Wal-Mart's lessons for reinventing hospitals

When a successful innovator like Wal-Mart is urgently reinventing itself, America's hospital executives should take note.

Point after point of Wal-Mart's transformation, as reported in The Wall Street Journal (“Wal-Mart Looks to Grow by Embracing Smaller Stores,” July 8), shows the core components to remaining relevant in a rapidly changing environment.

Recognize the signs of business-model weakness. Despite Wal-Mart's strong financial position, the trends — five straight quarters of negative U.S. sales and six of declining store traffic — suggest weaknesses in their basic business model. Although some of this erosion was due to the slow economy, Amazon and dollar stores — rather than other mega-store retailers — were also responsible.

Don't be beholden to the current business model. In response, Wal-Mart is turning its successful value proposition on its head, transitioning from its current big stores/low prices model to smaller stores, flexible pricing, online focus and broader selection. One analyst is quoted as saying, "You're basically saying thousands of supercenters are going the way of the horse and buggy….It's a scary thing."

Focus on convenience. Although Wal-Mart's everything-in-one-store approach has been enormously successful, a new generation of consumers wants even more convenience. Wal-Mart's facility-based pilot projects all focus on smaller size and greater accessibility: Walmart To Go convenience stores, Walmart Express and Neighborhood Market mini-stores, and even free-standing liquor stores.

Get beyond the four walls. Recognizing the competitive threat of Amazon, Wal-Mart has been nurturing its e-commerce business for years, employing a very different approach to product selection and prices on its website than in its retail stores. Wal-Mart actually outpaced Amazon in web sales growth in 2013, the Journal reports. In addition, Wal-Mart is increasing the connection between its web and store businesses, experimenting with drive-through pick-up of online orders at new express stores.

Move quickly while you have financial strength. Wal-Mart is still a financial giant, having grown its revenue by $70 billion in the past five years despite a declining rate of growth. This financial strength has allowed the organization to invest about $500 million last year into e-commerce, along with millions more in test stores. Wal-Mart's new CEO "has doled out urgent instructions to accelerate new store concepts and online strategies," The Wall Street Journal reports.

Don't let short-term concerns deter long-term strategy. Wal-Mart will face some negative financial results in the short-term from these new initiatives, according to The Wall Street Journal reporting. However, those investments will be necessary to "bring Wal-Mart into the 21st century," says an analyst.

The comparisons to hospitals are stark. Where Wal-Mart has experienced declining traffic and sales, U.S. hospitals have seen declining inpatient volume and revenue. Where Wal-Mart finds itself confronting new competitors, hospitals are seeing their business, especially their low-intensity business, targeted by non-hospital competitors from convenience clinics to freestanding outpatient surgery centers to web-based companies — all offering patients greater convenience and lower prices. Where Wal-Mart is shifting its focus to smaller stores with more geographic distribution, hospitals are being challenged to move beyond their own "big-store" model to create an integrated network of convenient entry points for patients, including urgent care centers and in-home care management for at-risk patients.

Like Wal-Mart, hospitals need to come at this transition with a sense of urgency and an understanding that near-term investments will be necessary for long-term viability. And like Wal-Mart, many hospitals are in a strong enough financial position to make those investments.

The Journal article does sound a cautionary note that is equally important for hospitals: Even speed, strong ideas, and sizable resources do not guarantee success. For Wal-Mart and hospitals alike, innovations will need to yield sizable results to replace revenue likely to be lost due to business-model disruption. Yet, while aggressive efforts at transformation do not ensure success, staying with a legacy business model in a changing environment is an even riskier proposition.

 

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