Following in the tradition of authors Jim Collins and Tom Peters, Michael Raynor and Mumtaz Ahmed studied thousands of companies to identify several hundred that have been good enough long enough to qualify as truly exceptional.
Using the database of 25,000 companies that have traded on the U.S. stock exchanges between 1966 and 2010, the authors of this seminal article in Harvard Business Review measured performance using return on assets. Studying the top 10 percent of return on assets gave them an opportunity to understand what's behind this superior performance.
The authors discovered a useful explanatory framework only when they shifted their emphasis away from what the companies did to how they thought. Three relatively simple rules emerged:
1) "better before cheaper" (it's best to compete on differentiators other than price);
Focusing on the best outcomes, the safest procedures, and the
highest patient experience will differentiate providers.
2) "revenue before cost" (prioritize increasing revenue over reducing costs); and
3) "there are no other rules."
So what is the relevance to health care?
Successful financial performance is increasingly difficult as the landscape of payment changes so rapidly. I've written frequently about the importance of shifting focus from acute care to chronic care, and focusing on the relationships between primary care physicians, care managers, and patients to build trust and improve the transitions of care.
All of this has to be done within a business model that actually works. I believe that motivators for people who work in health care are stronger for service and relationships than economic incentives. There is research to support this notion. Of course, economic incentives must be aligned. But that intrinsic motivation can be harnessed to focus on “better” because it’s the right thing to do, and makes our job as leaders more value driven, which in the long run will make us successful economically as well.
When I look at successful health care systems, the first two rules resonate with me. Health care is an extraordinarily high fixed-cost industry. Becoming successful by cutting costs is extremely difficult. Becoming the best at something and attracting more customers because of being the best allows us to spread our fixed costs over more customers producing reduced unit cost. Focusing on the best outcomes, the safest procedures, and the highest patient experience will differentiate providers that customers are more likely to choose.
“Revenue before cost” is being measured by different metrics than the number of units we can process. However, since health care systems and providers will be paid on the basis of some measure of the number of lives covered, creating circumstances where people will choose one system over another will drive the revenue with that choice.
Finally, the fact that the third rule is that “there are no other rules” points to the strategic importance of staying focused, and avoiding trying to do everything. In fact, the authors advise against paying too much attention to traditional financial metrics – essentially advising to pay attention to ‘better’ and to ‘revenue’ – and the rest will fall into place.