Over the last year or so, there has been quite a bit of speculation, especially in the workers comp arena, about First Health’s future. Consulting clients in particular were unsure of the future direction of the company, as it seemed to have lost its way, embarking on diverse acquisitions, gaining a (well-deserved) reputation for arrogance and heavy-handedness in client relations, and in the process losing credibility both among customers and in the equity markets. Now that First Health is part of Coventry Health Care, a little historical perspective may help shed some light on what went wrong.
The first question is – did anything go wrong? Past management would likely argue that all was according to plan. To refute that (potential) argument, one need look only at the stock price, which declined significantly over the last couple years. I doubt that was “part of the plan”.
One can categorize most of FH’s problems as due to the Innovator’s Dilemma, Clayton Christensen’s terrifically insightful explanation of what happens to companies that fight like hell to hold onto and improve products and services whose time has past. FH was very successful in building and growing a WC network business, one that came to dominate the WC industry and by so doing generated a disproportionate share of the company’s profits. As the market matured, FH did what most companies in maturing markets d – they grew by acquisition. CCN, HealthNet employer services, and Priority Services were all acquired to consolidate share, freeze out competitors, and solidify customer relations. What FH failed to do, and what caused them pain and is likely to continue to afflict Coventry, is innovate.
Insight, analysis & opinion from Joe Paduda