20 Feb 2015

Health Care is Every Company’s Business


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BRIAN KENNY: Today we’re speaking to HBS professor John Quelch. He’s a former Dean of London Business School and the China Europe International Business School, also called CEIBS, in Beijing. At Harvard he holds a dual professorship both at HBS and the Harvard T. H. Chan School of Public Health. He’s here today to talk about a new course he developed that sits at the crossroads of those two disciplines. Professor Quelch, welcome.

JOHN QUELCH: Thank you.

BK: Can I call you John?

JQ: Please.

BK: Great. The course is called Consumers, Corporations and Public Health, and as I looked at the syllabus, it really looks like it’s ripped from today’s headlines. The cases are all based on companies that people have heard about. They’re based on recent public health issues -- HealthCare.gov, the ebola scare that we had over the summer. What was the impetus behind developing the course?

JQ: The main impetus, Brian, is that public health officials and regulators are not understood by corporate executives, and corporate executives need to understand the way public health officials think, because every corporation is actually in the health care business. And it’s in the health care business in three ways. Number one: The safety of all the products and services that any corporation puts out are the responsibility of the chief executive. Secondly, the wellness and health of all of the employees of the company bears on the productivity of that company and its success. And, thirdly, there is an environmental footprint that’s associated with every company, and we in the public health sphere define public health to include environmental health, and so what a company does in respect to the environment is very important in terms of its overall public health footprint.

BK: We’ve heard about sustainability a lot as part of the corporate agenda, so this is digging into it from a health care perspective, specifically.

JQ: Well, don’t forget that sustainability not only covers environmental impact, we’re all familiar with that, but it also relates to the sustainability of the work force, the sustainability of all the people who live and work in a supply chain that a company is a part of. So, the public health element looks at the people’s side of sustainability.

BK: Got it. So, at Harvard Business School we use the case method; this course is all based around cases. These are new cases that you and your team went out and developed to support the main objective you are trying to achieve through the course. I thought it would be interesting -- I’m going to cite the objectives you do in the syllabus, the sort of main theme, and then name one of the cases that you’re using. And I thought it would be great if you could relate that case back to that objective and how you’re going to try to achieve that. So, the first objective is around corporate strategy and public health. One of the cases in there is Royal Caribbean Cruises. Talk about that a little bit.

JQ: Not every company that deals in public health has to be a health care company. This is a company that is not in the health care business, but if there is something that goes wrong in the area of public health, it can be devastating to the company’s revenues, profits, and share- holder results. In particular, obviously the outbreak of a norovirus on a cruise has very serious effects on the company’s profits. First of all, that cruise has to be cancelled, potentially.

BK: Right.

JQ: All of the people on board the cruise have to be compensated and given a new cruise for free. They all have to be shipped back to their homes at the expense of the cruise company. In addition, the cruise ship may be out of service for a week or two for cleaning and servicing, in which case all of the people who were on the cruises booked for those two weeks now have to be rescheduled and compensated. It can be devastating to have a public health event of this nature, not just from a reputation point of view, but from a pure economics point of view.

BK: And that seems to be happening. You hear about this all the time. It’s a wonder to me that anybody still goes on cruises given the frequency of the norovirus outbreaks.

JQ: Well, curiously enough, they’re not as frequent as you might imagine, but every time there is such an outbreak, we have 2,000 or 3,000 or more people stranded in the middle of an ocean, and helicopters that are hired by the media can quickly hover overhead, and it makes a good high-visibility story.

BK: The second theme is around employee safety, wellness, and productivity, and one of the cases that you look at there is Rana Plaza in Bangladesh, the horrible incident that happened a few years ago.

JQ: There, Brian, what we had was a situation where many very important brand-name companies at the retail level in Europe and North America were using a whole series of subcontractors in their supply chain back to Bangladesh to make their apparel, their T-shirts, their jeans at very low cost in factories that lacked a lot in terms of operational safety. And we saw the tragedy in Bangladesh that you referred to a couple of years ago, where over a thousand people died when a building collapsed in which there were five apparel factories. So, the question there is what’s the responsibility of the brand owner to take charge of the supply chain, not just to exploit a fragmented supply chain for maximization of low cost production, but to take charge of the supply chain, take responsibility for it. And, what we saw come out of that were two collaborative efforts on the part of branded retailers, one in North America, one in Europe, that together have now invested a considerable amount of money in factory inspections and factory upgrades to the benefit of workers in the garment industry in Bangladesh.

BK: Third, you get into prevention and adherence -- the notion of commercial marketing services firms providing consumer insights that can improve the impact of public health messages. One of the cases that you talk about there is CancerScan. I thought this was a really interesting one.

JQ: Well, this is an interesting one, because the company is a Japanese- based market research company that was founded by a graduate from HBS along with a graduate from the Harvard T. H. Chan School of Public Health.

BK: Perfect.

JQ: And what we’re talking about in this case is how third-party commercial research organizations can help solve public health problems by providing consumer insights. What we often find is public health regulators have a very fierce belief in what they think needs to be done, and perhaps they’re a little bit too quick to pull out the regulatory gun when, in fact, they don’t necessarily understand all the nuances of consumer behavior, that all consumers are not going to react in the same way. There are segments of consumers who are going to react differently to different messages or different price incentives that are offered to them, and all of that really needs to be understood before you put the public policy program in place that’s designed to change or nudge consumer behavior in a different direction.

BK: Right.

JQ: So, what this particular case is about is a whole series of messaging options that were tested out in various municipalities in Japan around encouraging women in Japan to increase their likelihood of going for a breast scan.

BK: So, the next area was around consumer access and affordability, the idea of innovations that can improve access to poor people for health care solutions. And there’s a couple of cases that you’re going to be discussing there that I thought would be interesting for people to hear about. The first one is Vaxess.

JQ: Well, the Vaxess case is really exciting because it’s lead by an HBS alum, and it was a winner of the Entrepreneurial Business Plan [now the New Venture Competition] the year before last. And what this company is attempting to do is to use technology that they have licensed to thermal stabilize vaccines so that vaccines do not need to be refrigerated throughout the distribution process before they reach the end consumer. And, if you can think about trying to administer vaccines in remote villages in Asia or Africa, Latin America, you can imagine that the availability of refrigerated distribution in those remote areas is probably pretty limited. And so access of children in those rural remote areas to vaccines that they need is reduced by this problem, and with Vaxess technology hopefully they won’t need to be refrigerated and will be delivered much more economically and make the last mile to the end consumer a lot more easy.

BK: And I would imagine that involved sort of a coming together of business people and health care policy people and science, all of these sort of disciplines.

JQ: Absolutely. And also governments and also the Gates Foundation and other entities that are responsible for vaccine distribution worldwide.

BK: Let’s talk about emerging markets, consumer behavior, and public health. This is an interesting one, too. One of the cases that you do there is around the marketing of medical marijuana in Colorado.

JQ: Well, not just medical marijuana but, as you know, Colorado has now permitted recreational sales of marijuana as well in certified and licensed retail outlets. And so you know this represents a very interesting dilemma, because from a public health point of view, there are clear benefits to marijuana use in certain circumstances for certain patients in terms of pain relief and so forth. But there’s also pretty strong evidence that marijuana has a negative effect on IQ when consumed heavily by teenagers in high schools. And so you have this dilemma on the public health side of there being some pros and some cons. As long as the medicinal marijuana regime was in place and tightly controlled, medicinal marijuana [was] probably not getting to kids in high schools. But once you open up the recreational market, even if you say you have to be 18 or 21 to actually make a purchase or even enter the store, you know, we know what’s gonna happen in terms of prospective leakage of marijuana that’s purchased in these stores into the schools.

So, there is, I think, a very interesting market dynamic issue here as to how the various submarkets play out. So you have the medicinal marijuana market, you have the recreational marijuana market, you have the home-grown marijuana market, because in Colorado under the legislation, any consumer, any adult is permitted to grow a certain number of plants for their own use. But what about the leakage in terms of people selling on that marijuana that they grew for themselves.

And then finally, there’s the illegal market which, depending upon the pricing in the recreational and medicinal markets, may still have a significant presence. Especially since it seems that many jurisdictions in Colorado, cities as well as the state, are getting a little bit greedy in terms of seeing the taxation possibilities on recreational marijuana as a valuable extra source of revenue.

BK: Of course.

JQ: And if those taxes then lead to pricing that separates the price of the recreational marijuana from the price of illegal marijuana on the street corner outside by too big a spread, then the illegal market will continue to operate.

BK: Right. And this may be a first of its kind.... A case at Harvard Business School written about marijuana, I think. You may have broken new ground.

JQ: I hope that’s not the only way since I’ve been at Harvard that I’ve broken new ground.

BK: (Laughs) I’m sure it’s not. So, John, do you think that 20 years ago that there would have been a need like this, where business people and health care policy people would have to join forces in this way or at least come to some kind of a mutual understanding? What’s changed in the landscape to warrant this?

JQ: Well, I think the one thing that’s changed this is that health care costs have just become such an important part of the economy. Eighteen percent of the U.S. GDP, 10 percent of worldwide GDP. Every CEO of every company is looking at the health care insurance costs of their workforces and wondering what’s going on. And I think that, therefore, now more than ever, it’s essential for every aspiring CEO to have an understanding of the health care sector.

BK: He’s Professor John Quelch, both of Harvard Business School and the Harvard T. H. School of Public Health. Thanks for joining us today.

JQ:Thank you, Brian.

BK: That's John Quelch, who teaches at both Harvard Business School and at Harvard T.H. Chan School of Public Health.

Next time on The Business, Richard Edelman, the president and CEO of Edelman, the world's largest public relations firm. He tells us what his annual Edelman Trust Barometer reveals for 2015. The results are bracing.

RE: “It amazed us the extent to which the pace of innovation is causing people to be anxious. They feel that it’s going too quickly. They feel that the motive behind innovation is either business results or greed. So, in a sense, business has to create the construct in which it can innovate.”

Tune in in two weeks for our conversation with Richard Edelman.

“The Business” is the official podcast of Harvard Business School. We publish twice monthly at hbs.edu/thebusiness. You can find all of our interviews there. If you’ve got a topic you’d like us to address, tell us about it. Again, you can tag your comments and questions using #TheBusiness. And subscribe to The Business on: iTunes and iTunesU or follow us on SoundCloud.

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