6 reasons why health system innovation fails

Today, health systems require an increased focus on innovation to achieve their strategic goals. With major forces of change at play — including consumerism, retail healthcare, risk-shifting, new entrants, and uncertainty resulting from a new administration — hospitals and other providers have begun evaluating new business models, diversifying their business, and searching for new revenue streams to stay relevant and competitive in their markets.

However, deciding to pursue innovation is far easier than actually making it work. Repeatedly, we are asked, "What are the major reasons that innovation efforts don't work, and how do we avoid them?"

In our experience, there are six common themes we see in failed innovation attempts. Fortunately, all of these can be mitigated through thoughtful and purposeful design of an innovation operating model.

Below we lay out six common pitfalls we have observed, along with suggestions on how to avoid them.

1. Treating innovation like any other project. Treating innovation like any other investment is one of the most common mistakes we see. Measuring the financial return on innovation projects alongside other projects decreases their attractiveness, as most new ventures' payback period is protracted. This may result in organizations shelving otherwise high potential opportunities, or myopically focusing on incremental opportunities with near-term payback. Furthermore, funding innovation via traditional budgeting processes (those used for traditional business planning) does not pull capital from dedicated innovation funds, and forces ongoing innovation efforts to compete for funding against other projects, operating units, and organizational priorities. In times of austerity and budget cuts, innovation efforts can be perceived as non-essential, and are at greater risk of falling subject to the axe.

Where to start: Diversify your funding model such that funding for innovation does not rely exclusively on corporate funding pools. Dedicated funding pools that blend dollars from corporate sources, private equity, philanthropists or grant-writing organizations, and potentially co-investment from payers, providers, or strategic customers can not only ensure availability of investment dollars, but also diversify risk assumed by corporate innovators. It also sends a strong message of stability to both prospective customers and employees, both of which seek to affiliate with going concerns.

2. Measuring the wrong things. Measuring progress of innovation efforts is significantly different from, and more challenging than for traditional business units. Measuring your innovation portfolio through financial reporting processes may not provide full transparency into an initiative's performance — progress towards milestones should be defined by metrics appropriate for pre-revenue and early-stage growth companies (e.g., engaged users, downloads), not strictly by financials. Measuring innovation efforts strictly by financial projections may be misleading, as financial projections for early stage and start up businesses are subject to significant uncertainty, and are easily missed.

Where to start: Establish the right metrics, and implement a light-weight governance process that focuses decision-making on innovation- and business-appropriate metrics. Additionally, embrace a culture of "fail fast" — whereby your organization identifies the right metrics, and rapidly tests concepts against those metrics through pilots. By doing so, your organization will be best positioned to allocate capital and talent against market viable solutions, and only focus on the highest value-add opportunities.

3. Not understanding the talent market. Successful intrapreneur leaders are a special breed of talent that have both entrepreneurial tendencies and experience, but are comfortable navigating the processes and politics of larger corporations. Not only are these leaders different in profile from traditional corporate hires, the teams they require to support their innovation efforts (e.g., design, development) are different as well. These leaders are in high demand from start-up or growth stage organizations, and field offers with compensation that includes cash and significant equity — attractive components of a total package. Leveraging traditional HR functions that don't understand the profile or motivations of the right talent can significantly impair your innovation effort, the success of which is largely determined by having the right leaders to drive it.

Where to start: Develop a dedicated and attuned HR capability that understands the profile, motivators, and competition for this talent. In addition, as you scale your innovation effort, building a bench of entrepreneur-in-residences and shared technology resources (which can be rapidly re-deployed out of failed initiatives) will enable your organization to build an effective talent portfolio that enables your innovation efforts.

4. Borrowing from the corporate playbook. Many fall into the trap of assuming that existing resources and shared services can support innovation in a "plug and play" manner. However, it is exactly this thinking that will stifle your innovation effort. Incubators and other innovation operating models that heavily rely on matrixing to parent resources (e.g., IT, marketing, legal, procurement, HR) are subject to the same prioritization processes and corporate cost reduction efforts that can hamper the speed of traditional projects. Furthermore, without embracing an entrepreneurial culture (e.g., focus on building MVPs, employing lightweight contracting), the innovation effort risks over-building and over-contracting products for enterprise clients without first having established product-market fit.

Where to start: Identify and build out a dedicated (or designated) team of aligned resources for core shared innovation functions (e.g., IT, finance, HR, legal, marketing) that are critical for speed, and require a high degree of control. Critical to this is establishing the team quickly, with minimum connections back to the parent resources — sparing the "regression towards the mean" of corporate processes that is all too common.

5. Failing to keep "fit." Designing and consistently executing an innovation process that aligns to your overall strategy is hard, and requires commitment and constant vigilance. It is easy to become complacent in enforcing strategic alignment, pursuing attractive business cases despite their failure to align with your organization's core mission. However, focus is paramount in innovation. A coherent portfolio that supports the organization's overall strategy not only ensures executive and board alignment, it can yield positive benefits by enabling your organization to create a compelling case to outside philanthropists, grant-providing organizations, and strategic partners.

Where to start: Build internal alignment on each and every opportunity, and dedicate time up front to socialize potential innovation opportunities, to ensure continued financial, operational, and clinical support throughout the organization. A successful innovation engine effectively enables the organization to achieve its strategic goals, and develops a pipeline of aligned opportunities that yield value towards organizational objectives.

6. Not "leaning in" to innovation soon enough. Innovation is not for the faint of heart — it requires time, capital, focus and perseverance. Organizations sometimes seek to hedge their bets by relying on external incubators or contract resources to execute against an innovation agenda, and to avoid building the internal infrastructure required for long-term success. While this may be a viable short-term solution to "jumpstart" the effort while building your team, relying on this strategy long-term is a high cost proposition that leaves your organization vulnerable to knowledge leakage and accountability issues.

Where to start: Commit to attracting and retaining the right talent with longer-term contracts. While top talent is expensive, the opportunity cost of time and resources that results from knowledge transfer and onboarding leadership later in the innovation lifecycle is not insignificant. For those organizations that seek to pursue interim resourcing models as they get their initiatives off the ground, proactively managing the transition of knowledge, process and talent from external to internal in a manner that results in minimal leakage is paramount.


Igor Belokrinitsky is a principal with Strategy&, PwC's global consulting team, and John Petito is a manager with the firm.

 

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