Welch's Law — dominant or market essential, lean or special: Hospitals, health systems, physician practices and surgery centers

There is a "law" that I will call "Welch's Law." Jack Welch famously said of GE, "We need to be first or second in a market or not compete in that market." While this concept may have gotten water downed over the years, recognition of its importance seems to be making a dramatic comeback. In technology, in phone systems, in electronic retail and e-commerce, it has never been truer than it is today that being first or second gives you a dramatic advantage in profitability and revenues. In healthcare, this rings quite true. 

In my own view, you ultimately have three core choices to be successful in business, whether as a healthcare system, practice or surgery center. First, a system, practice or company should aim to be "dominant" and/or needed in its market. Anti-trust lawyers have moved this concept of "dominant" to the word choice "market essential." Whatever you want to call it, for offering services to patients, payers or recruiting talent, it seems to pay to be dominant. Throughout the country, we see scattered chains that don't do very well. In contrast, those same chains in markets where they are "market essential" earn disproportionate profits compared to their other markets. 

Second, you can be super lean. This has often been the recipe for business in its later days where it is trying to reap cash for a practice that is trying to hold on through retirement and so forth. It has also been a long-term method of profitability for some practices, surgery centers and hospitals. At the same time, given the cost of operations today, it has become more difficult to be "so lean" that this itself can be a business strategy. Further, the market doesn't seem to pay you for being so lean. Lean is important. However, as an absolute core market strategy, we think it is secondary to being dominant or market essential. 

Third — and this is very difficult — a system, surgery center or practice can be so uniquely excellent in something that it has a special market position and can continue to make money off of that type of position. However, as information and best practices become shared so quickly, it is harder to have such a unique advantage of being so great in something that there is no one else to visit for it. It also takes great resources and discipline to maintain and improve this position.  Thus, you end up much more in a situation where you aim to be dominant and rationally lean.

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