Healthcare Transformation: Revolutionize Your Healthcare Organization with First Principles Thinking
Introduction
In recent years, the healthcare industry has undergone significant changes, which have been further accelerated by the COVID-19 pandemic. While many organizations have turned to mergers and acquisitions (M&A) to build new businesses and access new capabilities, we believe this approach misses the mark. M&A may result in a larger organization, but it doesn't necessarily lead to a better one.
The difference between “good” organizations and “great” ones lies in the ability to enhance the capabilities of people to optimize material, information, and cost flows to unlock substantial value. By investing in people, refining processes, and fostering a culture of collaboration and continuous improvement, we help healthcare entities achieve high-quality, low-cost care. We diverge from the path of mergers and acquisitions, focusing instead on empowering all levels of leadership to drive innovation and maintain cost control. Our strategy is simple yet profound: build from within to create a seamless, efficient, and joyous healthcare experience for providers and patients alike.
Traditional financial measures such as return on investment (ROI) and earnings per share (EPS) are often misleading because they do not account for the true value that an organization creates. Financial metrics alone can be misleading and short-sighted; organizations should measure their success by how well they are meeting the needs of their customers and how effectively they are utilizing their resources.
Instead, evidence has shown that the key to transforming healthcare organizations lies in improving the process (Berwick; Debano), by cultivating a culture of innovation that embraces experimentation and learning (Spear; Ries). By creating a structure where people can change and learn faster than ever before, by improving the work process itself rather than simply trying to cut costs or increase revenue, healthcare organizations can increase efficiency, reduce waste, improve the bottom line, all while creating more value for their patients.
Partnering with other healthcare organizations and new entrants through joint ventures and alliances may offer benefits such as access to new capabilities, increased speed to market, and efficiencies. However, it's important to remember that a larger organization that does not have the capability to execute its strategy will not benefit from increased capabilities. In fact, without the ability to coordinate activities between functions, a larger organization may become less agile and less effective. Therefore, we advise against jumping into deal terms without clarity on the vision and strategic plan, and emphasize the importance of developing the ability to effectively deploy the plan at a tactical level, with consistent leadership commitment and accountability.
Ultimately, we believe that healthcare organizations can successfully transform from “good to great” by focusing on their internal culture and developing great leaders. By creating a great structure where people look forward to going into the office, and by coaching great people to continuously improve, organizations can drive improvement every day and create the best possible outcomes for their patients.
Fostering Continuous Learning and Improvement: A Proactive Approach to Retaining Market Position
To retain their market position, organizations need to focus on developing their own capabilities and expertise by investing in their people and creating a structure that fosters continuous learning and improvement. Until organizations have developed their own capabilities, M&A benefits improve the appearance of improvement in the short-term, at best.
The cost of M&A can also be high, both in financial as well as time and energy, organizations may find it challenging to pursue on their own. Instead, leaders should focus on developing internal capabilities and expertise through investments in their people and structures, which will pay off in the long run. By focusing on the process rather than just financials, organizations can create a culture of continuous improvement that will lead to long-term success.
This is different from traditional approaches that rely on mergers and acquisitions or partnerships to access capabilities and expertise. We believe that organizations cannot simply enlarge their partnerships and alliances to become great. As we have known for over a century, in order to become a world-class organization, leaders must focus on developing their people, creating a structure that fosters continuous learning and improvement, and create a positive work environment that inspires employees to strive for excellence. By focusing on the process, we can improve financials, which in turn can further improve the process and lead to sustained success.
Building Capabilities and Optimizing Flow to Unlock Value in Healthcare
Healthcare organizations looking to unlock value and deliver high-quality, low-cost care must first focus on building their own capabilities and optimizing flow through investments in their people, structures, and processes. Once these capabilities are in place, they can consider various options for accessing new capabilities that align with their enterprise and business unit strategies.
Optimizing flow is an essential strategy to improve access to care and achieve seamless, efficient, and error-free delivery of healthcare services. By creating balance and harmony between medical workers, patients, families, and other stakeholders, organizations can achieve the most natural, seamless, and efficient system. This, in turn, has been shown to lead to improved patient outcomes and helps healthcare providers to find joy in their work.
In contrast to the traditional approach of relying on mergers and acquisitions or partnerships, experience in healthcare improvement has shown that transformation requires building capabilities for leadership at all levels. At the core of this approach is a focus on teamwork, collaboration, and continuous improvement. It involves three key areas:
Empowering healthcare professionals to identify and solve problems: In the highest-performing organizations, all workers—not just those on the front line—need to be coached to learn how to reduce ambiguity systematically and how to continually improve processes through quick, iterative experiments. When appropriate, this can be accomplished with an offline simulation, with the goal of mastering the problem-solving process while addressing problem-specific solutions.
Cultivating a culture of collaboration that embraces experimentation and learning: The most effective changes are small ones, generated by rapid experiments. To ensure that these experiments are successful, senior healthcare leaders—hospital CEOs, presidents, chiefs of staff, vice presidents for patient care, medical directors, unit directors, and the like—will need to do more than provide support for pilot projects. They will need to embrace and practice coaching to develop the problem-solving capabilities of the people they depend on.
Developing processes and structures that support collaboration and continuous improvement: This involves identifying key gaps, experimenting against obstacles in an iterative learning process, and continuously refining processes based on new learnings. It requires a focus on building your own capabilities and optimizing flow to achieve the best outcomes. By creating a culture of collaboration and continuous improvement, healthcare organizations can control costs and achieve long-term success.
While a traditional financial approach may prioritize immediate cost reductions through measures like layoffs, supplier changes, and inventory reduction, this approach can actually increase costs over time. Instead, by focusing on building internal capabilities and optimizing flow, healthcare organizations can control costs without degrading the performance of the system. Once these internal capabilities are established, organizations can evaluate new capabilities that align with their strategies, while maintaining a culture of continuous learning and improvement.
The role of senior leadership in the transformation
Effective leadership is critical for driving process improvement efforts in healthcare organizations. However, it is important to recognize that there is no one-size-fits-all approach to leadership in healthcare. Leaders must first understand where their organization is on the journey to greatness and tailor their approach accordingly.
To develop an effective process improvement strategy, healthcare leaders must start where they are and understand their organization's unique challenges and strengths. For example, a benchmark organization with a culture of highly motivated employees who are supportive of each other and embrace the concept of learning from their mistakes will have a different strategy in their improvement journey than a blame-centric organization with few motivated individuals. The former may be more tolerant of trying a complex tool or technique that they do not understand well yet, while the latter may focus on starting with a focus on psychological safety, ensuring that team members feel comfortable sharing their ideas and concerns without fear of punishment or retribution.
With this understanding, healthcare leaders must be cautious of a common pitfall of relying on "organizational specialists" who offer quick fixes without a deep understanding of the healthcare industry. These consultants may apply generic management practices that do not take into account the unique complexities of healthcare systems, and sustainable improvement requires a long-term commitment to process improvement and a deep understanding of the underlying issues.
The Need for Senior Leadership Involvement
There are two key considerations that senior leaders in healthcare organizations need to keep in mind when it comes to driving process improvement: local vs. global thinking and benchmark vs. complacent mentality.
First, people tend to think locally, not globally; that is, if they make an improvement in their department, this will be seen as a good thing, even if it meant shifting the burden up or downstream to another department. Therefore, the aim of senior leadership is to ensure that the local vision is THE vision.
Second, the role of senior leaders in benchmark organizations differs fundamentally from that of complacent ones, both in where and how they spend their time.
Effective leadership is critical for driving process improvement efforts in healthcare organizations. Senior leaders must understand their role in the organizational transformation and actively demonstrate their commitment to process improvement. This includes not only making process improvement a priority and communicating its importance, but also actively participating in the effort and demonstrating a willingness to learn from mistakes.
While it may be tempting to delegate the organizational transformation to a department or consulting group, changing the culture of an organization requires the active involvement of senior leadership. Consultants can provide valuable support, but culture is about the way people act and behave, which starts with senior leaders demonstrating the desired behaviors. Starting with the boardroom, this includes creating a culture of psychological safety, where it's okay to be wrong and learning from mistakes is encouraged.
Most healthcare leadership teams already track their leadership engagement on periodic surveys, and low engagement scores can be disheartening. When senior leaders shift their focus away from having all of the answers, and toward developing the problem-solving capability of their teams on the front lines, until employees look forward, rather than dread, their next interaction with you, these scores are guaranteed to improve.
By taking an active role in the organizational transformation, senior leaders can ensure that the effort is sustained and that the organization achieves its desired outcomes.
Changing the Mindset of Senior Leaders
To successfully drive process improvement in healthcare organizations, senior leaders must shift their improvement mindset from results-focused to process-focused. This requires a change in their approach to leadership, from decision-making to coaching and mentoring their teams.
To achieve this, it is important to have open and honest discussions with senior leaders about the need for this fundamentally different approach. They need to understand that process improvement is not just about achieving short-term results, but rather about creating a culture of continuous improvement that can lead to sustained success over the long term.
A common complaint to any transformational change is “time,” especially in the C-suite. Senior leaders invariably already have a lot on their plate, so it's important to carve out dedicated time for the improvement work. This may mean making time each day, or designating a few innovators to experiment and learn by coaching a "model department."
With respect to the rate of adoption, the same dynamics apply to individual members of their leadership team as to the rest of the organization. There will be innovators, early adopters, early and late majority, and possibly a laggard or two. It's important to differentiate between those who are coachable and those who are not. While some may be receptive to the new approach and eager to learn, others may be resistant or set in their ways. It's worth noting that some of the early resistors may be their biggest advocates, they are just in the "early/late" majority and need more evidence that it works prior to justifying making the change. Tough decisions might have to be made, but be careful not to alienate a valuable contributor based on unrealistic expectations.
For this reason, it is crucial to create a safe space for experimentation and healthy dissent. Senior leaders should encourage open and honest discussion and be willing to listen to and consider different perspectives.
As long as senior leaders remain committed to the process improvement journey and remain open to feedback and continuous learning, senior leaders can successfully drive process improvement and transform the organizational culture.
Conclusion
In conclusion, the healthcare industry is facing many challenges, from increasing costs to changing patient expectations. To remain competitive and deliver value to patients, healthcare organizations need to adopt a proactive approach to continuous learning and improvement. This requires building capabilities, optimizing flow, and changing the mindset of senior leaders.
Senior leaders play a critical role in driving process improvement and transforming the organizational culture. They must shift their mindset from a focus on achieving short-term results to a focus on process improvement. This requires a change in their approach to leadership, from decision-making to coaching and mentoring their teams.
To succeed in this journey, senior leaders must create a safe space for experimentation and healthy dissent, differentiate between those who are coachable and those who are not, and carve out dedicated time for the improvement work. As long as they remain committed to the process improvement journey and remain open to feedback and continuous learning, senior leaders can successfully drive process improvement and transform the organizational culture.
In short, the healthcare industry is undergoing significant change, and those organizations that can adapt and innovate will be best positioned to succeed. By embracing a proactive approach to continuous learning and improvement and engaging senior leaders in the transformation, healthcare organizations can unlock value, improve patient outcomes, and retain their market position.
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