Engaging Boards in Disruptive Innovation
A strategy simulation can be effective for assessing potential disruptors
By Jean Ahn and Mark A. Keroack
The health care marketplace is threatened with disruption by a variety of novel national competitors that are the products of mega-mergers. These include Optum-DaVita, CVS-Aetna, Walmart-Humana-Kindred and others. Boards of trustees need to understand the threats posed by these market disruptors and craft specific strategies to ensure continued fulfillment of the missions of their organizations.
As a means of engaging its board regarding the sudden profusion of disruptive competitors, Baystate Health (based in Springfield, Mass.) used a simulation-based learning exercise at its annual board retreat in May 2018. Extending scenario playing and simulation-based learning into the realm of strategy allows for robust, interactive board education. The approach takes advantage of trustee knowledge and expertise from other industries that have themselves had to deal with nontraditional disruptive competition. Engaging trustees in this manner contributes to enhancing the caliber of health system strategy and may suggest specific next steps.
Is a Strategy Simulation Right for Your Board?
✔ Board members have little knowledge of disruptive competitors in health care and would benefit from an environmental scan and robust discussion about new competitive threats.
✔ Elements of mega-merger entities are already in the market (or are anticipated to enter the market) and pose a credible threat.
✔ Senior leadership team has not already planned for or addressed the entry of mega-mergers.
✔ Organization has not yet collectively determined its risk tolerance in a disruptor-focused environment.
✔ Board composition is diverse from a competency perspective (finance, health care, strategy, business development, and so forth).
✔ Board composition includes representation from industries that have experienced disruption, and who may serve as facilitators or challengers.
✔ Board has prior experience in role playing and simulation, or has been sufficiently prepped to participate.
The learning exercise was extremely well received at the board’s annual retreat. Led by Baystate Health’s chief strategy officer, chief executive officer (CEO), and chief financial officer, the “Deal or No Deal?” strategy simulations served to heighten awareness of potential future realities. In addition, this simulation approach allowed Baystate Health to leverage the strategic perspectives and competitive instincts of its trustees who are leaders in other competitive industries (such as banking, financial services, insurance, energy, academia and materials handling).
Boards of hospitals and health systems may also benefit from Baystate Health’s approach for assessing potential disruptors. (See the checklist on page one to determine if the approach is appropriate for your organization.) “Simulation,” writes David M. Gaba of Stanford University, “is a technique — not a technology — to replace or amplify real experiences with guided experiences that evoke or replicate substantial aspects of the real world in a fully interactive manner” (Simulation in Healthcare, 2007).
Working in close collaboration with the CEO and Strategy Committee of the board of Baystate Health, the chief strategy officer developed a set of simulation exercises that successfully met the envisioned goals of environmental level-setting and strategic planning.
Following an environmental assessment earlier in the year to members of the leadership team and board, the following steps were pursued:
Step 1: Preparing background profile documents. The strategy team had earlier developed four- to six-page profiles of several disruptive mega-merger competitors over the course of three to four months. The briefs included key summary statistics of the merging entities, including foundational statements, maps, financial summaries, noteworthy programs, accomplishments and partnerships. These were supplemented with traditional SWOT (strengths, weaknesses, opportunities and threats) analyses developed by the strategy team, both for the disruptive competitors and for the health system itself. The relevant background profile documents were provided to the board as pre-retreat homework readings. Hospitals and systems may wish to adopt a similar template for profiling competitive disruptors in their own service areas.
Step 2: Preparing realistic scenario briefs. Four mega-merger competitors were selected because they already had a presence in the health system’s primary service area and therefore were more than just hypothetical potential competitors. Expanding upon the background profiles that outlined the four disruptive competitors’ existing footprint and assets in the local market, the chief strategy officer took the lead in developing scenario briefs that imagined realistic possible short-term encroachment strategies by the disruptors that attacked niche parts of the health system’s continuum of care. The resulting encroachment challenge served as the basis of the “Deal or No Deal?” simulation exercises. Participants in the simulation needed to wrestle with the following question: Does the health system attempt to partner with the disruptor (Deal) or try to compete and defend against the disruptive competitor on its own (No Deal)?
Step 3: Designating teams. The CEO and chief strategy officer selected four sets of opposing teams to address the “Deal or No Deal?” question. Each pairing included four trustees who represented the potential mega-merger competitor (the trustee “disruptors”) and three or four Baystate Health senior leaders who represented the health system (the management “defenders”). Collectively, each team of trustee disruptors and management defenders negotiated to determine if a deal could be reached, as outlined in the scenario briefs. Each disruptor team was led by a trustee who also sits on the Strategy Committee of the board, and who therefore was already familiar with the competitive disruptors under discussion. To ensure a variety of perspectives, each team included at least one clinician (a physician or nurse), an individual with a finance or business development background and a board member with a non-health care background.
Step 4: Fine-tuning the meeting agenda. Four hours were allotted to the competitive disruptor session at the annual board retreat. During the first hour, a representative from an investment banking firm summarized the national competitive landscape and provided a high-level overview of the various competitive disruptors. The remaining time was spent specifically on the simulation exercise, with time allotted for (a) an initial small-team orientation huddle, (b) a negotiation session between each set of trustee disruptors and management defenders, (c) a decision-making session by each set of teams, followed by (d) team report-outs and a discussion facilitated by the chief strategy officer and chief financial officer, with feedback from the investment banking firm representative.
Through the simulation process, the trustees gained key insights regarding the disruptive competitors by directly assuming the identities of the disruptors themselves, and by imagining how they might think and behave in the local market.
Step 5: Follow-up on next steps. Based on the key ideas that emerged from the team report-outs and discussion, the chief strategy officer summarized and highlighted the next steps for follow-up, which included an endorsement from the board of trustees to identify and prioritize capital partners for outreach and partnership discussions. Conversations with competitive disruptors are currently underway regarding possible partnerships (including those related to primary care transformation).
The Baystate Health Board of Trustees uniformly reported that they had received valuable education from the simulation approach, which was more interactive and engaging than a traditional informational presentation. Through the simulation process, the trustees gained key insights regarding the disruptive competitors by directly assuming the identities of the disruptors themselves, and by imagining how they might think and behave in the local market. One Baystate Health trustee remarked later, “This activity brought the opportunities and threats to life and gave me a deeper appreciation of the crossroads at which health care now stands.”
The exercise also provided a valuable perspective to the senior leadership team on what it is like to compete and negotiate with strategic thinkers from outside the health care space. Most importantly, the exercise allowed the trustees and senior leadership team alike to spend time thinking through what the system will need to do should an envisioned scenario present itself. As a result, the board came away with a new appreciation regarding the health system’s competitive strategy, and generated several ideas for considering partnership strategies with potential competitive disruptors.