Health care is an "attractive" industry. Everybody wants it. It is vital to people, families, neighborhoods, cities, states, countries and their governments. It therefore attracts an abundance of bright, motivated, caring people and some of the world’s most sophisticated technology.

Health care also attracts money. U.S. health care, in particular, has a great deal of financial resources and has attracted a continued inflow of capital. For example, U.S. health care spending was $3 trillion in 2014 and is predicted to consume 20 percent of U.S. gross domestic product in the next few years. That’s a lot of attraction.

But health care has a “value” problem. Managed care started in the United States in the late 1970s with the goal of providing better care at lower cost. Despite 40 years of dedicated effort using all these attractive forces and resources, everyone agrees we have a big value problem to solve.

I propose value in health care is easy to measure: more access to better, safer care, at continually lower cost. No large health care organization in America can consistently do that. If that’s the measure, despite our attractiveness, value has eluded us. We still struggle with the following questions:

  • Why, despite our great resources, does value remain so elusive?
  • How, learning from other industries, can we attract value rather than chase it away?
  • What does attracting health care value look like?

Relying on past success

Health care organizations, like those in every industry, suffer from what made them great. In the history of innovation, great capabilities can become disabilities when it is time to innovate and attract value. For example, take a look at the following lists of great, or formerly great, companies:

List 1

List 2

Digital Equipment


General Motors




The companies on list 2 have profitability, customer satisfaction, staff engagement, innovation, growth and industry leadership; they attract value. List 1 companies attracted layoffs, downsizings, bankruptcies, closures and failure.

Here is a difference: The list 1 companies were powerful leaders in their industries that failed to develop or attract simple innovations that list 2 companies, when they were smaller and weaker, used to create competitive advantage that changed their industry. They attracted value. When the list 1 companies discovered they were losing, they all failed to make a transition, even if it meant bankruptcy or extinction. They had great resources but failed to attract new value.

I studied this phenomenon working with professor Clayton Christensen as a visiting scholar at Harvard Business School. Christensen developed the theory of disruptive innovation — "great capabilities become innovative disabilities" is one of its principles. Perhaps that is why we fail to attract value in health care — our past capabilities have become innovation- and value-repelling disabilities.

But what are those value-repelling disabilities? And how can we create new, more attractive capabilities? The work of Stephen Haeckel, former director of strategic studies at IBM’s Advanced Business Institute, has helped me develop some “attractive,” strategic answers and solutions to our chronic value problems.

Improvement versus innovation

Organizations became great in the 20th century by developing capabilities to make, improve and sell products and services. They built hierarchical organizational structures to gather and analyze data, make decisions, implement solutions, cut costs and increase productivity. They implemented changes through projects, often using consultants, Lean/Six Sigma process improvement, new technology and training.

People were an important cost to control or eliminate. Key to success was standardizing work processes and holding people accountable to do their work as designed. Once the companies produced standardized products and services, companies expertly marketed and sold them to customers and end users.

Make/standardize/sell organizations are terrific at improving. They don’t waste time trying to reinvent the wheel. They just keep making that wheel better and better and better. If it works, don’t fix it.

But problems start to occur when it’s time to reinvent the wheel. Make/standardize/sell organizations know how to improve what they know how to do but find it almost impossible to do what they don’t know how to do, i.e., innovate. In Christensen’s database of thousands of companies, he discovered it was almost impossible for an established, successful company to take the lead in developing an industry-transforming innovation.

A recent McKinsey & Co. survey of CEOs across the world showed that 87 percent of them believed that “innovation is essential to our company's future,” while an astonishingly small 6 percent were satisfied with their company’s innovation success. Make/standardize/sell companies have a hard time attracting innovation in any industry, not just health care.

Attracting greatness in 21st-century health care

The great health care organizations of the 21st century will make new choices that attract innovation. So what attracts innovation? Decades of well-accepted research across the globe and in many realms has shown that innovation requires a different set of capabilities: sense/respond/adapt.

Every successful startup has to sense, respond and adapt to succeed. My work has focused on the small number of successful make/standardize/sell companies that were also able to sense, respond and adapt: Toyota, Intel and Apple, for example.

Sense/respond/adapt requires different capabilities than make/standardize/sell does. Here are the characteristics of sense/respond/adapt success, whether in a new startup or an innovative venture inside a large, established organization:

  • A market or customer-centric value proposition focused on an unmet need. In health care, it’s easy: more access to better, safer care at continually lower cost. Leaders then translate the value proposition into a meaningful purpose to align the people attracting innovation.
  • A replicable, scalable, low-risk, high-reward system with these tenets: People with autonomy build mastery, simple rules match accountability to control, and self-managing teams rapidly prototype new value opportunities close to real-time work.
  • Sustainable, inspiring results that are low-risk, high-reward and fast.

Consider the case of the Mayo Clinic Health System. Mayo tested a sense/respond/adapt approach to diabetic population health at five different clinic sites. Within one year, the physicians in those clinics had improved their diabetic scorecard results by 122 percent compared with the cumulative results of the rest of the Mayo system.

That was a significant pay-for-performance benefit for the system, while the physicians gained the value of all the flexible, responsive teams that sense/respond/adapt thinking developed to support them. Four years later, the American Journal of Medical Quality (Jan. 11, 2013) documented that those sense/respond/adapt clinical teams continued to outperform the rest of their Mayo Clinic Health System peers.

Make/standardize/sell fails at innovation because it views the workplace as a machine with identifiable problems and implementable solutions. Innovation is seen as a technical “fix.” But innovation isn’t a mechanistic improvement because, by definition, it doesn’t exist. It’s new and yet to be discovered. Make/standardize/sell organizations are great at improving what they know how to do, but the data show that they find it almost impossible to do what they don’t know how to do. It is clear that value-driven health care is not a system fix, consulting engagement, new technology or implementation; it is something you attract value to and create.

The potential for innovation is everywhere. You have to attract its components and bring them together. Purpose; the ingenuity of people; simple rules focused on low-risk, high-reward discovery; and a safe place to work are the attractors. Once you start, it’s so attractive it’s difficult to get people to stop innovating to create new value.

Attraction creates the innovation, and the innovation closes the loop. Now, the parent organization has something new to make, standardize and sell. That’s the great advantage that the attractive 6 percent acquire. In the future of high-value health care, the choice is not either make/standardize/sell or sense/respond/adapt, it’s and.

That’s very attractive.

John W. Kenagy, M.D., is the director of Kenagy & Associates in Longview, Washington, and a clinical professor of surgery at the University of Washington. He is also a member of Speakers Express.

The opinions expressed by the author do not necessarily reflect the policy of the American Hospital Association.