healthcare leadership checkup: are you … · for all the talk one hears about business...

For all the talk one hears about business transformation, few top leaders have actually been forced to fundamentally alter their companies, much less their industries or society at large. They have not been called on to be Lou Gerstner reinventing IBM as a service provider or Steve Jobs guiding Apple into the world of information and entertainment. But today, transformation of that scale is precisely what healthcare requires as it enters a period of sweeping change – one might almost say a reboot – brought on by rising costs and the economic crisis, and accelerated by the Affordable Care Act (ACA).

In fact, even “sweeping” fails to convey the magnitude of change we anticipate as healthcare moves from a wholesale to a retail model, from employer-centric to customer-centric, and from risk selection to health management.

Consider that in today’s market, health plans rely on three main areas in creating value: They select and underwrite risk, manage costs by negotiating unit-cost discounts with providers, and manage utilization through prior authorizations and remote case management. But in the likeliest scenario, all three will be irrelevant within a decade. Under the ACA, selecting for price and risk will be limited. Under value-based healthcare, total cost of care will

Health & Life Sciences

HEALTHCARE LEADERSHIP CHECKUP: ARE YOU READY fOR THE CHANGES AHEAD?

HEALTHCARE HAS NEVER FACED THE LEVEL OF CHANGE IT MUST UNDERGO IN THE NEXT FEW YEARS. BUT OTHER INDUSTRIES HAVE. HERE’S WHAT WE CAN LEARN FROM THEM ABOUT LEADERSHIp DURING LARGE-SCALE TRANSFORMATION.

be the key success factor, not unit costs. And product designs and networks will have to be completely revamped, because consumers want and need different things than employers do. If health plans are not careful, the value-based risk contracts they are currently considering could give providers the tools to disintermediate them.

In the new world of healthcare, players will compete to manage the health of their members by creating a differentiated experience. So health plans need to redefine their place in that world or hazard becoming dead-end providers of commodity administrative services. In the years to come, health plans will develop completely new profit models, value chains, customer bases, operating standards, and capabilities – and will likely bear no resemblance to today’s institutions.

When we talk to healthcare leaders, they know where the industry is headed. A number understand how they need to respond, and a few are making progress on their core reform-linked strategies. But many, despite the best of intentions, are taking an incremental, business-as-usual approach. They launch pilots and create near-term solutions, but stall in terms of bold, strategic, enterprise-wide efforts. They have explanations for their lack of momentum: A year ago they were waiting for healthcare reform to pass, a few months ago for the Supreme Court decision on the ACA, and today – some of them – for the results of the presidential election and a possible repeal.

The current limbo, however, is really caused by something different. Leaders are caught between two models, balancing current realities against future needs. They have to manage the legacy business to maintain profits, while at the same time building a new business model and positioning it as the organization’s roadmap to the future. For many in healthcare, it will be unlike any business challenge they have previously faced, and it will require a different set of insights, tools, and techniques. As many companies are already discovering, strategies that succeeded in smaller initiatives are not up to the job here.

But though healthcare’s challenges are new, they are not unprecedented: Multiple industries have undergone similar levels of transformation in recent years, and their experience points the way toward techniques that can help healthcare bridge the gap from yesterday to tomorrow with a minimum of pain and maximum results. In this article, we’ll introduce four of the most important lessons we’ve learned in our work with companies in transformation.

FOUR CORE LESSONS OLIVER WYMAN’S LEADERSHIp AND ORGANIZATIONAL EFFECTIVENESS EXpERTS HAVE IDENTIFIED:

Today’s healthcare leaders are caught between two models, balancing current realities against future needs.

THE kEY TO SUCCESS IS SEpARATION2

REASSESS YOUR LEADERSHIp TEAM3

DEFINE AND LEAD EARLY CULTURE TRANSFORMATION4

SUCCESSFUL TRANSFORMATIONS ARE CEO-LED1

Copyright © 2012 Oliver Wyman 2

Many will say, “That’s obvious,” but in practice we have found that this is not the case. CEOs see their role as delegating and directing, but the kind of change required today in healthcare can’t be delegated. It has to be led by the CEO. By definition, transformation affects every aspect of the organization: strategy, structure, processes, culture, talent. And so, throughout the transformation, CEOs must remain intimately involved with critical activities and initiatives – whether that means reinventing product development and customer service to win in a more retail-oriented marketplace, implementing a value-based healthcare strategy, or developing a more customer-centric culture.

The CEO is the face of change both internally and externally. One newly appointed healthcare CEO we worked with had exactly the right idea: When he took the reins of the company, he spent 70 of his first 90 days on the road meeting with delivery systems and his largest customers, communicating his vision of how things would be different. And the effort paid off. This particular company had spent the previous 18 months discussing an innovative, collaborative deal with a major health system, a deal that went nowhere. After the new CEO’s arrival – and his aggressive steps to change the nature of the dialogue – the deal was signed within a few months.

That is not to say that the CEO is the only owner; many initiatives and work streams will be spearheaded by others. But in our experience, the healthcare organizations that are gaining demonstrable traction in transforming their businesses are the ones where the CEO invests substantial time and energy to deliver sustained, visible leadership and communication internally and in the marketplace.

LESSON ONE

1 SUCCESSFUL TRANSFORMATIONS ARE CEO-LED


It is natural to feel that you are already doing all of this – communicating strategy, dedicating key executives to important work streams, getting frequent readouts on progress. But for change of this consequence, your own subjective assessment is simply not enough. You also need unfiltered pulse-checks of whether the message, strategy, and new way of operating are taking hold, and you need to look at how much of your time is truly allocated to the job of leading change internally and externally.

kEY qUESTIONS TO CONSIDER

• How much of your time is dedicated to the transformation? Is it enough?

• How often are you in front of your biggest clients and your most important providers, sharing the vision of the future and positioning your company as an innovator and leader?

• How often are you in front of your employees, communicating that same change agenda?

• Have you done a personal assessment of the leadership requirements as well as shifts you may have to make to amplify and sustain your impact?

• Do you have a robust “change architecture,” with clearly defined work streams, governance, roles, and opportunities for adjustment?

• Have you fully “commandeered” the high-value organization platforms (e.g. leadership development programs, performance management processes, etc.) to drive your agenda?

Organizations transforming their businesses are the ones where the CEO invests substantially in sustained, visible leadership and communication in the organization and the marketplace.

How are HealtHcare ceos preparing for fee-for-value?

Many healthcare systems are taking substantial steps toward a new model, but even the boldest have real doubts about what that model will look like and how quickly they must move. These issues and more are explored in Oliver Wyman’s report, “The View from Healthcare’s Front Lines” (click on link or icon at left), based on 40 in-depth healthcare CEO interviews.

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http://www.oliverwyman.com/3659.htm


As the regulatory and competitive landscapes unfold, payers and providers alike are finding they must develop and run new businesses and operating models alongside their legacy “core” operations. Many top organizations adopt a practice of “separate to succeed.”

To show what we mean, let’s look at a well-known example from outside of healthcare: Nespresso, Nestlé’s espresso brewing system. Though today Nespresso is a $3 billion global success, in its early days it was at serious risk of failure. Ultimately, Nestlé’s leaders concluded that Nespresso’s business model – which built brand around a machine rather than around packaged food – was so far from Nestlé’s norm that the business needed to be independent to succeed. Nespresso was put into a separate, wholly owned affiliate and moved into a separate building where it could experiment, fail quickly, and try again, free from the constraints of Nestlé’s more established businesses. Moreover, although the organization prefers to promote from within, an outsider was hired to lead the effort. Nestlé’s CEO actively supported the business, despite what some viewed as outsize risks. It took several years, but today Nespresso is Nestlé’s fastest-growing brand, with annual growth rates over 30 percent, selling a “high design” appliance plus consumables through a range of retail channels in high-fashion cities such as London, paris, and Miami.

Separation is the tool of choice not just for new business units but for many business initiatives that require a different mindset, different values and ideas, and a different pace of decision making and problem solving. In a very real sense, initiatives like these

LESSON TWO

2 THE kEY TO SUCCESS IS SEpARATION


are startups, and their goal is to be the nucleus of a future company. When speed is essential – as it is today – these initiatives need to be fully immersed in the culture and values of the future from the very start.

They are not served well by normal budgeting processes, business reviews, or even executive oversight, because by their very nature, as startups, they have more inherent variability and require more course corrections as they develop. They need separate resources (not off-the-side-of-the-desk assignments), dedicated funding separate from the core operating budget, separate operating governance, and CEO support. This is not to say that a single model will suit all organizations. Successful internal startups all have their own flavor, dictated by the specific needs of the old and new business alike.

We’ve seen any number of variations: Teams led by an outside hire, by a rising internal star. Teams physically removed from the rest of the company, matrixed teams working across business units. Budgets ring-fenced at the C-suite level, accelerated off-budget approval cycles. The trick is to come up with the structure that matches your specific situation and builds from your current strengths toward your future needs.


• Have you created significant separation of the new initiative or business from the core?

• Is it organized separately, with dedicated talent, finances, operating governance, and executive oversight?

• Is it being managed as a separate enterprise with its own financial and performance metrics?

• Have you staked out your role and posture in supporting the venture’s success?

Nestlé’s leaders concluded that Nespresso needed to be separate, where it could experiment, fail quickly, and try again freely.

want an update on nespresso?

Check out a recent Harvard Business Review blog post, “Innovation’s Hidden Enemies” (click on link or icon at left), which explores how Nestlé overcame innovation barriers concealed in seemingly solid management practices and, in doing so, created Europe’s top coffee brand.

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http://blogs.hbr.org/cs/2011/04/innovations_hidden_enemies.html

http://blogs.hbr.org/cs/2011/04/innovations_hidden_enemies.html

1The future of healthcare lies in part with new kinds of healthcare businesses – accountable care organizations (ACOs), value-based clinical companies, and exchange-based institutions. These businesses require leaders who are comfortable with ambiguity, adept at establishing new rules when the old ones don’t work, skillful at working outside normal channels, and able to recognize danger signals and respond to them quickly. It is possible that some on your current team have those qualities, and we have seen some real success stories of inside executives demonstrating just the sort of entrepreneurial and organizational dexterity a new venture requires. But, frankly, stories like that are rare, and you will probably have to reach outside.

part of your goal is to bring in expertise that is new to your organization. A managed care organization preparing to compete in new state exchanges, for example, might have to import executives experienced in consumer marketing, customer relationship management, and customer experience. A hospital system setting up value-based delivery might need leaders skilled in designing lean service delivery systems – or prepared to overturn long-established practices.

Sometimes a position in the senior leadership team will change so much that it’s not enough to bring in new expertise, and you will have to let someone go. In one health plan, after defining a strategic direction and transformation process, the CEO assessed the corresponding fit of his top team’s aptitude and attitude. He determined that the current CFO was not equipped to successfully enable new delivery and reimbursement models, so he took the tough step of appointing a new CFO and

Future healthcare leaders must be comfortable with ambiguity, adept at establishing new rules, skillful at working outside normal channels, and able to recognize and quickly respond to danger signals.

LESSON THREE

3 REASSESS YOUR LEADERSHIp TEAM


creating new, strategy-linked development plans for others on the top team. Then he went to the health plan’s hospital partner to share the news and suggest that the hospital make its own staff changes, eliminating a significant obstacle in the transition to value-based care.

Another major managed care organization recruited a consumer marketing executive from a top global consumer products firm. The company recognized that the hire presented greater-than-usual risks and that it was essential to effectively integrate the new executive’s skills and perspectives. To improve their odds of success, they had this individual initially report directly to the CEO.

In sharp contrast, we know of numerous health plans that attempted to quickly bring retail expertise down to the operational level by hiring a variety of mid-level executives from consumer products organizations and sprinkling them throughout the business in consumer research, customer relations, and so forth. In practice, these individuals were too low on the organizational chart. Their colleagues, mired in the legacy mindset, mostly ignored them. So the new hires grew frustrated, and many have already left these companies.

The absence of very senior executives representing and advocating for new retail/consumer tactics, and the lack of top-level support, undermined the effectiveness of these new recruits and the capabilities they brought.

It isn’t comfortable for your direct reports to know that you are assessing them and deciding whether they have what it takes to succeed under a new model. However, for the success of the organization, this is necessary, and it is also necessary for them to understand what is needed in the future so they can take a critical look at their staff and make the right changes and additions.


• For new businesses, have you staffed the new unit with people – including a leader – who have what it takes to excel in a startup while still operating within a broader organization?

• Have you made sure that senior leaders not working directly in the new unit are aligned with its goals and have good reasons to support its success?

• Are you taking full advantage of this opportunity to inject new talent and capabilities into your organization?

• For your broader transformation, have you carefully assessed your top team’s potential to lead a major change? Have you adjusted your broader leadership ranks, and leadership development efforts, to the new healthcare market realities?

are excHanges a fad?

No, Oliver Wyman research shows private exchanges are a very real consideration for employers, with at least 50 percent willing to leverage them for a 10 percent cost savings. (Click on link or icon at left for more findings.) Given exchanges are here to stay, healthcare organizations will need senior leaders capable of bringing retail strategies to life.

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Culture consists of values, beliefs, assumptions, rituals, and exhibited behavior patterns that together constitute the unwritten rules on “how we do things around here.” All healthcare organizations need to ask whether the culture that has served them well in the past will be an enabler in the future – or a stumbling block. Most will need to change. Culture is unique to a given organization, and one size does not fit all. But most healthcare companies will need to move toward a culture that:

• Distributes leadership more broadly, to improve responsiveness in a faster-moving retail and patient-centric healthcare world

• Supports agility and continuous change, because there will be no “steady state” for the foreseeable future

• Focuses not on processing transactions but on providing care

• Gives priority to teams operating in an interdependent and horizontal fashion, with changing processes and behaviors

This level of cultural change takes time, persistence, courage – and relentless focus on the building-block issues: structure and governance, policies and processes, training and development. Communication is important, but it is never enough.

A noted example from outside the healthcare industry: When Sam palmisano assumed the reins of IBM from Lou Gerstner, he led a three-day global “values jam,” inviting all 300,000 employees to determine what kind of values and culture IBM needed to be a truly great company. The employees were “brutally honest,” palmisano recalled later.

LESSON FOUR

4 DEFINE AND LEAD EARLY CULTURE TRANSFORMATION


“Some of what they wrote was painful to read, because they pointed out all the bureaucratic and dysfunctional things that get in the way of serving clients, working as a team, or implementing new ideas.” In the end, the CEO-led process articulated the values and culture that would define IBM and created a blueprint for making them a reality. As palmisano explained, “I feel that I’ve been handed something every CEO craves – a mandate for exactly the right kinds of transformation from an entire workforce.”

There are many stories of successful cultural change in the healthcare arena. CareMore, an integrated healthcare delivery organization primarily serving Medicare Advantage members, is an excellent example – one that may achieve wider currency now that the company has been acquired by Wellpoint. CareMore was founded 20 years ago by physicians looking for a better way to deliver healthcare. Dr. Sheldon Zinberg, who led the creation of CareMore’s fully patient-centric model, established three bedrock principles:

• Manage care and you will transformationally manage costs

• put people before profit and you shall profit

• Everyone in the organization directs their efforts every day towards providing better patient outcomes

These principles have led the organization time and time again to challenge convention and create greater value, better patient outcomes, and superior operating performance. CareMore goes to striking lengths to proactively manage the health of the sickest and most costly 20 percent of its members and prevent unnecessary hospitalizations. This unique approach routinely achieves impressive patient results: a hospitalization rate 24 percent below average, hospital stays 38 percent shorter, and an amputation rate among diabetics 60 percent lower than average. Most remarkable of all, these improved results are not accompanied by increased total cost; overall member costs are actually 18 percent below the industry average.


• Have you assessed the fit between your organization’s existing culture and the organizational performance requirements of your strategy?

• Do you know what cultural traits are necessary for future success and what will generate the outcomes you seek? Have you developed a plan to make changes that will help create the culture you need to succeed?

• Do you have a clear view of how aspects of leadership will have to change in order for the culture to change?

All healthcare organizations need to ask whether the culture that has served them well in the past will be an enabler in the future – or a stumbling block. Most will need to change.

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want to learn more about caremore’s approacH?

Turn to The Atlantic’s “The quiet Healthcare Revolution” (click on link or icon at left), written by Oliver Wyman’s Tom Main and Adrian Slywotzky. The article shares the story of CareMore, which is compelling in its own right but also provides the industry with an irrefutable example of how high quality and low cost can coexist.


http://www.oliverwyman.com/caremore_healthcare_revolution.htm

http://www.oliverwyman.com/caremore_healthcare_revolution.htm

CONCLUSION

CHALLENGE AND CHANGE YOURSELF

The next few years will likely offer the greatest challenge of your career – and the greatest opportunity. You may find yourself questioning your most basic assumptions about leadership. How do you lead when the experiences and capabilities that made you successful in the past will not necessarily sustain you in a very different future?

As you guide your organization through this period, carefully examine whether certain critical business-as-usual processes and structures are up to the task. Our experience in the healthcare industry and elsewhere has shown that CEOs and senior leaders will have to adopt new approaches to everything from charting new ventures, to defining operating governance and resource allocation, to developing and acquiring new talent capabilities. The questions we pose in this paper provide you with a start.

Driving success through the transformation will likely require a higher level of visible leadership and bolder moves. The good news is that you’re not the first to travel this path. In recent years, CEOs in a variety of industries have developed ways to cope with uncertainty and manage extreme paradoxes – running legacy and new organizations side by side, operating in mature and high-growth economies, making short- and long-term investments. They’ve learned to manage a diverse portfolio of strategic bets. In many cases their businesses have become stronger than ever, along with the leadership teams that made it happen.

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www.oliverwyman.com

ABOUT OLIVER WYMANOliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm’s 3,000 professionals help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC], a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 53,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in risk and reinsurance intermediary services; and Mercer, a global leader in human resource consulting and related services.

Oliver Wyman’s Health & Life Sciences practice serves clients in the pharmaceutical, biotechnology, medical devices, provider, and payer sectors with strategic, operational, and organizational advice. Deep healthcare knowledge and capabilities allow the practice to deliver fact-based solutions.

For more information, visit www.oliverwyman.com.

Follow Oliver Wyman on Twitter @OliverWyman.

For more information, please contact patrick Clinton at [email protected]

Copyright © 2012 Oliver Wyman

healthcare leadership checkup: are you … · for all the talk one hears about business...

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