Service line strategies, physician integration efforts, and millions of dollars in capital investments have failed to produce market-changing increases in volume. At best, your organization has kept pace. What you need is significant and sustained top-line revenue growth. But how can you achieve it?
One solution is to restructure the hospital "front end" around customer segments and organize teams to manage product development and marketing strategies to grow volume within each group--a "market segmentation" strategy. This is a very different approach than the standard "service line" strategy. Many hospitals today are structured around specialists, organs, and diseases, befitting a physician and specialty-centric perspective on the task of making sick people well. The problem with that approach, when translated into marketing and sales, is that customers have multiple organs and complex conditions that require matrixed rather than sequential management--something a narrow service line is ill-suited to sell or serve.
Simply put, the structure of most hospitals may make sense for back-end clinical organization, but as a front-end interface it is not aligned with the purchasing patterns of the market or structured for sales.
Organizing Around Services
Consider the relatively healthy 62-year-old woman with a family history of heart disease, slightly elevated blood sugars, a cranky left knee, and mild incontinence which, as of yet, hasn't stopped her from taking a daily 30-minute walk to keep her heart healthy and Type II diabetes at bay.
She's a target for the hospital's cardiac service line. And diabetes service line. And the orthopedic and gynecological service lines. All four service lines are marketing to her. Each is staffed to meet her needs. One might actually win her business. But there are clear limitations to this approach:
- Marketing effectiveness is diffused. To win her business in each line and meet the full range of her needs, the hospital must make the pitch and the sale four times--a confusing and expensive proposition.
- Advertising that is cast to sell the specialty or organ-specific service may not resonate with the drivers of her purchasing decision.
- It is difficult to position a brand and differentiate a product relative to the competition because the hospital must position four products--cardiac, diabetes, orthopedics, and gynecology--against different competitors, again creating a confusing mix of messages and no clear driver on sales.
- Perhaps most critically, none of the four service lines are configured to understand or serve the totality of her needs or their changing dimensions. One customer becomes four different profiles in the marketing mix.
Organizing Around Customers
A different theory, and one that is being adopted effectively in other industries, is to organize around prioritized customer segments that the enterprise wants to serve. The essence of this approach is to:
- Organize around groupings of customers with common attributes (demographics, values, behaviors, etc.) who can be marketed to with services that meet the unique needs of each segment and are linked to the drivers of their preference and purchasing decisions.
- Vest responsibility for product development, marketing, and sales with teams organized (and incented) specifically to understand and serve those segments.
The marketing approach may be top-down, slicing the population into clearly defined segments--in this case post-menopausal women. Or, it may be a bottom-up approach that builds on the profile of individual consumers and creates clusters of similar customers in the market (active older women managing multiple disease risk factors, etc.). This approach enables a form of mass customization, which can be effective in healthcare markets that are at both growing broader and narrower:
- Broader in the sense that consumers are building more inclusive definitions of "health" and "services."
- More narrow in that genetic advances, technology, and pharmaceutical design are creating personalized medicine that can enable "niches of one."
Suggesting that clinical service lines be replaced by a customer segmentation strategy is a radical notion. Yet evidence from other industries suggests that re-organizing around customer segments can be an effective approach to growing top-line revenue. The middling experience of many health systems with their service lines suggests that a new strategy may be warranted.
George Day, professor of marketing, co-director of the Mack Center for Technological Innovation, and director of the emerging technologies management research program at the Wharton School of the University of Pennsylvania has documented some of the success that enterprises have had with re-organization around customer segments. He cites IBM, Capital One, and Fidelity Investments as organizations that have successfully achieved sustained success by re-organizing around customer groups.
In his May 2006 study of 347 medium- to large-sized firms, published in Knowledge@Wharton, Day detailed evidence that reorganizing into customer-focused front-end teams delivered improvements on many fronts, including:
- Greater accountability for customer relationships.
- Improved information sharing on customers.
- Enhanced ability to respond quickly to changing customer needs.
- Overall, a greater degree of consumer-friendly services.
"This design flourishes when customers want solutions that are customized to their individualized needs and delivered through a single customer contact point," says Day. Both are clear trends in healthcare markets that are being rapidly reshaped by consumerism and growing out-of-pocket healthcare expenditures. Customers are searching for greater customization in their care, which technology and scientific advances are making possible. Health systems and hospitals alike have invested millions in building primary care networks, call-centers and other vehicles to serve as a primary access point for consumers. The strategy seems to fit well with the trends reshaping the healthcare industry.
Day reported mixed results in terms of improved financial performance, largely because the time-frame required for implementation can be long, requiring sustained focus on changing customer preferences and potentially high short-term costs associated with the reconfiguration of the enterprise. One offset to these higher short-term costs is current investments in electronic medical records. Day's study suggests there is a strong need for internal information management tools to link the customer-segment teams, noting that the cost of building cross-system platforms is a barrier to realizing a quick return on the strategy. Many hospitals and health systems already have those cross-system information management platforms in place.
Implementing a "Segment-Line" Strategy
So what would your hospital look like if it re-organized its service lines into customer segment-lines? And what impact would that re-organization have on volume and top-line revenue? For an answer I go back to the core benefits that Day documented:
- Greater accountability for customer relationships.
- Improved information sharing on customers.
- Enhanced ability to respond quickly to changing customer needs.
- Overall, a greater degree of consumer-friendly services.
Perhaps it's time to re-think your model of organization. It's a core question that leading hospitals and health systems may need to explore to deliver better clinical, customer and financial results in the years ahead.
Michael Eaton is vice president of The Strategy Group in Norfolk, VA. He is a consultant, speaker, and author. He can be reached at eaton@thestrategygroup.com .
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