Precision BioLogic’s diagnostic products are top-notch, but it’s the company’s business model that is the real innovation. Its key driver: understanding the customer experience.

As the proverb says, to truly understand someone, you must first walk a mile in their shoes. It’s the same in business: to truly understand if your product is useful to your customers, you must first walk a mile in your customers’ shoes.

It’s called a customer-centric approach. It’s all the rage in the financial press and business schools, and it’s how Michael Scott turned around a struggling Halifax medical company called Precision BioLogic. “It wasn’t nose-diving,” says Scott, “but it was definitely taking on water.”

Since adopting a customer-centric approach, however, Precision has grown from a seven-person company that was losing money to a staff of 45 and 12 straight years of increasing profitability. “A key component of our business strategy is to build in ‘touch points’ with our customers, with whom we may rarely meet face to face,” Scott explains. “Communicating care in the services that surround our products creates trust and confidence with customers.”

Friendly and open, Scott became involved with Precision not long after he moved to Nova Scotia. The CFO of a Colorado–based biotechnology company called Clonetics, Scott was drawn to Halifax with the wave of Shambhala Buddhists who relocated here in the late 1980s. Looking to engage in local business, he decided to invest in Precision Biologicals, as it was known at the time.

Since the mid ‘80s, Precision had been doing a modest business producing and selling medical products that tested blood coagulation as a way to diagnose clotting disorders. The tests worked well, but Precision hadn’t been able to expand its customer base much beyond local hospitals and laboratories and some overseas distributors. Scott was among a group of investors who thought they could jump-start the company. “As investors, we felt that, with some guidance on market development, Precision could grow to provide us with a good return on what was a relatively small investment,” he says. “What we did not realize at the time was the degree to which the product line truly was a ‘me too’ offer with little differentiation from competing products.”

Scott and his fellow investors quickly realized that Precision had a major problem: their product wasn’t very different from the products offered by large, multinational players who could offer a wide breadth of testing products at very competitive prices. At times, they would offer their products as loss leaders—cutting their prices by 30% to 40%—to win other product sales.

Despite the investment from Scott and the others, the company continued to struggle. Most of the other investors felt ready to chalk it up as a loss and move on. Scott, however, wasn’t ready to put Precision into the loss column just yet. “Our customers seemed willing to work with us, and staff were willing to stay with it,” he recalls. “My sense was that we owed it to Precision’s management and to ourselves to assess what it would take to compete profitably in this market.”

Scott convinced one of the other investors to stay on board. For the two of them, it was as much a chance to try out customer-centric management techniques as it was a play for financial return. “We saw the company as a business laboratory, an opportunity to experiment—to implement management ideas and practices that would not be possible in a larger, more established organization,” says Scott. “Our agreement was that we would invest some money to turn it around. We both felt that, even if it ended in failure, we would have received a good return on our investment simply from the learning that we acquired from the experience.” It was the prospect of gaining that experience that prompted Scott to take a leadership role. 

In the early 1990s, Scott was reading Tom Peters’ book, Thriving on Chaos. He was inspired by Peters’ concepts of truly partnering with customers and creating a dynamically engaged workforce— tapping into the power of employees who are really committed. Scott adapted some of the concepts and techniques to reflect his own beliefs. “I felt that if our people were aligned with what the company was trying to achieve, and if we created an internal environment of trust,” he says, “then frontline staff would be successful in developing partnerships with customers based on mutual trust.”

Scott and his team decided to begin by gaining a deeper understanding of their customers’ needs. They started at the Victoria General Hospital in Halifax. The Precision team interviewed lab staff, asking a couple of simple but targeted questions: What is it that does not work for you with our and other manufacturers’ lab coagulation products? What would make your work easier in the coagulation lab?

“The response from laboratory staff was phenomenal,” says Scott. “No vendor had asked those questions before. These customers were very open in terms of sharing their challenges and frustrations in working with [our] products, and we found out that current products actually added to their workload.” To truly understand these challenges, Scott and his team asked to observe how lab staff worked with their products in the lab. What they found shocked them.

Scott and his team discovered that lab staff was actually “reverse manufacturing” their freeze-dried products. They were actually taking the time to reconstitute the freeze-dried material and pool it, and then split it up into single-use sizes, then placing it in the hospital’s –80ºC freezer. Every other week, lab staff members were spending two to three hours doing this. Why all this extra work? It turned out that by packaging in smaller units, lab staff saved 25 minutes in set-up time for each test. Even more significantly, the test results were much more consistent because day-to-day reconstitution errors were eliminated.

Suddenly, Precision’s course was clear: if it could save the VG’s lab staff the laborious repackaging process while delivering quick set-up time and greater test consistency, they would earn a customer who couldn’t be swayed by loss-leader discounts. It would mean producing and delivering products that were kept frozen at –80ºC, but at Clonetics, Scott had gained experience working with frozen material, and he knew that Precision could do it.

To ensure the concept would fly with other customers, Scott and his team expanded the discussions to include about a dozen other Canadian clients (half were existing customers, half were non-customers) to gauge their interest. Precision conducted two rounds of pilot studies on what was to become the company’s flagship brand, the CRYOcheck product line. Each round of pilots incorporated specific client suggestions on how to improve the value delivered.

Partnering with the customer allowed Precision to expand from lab control and calibration products into more sophisticated lines of diagnostic test kits. Information from these kits are used primarily by physicians attempting to diagnose the exact type of clotting disorder. Getting accurate test results is central to the physicians’ ability to determine the best treatment method. The buying decision for Precision’s diagnostic-testing kits is also strongly influenced by physician users who are very selective, since the results are used to establish a differential diagnosis and treatment for a patient. 

Precision’s partnership with clients to refine the CRYOcheck line has paid significant dividends. Not only did all of the customers involved in the initial pilots sign up to buy the product line but the respect Precision won from clients also helped open new doors for business expansion. A call to Massachusetts General Hospital in Boston led to discussions that helped Precision’s management rapidly learn about the structure of the industry in the United States.

Precision’s unique approach to working with customers to “co-design” products and services has also generated a good deal of word-of-mouth promotion for the company. Client introductions have largely been responsible for Precision’s current roster of world-renowned health care facilities, which includes institutions such as the Mayo Clinic and Johns Hopkins Hospital in the U.S., and University College Hospital in London, England. Working with top physicians in the industry has allowed Precision to fast-track its expansion into both the U.S. and Europe.

The focus on the customer continues with new products and product improvements that the company is developing. “What is most rewarding for me is gaining an understanding of the customers’ points of pain—what prevents them from being as productive as they would like to be—and working with them to co-design the solution,” says Steve Duff, the director of new business development. For Dean Willett, a longstanding employee of Precision and currently the company’s export director and product manager, connecting with other thought leaders and technical partners fuels new product ideas.

The results speak for themselves. Precision’s sales in its largest market, the U.S., have increased 14-fold in the past 10 years. Growth continues to accelerate, doubling in two years to 43% in 2006, compared to a 5% annual growth rate in the overall industry. In just three years, the company has increased profits more than four-fold. The board of directors recently agreed to continue Precision’s company-wide profit-sharing program, which in 2005 paid bonuses of 16% on every permanent employee’s salary.

The company’s greatest challenge is figuring out how to manage internal growth while retaining the current culture of wide input and engagement, all the while remaining close to the customer to identify emerging needs and deliver the quality for which Precision is known. Scott believes that his greatest challenge is how to ensure ongoing alignment within a rapidly growing organization—a task much more easily accomplished in a smaller company. In order to be successful, a customer– centric business strategy requires open respectful communication with the customer. The combination of curiosity about what it takes to improve your customers’ situation, actively listening to their responses, and then acting on that information employed by Scott and his team seems like a simple enough approach. But then, that which is simple is not always easy to accomplish.