Value–based management : an application in North West regional pharmacies
Value based management is a process that can be used to determine a business’s value drivers. It attempts to determine how the drivers link to value creation, and then break down the value drivers into achievable activities that can be pursued by employees. Due to strict medicine pricing regulations in the country, it is becoming increasingly difficult for pharmacy businesses to stay profitable. This study set out to develop a value based management framework that could be used by pharmacy management in order to maximise value creation in the business and help ensure its survival despite the strict pricing regulations. Secondary objectives were to contextualise the term “value based management”, to identify the value drivers in a pharmacy business and to determine the extent to which value based management and its principles are being applied in pharmacies in the North West region of South Africa. The research study began in the literature where the term “value based management” was introduced and a literature study was done to conceptualise the term by investigating why value based management and value creation were important. Value based management metrics, the components of value based management; and key success factors for the implementation of value based management principles were investigated. A further literature study was done to identify possible value drivers in a pharmacy business. An empirical study was conducted among registered pharmacists in the North West region of South Africa. Using the value drivers identified in the literature study as constructs, a questionnaire was designed to explore participants’ level of exposure to (and knowledge of) value based management as well as the extent to which the principles of value based management were being applied at the pharmacy businesses where participants were employed. Analysis of the responses showed the questionnaire to be reliable and valid. The results of the study highlighted that many respondents’ lack knowledge regarding the constructs (value drivers), cost price in the dispensary and cost of wages. Constructs (value drivers) that were better understood included product mix in the front shop and debtors’ control. Constructs (value drivers) that were best managed at the pharmacies where participants were employed, were cost price in the front shop and stock control. Constructs (value drivers) that were not as thoroughly managed were sales growth in the front shop and cost of wages. Conclusions regarding the findings of the research study were presented and recommendations were made. The research study was evaluated opposite the primary and secondary objectives with the conclusion that both were achieved. Finally, recommendations for further research into value based management and the application of its principles in pharmacy businesses were proposed.