Creating a Competitive Advantage 

Have you ever picked up a generic brand of soap, cereal, medication or any other consumer good over the pricier original version while shopping at the grocery store or pharmacy?  People will often pick up the generic brand of Kellogg's Fruit Loops (Fruit Rings) at the supermarket simply because the price is cheaper.  Heck, if the box looks the same, they are both loaded with sugar and your kids love it, why pay $1.00 more for the Kellogg brand?  Something similar may be happening to your business if patiets or customers are opting for the generic version of your practice.  The rehabilitation therapy industry now is extremely competitive and in the US consists of about 20,000 private practices with a combined annual revenue of $14 billion.  That is not even counting many practices that are part of the "rehab contract" sector which provide rehabilitation services in over 16,000 skilled nursing homes, independent living facilities, hospitals and assisted living facilities.  Although some major players exist the industry is highly fragmented and the top 50 companies account for less than 25% of the market share.  That means that there are over 15,000 outpatient practices that are owned by physical therapists, physicians, chiropractors and other various investors.  Have you ever thought about what makes your practice so different than all the rest?  How are you planning to stand out from the 20,000 other players in the market?  If your gut instinct immediately tells you that the answer is: "by providing high quality care" or "achieving exceptional clinical outcomes" you are probably thinking along the same lines as probably 95% of your competition which means that your customer base will more than likely pick your facility because of geographical locations, price or insurance reasons.  To put it modestly, your customer - the patient or referral source (i.e. physician) - just commoditised your practice.  In order for your practice to have a clear distinction from the current competitive environment and avoid getting confused with the thousand of "Fruit Rings" out there in the market, you need a well defined Competitive Advantage and a business strategy that is built around this advantage.

In his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance Porter argues that competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors.  In other words, the term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market.  According to Porter, competitive advantage can come in two ways: 1) cost advantage or 2) differentiation advantage[2].  The first is an obvious one and a strategy that we see in companies such as Wall Mart, Southwest and the Dollar Store.  But competing in price is an extremely dangerous strategy unless you have the economies of scale and systems to substantially lower your prices while maintaining low but healthy profit margins.  The danger of this strategy in our industry is exemplified by HealthSouth Corp when they were in the outpatient business.  Because of the vast volume of their out patient clinical network, they were able to negotiate contracts with HMO's and other insurance payers at extremely low reimbursement rates (typically in the ranges of $50 - $75 per visit).  HealthSouth gained a momentary but unsustainable competitive advantage over competitors that could not get into HMO networks or simply did not want to sign contracts at such low rates.  The company grew rapidly but as therapist salaries continued to raise while reimbursement of services continued to drop their margins kept shrinking.  Towards the end, volume became their only ally and the company was forced to either a) increase therapy efficiencies (more patients per hour) or b) pop up more clinical locations like Starbucks Coffee shops in order to continue to increase volume at the expense of profit margins.  Both of these strategies did nothing to increase the value that their practices offered to patients or referral sources and hindered their ability to provide quality care and retain the most precious assets in our business - good therapists.  Amidst other various organizational difficulties such as accounting scandals and other legal matters (i.e. Medicare fraud), margins fell to such low levels that the company had to completely sell its entire outpatient network of over 600 clinics (among various other assets such as their diagnostic service business) to Select Medical just to pay debt obligations and re-invent itself by focusing on their Rehab Hospital business while exiting the out patient market all together.   At the end, there was nothing that made HealthSouth different besides having better accessibility through geographical locations and very much like "Fruit Rings", cheaper prices.  This example proves that even the major players in our industry are at risk if their business models become commoditised.  Unless your systems and economies of scale are extremely better than the rest, competing on price like HealthSouth did is a very risky proposition.

The second form of competitive advantage as stated by Porter is a differentiation advantage and this is what truly makes your firm different than the rest.  It is this advantage that will drive your business strategy and systems and will make a patient choose you versus your competitor.  There are two forms of competitive advantages within the differentiation category: 1) internal competitive advantage (ICA) and 2) external competitive advantage (ECA).  ICA's are very important and can help a company pull apart from the competition through the development of better systems that drive efficiencies in the workplace, distribution channels, supply chains or logistics.  Usually, these advantages are not directly experienced or seen by the customer. For example, your company might have the capability to bill and process claims faster through its electronic data form system than anybody else in the industry.  This system would give you a distinct advantage on the velocity that your firm can turn claims into cash when compared to your competition.  Or perhaps your organization has developed systems or proven turn key processes for front desk personnel, managers and clinicians that establish the ground rules necessary for proper documentation to avoid the denial of insurance claims.  Such quality processes are also known as Six Sigma.  Six - Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in established systems.  Such processes may drive down costs or improve your ability to generate cash which in turn may allow your business to invest in new innovative clinical programs or technologies that will directly drive value to your patients and customers; in other words, this will lead to the development of ECA's.  External competitive advantage is what your customers will directly experience from your products or services and the reason why they 1) walk into your clinic in the first place; 2) continue to come to therapy and most importantly 3) make a decision to recommend or not recommend your product and services to somebody else.

There are many ways to differentiate your practice from the rest via a well formulated and defined external competitive advantage (ECA).  Some examples of ECA statements in our industry may include:

• Our specialized lumbar pain management program ensures that every patient will decrease low back pain levels by at least 6 points on a 10 point visual analog pain scale after only 5 physical therapy visits.
• We guarantee that every athlete gets back to the field following injury and/or surgery and surpasses prior level of athletic performance upon completion of our Advanced Rehab and Sports Enhancement Program.
• We have an average 98% success rate following in functional recovery following hand flexor or extensor tendon repair surgeries since 2001.
• We experience an average FIM improvement of at least 75% for 95% of every CVA patient that rehabilitates at our center.
• We have 100% success rate in scheduling post op patients into our clinic within 7 days of a doctor's referral.
• All of our referring physicians and nurses will receive a detailed follow up progress note that will take no longer than 5 minutes to read within every 10 days of therapy.
• We are the only clinic with a pool therapy program that specializes in geriatric orthopedic care within the entire county of Monroe.

As you can note from the statements above all these ECA have two key elements: 1) they all focus on a very concrete advantage and 2) they are measurable.  The key to a sound ECA is to focus on not more than 3 key elements or competitive advantages.  You cannot possibly be the best at everything so it is imperative to narrow your strategy.  Looking outside our industry for example, Southwest Airlines has become the most profitable airline in the industry forcing many competitors into consolidation or bankruptcy by focusing on two key elements: "We are the lowest cost carrier" and "We will get to your destination with fewer delays or cancellations than any other airline".  Every management decision that Southwest makes is designed to deliver these two competitive advantages to their customers.  At Southwest the food and drink menu is way below average; there are no TV's; the planes are narrow and leg space is sub par compared to other carriers; there are no international flights available and people are herded into planes with an unassigned seating mechanism that speeds up the boarding process.  Nevertheless Southwest continues to put way many more butts in their plane seats than anybody else in the industry because of their focus on their competitive advantages.  Moreover, management decisions are based on these advantages.  For example, Southwest chooses to board planes by sections with an unassigned seating system in order to "turn over" planes faster as they land.  The faster they can board the plane, the less chances the flight has for a delay.  Southwest realizes that they cannot do everything right, but if they deliver on their two competitive advantages and most importantly, let the whole world know about it, they will continue to be the number one airline in the U.S.

Chances are that your business is good at something already so this would be a great place to start creating a superior competitive advantage marketing strategy.  Beware however to advertise or promote a competitive advantage that you cannot deliver upon as this would be a sure recipe for loosing clients.  Another peril of creating a strategy around your ECA is that you may believe that your practice has a distinct advantage over the competition when in reality your service or program is just as good as the clinic next door or worse yet it is at a sub-par level when compared to the competition.  For example if you have a specialized spine program in your center, what makes it so different than the rest of your competition?  What about your spine program is so salient that it will make patients continue to come back or physicians to refer to you?  Perhaps you have a group of specialized manual therapists in your practice but so does the clinic that is 10 miles away.  However, maybe you pay for all of your therapists to be certified in McKenzie techniques and put them all through a rigorous McKenzie program that ensures specific clinical outcomes.  Or perhaps your therapists have also been trained in a state of the art technology that few other centers can offer.  Hence, your clinic may have a solid spine program with manual therapists just like clinic X but your program is the only one in the county to certify all of your therapists in McKenzie techniques and when combined with the advanced technology you have produced a distinct turn key program with quantifiable clinical outcomes that nobody else around can reproduce.  In other words, when defining your ECA, make sure that you're not doing something similar or even perhaps a little better than your competition and try to stay away from head to head competition.

As in the case of Southwest Airlines, once a company has drafted a competitive advantage all strategic decisions should be based on the set of competitive advantages that have been outlined.  If you have decided that your practice has the proper tools and resources to serve the workers compensation market for example, stop worrying about marketing your services to primary care physicians or sport medicine doctors.  Align your ICA's and ECA's to drive value to your customer base - patients, workers compensation case managers and physicians dedicated to this niche.  Most importantly, make sure that your competitive advantage is salient from the rest of other worker comp providers out there.  Having two or three compelling ECA's will be the key value drivers that will keep your patients and referral sources coming into your clinic and most importantly coming back.  Most importantly, these ECA's will also define the brand of your firm.  Finally, make sure that your entire organization has a relentless focus on delivering these ECA's day in and day out.  At any point in time every employee in the organization should be able to spit out your organization's ECA's like the days of the week.  Finally, continue quantifying, defining, promoting and advertising your ECA's every day.  By taking these steps, you will have patients coming to your clinic not because you're the cheapest or closest geographical option, but because you can deliver on a value that nobody else around can.

References:

1. Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter
2. First Research: Industry Profile - Rehab Therapy Practices
3. Creating Competitive Advantage: Give Customers a Reason to Choose You Over Your Competitorsby Jaynie L. Smith