Quest Diagnostics is the leading provider of diagnostic laboratory testing, information, and services in the U.S. And Strategy&’s relationship dates back to 1992, when we worked on a business process reengineering program for Corning Incorporated, the company that would eventually spin off its clinical labs unit into Quest Diagnostics in 1997. Strategy& played a significant role in the early days in stabilizing the spin-off’s business and helping it improve its quality and processes.
In 1999, when Quest Diagnostics acquired the lab business of its largest competitor, SmithKline Beecham, Strategy& was asked to help with the post-merger integration. Quest was then, by far, the largest player in the diagnostics industry, with revenues exceeding US$3 billion and with more than 25,000 employees.
In 2001, Quest Diagnostics sought to improve its earnings through an organic growth strategy. Surya N. Mohapatra, Ph.D., then-chief operating officer and now chairman and chief executive officer, engaged Strategy& to reduce costs, through the standardization of best practices across Quest Diagnostics’ main testing units. Once that program was on track, the company utilized its improved operating margin and cash position to complete an industry roll-up, acquiring American Medical Laboratory and Unilab. This consolidation further reduced costs through additional scale. Strategy& was involved as an integral part of the pre- and post-merger integration planning, ensuring that the transactions captured and exceeded identified synergy targets with little disruption to the ongoing business.
More recently, Quest Diagnostics has accelerated its growth efforts by looking to new markets, new businesses, new services, and value-added plays, like leveraging its IT capability. Strategy& has been part of the emphasis on driving growth.
Quest Diagnostics’ leadership recognized that a company assembled through a series of acquisitions would likely have a mixture of approaches to decision making, and the company became an early adopter of Strategy&’s organizational DNA methodology, which uses the metaphor of DNA to describe the four bases that, when combined in different ways, define an organization’s different traits: decision rights, information, motivators, and structure.
Quest Diagnostics’ leadership and the Strategy& team worked together to redesign the way in which the company made decisions across the organization. The changes implemented ranged from establishing an IT governance council to identifying “owners” for the key business processes to defining which decisions should be made centrally and which ones should be made locally. New performance measures, like a customer retention metric, were implemented.
The company’s strong financial performance reflects the power of the evolving growth strategy. In the three years after January 2001, Quest Diagnostics’ net income increased by nearly 400 percent.
Catherine T. Dougherty, vice president at Quest Diagnostics, summarizing the thoughts of Chairman and CEO Mohapatra, says, “What has made the relationship so successful between Strategy& and Quest Diagnostics are a number of characteristics — the continuity of the team, having the right team for each assignment, the feeling of accountability by the team, the ability to create sustainable change, the openness and trust between us. Most important of all was getting help before we even realized that help was required.”