Quest Diagnostics’ business is about informing health care decisions. It’s about being timely and accurate with scientifically derived information. For the medical test provider, everything rests on people getting it right — and that includes getting it right on hiring. Quest CEO Steve Rusckowski faced that challenge when he filled the key CFO position last summer. His choice? Mark Guinan, who is friendly, open, gregarious, and, in addition to having the right set of financial skills, a great communicator.
Friendly, open, gregarious, communicative: Is this the makeup of today’s CFO? Arguably, yes; the best CFOs. It’s that emotional intelligence that allows a good CFO to transcend the job’s day-to-day demands and become the CEO’s strategic partner.
Guinan is also a problem solver. He likes to organize processes. Joining the company
last July, he arrived at the Madison, NJ, headquarters in time to help execute a five-point strategy to drive excellence. Guinan had been CFO of Chicago-based medical technologies provider Hill-Rom Holdings Inc., and had proved he could deliver capital efficiency. Now he would do that and a lot more for the country’s leading provider of diagnostic information services, which range from advanced genetic tests for cancer and rare disorders to wellness checks for diabetes and heart disease.
Rusckowski, who himself joined Quest in May 2012, wanted someone “operational” at the company’s financial helm, Guinan says, and Guinan has just that sort of proficiency. But sit down and talk to him and you get the distinct impression that he’s a people person first and foremost. You’ll hear about his direct, candid interactions with sales reps, customers, and staff members. You’ll hear his thoughts on coaching a staff, both to develop individual performers and to give them the skills to develop talent in their own areas. You’ll learn that he has spent the majority of his career in a business-partnering role, supporting sales reps, business development staff, and R&D people. In fact, in a bit over an hour, he’ll use the word “people” 57 times.
‘Restore’ and ‘Drive’ with a People Nexus
The five-point strategy at Quest includes these mandates: restore growth, drive operational excellence, simplify the organization, refocus on diagnostic information services, and deliver disciplined capital deployment. Notice what tops the list? For a number of reasons, like many other health care providers, the company has faced headwinds to growth in recent years.
There was fallout when United Healthcare, one of the largest payors in the country, dropped Quest as an in-network provider in 2007 and switched to rival LabCorp. “A lot of people point to that [as] a seminal event,” says Guinan. Also, for a variety of reasons — from the recession to revamped insurance plans — consumers began to forgo medical tests.
Quest’s customers are medical practitioners, hospitals, insurance companies, employers, and individual patients, and all those segments shifted their behavior in this period. Hospitals bought up physician practices, while insurers and employers began designing policies that shifted some cost-sharing to patients and employees, with the result that people have higher deductibles and higher co-pays. “There’s certainly statistics to point to the fact that consumption of health care has declined,” says Guinan. All these changes impacted Quest’s growth trajectory.
While lab testing drives most clinical decisions, the labs that provide biological, molecular, gene-based, and pathological testing form a fragmented market. They include full-service providers like Quest, and small, boutique labs handling the more than 50 percent of the testing not done in hospitals.
One way Quest is pursuing growth is through newly created clinical franchises, each with a general manager and established around a particular health issue, such as cancer or cardiovascular disease. These organizational units are focused on the customer: Is R&D pursuing the most critical and highest-value innovation in each testing area? Is the company getting the new tests to market and are customers aware of them? The ultimate goal is to be highly responsive to clinicians, moving as nimbly as the boutique labs can, while providing a richer array of services. Quest is also trying to enlarge its share of the high-tech testing that hospital labs are not equipped to perform.
Another growth initiative relates to the company’s acquisition strategy. Guinan projects 1 to 2 percent revenue improvement every year by picking up small, regional laboratories that are accretive and strategically aligned. A new sales structure is helping the company to be more regionally focused as well, the goal there being better customer service.
To drive operational excellence the company is focused on reducing costs — while improving standardization and quality. Some gains are dramatic: Quest is on track to deliver $700 million of run-rate savings by the end of this year.
Based on his prior experience, Guinan has played a role in coaching the commercial organization at Quest on the best use of a new cloud-based customer relationship management (CRM) tool. Although Rusckowski introduced it prior to Guinan’s coming aboard, Guinan has spearheaded getting high-quality data by spending time in all eight regions to better understand how the tool was being used and offer refinements.
Helping Make Better Decisions
With his people-centric approach, Guinan might initially come at problem areas by schmoozing, but once he sees a pattern developing, he challenges those “who know more about it than I do to think about it and then lay it out” for him. Next, he turns to process.
“Within budgeting and forecasting we’ve made a lot of changes,” he says. One example: The use of templates for the weekly forecast meetings and the monthly reviews in which all eight regional vice presidents and financial analysts participate. Five months after beginning the monthly review meetings, “we’re actually having productive conversations, versus meetings that go on longer than they’re scheduled because we were not getting to the meat of the issue.”
The templates, says Guinan, are nothing magical, just tools, but they corral relevant information (revenue, cost of goods, general admin, head count compared to the prior year same month and to the prior month, and so on). But these seemingly simple steps make a company of 42,000 people providing a menu of thousands of tests and other services more efficient and make it easier for those employees and business entities to do business with each other.
Simplify the organization is one of the five points in the overall strategy, but as Guinan says, it really exists in support of the other four. “If you simplify things, it’s easier to grow, it’s easier to become efficient, it’s easier to make decisions that will enhance the use of your capital.”
Asked to specify his role in restoring growth, Guinan says it’s a combination of “pushing for outstanding performance, but balancing that against realistic targets.” The tools inform the plans, which have to be both aggressive and achievable, so people stay motivated, he says, “and at the end of the day, so that I can make commitments to our shareholders and other stakeholders that are realistic.”
In order to refocus on diagnostic information services, Quest divested several non-core businesses and sold off drug-royalty rights that it had come by as part of certain acquisitions. (“We’re not a products company,” Guinan says.) Financial metrics are now in place to test the viability of all future acquisitions, once they pass the “closer to core” hurdle.
He outlines three keys to an acquisition:
- The new business would have to be earnings accretive on an adjusted basis by the second year.
- There should be a focus on revenue growth, but also Quest has to see a return on invested capital by year three. That ROIC metric is a substantial test.
- From a Net Present Value perspective, shareholders should see a return of a given percentage.
- The metrics are focused on shareholder value creation, and the company views revenue growth and return on invested capital as two indicators most aligned to that focus. The business development and finance groups run the numbers. Guinan estimates that 80 to 90 percent of potential acquisitions get screened out before they make it onto his radar.
On a chilly day in February, Guinan is in his office in Quest’s sleek headquarters, seated at a round conference table. Wearing a crisp, pastel Polo dress shirt, he looks every bit the experienced coach that he is. Guinan says his basic technique is to ask questions, not impart lessons. Like Lieutenant Columbo, the quirky and rumpled TV detective played by Peter Falk, Guinan frames the dialogue with members of his finance team or with customers or reps as, “Help me understand.”
“I don’t know exactly where I picked that [technique] up,” he says, but it has helped him establish rapport, listen, and learn. He has learned enough through engaging with the company’s commercial leadership that he can now talk to a sales rep about a new $10 million account, suggesting appropriate deadlines for moving from stage one to stage two of the sales timeline. He’ll ask, “Can we push the organization to try for two months? How are we going to have to behave differently?” That type of dialogue is occurring regularly now, as part of the restore growth initiative — and it’s coming from Quest’s CFO.
“My belief is, I’ve learned so much from other people and I’m a product of people I’ve had the privilege of working for, working with, and who have worked for me,” he says. “When I see things that are really good, I adopt them.”
Health Care’s Not Soft and Fuzzy
Coming to work in a company that provides patients with the information to prevent or manage disease has to be rewarding for Guinan. In addition to diagnostic information services, Quest provides information technology solutions (including MyQuest, a mobile app that allows individuals to access their own lab records) to improve diagnosis and care. It also develops new diagnostic tests such as one introduced in October 2013 for women at high risk of developing breast and ovarian cancer due to inherited mutations in the BRCA1 or BRCA2 genes.
The company has a long list of honors, including a decade on the Dow Jones World Sustainability Index and recognition as a “Best Employer” in numerous localities around the country. Guinan says, “I’m proud of what I do … and certainly the space we’re in here, diagnostic information services, a key to reducing costs [by] early detection and prevention, is a great place to be.”
There is, however, a national cynicism about the health care field that’s sometimes difficult to handle, he admits. He notes, for instance, the public perception is of medical providers’ and insurers’ taking large bites from the average family budget. Because his job is so much a part of who he is, Guinan says, it can be challenging to hear the negativity. “When my daughter was in seventh grade, she came home from school and said, ‘My teacher says that pharmaceutical companies treat things instead of curing them because you can make more money.’?” He was CFO of the pharmaceuticals business at Johnson & Johnson at the time, working alongside people in R&D whose passion was all about curing a devastating illness, “many of them touched by the disease personally through family or friends.”
In the diagnostic space, the beneficial connection is not so easy for individuals outside the medical field to appreciate, but “to really focus people on the details of their conditions and, therefore, lead them to treatment options or hopefully to avoid larger challenges by early detection,” Guinan believes, is a “greater purpose.”
He says, “Yes, we’ve got to make money for our shareholders, but at the end of the day that’s not why we’re here. We’re really here because of the greater purpose of what we’re doing, and that’s where our passion is, and maintaining that passion, and doing great things for people, is how we best serve people and our shareholders.”
He finds the best way to deal with negativity is by “reconnecting with the people you work with. Then you see it. ‘Yeah, there are good people doing good stuff. There are good people getting excited about the difference they’re making in other people’s lives.’?”
Do you have to be a people person to find that silver lining? No, but it helps. Guinan, the CFO who believes in and practices management by walking around, not only finds that good, he spreads the news to just about everyone with whom he engages in the company.