Marina Gorbis's Blog, page 1548

Why Health Care Is Stuck — And How to Fix It

The pressures for fundamental change in health care have been building for decades, but meaningful change has been limited while the urgency of change only grows. The moment of discontinuity has arrived. Already unsustainable costs, an aging population, advances in medicine, and a growing proportion of patients in low reimbursement government programs have made the status quo unsustainable. Change is inevitable.

There is only one real solution, which is to dramatically increase the value of health care. Value is the outcomes achieved for patients relative to the money spent. Without major improvements in value, services will need to be restricted, the incomes of health care professionals will fall, and patients will be asked to pay even more.

In our October Harvard Business Review article “The Strategy That Will Fix Health Care” we describe the strategic agenda that is necessary to create a high value health care delivery system. We believe that there is no longer any doubt about how to increase the value of care. The question is whether providers can make the necessary changes.

Why has it been so hard for health care organizations to improve outcomes and efficiency, despite their best intentions? With so many good, smart people working so hard? With patients’ needs so obvious and so compelling? And with such deep societal concerns about health care spending? The answer is complex, but the result is clear: progress in health care has been all but paralyzed by self-reinforcing barriers to change.

We are confident that providers can overcome these barriers by starting with a shared understanding of why they are stuck.  We think the most important barriers include the following:

Providers are organized and reimbursed around what they do, rather than what patients need.

Most health care delivery organizations are organized around physicians and specialties. Within a hospital, physicians are members of the departments and divisions and specialize in what they were trained to do. They treat a broad range of conditions relevant to their field—for example, a neurologist will see patients with headaches, provide stroke care, and treat multiple sclerosis and other conditions with a neurological component. Physicians are physically located in their specialty units, and patients are expected to find their way to them. In this structure, physicians generally work hard to help patients during each encounter – and their assumption is that if they do so, they are doing their job.  In this context, their efforts to improve care have focused largely on raising the volume of the discrete services they provide, with “efficiency” gauged in terms of “throughput.”

This approach may have made more sense in the past, when there was so much less that medicine could do, and it was possible for specialists to know all there was to know in their field. Today, however, medical progress has made many previously untreatable diseases treatable, and some even curable. Many more types of clinicians must work together to deliver state-of-the-art care. A patient with diabetes, for example, might need care from physicians trained in endocrinology, nephrology, cardiology, vascular surgery, ophthalmology, podiatry, and primary care.

Yet the current siloed organization of care makes multidisciplinary, integrated care extremely difficult, even if clinicians are part of the same institution and utilize the same electronic medical records. At one well-known teaching hospital, a survey showed that 15% of staff physicians did not realize that they were all members of the same physician organization. This is an indication of how strong their main identification is with their specialty divisions.

In this legacy structure, effective teamwork is possible but it doesn’t happen naturally. Duplication and delay are built into the system. Patients are forced to coordinate their own care and make sure their various physicians are communicating.

Care fragmentation is reinforced by the fee-for-service model in which each doctor, specialist or otherwise, is paid separately, while the hospital receives its own payment.  Physicians believe that they are compensated for what they do as individuals; basic teamwork functions that are critical to meeting the needs of patients, like meetings to review performance or even using the electronic medical record, are sometimes labeled “unfunded mandates.” Some high-value services are not reimbursed at all, such as follow-up telephone contact after hospitalizations or “virtual” or informal consultations that avert the need for an office visit. The result is that crucial work required for high value care does not get done.

Some new payment models provide reimbursement for care coordinators, but those coordinators are typically superimposed over the current fragmented care process, leaving the basic organizational structure intact. Although an overlay is less disruptive than restructuring the organization of care, it adds cost and essentially treats the symptom of faulty organization rather than the cause. And those added costs have led many to mistakenly conclude that excellent care is inherently more costly, which has hindered efforts to guide patients to the highest-value providers.

Free-agent physicians operate independently, rather than as part of an integrated team.

Not only is care siloed by specialty, but much specialty care in the U.S. is delivered by independent physicians in private practice. A study of Medicare patients, for example, showed that patients saw a median of seven different physicians in four different practices each year, with little or no integration among them.

In many ways, independent doctors have dominated medicine’s culture. “Free agent” physicians view themselves as equity-owners of autonomous businesses, and few have placed a high priority on integrating care with other clinicians as a means to improve value for patients. Instead, there are tensions among different specialists over what they are paid. And, there are inevitable conflicts with hospitals over compensation, staffing, desired facilities, and who should bear risk, not to mention threats to move business to other hospitals. All of this makes multidisciplinary, integrated care challenging – or impossible.

To address these issues, there are a growing number of joint venture models in which hospitals and independent physicians become partners, but the jury is still out on their impact and durability. Joint ventures can help boost integration and shift care to higher value models, but complexity remains about decision rights, responsibilities, and dividing revenues. Such joint ventures often fall short of true partnership, and prove fruitless.

The proportion of physicians that are employed is rising, an important enabler of high value care. When all the physicians involved in care are employed by a larger organization, teamwork can become part of the job description. However, the trust that is crucial to well-functioning teams takes time and work to develop especially when physicians have only recently become employed.

Patient volume is fragmented, making every patient a special case.

Health care systems in virtually every country, including the U.S., disperse rather than aggregate patients with similar needs. A century ago, hospitals sprang up in almost every small town or city, and served any patient walking in the door. This made sense when there was not much that medicine could do for many patients beyond relieving their symptoms. Because hospitalizations could easily last a month or more, close proximity was essential to allow visits by family members. The result was that most providers treated a relatively small number of most types of cases.

Today, however, medicine is far more advanced and specialized and lengths of stay are much shorter. Treating a high volume of patients with a particular medical condition is critical to value, to build experience in highly sophisticated and technical diagnostics and procedures, work more effectively in multidisciplinary teams, and better measure how patients are doing. In the existing fragmented system, providers have limited experience in each type of case, leading to less efficiency, more dropped balls, and worse patient outcomes. Fragmentation also means that most providers are unable to integrate support personnel with specialized skills in a disease area directly into the team —such as nutritionists or behavioral health specialists. There is overwhelming evidence that having a high volume of patients with a particular condition is important to value, and, conversely, that care by local providers with small populations can lead to poor outcomes.

Despite the clear benefit of focusing on the areas with adequate patient volume, providers tend to cling to every service line and duplicate services across health systems. Boards of directors are loath to close services in any facility, in part because politicians mistakenly equate local service with better care. Antitrust regulators are also remain wary of consolidation, mistakenly seeing the relevant market as highly localized and believing that the more providers of a given service in the region the better.

Massive cross-subsidies in reimbursement for individual services have distorted care and stalled care integration.

Under the prevailing fee-for-service payment system, there is a loose relationship at best between the fees paid and the actual costs of performing that service. Flawed reimbursement methodologies have made some services lucrative (for example, radiology and chemotherapy), while others are reimbursed below actual costs (mental health and palliative care, for instance). Organizations use high-margin services to cross-subsidize the money-losing areas, with severe, perverse consequences. Virtually every provider organization is motivated to invest in profitable services like bariatric and vascular surgery in a desperate grab for enough lucrative business to stay alive. The result is excess capacity and overprovision of these services, yet insufficient volume for most providers to deliver excellent or efficient care.

Cross-subsidization across services, even those needed in caring for the same condition such as less reimbursed cardiology drug therapy and highly reimbursed interventional procedures, works against making the highest value care choices while creating tensions among providers, undermining team-based, integrated care. Providers involved in patients’ care fight over responsibility and compensation rather work together. High value but poorly reimbursed services, such as palliative care, are underprovided.

No participant in the system has good information about patient outcomes and the cost of care.

Flying blind is dangerous. When there are no data on how you are doing, and whether new interventions or practices actually improve outcomes or lower costs, initiatives to improve performance can end up doing more harm than good.

The shocking truth in health care is that there are few data on the actual outcomes that matter to patients with specific conditions. Instead of recognizing that quality is determined by outcomes, providers tend to define quality on the basis of compliance with guidelines (for example, reliability in ordering certain tests or “door-to-balloon” time for patients with myocardial infarction) and patient status as measured by a limited number of clinical indicators (such as LDL cholesterol levels and hemoglobin A1c) which are incomplete predictors of outcomes but not actual outcomes themselves.

There is also a near complete absence of data on the true costs of care for a patient with a particular condition over the full care cycle, crippling efforts to improve value. The lack of cost information starts with widespread confusion about the difference between costs and charges. Most clinicians also have no way of knowing what things actually cost or how much time care processes take. Without the ability to understand the costs of the care for specific conditions, or how costs compare to outcomes, efforts at cost reduction revert to power struggles and arbitrary cuts. Efforts to improve performance become mired in turf wars, personal opinions, and clashes of ego. Resources tend to flow to services that seem to be the most profitable or whose advocates are most skilled in internal politics.

Information technology has often made care integration and value improvement harder, rather than enabling it.

Most clinical information systems have been designed around specialties, procedures, or care sites, and focused on scheduling and fee-for-service billing. Few systems were designed to keep track of individual patients over a full care cycle, and provide all the caregivers involved with comprehensive patient information. Few if any clinicians involved in the care of a patient have complete information. Information systems can also make it almost impossible to collect information on outcomes that matter. Highly relevant data (for example, incontinence or falls) are not captured in EMRs at all, and much outcome information is buried in “free text” fields within clinician notes, which makes it hard to extract or act upon.

The information systems used by health insurance plans have been no better, and maybe worse. They are designed to adjudicate and pay bills for individual services not measure the overall care and value for patients. Most insurers cannot even capture whether a patient is dead or alive. Good luck trying to piece together the overall charges for one episode of care if it spans the end of the calendar year.  Faulty information systems make it all too easy to give up and continue with business as usual. For example, insurers throw up their hands about bundled payments because legacy systems are coded for fee-for-service payments.

BREAKING DOWN THE BARRIERS

As the figure below shows, the barriers to change in the legacy system are interdependent and mutually reinforcing.

Fee-for-service payments for specialties as well as private practice physicians reinforce the siloed organization of care. Fragmented IT solutions work against multidisciplinary care models, rather than enabling them. Misunderstandings about profitability because of inaccurate costing leads to overly broad service lines, a problem exacerbated by the fact that providers attempt to serve all the needs in their service area. Low patient volumes in many conditions, due to serving only the immediate geographic area and duplicating  services across locations, reinforce the siloed structure of care delivery because providers cannot afford to have dedicated teams. And so on.

Because these barriers to change reinforce each other, incremental fixes do not work.  As a result, progress in truly restructuring health care delivery has been stymied. The legacy structure almost guarantees low or uneven value for patients, yet it is extremely resistant to change.

These barriers to change make it clear that to move from the legacy system to a value-based system needs to be a true strategic transformation, not just a series of isolated steps. In our article, we describe the six components of this transformation, from organizing into integrated practice units, and measuring outcomes and costs, to expanding excellent service geographically and building a new kind of IT platform, as shown in the figure below.

This transformation will not happen overnight and each component will take time to roll out. But a true solution to our health care problem is within our grasp.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and The New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Getting Real About Health Care Value
Understanding the Drivers of Patient Experience

Getting Real About Health Care Value

Words can spearhead social transformation.  Let’s hope that’s true for “value” in health care. Where other mantras – such as quality or managed care – have failed to galvanize the system’s diverse stakeholders, value may have a chance.

What seems special about the term is that, seemingly simple, it is actually complex and subtle. Under its umbrella, a wide range of interested parties can find the things they hold most dear, from improved patient outcomes to coordination of care to efficiency to patient-centeredness. And it is intuitively appealing. As Thomas Lee noted in the New England Journal of Medicine, “no one can oppose this goal and expect long-term success.”

The question, of course, is whether the term will help spur the fundamental changes that our health care sector so desperately needs. In this regard, a closer examination of the value concept confirms its appeal but also exposes the daunting challenges facing health system reformers.

Michael Porter has defined value as “health outcomes achieved per dollar spent.” Any survivor of introductory microeconomics will hear echoes in this phrase of one basic measure of economic efficiency: output per unit of input. An efficient business gets the most output possible, given current technology, from every dollar spent.

Porter and colleagues adapt microeconomics to health care through their definition of output: patient-centered health outcomes. These are results that individual patients desire: survival, speedy and uncomplicated recovery, and maintenance of well-being over the long term. These are also things that clinicians, payers, and purchasers should seek for their patients, employees, and customers. The value movement’s definition of outcomes treats the patient as a whole person, insists that measures of outcome transcend disease-specific indicators to account for all of the patient’s conditions, and include data collected over time and space to produce comprehensive measures of patient well-being. Value proponents further insist that inputs be measured comprehensively to include all the costs of producing desired outcomes.

Widely adopted, the concept of value would provide a north star toward which health care providers could navigate.  Its emphasis on the whole patient and comprehensively measured costs would encourage teamwork among clinicians and coordination of care across specialties, clinical units, and health care organizations. The focus on patient-centered outcomes would support increased effort to measure patient-reported outcomes of care, such as their level of function and perceived health status over time.

Promising as it is, the emphasis on value also raises illuminating and challenging questions. The first is: why all the fuss with defining it? In most markets consumers define value by purchasing and using things. In the 1990s, personal computers had considerable value. We know that because consumers bought lots of them. Now, with the arrival of tablets, personal computers seem to be losing value.  And so it goes for untold numbers of goods and services in our market-oriented economy. Eminent professors don’t wrack their brains defining the intrinsic value of electric shavers, overcoats, or roast beef.

We need to define the value of health care, however, for a simple but profound reason explained in 1963 by Nobel-prize-winning economist Kenneth Arrow. Arrow showed that health care markets don’t work as others do, because consumers lack the information to make good purchasing decisions. Health care is simply too complex for most people to understand. And health care decisions can be enormously consequential, with irreversible effects that make them qualitatively different from bad purchases in other markets. Americans are therefore reluctant to let the principle of caveat emptor prevail. One reason to define value carefully and systematically is to enable consumers to understand what they are getting, an essential condition for functioning health care markets.

The compelling need for a good definition of health care value highlights another fundamental challenge. We have not yet developed scientifically sound or accepted approaches to defining or measuring either patient-centered outcomes of care, or – surprisingly – the costs of producing those outcomes. The scientific hurdles to defining patient-centered outcomes are numerous. Outcomes can be subtle and multidimensional, involving not only physiological and functional results, but also patients’ perceptions and valuations of their care and health status.  The ability of health care organizations to measure costs is primitive at best and doesn’t meet the standards used in many other advanced industries. Equally challenging is the lack of data systems to support outcome measurement.  Producing the holistic assessments needed requires the aggregation over time and space of data from multiple clinicians and health care organizations, as well as patients themselves. The health care system’s electronic data systems are just now entering the modern age.

Given the value of measuring value, and the current obstacles to doing so, still another urgent question arises: what should we do now? Despite recent moderation in health care costs, our health care system is burning through the nation’s cash at an extraordinary rate and producing results that, by almost every currently available measure, are disappointing.

To turn the promise of value measurement into the reality of better care at lower cost, a few short-term actions seem prudent. First, the nation needs a plan to turn the concept of value into practical indicators. Since government, the private sector, consumers and voters all have a vital stake in health system improvement, they should all participate in a process of perfecting and implementing value measures, preferably under the leadership of a respected, disinterested institution. The Institute of Medicine comes to mind, but others could be imagined.  This process should produce an evolving set of measures that will be imperfect initially but improve over time.

Second, both government and the private sector need to invest in the science and electronic data systems that support value measurement. Investments in systems should focus on speeding the refinement of standards for defining and transporting critical data elements that must be shared by patients, providers, and insurers to create patient-centered outcome measures.

Third, in consultation with consumers and providers, governments need to develop privacy and security policies that will assure consumers that their health care data will be protected when shared for the purpose of value measurement.

Last, and perhaps most important, the trend toward paying providers on the basis of the best available value measurements needs to continue. These payment policies motivate providers to use value measures to their fullest extent for the purpose of improving processes of care and meeting patients’ needs and expectation.

To some observers putting value at the forefront of health care reform may seem obvious and non-controversial.  As Lee notes, who can be against it?  To use an American cliché, it seems a little like motherhood and apple pie: comfortable and widely endorsed. But the value movement could be much more than that.  When value does become a well-accepted principle, we’ll be much closer to making health care better for everyone.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and The New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Why Health Care Is Stuck — And How to Fix It
Understanding the Drivers of Patient Experience

Understanding the Drivers of the Patient Experience

Many hospitals, including the Cleveland Clinic, are implementing a variety of strategies to improve the patient experience —an issue that’s rapidly becoming a top priority in health care. The Accountable Care Act now links performance related to patient-experience metrics to reimbursement. For the first time, the pay of hospitals and eventually individual providers will be partly based on how they are rated by patients. Few disagree on the importance and the need to be more patient centric, but what exactly is the “patient experience”?

A 2012 industry survey asked top hospital leaders (CEOs, COOs, and others) what was necessary to improve the patient experience. The top six recommendations included: new facilities, private rooms, food on demand, bedside-interactive computers, unrestricted visiting hours, and more quiet time so patients could rest. There was one problem with them: They were not based on a systematic examination of what most patients really wanted. In other words, hospital executives wanted to focus on what they felt were important drivers of the patient experience but didn’t know for sure.

To truly improve the patient experience, it is important to get the patient’s perspective. National trends in data on the U.S. patient experience suggest that some groups of patients regularly score their experiences higher than others.

For example, surgical patients tend to give hospitals higher ratings than patients admitted with chronic medical conditions. Surgical patients may view or interpret their experience differently. Consider a patient who underwent surgery for a broken leg. If the patient receives high-quality health care (her leg was fixed, her questions were answered, she feels better, and she understood what was being done to her), she may not care whether she believed her providers were treating her with courtesy or respect or showed her compassion.

Now consider a patient who consistently uses the health care system — someone with multiple, chronic medical conditions that remain incurable and are only treatable from a maintenance standpoint. If he doesn’t feel that his caregivers are compassionate, that may heavily influence his overall perception of the experience. Since his relationship with health care givers is more prolonged (or permanent), he may need more of the “human side” of caring.

Why is it important for caregivers to know the drivers of patient experience? First, not being clear about the drivers can often be a significant barrier to launching a patient-experience initiative. Second, knowing the drivers helps leaders identify the most effective ways to achieve quick victories. Third, the economics of the levers is quite different. Improving some of these dimensions (such as providing private rooms) would be cost prohibitive for most hospitals. Others (such as improving communication between patients and caregivers) could reduce the overall cost of providing health care and also improve medical outcomes.

Faced with the task of understanding the drivers of patient experience, health care organizations have taken — and can take — multiple approaches to discerning the drivers of patient experience. Below, we review briefly some of the innovative approaches to better understand patient needs that have been tried in various organizations, including the UCLA Medical Center in Los Angeles, Methodist Hospital in Houston, St. Joseph’s Hospital in Phoenix, and the Cleveland Clinic.

Create patient advisory councils. A very simple but effective approach in many contexts is to identify a group of patients that can act as the customers’ “voice” within the organizations. It is easy for an organization to lose touch with its customers’ evolving needs.

Today, Voice of the Patient Advisory Councils are used at the Cleveland Clinic to ensure that the organization does not lose track of patients’ needs. Councils have assisted with redesigning waiting rooms, providing advice on improving the admission guide, and helping managers better understand communication needs in the hospital.

Dig deeper into patients’ experiences. Hospitals can use data from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) — the patient-satisfaction surveys conducted for the Centers for Medicare and Medicaid Services — to compare how their performance compares with that of other U.S. hospitals. Hospitals can leverage the HCAHPS data better by both digging deeper into the data and paying attention to anecdotal comments and complaints. This allows hospitals to understand not only how their patients feel about their experience but also why they felt the way they did.

Using such a process, the Cleveland Clinic found that patients were more satisfied when they had caregivers who smiled more. But when the Clinic dug deeper, it discovered that patients were not concerned about whether about their caregivers had happy expressions per se; rather, they were concerned when doctors’ and nurses’ had stern expressions because they interpreted them to mean that caregivers were concealing problems from them. This caused anxiety and, as a result, adversely affected patient satisfaction.

Have leaders make regular rounds. At UCLA Medical Center, as well as other hospitals across the country, senior leaders (both clinical and non-clinical) make a habit of wandering throughout the hospital and talking to patients, their families, and caregivers (including physicians, nurses, food-service workers who deliver the meals, and environmental-service workers who clean the rooms. These rounds need to be done on a regular basis and at least once a month. Such direct contact provides leaders with a firsthand understanding of patient needs.

This is important for two reasons. One, it is easy for leaders — even clinical leaders in hospitals who have direct patient contact in the normal course of performing their jobs — to lose touch with patient needs. Two, leadership rounds are an important means of exposing non-medical leaders in finance, operations, and other areas of the hospitals to the front lines of patient care. Finally, by regularly seeing and hearing with their own eyes and ears what’s happening on the front lines of patient care, leaders can help identify problems and opportunities for improvement.

Tell stories. There is nothing more moving than the incredible stories that patients relay about their experiences in the hospital. Sharing these stories — both good and bad — is important to employees. The good stories highlight the importance of their roles and demonstrate the incredible gratitude that patients have for their work. The bad stories often help explain the negative feelings about the hospital that some patients have. (At the Methodist Hospital in Houston, CEO Marc Bloom opens every meeting of the board of trustees by relaying a patient’s account of his or her stay. Sometimes it was good and sometimes bad.  At the end, he reminds everyone that “this is what we do.”)

We are big fans of analyzing data to understand and improve patient experience. However, presentations that rely on excessive amounts of data can be dry and uninspiring. Conveying the same message through a well-told story can be powerful and inspirational. Also, storytelling can help strengthen caregivers’ emotional bonds with the organization and their jobs, which, in turn, can make it easier to engage employees in the organization’s mission to deliver world-class care to patients.

Leaders of health care organizations in recent years have focused primarily on delivering superior medical outcomes at lower costs. In addition, they also need to focus on improving the patient experience. A poor experience compromises a hospital’s reputation among patients and other physicians and adversely affects employees’ engagement levels. Moreover, with the changes in the reimbursement policies in many countries, it can have a negative impact on a hospital’s economics. But improving the patient experience will be hard to do without a better understanding of what patients really want. We hope others will offer comments and share what they’ve learned from their own efforts to understand what drives patient satisfaction.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and The New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Why Health Care Is Stuck — And How to Fix It
Getting Real About Health Care Value

Leading Health Care Innovation: Editors’ Welcome

In the United States and throughout the world, health care is undergoing a transformation. It is a reaction to the broad recognition that the current system — such as it is — is unsustainable. The clear solution is to increase the value of care: improving patient outcomes while containing, if not reducing, costs. Breakthroughs, especially in genomics, promise to deepen understanding of diseases and ways to combat them. But all stakeholders — governments, consumers, insurers, employers and providers themselves — realize that scientific advances alone will not suffice. To produce the best health outcomes at the lowest cost, virtually every aspect of the delivery system must be revamped — from leadership, organizational structures and culture, and processes, to teamwork, and incentives.

While the debate rages about the best ways to reform the overall system and produce higher value in health care in the future, institutions are conducting thousands of initiatives to find better ways of doing things in the here and now.  In this fertile environment, Harvard Business Review and the New England Journal of Medicine are hosting this insight center. It is a forum for the debate and a place where members of the health care sector can share the results of their efforts to innovate. The insight center is pilot endeavor designed to test the waters for a permanent publication, and we welcome your feedback.

The insight center will run from Sept. 17 until Nov. 15. Its contents will span three broad areas:

The “Big Ideas” section will feature articles about the foundational principles in the formulation of a high-value health care system.
The “Managing Innovations” section will focus on the organization and delivery of health care and how to orchestrate change.
The “From the Front Lines” section will offer accounts of solutions to specific problems that practitioners have implemented in their organizations.

As the pilot project progresses, we encourage you participate by adding your comments to the discussion thread and to propose articles by e-mailing us at healtheditors@hbr.org.

For more about the Insight Center and the collaboration between HBR and the NEJM, see this editorial by the Journal’s editors.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and The New England Journal of Medicine




Why Health Care Is Stuck — And How to Fix It
Getting Real About Health Care Value
Understanding the Drivers of Patient Experience

Lessons in IT Innovation From Silicon Valley

Innovation is always infectious. But our recent research has taught us a lot about how management innovations can travel — in this case, from Silicon Valley tech sector companies known for their experimentation and agility in information technology (IT) management to the much older Bay Area companies who are their neighbors.

The IT departments of Oakland-based The Clorox Company and San Francisco-based Gap Inc. are among those who are consciously borrowing from the newer playbook, learning from the technology practices and culture of their counterparts at the tech firms in Mountain View and Palo Alto. In doing so, these more traditional companies are not only increasing their competitiveness but also making make themselves more attractive to a new generation of IT workers, their chief information officers say.

“People in the Valley take a different approach to things,” Ralph Loura, the CIO of Clorox, told us. “I can tap into that rich source of innovation and startups and find creative solutions. Being right here at the doorstep of most venture capital firms and people trying to solve today’s technology problems is a real advantage.”

The Accenture Institute for High Performance conducted a study of Silicon Valley IT practices in the past year because we thought the Valley’s IT departments — just by virtue of where they resided — would be ahead of the pack in important aspects of enterprise technology. In many ways, the interviews we did with the CIOs of Google Inc., Facebook Inc., and more than thirty other technology executives bore that out. But our conversations with Clorox, Gap Inc. and CAMICO Mutual Insurance were especially interesting because of the insight they offered into how traditional IT departments might evolve.

Turning IT into an Agile Business Process

At Clorox and Gap Inc., the IT departments have adopted an agile, speed-it-up mentality that seems Valley-like. Clorox, a maker of bleach and other household products which has been in business for 100 years, seeks to get faster by using preconfigured cloud computing solutions and infrastructure, much like Silicon Valley companies do. Gap Inc. is deliberately getting its infrastructure more in line with what Internet companies do by replacing as much proprietary technology as it can, including in its data centers, with open-source software and infrastructure. The company has also beefed up its software testing and release management capabilities. “This is difficult and hard work, but it is going to pay off enormously to the company, in that we’re going to be able to move much faster with a lot less cost,” says Tom Keiser, the retailer’s CIO.

To turn IT processes into agile business processes, both of these companies are stepping back from the more conventional waterfall software development commonly found in the corporate world, and turning to the ways of the tech firms: agile, scrum-style development with deliverables rolling out every couple of weeks.

“What we’re trying to do is get to a point where we can deliver new capabilities into our stores not every year, but every few weeks,” Keiser says.

For its part, Clorox’s IT department uses what Loura calls a “scrum-style model,” a form of agile management in which developers sit regularly with business-side colleagues to show how an application is progressing and increase the likelihood the finished product will serve business needs. “You put up something quick and dirty, learn from it, and in the next iteration improve on it,” Loura says.

Learning from Innovation in Silicon Valley

The IT departments of some nearby companies are also influenced by the innovation in Silicon Valley, and by how technologists there network and manage.

CIOs network with Valley technology leaders and venture capitalists in search of creative solutions to traditional IT problems. Take Clorox: Using his connections, Loura collaborated with several early-stage startups “that are solving problems for us that would have been difficult to solve otherwise.” A breakfast with a CIO working for a Silicon Valley tech company helped him find an answer to a common problem: coping with frustrated managers whose projects got pushed down the priority list. His Valley peer convinced him to see his PR problem in a new light: as, in part, a problem of transparency. Loura began to use visualization tools to show managers why other projects rose further up the queue. “This way, even if they’re not happy about it, they can understand why and be supportive of the decision from a company perspective,” Loura says. This kind of open sharing of information is a hallmark of innovation in Silicon Valley.

CIOs in sectors not known as innovation hot spots are trying to be more like their Valley neighbors. Consider CAMICO Mutual Insurance of San Mateo, a liability insurer for CPAs: Inspired by his Silicon Valley neighbors, the company’s CIO launched a bottom-up innovation program to encourage employees, beginning with his 13-person IT department, to try out new ideas. Several ideas for digitizing paperwork got quickly implemented, saving CAMICO Mutual $300,000 a year, says vice president of IT and eCommerce Jag Randhawa.

In the last couple of years, Loura and Gap Inc.’s Keiser shifted to open floor plans for their departments, scrapping the model of fixed offices and high cubicles in favor of open space for brainstorming and closer seating for teams. This office design isn’t found only in Silicon Valley, but it is often used there to encourage collaboration. It is seen as having similar potential at Clorox and Gap Inc.

Not every IT worker at the companies has been happy about the resulting loss of privacy. But many workers focus on the upside — improved face-to-face communications — and see this and other changes, including flexible hours, support for consumer devices such as tablets, and a more sophisticated use of videoconferencing for collaboration, as signs their decades-old companies are becoming cooler places to work. “I think our embrace of this new working environment will appeal more directly to a coming generation of employees, Millenials and beyond,” Loura says. “They’re looking for a different environment.”

Indeed, these executives seem to think that by replicating some aspects of Valley culture they can attract talent that would otherwise head for high-tech companies. They can also develop faster and more innovative ways to move their businesses forward. Given how well it’s worked for innovation in Silicon Valley’s fast growing technology companies, maybe they’re on to something.

Executing on Innovation

An HBR Insight Center




Research: Middle Managers Have an Outsized Impact on Innovation
What’s the Status of Your Relationship With Innovation?
Innovation Isn’t an Idea Problem
Five Ways to Innovate Faster

Let’s Hold Consultants Accountable for Results

When I recently asked a group of MBA students to define what it meant to them to be a consultant, they quickly rattled off phrases such as “trusted advisor,” “problem-solver,” “objective 3rd party,” and “subject matter expert.” What was interesting was that none of their definitions mentioned the word “results.” In other words, from their perspective, the consultant is not someone who actually produces results – but rather generates advice that someone else (the client) presumably turns into results.

As Clay Christensen and colleagues point out in the latest issue of HBR, the consulting industry is ripe for disruption. And this common perception of the “results-free” consultant is a great example of an area that needs to change. Of course with some types of consulting – where the explicit contract is to produce a technical product or system – it may be perfectly appropriate. In many other cases, however, the shielding of consultants from the responsibility to achieve results is potentially dangerous both to the consultants and to the managers who hire them. Here’s a quick (disguised) example:

The head of a large consumer products division felt that one of the keys to future growth would be a greater focus on emerging markets. To that end, she hired a large consulting firm to provide recommendations, including which countries to target, what organizational changes to make, what hiring would be needed, and how products might be modified. The only problem with the study was that it didn’t take into consideration the readiness and capability of the managers and staff, both in the division and at corporate, to carry it out. As a result the client was unable to get her team on board and secure necessary budget, and most of the recommendations were shelved.

The odd thing about this case is that afterwards the lead consultant felt that the project was a success, and was even proud to use some of the research insights with other clients. After all, the study was done well, with the highest standards of analytic rigor and thinking. The failure to implement and achieve any results was the division manager’s problem, so the consulting firm – which was paid a very large fee for this work – was off the hook. Even more troubling was the unwillingness of the client to hold the consultant even partly accountable for the lack of results. Her feeling was that the consulting firm provided good, solid answers and she attributed the absence of implementation to her team’s weaknesses and a lack of understanding by her corporate bosses.

Obviously investing in a consulting project without getting a financial return is not a good business practice. But unfortunately this is an all-too-recurring pattern in an industry that generates almost $400 billion in revenues per year. One reason for this pattern goes back to our MBA students’ definitions: Underlying their view of consulting is the belief that most business problems can be solved through rigorous analysis to develop the “right” answer. What they – and many managers – miss is that when the right answer cannot be implemented successfully, it is in fact the wrong answer. Yes, it might be right in theory but if it can’t be put into practice and yield results, it’s basically worthless except as an intellectual exercise.

And this brings me back again to the definition of consulting. If we say that a consultant is indeed accountable to collaborate with clients to produce results (and not just produce a report) then the analysis will include the social system, the politics, the resource constraints, and the many other implementation issues. And if they take these issues seriously, their recommendations should focus more on what’s possible and has the best chance of making an impact – instead of on what’s theoretically “right.”

So if you want to hire outside resources to help you solve a business problem, don’t give those consultants a free pass that exonerates them from producing results. Instead, change the definition of their job; get them in the boat with you so that you’re all accountable for creating value. It won’t guarantee success – but it certainly will improve the odds.

Playing It Safe Is Riskier than You Think

There are all sorts of reasons why so many big organizations can be slow to make changes that everyone agrees need to be made. “Our current margins are too good, even though the business is being eroded by new competitors.” “Our current products are still popular, even though a new generation of offerings is getting traction.” “Our current distribution system can’t reach the customers we need to reach to build a new business.”

In other words, most leaders and organizations are really good at quantifying the risks of trying something bold or striking out in a new direction. What are the downsides of and obstacles to introducing a new product or targeting a new market? They are far less adept at reckoning honestly with the risks of staying the course. What’s the worst that can happen if we do more of the same?

In a very real sense, the first job of leadership is to identify and overcome the costs of complacency. To persuade colleagues at every level that there are genuine risks for the failure to take risks—that the only thing they have to fear, is the fear of change itself.

And if you can overcome that fear, it’s remarkable what can happen. A fascinating white paper by Bradley Johnson, director of data analytics with Advertising Age, makes the case that difficult and uncertain times are often the best times for organizations to separate themselves from the pack, so long as their leaders are prepared not to stand pat. Johnson looked at the lowest point of the Great Depression (August 1929-March 1933), the Great Stagflation of 1973-1975, and the Carter/Reagan recession of 1980-1982. What’s remarkable about these three periods of economic trauma, he reminds us, is that the problems they posed inspired creative responses that reshaped markets for decades to come.

One representative example from the Depression: General Motors had to figure out how to maintain its upscale Buick brand in a sinking economy. The solution? Persuade consumers to buy a used Buick rather than a cheaper new car—a way to keep struggling dealers afloat and hold back the encroachment of rival brands. It was a daring idea at the time, and it reshaped dealer economics and marketing priorities. (If only GM’s modern-day leaders could have summoned such creativity amidst crisis.)

In a wonderful New Yorker column, James Surowiecki, much like Bradley Johnson, chronicled bold strategic moves that repositioned companies and redefined industries during periods of economic turmoil. He compared how Post and Kellogg, two giants in the packaged-cereal industry, responded to the Great Depression. Post, he wrote—“did the predictable thing” when it “reined in expenses and cut back on advertising.” Kellogg, on the other hand, “doubled its ad budget, moved aggressively into radio advertising, and heavily pushed its new cereal, Rice Krispies.” As a result, Kellogg leapt ahead of its rival and became (and remains) the industry’s dominant player.

So why, he wonders, given all the evidence of the chance to gain ground during periods of economic upheaval, “are companies so quick to cut back when trouble hits?” One answer, he speculates, involves a distinction about risk made by two business professors nearly 25 years ago. In a paper published by the Journal of Marketing, Peter Dickson and Joseph Giglierano argue that executives and entrepreneurs face two very different sorts of risks. One is that their organization will make a bold move that fails—a risk they call “sinking the boat.” The other is that their organization will fail to make a bold move that would have succeeded—a risk they call “missing the boat.”

Naturally, most executives worry more about sinking the boat than missing the boat, which is why so many organizations, even in flush times, are so cautious and conservative. To me, though, the opportunity for executives and entrepreneurs is to recognize the power of rocking the boat—searching for big ideas and small wrinkles, inside and outside the organization, that help you make waves and change course. In an era of economic dislocation and technological disruption, you can’t do great things if you’re content with doing things a little differently than how you’ve done them in the past. The costs of complacency have never been greater.

I don’t mean to minimize the challenges, pressures, and potential setbacks that are a necessary part of making real change. But is there any doubt that far too many established organizations are far better at reassuring themselves about the virtues of standing pat than they are at rallying around the benefits of standing out? As Michelangelo famously said, “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”

It’s time to aim higher. Playing it safe is riskier than you think.

Homes in Formerly Bombed-Out Areas of Rotterdam Now Command Higher Prices

Home prices are now about 10% higher (controlling for amenities and neighborhood attributes) in areas of Rotterdam’s city center that were bombed in World War II, in comparison with neighborhoods that were untouched. The difference illustrates the impact on homeowners of historic-district rules such as maintenance obligations, says a team led by Hans R.A. Koster of VU University in Amsterdam. Because of the bombing, Rotterdam is the only Dutch city with an American-style central business district with high-rise buildings.

Twitter Isn’t Just Another Social Company

Last week, Twitter’s management subtly let the world know of their upcoming IPO in 140 characters or less. A simple, succinct message. The thrust of it: “We’re coming.”

Today, anywhere you turn, someone is discussing Twitter’s potential. And in almost all of these cases, Twitter is just being thrown into the role of the next social tech IPO. Instead of discussing Twitter as a business, and its strengths and weaknesses, most pundits are simply throwing Twitter into a broad tech category and speculating about IPO valuation.

But as managers, strategists, and investors, we need to be more thoughtful about what Twitter is and how it will continue to shape the world media market. Analyzing Twitter and Facebook as analogs, simply because they both have social components, is a bit like suggesting that CVS and Lululemon are the same because they both have retail spaces.

This failure to discuss Twitter itself probably stems from the fact that most investors don’t grok the service. Twitter represents an unknown quantity. It’s hot. Kids seem to talk about it a lot. And those hashtags certainly pop up on television all the time. But even so, as of this year only 16% of the country uses the service, and that number begins to drop precipitously when you move into suburban environments with residents over 30.

I am an active user and fairly bullish on Twitter’s potential. In my mind, Twitter has evolved into a straightforward broadcast platform; akin to the airwaves, but better constructed for curation and conversation. Twitter may have found an early foothold in the world as a social network for quick updates, but today, it’s an information stream that is much more comprehensive. And while others have tried to build businesses on the back of delivering content – satellite radio, podcasts, blogging platforms like WordPress – let me offer three reasons why Twitter is unique.

Twitter enjoys broad network effects. Many businesses enjoy network effects. Take Skype for instance.  The more of the people that I call who are on the platform, the more valuable Skype is to me.

But Skype’s network effect is narrow. If I frequently call two people outside of the country, and they are not on Skype, the value of Skype’s digital calling platform is rather low. Even if Skype has 100 million total users, it’s essentially valueless to me without those two users. Conversely, for a competitor to enter Skype’s market and steal me away (i.e., Google Hangouts), all they would need to do is sign up those 2 users I care about.

Twitter’s network effects are much more robust. Because its users are supposed to connect to users outside of their geographic or social circles, the more disparate thought leaders, celebrities, and news sources Twitter can add to its network the better it becomes for everyone. And over the years, the company has attracted those contributors in droves — essentially offering them access to millions of fans in exchange for their participation. Now, in order to create a meaningful competitor to the platform, a competitor would have to find a way to entice enough of those thousands of power users away to draw the rest of us. The open structure of Twitter’s network makes its network effect even broader than many other social media platforms.

Twitter lends itself to mobile form factors.  Twitter’s 140 character limit was functional at one point. It was the character limit for a traditional text message. From its inception, Twitter was designed for the mobile experience. It is a singular feed, simply sorted, and monetized in line. Unlike many of its social competitors, who have struggled to streamline their services for feature phones or smartphone applications, Twitter has always been architected for this new mobile paradigm.

Many online firms have stumbled their way through the transition to mobile, seeing valuable display advertising diminish and ancillary revenue streams ignored. But because Twitter was originally built for this format, its revenue isn’t in jeopardy much the same way some recent “tech” IPOs have been. For instance, unlike Zynga, which lost much of its traction as people turned to Facebook on mobile, Twitter will keep its revenue model chugging along regardless.

Granted, there will always be a new paradigm that emerges, opening the door for disruption. But at least for the time being, Twitter is up to date.

Twitter isn’t dependent on winners or losers. Media is changing. The rise of digital distribution, low-cost publishing, and the democratization of media are clearly driving changes in the film and television industries. However, Twitter has managed to make itself invaluable to both the new and the old. Why? Because whether you’re producing big budget studio content or producing a five-minute video for YouTube, everyone needs to engage their audience. There is a job to be done, and Twitter handles it quite thoroughly.

Today, start-ups and incumbents alike are invested in Twitter’s success. Twitter’s structure and broadcast model have driven adoption by hordes of media professionals. Instead of closing the twitter-verse to monetize their product, Twitter’s management team has built a company on the back of incredible openness. Companies like Hootsuite have used this approach to build user interfaces, companies like Topsy have built analytics dashboards, companies like Flipboard have used Twitter to curate their own product, and even industry behemoths like Adobe build tools atop Twitter’s stream. This openness has shielded the company from failure in of any one model. Instead of taking a hard stand on the future of media, Twitter has installed some of the plumbing. While individual companies leveraging Twitter’s platform may fade away, as long as people continue to find value Twitter’s style of real-time communication, they will flourish.

It’s obviously impossible for me to speculate on whether the IPO will be a success or a failure since it hasn’t yet been priced. But I can say that I am optimistic about Twitter’s future. The company’s position is strong. Its network effects create enormous barriers to entry. And it delivers value to a whole heck of a lot of stakeholders. Twitter is more than just another social tech company. And we’d do well to remember that.

Can Building Great Products Help You Build Great Teams?

Silicon Valley was built on amazing products, not on stellar leadership skills. In fact, veterans of some of the world’s most successful tech companies often look with skepticism, even disdain, on efforts to build strong management skills. The premise is that all energy should be focused solely on turning fabulous ideas into hyper growth. It’s true that if a start-up fails — or is sold — the need for enduring leadership may never arise. And in the earliest stages of a company, the need to organize, motivate and inspire large groups of people to accomplish shared goals may not be obvious.

But neglecting the art of people management has significant costs for any company that aspires to be around for a while. Despite employment woes in many sectors of the economy, the talent wars are alive and well in the tech field. Recruitment and retention take up significant mindshare for most leaders. It’s well-documented that dissatisfaction with a manager is a top reason for employees to leave a job. Great managers can help improve job satisfaction and employee retention by leading their organizations with a strong vision, strategic execution and opportunities for career growth. My prediction is that in the next five years, we’ll see a focus on people management catch on with the same enthusiasm that product management has in Silicon Valley and beyond.

In my 20 years leading product and user experience teams at several world-class companies, including LinkedIn and Google, I’ve come to adopt what I call my “Seven Principles to Product Bliss.” Every new member of my product team at LinkedIn gets a personal review of these principles delivered by yours truly. In the course of giving the review many dozens of times, I’ve realized that the seven product principles have direct corollaries to principles for being an effective people manager, and I now work to make sure the managers on my team and I adhere to these corollaries. Below you’ll find my seven product tenets and how I see them connecting to managing people.

Rule 1: Know your audience. For managing products, this means getting out of your office to figure out who your users and customers are, and what makes them tick. This may require opening up meaningful dialog with perfect strangers, and then building their feedback into your product.

For managing people, this principle means getting out of your peer group to really get to know your employees and team members–what they care about, what motivates them and what bothers them about the way things are done. Start with a regular cadence of internal communications–skip-level meetings, town halls, meals with star performers, on-boarding sessions for new hires and team offsites are all good. When you meet with people, listen carefully. Share values and principles that are important to you and your company. Then ask big, open-ended questions about what your team members think–or have seen elsewhere–so that you can interpret and address common challenges together. There’s no better way to get to know your team than to jointly tackle a hard problem.

Rule 2: Simplify. Successful product managers know that customers respond best when the only product features are the ones they want. It’s more important to spend time deciding which features to omit than which to add. A canonical example of the dangers of complexity is the trajectory of Microsoft Word. Between 1984 and 2003, this once-popular software application went from 40 features to more than 1500, with 35 tool bars! Users were overwhelmed, and many turned to simpler alternatives.

Simple is a feature of great management too. Employees of today’s flat organizations are more empowered than ever to gather insights, pursue ideas and make decisions, but they’re also often overcome by choices–how to prioritize their day, whether to go to a particular meeting and which emails to read. Superior people managers can draw a clear mission for their teams–articulating group goals and conveying a strong direction–and then get out of the way to enable their people to make day-to-day decisions.

Rule 3: Embrace constraints. Warren Buffett famously said: “Happiness is not getting what you want but wanting what you have.” When it comes to product management, constraints on time, resources and attention spans can actually make us more creative and responsive to user needs. I love the story of how Napoleonic-era Swiss chocolatiers made hazelnut the most popular flavor of chocolates by using it as a filler during a trade embargo imposed by France. More recently, when moving from web-based to mobile-ready products, the most successful product managers didn’t just scrunch products to fit a small screen–they completely rethought and reinvented their products around mobile users and their usage patterns.

When it comes to leading people, you can actually unleash their creativity by providing a few well-chosen constraints. At LinkedIn, employees sometimes pitch a “venture bet”– a long-shot idea that they’re passionate about. We give them a set amount of time and resources to build that idea and report back periodically. In this context, constraints are necessary safeguards that help simulate real-world constraints faced by any seed-funded startup. The successful bets go on to become part of LinkedIn’s product portfolio.

Rule 4: Data is your guide. The classic example of using data to achieve product success is the multi-step e-commerce checkout process. Amazon’s famous “1-click buying” system materially reduced the buying funnel dropout rates. While you can’t control what users will do with your product once it’s in their hands, you can learn from their interactions and build on this data to improve the product experience.

Data is becoming increasingly relevant for people managers. With tools like LinkedIn, organizations are recruiting, retaining and grooming talent with unprecedented precision. Social tools can enable coworkers to collaborate and build relationships, creating and maintaining a positive culture. At LinkedIn, periodic employee surveys and employee-only networking groups on Linkedin.com allow us to track employee sentiment in a measured, data-rich way. As global leaders, we can’t be everywhere at all times, and we can’t allow ourselves to be swayed by rumors or anecdotal feedback from a few voices who happen to be proximate. Instead, we need to deploy data-driven methods to make the best global decisions.

Rule 5: Innovation is not instant. The beauty of the iPhone is how it combined the best features of its predecessors–the Blackberry’s email features, the Razr’s design aesthetics, the iPod’s music capabilities and the Palm Pilot’s touch screen. Don’t chase brilliant one-offs when seeking innovation–it takes lots of lead bullets to make a silver bullet that enables a step change in user experience.

Similarly, effective leadership takes time, tenacity and regular engagement with the people you’re leading. Gone are the days of “command-and-control” leaders. Today, it’s essential to build an ongoing relationship of trust and authenticity based on open and transparent communication and collaboration. This process of relationship-building takes more time, but those moments of the day are well-spent.

Rule 6: Be fast, flexible and ready to adapt. Some of the most popular tech products today emerged as a result of a major strategic pivot. YouTube got started as a video-dating site. PayPal was created to exchange money between two Palm Pilots. It’s best to be very open-minded when launching a product so that you can build in customer feedback and adapt as necessary. Netflix is a great example. This company that made Blockbuster irrelevant has reinvented itself to move from DVD rentals through the mail to an online streaming and original content entertainment company. Now one-third of downstream internet bandwidth in North America is used by Netflix.

As leaders, we need to continue to take the pulse of our teams regularly, and change our behavior when necessary. We see US presidential candidates go through this process during campaign season, reacting to the input they get from polls. Recently at LinkedIn, a senior executive learned from an employee survey that people were unclear about how their performance was being measured. The executive took immediate corrective action. Within a week of receiving the data, he had pulled together a clear and detailed explanation and held a town hall to explain the performance management process clearly and transparently. The team’s results are now on the upswing.

Rule 7: Build for scale. In the tech world, we talk about creating flexible architectures that can “scale,” or grow quickly: “prototype for 1x, build for 10x and engineer for 100x.” The truth is that technology companies can become obsolete quickly–95 percent companies listed on the NASDAQ don’t maintain an independent existence after 20 years.

If you want to build a company that lasts — especially a tech company — you need to focus on establishing culture and values that are strong and flexible enough to endure changes. And you need to hire people who are at least as focused on building amazing products as part of a team as they are on their own personal star trajectory. As I like to say, never hire anyone whose blast radius will be bigger than his or her impact radius.

As successful companies mature, investing in strong leadership skills can help create and sustain a culture of innovation by empowering teams to make better decisions, take intelligent risks and execute on a winning business strategy.