Tuesday, March 30, 2010

Change Management & The US Health Care Debate: A Case Study

The United States has gone through a wrenching debate over the reform of health care. The new bill cut to the essence of the United States as a republic and the sole of its citizens. This has been high stakes change management. What can the business world learn from this as a case study?

There is an alternative to Private Insurance

The first step in implementing change is for the leader to articulate a vision – what will the new world look like? President Obama’s vision a year ago had tenets such as “single payer and public option”. This is not idealism; it is real life practice that is the norm in most western democracies. It is an alternative and in places like Canada it is less costly and produces better outcomes. Although open to interpretation, here are some numbers.

  • Spending as a % of GDP: in US 15%, in Canada10%
  • Spending per capita: in US, in Canada $6700 $3700
  • Life expectancy - age: in US, in Canada 78.5 80.5
  • Very satisfied: in US, in Canada 25% 57%
  • Very dissatisfied: in US, in Canada 44% 17%

The gap exists for two reasons:

1. Administration: A single payer dramatically reduces burdensome administration. In the US this activity constitutes about 1/3rd of the cost of health care. In Canada it’s a little more than 1/10th. In other words, the single payer approach would save the US about 20+ percentage points on cost. That adds up when you’re talking about trillions of dollars.

2. Treatment: In Canada there are fewer medical resources than in the US – people, equipment, supplies, facilities. This means priorities are required in the allocation of these scarce resources. In the US, where there has always been a luxury of supply, this idea of “allocation” is interpreted as “rationing”.

America was looking for a new model for health care. Canada provides an alternative, but Americans didn’t choose it. They came up with a framework that is uniquely American; a solution that does not look like the starting vision that included single payer and a public option. Erosion of the vision is a common result in the change business. What happened?

In my view The Administration did not recognize the enormity of the change it was proposing. How do you radically change the private health insurance sector in the US. It’s fundamental to the American DNA of individualism and capitalism. The orthodoxy is that corporations have the right to make profits and individuals have the opportunity to earn money to provide for their health care.

Such a discontinuous change requires strong, directive leadership. Although bipartisanship is a rhetorical principal of the American political system it is not an ally to radical change. The effort to develop consensus opened the door to incrementalism, which is resistance in disguise. Ultimately the bill that got passed did not please anyone.

Lessons Learned

Most changes fail – even when the sponsors don’t admit it. This result comes from not understanding the nature of change and the leadership style required to implement change.

The US health care debate highlighted principles that CEO’s should take to heart.

  • Know your organization’s DNA. Resistance is directly related to how hard you swim against the organization’s heritage.
  • Know the type of change you seek – continuous means incremental, discontinuous means breaking with the past.
  • Know your leadership style. Don’t attempt discontinuous change if you are a consensus builder.

In our culture it is unnatural for leaders to adopt a harsh style. Everyone wants to be loved. That implies that most changes will be incremental. CEO’s should know this before they set their visions for change and underlying migration paths.

Wednesday, March 10, 2010


Toyota fascinates me. As a global icon only Tiger Woods has fallen further and faster. How did this happen to a brand that a year ago was characterized by its quality and durability?

The Toyota fall is the result of the goal Toyota set early in this century to become the world’s #1 in car sales. It decided to take on the wounded GM and move its global market share from about 11% to 15%. It achieved this and more, but now is struggling to maintain its starting position.

Toyota followed all the management rules. It was a case study on goal setting, measurement, and execution – and it failed. It will cost Toyota $3 billion in repairs and lost sales for its hubris. So what went wrong?

Toyota was measuring the wrong thing! Its aggressive market goal was not related to the needs of car buyers.

Toyota believed that its legacy of innovation and high quality, durable products would carry it to its goal of world #1. It forgot its customers and embraced its supply chain. As it got beyond its tier one suppliers it no longer had deep relationships that could ensure quality. Eventually the complexity of the over reach imploded into Toyota’s recall crisis.

The question behind Toyota’s goal should have been: “How much market share can we gain annually and still maintain the high quality and durable products that our customers expect from us?

Goal Confusion

I see this goal confusion all the time in my consulting work. Business plans are set with goals and metrics that have no relationship to the customer. In fact, the customer is rarely part of the discussion.

If we’re going to learn from Toyota then it looks like it will be the hard way. Our executives are still in a cost control mentality. Unfortunately, survival is being built on the backs of customers. This conflicts with the lesson of the financial collapse that shows customers are angry; they feel abused by: financial institutions, the housing industry, and now trusted name brands.

Customers don’t want to do business with companies that just get over the bar. They want to do business with companies that show: moral leadership, social responsibility, and respect for their employees. We are not meeting this customer expectation, and part of the reason is that we’re still setting business goals without regard to our customers.

I believe in goals and monitoring their achievement to know where you are. But we have to know how to set goals and then know what to do with them. All too often our goals are an incomplete reflection of the values that should be leading our business. Too often our goals are built on what we value - that is, making "profit". This causes us to forget about doing things right for those we serve, and we focus on the goal of making money. I know I will be chastised, however, contrary to popular belief the business of business isn't "to make money". The business of business is to serve customers. Making money is difficult without them.

Toyota’s goal forced it to take its eye off the customer. The cost? MasterCard. Priceless!