The shift from volume- to value-based payment may constrain revenue, forcing organizations to consider dramatic changes to care delivery. Doing this may require increasing their capacity for innovation relative to incremental improvement. Innovation and improvement are sometimes used interchangeably, but the distinction between them matters.
Quality improvement methods are usually applied to refine existing care delivery processes. The way forward is relatively clear, and the returns are predictable and quick. Innovation, however, involves creating new products, services, or processes. The way forward is filled with uncertainty. Will the new approach work? When will it show results? Given the choice, most organizations are more comfortable with the predictability of quality improvement, labeling it innovation in some cases, but shunning the risk-taking that characterizes true innovation work.
But incremental improvement in the absence of some degree of innovation is likely to produce limited gains. In the management literature, the ability to deliver on current capabilities and explore new ways of working has been termed organizational ambidexterity. Most health care organizations have acquired at least some skill in quality improvement over the past 2 decades. This commentary addresses the question: What are the best ways to introduce innovation capacity into your organization? Should it be an independent unit? To whom should it report?
There are more than 60 innovation centers based in U.S. delivery systems with a focus on service redesign, digital health applications, or new models of care. Despite these early steps, the best way to embed innovation within organizations remains uncertain. To address this question, we conducted surveys and site visits of large health systems with innovation centers, and some smaller, highly innovative health care organizations that lacked a dedicated center.
We found four organizational designs, skunkworks, ambidextrous, cross-functional, and functional, which map onto categories from the management literature on innovation (as shown in table). The key parameters are how closely the innovation unit works with senior leaders (e.g., limited oversight vs. meets regularly with CEO) and how distinct it is from routine service providers and improvement (e.g., innovation conducted by a specialized team vs. a responsibility of all staff). In each example, the organizational design was informed by a different vision of how innovation works, often inspired by a particular industry. These are presented in order from more separated from routine management and delivery to more distributed.
- Skunkworks — The key feature is a dedicated team working independently from executive management and existing organizational processes, like Lockheed Martin’s secret project that produced the first true operational U.S. jet fighter in an offsite circus tent in 143 days during World War II. In 2003, Mayo Clinic’s department of medicine discreetly set up a center focused on health services design using its own resources (even though it wasn’t an organizational priority). They reached out to the CEO of design firm IDEO, which had consulted on many novel products, such as the Palm Pilot and the computer mouse. They were advised to develop a specialized team with user experience designers that was separate from quality improvement, but work with frontline providers when targeting specific services.
- Ambidextrous — This model involves a dedicated team for innovation that reports directly to senior leaders, with Penn Medicine as a prime In 2012, senior leaders brought in Roy Rosin as their Chief Innovation Officer; he has served as Vice President of Innovation at the Silicon Valley software company Intuit. Penn Medicine established an innovation center with a dedicated team of designers, project managers, and software developers that was co-led by the Executive Vice President of the health system.
- Cross-functional — In this model, innovation and improvement are on a continuum and these functions are fully integrated, with support from a dedicated innovation Virginia Mason Medical Center was the only example we found. Paul Plsek, an engineer from Bell Labs, who was advising their innovation strategy, recommended this approach based on the Toyota Production System. In this model, frontline staff and mid-level leaders are responsible for innovation and improvement, but receive training from an innovation center with a dedicated manager, so that they can run projects themselves.
- Functional — This model has no dedicated staff or managers responsible for innovation; it is everyone’s responsibility, with oversight from senior Google is the classic example, allowing 20% of all staff time to be spent on novel projects unrelated to their regular work. No major health system operates like this, but Iora Health, a primary care start-up founded in 2011, uses this model. They are paid by capitation related to total cost of care for insurers, a “pure value” model that shifts their focus from refining current processes to finding new ways of achieving better outcomes. Their leader, Rushika Fernandopulle, MD, MPP, says that culture is more important than process, and no dedicated team should own innovation. He hires people who are open minded and willing to experiment, and gives them space to do that, occasionally intervening to scale up successes or curb certain initiatives. As a leader, his motto is, “when in doubt, choose the most radical option.”
Choosing the Organizational Design That Fits
These models have all worked in different contexts, so the first issue is to determine the relative value of innovation and improvement to the health of the organization. If the market is fairly stable, doing the same thing better may be sufficient; if it is rapidly changing, doing different things may be necessary to thrive.
In the examples above, the impetus for innovation varied: Some organizations faced intense competition and needed to differentiate themselves, and others dominated their local market and had sufficient resources to build a national or international presence. For those who want to build capacity for innovation, the choice of organizational structure depends primarily on leadership commitment and organizational culture.
How strong is leadership commitment to innovation? If there is a high degree of commitment, leaders could spend political capital, time, and financial resources to advance this agenda. They may suggest problems to address, inquire about future strategy, and facilitate breaking down institutional barriers to development or scale-up of new solutions. The ambidextrous and functional models are the most hands on for senior leaders, because they are either supporting a dedicated team or monitoring the distributed activities of their staff. If leaders are unsure of the importance of innovation, mid-level staff could be assigned to build a skunkworks, or they could discreetly create one on their own.
How much risk is the organization willing to tolerate and how much change can it absorb? To understand whether the organization has a culture that supports innovation, elements to consider include: risk-taking, tools to generate new ideas, resources to try new things, and relationships with diverse team members that treat each other with respect. Virginia Mason systematically assessed these qualities across the organization using both staff surveys and nominal group processes. This can help a health system decide if a distributed model is feasible, and whether efforts to shift the culture are having any impact. The cross-functional and functional models require a high degree of interest in innovation from frontline staff. If staff are interested but lack capacity, then leaders can invest in managers to provide training and coach them on the methods.
Some of the most innovative health care organizations have no structure for innovation or specialized training; instead, they focus on building an environment in which people can try different things and be supported by senior leaders. This could be done by building a new organization from scratch, like a start-up, or spinning one off from a health system, with targeted recruiting to create a team that can drive innovation. If staff are not very open to innovation, then one can hire a specialized team with a distinct space, and use them to demonstrate the value and promote innovation more broadly. This is the case in most health systems, and likely the reason why ambidextrous or skunkworks models are the most common ones we found.
Does the organization have to commit to a single design? The structures may shift over time as the priority or the culture shifts. Mayo’s CFI started as a skunkworks within a department, with no formal relationship to senior management, but seeing its early successes, the CEO invited them to create a center for all of Mayo Clinic that reports to senior management, switching to an ambidextrous structure. CareMore Health started as a small organization with a culture that encouraged experimentation, fitting the functional design, but as it grew, it hired a Chief Clinical Innovation Officer to oversee innovation efforts that remain distributed throughout the organization, switching to a more cross-functional structure.
To thrive in a value-based care environment, organizations will have to be able to do the same things more efficiently and take advantage of the opportunities of digital health, patient empowerment, and integration across sectors to redesign much higher-value care. Organizations will need to decide how much money, time, or political capital they should expend to build structures and cultures that support both the goals of improvement and of innovation.