A New Framework For Innovation In Regulated Industries: Organize On Outcomes

In healthcare, for example, the next wave of innovation will focus on improving quality of life


The strategic context for business has changed radically, with old patterns of power fracturing along new lines. Culture itself is heading into a new phase, and the journey promises to be more transformative than the 20th century's industrial revolution.

We face multiple shifting paradigms, and it’s easy to blame technology. Disruption has always been a force in the business world, however, as waves of innovators have built upon one another's advances, overturning industries through tsunamis of change. Everyone is facing the challenge of adapting to a new reality, and everyone is calling for some form of “innovative” thinking — a new kind of strategy and action — to respond.

Innovation is never easy. Look at healthcare, where technology (along with its associated security concerns and regulations) is typically the focus of the conversation. But there’s a bigger picture to focus on — an entirely new orbit for innovation and design thinking at a system level. Jenny Comiskey, former director of both IDEO and McKinsey & Co., put it best: “The next frontier for health innovation will be focusing on the broader system, bringing disciplines together around the human side of health, and reconnecting with its bigger purpose — creating quality of life.”

The Inherent Risks of Innovation

The reason I focus on healthcare as an example rather than, say, finance or energy, is that the industry is historically conservative for a range of reasons. The industry faces challenges not only regarding data security, but also regarding doctors' personal and professional risks, health risks to patients, and liability risks that are all very real. But innovate we must.

To that end, the U.S. Food and Drug Administration itself is innovating by creating policies that provide more guidance on stipulations for creating medical apps and for third-party certifications, tearing down red tape that could prevent developers from creating tools useful for patients and providers.

And “smart dust” is all around us. Everything, from batteries to Bluetooth to sensors, is used to gather actionable and quantifiable data that can help prevent, treat, and diagnose chronic conditions outside traditional healthcare. But if your doctor used your activity tracker’s data to diagnose you, do you realize how many companies in diverse sectors would risk jail or lawsuits?

Regulations pose barriers to innovation — but they don't preclude it. Google’s autonomous cars drive us to our Airbnbs, where we use Teladoc to video conference with our doctors in order to stay healthy. Amazon will soon use drones to deliver our drugs. And even in the operating room, surgeons use drones like those already performing 2,000 surgeries a year at New York University's Langone Medical Center.

If these companies can innovate in such a tightly regulated industry, there's no reason other firms can't create change. Here are four innovation strategies to get started:

1. Create an innovation framework. Rules-based innovation creates a space for disruption within a more controlled environment. For instance, healthcare company Novartis partnered with heart-failure medication Entresto to create a framework for value-based pricing — i.e., patients on the drug would preset a threshold for heart failure-related hospital visits, and if their visits exceeded that threshold, they'd receive Entresto at a lower price.

Value-based pricing is a relatively new step for this industry, but creating a benchmark guideline like Novartis and Entresto did allows this innovation to be successful without running wild.

2. Enable revenue through innovation. Cost is always a major hurdle to innovation, and an American Hospital Association/AVIA survey of 317 CEOs and innovation leaders found this true in healthcare as well. However, the innovation leaders across the board score 25% higher than their non-innovative counterparts at risk management.

The trick to overcoming this obstacle is to apply growth to outcomes. When the technology is a tool used to accomplish a strategy, you’re doing it right. If your strategy is to simply acquire the tools, you’ll constantly lag behind competitors using those tools (and probably selling their lower-end models to you).

3. Know your role. There are, of course, limits to innovation. Regardless of how you feel about how the government regulates you, for example, you won’t get away with disrupting the industry by violating the rules. Executives who win in any business are those with solid stories and all systems focused on that goal.

4. Execute and quantify. Research shows how much you spend on innovation isn’t as important as where you spend it. Partner with employees to instill a culture of innovation from the top down — don’t keep it isolated to your R&D department. When business and technology work together, your entire organization will build a buzz of innovation around it. There’s no shortage of technologies to invest in, regardless of the industry. The Internet of Things has seemingly endless layers of profitability, and those organizations that execute and quantify ideas will be successful.

As both enterprises and consumers become more connected, it’s easy to focus on the technology: There’s so much of it evolving so fast and coming from so many directions. But never forget that people are at the heart of it. And providing value to people is worth all the risk in the world.

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