This is a guest blog note by Brian Buxton who is the managing director of Strategies for Medical Innovations, a consultancy focusing on market research and strategy development for the commercialization of novel diagnostic tests and laboratory testing services. He can be reached at firstname.lastname@example.org.
The recent note, Future Prospects of Reference Labs Linked to Academic Hospitals, outlines the key parameters of competition between large commercial labs like LabCorp and Quest and smaller, faster-moving labs like ARUP, Mayo, and a long list of venture-backed companies. Many of the latter have built lab testing businesses around proprietary discoveries from universities, medical schools, and teaching hospitals. Having worked at Quest and consulted for Quest, LabCorp and numerous specialty labs, I would like to comment briefly on how size affects the ability of Quest and LabCorp to respond to customer expectations versus smaller, emerging competitors.
As mentioned in the note, both Quest and LabCorp have excellent efficiency, quality and QA systems. Yet ironically, this is not the general perception of their customers. Whether it is resolving a customer complaint, setting up a customized pickup schedule or reporting system, or simply responding to an RFP, Quest and LabCorp have the reputation of being slow, rigid, and unresponsive. This is not because their employees and managers are less diligent or dedicated — it's simply due to their large size, standardized procedures, and multiple levels of executive approval that are intrinsic to very large organizations. But the result is that many customers have the perception that ARUP, Mayo, and smaller labs are better in addressing their lab testing needs.
The dilemma LabCorp and Quest face is similar to how citizens perceive the EU bureaucracy. The gist of this analogy is that E.U. bureaucrats have broad expertise and make good decisions but appear remote and unaccountable to ordinary citizens. There is no quick and easy fix to this problem. The requirements of consistency, quality, and span of control make it very hard for large organizations to match the rapid, flexible responses of smaller specialty labs.
Overall, smaller specialty labs will continue to enjoy a substantial competitive advantage over Quest, LabCorp, and most other traditional laboratories in the perceptions of customer responsiveness. Further, the record shows that the specialty laboratories that have best understood and exploited this competitive advantage have emerged as the fastest-growing and most profitable. All of which argues that, even as the laboratory testing industry has matured, it remains a dynamic and challenging marketplace.