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Living in an Amazon World: A 4-Step Action Plan for Healthcare Incumbents

Chief Strategy Officer, BCBS of Massachusetts
Managing Partner, Health & Life Sciences, Oliver Wyman
Key Takeaway
It’s hard to imagine outgunning Amazon, Walmart, and other mega players looking to win in healthcare. In times like these, work backwards.

Prescription medications delivered by drones within the hour? Asking Alexa how to manage your diabetes? The intersection of retail and healthcare is gaining momentum, and digital disruption is paving the way for incumbents. With talk of mega mergers such as CVS-Aetna, Walmart-Humana, and the newly formed trio of Amazon-Berkshire Hathaway-JPMorgan, combined with the recent surge of digital health innovation, it is perhaps easy to be struck by one or more of the following reactions:

A) Excitement that healthcare may finally become better, faster, cheaper, smarter and help us live more healthily, while taking waste out of the system. Acceptance regarding the greater promise of a digital, “retailized” system.

B) Cynicism of change and a belief healthcare is stubbornly asset intensive, hyper localized, convoluted, and physician-centric, with traps around reimbursement challenges, data siloes and vacuums, talent shortages and gaps, and inertia, amongst other hurdles.

C) Fear (amongst some incumbents) that the end is in sight and that survival amidst changes of apocalyptic proportions is unlikely.

D) Paralysis on how to proceed (amongst some incumbents), especially given so many unknowns and uncertainties.

E) All of the above.

Addressing the '10-5-2 Dilemma'

In light of all this dynamism in the market, where do you see yourself in ten, five, or two years? This question is the basis of what we call the “10-5-2 Dilemma” as long-term change seems large but short-term changes seem mild, making planning quite difficult.

Where do you see yourself in ten, five, or two years?

A decade out, disruption may change the foundation of competition. Our team has spent considerable time envisioning myriad scenarios for the considerable way changes may come to how care is delivered, administered, purchased, and managed.

(Click here for a detailed view of what this looks like: '11 Disruption Market Scenarios from the Outside In'.)

However, five years out, the situation may not be that different (save for in certain markets). If proposed mergers, for example, go through, it is to be expected that it will take a good two to three years to integrate, assimilate, and create meaningfully different offerings at scale. And changes will likely be most pronounced only in selected sub segments of the broader health ecosystem. So, unless your company falls into a subsector where disruptive change is imminent, the five-year view may not look drastically different from today.

When examining the two- to five-year outlook, incumbents may be tempted to believe the only required change is incremental change. Therefore, they may want to keep doing the same thing, but with a few more pilots sprinkled in here or there, with some more digital and analytics capability building, or consumer experience bells and whistles thrown in for good measure.

There is some truth to this method, as there is danger in overshooting near-term investments, focus, and capabilities if the rate and pace of change is misjudged. However, there is also danger in adapting an incremental, short-term pilot only mindset. As the basis of competition will likely shift significantly over the next five to ten years toward radically better affordability, consumer experience, and health outcomes, lack of preparation today may make it too late to catch up tomorrow.

A Practical Action Plan for Regional Healthcare Incumbents

So, what is a regional healthcare incumbent to do? It’s hard to imagine outgunning Amazon, Walmart, and other mega players as they look to win big in healthcare by deploying their traditional strong suits (and considerable capital) to attack the challenges of affordability, consumer experience, and convenience. During times like this, one needs to work backwards from what the future looks like and shrink the complexity and short-term changes required, while ensuring the end-state stays in focus.

Here’s a practical guide, drawing lessons on digital disruption from retail and financial services sectors, where regional and bricks and mortar players have still been able to create a considerable runway for themselves in selected markets.

Step 1: Set Goals and Overcome Organizational Inertia

Shake it up. One approach is to engage the executive team in war-gaming competitive scenarios – from the perspective of another healthcare system, such as a direct competitor or other ecosystem player. While it may not be wise or feasible for your organization to replicate these specific moves, it can be helpful to begin to anticipate how the basis of competition may be shifting, and how disruptors may attack from the side, or above, versus head-on.

For example, consider recent innovation and unexpected disruption in the digital arena. One prominent instance is when global ecommerce juggernaut Alibaba started Alipay back in 2009 and claimed clear leadership in payments with command of over 80 percent of the Chinese market. At the same time, gaming company Tencent created TenPay as a quick and convenient payment service for their WeChat customers. As their WeChat customers grew, it became more convenient for their gaming customers to pay for their assorted needs through TenPay. As of early 2017, TenPay’s share was up to 40 percent, and with their sideways push into the payments market, Alipay’s share fell to 54 percent. Similarly, India is facing a potential similar payments showdown and redux between Paytm (the current Indian payments leader with 300 million users and a $10 billion valuation) versus WhatsApp (the de facto messaging communications go-to platform for over 230 million loyal users in India now venturing into the payment arena, which allegedly is putting Patym on edge).

The key takeaway from these examples: it’s time to work backwards and design a vision with full input from all executive business leaders – with the end-consumer’s needs and experience as the centerpiece. From there, superimpose a timeline and disruption factors from other industries to play out what a radically different cost, consumer experience, and quality outcome could look like – and what it takes to get there. 

Discuss with your colleagues questions such as: How would a traditional payer and health system do things differently versus: a national set of payers/providers? Amazon-Berkshire Hathaway-JPMorgan? Walmart/Humana? CVS/Aetna? Uber, Google, or Tesla? What would you have to believe for any one of those players to take hold and do things radically differently? Explore the possibilities of what might happen and how prepared your organization may be when the only constant is addressing consumers’ needs for more affordable care, better quality, better health, and a better experience. This approach does not predict who the winners will necessarily be in the future, but it does provide clarity on the major arcs of change to anticipate what will change the rules of the game moving forward. Despite the uncertainty attached to specific future scenarios, grounding in the new requirements for success allows you to focus on must-dos and areas to invest in more aggressively. From there, define what is uncertain and what “beacons and lighthouses” to keep monitoring to assess whether other less clear changes or disruptions will occur.

Step 2: Paint Your Future and Identify Key Points of Focus (No More ‘One-Size-Fits-All’)

Too much uncertainty and impending change often pushes executive teams toward strategically aligned pilots and concepts. The challenge is that these efforts do not necessarily drive toward a sustainable, scalable new operating model. The key is to decide how your company, with its unique strengths and challenges, will successfully transform or reshape itself in light of others’ moves. 

To paint your future and identify key points of focus, consider three things:

  • Know your worth. Identify your hidden assets what makes your company special, relative to others. What is it you have that is value-added for customers, consumers, providers, payers, and beyond?
  • Focus and strategic control. Someone else’s margin may be your opportunity to create value. Figure out where you’re making your money today. This is not always obvious in many healthcare settings. Health systems don’t typically deploy activity based costing and are also navigating a tricky transition to outcomes based payments versus transaction based payments. Determine where you’ll make money in the future and which segments/offers play to your current and future strengths (while falling below the radar for bigger groups). 
  • Start with the end in mind. Unleash the dreamer in each of your executives as a team to define what the future business model of your company looks like. What is the market you serve? How do you create value? What gives you strategic differentiation over your customer that protects you from others? 

Here’s an exercise to help execute these three tips:

Consider what you’d want to be known for ten years from now. Design the New York Times article featuring your company as an industry leader and explaining why it has succeeded and toppled the competition. Have your team embrace the specifics of what is different and why it works (such as writing the very last chapter of a book about your company), then backtrack to today and what the subsequent “chapters” of milestones might be. 

Remain clear on how to prioritize your segments, offerings, investments, and activities throughout this exercise. Be deliberate about which segments/lines of services/offers you may need to cede because of low probability of your success and/or low value and track and monitor your investments, time management, and outcomes accordingly. 

Despite the megamerger news and disruptive possibilities, the whole world is not changing overnight. There is still plenty of room to serve specific needs and make progress. For example, despite retail’s hype, online sales account for a reported 10 percent of today’s total retail sales.

Even in places where there are clear massive, established platform plays in retail – such as Amazon – specialized plays have emerged successfully (such as Zappos for shoes and Wayfair for furniture) that solve a specific set of issues for a particular set of customers successfully, and in a way that the large monolithic platform plays cannot deliver (despite the impressive configurability and vast array of merchant partnerships).

Step 3: Test & Learn to “Shrink the Change”

Set the challenge for your team to find tangible, practical ways to start raising the bar. This step centers on changing the culture to embrace more innovation and build new muscle memory and skills, without running the risk of major management distraction. For example, set clear objectives for each of your executives to identify and implement just one initiative that will aim to improve efficiency and experience for your customers, consumers or internal staff by over 10-20 percent. Setting that goal and intention (with clear accountabilities, tracking, and associated incentives) will help rework and rewire the enterprise over time and “shrink the change” required to make it more manageable. 

This “test and learn” experimentation (that retailers are pros at) requires acknowledgement that not all innovations tried will work. In fact, many will fail, and that is okay if innovations are stopped at the right time, learnings are clear, and risks are monitored from the outset of the planning process.

Alternatively, consider giving the challenge to improve performance and drive innovation in an adjacent arena. One blinded example is of how a healthcare company was interested in new disruptive innovations, although a total business model pivot on their end was unnecessary. This company began steadily taking 1-2 percent of its profits and allocating them toward developing innovations in adjacent arenas that are not a threat to the current business, but is now leveraging key hidden assets around data and the patient experience. Accountabilities and incentives for the executive team are clear and the size of the change, investment, and focus is material, but not unmanageable.

Step 4:  Don’t Go at It Alone

There is no need to build it all yourself, as Rome wasn’t built in day and neither was healthcare. But be wary that it is often a minimum two-year process to bring partners together. The complexity of managing across multiple stakeholders (not to mention the legal challenges alone) is high. These bigger bets are higher risk and therefore pose the need for a portfolio approach that needs to be staffed accordingly. 

There is no need to build it all yourself, as Rome wasn’t built in day and neither was healthcare. 

Too often in healthcare, these partnership opportunities are viewed as “off the side of the desk” responsibilities for executives, and ultimately the diffused focus gets in the way of faster progress and impact. Bigger bets also present opportunity to get creative on how to build an operating model leveraging best of breed innovators without the encumbrance of deploying the core chassis and operating model of today. (For example, digital health reached a record breaking $5.8 billion in funding last year.)

For really big bets, determine whether starting a new company unencumbered by the constraints of the core business, and yet still strategically linked to the mothership, but with a different leadership team, incentive structure, and economic return requirements, is merited. Examples of success here include Goldman Sachs with their incubation and launch of Marcus for Goldman Sachs, its new low cost, online consumer digital loan platform that brought innovations from Fintech to its traditional business.

By keeping the end-state as your focal point and working in a practical and pragmatic fashion, you will build wins and trust along the way. This momentum then gives you the runway to not just avoid being disrupted but be the change needed to transform the health market.

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