The world is changing very fast.
Big will not beat small anymore.
It will be the fast beating the slow.
I am just back from running a KAM excellence forum in Singapore for a company working in the health industry. Whenever I visit Singapore I am amazed at how fast things change. For visitors the stunning Marina Bay Sands hotel is a symbol of fast change. The hotel opened in 2010, with three 55-story towers with 2,561 rooms and a 150-metre vanishing edge pool on the roof. It’s not just a hotel, it’s a resort including hotel, convention and exhibition facilities, theatres, retailers, and restaurants. All supported by a casino expected to generate at least $1 billion profit every year.
The Marina Bay Sands hotel is a symbol of change. Yet in the health industry (medical products and pharmaceutical) we see procurement continuing to put pressure on prices. Why? Because they can? Or because they have too? Sometimes procurement put pressure on prices because they can. They want to be seen to be adding value by reducing costs.
However, sometimes procurement put pressure on prices because they have to. Across Asia, many countries have committed to health care for everyone. Yet, many countries have insufficient funds for health care for everyone. The World Health Organisation recommend countries need funding of at least 7% of Gross Domestic product. Australia, New Zealand, Vietnam and Japan spend more than 7% of GDP. However, China, India, Indonesia, Malaysia, Philippines, Thailand and Singapore are spending less than 5% of GDP on health. So, in these countries we should expect much greater pressure on price.
Why should we care about the reason for price pressure? For countries that are short of funds, they are putting pressure on your price because they have to. So, unless you help them with their problem-- their health costs are too high—you are doomed to annual price cuts.
However, your products and services are probably 10% or less of a typical hospitals costs. So, your price cuts will not fix the funding problem. To reduce pressure on price, you must: change your organisation so you can help them reduce the other 90% of hospital costs.
It’s not enough to nod your head and think about this change. In Asia, as the Marina Bay Sands shows, things are changing much faster in the market place. To help your customers reduce the 90% of their hospital costs you need to employ people with different skills and knowledge and you need to employ these people now. For example, health economists and process improvement specialists. If you are not going to change your organisation fast, by employing different specialists, then starting slashing your overhead costs now, because your prices will just keep sliding down.