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  • Writer's pictureTodd Gentzel

Healthcare Transformation in the Age of Disruption

The math doesn’t work. If we’re honest, it hasn’t worked for a while. Operating margins have been in decline for years, the seriousness of the situation temporarily obscured by the unprecedented infusion of cash that flooded the sector during and immediately following the pandemic. Those days are behind us. Now we’re faced with the harsh reality of an industry on the edge. It would be easy to blame recent labor shortages and inflation, but that’s an oversimplification, ignoring the longitudinal nature of the trends and the harsh realities of a U.S. healthcare market that’s clearly in transition.

Healthcare tranformation in an age of disruption

If this all sounds a bit existential… well, it is for a growing number of providers. For more than two decades we’ve pointed to the inevitability of structural changes in the marketplace, increased competition and the impact of technological and scientific disruption.  The case for transformation has been made and reiterated countless times, but for all the talk many in the industry have fallen well short of the progress required to meet the moment.

Our world is changing and the operating environment is evolving rapidly. Some continue to argue that change in healthcare happens at its ‘own pace’, but that speaks more to culture and leadership than the realities of dynamic and competitive markets. The unfortunate truth is that healthcare organizations move at their own pace because they were built for another time and purpose, exactly the conditions cited in virtually every business school case study involving transformed industries and failed incumbents.

In a previous article, I documented seven drivers that are shaping the future of healthcare. An honest evaluation of the current situation and the collective capacity these drivers have to transform an already precarious operating environment should garner the attention of even the most cynical healthcare executive. As an industry, we can expect a period of consolidation, restructuring and System failures. A generational redefinition of the sector is coming and only those who commit to a scaled transformation of their business can expect to thrive.

Timing is everything

Periods of significant disruption create challenges and opportunities that reshape industries and redefine businesses. Like many sectors, healthcare benefitted from a long period of relative stability. This resulted in a tuning of sorts - an alignment of healthcare organizations and their activities to the conditions and market realities of the time. As drivers and disruptors reshape the operating environment, the assets and practices relied upon for previous success can become the liabilities that inhibit an organization’s efforts to compete for the future.

Ignoring what’s coming and doubling down on the strategies of the past is a high-risk proposition, but one that many will pursue over the next several years. Leaders, especially those navigating unfamiliar territory, tend to retreat to what they know, relying on what’s worked for them previously. Internally, it’s an easy sell, asking an organization to stay the course, work harder and deliver results regardless of what’s happening beyond the walls. This approach works until it doesn’t. Unfortunately, arriving at this conclusion takes time, the one thing that organizations operating in high-velocity periods of disruption don’t have.

Drivers of change act and interact with one another, creating a compounding effect that increases the velocity and magnifies the impact of the transition as the cycle of change progresses. Under these conditions, timing is everything. It’s far easier to navigate transformation at scale if you choose to act early rather than late. This isn’t the time for playing it safe. The stakes are too high, the challenges are too great and the passage of time only serves to increase the cost and complexity of the transformation that’s required.

Innovation equals transformation

There are at least six areas of focus that collectively define the targeted transformation for health systems including: 1) bending the escalating cost curves, 2) increasing the productivity of an already strained workforce, 3) diversifying revenue streams, 4) exploiting opportunities for increased value realization, 5) improving clinical outcomes and 6) staying ahead of the rapidly evolving expectations of consumers. Taking on any one of these would be a massive undertaking, but in this case, it’s the system, not the symptom that needs fixing.

... it's the system, not the symptom that needs fixing.

One could easily be forgiven for feeling a bit overwhelmed at the thought of taking on such a daunting task. The natural impulse would be to incrementalize and sequence the work over a decade or more, but the magnitude of the challenges that we’re facing as an industry and the velocity at which healthcare markets are moving simply won’t allow for that kind of approach. This is where we can benefit from the experience of other industries that have navigated volatile periods of transition and engaged in their own scaled transformations.

A little over a decade ago, several sectors of the economy were facing a similar group of challenges, embarking on an aggressive transformation of their industries. Since then, we’ve seen a modernization of the manufacturing, extractive and transportation sectors the likes of which we haven’t seen since the Industrial Revolution. At the heart of these efforts was a focus on innovation, prioritizing the rapid adoption of technology as a means to drive substantial increases in productivity and improvements in quality and safety.

Companies within these industries recognized that innovation was the heart of transformation, their technology strategy was foundational to their business strategy and the scaled transformation they were pursuing was actually the digital transformation of their businesses. If you’re skeptical, take a minute to look at the increases in productivity and the cost reductions that the leading businesses in these sectors were able to achieve.

In healthcare, some have argued that we have a problem with innovation. I’m not convinced that’s true. The healthcare sector is awash in innovation and investment. There are a handful of solutions that are available today that if embraced broadly across the industry could collectively have an impact on the sector totaling tens of billions of dollars (and we’re just getting started).

No, we don’t have a problem with innovation. We have a problem with adoption, integration and embedment that’s creating a rapidly expanding gap between what’s possible and what can be implemented for the purpose of creating and realizing value. The combination of consensus-based culture and leadership, along with an unhealthy preoccupation with EMR technologies, has inhibited the sector’s progress and slowed its efforts to respond to the changing environment. This must change, and there’s no better place to start than with those tasked with leading the transformation.

Leadership matters

Perhaps there’s no single factor that determines the outcome of transformation at scale more so than proactive leadership. Beyond sponsorship or endorsement, executives must actively engage in the process, taking a visible role in pursuing the program’s targeted outcomes. There’s no outsourcing to subordinates, change agents or consultants. Transforming an organization requires genuine leadership and active participation at the top.

... transformation isn't something you do to an organization.

It’s helpful to think about a scaled transformation effort like it’s a temporary operating unit that exists to plan and execute a major program comprised of dozens of sequenced and coordinated projects over time. It’s important to remember that transformation isn’t something that you do to an organization. Transformation is something that the organization itself pursues in an effort to achieve its mission and position itself for continued success. Not everyone is built for this kind of leadership.

Dedicated program leadership is a must, and given the nature and complexity of the work, it’s the kind of thing that’s best assigned to an expert with a background in transformation and corporate development. In many ways, the transformation officer role is akin to that of a guide or a sherpa - planning the route, selecting the team, organizing the details, monitoring the conditions, evaluating the contingencies and ensuring the success and well-being of the team at each stage of the operation. Their goal is to assemble and deploy a team of experts from across the enterprise and put the organization in the best possible position for achieving its objectives. There’s no room for autocrats or empire builders. Effective transformational leadership is collaborative, self-reflective and above all else genuinely interested in the success of others.

Whether you’re a senior executive responsible for the continued performance of the enterprise, or the executive responsible for leading the transformation effort, everyone has a role to play. Balancing the need to maintain a stable and productive operation, while transforming the organization is no small feat. It’s a whole system intervention that requires an extraordinary level of coordination and a high level of trust and shared accountability.

Focus and flexibility

One of the primary roles of leadership is to focus the organization on the activities that contribute to current and future success. During scaled transformation efforts, when the limited resources of the organization are focused on running and transforming the business, driving efficiency and strategic yield from effort becomes even more critical. This is not the time for chasing the management hype-cycle and pursuing passion projects. The organization and its leaders must be focused on the twin goals of operating and transforming the business.

... the pace that's established for the effort should be set at a rate that's just short of unreasonable. 

To achieve and maintain the focus that’s required, the objectives and strategies associated with transformation should be communicated frequently, distractions should be eliminated, progress should be celebrated often and paradoxically, the pace that’s established for the effort should be set at a rate that’s just short of unreasonable. That last one is critical. Transformation efforts rarely benefit from a plodding and overly cautious rate of execution. Speed brings increased focus, and the combination of an accelerated pace and effective program governance should be enough to ensure both meaningful progress and quality outcomes.

There’s a tendency for people to equate focus with a kind of rigidity. That can’t be the case with scaled transformation efforts that are undertaken during periods of disruption. These programs often take several years, during which technological advances and market changes are occurring at an accelerated rate. Transformation leadership must maintain focus on the objectives while also exercising the freedom and judgment that’s required to take advantage of the changes they’re encountering in the operating environment.

Cultivating focus in an adaptive context can be challenging, but a strong governance model and an established cadence go a long way toward effectively balancing the need for both focus and flexibility. In the end, it’s about making meaningful progress and tuning the business for a vital and sustainable future. Learning is arguably the most important part of the transformation journey, as the mental models of the past give way to the ideas and aspirations of the future. Transformation leadership focuses the organization on what must be done today while inviting them to consider what should be done as the operating environment continues to evolve.

A few final thoughts

For the last couple of decades, I’ve had the opportunity to plan for, participate in and lead transformation efforts in healthcare as well as several of the industries mentioned in this article. I’m positive about what’s ahead for us because I’ve seen the positive impact that transformation at scale can have on businesses, sectors, employees and customers. In the coming weeks, I’ll get into some of the specifics associated with executing scaled transformation. For now, I’ll leave you with this:

  • If you haven’t started, don’t wait. Time is not on your side, and waiting will only make the effort that much more difficult.

  • Embrace innovation and digital transformation as central tenets of your business strategy. From care models to business practices, technology will drive the advances that will yield your future success.

  • Lead with purpose, balancing the need for operational consistency and transformational agility.

  • Focus on the task, but be flexible enough to make the course corrections necessary to ensure your ultimate success.

Todd Gentzel is an expert in strategic foresight, innovation and business transformation. He has more than two decades of executive experience with advisory and client-side organizations and holds the Oxford University | HEC Paris Masters of Science in Consulting for Change.

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