Health care organizations face a great deal of volatility, uncertainty, complexity and ambiguity and therefore must address a dizzying number of opportunities and challenges. Since there is no “one size fits all” playbook that ensures a secure future, each health care organization needs to experiment with innovative approaches that best address the unique and constant challenges in its markets.

For example, those pursuing risk contracts have to expect poor financial performance before the financial benefits emerge. Organizations need to invest heavily in nontraditional capabilities such as system-wide electronic records, care management, analytics and so forth before they earn margins from risk contracts. This investment makes for a high-stakes transition.

The waterfall approach

Traditional strategy development in health care resembles the cumbersome and inflexible “waterfall” approach used in product and software development before agile software and lean product development emerged. The waterfall approach results in upfront and often untested assumptions about future conditions that are distilled into a single, middle-of-the-road scenario. This most likely scenario then drives strategies and locks in investments for three to five years.

The waterfall approach does not allow for validating assumptions or making rapid adjustments to strategies as new information emerges. Nor does it employ the collective wisdom of everyone in the organization. The result is that many health care organizations are like large, lumbering ships with a captive crew, unable to change course quickly as conditions change.

Worse yet, waterfall thinking can lead to costly failures. As with many projects, the opportunity to manage investments in strategies occurs early on, not later when most investments have already been committed.

Is there a better approach to developing innovative strategies in response to constant change? The answer is yes. A more agile way to ensure the success of new strategies should include:

• An organizational “true north.”

• Four alternative and equally possible future scenarios.

• An agile process for developing innovative strategies.

True north

Health care organizations that are leaders in transformation often use a true north as a compass that guides their organization from their current condition to where they want to be and provides the foundation for their strategies. A powerful true north is a memorable and unique value proposition, summarizing what the organization stands for and how it differs from competitors.

An effective true north inspires physicians and employees to deliver better, safer and more affordable services while compelling patients to seek health services at that organization instead of a competitor. The Triple Aim — care better than we have ever seen, health better than we have ever known, cost we can all afford ... for every person, every time — should make for a compelling true north.

Regrettably, most health care organizations don’t have a clear and compelling value proposition. Of those organizations that do, many break their true north down into four or five dimensions. These dimensions drive their strategies and are measured through a balanced score card. ThedaCare in Wisconsin, for example, measures its true north on the basis of safety, quality, customer service, people and financial stewardship.

The use of a true north helps health care organizations stay focused on key priorities while ensuring alignment of the organization during execution. A true north also helps health care leaders think beyond the bottom line and balance sheet and, instead, focus on improving value from the customer's point of view.

Alternative future scenarios

While most strategies deal with current or likely opportunities and challenges, few strategies deal with the unexpected. Yet, effective techniques have been developed that can help health care organizations anticipate such emergencies. In his book The Living Company, Arie de Geus, former senior executive at Royal Dutch/Shell, describes the creation of multiple, equally possible scenarios to test the strength of strategies under different circumstances. Peter Schwartz describes this methodology in greater detail in his book The Art of the Long View.

Humans are simply not good at anticipating and recognizing signs of emerging opportunities or challenges, as our ability to see around the corner is limited. By creating four equally plausible scenarios with a mix of challenges and opportunities, health care leaders can help their organizations prepare for unexpected events. If they define four scenarios, health care leaders are less likely to concentrate solely on the middle ground, and they reduce the threat of judgment bias and groupthink.

If you believe this approach sounds academic, consider how 9/11 and the economic crisis in 2008 were anticipated by so few, yet had profound, global and long-lasting consequences. Then recall the many new, disruptive entrants in the health care marketplace, such as CVS, American Well (a telehealth-based primary care provider) and others that compete for patients based on convenience, access and cost. It pays to think more creatively about what might become reality in the not-too-distant future.

Instead of thinking about scenarios as “optimistic,” “most likely” or “pessimistic,” the best scenarios are not defined by some subjective value statement but by some type of future. For example, the four scenarios could be based on the following titles and plots:

• “Churn”: significant change in health care but no progress.

• “Dusk”: steady decline in viability due to external drivers and internal constraints.

• “Dawn”: new growth opportunities emerging.

• “The unthinkable”: external drivers posing sudden and existential challenges.

Key drivers of scenarios include:

• Demographics of the population(s) served.

• Consumer behavior.

• Payer strategies.

• Employer initiatives.

• Competition, new entrants and substitutes for health care services.

• Medical, information and communication technology.

• Economics and legislation (local and national).

• Global politics and economics (e.g., conflict, instability, energy supply, transportation).

• Mother Nature (e.g., hurricanes, tornadoes, earthquakes, droughts, rising temperatures, rising sea levels).

Four such future scenarios, each briefly describing a mix of appropriate and plausible events — good and bad — in the form of brief narratives, may help health care leaders think more creatively and offer a fresh perspective about possible future conditions. Scenarios can facilitate the development of truly effective and innovative strategies. In addition, scenarios can help test the robustness of strategies, as they provide the minimum requirements for success under different circumstances.

The A3 process

Much has been written about "Lean" as a management and operating system to improve organizational performance. In addition, lean process and product development is emerging as an efficient, effective and agile way to design, build and test complex, high-quality products. However, there has not been much discussion about combining LPPD with Lean’s A3 process — pioneered at Toyota — to develop strategies. Such a combination could result in an even more effective approach for developing and testing innovative strategies before committing to their full deployment.

The advantage of applying some of LPPD’s principles within the A3 process is that this approach would enable organizations to create strategies with a higher probability of success. In particular, applying LPPD’s concurrent design and testing principles (as described below) would enable health care leaders to converge on the best strategy for each opportunity or threat more effectively while gaining valuable insights along the way.

The A3 process for developing innovative strategies uses the scientific method, a.k.a. the plan-do-study-adjust method, in a structured format. During the A3 process, health care leaders refine answers to the following questions in an iterative way as new information and insights emerge over time:

What are the opportunities and challenges facing the organization? Use your organization’s true north and four equally possible future scenarios as the starting point.

What goals, targets or outcomes are required by the organization?

What is the cause of the opportunity or challenge that best shows cause and effect?

What are the possible strategies to achieve the desired outcome(s)? Develop at least nine strategies or counter measures to ensure maximum creativity. The first three and most obvious possible solutions usually emerge quickly, but getting to the last three possible solutions often requires outside-the-box thinking, and these may lead to truly innovative strategies.

How will you decide which strategies to propose for each opportunity or threat? Consider using LPPD’s concurrent design and testing principles for the selection process:

• Define the key requirements regarding customer needs and expectations, as well as the organization’s business needs, capabilities and limitations.

• Select two or three alternative strategies from the nine alternatives that best address customers’ and the organization’s requirements.

• Develop, test and refine these alternative strategies simultaneously and in an iterative manner to learn what works best and to converge your focus toward the best strategy.

• Select the best strategy at the last possible moment to take advantage of the most current knowledge.

Then ask:

• How will you get agreement from all stakeholders?

• How will you implement the strategy?

• How will you know if your strategies work?

• What issues do you anticipate, and how will you address those in your implementation plan?

• How will you and the organization learn from the testing and implementation of the strategy, and how will lessons learned be shared with everyone in the organization?

The A3 process requires intense collaboration between key stakeholders before opportunities and challenges are fully understood and strategies agreed to by all. It also enables continuous adjustments as new developments or new information emerge. Finally, the A3 process enables testing of key assumptions and expectations through pilots, before committing more resources to the selected strategies. It takes wishful thinking and other biases out of the process and enables the organization to learn how to better deal with complex challenges and opportunities.

The A3 report, a document that answers the questions listed above, should be reviewed periodically after the implementation of a strategy is complete. This review will ensure that adjustments can be made quickly and that new developments don’t undo good work.

Getting started

It takes courage and creativity for health care leaders to lead their organizations through a time of great uncertainty. Unfortunately, the transition from waterfall strategic planning to a more agile process of strategy development will not happen overnight. This transition should be treated as an organizational learning process.

First, create a true north through an iterative process that yields the best description of where the health care organization wants to go. Next, experiment with creating four different future scenarios. This, too, will take some time before the team feels comfortable creating meaningful scenarios appropriate for the organization. Finally, learn to apply the A3 strategy development process to one or two opportunities or challenges before adopting it for the most important facing the organization.

Learning to use the A3 process will enable health care leaders and their organizations to prepare for opportunities and challenges in an agile, adaptive and innovative manner. Thus, strategy development becomes an organizational learning process, and organizational learning becomes a key strategy for success.

Paul Schilstra, M.S., is the president and founder of primeASCENT LLC in Ellicott City, Md.