The "Value Chain"
Review support activities to improve practice margins
Eric Rindler, DDS, PA
There are endless articles with ideas on how to increase your practice's profitability. Harvard Business School's Michael Porter developed the concept of the "value chain," which encourages you to look at the components of your practice in baskets or as building blocks.
When you think about the business side of your dental practice, you may wonder where and how you could make adjustments to increase your profit margins. In my experience, dentists do not focus on an overarching strategy. Instead, we focus on specific tactics to achieve a specific goal, such as obtaining new patients, scheduling more efficiently, increasing hygiene production, or gaining better pricing on supplies. Although these tactics are suitable ways to improve individual parts of the practice, focusing on a big picture strategy might provide a more effective way to increase your practice's profit margins long-term.
Let's look at how these tactics fit within an overarching strategy to improve practice margins. After you understand the strategy, you can then identify where and how the tactics fit to benefit the practice. Start by first examining your practice's value chain.
The value chain concept was initially presented in Michael Porter's book, Competitive Advantage. Porter explains that by looking at the various links-or processes-in your value chain individually, you'll be better equipped to assess what processes and activities (ie, tactics) could be added, augmented, modified, or removed to create a more positive impact on your bottom line.
Traditionally in dentistry, practitioners spend most of their time focusing on "primary activities," such as marketing (ie, reaching/attracting new patients), inbound logistics (ie, patient intake, scheduling, checking insurance), operations (ie, the actual procedures), and other logistics that occur before a patient arrives at the office. However, secondary "support activities" can also have a significant effect on practice margins if viewed and managed intentionally.
Intentional Management of Support Activities
Think about your practice's human resources (HR) efforts. Historically, dental practices tend to think of HR simply as payroll and benefits. But what if you approached HR as a company resource to develop your staff both at work and at home? That might mean investing in employee training or health programs. When their talents are supported, the team members will likely be more motivated and efficient in their jobs. If they have access to health programs, they will likely have fewer absences. Providing professional and personal growth opportunities can create real value for your practice. Additionally, this investment can help minimize turnover.
Consider that most industries offer career advancement and promotion. Dentists can offer individual growth, allowing team members to contribute to helping the organization run more elegantly. In addition, investing in the HR block of the value chain can improve the intraoffice operational feedback loops and have a positive impact on office culture.
Another block to consider is the technology in your office. You've invested time and money in it, but is your team well-trained in its capabilities? Are they utilizing it to its fullest potential to make your office run more smoothly and efficiently, or are they using it the same way they always have? Is your technology creating value, or is it creating challenges? Could new or different technology serve the practice better? In an optimized practice, the technology should be evaluated constantly. It may or may not be adding value to the practice, but you won't know unless you educate yourself about the options. For example, a new VoIP phone system may be less expensive than a traditional phone system, and yet it instantly provides information about a patient's file as soon as he or she calls in (like enhanced caller ID), making phone interactions faster and more accurate.
Although this article is focused on support activities, one primary activity is also critical to a dental practice's margins, and that's service. Presumably, your practice is already following the obvious customer service actions, such as calling patients after appointments, returning calls, and getting emergencies in promptly. But what other service-related items create value for your practice? For example, many well-run practices have found dental insurance to be not just a necessity, but also a component that can create significant value. What role does insurance play in your practice?
How does taking dental insurance create value? It's important for you and your staff to first know your practice's rationale for accepting insurance. Is it for a short-term cash flow infusion, or is there a long-term goal of growing your practice by attracting more patients, creating great experiences for them, and hoping for future referrals? There is not one right answer for all practices, but you and your staff need to understand how and why a component such as dental insurance fits into your practice's value chain.
Procurement is an area where practices can all learn from dental service organizations (DSOs). Many dentists think these DSOs are buying at huge discounts. Although they do receive better pricing (because it costs less to do business with a larger group-basic benefits of scale), the reality is they have a better understanding of supply chains in their offices. They have excellent inventory control systems in place, which economically, can be just as significant as a discount on supplies.
In most practices, cost and waste could be lessened by better predicting business cycles and practice needs to manage the supplies on hand and minimize or eliminate spoilage. Review the supplies you have in inventory and understand their turnover rate. What is the cost of being over- or understocked?
As you review the various processes and activities in your practice, consider whether you have addressed the entire value chain. If you identify an area that has not been addressed adequately, this might be a great opportunity for you to look at your practice in a new and profitable light.
About the Author
Eric Rindler, DDS, PA, maintains a private practice limited to periodontics and dental implants in San Antonio, Texas.