At APP, I presented on the topic of building a sustainable pharmacy business. A sustainable business is one which produces the necessary profits and cashflow to enable a business to grow and meet its commitments now and into the future. Over the past few months I have been writing about the need to change the pharmacy business model in order to overcome the profit reductions that are flowing from PBS Reform. The message is clear from industry – change the model or you will NOT have a sustainable business.
There was a very interesting trio of articles in the Weekend Australian of March 29-30 2014, from Henry Ergas, Sid Maher and Judith Sloan. The three writers combined to fill the canvas on the mountain that the current Federal Government has to climb to overcome expenditure commitments made by the former government as well as the ever-growing commitments in areas such as aged pensions and healthcare, (yes the PBS got another mention), with additional problems being caused by underperforming revenues, ie taxes collected falling short. Mr Ergas makes a comment that, "the result is… plunging positive net assets of $44bn at the end of the Howard years into more than $400bn of net debt by the early 2020s". He goes on to comment about the growing costs of aged pension and commonwealth outlays on, “the entire complex of health, aged and disability care”.
This should remind us that the government’s focus on curbing health spending is not going to disappear any time soon, and it means that owners should brace themselves for the long haul. Pharmacy will need to continue to evolve its business model, seeking revenue streams that naturally fall to it and maximising those revenues in an efficient operating environment.
Continuing strategic focus
For many years, pharmacy business has been concentrating on delivering the one model – prescription fulfilment accompanied by an assortment of retailing offers. The last five years has seen banners evolve into franchises accompanied by stronger commitments to systems and processes and a large effort to bring brands to market. Obviously some have done this more successfully than others.
The next five years will, I believe, see a frantic effort to build sustainable businesses on the back of a far more rapidly shifting market. This will require owners to keep away from the 'set and forget' mode of most of the last 20 years and be able to respond quickly to market changes and opportunities. This will mean a continuing focus on what is working in the business and what is not. It will require a constant awareness of what the opportunities are and strong decision - making to take these opportunities on quickly.
In essence, it will mean that your business strategy will need to be a 'live' discussion and not one that is revisited every few years or whenever you might renew your lease.
A moving target
In last month’s column I made comment about taking a rifle rather than a shotgun approach to managing KPIs. As your strategy evolves, new ideas will need new KPIs to tell you what is on track and what isn’t. Gone are the days when you have a fixed set of KPIs which you managed. In order to keep your strategy 'live' you will need to ensure you review it regularly and a strategy review will be a regular occurrence, just as managing cashflow and business performance is now. This also broadens the conversation you will need to have with your adviser and your team.
Getting started and keeping it going
To trained pharmacists, the areas of strategy, KPIs, reporting and review may seem foreign, but as business owners these are areas where you will need to get comfortable in order to build your pharmacy of the future. It need not be complicated but it must be consistent and persistent. At APP I spoke of a simple approach:
- building vision – what should my pharmacy look like.
- setting goals – specific, measurable, achievable, realistic and time bound. “If I achieve these goals my pharmacy will be living the vision”.
- laying out the strategy – what paths will I pursue to achieve the goals (each goal will certainly have more than 1 strategy?
- detailing actions – what jobs need to be done to implement the strategy?
- setting accountability (due date and by who) and
- attaching KPIs.
Whilst it sounds lofty, this management approach can be implemented in a way that is practical and easily monitored. As actions are carried out and strategies implemented, KPIs will be measured and reviewed. As new strategies are implemented, new KPIs will be set and monitored.
This process of business management will be ongoing. As the results start to accumulate, you will have an eye for detail as to what is working and continue to re-shape your pharmacy. As we move into the 6th Agreement this will no doubt bring more opportunities (read ‘change’) and again your business strategies will change in focus. Using the building blocks I have outlined above means you have an approach which enables you to bring new ideas in and make them part of what you and the team are doing every day, and that is the key to effective change management. If you try to implement ideas ad hoc, then the outcome will also be ad hoc. Pharmacists like to move straight to action, but action without intent can lead to lack of commitment and chaos. Change is inevitable. You just need to ensure you are managing it and being driven by it.