Co-creating strategy

By Tracy Duberman, John Larrere

Let’s face it, designing a strategy is challenging in the best of times. Add to this the uncertainty of the health reform landscape, and strategy design seems almost impossible. The complexity of working with unknowns, coupled with a strong need to create value, requires that hospitals and boards understand emerging issues and alternatives. It also presents an opportunity to engage in a systematic and collaborative process to evaluate data and design strategies.

To create innovative solutions, some best-in-class boards are working with management to co-create strategy. The premise of co-creation is that by sharing experiences, all the parties involved will acquire a deeper understanding of what is happening, enabling them to devise a new, better strategy through a collective design process.

“Co-creation forces one to slow down to speed up,” says John Starcher Jr., president and CEO of Mercy Health System, based in Cincinnati. “You are careful to test assumptions on which to base the strategy; this makes swift implementation more likely.”

Starcher and Mercy Health’s board chair, Katherine Vestal, have successfully led their board to co-create strategy. Both were new to their respective positions when they chose to implement collective design. Starcher had returned to Mercy after stints as a CEO for a for-profit health system and a venture capital company. Vestal led the health care practice of Hay Group, an international management consultancy, and had gained years of experience as a health care executive. They believed they could share their “outside-in” perspectives and utilize the strengths of their board in new ways.

Four-step process

With a good working relationship between chair and CEO, Vestal and Starcher engaged their board and management in creating a new strategy by co-creating it. These are the practices they followed:

Step 1: Generate all pertinent data. Both Starcher and Vestal, who understood the importance of working with comprehensive data, tasked their research group to collect insights from scientific, economic, psychosocial, marketing, investment banking and finance sources that formed the context for doing strategy. They augmented these efforts with experts from multiple disciplines who provided an outside perspective on the raw data. Their experts described the environment without trying to sell a solution.

Step 2: Interact with the raw data. Mercy board members grappled with the confusion seemingly created by the plethora of data, discovering hidden patterns and relationships, partly thanks to their own diverse backgrounds. They elected to employ a “data room” as a catalyst to data integration. The data room displayed key facts and trends on flip chart–size posters around the board room showing the complexity of the environment and inviting the board and management to discover the most salient data points and key patterns. Participants strolled through the data room, writing notes on the posters and commenting to one another on what they had discovered.

Step 3: Employ validity thinking. Vestal and Starcher wanted to take advantage of the heterogeneity of their board members and executives. They created diverse groups composed of board and management with different areas of experience and expertise. Each group was charged with creating four to five hypotheses that would serve as the foundation for a strategy that addressed what their system's environment offered.

These hypotheses were tested using validity thinking: asking "Can this work?" before asking "Will this work?" For example, participants might ask, If we partner with X,Y and Z, can this work? Or they might ask, If we consolidate rather than disperse expertise, can this work?

As the logic was tested, the composition of the “must-win battles” emerged as part of the foundation for their strategy. The teams examined the must-win battles and chose the top options. They defined what could work.

Step 4: Employ reliability thinking. Now was the time to ask, “Will it work?” As a must-win battle was agreed to, a subgroup was tasked to create the approach (or “algorithm”) that could make the strategy successful and repeatable. The question was: If we are going to consolidate or disperse expertise, what approach makes the initiative successful and repeatable throughout the system — and/or as more opportunities arise to apply this strategy? The subgroup's algorithms detailed resources, action plans and timetables that moved the discernment from validity to reliability. They now had a vetted strategy built around what they had to get right, given emerging circumstances.

Lessons learned

The board at Mercy Health gained some important insights for successful strategy co-creation around governance in general, shifting the mindset and picking board members appropriately.

Collective accountability meant that both the board and management were jointly accountable for choosing the strategy and agreeing on the must-win battles to attain it. Management had primary accountability to take the agreed strategy and devise annual plans that drove success in the must-win battles. On the other hand, the board had primary accountability to approve the metrics and performance-based rewards. Together, they moved forward — with management “doing” and the board “overseeing.”

A desire to produce a better strategy drove Mercy to implement the co-creation process. Turning away from the usual and customary approach, where management proposes and the board approves strategy, takes courage and a mindset shift, the board has learned. Mercy found that the ability of the board to understand and deliberate is raised by doing strategy together. “Management and the board found the effort both humbling and exhilarating,” Vestal says.

Co-creation requires a different set of leadership competencies, including the ability to work with ambiguity and uncertainty. Like most new behaviors, they improve the more they are repeated. In this process, Mercy learned that board members will likely use both analytical and conceptual thinking. Thus, selecting board members who can create as well as analyze hypotheses is essential.

Clearly there are implications for the assessment and selection of board members and for succession planning. “Tapping diverse perspectives produces more innovative strategies,” says Starcher. “For example, one of our board members is an executive from a drone manufacturing and logistics company. She has a very different take on patient accessibility and the art of the possible than someone steeped within the health care industry, which enables us to devise innovative strategies.” When planning board succession, diverse expertise becomes an important marker, as does cognitive flexibility — the ability to be ambidextrous when it comes to conceptual and analytical thinking.

New roles

Vestal’s advice to board chairs who wish to implement strategy co-creation is “to understand what ‘co’ means."

"It does not overstep management in data collection,” she says. “It includes agreeing on the scope and sources of data and, more importantly, a process whereby the board participates in crunching the raw data rather than merely listening to inputs. The strategic product needs to have the fingerprints of both management and the board.” As such, the process requires courage, stamina and self-control from each constituency.

The payoff of board involvement in strategy co-creation includes greater board engagement, productivity, creativity and attunement with the “true” state of the organization. When boards co-create strategy with management, they more effectively perform their traditional oversight duties and increase their ability to make major contributions to the direction of the hospital and health system enterprise.

John B. Larrere, A.B, M.M., M.Div., MBA (larrereconsulting@gmail.com), is senior adviser, and Tracy L. Duberman, Ph.D., M.P.H, FACHE (tduberman@tldgroupinc.com), is president and CEO of The Leadership Development Group in New York.

Co-creation: How to achieve success

A number of principles and practices help boards and management co-create a strategy:

Start where you are.
Secure an experienced moderator tough enough to challenge weak processes.
Build a cooperative relationship between the chair and CEO before beginning.
Maximize academic, business, cognitive and social diversity on the board.
Have a plan for the meeting but be ready to diverge as needed.
Stretch members with a plethora of data. Array the data so members can discover connections together.
Agree on assumptions before making conclusions. Create your shared assumptions by “reading the handwriting on the wall” that emerges from the data.
Forge consensus at several stages: hypothesis, hypothesis testing, defining “must-win battles,” creating algorithms for repeatability and agreeing on the metrics of success.

— John Larrere and Tracy Duberman

Reaping co-creation's rewards

When strategy is co-created by hospital trustees and management, the benefits are wide-ranging:

It produces a win-win scenario in which management can engage and learn from boards and vice versa.
It creates a collective accountability for determining and meeting the system’s strategic objectives.
It provides a deeper commitment to and understanding of the health system’s goals for both parties.
It creates an environment where the board can support, coach and help the management team execute strategy.
It allows the management team to increase the competence of the board as a continuing education process.
It produces a superior strategy per se.

— John B. Larrere and Tracy L. Duberman