Financial Pressure Mounts on Hospitals: Suppliers Are You Ready?

August 22, 2014 — Leave a comment

In his book, To Sell is Human, Daniel Pink talks about the idea of perspective taking. It’s a simple concept. Basically, it’s about trying to understand the world from the other sides’ perspective – what they are thinking. It’s an important skill for selling and negotiating.

For suppliers who sell to hospitals, viewing the world from your customers’ perspective is extraordinarily important. Many suppliers have developed excellent skills and capabilities to understand and serve the users of their solution (e.g., physicians, nurses, technicians, etc.). However, many suppliers to hospitals have an under-developed capability of understanding and serving the hospital as a business.

This capability is especially important these days as hospitals face tremendous change and financial challenges. Just recently, Standard & Poor’s Rating Service issued a report that said standalone, not-for-profit hospitals are at a tipping point and face mounting financial pressures. Likewise, Cleveland Clinic CEO Toby Cosgrove told CNBC that he needs to reduce the hospital’s costs by 15-20% over the next 5 years. He’s not alone. A survey of the American College of Healthcare Executives showed that financial challenges are the number one concern of hospital CEOs.

With goods and services representing roughly 40% of hospital costs, it’s not surprising that suppliers have been and will continue to be in focus for cost-reduction efforts. Smart strategic-sourcing, negotiating and utilization strategies can squeeze 10-40% savings from various supply categories.

Once the buyers take out the low hanging fruit of cost savings, they then need to move on to changing business models. This also means finding different types of relationships and arrangements with suppliers. It is a normal part of the evolution of an organization as it becomes a smarter buyer, and begins to see the supplier network as a capability.

For suppliers, this means being ready for two separate stages of evolution in buying and supplier-customer relationships. In the first stage, being able to effectively deal with strategic-sourcing tactics and the short-term pricing pressure is key. The second stage is about being ready with new and different business models, and ways to work with customers to achieve outcomes together. As the market evolves, it’s likely that suppliers will need to be able to handle customers at both stages of the buying evolution. This means new skills, process, capabilities, and probably organization changes. Are you ready?

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