An NBA team spent a season benefiting from losing. Here’s why pharmacy owners should pay attention.
Without realising, the NBA has created a perfect example of how incentives can shape organisation-wide behaviour. In a league where poorer performances improve a team’s chances of securing elite draft talent, losing pivots from a kick in the teeth to a rational, long-term strategy.
As displayed recently by the Washington Wizards, this phenomenon is known as tanking, and sees teams routinely rest healthy star players, accept short-term failure, and actively trade away immediate assets. Through this, their goal shifts from winning games to systematically improving their draft position.
Tanking is a system that rewards behaviour that directly contradicts the main purpose of competitive sport: winning. The consequences of following this pattern are damaging, and hard to ignore: fans pay premium prices to watch weakened rosters, the integrity of league competition suffers, and sports organisations drift away from their core identity.
Suddenly, what was designed to help struggling franchises regain competitiveness has, instead, created a framework that encourages intentional failure.
The Cobra effect
Economists use the term ‘the cobra effect’ to describe these incentives. With the cobra effect, the underlying principle is clear: when incentives attach to the wrong measure, people optimise for the reward, rather than the actual objective.
And while this can and does happen on basketball courts, the underlying behavioural incentive systems are surprisingly similar within the Irish pharmacy sector. For example, if a pharmacy business focuses purely on top-line revenue, growth often comes at the expense of true profitability:
The illusion of e-commerce scale
Driving online activity can indeed heavily boost gross revenues, making a pharmacy look highly successful on paper. However, digital expansion requires significant capital. Once you factor in the real costs – digital advertising, specialised order fulfilment, rising postage rates, and product returns – the net margin quickly gets squeezed out.
All of a sudden, what looks like an expanding retail footprint is, in reality, high-volume activity without baseline value. Pharmacy owners end up working harder to process more orders while taking home less profit.
Static till pricing and festive stocking
In the months leading up to Christmas, Irish pharmacies purchase significant front-of-shop stock to capture seasonal demand. As regional hubs for last-minute presents, this makes sense. And as planned, this drives revenue levels sharply upwards during the festive trading period.
However, if cost prices are not regularly updated on the till system to reflect inflation and supplier price hikes, a sizable vulnerability emerges. Then, what looks like a remarkably strong trading period on the surface masks a squeeze in net profitability.
While financial focus remains fixed on the registers ringing, back-end margins quietly erode because pricing is not reviewed continuously.
Misaligned OTC staff bonus schemes
Imagine a community pharmacy that introduces a monthly staff bonus based solely on over-the-counter (OTC) sales growth. The commercial reasoning is understandable: increase revenue while encouraging staff to engage proactively with customers. However, this quickly distorts clinical behaviour. Staff may then begin to recommend premium products that are only marginally beneficial, or encourage patients to purchase volume deals they do not need.
This shifts the staff’s focus from providing impartial clinical advice to hitting a daily sales target, and patient conversations switch from problem-solving to product-pushing. In a community healthcare setting, this behaviour damages the pharmacy’s brand, credibility, and long-term patient loyalty. And the subsequent bonus rewards transactional behaviour at the expense of patient trust.
Designing better pharmacy metrics
Effective KPI measurement remains one of the most powerful management tools available to pharmacy owners. However, every metric and scheme can send confusing messages to your team about what success looks like. When the metric itself becomes the objective rather than a guide toward healthy growth, organisational behaviour changes in a number of unintended ways.
To protect your business from the cobra effect, shifting management focus from blind revenue targets to long-term goals – gross profit margins, inventory turnover rates, patient satisfaction scores – creates a system that celebrates sustainable business health rather than short-term spikes.
Want to ensure your pharmacy’s incentive structures are driving genuine profitability rather than just busy work? Navigating the balance between revenue growth and margin protection requires specialised sector expertise. At Fitzgerald Power, we provide industry-leading accountancy and advisory services tailored specifically to the Irish pharmacy sector, helping you design KPIs that truly focus on your long-term goals. Contact Fitzgerald Power today to optimise your financial strategy and protect your bottom line.
