Management Philosophy Drives UroCor’s Success

UroCor teaches many worthwhile lessons about effective management of laboratories

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CEO SUMMARY: In the year 1997, UroCor shows a financial strength and growth potential unlike most commercial laboratories. UroCor’s current success is a direct result of how UroCor’s management did things differently during the years from 1991 to the present. Much of UroCor’s success can be attributed to doing simple things better than the competition.

FOR EXECUTIVES of both commercial and hospital laboratories, Urocor, Inc. of Oklahoma City provides proof that there is profit in diagnostic testing… if their own laboratory will do four things.

First, the laboratory must have a focused strategic plan which accurately anticipates marketplace changes. Second, it should deliver services which exceed the expectations of its customers.

Third, the laboratory must utilize high-performance management techniques to run the business. Fourth, it needs to execute and sustain a professional marketing and sales campaign.

UroCor succeeds at all four. This is why its revenue growth during the last six years is superior to other publicly traded laboratories. For these and other reasons, UroCor is an outstanding laboratory company to study.

However, THE DARK REPORT has discovered other important differences at UroCor which should not be overlooked. During the decade 1984- 1994, laboratory competitors pursued a strategy of increasing profits by acquiring laboratories. Today’s three national laboratories, Laboratory Corporation of America, Quest Diagnostics Inc. and SmithKline Beecham Clinical Laboratories are the end product of this widespread industry strategy.

At $25 million in annual revenues, critics may say that UroCor cannot be compared to the three billion-dollar behemoths. THE DARK REPORT believes otherwise, for very good reasons.

The fruits of this acquisition strategy are not impressive. All three national laboratories struggle to maintain a constant revenue base from year to year. Operating and net profits at each disappoints senior management and stockholders alike.

At $25 million in annual revenues, critics may say that UroCor cannot be compared to the three billion-dollar laboratory behemoths. THE DARK REPORT believes otherwise, for very good reasons.

UroCor did two radically different things during the years 1991-1997. First, UroCor emphasized providing simple diagnostic services with excellence. It was the Nordstrom’s department store approach toward giving customers a noticeably better level of service and attention.

Flawless Service Lacking

During the years of 1991-1997, flawless customer service was never the hallmark of Damon, Allied, National Health, Nichols Institute and the Three Blood Brothers, LabCorp, Quest and SmithKline. Even today, regional independents outdeliver their national competitors in many market areas.

The second area where UroCor pursued a different strategy than most commercial laboratories was in the area of growth. UroCor did not buy other labs. Instead, UroCor used a professional sales force to earn the business of urologists. This meant that UroCor’s revenues were generated by a base of clients who made an informed decision to use UroCor for their diagnostic testing needs.

Another Difference

This sets up another difference between UroCor and most commercial laboratories. During the years 1991 through 1994, UroCor’s diagnostic testing generated the same high profit margins as other commercial laboratories. What UroCor did with their operating profits was to invest it differently. UroCor did not acquire other laboratories as a way to grow. Instead, UroCor used the operating profits to invest in service enhancements and proprietary diagnostic products.

While other lab companies were gobbling up regional laboratories and growing at a break neck pace, UroCor was quietly developing a menu of value-added services for its urology niche.

Handicapped by its small size and financial problems lingering from the 1990 bankruptcy reorganization, UroCor concentrated on developing a business organization which could deliver a full menu of diagnostic and other services to its urology market.

From revenues of $2.1 million in 1991, Urocor doubled in size in 1992 and again in 1993, to revenues of $4.8 million and $9.3 million, respectively. It doubled again between 1993 and 1995, to $19.8 million. This is the performance that earned UroCor a ranking on Inc. Magazine’s Fastest Growing 500 Companies list during the previous four years.

UroCor’s rapid revenue growth provides compelling evidence that clinicians will recognize a laboratory which provides demonstrably better service. It illustrates how UroCor’s strategy of focusing on meeting and exceeding the expectations of the customer is a valid management approach for clinical laboratories, even in today’s managed healthcare environment.

As UroCor brings its proprietary products to the marketplace, it will only become a tougher competitor. UroCor is doing two things common to the most successful companies in the world today. First, it is learning what its customer wants, and developing innovative products to meet those needs.

Second, UroCor is offering its customers products and services which fall outside the traditional range of diagnostic testing, but have value to the customer.

For example, by handling a urologist’s billing and collections, UroCor effectively becomes a partner with the urologist in the successful management of his practice. The urologist begins to view UroCor as an essential resource in the clinical and economic success of his/her urology practice.

“Disease Management” Firm Versus Clinical Laboratory

UROCOR DEFINES ITSELF as a disease management company, not a clinical laboratory. Because it uses a different SIC (Standard Industrial Code) than clinical laboratories, it has escaped the notice of most executives within the laboratory industry.

There are a number of similar companies seeking to build disease management services from diagnostic testing. Impath, Inc. from New York City is one such firm. Like UroCor, it raised money through an initial public offering in 1996. Impath is focusing on oncology. In San Diego, a start-up company called Prometheus Laboratories, Inc. will concentrate on gastrointestinal diseases.

Niche Laboratory Strategy

Another niche laboratory pursuing this same strategy of offering non-diagnostic testing services to clients is LabOne of Lenexa, Kansas. (See TDR, March 18, 1996.) LabOne provides diagnostic testing to life insurance companies. To assist their clients, LabOne developed a software program that allows an insurance underwriter to collect the credit report, the results of physical examination, including laboratory tests and the underwriting data on new policy holders.

It is reported that this software product has proved a big hit in the life insurance industry. LabOne is seeing new business as a result. Their strategy of “adding value” with non-diagnostic services generates additional diagnostic business.

Laboratory executives studying UroCor’s management strategies should also keep in mind that UroCor encourages innovation and change within the organization.

“It is not enough to say you want to meet customer expectations,” pointed out Socrates Choumbakos, Senior Vice President, Planning and Development at UroCor. “You must organize the company to permit people to accomplish those goals. At UroCor, we recognize the need to respond to rapid changes in the healthcare marketplace.”

UroCor has a passion for anticipating, meeting and exceeding the expectations of its urologist-customers. Employees are empowered to take action consistent with UroCor’s mission of meeting customer expectations.

Change And Empowerment

This environment of change and empowerment is not accidental. It is a direct result of the leadership of UroCor’s executive team. Under the guidance of President and CEO William Hagstrom, UroCor has evolved into a productive laboratory which is successfully meeting the challenges of managed care.

Laboratory executives seeking answers to management challenges in their own laboratory should understand that UroCor combines several important characteristics of a high-performance company.

Leader With Vision

First, there is a leader who has a vision understood by all employees of the company. Second, this leader is not afraid to change people who fail to deliver. On the other hand, this leader has a knack for recruiting winners into the organization, then getting out of their way so they can succeed to the laboratory’s benefit.

Third is the focus on the customer, and meeting their expectations. Fourth is the knowledge that to provide simple services with excel- lent delivery is an immense competitive advantage.

Fifth is the encouragement of the company culture toward innovation and experimentation. Out-of-the-box thinking is encouraged and celebrated.

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