Health systems seeking to jump-start their innovation efforts often look for a "big bang" — an ideation challenge or a hackathon. Such actions can certainly garner attention and energize the workforce, but they are unlikely to produce sustainable business value.
Instead, we find these types of activities are usually ad hoc "one-offs," existing within pockets of innovation that form organically in business units or teams throughout the enterprise. Rarely are they connected to the enterprise strategy or organizational priorities. Consequently, the big bang becomes a flash in the pan — consuming resources and bandwidth in a trivial and marginal way, and sending a message that innovation is a hobby rather than a source of strategic advantage.
So, how can a health organization make its innovation agenda strategic, prominent and ubiquitous? Over the past year, Pricewaterhousecoopers Strategy& conducted a global survey of more than 1000 companies, including more than 200 healthcare organizations, to uncover trends and leading practices around innovative. The survey was designed to help us learn how innovation and its role within companies is being transformed, and to measure the effectiveness of participants' innovation engines. In this article, we discuss several common "operating models" identified in this survey, and the associated choices facing organizations in designing their innovation engines. Operating model is the way an organization comes together and deploys its people, processes, technology, information and culture to achieve a particular business objective. Designed well, these operating models can connect the business strategy and the innovation strategy, and result in innovations that closely align to enterprise priorities, yielding competitive advantage in the market.
While there are no right or wrong operating models, it is important to underscore that the operating model must be designed around the innovation objective — that is to say, innovation form follows function. Choosing the right operating model requires thoughtful consideration of the pros and cons relative to the objectives of the innovation effort, and in relation to existing organizational capabilities. The critical question that must be answered before selecting an operating model is a strategic one. Namely: What are we trying to achieve with innovation, and how can an operating model support our effort? For example, innovation can be used to advance leadership in a particular service line, create a new revenue stream, catalyze local entrepreneurship or solve a social problem affecting health outcomes. Each of these objectives would entail a different set of investments, partners and measurements.
Once the objective is clear, the organization then must choose among the operating models best suited for coherence with the innovation strategy. Common operating models employed by healthcare providers are presented below, with a discussion of the tradeoffs of each.
Corporate venturing. The corporate-venturing model primarily supports innovation by directly investing corporate funds in early-stage companies. This model can provide significant value for healthcare organizations by providing market intelligence and through gaining access to new capabilities by taking equity positions in these early-stage companies. Additionally, this model enables providers to place a larger number of bets and spread risk in various innovation areas without bearing the brunt of the full capital requirements to bring a new venture to market. Given the range of new technologies in healthcare, from artificial intelligence to internet of things, identifying those that will provide true clinical value to patients is challenging — making this model attractive. However, corporate venturing models run the risk of becoming disconnected from the core business over time both strategically and organizationally, developing an insular culture and struggling with executing the "handoffs." Where this model can prove to be more effective than established venture capital firms is when the full power of the clinical enterprise can be brought to bear in support of an early-stage company. Establishing metrics that reflect the full set of enterprise value drivers — clinical, experiential and financial — is critical for measuring its true impact and aligning it to organizational priorities.
Incubators. Incubators are internal innovation structures where intrapreneurs and corporate strategists explore new business models and launch early-stage solutions. They provide an in-house capability to rapidly prototype and build solutions that support needs and opportunities across the enterprise. While there is a clear benefit for organizations that seek to control pipeline and own majority equity positions in innovations, there are numerous challenges to this model. Namely, organizations may focus on less disruptive ideas that have near-term revenue horizons, and may shy away from opportunities perceived as "too risky" or "non-core." Additionally, challenges with talent recruitment to support innovation activities can serve as a barrier to effectively executing upon opportunities that are non-core. Healthcare organizations also face competition with numerous, established and independent incubators that are not beholden to any one health system. Establishing appropriate metrics is also more important for success in incubators than in other innovation operating models. Incubating new innovations in healthcare is costly and time consuming. Metrics that demonstrate value in the near-term can make the difference between leadership perceptions of failure and success.
Design thinking. Leveraging principles of human-centered design, this operating model focuses on diffusing the specialized skill-set of designers to create deep empathy with patients, clinical staff and other stakeholders to identify and refine novel solutions. This operating model can yield benefits across a range of opportunities, including driving both clinical and administrative benefit. Operationally, design-centric practitioners can be a centralized resource akin to an internal consultancy. Embedding design into the organization's culture through performance metrics and incentives can result in significant benefits over time.
Open innovation. This operating model is oriented around opening the innovation funnel to external ideas and companies to drive internal organizational innovation. Some healthcare organizations, including athenahealth and Cambia Health Solutions, are also experimenting with new models, including reverse pitch days to bring external teams and talent to solve organizational needs. Healthcare organizations can benefit from this approach in numerous ways, including gaining access to a greater number of ideas and top talent as well as low-cost access to innovative ideas. However, open innovation may not provide ownership of the innovative ideas or capabilities that provide market differentiation that some organizations seek for competitive advantage. Even a distributed network needs a controlling node to direct traffic.
While these operating models are commonly employed by healthcare organizations, they may not be appropriate for every organization. It is worth noting that there may not be just one operating model that supports the organization's innovation objectives. Picking the right operating model requires thought and diligence in assessing the tradeoffs in relation to the overall strategy, and if done well, can result in a coherence premium from the alignment between capabilities and innovation strategy.