I have been reading a lot lately on the subject of business and trying to translate it into the world of dentistry. Mostly in preparation for the recent and upcoming modules of the Business course that we are running at The Campbell Academy.
The most recent module of the course was Leadership and Strategy and so in trolling through my literature of business on the subject of strategy, I came across an amazing insight that applies across the whole of the dental industry.
Richard Rumelt who is held up as being one of the leading strategic thinkers in the world is convinced that you can track the progress on industry through the nature of it’s fixed costs.
Constantly rising fixed costs in an industry leads to consolidation, so let’s just translate that into English.
It means that if the fixed cost of doing business, not the costs associated with the individual aspects of business but the costs you have to pay whether someone turns up to work or not, continue to rise over time but then smaller elements will fail and they will either be bought out or merged with larger elements into the business leading to less providers of that business.
It’s not hard to see that this has happened to dentistry over the past 10 years with consolidation across the industry through acquisition. Integrated dental holdings (My Dentist) own half the NHS dental practices in the UK, or thereabouts. Another, Oasis own a huge amount with the smaller corporates and the micro corporates making up a significant number. The half life of an NHS dental practice with two or three surgeries is extremely limited I fear.
Then there is the private practice.
Historically the private practice would have less chairs, less clinicians and less patients than an NHS practice. With two chairs in your practice you are much less valuable to a corporate and unlikely to be picked up, with three chairs it depends on your turnover.
So to look at the industry overall and the consolidation that has occurred over the past 10 years the question for me is ‘will it continue?’ If you believe in Rumelt’s philosophy you just need to look to see whether you think fixed costs in dentistry will increase or decrease over the next 10 years.
That is a no brainer. The cost of running a dental practice is going up not going down. The cost of salaries is increasing, the cost of materials, technology, premises, there is no where it seems to make large cost reductions and large reduction in your fixed costs over time.
If you are in this business for the long term you need to think about that, because a three surgery independent private dental practice is unlikely to cut it 5 years from now.
Blog post number: 1408
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