The imperative to create new revenue streams in aged care

COVID-19 has had an enormous impact on the Australian economy and way of life, including in the aged care sector. The past few months have been a difficult and challenging period for aged care providers, balancing strong infection control practices with important social, mental health and spiritual wellness support to residents.

The aged care sector is not unfamiliar with dealing with difficult and challenging situations. Before the COVID-19 pandemic, the aged care industry was battling low sector performance, problems with operating business models, and a heavy reliance on Government funding.

There is an imperative for aged care providers to change their business paradigm and create new revenue opportunities which place the customer at the heart of the business. One that learns from the implementation of both the NDIS and Home Care Reform and in advance of The Royal Commission into Aged Care Quality and Safety final report.

CapFeather is working with providers like Wesley Mission Queensland to design a series of new revenue streams that are low risk, low cost to implement, and will drive their profitability. This article outlines how.

Wesley Mission Queensland are 'hands on' to to find additional revenue streams

Wesley Mission Queensland has been caring for the community for more than 100 years. As part of the Uniting Church, their mission is to support people on the margins of society.

Changes to the Aged Care Funding Instrument (ACFI), low occupancy levels, and responding to the Royal Commission left the Wesley Mission Queensland in a challenging financial position. They needed a reliable way to find additional revenue outside of government funding. They took a proactive approach.

Working with CapFeather, Wesley Mission Queensland started testing new ways of working and new revenue streams. They came up with around 200 options to add revenue to their residential aged care business. One third of the initiatives were high revenue impact, low upfront cost and offered ongoing returns.

The best initiatives are now being assessed. Next, testing begins on a small scale to determine the revenue effect on the organisation. More detail on the process is outlined on page 4 and 5.

Not only has the CapFeather team enabled us to generate so many useful ideas for additional revenue streams in residential aged care, they have also equipped us with hands on models and techniques to do the same thing with other parts of the business.

Mike Jeffrey

Wesley mission queensland

Aged care performance is at risk

COVID-19 is seriously impacting the aged care industry. Organisations and staff acted early and quickly and are mobilised to deal with potential outbreak. This is to be commended. However, the pandemic added new cost and risk into an already difficult environment.

The 10-year Living Longer Living Better reform package was introduced in 2012 to improve the financial sustainability of Australia's aged-care system, including its profitability. Instead, the rising costs of care and increasing population have caused pressure. Changes to the Aged Care Funding Instrument and Home Support Programme have added to profit pressures while occupancy levels are now at a historical low.

Across the sector, profit has declined as a share of industry revenue over the past five years. Responding to the Royal Commission into Aged Care further impacted industry profitability in 2018-9 [IBIS World Feb 2020].

The very low aged care sector performance outlook to 2025 is not predicted to change.

Aged Care Residential Services in Australia Industry Report

IBIS World 2020

The sustainability of the aged care business model is under question

In 2019-20, the Federal Government is set to spend $16.1 billion on residential and home care, with funding projected to increase to $19.5 billion by 2022-23 [IBIS World Feb 2020].

In 2019, there were 3.8 million Australians aged 65 and over (comprising 15.9% of the total population). The number and proportion of older Australians is expected to continue to grow. By 2027, it is projected there will be 5.2 million older people in Australia (18% of the population). By 2057, 8.8 million people will be over 65 (22% of the population) [ABS 2020].

Although Government spending on aged care is trending upwards, the population is both increasing and living longer. In real terms, the amount of Government funding per person is declining.

Government subsidies won’t support the current quality of care.

As residents are asked to contribute more to their care costs, expectations are also projected to increase. It is not only the resident who has expectations. Meeting their family and visitor needs is also important.

Aged care organisations need ways to improve revenue

The Royal Commission was designed to ensure quality of service in the aged care industry. It is not clear that it will offer solutions to support the compliance changes needed. Potential reputational risk is concerning. It is important for aged care organisations to position themselves for success by taking early action. There is an opportunity to start testing new ideas that add revenue value and deliver higher levels of client and family satisfaction.

However the skill set to innovate has not been historically necessary in the industry. Within the new Government funding model, there is limited additional budget to find new ways to improve revenue.

For many aged care organisations, the situation is deeply uncomfortable. They raise questions like: What would residents and their families would be happy to pay for? How do we promote or sell new initiatives? Where will the funding will come from to build and deliver a new initiative? How can we deliver something new? How can we prove any changes would make a difference to the bottom line? The position seems impossible.

Lean CX helps find proven revenue at a low cost

The Lean CX (Customer Experience) methodology helps find proven revenue options for a low cost. It combines three toolkits: Lean business process improvement, customer experience and innovation methodology.

Lean business process improvement was designed to create more value with fewer resources and costs. The central idea is to maximize the value added to the customer, at the same time minimizing waste. Lean CX cuts down the long research, design and implement process.

Initiatives use customer strategy to deliver remarkable experiences. This creates loyal customers who happily pay more for their products and services, and then refer them to other customers for free. The agile innovation toolkit is used to find and test the best initiatives.

The Lean CX methodology costs around 10-20% of a traditional research and design initiative. Organisations normally discover 100s of low cost revenue opportunities. It involves testing on a small scale to gauge success in the market therefore reduces risk. It has a practical focus, leading to successful implementation and real performance. It was designed to develop innovative ideas that drive revenue quickly.

How Wesley Mission Queensland are using Lean CX to achieve new revenue

For Wesley Mission Queensland, running the program was a simple financial decision. The Lean CX contract is a fixed price and guarantees that at least one initiative will the cover cost of working together and deliver a return.

The real challenge was the number of different stakeholders who would potentially be affected by changes to the way the business operated. We needed to do things the right way.

We started by creating two different teams. The Go Team was responsible for working out what to do, then testing it on a small scale to prove it was worth rolling out into the rest of the organisation. The Consult Group was set up to make sure that the Go Team could get perspectives on how their proposed changes would impact the rest of the business. The Go Team was small, so it could be agile. The Consult Group was larger and included members of the Executive Leadership Team. ELT involvement ensured the right level of organisational perspective.

While participating in the Lean CX program, select staff were coached in running the process, growing innovation capability in the team. This bridged a skills gap and lowered future reliance on outside help. They came up with around 200 options to add revenue to their residential aged care business. One third of the initiatives were high revenue impact, low upfront cost and offered ongoing returns.

Unlike other design, innovation and change initiatives, Lean CX is focused on finding and proving what will work, then managing the change required to make it happen. This is how to get innovative ideas for aged care. The Wesley Mission Queensland Go Team are now designing tests for 3 initiatives that they will roll out on a small scale to prove the real impact and return. They will report on their results soon.

Lean CX: The low cost, low risk path to profit

We help companies implement minimum viable initiatives (MVIs) to drive profit from customer experience (CX). Our background working in customer strategy for large corporates, privately held firms, start-ups and not-for-profits uniquely qualifies us to work out how to execute on revenue growth and service efficiency.

The CapFeather difference is we offer more than just research and design. Our customer strategy and innovation model validates improvement initiatives with market testing. Then we build business cases proving their financial viability.

We do this by helping companies execute and evaluate. Execution involves lean management to iterate CX initiatives based on market response. Risk is managed inside limited scope pilot projects. It may only require a shoe string budget set up to prove how a top and bottom line can be delivered through CX.

Evaluation involves linking market test results to create financial cost benefit analyses using real world data. The outcome is a business case to validate investing in new target state experiences (TSEs) that drive validated financial results.

If we have one criticism of how companies have tried to implement CX - they have not worked out how to make enough money out of it. The Lean CX methodology changes this.

Dr Robert Dew

Partner, CapFeather & Author, Lean CX (2021)

Find out how the Lean CX methodology can help you achieve more revenue

Why CapFeather?

We help mature firms find new and sustainable opportunities by looking beyond the immediate horizon.

Ambidexterity is needed for exponential growth. While your team excels at business right now, we help you design the path for its future success.

CapFeather is the vanguard for strategic consulting in a volatile, uncertain, complex, ambiguous [VUCA] world. With presence in Australia, the United Kingdom and North America, we have global reach.

Over 20 years of senior advisory, our people have worked on more than 200 projects to deliver bottom line growth and new revenue through product and service innovation - achieved though compelling customer
relationships.

Contact the authors

Dr Robert Dew
robert.dew@capfeather.global

Cyrus Allen
cyrus.allen@capfeather.global

Sarah Daly
sarah.daly@capfeather.global

Dr David Rosete

david.rosete@capfeather.global

References

[1] IBIS World (2020) Industry Report Q8601 Aged Care Residential Services in Australia

[2] ABS 2020. Australian Demographic Statistics, Jun 2019. ABS cat. no. 3101.0. Canberra: ABS