Quest Diagnostics 1997 Annual Report Download - page 5

¥ Despite declining volume, we raised average prices for the first time in five years. Indeed, a
portion of the volume decrease resulted from a disciplined approach to pricing in the face of
severe market pressure.
¥ We continued to strengthen our balance sheet by reducing accounts receivable balances and
increasing cash. The number of days sales outstanding, a key measure of billing and collection
efficiency, improved to 63 days by the end of the year, compared to 73 days at the beginning.
¥ Ongoing efforts toward standardization, operational improvements and actions involving
underperforming facilities yielded cost reductions of more than $76 million, $45 million of which
reflects permanent improvements in our clinical laboratory cost structure toward the stated goal
of $180 million in reductions by the year 2000.
We achieved these results by focusing on our strategic goals: improving quality while controlling
costs; seeking new growth opportunities; and restoring an emphasis on innovation.
Controlling Costs and Enhancing Quality
In early 1997, we initiated a market-by-market analysis of operations, and committed to decide by
this yearÕs end the appropriate course of action for each underperforming facility.
That portion of the process is nearly complete. All but one of our unprofitable labs have either
been restored to profitability, scheduled for downsizing and consolidation with other more
profitable regional labs, or combined in a strategic alliance.
Beyond the anticipated savings, these actions address a broader strategic issue. Despite the fact
that Quest Diagnostics is one of the Òbig threeÓ national testing companies, the industry remains
one in which most customer interaction occurs at a local or regional level. We believe we can
maintain a national presence offering high quality service without having a laboratory in every
market. In part, reductions in lab capacity help us shift away from the Òbricks and mortarÓ
notion of the business toward the model of an information and services provider.
Another major initiative involves standardization. This leads to more efficient operations, lower
costs and higher quality. Moreover, our goal of partnering with regional and national health care
providers requires standardized business processes and customer interfaces.
In particular, we have moved aggressively to standardize the management of the information
technology function. As we shift our emphasis toward becoming a leading source of medical
information, we must develop best-in-class information technology capabilities. Accordingly, we
hired a seasoned Chief Information Officer who assumed overall responsibility for all information
technology activities as of November, 1997.
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We achieved these results
by focusing on our strategic
goals: improving quality while
controlling costs; seeking new
growth opportunities; and
restoring an emphasis on
innovation.