Watch out for Value Erosion

by Guy Ralfe on October 29, 2009

erosionMy father has just been in to have surgery to remove cataracts from his eye. Into hospital, operated on and out in a few hours, with virtually no pain to report and on the road to recovery at home the same day. In discussing the procedure, my mother rewinds a couple of years and explains to me that it wasn’t like that when she was a nurse in the late 60’s.

Back then people came into the hospital for cataract surgery which involved hours of surgery and over a week to recover. There was a lot of discomfort and the patients had to remain still afterward for a number of days with their eyes covered up. She explained it as a risky procedure and requiring a “good” surgeon. I think for any surgery I would want the best surgeon, but with my sight I would probably want the best I could afford or get access to.

She also described today’s procedure and how quick it was, 30 minutes of theater time compared to hours, how non-invasive the procedure was via three micro incisions and how an artificial lens is placed into the eye where thick glasses were depended upon before.

Fundamentally the same health condition exists today as it did 40 years ago, what has changed is the way the condition is dealt with. In my view the surgeons back in time, when my mother practiced as a nurse, were scarce and a major differentiator between successful and failed operations. But with the advances in medicine and technology this procedure that used to endure a patient to a week of suffering, today has evolved into a standard procedure lasting under an hour.

Initially the costs and value of cataract surgery lay in the surgeon and hospital facilities for recovery and would likely have been rather exorbitant and not accessible to many (substantiated in the paper Measuring the Value of Cataract Surgery). Today this surgery is available to many more people because of the improvements in technology and the refinement of the procedure to almost a routine repeatable process. What this has done is drive down the value of the cataract surgery per patient, so now the surgeon and hospital have to handle many more patients in the same period to maintain their value. In addition to the increased patients, technology suppliers have taken a share of the treatment through their offerings of artificial lenses as a valuable part of these procedures, which now are likely the main differentiators in the procedures offered today.

Looking into the future this procedure may one day no longer require a hospital visit or the skills of a surgeon and will become a commodity product much like LASIK eye treatment has become today.

This is a classic example of how the marketplace continuously drives down the value of scarce commodities and how competitors will always fight to gain a share of any successful market. All businesses are subject to these same threats on a continuous basis. The pace of erosion on ‘value’ will only increase into the future, this is why businesses must innovate and adapt to the changes or be consumed by the marketplace. It is easy to look back over 40 years of change and see the evolution but it is an essential survival skill in business to notice and move to counter the subtle changes staking place in your marketplace – Time will not be on your side if you ignore the signs.

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