Streamlining Hospitals: Omnicell CEO Randy Lipps (Part 6)

SM: How has the competitive landscape changed over time?

RL: Pyxis was a Street darling before they were acquired by our big competitor. They are a division of Cardinal now. They are a great company and I wanted to mimic them so much. When they got taken over by a large company, they stopped investing in R&D, and they stopped investing in customer service. In healthcare, especially with hospitals, it is not about selling product but creating a partnership. When you come in to install your equipment you can’t ask for a project manager. You have to do the coordination and secure the IP addresses. It requires a trusted partnership.

There are three kinds of businesses. Some have great products, some have great costs, and others have customer intimacy. We are a company that has great products. It was hard for us to realize that customer intimacy might be more important than great products. We decentralized some key decision-making power in the company to those who were closest to the customers and their problems.

This is a small industry with 5,000 hospitals. Your reputation is more important than anything. We had a $700,000 opportunity where our product did not perform the way we expected it to when we put it in the hospital. We gave them their money back and let them keep the product as well. Everyone knows who you are. For every hospital I go into, I pass out my home phone, cell phone, and other contact info. I tell them to call me if they ever have any complaints. Strangely enough, I have never received a call. It is empowering to a hospital administrator to say that they know the CEO of a company who supports them.

SM: How many customers do you service?

RL: We take care of 1,200 hospitals a month. We have taken the Pyxis model, invested more in our product, and now people look at our systems and every five days a Pyxis system is replaced with ours. We have gotten into 10 of the top 15 hospitals because I have taken the long-term approach. I don’t have to do something desperate today because I know we will still be here in five years.

SM: Is it a capex plus maintenance model?

RL: Yes. We are trying to put more services on it. It is a very high-touch model. When you buy the product, the installation and consulting are all wrapped into one price. Hospitals don’t hire third parties to install. I am very big on that. Having our own people work on our own products is one thing I have been adamant about since day one, even if it meant lower margins. We now have the highest ratings in the industry for service, reliability and response times.

SM: Other than Pyxis, who are your competitors?

RL: McKesson has a product. Tying into hospital information systems is a big market right now. They have a hardware device they are trying to tie into their software lineup. We don’t do as well with our software-only products, and I expect they will have a harder time trying to work with non-software products.

SM: Will the two product lines you have today take you to a billion-dollar company?

RL: I think we will have to do some more things. There is more for us to do. I have seen all of the good sides when it comes to the downturn of the economy. I just hired four people in our acquisitions group because there are so many opportunities coming our way, and for the first time they are coming with what I think are reasonable prices.

In the down times, aside from acquisitions, we had to downsize. It is horrible to downsize. I always think that I have failed when we downsize. However, that is the one time to change the culture. People get set in their ways. It is not always a bad thing, but it is something you can’t change without an inflection point. You can upgrade people and give them new opportunities.

This segment is part 6 in the series : Streamlining Hospitals: Omnicell CEO Randy Lipps
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