What is shaping our industry? In this lively roundtable discussion with LMT, five industry leaders discuss key trends, how they think they'll play out and what laboratory owners can do to succeed in a changing marketplace.
TREND: New technology
Walke: The influx of new technology is the one thing that will change our industry most significantly, and it's long overdue. In the 90's when we saw new products come onto the market, they were basically just reinventions of products that already existed. For example, we saw numerous pressable ceramic systems introduced that offered the same basic benefits without expanding the market. But now we're seeing technology that is truly innovative, that is truly changing dentistry--for example, CAD/CAM, digital impressions, rapid prototyping technologies and everything related to information transmission. The rate of change is just amazing.
Kalaw: And hand-in-hand with the technology boom is that capital costs are going up significantly. Six or seven years ago, you could go to Lab Day in Chicago and, if you had a few thousand dollars, you could buy the best new-fangled gadget out there. Nowadays, you need to add a few zeros to that. That's a change we haven't experienced until recently.
This puts pressure on smaller labs to improve profitability or to get bigger because that's the only way they're able to justify the investment in new technology. I think you'll see many smaller laboratories trying to grow.
Brown: Just as we've seen in the computer world, technology tends to get smaller and less expensive, so we're going to have to wait to see how it plays out. But I think it's going to be very hard for the small lab to keep up, not only financially, but time-wise. Very often, the owner is at the bench and can't devote the hours required to keep up with the continued influx of new products and equipment.
Walke: The most important advice for any size lab is to be aware of the impact technology is having. If you ignore it, don't be surprised when your business suffers. The laboratories that embrace technology will find ways to shorten turnaround, increase accuracy, create more value for their clients, reduce chairtime and generally have a competitive edge.
Benson: The biggest challenge for laboratory owners--and it's a daunting one for labs of any size--is to navigate this maze of new technology and decide how to maximize their dollars while avoiding short-term obsolescence. How long will the technology be relevant? Are you going to have a chance to get a return on your investment before it's replaced by newer technology? There are no easy answers here; nobody has the crystal ball to answer these questions.
Walke: What's also important, and something we're focused on, is helping dentist-clients navigate the turbulence that the technology has created for them. We find that many doctors feel pressured to buy equipment because of all that they can do with it, but it doesn't necessarily mean that they should be doing it. In-office CAD/CAM is a perfect example. For some doctors, it's good; for most, it's not. When appropriate, we share the experience of some clients with other customers so they can get a third-party opinion before making such a big investment.
Obst: The trend toward automation is particularly applicable in the crown and bridge area, with the advent of CAD/CAM. I think we'll see that continue and more manufacturers will invest in developing automated systems and techniques that utilize less labor. That's positive for an industry that has such high labor costs; if we can reduce those costs and instead make the business more capital intensive, we will fare well in the future.
We all know the difficulty we face in finding employees, training them, paying them well and providing them with good benefits. While those issues aren't going to disappear, they'll be easier to deal with if we can rely less on the human equation and more on machinery. Of course we're never going to replace technicians. But as automated equipment becomes more commonplace, less expensive and easier to use, it will alleviate the personnel shortage. And as more dental technology schools close and the onus for training is on the laboratory itself, it will allow us to focus our efforts on training fewer, more highly skilled people.
One thing is certain: as this equipment becomes more commonplace, it's critical for laboratories to become involved and offer it to dentist-clients, even if it's through outsourcing.
Kalaw: I think we're just seeing the tip of the automation iceberg. The pace of improvement in automation will likely increase significantly when the digital impression is perfected. Sooner than we think, a dentist will be able to e-mail an electronic impression that his laboratory will be able to manipulate.
Walke: Automation certainly is exploding. Five years ago, we were doing 5% of our business in some form of CAD and today we're doing about 20%. We don't see that slowing down.
Benson: Despite the fact that we've seen some technology that offers automating benefits, the one thing we're still looking for is a true improvement in our production capability, something that is going to improve the process of custom manufacturing. To some extent, CAD/CAM has had an impact, but we're still looking for additional capabilities. There's no question that when digital impression-taking comes of age, it will have a significant impact as well.
Brown: As was mentioned earlier, we're also seeing more CAD/CAM technology in dental offices as well and, obviously, we're not as much of a fan of it in offices as we are in labs. With a network of 41 laboratories, we've seen some effect. It's not crippling by any stretch, but there's an impact. We're also seeing some dentists come back after trying it. They don't want to be technicians; they want to be dentists. There's a big learning curve and, unless the auxiliary personnel are doing it, it's going to be eating into dentists' time.
Obst: Outsourcing--both domestic and offshore--has been a way of life in this business for at least 30 years, but it's certainly growing today because of new technology and laboratories that can't afford to make the capital investment. Largely, labs are outsourcing within the U.S., so many labs are establishing themselves as specialty labs for a particular brand-name product or even in lab-to-lab services. It's a plus for labs, especially smaller ones, that want to take advantage of new technology but can't afford it. It's a trend I expect to continue.
Kalaw: One of the challenges for laboratories large and small is the ability to produce the work when there is a high volume and the ability to manage expenses when business is slow. For this reason, I believe it's important for labs to find an outsourcing partner they can count on. This allows you to maintain a consistent product and quality level by outsourcing cases during periods when you're overwhelmed. Whether you outsource to your neighbor or across the ocean depends largely on preference.
Obst: The rise of offshore outsourcing is scary for a lot of people I've talked to, particularly smaller labs. But it's just another avenue for labs to make different product lines available and to accommodate dentist-clients who are looking for an economical service. Dentistry in almost every market is segmented: the high-end, the middle and the more economical product for patients with HMO coverage or no insurance. If you're a lab in a particular market area and want to provide an array of services to dentists in that area, you have an opportunity to expand your growth and earnings by offering an outsourced product that you can still quality control.
Brown: Certainly another reason for the offshore trend is the difficulty in finding qualified technicians. I have mixed feelings about the offshore situation. You have to have an open mind about the global marketplace; it's not necessarily a bad thing. We have seen a lot of good work coming out of China and India and have also seen some not very good work. But we also see that situation in the United States every day.
Benson: I think people are also getting more comfortable with the idea of offshore outsourcing. For a long time, it had to be "Made in America." And I think that society in general is moving past that, although it still is an issue to some.
But the quality is improving and there's more acceptance of it from doctors, labs and patients. As far as the impact on laboratories, I agree it gives them an alternative--it could be a more economical product they're looking for or perhaps increased capacity.
Obst: I don't think offshore outsourcing will accelerate to such a degree that it's going to dominate the industry. Surveys show that most dentists choose laboratories because of their communication, relationship-building and problem-solving abilities. Dentists aren't going to just trade off these advantages, especially as dentistry becomes more complex.
The other reason it won't dominate is because laboratory fees as a percentage of the dentist's costs have gone down. Lab fee increases haven't kept pace with dentists' fee increases. The average dentist spends only 7-8% of his costs on laboratory fees; if that were 20-30%, we'd have reason to be concerned. Many technicians maintain that dentists are only concerned about price, but what they're really looking for is value; if you can save them 15 minutes of chairtime, it's worth a lot more than $5 off a case.
Brown: That said, I do think there are a few considerations laboratories should keep in mind. For one, I believe that dentists and patients should know where their product is made and too often laboratories or dentists don't disclose it. Also, if you're sending work overseas, you want to be sure you're not supporting sweat shops or otherwise infringing on human rights. In addition, it's critical that the quality of the product meets the same standards you would apply in your own laboratory. And if you're trying newly introduced systems or techniques, keep in mind that there will be a learning curve for you, too--you have to be able to support the product you're outsourcing.
TREND: Cosmetic/implant demand grows
Obst: The awareness brought about by extreme makeover-type programs is driving the demand for metal-free restorations; the trend will continue because the materials are stronger and more esthetic, and allow dentists to prescribe restorations that have more "curb appeal." Implants are on the rise, too, thanks to the fact that they're easier to use and more reliable. We're seeing general practitioners placing more implants themselves rather than referring to oral surgeons. This is especially true with the increase in single-tooth implants, which are relatively easy for general practitioners to learn and apply in their practices.
Kalaw: I agree; while overall, implants still represent a small percentage of what's done in the industry, we've certainly seen the demand increasing. The fact that more general dentists are placing implants themselves should continue to drive the implant business forward. And thanks to those makeover shows, cosmetic dentistry is now part of the public's vocabulary.
Obst: Because of the increasing popularity of both types of restorations, laboratories that continue to do only "bread-and-butter" PFM work are going to find it more challenging to grow their businesses. Sure, 80-85% of all C&B work is still PFM, so there's plenty of opportunity for those labs that provide a quality PFM product and service. But every lab should look at the long term and ask, "How do I learn to take better advantage of the trends if I, too, am going to ride the growth?" Otherwise, they're going to lose market share to laboratories that can offer these alternative restorations because their customers will be looking elsewhere for those services.
If I were an owner and didn't have the time or interest in becoming adept at these techniques, I'd make sure to find a lab that specializes in them so that I could outsource and still offer them to my clients, although admittedly that's easier to do with cosmetic restorations than implant cases.
Benson: Because cosmetic and implant restorations are becoming more widely known to the general population and patients are asking about them, both the dentist and the laboratory must stay on top of different options and techniques. This opens the door to educational opportunities, and we have a number of programs and seminars that we offer annually to our dentist-clients to keep them abreast of new techniques and to be their educational resource. The younger dentists are especially comfortable with these newer techniques and we do our best to keep pace with that.
Walke: The most important thing in this stage of dentistry is the relationship. Too many lab owners get caught up in trying to be the best technician and think that alone will sustain their businesses. These days, it's assumed you're a great technician; what differentiates laboratories now is the relationship they cultivate with their clients and their ability to troubleshoot and offer solutions.
We're the "sixth man" to the practice--if they need to learn about a new product, then we help them do it. If they need to take a specific kind of course, we help them find it. We even have account managers--which we refer to internally as concierges--and essentially, their job is to make sure clients are happy with the relationship.
Benson: Dentists still look to the labs to help them understand materials and alternative techniques; that's why education for both us and our clients is a key component of relationship-building. Sure, there are some dentists who are going to embrace the in-office technology we talked about earlier, but there are many more who prefer to work with laboratories for everything and receive the utmost in service.
Obst: Even smaller laboratories can bring education to their clients by partnering with a manufacturer. No lab can afford not to offer the things dentists need most, like having the best alternatives for their patients and maximizing chairtime. Laboratory owners thinking about these value-added services are separating themselves from the labs that simply offer a commodity.
Kalaw: The lab industry is all about trust and relationships, more so than many other industries. Dentists choose a particular lab because they are looking for peace of mind. As we travel around the country evaluating labs for acquisition, we see different quality and consistency levels; however, all the labs we see have built strong, trusting relationships with their clients.
We also need to look at our relationships with our employees. As owners get older, it's clear that there's a need for management development in our industry. It's tough enough to find great technicians, even tougher to find technicians with management skills and it's a vicious circle if lab owners are pushing to get bigger.
One of the big challenges in our industry is that everyone is focused on product quality. In order to be more focused on management, you have to step back and look at the whole picture: managing human resources, production, marketing, etc. The best technicians aren't always the best managers. It's definitely a long-term grooming process and you have to invest time and money to produce the manager.
We also value our relationships with our supplier partners. We work with a handful of companies, and they're key factors in our success and have become part of the DTI family.
Walke: Our relationships with each other are becoming more critical as well; this is an industry in which partnership and collaboration are crucial to its overall success. Don't be afraid to share information with other laboratory owners. There are enough clients to go around. If we lose a client, it's because of a relationship issue and it's our own fault; someone didn't 'steal' him.
Obst: Put on a different pair of glasses; look at these changes as opportunities instead of threats. Some of us wait until the changes get us down or put us out of business instead of facing them head on, being proactive and saying, "How can we take advantage of this?" LMT