An innovation center like the one at Henry Ford Health System can help organizations diversify their business portfolios.
In recent years, many health systems have created innovation centers as a way to coordinate disjointed efforts around innovation. Given that the median budget of these innovation centers is $1.9 million, CFOs need to make a strong business case for pursuing such a strategy (Klein S., Hostetter M., McCarthy D., et al., “Findings from a Survey of Health Care Delivery Innovation Centers,” April 2015, The Commonwealth Fund slide deck).
“An innovation center can be an important part of a broader portfolio of activities that a health system needs to navigate change,” says Andrew Garman, CEO, National Center for Healthcare Leadership (NCHL), Chicago. The typical center oversees activities such as generating ideas, testing internal and external innovations, and commercializing new products and services.
Because of the significant investment necessary to develop and maintain innovation centers, CFOs should work with other hospital leaders to define goals and expectations for the center. “Rather than thinking that the organization must have a center to be innovative, the CFO should ask, ‘What is the capacity for adaptation that we need to build into the system, and what types and levels of investment do we need to make to be sure we are becoming more adaptable?’”
Ultimately, innovation centers can be focused on helping healthcare organizations become more adaptable, Garman says.
Detroit-based Henry Ford Health System is one example of a healthcare organization focused on innovation—in fact, NCHL itself was spun out of Henry Ford in the early 2000s. One of the main reasons leaders launched the Henry Ford Innovation Institute in 2012 was to further diversify the organization’s portfolio of businesses, says Robert Riney, executive vice president and COO. “We recognized that innovation and the ability to create products and spin off companies was a healthy part of diversification,” he says.
Leaders also saw an opportunity to tap Detroit’s engineering, design, and IT talent, a legacy of the automotive industry.
“We knew that for the Innovation Institute to be embraced by all, it had to have a funding mechanism separate from operations,” Riney says. “If the operations were expected to fund this on an allocated basis, it would be a tough sell because the return from innovation comes years after you launch, not weeks. And we wanted to take that stress out of the work, much like you would for research and development.”
Leaders presented the business plan for the Innovation Institute to the health system’s foundation and received a $10 million loan to fund the center. “They got excited about our rationale and how well it fit with the spirit of Detroit and the region,” Riney says. Leaders believed the center would allow Henry Ford Health System to serve as an incubator for the rebuilding of the innovation and manufacturing core of Detroit. They also believed it would serve to accelerate the economic development around their flagship facility, Henry Ford Hospital, and enhance the overall environment. In addition, they thought successful initiatives would reduce unemployment in their urban areas and attract new residents.
Building the Infrastructure
To lead the institute, leaders hired an individual from outside the organization with experience in innovation, including intellectual property and commercialization.
To house the institute, they converted a former auditorium and gymnasium from the former school of nursing, one of the oldest buildings on the Henry Ford Hospital campus. One part of the building remained untouched: the auditorium’s stage where Henry Ford presided over graduations, often joined by friend Thomas Edison. “It became an inspirational talking point in the space,” Riney says.
They also established an open process to collect ideas from employees. “Our goal is not to disenfranchise anyone,” Riney says. “Some ideas are not of commercial value but they might be good ideas that improve the processes inside the organization.” The Innovation Institute presents informational sessions at sites across the health system to explain how to submit ideas for review by a team of experts, including the chief innovation officer, a physician researcher, a performance improvement specialist, a marketing expert, as well as several administrators at large.
“We want people to believe that no idea is a bad idea, and part of that is creating the right culture in your organization,” Riney says.
When an idea is submitted, experts scan the marketplace for similar approaches, reviewing patent and copyright activity and determining if intellectual property protection is necessary. If an idea has commercialization potential, leaders will assign a team to create a business plan before the concept moves on to research and analysis.
To date, the Innovation Institute has processed more than 200 ideas submitted from across the health system. Today, 18 products are on the pathway to commercialization. One example is the Model G gown, a fuller-coverage dressing gown that will be sold worldwide. The health system uses a third party to handle the production.
“The Model G gown has enhanced our brand not just as a health system but also as a creative innovator,” Riney says.
Other innovations include a multimodal cancer gene therapy, a virtual nurse patient education tool, and a culinary wellness program.
Sharing Lessons Learned
Garman and Riney offer the following advice to CFOs and other leaders looking to support innovation in their organizations.
Check out other innovation centers. Larger health systems tend to have the most established innovation centers. Another option is to join a healthcare start-up incubator, such as Chicago-based Matter, which includes hospitals, pharmaceutical companies, universities, and technology companies. “There is real value in having some type of network so you are not all going after the same problem, or at least not going after the same problem in the same way,” Garman says.
Hire the right people. This might include an expert in design as well as a leader with experience running a technology transfer office who understands commercialization, licensing, and IT, Garman says. Often innovation center leaders report to the COO, he says.
Use innovation as a recruitment tool. “When you are in a market that may not be top of mind for prospective employees like Detroit, you want to make sure you are offering opportunities that are unique,” Riney says.
Leaders also can leverage an innovation center to help transform their culture from within. “When you are in a period of so much disruption, having something new and different like this can really help an organization’s energy,” he says.
Think about sustainability. Most innovation centers are not profitable, which can make the ROI difficult to trace. “For many organizations, there is not a clear sense of how they are going to justify their innovation centers over the long term—past the grant, past the philanthropic support,” Garman says. “If the center is not going to be a self-sustaining profit center, they need to make a mission-based argument for its long-term support.”
Riney agrees. “You need a comfortable financial support system that will be impenetrable when you hit hard times, which is why our loan from the foundation was so critically important,” he says. “Innovation can’t be subject to yearly budget tug of wars or it will never bear fruit.”
Focus on long-term goals, not immediate returns. “You have to make sure that the organization at all levels, including the board, understands that this is not a short-term strategy,” Riney says. “Most ideas that will have true market impact will take years to evolve. If an organization sees this as a quick strategy to fill a gap in an underperforming area, it will probably hurt [its] culture and be seen as just a flavor of the month.”
Foster an innovation climate. “The climate should empower frontline staff and give them a sense that if they have ideas, there is clear path to test them out,” Garman says. “Staff also should receive recognition for trying things in new ways and not repercussions for trying to make things better.”
Consider whether part-time innovation staff will suffice. Not every health system needs to deploy full-time staff to work on innovation, Garman says. “Leading thinkers on strategy believe that innovation is more about establishing a culture and providing the minimum critical resources necessary to pursue these types of innovations,” he says.
This article originally appeared in HFMA’s CFO Forum August 2016 issue and is based in part on a presentation at the Congress of the American College of Healthcare Executives, March 2016, Chicago.
Interviewed for this article:
Andrew Garman, PsyD, is CEO, National Center for Healthcare Leadership, Chicago.
Robert Riney is executive vice president and COO, Henry Ford Health System, Detroit.