No doubt you've heard it: "Damn it, Jim, I'm a doctor — not a bean counter!"
It's quite the understatement to say it's a tough time to be a health care executive. Cost-cutting and layoffs are commonplace, and local media often vilify those who make the difficult decisions. Widespread regulatory change has triggered unprecedented challenges for hospital systems and health care professionals. It's tempting in such an environment to lower your head, sharpen your pencil and get to work figuring out how to cut just enough costs to survive, ideally without compromising the quality of care.
But research in strategy and some exemplars from other industries undergoing radical change lead to a different, compelling solution: Open your mind, think strategically and look externally. These tumultuous times can bring opportunity.
Lessons from the Past
Let's first consider a couple of examples of other "exogenous shocks," times when multiple external factors led an industry to disruptive change.
The late 1970s witnessed major deregulation in the airline industry. Coupled with massive oil price increases and interest rate spikes, many large airlines were unable to cope. They suffered years of losing money, bankruptcies and reorganization, and many hallowed names like Pan Am, Braniff and Eastern failed. Who prospered in this period? Not many "traditional" full-service carriers. But Southwest Airlines, launched in 1967, took advantage of the disruption with an innovative model that led to decades of sales growth and profitability, becoming arguably the best-performing airline over the last 30 years.
A more recent example is the dreaded Y2K, the information systems crisis at the turn of the century. A wide variety of industries faced disruption from systems that coded the year in two digits (e.g., 99 instead of 1999). Fixing the Y2K problem was quite complicated, with potentially disastrous implications for transportation, banking, health care and many other industries.
Companies invested hundreds of millions of dollars in information technology solutions in the form of enterprise resource planning systems, hoping they would fend off the "Y2K apocalypse," as well as yield promised cost savings. But it turned out that a cost-saving, bandage approach to enterprise planning fell woefully short of expectations.
Firms that received full benefit from enterprise resource planning took a strategic look at how investment in IT and people could be used to position them for future opportunity beyond the turn of the century. Rather than relying on big systems, they engaged with third-party vendors like i2 in supply chain management or Salesforce.com in customer relationship management systems to get real benefit from the investment in technology infrastructure.
Focus in Crisis
Strategy research shows how firms that survive shocks differ from those that don't: In stable times, successful firms balance their focus on internal and external elements. But in times of rapid change and threat, firms that thrive pay even more attention to external factors. Instead of putting the blinders on, they focus on customer value, innovation and business models — they look outside the firm and outside the industry. Those firms that go bankrupt have a much higher internal focus on cost-cutting and bottom-line results, and plan to survive upheaval by squeezing out a few more pennies.
Strategy thought leaders note that a focus on operational effectiveness, or doing things right, may yield short-term cost savings and a modest improvement in the bottom line. But adopting this focus is like being on a sinking ship yelling at the crew, armed with paper cups, to bail faster. To truly right the ship, it will take understanding the source of the leaks, looking creatively and strategically at ways to address the cause. By focusing on doing the right things in the right way, instead of doing things right, firms can address strategic positioning and accrue the long-term benefits from balancing strategy with operational effectiveness.
Three Strategic Lessons for Health Care
So what can we glean from the above experiences to help the health care executive looking to move forward — not just tread water — in today's environment? Here are three ways health care system leaders might approach the strategic challenges they face:
Understand the interaction of workflow and strategic objectives. Trimming staff and cutting costs through automation, or putting quality control systems in place for existing practice, is a shortsighted solution. Companies that put Y2K systems in place to please regulators and simply plug holes in their IT infrastructure in the 1990s found that the solution often backfired.
Rather than applying Six Sigma black-belt ninjas to a flawed process, start by rethinking the care delivery system to simplify and integrate a strategic solution that selectively applies technology. In other words, don't automate a bad system. Encrypting personal health information through a secure texting platform, for example, may address the regulators' requirements and solve an immediate problem, but it does nothing to enhance the overall communication and information needs that plague teams striving to provide continuity of care and demonstrate meaningful use.
Treat the whole system. Southwest Airlines brought a new business model to the industry, with a "point-to-point" network as opposed to a "hub-and-spoke" one — flights went directly between smaller cities rather than being routed through a hub in a major city. This model was coupled with human resource strategies of team approaches to task management, and a visionary eye for selective investment in technology.
For example, rather than spending millions on a ticketing system, Southwest implemented an approach that did not rely on seat assignments in advance. Southwest innovated and thrived over the last 30 years not because of one thing, but because of human, technology and strategic elements that made the whole greater than the sum of the parts. Hospital systems that put strategy first and understand how automation and information systems complement human behavior, including that of health care providers as well as patients, will reap benefits in the short and long term.
View strategy as something akin to sailing instructions. Particularly in uncertain times, it's unlikely that strategy can be addressed as a road map with a defined path from A to B. Strategy needs to be more like sailing in which the whole crew is involved in course corrections and adjustments, depending on tides, wind speed and storms (in the form of new competition, technological innovation and regulatory change). This approach is a much more process-oriented form of strategic planning, and it's difficult to execute if the organizational focus is geared solely to cost-cutting.
Companies like Apple, Netflix and Amazon have a strong sense of their envisioned future (how their product or service fits into the market of the future) and they experiment often — but do not rely on fixed strategies and an archaic strategic planning process. Hospital systems need to become more flexible, to accept, even embrace, change and mutual adjustment. Road maps are simply the wrong metaphor for having an engaged crew all hoping to reach the island paradise.
Long-term sustainability in health care will come not by hunkering down, but by creative exploration and learning. We are all grappling with the new world of health care delivery. Dealing with it is a triage process: Accurately diagnose and treat not just the symptoms but the underlying causes, devise a strategic solution that treats the entity as a system as opposed to a series of component parts, and appreciate the need for flexibility and experimentation. This process will help the savvy health care executive emerge from the current chaos with a stronger, healthier organization — not one on life support desperately afraid that someone will pull the plug.
Todd Saxton, Ph.D., is an associate professor of strategy and entrepreneurship at the Indiana University Kelley School of Business, where he is the Indiana Venture Faculty Fellow. Saxton also teaches in Kelley's Business of Medicine program, with a physician-only MBA cohort.
For additional reading on this topic, see:
Christensen, C. The Innovator's Prescription (New York: McGraw-Hill, 2008).
Porter, M. 1996. What is strategy? Harvard Business Review, November/December, pp. 61–78.
Saxton, T. "Continuity and Opportunity Through Chaos: Embracing Innovation in Healthcare Delivery." http//www.diagnotes.com/embracing-innovation-in-healthcare/.