01/03/2001

Constructing a Value Chain for Long-Term Care Businesses - An Examination of Viable Business Strategies for the Future

Masashi Hirao 

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Introduction

The Long-Term Care (LTC) Insurance System introduced last April is about to complete its first yearof operation. While a number of issues have surfaced - including problems with certification of needand quality of care managers - the Ministry of Health, Labor and Welfare reports that the number ofapplicants for LTC insurance has reached 2.7 million. In addition, a survey by the Japan Federation ofSenior Citizens' Clubs indicates that over 80 percent of users are satisfied with the quality of serviceunder LTC insurance. Thus the insurance system appears to be taking root and off to a good start.While critics cite the large number of complaints about LTC services as an indictment of the LTCinsurance system itself, these complaints could also be interpreted instead as growing pains, sincemany of the complaints predate the system, and have actually surfaced due to the heightened awarenessof users’ rights under the system.

A key concern of the LTC insurance system is whether private service providers can capitalize on businessopportunities in the LTC market. Already, two major home care providers who had been competingvigorously nationwide have later run into difficulties and been forced to downsize their home helpservices. While some observers are concerned about the large risks confronting private providers, itwould be premature to pass judgment at this time since businesses are not expected to turn profitablefor three years nor to erase debt for five years. But as care service providers enter their second year ofbusiness in 2001, they face a critical year that will severely test their business models.

In addition, as the Internet continues to grow and application service providers (ASPs) emerge in thelong-term care field, the adoption of information technology (IT) in business models will be a keyissue for management.

In this paper, the writer, who is engaged in formulating LTC business initiatives for Nippon LifeInsurance Company, examines how the value chain creation approach can be applied to formulateviable business strategies for the future.

Masashi Hirao

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