But most of the buzz around the announcement is about the payment processing and diner convenience. Those are both fine benefits of the functionality, but it’s missing the big picture. “Pay with OpenTable,” as the feature is called, has given OpenTable the ability to link directly into restaurants’ point-of-sale (POS) system. With POS data, OpenTable gives restaurants small and large the ability to leverage Big Data for big profits.

OpenTable’s Real Power (Now)

To diners, OpenTable makes it easy to make a reservation – via the web or smartphone apps. Unsophisticated restaurants also use OpenTable to manage their reservations – they can more easily accept and manage reservations without worrying about accepting too few or too many reservations relative to their capacity (number of tables and chairs in the dining room).

Sophisticated restaurants on the other hand recognize OpenTable’s real value: they not only know HOW MANY diners will be coming in on future days / times, they also know WHICH diners will be coming in.

“Pay with OpenTable” Will Supercharge Restaurant Sales

OpenTable explains explicitly that with the “Pay with OpenTable” functionality, diners’ POS details will be pulled into OpenTable for diners to review and pay via their smartphones, and servers will be able to process diners’ payments through OpenTable and / or the normal POS.

Combined with the old OpenTable power of knowing WHICH diners will be dining in the future, the line item details (e.g. what drinks, entrees have been ordered) of what diners have ordered in the past give restaurants opportunities to maximize revenue like never before.

Imagine this:

• I use OpenTable make a reservation at RestaurantX, and proceed to eat at RestaurantX and pay through OpenTable’s mobile app.
• A month later I make a reservation at RestaurantX again. This time, when I show up for my meal, the server at RestaurantX takes a quick look at my OpenTable profile and history and sees that last time I ordered a low priced glass of pinot noir. With this information, the server approaches my table and says “Good evening, Mr. Maher, can I interest you in our best pinot noir?”
• The moment that I sit down, the restaurant is up-selling me, and the server is making me feel like a VIP by greeting me by name and knowing what I like.

Taking OpenTable Big Data to the Next Level

Restaurants can also take this combination of knowing WHICH diners have made reservations and their detailed order histories to an even more aggressive profit driving level.

Imagine this:

• The manager of RestaurantX  logs into OpenTable to see that next Tuesday night is already completely booked. The manager then adjusts her staff schedule to make sure that there will be extra servers, bartenders, cooks, etc. working that night to keep up with the rush.
• The manager also notices that the weighted average revenue per person for everyone with a reservation for next Tuesday night is significantly below the RestaurantX’s normal target. The manager can deduce that next Tuesday night’s diners are going to be a bunch of cheapos so she sets the specials-of-the-night to be great value (perhaps as opposed to the more luxurious specials that she typically uses on a Friday night).
• The manager also notices that the 3 most popular items ordered by those with reservations for next Tuesday were all salads, and that the 3 least popular items ordered were all steak entrees. So the manager adjusts her ingredient purchases and inventories to reduce food waste.
• Finally the manager notices that the diners with reservations for next Tuesday have historically showed up for their reservations on average 5 minutes late, but have eaten quickly turning tables in less than RestaurantX’s normal average. This allows the manager to prepare the staff for a late night with lots of turns.

In Summary

OpenTable has long simplified the diner reservation making process and the restaurant capacity planning process, but with “Pay with OpenTable,” now restaurants can really take advantage of big data by making customers feel like VIPs – driving up average tickets. Furthermore, restaurants can get even more sophisticated to optimize all of their costs and strategies.

Executive Summary – Hospitals Need Sales Reps to Grow Revenue

Hospitals current org structure fails to place necessary focus on growing volume and revenue. By adjusting the org structure and possibly even hiring pure sales reps, hospitals can grow volume and revenue through:

• increasing market share within the community
• improving price mix of volume.

Have you ever noticed that hospitals don’t have sales representatives? Even the for-profit hospital chains don’t have sales reps.

Excuses and Lack of Accountability to Revenue

There are lots of excuses for why hospitals don’t have sales reps. Many hospitals are not-for-profit and therefore claim to respond to the nearby community’s needs rather than push healthcare services upon their community. Many hospitals perceive that payors and provider networks dictate which hospital patients go to and therefore assume that building provider networks and striking deals with payors is the only way to grow patient volume.

These misconceptions lead to hospital accountability structures with disjointed and thin accountability for patient volume and revenue.

In most companies, there is a manager that is accountable for the costs and a manager that is accountable for the revenue (i.e. the sales manager). Each of these two managers report to someone that is accountable to the bottom line – both revenue and costs (e.g. the CEO or a business unit manager).

In hospitals there a managers that are accountable to the costs of their functional department (e.g. Surgical Department Director, Emergency Department Director).

But the accountability for revenue is very disjointed. Hospitals have “service line directors” (SLDs) that are responsible for the performance of clinical specialties throughout the hospital (e.g. Orthopedics, Cardiac). And included in the performance is usually an accountability to the volume of patients served by their service line. But they’re also accountable to the clinical outcomes of the patients in their service line (e.g. the Orthopedics SLD needs to make sure that orthopedics patients are receiving the correct surgeries and medicine, and that they are healing sufficiently).  Further, the SLDs are usually only accountable to volume numbers – not revenue dollar amounts – because the SLDs are not highly involved in the payor reimbursement rate negotiations.

So at best, SLDs work to hit volume numbers primarily by working to make sure the doctors in their service line are equipped and happy to bring patients to the hospital. And if pressured to grow volume the SLDs perceive that their only lever is to recruit a new doctor and that doctor’s practice to the hospital.

Sales Reps Would Do It Differently

If hospitals hired sales reps and gave them a quota and compensation based on profitable revenue, the sales reps would find more and different ways to grow revenue.

The sales reps would look at the community around the hospital and recognize every citizen as a potential patient (customer) and every other hospital as a competitor. The sales reps would identify any doctors that take patients to competitor hospitals and persuade them to be more loyal. The sales reps would identify doctors that can / want to grow their practice and help them get more patients that would have otherwise ended up at the competitor hospital (e.g. young doctors just starting out, doctors with notoriety, ambitious doctors). The sales reps would aggressively recruit doctors and the doc’s patients away from competitor hospitals. And the sales reps would recruit doctors from out of the market (e.g. recent fellowship grads, or relocating docs) and bring them in to build practices with patients that would otherwise have ended up at the competitor hospital.

Sales Reps Would Find A Way

If you’re a healthcare expert, you’re probably shaking your head right now, “it’s not that easy, patients go where their insurance pays,” and “doctors are employees of hospitals now – not independent like the olden days.”

But sales reps wouldn’t care. They would find cracks in all of these reasons why “it’s not that easy,” and they would drive an ice pick hard and deep.

Sales reps would recognize that some patients are pressured financially by their insurers to go to the competitor hospital, but ~50% of patients have medicare / medicaid (CMS) and CMS patients can go anywhere. Sales reps would find those patients and bring them to their hospital instead of allowing them to end up at the competitor.

Sales reps would recognize that very few doctors are truly employees of hospitals but rather they are mostly part of associated physicians organizations with incentives to hit production expectations that the competitor hospital, but freedom (often legally mandated) to take patients to the hospital most appropriate for the patient’s needs. Sales reps would find the doctors that prioritize patient’s needs over production expectations and make sure that the doctor is aware of the advantages of her hospital over the competitor hospital.

Note On Pay for Performance vs Fee for Service

New hospital reimbursement models such as ACO global payments and risk-sharing may change this equation somewhat. In fact, I hope it does because I dream of the day when hospitals are incentivized to provide pro-active healthcare rather than reactive sick-care. But, this series of Hospital Business Improvement Opportunities is intended to be ideas for the realities of hospital business, and the reality today and for years (decades?) to come is that the overwhelming majority of hospital revenue is fee for service.

As an operations management consultant to hospitals for seven years I realized that hospitals are led by smart, highly educated people with very little business management training (i.e. doctors and nurses) – and often an explicit focus on clinical outcomes over business performance.

But I believe that hospitals can have both: great clinical performance AND great business performance. So this is a list of all of my ideas on opportunities that hospitals have to improve their business.

• Hospitals Should Grow Revenue by Hiring Sales Reps

A common case study to consider the costs and benefits of standardization is electrical outlets around the world. Today there are about 20 different outlet formats around the world. This means that when an electrical device manufacturer creates a product, they actually need to create 20 different versions to sell that product around the world. Needing to create so many versions costs manufacturers more than if they were able to create one version. In one way or another these additional costs are passed through to the consumer.

So the question becomes: would the world’s consumers be better off if every electrical outlet around the world were standardized? And it’s very easy to model that in the long run consumers (indeed society as a whole) would very easily recoup and see financial benefits if the world standardized.

But the electrical outlet case study begs the question for standardizing other things, like the use of a common measurement system. In the US we use the Imperial measurement system (feet, acres, ounces) while most of the rest of the world uses the Metric system (meters, square meters, grams). Because we know we’re different, every fourth grader learns both systems in math class. That means that ~6million students per year in the US spend significant class time learning two different systems which both do the same thing.

So if the US were to standardize by switching to the metric system, we would incur switching costs such as changing every speed limit and distance sign on every road. But we would reap benefits in the future as we could teach students more valuable lessons than redundant measurement systems and would be able to communicate more easily with the rest of the world. Like the electrical outlets, over the long term, the benefits massively outweigh the near term switching costs.

So why wouldn’t we make the switch!?

Just as the electrical outlet standardization case study begs the question for measurement system standardization, the measurement system standardization case study should beg the question for additional even larger standardizations.

Should we standardize the language that people speak around the world? Think of how much easier it would be to communicate and collaborate with the rest of the world!

While we’re at it, let’s standardize our beliefs and agree on a meaning of life!

Utopia is within reach, only a few standardizations away…

For Argument’s Sake

Maybe the rest of the world should switch to the Imperial system. Yes, the metric system is easy to learn mathematically, but the units are arbitrary! At least imperial units are based on tangible objects – even The Oatmeal agrees!

To be clear I am actually in favor of making the switch from imperial units to metric units in the US. Here is another good post about imperial vs metric system in the US.

By analyzing my bank and credit card transactions, Bync will determine which stores I have shopped at in the past and therefore, at which stores I want deals. Unfortunately, Bync is doomed to become yet another in a long list of consumer deal startups that are just further poisoning the retail well.

Bync vs Groupon / Living Social

Groupon and Living Social are the big players in the retail deal websites, and there are literally hundreds of others ranging from unique schemes (e.g. Woot) to a long tail of weekend hacker projects that won’t die. Bync’s scheme does have some good logic though – if I have shopped somewhere in the past, there is a higher likelihood that I will want a deal there than the likelihood that I will want a deal on teeth whitening, paint balling, or private massages (the drivel constantly being pushed on Groupon).

But, that is NOT to say that I will want a deal at Target or Kohl’s just because I have patronized those retailers in the past.

Why Deal Sites Are Doomed: They Are Not Serving Their Primary Customer!

Groupon and Living Social made a huge bang in their early days and delivered a serious injection of customers to the retailers which offered deals. Unfortunately those retailers quickly found mixed results with making the customer injection a profitable endeavor.

Retailers find three difficulties in getting good value from deal sites:

1. The discounting required is too drastic, often yielding 75% off normal price (a $100 product is offered for $50. Then the deal site takes half of the $50payment resulting in the retailer receiving $25 for a $100 product).
2. The new customers are too thrifty. Retailers are not always able to wow the deal site customers into more profitable upsells or loyal repeating customers.
3. Deal site offers tend to create a sudden massive spike in customers which sounds great, but often results in the retailer struggling to provide good service levels and even crumbling under the pressure of the demand.

Groupon, Living Social, and most other deal sites do not charge the consumer, but rather charge the retailer (as noted in difficulty #1 above).

Bync may well offer deals to consumers that are more targeted than the deals offered on Groupon and Living Social, but there is no apparent strategy to better service their ultimate paying customer – the retailers. Indeed they do not seem to be addressing any of the three customer problems.

Unfortunately, Bync has another obvious barrier: they expect consumers to hand over access to their bank account and credit card. Mint has been able to convince consumers to hand over access to bank accounts, but very few others have had even slight success in overcoming this barrier.

The Ultimate Deal Site Concept

I have good news for you, Mr. Ryan Bales (Bync CEO and Founder), the following concept is the ultimate deal site! The following concept is better than Bync, Groupon, Living Social, and all other deal sites in the following ways:

• Better solves the general problem of getting retailers more customers
• Comprehensively addresses all three of the problems with current deal sites
• Offers deals to consumers that are explicitly and exclusively deals that consumers want

The ultimate deal site will work as follows:

• Consumers announce the level of discount they would buy (anywhere from 1% – 99% discount) at any retailer in the world
• Consumers can edit / cancel their deal request at any time
• Retailers get a daily email alerting them of groups of customers growing online requesting various levels of discounts
• Retailers decide if / when they want to accept a consumer’s discount request, or can choose to counteroffer with stipulations (e.g. “We’ll give you the 30% off that you requested, but only on a purchase of $100 or more” or “We’ll give you the 30% discount that you requested, but it’s only good on weekdays”)

You may recognize this setup – it mimics an open stock market!

This model allows retailers to control their own destiny:

• Retailers can engage new customers that wouldn’t likely patronize their establishment if not for an attractive discount
• Retailers can control the discounting level by only accepting deal requests at discounting levels that are affordable for the retailer
• Retailers can control the risk of attracting too-thrifty customers by not accepting deal requests beneath an acceptable level at the judgement of the retailer, or by counter-offering with deal stipulations
• Retailers can control the timing and size of the spike in new customers by accepting a manageable number of deals at any given time

Ultimate Deal Site Example

Here is a theoretical small scale example of how the Ultimate Deal Site would progress:

Let’s assume first that 4 consumers request deals at Retailer X

• Consumer A requests 80% discount
• Consumer B requests 60% discount
• Consumer C requests 40% discount
• Consumer D requests 20% discount

Retailer X then decides that sales could use a boost and accepts Consumer D’s request!

Retailer X gets 80% of their normal price revenue (minus a fee to Ultimate Deal Site of course), and Consumer D gets a deal which she requested! Consumers A, B, and C continue waiting in hopes that Retailer X will soon get desperate for sales and accept their deal request. Retailer X can at any time go ahead and accept those deals… or not!

Of course Ultimate Deal Site would be attracting far more than 4 consumers and 1 retailer. Assuming Ultimate Deal Site was well managed, the benefits of network effect would begin to apply. This would lead to more complex consumer and retailer decisions.

Consumers would see that there are many other consumers requesting deep discounts and would be pressured to “win” the deal from the retailer by requesting a slightly smaller discount. This would develop a group of consumers requesting deals on a bell curve across the discount spectrum (1%-99%).

Retailers would then be able to review their discount request curve and take strategies such as “accept the top 100 deals” knowing ahead of time what the average discount of those 100 new customers would be. Or they could “accept all discount requests of less than 40%” knowing exactly how many new customers they would attract and that the average discount granted would be something like 30% off of their normal retail prices.

Challenges for Ultimate Deal Site Success

Why aren’t I out starting up the Ultimate Deal Site in hopes of striking it rich like the founders of Groupon or Living Social? After all, I did quit my job a few months ago to start my own business… Really there are 2 reasons:

1. I am not passionate about this concept, and am spending my time working on a business concept that I love.
2. The Ultimate Deal Site faces a number of challenges

The primary challenges I’ve already identified (surely there are others too) for anyone reading this post and thinking about running with it are as follows:

• Retailers loathe deal site sales people, and will be very difficult to convince of a “better concept on deal sites” – an after effect of their frustrations with Groupon / Living Social and the onslaught of copy-cat sales people that have followed since
• Retailers are incredibly fragmented – the largest retailers tend to manage deals in house, and the small guys are scattered all over the country – making them incredibly difficult to sell to. Indeed this has been one of the largest stock market hesitations in investing with Groupon… as well as one of their biggest competitive advantages as they have already created the sales force
• Consumers are hard to attract without premier deals in hand, and many consumers are scared to request discounts. For example, ask someone “how much discount would you request from Apple” and their knee jerk response is almost always “Apple doesn’t do discounts”…

Do you disagree? Have I missed Something?

I have a few old friends from college that work at Living Social – do you guys disagree with anything here?

Anybody at Bync care to add a hint about a super secret sauce that I am totally overlooking which will allow you to change the game?

As a consumer – what site is the most compelling for you – Groupon? Living Social? Bync? Ultimate Deal Site?

As a retailer – what site would be your preference?