By Lee Ann Jarousse, Senior Editor, H&HN

The following is a summation of Jeff DeGraff's remarks at GE’s “Strategies for Success in the U.S. Health Care Market,” by H&HN editors who attended the event.

When I was younger, I swore I’d never work in higher education. After college, I went to work for a man who had recently lost $20 million and was trying to turn his business around. I worked with the executive team to build Domino’s Pizza. Four years and several billion dollars later, I retired.

“All innovation is a form of positive deviance,” DeGraff said.

I wanted to write a science fiction novel and do the stuff that people do when they come into money too early. But my plans were interrupted. Two professors from the University of Michigan approached me about getting into academics. I joined the faculty, but was frustrated by the hierarchy. The problem we had at the University of Michigan was that our scope and scale were so big that it impeded culture.

So I did something outrageous. I bought a building across the street from my office, fixed it up and gave keys to some of the most innovative thinkers I could find on campus. My plan was to create a place where we could come together and think freely and innovate. The culture of innovation spread and, pretty soon, it started to infect the larger institution. That’s what needed to happen.

And that’s what needs to happen in health care. There’s a great deal of pressure on senior leadership at hospitals and health systems to do things better, faster. As senior leaders, one of the most important things for you to ask yourself — and your board — is how much innovation and how fast? Are we talking about a radical correction, or something with a longer horizon? When I talk to organizations about innovation, I try to gauge their knowledge of innovation. I ask whether innovation is a form of standardization, or is it a form of variance? It’s a form of variance. And the more valuable the variance, the more valuable the innovation. It’s pretty simple.

Innovation is hard; sustaining innovation is even harder. How can hospitals and health systems foster sustainable innovation? It doesn’t happen overnight. Consider physician training. It takes 10 years to develop a great doctor. It takes just as long to develop a unique methodology. It’s a long horizon. The problem is that, too often, when organizations are pressed to innovate, they create processes that inhibit innovation. The other challenge is culture. Culture is huge. It takes a long time to change organizational culture. You can’t just flip a switch and change culture. It has to be built.

All innovation is a form of positive deviance. It can happen anywhere: the supply chain, marketing or information technology. To many, the definition of innovation is elusive. To be innovative, you need to understand some of the key roadblocks to innovation. The first problem is that it happens in the future. The biggest form of resistance to innovation is being stuck in the planning zone. It’s hard to stay focused on the end result, in planning meeting after planning meeting, waiting for the future to happen. Everyone is worried about getting everything right, when they don’t have any real data to help formulate their ideas because it’s never been done before. Another issue is that innovation doesn’t have a long cycle time, especially now. Apple just released the iPhone 7. How long do you think before it runs its course? Six months? It won’t go much beyond that.

Innovation is highly situational. One size never fits all. Whether you are building an airplane or creating a new business model, it’s different. That raises the question, when you are talking about innovation within your organization, are you talking about the same thing? Most likely not. It’s more likely that the thinking is so diverse, the strategies that you use, the metrics that you employ are not only different, they may be oppositional. The organization begins to work against itself. Some people fixate on money, others on the cool factor. It doesn’t sync up.

An interesting point: Money is seldom a barrier to innovation. Innovation rarely happens when organizations are doing well. It doesn’t happen at the middle of the bell curve. It happens at the bottom. Organizations innovate when things are tough. Why? It’s because the risk of trying something radically new versus the reward of the status quo, are reversed in a crisis. This is going to be important. If you want to grow, innovation isn’t your best friend — it’s your only friend. Innovation is not born from alignment; it’s born through constructive conflict.

Health care is a field in which failure is not an option. But innovation derives from failure. Fail often, fail early. Fail off Broadway. If you are going to develop competency in innovation, you have to start from the outside in. What’s the middle of your organization designed to do? It’s designed to eliminate variance. That’s why you start from the outside. If you try to launch innovation from this middle, you won’t get very far.

If an organization has the culture and competency to innovate, the organization grows and produces value. There are four things organizations need to have in place to accomplish this. First, you need to have the right people on board. Don’t mistake your managers for innovators. Your quality guy is the last guy in the world that you want to lead innovation. When was the last time you hired a deviant? You need to look for someone who has more ambition than capability. You don’t start at the center and move out. You start on the outside and move in. Second, you need to set realistic targets. You want to go beyond where you are today, but you don’t want to set unrealistic targets. Next, you want to take multiple shots on goal. The key is not to avoid failure, but to fail fast, fail small. That brings us to the final point: Learn from your mistakes. You have to follow up and review what’s worked and what doesn’t work. That’s where you will get the information you need to be successful in the future.

As hospital executives, it’s up to you to lead the charge. The cavalry isn't coming. Technology can’t save you. The government isn’t going to save you. You have to exhibit self-authorizing behavior. What do I mean by that? You have to be bold and ask questions, challenge ideas. Don’t be afraid to try things a different way. Maybe you need to start your revolution across the street. These are traits that sound admirable, but they are often unwelcome in corporate culture. Make them a part of your culture. You may need to find a group of self-authorizing individuals to do this for you. Let them find the trends, and develop new processes. If you already have a group of innovators or potential group of innovators, what are you doing to develop them? It’s a craft like anything else; you have to learn to do it. Anytime you have a problem, it’s a unique opportunity to try something new.

Review the full supplement, "Strategies for Success in the U.S. Health Care Market."


Jeff DeGraff is a Clinical Professor of Management and Organization, Stephen M. Ross School of Business, University of Michigan; founder of Innovatrium, an innovation institute on the UM campus.