but “if you are not living that, it’s just a slogan,” Perrone said. “The company can decay as a result of having these visions that you are not really living up to.”
If employees sense a business owner is only in it to make money for themselves, “it is a hard thing to motivate people if their only rule in life is to make someone else money,” she said. As the workforce skews younger, their expectations may not be the same as a business owner’s. They have to know they will be rewarded fairly for their work and may not be happy if all the fruits of their labor flow to the CEO.
“They are not going to work for you and give you the best if all they think they are doing is making somebody else money. Money is a by-product of good process and good care of good employees who are taking great care of the customer,” she said.
Obsession with numbers. Perrone said there is a difference between numbers obsession and numbers understanding.
“So many companies do not know what their profit margins are,” she said. “This is a weird industry. I know people who own restaurants and they know what their profit margin is on every piece of steak that’s going on a plate. What do we base what we charge for an item on? It should be cost, but it is fee schedules.
“If you are running your company just based on your profits and revenue, that is a death knell,” she said.
Supplier squeezing. Practices that always look to simply reduce price instead of developing long-term relationships with suppliers to continually improve quality, cost and delivery may be in a state of decline.
A practice should not approach a supplier and demand lower prices just because Medicare is reimbursing less, Perrone said.
“That is not a good way to do business. You want to have a relationship with your supplier. That relationship has to be based on the whole line of products, how they deliver, how they charge for shipping, their turnaround time. Is your supplier also your competitor? That can take your relationship in a different direction.”
Undervalued employees. “One of the greatest wastes in a company is the waste of human potential. We become energized when what we do is valued. It is not just getting extra money for what we do,” Perrone said. Employees who feel undervalued tend to make their feelings known by producing less.
Dirt, clutter and damage. Perrone suggested that a business that is dirty, damaged and unorganized may reflect the inner psyche of the business owner. It surely does not reflect a thriving, successful business with happy employees.
“If it looks dingy and disorganized, it looks like there is a sickness within the company. This company reflects what’s going on inside of you.”
Operational fragmentation. When teamwork is low or nonexistent, the company operates as a fragmented group of departments and people rather than a single system working together to accomplish a common objective.
For example, “sometimes the orthotic division works independent of the prosthetic division, which works independent of the pediatric division. Nobody talks to each other. People point fingers at each other. There is no sense of a team within the organization.
“Teamwork doesn’t just happen,” Perrone said. “You know what just happens? Packs. That happens in an immature team environment. Developing high performing mature teams takes time and purposeful effort.”
Control and planning
When developing a better business model, a business owner should try to control what is within their grasp to control.
“If you want to build a hotter business, you have to control what you can control. You can’t control Medicare. If we are looking at our processes, building our teams and checking workflow through the system, what you can control is waste.”
Perrone quoted from the consulting group Tor Dahl & Associates that on average, 28% of a company’s resource are typically needed to accomplish its goals and objectives, while 72% of the remaining resources are either wasted, misused, or under-utilized. This is enough, she said, to nearly triple productivity by applying resources more effectively on higher value activities to create an “unbridgeable gap” between a company and its competitors.
If a new or established practice owner wants to become a leading edge company, they must define a new product or service they want to deliver or market to tap into, then devise a plan.
“You need a written plan, but don’t just stop there. Study the results.” Results should encourage change and then action, a repeating process. “This is where you get teams of people together to grow and get smarter,” she said.
Position for change
Perrone suggested using a six-step scientific method to review your company to put it in a position for change:
Practitioners can use the same list of parameters to define and evaluate their business model as those who are just starting out a company, she said.
Business goals. A business owner’s goals should not be just to make money, Perrone said. Other goals may include providing a better quality of life to patients, creating a rewarding place to work, providing for their family, and being a community partner in health care. Profits are a by-product of doing everything else right.
Who are the customers and what are the goals for them. Perrone recommended gathering a focus group of amputees to help assess new products and services. Using their feedback, a business owner may better define the company’s direction and areas of improvement.
“Are you in the business of orthotics and prosthetics, or are you in the business of helping patients heal? Or helping patients get back to a better way of life? I am not thinking braces of legs and arms, but ancillary things. What else can you add to that to improve their quality of life?”
Summary of financial prospects. Know what kind of investment to make, the return on investment and the break-even point.
Employees. Business owners should know what their employees do, although many owners choose to be hands-off and are not particularly inquisitive about their employees’ roles. Reward your high-performing employees and prune the ones who have made it clear they do not want to be there, Perrone said. But know when enough if enough.
“One of the biggest failings of immature managers and companies is they throw more bodies or computers at the problem without understanding what the problem is. And in time of crisis, people get cut, and the work still gets done. If you don’t know what your people are doing and you do not know their capacity, you do not know your business.”
Define the market edge. O&P business owners should research to discover how they are different from the business down the street.
“Part of the brainstorming process is knowing the market. You have to analyze what the marketplace looks like,” she said. Owners can break down the market demographics in age, income, health issues, education, etc., and then target new initiatives accordingly to serve a growing or underserved market.
“If you have an average age in your area of 60 [years], are you going to go after the pediatric market? Probably not. But if the average age is 35 [years] and they are building new schools around, pediatrics might not be a bad idea.”
Other parameters to explore include knowing the competitor’s strengths and weaknesses, knowing and meeting potential referral sources, and learning what contracts are needed and how to get them.
New business models
A young startup’s business model may focus on social media and high technology, two areas than an older company may not be paying attention to, but should.
“It is a different generation coming,” Perrone said. “Tradition and artistry are important, but with the new batch, for example, we have constantly expanding and improving technology that will take us to the next generation. So you ask yourself, am I going to keep doing this the same way, or am I going to change?”
Although some new innovations and applications aren’t necessarily cost-effective, neither is ignoring them. “Learn new technology as you go. Analyze the price point, but do not let it go by unnoticed or cavalier that it is not beneficial without investigation,” Perrone said.
Older employees and owners should learn new technology alongside younger employees. Having that experiential knowledge can help an owner analyze a new technology and put it to the test.
Regardless of whether an O&P practice is young or established, a successful business model starts with a clear vision of the company’s goals and unshakeable core values. The company’s core values embody its heart and soul. “Your core values should be the mountain you are willing to die on,” Perrone said. — by Carey Cowles
Disclosure: Perrone is director, business development, De La Torre Orthotics & Prosthetics Inc. and consulting partner for PROMISE Consulting Inc.