When knowing the customer isn’t enough

Key Thought:

What can we learn from the retail industry that will apply to a hospital setting? Does it even make sense? Is it that important?

Below is a summary of an article on retail analytics and some of it, I think, is instructive for a hospital trying to move from basic services to a five-star hotel service level (or at least try to :-P)

Summaries:

1. “Know the customer” is a retailing mantra. Retailers evaluate ‘consumers from multiple sources to understand who the best customers are, then combine that information with what and how they like to buy’.

2. ‘Unfortunately, just knowing the customer isn’t enough in today’s retail world.’

3. ‘Retailers need to anticipate and shape future demand to come as close as possible to satisfying each customer’s unique needs. Achieving this at such a detailed level requires automated processes enabled to solutions with the latest in predictive analytics and optimization capabilities.’

4. ‘The ultimate goal is more than having the right product in stock at the right price; it’s about tailoring the entire shopping experience to create an emotional bond with the customer. In effect, this means turning today’s multichannel retail enterprise – in a consumer’s eyes – from “the store” to “my store.”’

5. ‘Did you know? Your favorite retailers use analytics to know not just what to put on the shelves, but also where to put it.’

My comments:

While this article is discussing decision process automation (DPA), a lot of what was said can be translated, some indirectly I admit, to healthcare.

1. In a hospital, we don’t just open a new clinic, and hope patients would show up. Or we just gathered materials from the doctor, and hopefully that is what patients wanted. Do we need to spend more time understanding our patients? It’s a fact that hospital are organized for the efficiency of the process, and not the patient. When was the last time we ask ourselves, how can we make it simpler for the patient?

2. After the mantra, ‘know your customers’, it seems that it is not enough. As competition heats up, yes, even in healthcare, discerning patients looks for more. How much do patients value transparency, honesty, fair prices, competence, and environmental consciousness in a hospital? How much before patients will make a different choice in selecting a different hospital?

3. Automation will be required to analyze the endless permutation of needs, but building that capability organization-wide will not be easy. The concept itself is not well understood by decision makers. Getting care-givers to come on-board will be the key to succeeding.

4. Yes, we are in the experience economy. Same goes for healthcare.

5. It will get even more specific as tools become affordable.

When are we ready for the change? Can we afford to wait longer?

Reference: When knowing the customer isn’t enough: decision process automation is the key to delivering jus the right offer to each retail consumer by Alexi Samevitz, SASCOM magazine pg 7-8, First Quarter 2009.

Creating Value in a Down Economy

Key Thought:

The dominant topic in conversation these days is who got laid off.  As usual, the book titles in the book shop has adjusted accordingly too. There are a lot of opportunistic penmanship out there, but I did come across a very relevant, practical and solid write up.  It's about customer profitability.

Is there a way to improve profit without increase revenue or laying off staff? Apparently there is.  Read on...

Summary:

Quotes:

- Potentially, 400 percent of the figures listed on your profit-and-loss statement could be recovered as profit

- ...best 20 percent of customers contribute profits equal to 500 percent of earned income, while 60 percent breakeven at best; the worst 20 percent destroy 400 percent of earned income.

- ...if market segmentation analysis relies on incorrect information about profitability, efforts to grow sales could be directed toward the 20 percent of customers that are unprofitable.  In reality, these efforts will accelerate the destruction of profit.

The article helpfully define what Activity-Based Management (ABM) is.  It's not a financial system, it's an organizational cost-and-profit-analysis too.  It attributes costs to processes, and process costs to the products and services that benefit, and ultimately to the customers that receive those benefits.  ABM pinpoints, in a highly understandable way, the top areas for action and the changes that will maximize profits and minimize costs.

ABM can be used to resolve budget constraints, fight price wars, re-engineer processes, consolidate overlapping organizations, optimize customer acquisition and retention, reduce unused capacity.

Top 3 barriers to adoption of ABM:

1. Failure to convince management that change is needed. Resolution requires leadership, communication, learning and the ability to build a broad-based coalition of the willing.

2. Failure to define a clear business purpose for ABM.

3. Failure to plan for and capture a significant ROI. If the business purpose of ABM is to change decisions for the better, it should be possible to anticipate where the returns will be.  And, once the system is in place, you should be able to compute the returns from the resulting decisions.

Often, the ROOT CAUSE of barriers to adoption is lack of knowledge about ABM. So to start, we must build a coalition of the willing in order to get ABM adopted in our organization.

Additional input from SAS blogs:

- champion from Finance/Accounting is needed

- start focused and small

- firms have to be aware of the necessity to track...how much to spend on each customer to retain them as profitable customers

- the company with the best cost information wins

My Comments:

It is in our mid-term plan to implement ABM.  This is the first shot in our quest to get ready for this.  We should take heed of the last paragraph, let's learn as much as we can about the theory, the tools and the lessons learned from those who have done it, then we start.

Two links to SAS website provides more information.

www.sas.com/sascom-profitablecustomers

www.sas.com/sascom-abmtour

Reference: Creating Value in a down economy: want to turn losses into profits? identify your most - and least - valuable customers, Interview with Peter Turney, CEO of Cost Technology, by Jonathan Hornby, SASCOM magazine, First Quarter 2009.