A competitive advantage
NHS dentistry is facing its biggest shake up in 50 years. Under increasing pressure to improve both productivity and raise the level of patient care, practice managers are charged with identifying new ways to gain a competitive advantage over rival practices. Customer satisfaction and practice profitability are undoubtedly linked closely to product and practice quality.
In 1980 Michael E Porter, a professor of business administration at Harvard Business School and a renowned leader in management thinking, introduced a model of sustainable competitive advantage. The Porter model suggests that the state of competition in an industry depends on five basic forces and that the strongest force determines the profitability of an industry.
By analysing these forces and predicting their interaction in the future, Porter argued that managers can position a business to capitalise on the opportunities and mitigate risk. Under pressure to devise new business strategies, dental practice managers would be well advised to consider established business strategies like Porter’s Five Forces model.
The five forces that Porter suggests drive competition are:
• Threat of new market entrants
• Threat of substitute products
• Bargaining power of buyers
• Power of suppliers
• Positioning of the current competition.
The five forces model should be used as a tool by practices to assess the value of dentistry as an industry and the competitiveness of a practice within dentistry.
How easy or difficult is it for new practices to enter the dental industry? The financial cost and experience needed to establish a successful practice is a highly-restrictive barrier to entering the industry. The biggest threat to existing practices comes in the form of practice associates who, disillusioned with their own career and with the necessary resources at hand, attempt to establish their own practice. And in light of recent reports indicating that the industry could soon be 5,000 short of NHS dentists, securing patients would not be a restraining factor.
How easy could dentistry be substituted? The threat of substitution to dentistry at macro level is negligible, but the situation at practice level is clearly different. Clinicians offer a range of options for each
treatment that are artificially constrained by government regulation.
From April 1 the restrictive fee-per-item structure ends and the opportunity to substitute materials and procedures will begin. Dentists will be free to utilise techniques that they feel offer clinical benefits to clients and deliver higher profits to the business.
How strong is the position of the customer? The most powerful of Porter’s five forces is undoubtedly the power of the customer. The current fee-per-item structure controls the price of dentistry in the UK. Instead of over 400 prices for different items of treatment, from April 1 a simple system of three bands will be introduced.
Primary care trusts will be empowered with local control of resources of dentistry. Patients will be in a far stronger position to influence competition within dentistry. Patients also tend to be price sensitive when purchasing products that are undifferentiated, expensive relative to their income and when quality is not important.
How strong is the position of suppliers to the dental industry? Susceptible to the fortunes of the industry, the relatively few suppliers that do exist protect both the industry and patient’s interests via reasonable pricing and ploughing resources into research and development and lobbying.
Does strong competition between existing practices exist? Rivalry within dentistry is intense due to the fragmented nature of the industry. Differentiation exists in the form of NHS and private practice. Private patients shop for alternative treatments and are receptive to different levels of customer service. If a practice focuses resources on negotiating with a PCT to provide income it should adopt a different approach to one focusing on its customers for income.
The wise business strategist will analyse the current macro and micro environment and predict future industry circumstances. The April 1 changes will open the door for dentistry as an industry to increase profitability.
Individual practices are challenged with developing strategies that will enhance their competitiveness. Analysis of models on sustainable competitive advantage, including Porter’s Five Forces model, are recommended. Practices that fail to adopt new and tailor-made strategies and simply accept a PCT contract cannot and should not expect to benefit from the new opportunity.
My advice to practice managers is be clear who your customer is – the PCT or the patient. Product differentiation is the key here. In the case of PCT’s, managers must establish and deliver exactly what the individual trust wants and tailor your product accordingly. And with over 720 varied PCTs in the country, you cannot assume that you know the answers without asking the questions.
Alternatively, if your customer is the patient, can you explain why they should use your practice as opposed to a competitor? A practice must invest in new products and enhanced services which delight the customer. Comfortable offices, modern equipment and customer-focused staff add no direct clinical benefits, but are vitally important to the customer and fundamental prerequisites to a successful practice.
Only when a manager views its practice as a business and understands its patients as customers can a strategy of sustainable competitive advantage be implemented. Delivering customer value and satisfaction is the only route to success. Rudimentary analysis of the individual patients’ needs, wants and ability to pay will highlight an enormous amount of latent opportunity. The job of the business sales team is to satisfy this opportunity profitability.