How health systems can act to leverage incumbent advantage to compete with new market entrants.
Imagine this scenario: The patients that once came (almost by default) now have options that allow them to receive many, similar services over their mobile devices. Your margins continue to shrink, yet there’s more external pressure than ever for you to make your services more affordable. And some of the largest, most deeply entrenched consumer companies in the world have announced intentions to enter your space.
This is the reality faced by every health system in America. But rather than approach this scenario with dread, or worse, ignoring it altogether, dozens of health systems have used the disruptive market as a catalyst for their own reinvention.
Here are two crucial ideas these health systems have embraced:
First, these health systems believe that they have an incumbent advantage on care delivery in their communities — and they’re actively working to tap into that advantage in more effective ways.
I’m not saying that these health systems have well-fortified, ever-secure positions in each of their markets. I am saying that health systems have tools at their disposal that can produce outsized results; most notably capital, infrastructure, client trust and data.
We see how this incumbent advantage has been effectively deployed in other industries, even commoditized industries. Home Depot doubled its short-term capital expense to continue its efforts to expand and improve its nationwide network of big box stores (its incumbent advantage) while also creating a fully integrated digital platform that extends the reach, access and value of its services.
Today, you can buy online and pick up your items in-store; buy online and return your items in-store; buy online and have it delivered from the store. In fact, 45% of Home Depot’s online orders are picked up in-store. Talk about symbiosis in your digital and fixed assets!
One other big a-ha moment for Home Depot was in its discovery that 3% of its total customers were industry professionals who accounted for 40%+ of the company’s business but the other 97% of customers represented Home Depot’s largest opportunity for growth. So the company learned about these amateur, project-based customers. They knew they couldn’t outcompete Amazon just by selling tools cheaper. Instead, they started to sell projects and use digital as a primary vehicle for engagement.
If you go online today and search for something like “how to remove carpet from stairs,” chances are you’re going to find a Home Depot video among the first results because the company has created a library of 700+ home improvement project videos, all of which include a list of items that Home Depot can supply for the project. Again — relevant, convenient integration of fixed and digital assets.
Now, healthcare is dramatically different from consumer goods and DIY home improvement. Healthcare is vastly more complex, more regulated and part of a bigger ecosystem with many critical players. All that means is that we have to be better, be more planful and be more committed to getting it right for the good of patient lives.
The second crucial idea embraced by these health systems is related to the first. If health systems leverage their incumbent advantage, if they act in ways that are bold, smart and decisive, then digital disruption doesn’t just turn into turbulence. Instead, digital disruption becomes digital opportunity. Health systems become the owners of change and improvement, rather than the receivers of change.
It starts with setting the right mindset and framework for digital in your organizations. Digital isn’t your electronic health record roadmap. It also can’t just be a set of interesting — but disjointed — technological capabilities. Health systems that successfully leverage their incumbent advantage are the ones that conduct data-driven assessments of their digital health experiences and develop multi-year plans for how to close gaps or extend leads between them and their traditional and non-traditional competitors.
In many cases, this requires a substantive shift in how health system chief financial officers (CFOs) view their organizations’ technology budgets. CFOs must recognize the new form of risk that’s sitting on the balance sheet that many have not yet given enough attention: The risk of inaction, of not investing aggressively and intelligently in digital.
How many health systems today have a digital research and development budget? How many have a budget to deploy toward digital experimentation, learning, application and scaling?
In my experience, the answer is not many at all. Now consider how many non-traditional competitors might have R&D budget to apply toward the digital disruption of healthcare — companies like 98point6 or Amazon or CVS Health. The cost of not even trying to follow a similar playbook as these new competitors could be disastrous for traditional health systems.
The good news is that health systems have the built-in discipline and rigor to effect the degree of change they’d like to see. Health systems know how to maximize bed days, how to go into a negotiation with our commercial payers and manage that, how to address emergency department throughput. Health systems have built the habit of optimizing — they just need to redistribute some of that focus toward optimizing and innovating their digital assets.
Those are the new habits health systems need to build. That’s how incumbents can continue to thrive in the new frontier of digital health.
About the Author: Sonia Singh is vice president of Healthcare Consumerism at AVIA, the leading partner for digital health insights, strategic guidance, and consulting services.
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