Editor's note: This is the second segment in Roy Smythe’s two-part interview with Dr. George Day on the nature and application of science-based innovation to advance the new model of healthcare.

A world class thought leader speaking at HX360’s Executive Program during HIMSS16, Dr. George Day is the Geoffrey T. Boisi Professor Emeritus and co-Director of the Mack Institute for Innovation Management at the Wharton School of the University of Pennsylvania. He is one of the leading global experts on the science of innovation.

Dr. Day has studied many aspects of change and competitive advantage in businesses, including such topics as understanding how to leverage emerging technology, the importance of utilizing interdisciplinary partners to anticipate market needs, and most recently what differentiates non-healthcare corporate innovation leaders from “laggards” in his most recent book, “Innovation Prowess”.

This interview has to parts. Part 1 focused on organizational structure around innovation. Part 2 below centers on innovation execution.

(This interview was edited for clarity, readability or length.)

Question [Smythe]: Healthcare organizations have a large number of areas where improvement could be beneficial – financial, technological, clinical and others. How do organizations that have an abundance of choice in this regard focus on the vital few initiatives that will create the biggest outside impact?

Answer [Dr. Day]: I’ve never met any organization that didn’t have more opportunities than they can ever possibly pursue. The worst case is where you try to do a lot of different things, but do none of them well - hence the role of discipline in narrowing the set down. In any organization, having a clear strategic approach to looking at the possibilities ahead of you is critical. Everyone in your organization has to be aligned around the qualitative and financial objectives that will be accomplished (e.g. cost reduction, improving the patient experience).

What is critical to the execution and discipline part is the (1) resource allocation and (2) the choice among innovation alternatives. Counter-intuitively it works better if you start in a divergent way and ask – what are all the things we could do? Start looking aggressively for ideas – not just the ones that come across your desk - but go out and canvas for ideas within the organization as well as peer hospitals, and spend time studying the patient experience. The idea is you diverge first and then converge –you are at risk of missing the best ideas if you don’t ask. This is something the Chief Innovation Officer or Chief Strategy Officer could orchestrate.

Once you have your portfolio of possibilities, the discipline part comes in. Narrow down to the ones that are aligned with your strategy, technically feasible, and can deliver results in a realistic timeframe. Some techniques you can use to screen your portfolio include innovation tournaments, discovery-driven planning, and patient experience mapping.

Question: Could you please explain further the importance of real options reasoning and how it could apply to efforts to generalize innovation in healthcare?

Answer: The idea around real-options reasoning is akin to the experience in buying a house. You are not sure you want to buy that house, but you don’t want to lose it. So you put down $10,000 to get another month to consider it while continuing to look further. If at the end of the month, you don’t like the house, all you have lost is the $10,000. If you do like the house, you can exercise the option and apply the $10,000 to the purchase price. Buying a real option gives you the opportunity to learn but doesn’t commit you to big action. Think of it as a stepping-stone or a way to step into a major change. Some examples of this in the healthcare space would be doing a pilot or initial implementation, or taking a small stake in a start-up company – both actions do not require big commitments.

Question: In an industry that is shifting towards a focus on measuring outcomes, some of which could take months or even years to show clinical benefit, how can an organization measure innovation progress and effectiveness? Should there be more focus initially on input, engagement and process measures?

Answer: About six years ago, I did a project with McKinsey where we looked at all the innovation metrics. We found an upwards of 45 metrics that could be grouped into 3 buckets:

1. Inputs – e.g. # of ideas (expanding before contracting), # of investment dollars, employee time, # of employees involved in innovation, balance of the portfolio
2. Throughputs or intermediate steps – e.g. # of quality ideas, time to move idea from concept to prototype, satisfaction with prototype, # of pilots completed
3. Outputs – e.g. how many reached the market, % of revenue derived from new solutions

Outputs turn out to be of little to no value in situations where you are fixing a system that is broken. For example, failure rates on innovation are found to be really high, but you have no diagnostic insight into what to change.

The challenge is to push back into the innovation funnel towards the intermediate stages and focus on inputs and throughputs. By tracking inputs you are able to uncover issues such as – are inputs being protected?

Throughputs and intermediate stages of innovation is often where you see problems propping up. Here you can uncover issues such as: significant approval delays and people moving in and out of teams. Monitoring these earlier process problems can help tell you what to fix when issues arise.