by Matty Francis, Director, Healthbox
One of the most critical pieces of advice Healthbox offers to healthcare leaders seeking to drive organizational transformation is to fall in love with the problem. In healthcare there is no shortage of problems to solve, leaving health system leadership with the challenge of identifying which problems to solve first. Ideally, with sufficient time we’d be able to solve everything, however health systems face numerous constraints: limited staff bandwidth, particularly in the IT and Innovation departments, limited expertise, and limited budgets.
Innovation projects can range from efforts to commercialize internally developed technology to launching a corporate innovation program. These projects can offer significant benefits, from boosting key operating metrics — including patient and employee satisfaction — to offering new streams of revenue. Determining the order in which organizations will tackle problems is no simple task, but critical to any organization. Prioritizing innovation projects is even more difficult because of the uncertainty of potential project outcomes.
Traditional corporate finance best practices suggest executives first stack rank projects based on their net present value (NPV) and then fund each positive NPV project until budgetary resources have been exhausted. While these methods are clear in textbooks, they tend to give a false sense of security at best when applied to the real world. To better prioritize innovation projects and earn a better return on investment in innovation, leadership should first identify projects that align with enterprise strategy, assess what projects can be funded, and then sequence the projects based on the expected staffing needs and expected project duration.
1. Assess Strategic Alignment
The most important decision criteria for funding an innovation project is the extent to which the project aligns with enterprise strategy. Truly innovative ideas are rarely obvious and even less likely to be perfect from the get-go. To maximize the likelihood of success, project teams must have time and space to experiment and iterate. This means continuing to fund ideas, even when they’ve pivoted to an alternate approach, or when they are struggling to gain traction. Projects that align with enterprise strategy are less likely to be cut if budgets get tight, or if the odds of success aren’t immediately tangible. If a struggling project is cut early because of budgetary concerns, it is impossible to know whether the project failed because it was a poorly executed idea, or because it never had an opportunity to spend its originally agreed upon budget. Not all projects should be funded indefinitely, so it’s also helpful to lean on an unbiased party to determine whether a project still has merit and needs additional time, or needs to be wound down.
One method to help identify which projects are aligned with strategic goals is to group innovation projects based on the problems they solve, rather than on the expected outcome. For example, if a patient-facing digital tool to drive improvements in patient experience has been developed, it’s better to think of the project as a patient experience effort rather than an effort to commercialize your technology and achieve a financial return.
2. Find the Budget to Fund Projects
Once innovation projects that align with strategy are identified, decisions will be needed to determine which projects to fund. If an organization already has a dedicated budget for innovation, this process can be fairly straightforward. However, innovation budgets are often spread across a number of departments or geographies within a health system, making it difficult to determine the total available budget available to support innovation projects.
Healthcare organizations can take a variety of approaches to solving this challenge:
- The Accountant Approach simplifies budgeting by creating a dedicated cost or revenue center that maintains a separate budget for innovation initiatives in the financial planning system.
- The Appropriations Approach earmarks a specified dollar amount for innovation during the annual planning process and builds a mechanism to select projects over the course of the year for funding. The Healthbox Foundry program relies on this approach with our partners and a consistent funding cycle ensures that there are always innovation projects in your pipeline.
- The Mental Accounting Approach leans on some variable funding source to determine annual budget. The Texas Medical Center Innovation Institute leverages revenues from their downtown parking lots to help fund their corporate accelerator for digital health. Other health systems look to surpluses from their health plans or endowments as sources of funding for innovation projects.
Regardless of the approach, the key to funding projects is to ensure there is a clear process and budget allocated for team members have the ability to access these resources.
3. Sequence Projects Appropriately
With a set of projects and a source of funds identified, the final step is to sequence the order in which the projects will be addressed. In addition to understanding the expected cost of a project, it’s critical to also understand the expected project staffing needs and the expected project duration.
In the interest of tackling as many projects as possible, it is tempting to spread teams across multiple simultaneous projects, or to borrow subject matter experts from elsewhere in the health system on a part-time basis to help support projects. This approach can be successful in organizations with strong project management capabilities, but often puts timelines at substantial risk in less experienced organizations. Resources to support innovation projects are frequently scarce yet, whenever possible, project staffing should be arranged on a full-time basis. From a project sequencing perspective, this means that organizations should be comfortable pushing project start dates out further into the future to secure the key resources that will increase the likelihood of success.
It can be tempting to look down the list of projects and immediately tackle the project that has the biggest potential impact yet likely the longest duration. However, in order to build momentum for innovation, it is helpful to gain some early successes. These quick wins establish confidence in a team’s ability to successfully execute projects and may increase the likelihood of earning a larger innovation budget in subsequent financial planning cycles. While certain innovation efforts may take quarters or years to complete, it’s important to highlight the fruits of the innovation team’s labor across the enterprise.
While it’s important to “fall in love with the problem”, loving the problem is not the only requirement for success. Successful innovation programs must take a disciplined approach toward managing projects, rather than haphazardly throwing projects at the wall to see what sticks. That rigorous process begins with thoughtful project selection and prioritization. Innovation initiatives have the biggest potential for organizational impact when the appropriate first steps are taken.
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