Assets and Relationships: Lessons from Health Care
Are you looking for the sources of value in your organization? In Value Rx for Healthcare, Edward J. Giniat, a consultant and advisor for many healthcare organizations, and Barry D. Libert, an independent consultant and worldwide lecturer, have combined forces to write the prescription for increasing the value of healthcare companies for stakeholders. Using the results of a three-year, 10,000-company study, they have written this book to reveal how value can be created in the healthcare industry. Value Rx contains the secrets that will enable managers to create value by building assets and relationships in a variety of ways, using modern technology to create endless variations and connections.
Using the human genome as an analogy for the healthcare industry, the largest industry in America, the authors describe the economic DNA of the business genome, with assets and relationships representing the chromosomes that can combine and recombine to create economic value. Survival in the healthcare industry means creating value, rather than destroying it. To do this, the authors write, organizations must learn "how to build and acquire a well-balanced portfolio of assets and relationships" through forward-looking management. These assets and relationships direct a business' growth, profitability and market value.
The authors write that since 1981, investors have been looking at many factors besides book value to determine how much a company is worth. Twenty years ago, tangible assets determined a company's market value. These days, those things are less significant; intellectual property, knowledge, brands and patents, and relationships all make up a company's market value. In the healthcare industry, the authors found, this is even more evident, and companies that invested in intangible assets and relationships were rewarded for their efforts.
Measuring Assets and Relationships
Value Rx strives to help healthcare organizations develop the best combinations of assets and relationships to build value-creating business models. The book first explains what once created value and what creates value today. Then, it delves into the task of identifying the factors that create and destroy value in all industries. Once this groundwork has been established, the authors look at a variety of specific companies and how they go about adding value to their businesses.
Quantification is a valuable tool for determining what is important to a company. What companies measure and manage determines who they are, what they value and what they invest in. The authors have found that current measurements fail to take into account proprietary knowledge and relationships with customers, employees, suppliers and investors. Without taking these into account, a company's true worth is minimized. Installing measurement and management systems that value these types of intangible assets allow businesses to make more informed decisions about where to cut and how to grow.
Four Lessons - for All
Physical assets, financial assets, employees, customers, suppliers and organization assets are all creating value for healthcare organizations. The authors' descriptions of how successful businesses implement and measure these assets contain lessons from which any organization can grow. With numerous examples from the healthcare field, the authors explore the value that companies like Walgreen, Rite Aid, Guidant, Merck, Cerner, Amgen and a number of hospitals have derived from the intangibles that often go uncharted by others. Learning from these pertinent examples, organizations can create value and reduce risk through investments in clear plans to manage these sources of value.
After many anecdotes and ideas of others have been explored, the authors present these four rules for transforming any organization's value power:
- See and build your business model.
- Take and manage risk like an astute investor.
- Connect the sources of value you own and those you don't.
- Measure and manage all your sources of value.
Although the authors focus on the healthcare industry, these are lessons that all CEOs would do well to learn.