Stewards of the Status Quo

There are many impediments to addressing and solving executives’ toughest problem – see my last post.  Resource limitations – time, money, and people – can obviously be impediments.  Less obvious, and often much more troublesome, are the stewards of the status quo.  These stewards include people and organizations who are determined to keep everything as it is – markets, products, salary structures, pensions, tenure and so on.  They want all entitlements – legally mandated or socially perceived – to remain just as they are.

Such responses are not unexpected.  Getting people and organizations to buy into and support fundamental change often requires great creativity and compromise.  Often, this creativity is focused on inspiring a sense of urgency or precipitating a “burning platform.”  Once people truly believe that change is inevitable, they will usually constructively engage in deliberations on the nature of change and how it should be implemented.  A good example of this is the healthcare delivery system in the U.S.  There is much valuable dialog going on currently among a wide range of stakeholders.  Few people still believe that this system is fine just the way it is.

Perhaps the biggest impediment to change is when the stewards of the status quo are in charge.  When the leaders of the organization constrain thinking to business as usual, perhaps on steroids, fundamental change becomes very difficult if not impossible.  It is common for such leaders to use the vocabulary of change, e.g., new directions, strategic leaps, and enterprise transformation.  However, this is just rhetoric.  Their real goals are to keep the troops fed, make sure the trains run on time, and avoid rocking the boat.

This form of leadership is most common in enterprises that are shielded from market forces.  Government, education and religion, for example, typically attract and recruit these types of leaders.  The process of searching for new leaders in these types of enterprises places enormous emphasis on identifying candidates that will not be disruptive.  This does not always succeed and occasional change agents will secure major leadership roles.  Frequently, their tenure in these positions is relatively brief.

Stewards of the status quo thwart change to such an extent that the roots of change typically emerge outside of the mainstream.  People such as Alexander Graham Bell and Thomas Edison, and more recently Steve Jobs, formed new types of businesses and, over time, fundamentally changed our day-to-day lives.  The phone business, lighting business, and portable device business were not just business as usual on steroids.  These men and, of course, many other men and women invested little energy in preserving the status quo.

In general, change happens when market forces drive it.  When forces for change are prevalent, enterprises led by stewards of the status quo, suffer, fail and disappear.  Such forces may emerge in education, but are unlikely in government and religion.  If forces for change become prevalent in education, one can expect to see many leaders who are ill prepared to be other than stewards of the status quo.  Then, slowly and painfully, change agent leadership will become more the rule than the exception.

The Toughest Problem

Over the past two decades, I have often asked executives about their toughest problem.  Not surprisingly, they use many different words to answer this question.  However, there is quite a consensus around, “Running the enterprise I have while trying to create the enterprise I want.”

Keeping the existing enterprise running tends to be a very demanding job.  Enormous human and financial resources are needed to stoke the fires of the business.  Pressures to “stick to the knitting” are usually compelling, both financially and within the social network of the enterprise.

As a consequence, I have found that even enterprises that entertain a broad range of future scenarios will, in the end, focus on the “business as usual on steroids” scenario or the equivalent.  This is especially true when resources are tight and time pressures enhanced.  The need to support the reigning business model becomes heightened, regardless of whether or not this model is obviously becoming obsolete.

Nevertheless, there are usually executives that realize that the reigning business model is threatened.  Often, this possibility has been discussed long before the resource constraints and time pressures mounted.  However, it often was the case that it was socially unacceptable to openly recognize the need for change, much less attempt any fundamental change.  The stewards of the status quo would vociferously defend the viability of the current business model.

One or more possibilities for enabling change might emerge — for example, a new product line or new market channel.  However, this nascent solution would whither, subject to Christensen’s innovator’s dilemma.  The near-term revenues and profits associated with these alternatives would invariably be too small to provide the silver bullet everyone was seeking.  Instead scarce resources were sunk into the status quo.

Eventually, Schumpeter’s creative destruction emerges and many enterprises share the fate of the 1,000 companies who have departed the Fortune 500 in the past 25 years. This is great for the economy, but a defeat for each enterprise, all because the executive team could not solve the enterprise’s toughest problem.

The Current Communicator

I recently visited the Ronald Reagan Presidential Library.  One can question the whole “City on the Hill” imagery, but the Great Communicator was undoubtedly able to evoke a positive emotional response from me three decades after the original narrative. How does this compare to the Current Communicator?

Both Presidents inherited troubled economies– one could easily argue that Obama’s inheritance was much more troubled than Reagan’s.  Both looked forward with a message of hope that captivated the electorate.  Reagan, perhaps working from a much shallower economic hole, was able to oversee strong growth by two years into his first term.

Reagan’s enormous investment in defense played a central role in the fall of the Berlin Wall in 1989, following the end of Reagan’s second term in 1988.  It is, of course, much too early to assess Obama at a similar point on his impact on the country.  Let’s imagine, however, we are in 2017, looking back at Obama’s contributions.  What might we see?

Better yet, what might my children and grandchildren find compelling when they visit the Obama Presidential Library in Chicago in 2039, twenty-three years after he leaves office after his second term?  What messages would make them feel as I felt when leaving the Reagan Library last week?

Barring another 9/11 or a war, Obama’s claim to fame will be in terms of domestic accomplishments, and in all likelihood in healthcare.  Thus far, he has accomplished insurance reform — millions of more people provided with government-paid access to an easily arguable inefficient and ineffective delivery system.  This hardly sounds like a success, but it could create a tipping point.

Millions of additional people in the system will stress the system to such an extent that it will break.  This will create the “burning platform” that will enable healthcare reform, not just insurance reform.  Survival will require a move from fee for services to payment for outcomes.  This change will require a fundamental change of how providers deliver care.  They will have to eliminate activities that do not provide better outcomes — because no one will pay for them!

The key question is what is Obama’s equivalent to Reagan’s, “Mr. Gorbachev, take down that wall”. I think this requires that we see the nation’s health to be just as compelling and important as the nation’s defense.  How can President Obama make this happen?

First, it requires transformational leadership.  The President needs to articulate a vision, strategy and plan — and steadfastly hold to this message just as President Reagan held to the “evil empire” message.  He has to lead, not just throw this idea “over the wall” to Congress as a notion that they need to pursue. He needs to bet the farm on this one.

Second, he needs to take the case to the healthcare establishment.  Transforming healthcare will yield better outcomes for lower costs.  The best providers will be much more profitable –and the poor providers will go out of business. Healthcare needs this “creative destruction” with the strong players prospering and the weak players disappearing.

Third, the senior leadership of the Obama administration needs to be relentless in embracing the overarching goal of a healthy, educated and productive population that is competitive in the global marketplace.  Yes, healthcare is just one piece of the puzzle.  Education is next.  That’s needs to be the agenda of the administration following Obama. But Obama needs to stay on healthcare, and little else.  That will be the highlight of the Barack Obama Presidential Library in Chicago.

He Still Looks Like Him

Last Sunday, I had breakfast at the Beachcomber, which is right on the beach at Crystal Cove, just south of Newport Beach, California.  The waitress mentioned that many celebrities eat there often.  She talked about a particular performer, her favorite, and said, “He still looks like him.” I asked what she meant by such an odd choice of words, and she said that many celebrities have had so much plastic surgery that they no longer look like their former selves.

Plastic surgery is pursued in hopes of avoiding the changes typically associated with aging.  The goal is to avoid the appearance of aging.  Of course, this does not do much for actual aging.  Thus, the transformation is only on the surface – literally.  This is not the only form of transformation that only deals with the surface.

I have worked with many enterprises in business, government, and academia that undertook initiatives to envision a new future, formulate a strategy for pursuing that future, and develop a plan to transform their enterprise in the process.  On the surface — of PowerPoint slides and Word documents — these enterprises were transformation ready.

Over time, however, business as usual recaptured people’s attention.  The vision of a new future faded in all but the promotional brochures.  The strategy became more of a slogan than a path to the future.  The enterprise still looked like itself, only more so. The energy with which these initiatives began never got below the surface to enable real change.

Plastic surgery represents easy change, just as PowerPoint slides and Word documents represent easy change.  Change below the surface requires a much greater investment.  First and foremost, it requires committed transformational leadership that can articulate the vision that will compel people to act, in part because they have contributed to shaping this vision.  Leaders who were recruited to be stewards of the status quo will be unable to provide this type of leadership.

Second, change below the surface requires substantial human and financial resources.  In a time of scarcity, which may be one of the drivers of change, these resources are likely to have to be repurposed from other functions and activities.  This means that some elements of the status quo will have to be eliminated.  A leading indicator of successful transformation is the number of functions and activities that are completely eliminated.

Third, incentives and rewards have to be aligned with successful pursuit of the new future.  People will not march to a new drummer if their pay and promotions are still tied to the old marching tune.  Realignment of incentives and rewards usually results in outcries from the stewards of the status quo. Strong transformational leadership is needed to stay the course of change and allocate resources to the new future while also realigning incentives and rewards.

Change on the surface is so much easier than deeper change.  Beyond the plastic smile or glossy brochure, the stewards of the status quo tend to keep business as usual rolling along, with all functions and activities budgeted as usual, and everyone incented and rewarded as usual.  Nothing has really changed, because fundamental change below the surface is very difficult.

What Is or What If

Much of contemporary analytics focuses on tabulating and portraying characteristics of existing systems, whether they are for energy supply, health delivery or a wide range of other complex systems.  This type of analytics addresses “what is” or in many cases “what was.” This approach is backward looking, which makes a lot of sense if there are important lessons to learn from the past and carry forward.

There are some situations, however, where the current system is not one to be emulated.  Health delivery is one of these cases.  While medical science has steadily advanced, the delivery of health has not.  The delivery system is a federation of millions of entrepreneurs with no one in charge. Information systems are highly fragmented and rife with incompatibilities. The incentive system rewards delivery of procedures rather than health outcomes.

We need a very different system in terms of how health delivery is organized, operated, and financed.  This requires that we move from “what is” to “what if” in the sense that we need to explore delivery models that do not yet exist.  We cannot rely on empirical data from systems that have not been designed and deployed.  Further, as these will be very expensive systems, we need some way to drive the future before we write the check.

Computational approaches can provide the means to this end.  What we need is interactive organizational simulations that enable key stakeholders to explore alternatives, eliminate bad ideas, and refine good ideas.  As stakeholders come from a wide range of disciplines, these simulations have to include compelling interactive visualizations that allow extensive “what if” explorations.  When stakeholders move the sliders for key model parameters and choose their own assumptions, they become increasingly committed to the shared models they are developing.

Creation of these types of capabilities requires several ingredients. First, several types of computational models must be linked, e.g., agent-based for patients, discrete-event for delivery processes, microeconomic for providers and payers, rule-based for policy, and system dynamics for exogenous phenomena.  Linking such a disparate range of models can be a substantial challenge.

Second, the parameters for component models must be gleaned from large data sets including clinical data, financial data, and claims data.  Using such data to parameterize process models, for example, can be quite difficult, as most providers and payers have not structured their data sets in terms of processes. Instead, data are organized by codes for diagnoses, procedures, and locations. This requires that processes be inferred from data sets never intended to support such inferences, which often involves filtering out special cases as well as mistakes.

Third, interactive visualizations are needed for decision makers to understand and be comfortable with computational approaches.  They need to view the computational models as a means for exploring a range of possibilities rather than as a “magic box” that produces optimal but, unfortunately, often opaque answers. This requires core competencies in interactive computing and decision support systems.

The three competencies outlined above — computational modeling, statistical estimation, and interactive visualization — are rarely found in one individual or even one discipline.  Multiple disciplines are needed, working as a team to tackle large-scale “what if” problems.  Any initiatives to address the transformation of healthcare requires the multi-disciplinary team needed to assure the availability of these competencies.

Smart health is not just about doing what we now do better.  Indeed, Peter Drucker has cautioned us to never invest in improving something that you should not be doing at all.  For health, being smart means being able explore whole new ways of doing things to eliminate bad ideas and refine good ideas, so that we can then invest in improving and deploying these good ideas to create quality, affordable health for everyone.

Controlling the Costs of Healthcare

We continue to anguish over escalating healthcare costs.  To gain control of these costs, we need to understand one essential equation.   The total cost of healthcare is

Total Cost = Costs Per Use x Number of Uses

Careful design of delivery processes to eliminate unwarranted care process variations can decrease the costs per use.  Variations are unwarranted if practices differ from evidence-based medicine for no beneficial reason.  Such variations may yield significant revenue for providers, but if these variations do not benefit patients, they should be eliminated.

Prevention and wellness programs and chronic disease management programs can decrease the number of uses by keeping people out of in-patient treatment because either they do not get diseased or, if diseased, have crucial variables under control.  Such programs involve small investments per person now to avoid large costs per patient later.  These types of investments have repeatedly been shown to yield attractive returns, especially if one attaches value to healthy, productive people, as employers certainly do.

The central issue is how best to allocate resources across process (re)design, chronic disease management, and prevention and wellness to control healthcare costs with equal or better health outcomes.  This logic seems tractable, but is rarely pursued.  Why?  As I interact with executives of more and more providers, two things strike me:

Few executives are addicted to inefficiency.  They simply do not have the information to improve.  They do not understand their processes; do not know their costs, etc.  So they just try to maximize revenue and keep their capacity fully booked.  We are working on methods that take clinical, financial, and claims data and infer the providers’ processes, including the variability in these processes, to then determine which processes, when given attention by clinicians, should be the first targets for improvement.

However, increased efficiency often decreases revenues until providers figure out how to re-deploy capacity.  While it may increase profits by eliminating “bad” revenue, most providers have no means (i.e., information) to make this assessment.   Thus, for example, using non-MD care coordinators plus e-visits leads to increased costs (for added people and infrastructure) but less, maybe zero, revenue.  For this reason, Patient Centered Medical Homes may be terrible investments for providers unless they can re-deploy clinician capacity in profitable areas or, better yet, be paid in part, at least, for keeping people out of the hospital.  We are using the models described above to determine the best ways to do this.

The bottom line is that we know how to reduce total costs, as defined by the above equation, but there are strong disincentives to do this.  The current fee for service payment model encourages providing many services, regardless of whether they provably benefit patients.  The unwarranted process variations generate significant revenue for providers.  Payment for health outcomes can remove these disincentives.

For prevention and wellness, providers should be paid for risk reduction.  For chronic disease management, providers should be paid for keeping blood pressure, glucose levels, etc. in control.  For in-patient care delivery, providers should be paid for provision of the best evidence-based practices.  Payments should be paid for these outcomes regardless of how they are delivered, i.e., doctor vs. nurse vs. care coordinator vs. health coach.  Payment should also be independent of where they are delivered, i.e., hospital vs. clinic vs. telephone vs. Internet vs. at home.

If payment for outcomes is adopted, and it does not matter who delivers these outcomes or where these outcomes are delivered, providers will have enormous incentives to understand and redesign their processes to maximize the outcomes achieved and earn the economic benefits of these achievements.  We all will then have access to affordable, quality healthcare.

The Costs of Conformity

I recently resigned from an administrative leadership position at my university, having served for ten years in this position and an earlier one.  The precipitating event involved decisions by senior administrative leadership that I felt limited my abilities to continue in my role.  My guess is that it was not intended to have that effect, but the leadership was simply not paying attention to such implications.

However, that was just the straw that broke the camel’s back.  The nature of “business” processes in academia has long frustrated me. . This frustration has been greatly elevated over the past year with the reorganization of the research enterprise at the university.  I agree with the vision, at least in principle, but the execution has been excruciating.  Everything moves agonizingly slowly.  Almost nothing happens in the summer.  Important issues are left hanging for many months, or longer.

In reflecting on this, I realized that effectiveness and efficiency may be the spoken goals, but the real goal is conformity, as well as compliance to assure conformity.  We must conform to the policies and procedures of the federal and state governments and those of the university.  We must conform to the faculty governance policies and procedures adopted by the faculty senate.  This includes operating within the academic culture surrounding this governance model.  All this conformity consumes an enormous amount of time and money.

The university’s goal is to produce high value outcomes in education and research.  That is certainly what students, parents, alumni, sponsors, and the public expect.  What about producing these outcomes in a timely and cost effective manner?  It seems to me that the university works as quickly and as cost effectively as it can — within the constraints of all the conformity outlined above.   The result is that the costs of higher education in the US are increasing at a faster rate than healthcare, the current poster child for runaway costs.

Raising this issue at several universities with which I am involved has yielded similar, often somewhat arrogant, responses.  Higher education sees the value they provide as a given and not to be disputed or even discussed.  They see the costs of conformity as inherently justified.  Many will say that it is unimaginable that the processes of the university should be redesigned to be more efficient and effective.  Most of these processes have been in place for decades; some of them for centuries.

Occasionally, someone in a leadership position decides to consider the redesign of some non-controversial processes.  Typically, this involves forming a committee of faculty and staff of perhaps 15-20 people, given the range of stakeholders that needs to be involved. This committee will meet regularly to discuss and debate at length the nature of the current processes and how they might be improved.  All opinions and ideas will be honored and discussed at length.

After a year or two — not counting summers when it is impossible for the committee to meet — a set of recommendations will be created.  These recommendations will represent an integration of all ideas discussed, assuring that all committee members can see their ideas in the compilation. The committee will be warmly thanked after they present their recommendations. Perhaps one or two of the ideas on their long list of recommendations will be pursued, as long as they conform to the relevant policies and procedures.

Moneyball and Football

I have been thinking about how Michael Lewis’ Moneyball: The Art of Winning an Unfair Game, might be applied to American football.  On-Base Percentage was found to be the best predictor of success for baseball.  What might work for football?  I tried a variety of statistics and found that a team’s total number of turnovers (interceptions plus fumbles lost) plus punts was highly negatively correlated with the percentage of games won.  Thus, if a team has zero turnovers and zero punts, it is highly likely to win the game.

It struck me, though, that winning may be a secondary goal in football. This is based on another amazing statistic.  In each 60-minute game, the ball is in play, on the average, for 12 minutes, or 20% of the game.  This is the time from when the ball is snapped until the ball is whistled dead.  If we put this in the context of the 180-minute viewing time, whether you are at the stadium or watching television, the ball is in play only 6.7% of the time.

This allows 93.3% of the time for socializing and watching beer and truck commercials.  The game has been optimized as a marketing and sales channel rather than a sport.  It is a game of arbitrary precision.  Often senseless rules, interpreted with great variability by referee judgments, result in precise placement of the ball, and endless opportunities for more advertisements.  American football is a money machine.

For fans of American football, the first priority is an opportunity to socialize with friends.  The next priority is to be entertained by 300-pound men crashing into each other at 30 miles per hour (relative speed).  Finally, there is football as a sport.  In contrast, for rugby and soccer, seemingly older cousins of American football, the sport comes first.

One can view American football as a sport in the same way that the gladiator contests in ancient Rome were sports.  There was (is) lots of blood and gore, or equivalent.  There are also great opportunities to socialize with friends while grazing on snack foods and consuming large quantities of alcoholic beverages.  Football stadiums even tend to look like coliseums.

Another view of American football is as a reality show.  The competitive tension is orchestrated to keep viewer’s attention, with enough rule infractions, network timeouts, and so on to provide ample advertisement opportunities and enormous revenue.  Although, unlike most reality shows, I still believe that the outcomes of football games are not predetermined.  Thus, I remain convinced that the fewer the turnovers and punts, the more likely a team will win.

Replacing the Old Order

I recently read John Lynch’s Simon Bolivar: A Life (Yale University Press, 2006).  Bolivar played the central role in freeing six Latin American countries from Spanish colonialism.   The eventual domination of his armies and his subsequent nation building destroyed the old colonial order.  However, creating the new order was a much more daunting task than he anticipated.

Bolivar needed to address the interests and concerns of a large set of stakeholders.  Spanish natives living in Venezuela, Peru, and so on had long ruled these countries with iron fists.  However, now that the old order was gone, a wide range of aspirations emerged among various stakeholder groups.  These groups included creoles (native born people of Spanish ancestry), pardos (racially mixed individuals), the people from the vast grasslands (Llanos), native American Indians, and slaves who were mostly black.

All of these stakeholders had long-harbored grievances and aspirations for social justice.  Bolivar’s message of liberty and equality was heartening and provided a rallying cry.  However, the redistribution of land and other wealth was more important to these stakeholder groups.  This made the transformation to true democracy, or even an approximation, quite difficult. New tensions and infighting hindered Bolivar at every step.

As fascinating as this story is, the more general lesson is perhaps more compelling.  Transformation involves unfreezing the old order, moving to a new order, and then refreezing around the new order.  It may be easier to get people to agree to the unfreezing then getting them to agree to move to a particular new order.  Instead, unfreezing may lead to chaos as newly freed stakeholder interests undermine the possibility of any new order.

Perhaps this is why religious and academic organizations, to name just two, cling to old ways in terms of principles and practices. If they allow any slippage, then they expect they will avalanche down the slippery slope of fundamental change. This may enable many creative possibilities.  However, it is also very likely to upset many apple carts.  The old order, despite its flaws, is a source of stability.

Beyond stability, many will have designed their lives, businesses, universities, and so on around the implicit assumption that the old order will persist.  This is even true for those disadvantaged by the old order.  When this order is replaced, there are many losers.  There may also be many more who will respond in perhaps unpredictable ways once they have the freedom allowed by the loss of the old order.  Latin America, as Lynn shows, provides a good illustration of this tendency.

This perspective may make transformation sound hopeless or, at the very least, a process that is inevitably very long and rocky.  One approach to avoiding this is to build the new order in advance of the dismantling of the old order.  More specifically, create a demonstration of the new order in the midst of the old order. This is a typical path for technological transformation, e.g., from land lines to smart phones.

Could Bolivar have taken this approach?  To a slight extent he did, with a bit of nation building along the way.  However, the monopoly of Spanish colonialism repeatedly squashed these efforts.  There is an element of this in technological transformation as well where monopolies like public utilities can block potential innovations because they challenge the reigning order.

However, these types of monopolies do not have armies, guns and gallows.  Liberating countries is decidedly on a very different scale than transforming markets. In fact, it is not just a matter of scale. The behavioral and social components of liberating countries involve a type of complexity that cannot be avoided by simply having a sound “methodology.” Liberation is inherently much, much messier than transforming companies and markets.

Moneyball in Academia?

I just finished reading Michael Lewis’ Moneyball: The Art of Winning an Unfair Game.  Lewis relates the story of the Oakland Athletics and their ability to use scientific management to maximize wins per dollar. I could not help but wonder how their empirically derived principles might apply to academia. What is the equivalent of On-Base Percentage for a university?  And, if we could agree on that, how would we align all of our resources to maximize this metric?

The essence of the book’s argument is that many of the truths that organizations embrace and use to guide decisions are, in fact, myths with no empirical basis in fact. Once you look at the data in detail, you can find what really matters. If your competitors continue to embrace the old (false) truths while you embrace the new empirically based truths, you can gain an enormous competitive advantage.

Of course, the priesthood associated with the old (false) truths will do their best to defend the dogma and discredit the new empirically-based truths, often without even paying attention to the source and nature of the new truths. They will attack the integrity and abilities of those presenting the new truths, typically dismissing them as uninformed and self-serving. (See pages 287-288 of Moneyball.)

But, transformation can happen. The Red Sox adopted the Athletics’ practices and, with a much bigger market and hence budget, escaped the curse of the bambino. For much less money, they relied on Ellsbury and Pedroia while getting rid of the high-priced Ramirez.  The Toronto Blue Jays, led by acolyte of Oakland’s Billy Beane, are similarly pursuing the new model.

I know that a university is much more complex than a baseball team, but I wonder if we are not often trapped by our assumed truths rather that empirically exploring what really matters and how the allocation of our resources could truly improve the value we provide.