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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Setting up a PIN-based network was a huge investment for Concord EFS, but it is paying offNO FEAR The disciplines of war and business are not far apart. The classic Art of War written in 500 B.C. in China by Sun Tzu has been studied by business executives who have told us that it offers valuable insights into strategy, leadership, and victory. Sun Tzu believes that the only constant of war is constant change.10 (No doubt the investment community needs to study this book as well.) Once it is universally apprehended how skillfully the companies of the new investment culture embraced change and broke out of the constraints imposed by convention, it will become apparent why they are so important to our twentyfirst century economy. Sun Tzu also says victory is achieved with serenity, subtlety, and control. Many companies of the new investment culture have succeeded with such serenity and subtlety that most of us have not even heard of them, much less understand what they do. A description of a handful of these companies, selected at random from our list of Digital Dow2 stocks, is offered in the following pages. Understanding how they fit into the economic sector in which they operate will benefit investors more than any sterile set of irrelevant financial calculations and should prompt readers to learn more about the other Digital Dow2 companies. Just as the new ways of doing business that gained momentum in the 1890s created a new way of life that would last through the 1900s, the new businesses that gained momentum in the 1990s are shaping the way we will live in the twenty-first century. Many of these companies are already indispensable to us. We should be grateful for the courage with which they have stepped in to rebuild the different parts of our economy that the old dominant investment system no longer had the strength to serve. The Fuel of the Consumer Economy Electronic transactions have evolved from being simply a convenient way to access cash and pay for merchandise and services, to being the semiconductors of our reliable consumer economy. Credit and debit cards used to be a handy way to buy the item that you had not foreseen you could not live without until you spotted it one Saturday afternoon in your favorite department store. Today, a credit or debit card is as important as a driver s license. We use plastic to prove the tax deductibility of products or services when we file our tax returns. It is a prerequisite for anyone with an expense account, and, ironically, we are often asked to provide a credit card along with a driver s license when we want to write a check. You cannot rent a car, or any other item, without a valid credit card. The use of plastic as security and identification, which serves to protect merchants, has greased the wheels of the economy in such a way that almost any item anyone desires is now available 24-7. Finally, credit cards make possible the billions of dollars worth of transactions that take place on the Internet. As we take for granted the importance of the credit or debit card transaction, we overlook the companies that make the whole process function efficiently so efficiently that we never think to ask why it never breaks down. Concord EFS Nine and one-tenths billion transactions annually at supermarkets, gas stations, stores, and automatic teller machines that is the number of electronic transactions processed by Concord EFS (see Figure 7.1) in a slow year. (Their annual report says that they faced some challenges because the recession slowed volume in the second half of 2001.) Add modesty to the list of this companys positive characteristics because their slow year did not prevent them from racking up one more year on top of 14 consecutive years of record earnings. Between 1986 and 2001, Concord EFS stock outperformed every publicly traded company of both the NASDAQ 100 and the S&P 500. When listening to Ed Labrys matter-of-fact way of describing the evolution of the company, of which he is now president, it is easy to disregard (as he seems to) the vision he possessed in the 1980s to see where the company could be by the turn of the twenty-first century. At a time when credit and debit card transactions required handling carbon copies to keep records, Concord EFS set up an electronic draft system. In 1990 everyone from Wall Street to Main Street told Ed Labry that putting credit cards in grocery stores would never work. In 1996 he was assured again that his pay-at-the-pump idea for purchasing fuel was a nonstarter. As it turned out, most of this books readers have, during the past week, had a transaction processed by Concord EFS either at a gas station or a grocery store, and that is in addition to having Concords help in getting cash from an ATM or paying for goods at retail or convenience stores. Ed Labry and chairman and CEO Dan Palmer have made tough choices and stuck with their decisions. They foresaw that Personal Identification Number (PIN) systems were superior to having cardholders sign receipts. When an item is purchased with a signature, the merchants must collect the days receipts and send them to a bank where it may take two days to clear them before the merchant gets paid. Signatures can be easily forged. When a customer enters a PIN number, the transaction is completed immediately, and the merchant gets paid the next day. Additionally, a PIN is more secure than a signature. Setting up a PIN-based network was a huge investment for Concord EFS, but it is paying off. Merchants prefer it because of the realtime nature of the transaction and the reduction in exposure to fraud. To reduce fraud, Great Britain has mandated that by 2005 all debit and credit card transactions must use PINs instead of signatures. This trend toward PINs opens up another potential source of increasing revenue for Concord EFS. In 2001 Concord began assembling the components of a comprehensive risk management service. Retailers annually lose between $12 billion and $15 billion because of check fraud. Identity theft, the fastest growing crime in the United States, is expected to cost financial institutions $8 billion by 2004. Concord EFS understands that by building a system that provides real-time access to multiple data sources, combined with cutting-edge technology, Concord can become indispensable in helping to reduce the drain that these crimes have placed on the economy. Concord EFS is in position to capitalize on an important shift in the way consumers pay for transactions. Payment systems can be divided into three general categories: paper, cards, and electronic. Their market share in 2001 was as follows: This shift represents trillions of dollars of transactions moving to card-based systems of the type monitored by Concord EFS. The volume of debit card transactions alone is expected nearly to double from 6% of all transactions in 2000 to 10.8% by 2005, then jump to 14.8% by 2010. Concord EFS has anticipated this important trend and has the systems in place to capitalize on it. Improving Health Care in America With the possible exception of education, there is no other sector of the U.S. economy more in need of an infusion of energy from the companies of the new dominant investment system than health care. The problems are so thoroughly rehashed in the media that no explanation of them is required here: too many Americans with no access, inconsistent and unfair distribution of services, soaring and inconsistent costs, and so on. The part of the U.S. health care system to which these problems most conspicuously attach themselves is drug treatment, the worst possible place. Drugs are the most critical factor in preventing, controlling, and curing disease. The problems do not stop at our inability to make drug therapies available to everyone with a need for them. It extends to how they are most appropriately prescribed, how they are used in concert with other drugs the patient is taking, and how the patient is using the medication. The underdiscussed fact on which these problems turn is that there are so many new drugs available now, and the list is increasing each day this just from the traditional sources of pharmaceutical science. Add the new therapies coming out of the science of biotechnology, and the tide of new products becomes a storm surge. Overworked physicians need easy access to prescribing guidelines based on nationally accepted treatment standards. Hospitals, emergency rooms, and physicians need access to the portfolio of drugs a patient is taking. The primary care physician, given the ultimate responsibility for the patients health, needs to know the effect of treatment and that it is being used correctly. That there are severe breakdowns in this treatment chain is evidenced by the 7,000 deaths and hundreds of thousands of hospitalizations that occur as a result of drug interactions. $1.5 billion is spent each year just on hip fractures resulting from falls due to patients taking the wrong mix of drugs. Too often, doctors are blamed for the overmedication of their patients. This is an unfair assessment given the fact that the potency of todays drugs (which makes them so effective in the first place) means that some patients medicine cabinets have become arsenals of little time bombs that, when used inappropriately, can go off in their bodies. Many patients do not take this seriously. Sometimes it is because they are too ill to do so. This convergence of problems creates a challenge that only a company of the new dominant investment system would be capable of taking on. AdvancePCS Like many other visionaries, David D. Halbert, chairman and chief executive officer of AdvancePCS (see Figure 7.2), did not set out to rebuild an entire sector of the economy. The son of a physician and the grandson of an entrepreneur, he grew up in a medical household where ways to improve patient care were discussed around the dinner table. He becomes passionate when he explains how his companys mission is to improve the state of health care in America. He has already done a good job, and he is just getting started. In 1987 David D. Halbert and Jon S. Halbert founded the company that eventually became AdvancePCS. The company focused on delivering exceptional value and service. Just 15 years after signing its first client, AdvancePCS served more than 1,000 of the nations largest health plans, employers, and other providers of pharmacy benefits. Growing rapidly with the addition of new services and a series of strategic acquisitions, AdvancePCS established itself as an innovative leader in its industry. It was the first to process prescription claims online for pharmacy benefit programs and make extensive use of computer technology to improve the quality of care delivered to health plan members while reducing costs for its client-payers. Today, the company offers health plans a wide range of products and services at a level that extends well beyond claims processing and other traditional pharmacy benefit management functions. That is why AdvancePCS is known as a health improvement company, a business that CEO Halbert says is a new model for the future of health care. Technology is at the center of this effort, as AdvancePCS works to help connect a fragmented health care system with information and services that benefit patients, payers, physicians, and pharmacies. Halbert also says that AdvancePCS has the ability to inject the most important factor missing in health care today: competition. AdvancePCS serves more than 75 million Americans, or one out of every four people in the country. It is likely that anyone reading these words who has ever obtained a prescription drug through a corporate or insurance company benefit program has used AdvancePCS. This gives the company incredible bargaining power over drug manufacturers, creating billions of dollars of savings every year. AdvancePCS does what a patient alone cannot do get the best deal. In this way the company attracts more insurance companies and other payer groups as clients. But injecting competition into the pharmaceutical drug industry is only a secondary benefit of improving the quality of health care. Halbert says patient safety is the most important priority. Using its vast information technology capabilities, AdvancePCS is able to provide pharmacies and physicians with information about a patients prescription drug history, which helps to thwart drug interactions. AdvancePCS also monitors patients compliance with drug therapies and can help pharmacists and physicians follow up with those who are not taking medications properly. The benefits of technology do not stop there. Adiabetes management program was begun by AdvancePCS when it discovered that one of its clients had a high percentage of beneficiaries who were diabetic. A diabetic education program was instituted for the patients, and physician treatment programs were upgraded. The scientific validation of the successful outcome, as well as the data from the ongoing monitoring of the programs, will be used to enhance the database for the benefit of other clients whose beneficiaries need assistance with the management of diabetes. One of AdvancePCSs clinical pharmacists conducted a study to confirm the effectiveness of a drug regime that treats immunocompromised patients. Immediately, the study revealed that some patients were not using the right drugs. This led to an analysis of organ transplant patients to see if they were on the correct regimen. By notifying patients, hospitals, and physicians before side effects appeared, patients were saved from permanent disability, or worse. AdvancePCS has posted a compounded revenue growth of 138% per year over the past 14 years. Continued growth will come from the often-cited aging baby-boomer population who will need increasing amounts of medical care. Another revenue source is the burgeoning biotech industry. AdvancePCS is expected to generate over $200 million in biotech drug distribution revenues in 2002. Its goal is to be the largest distributor of biotech products within just a few years. Accomplishing this goal will raise AdvancePCSs biotech revenues to over $1 billion per year. Halbert says that they are just getting started. Emergency rooms and clinics should have instant access to the medical data of an injured or unconscious patient. There should be greater access to cheaper drugs. There should be more intensive monitoring of a drug therapys usefulness and more intensive study of high incidences of specific diseases among geographic and demographic groups. The company that can facilitate this is indispensable to the fair and effective administration of health care in the United States. |
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