Value Creation in a Healthcare Business

Creating economic value in a privately owned company matters, even in healthcare.  To be clear, value creation is not just about increasing profits.  In fact, there are times where in order to increase long-term value, a business owner may sacrifice short term profits.

While this article is directed all healthcare participants, vendors to providers included, it is often uncomfortable for healthcare providers to talk about maximizing value.  Some think that maximizing profits in healthcare means a company wins at the expense of patients and employees.  However, without consistent quality care and employee satisfaction/loyalty, value is destroyed.

In fact, the typical results of focusing on value creations is not only a higher value upon exit, but a more efficiently operating company, higher quality of care and higher patient/customer satisfaction.  Study after study* suggests that value creating starts with patient/customer satisfaction and employee loyalty.  There is a strong evidence to suggest that if a company is not creating value, they are doing a disservice to their employees and patients or customers.

We’ve identified four characteristics of companies that excel while creating value.

Value creation leaders have a clear understanding of their current valuation.  

In order to create value, you have to know your starting point.  Some companies may have a vague idea based on a rule of thumb or a guess from a business broker, but value creators know exactly where they stand.  There is no guessing, they make decisions based on a foundation of fact.  See bottom of article for the cost of a valuation.

Value creation leaders have a plan to create value.  

Knowing their value is only step one.  Value creators will have short and long-term value creation targets they want to hit and a plan to get there.  For healthcare technology or vendors to healthcare services providers, we have identified 8 key areas where value creators focused plans to create value.  For healthcare services providers there are 9 key areas.  We will discuss these areas in our next article.

Value creation leaders have made a culture of value creations.  

Value creators are not afraid of talking about creating value.  They may talk about it different ways with different stakeholders, but they want front line employees thinking about how to create value for their follow employee.  They want direct care providers thinking about how to create value for the patient, the family and the referral source. Value creators will incentives every level of staff, in different ways, to contribute to value creation.

Value creation leaders are brutally honest with themselves.  

When value creation permeates the culture, value creators are quick to eliminate activities, assets or employees that do not contribute to the value of customer, patient, other employees and the company.  They know if value is not being created, the company is opening the door for competitors.  And ultimately, if they have determined the company is no longer creating value, they sell the business.  Value creators know that every company has a value continuum.  Once the they have maximized value, it is either time to bring in new management or exit the business.

Cost of a valuation.

DealZumo can provide a valuation for $750, based off market comparables from recently completed transactions in your industry segment.  We maintain a large database of proprietary healthcare transactions and would require minimal financial data from you to complete the valuation.   Contact chip@dealzumo.com for more details.

*Sources:

https://hbr.org/2011/10/to-create-long-term-shareholde

https://thesystemsthinker.com/value-creation-and-business-success/

http://www.ripublication.com/gjfm-spl/gjfmv6n5_03.pdf