Building Competitive Advantage in Healthcare - Differentiation and the "What Must Be True" Test
Introduction
Differentiation is often confused with simply adding new services or expanding facilities. However, true differentiation goes beyond operational tactics—it lies in creating unique value propositions that resonate with patients, physicians, and communities. To achieve this, we must define what differentiation truly means and challenge our assumptions by asking, "What must be true?" This question sharpens our strategic focus and ensures that our initiatives are grounded in reality.
The Essence of Differentiation
Michael Porter's work on competitive advantage emphasizes that differentiation must be built on delivering unique value in a way that cannot easily be replicated. In healthcare, differentiation is often seen through clinical quality, patient experience, or operational efficiency. However, these aspects alone are not enough. Instead, differentiation should reflect a deep alignment of services with the needs and values of patients, staff, and the community.
Example: Let’s consider a rural hospital that aspires to be the go-to provider for orthopedic surgeries. It’s not enough to simply offer joint replacement procedures. True differentiation might involve collaborative care models where surgeons design workflows, advanced rehabilitation programs tailored to patients’ post-surgery needs, and community outreach efforts to educate about orthopedic health.
Avoiding Commoditization in Healthcare
One of the challenges in healthcare is the risk of commoditization, where services are offered without clear differentiation. The traditional "see one, do one, teach one" model of learning has contributed to a perception that healthcare services are standardized and interchangeable. This approach fails to acknowledge the unique value that organizations can create through innovation, personalized care models, or specialized clinical networks.
For instance: A rural healthcare network could avoid commoditization by creating a tightly integrated network that leverages shared services, clinical best practices, and telemedicine to offer a cohesive patient experience that’s hard to replicate.
The "What Must Be True" Test for Differentiation
To strategically approach differentiation, the concept of "what must be true" provides a practical framework. It helps leaders test and validate their assumptions about how a strategy will create value. Here’s how you can apply it:
Identify Your Differentiation Goal: Define what makes your organization different. Is it patient-centric care, physician engagement, or operational excellence?
List Key Assumptions: What conditions must hold true for your differentiation strategy to succeed? For example, in creating a rural orthopedic center of excellence:
Patients must be aware of and trust the hospital’s orthopedic services.
Surgeons must actively participate in designing the patient journey to ensure high-quality outcomes.
Operational workflows must support efficient and coordinated care from pre-surgery to rehabilitation.
Test and Validate Assumptions: Evaluate each assumption to understand its feasibility. For instance:
Are the patient outreach efforts sufficient to build awareness?
Do surgeons have both the time and the support to contribute to workflow design?
Mitigate Risks and Refine Strategy: Identify potential barriers to each assumption holding true and make adjustments as needed. For instance, if patient awareness is low, consider increasing community outreach efforts or partnerships with primary care providers.
Lessons from Failed Differentiation Attempts
Differentiation strategies can fail when critical assumptions are overlooked or when the necessary conditions don’t materialize. A prime example is a healthcare system in Wisconsin that attempted to duplicate hospitals in communities where existing facilities already met the local demand. The slow start-up for new hospitals, unmet capital needs, and challenges in establishing culture and workforce resulted in failure. This underscores the importance of testing strategic assumptions before committing significant resources.
Lafley and Martin’s Five Questions: A Complementary Approach
Roger Martin and A.G. Lafley’s five key questions provide another lens for refining your differentiation strategy. When combined with the “what must be true” framework, these questions can help leaders probe deeper into strategic decisions. Let’s revisit the questions briefly:
What is our winning aspiration?
Where will we play?
How will we win?
What capabilities must be in place?
What management systems are required?
By systematically addressing these questions and testing the assumptions through “what must be true,” organizations can create a strategy that is both robust and adaptable.
Conclusion
Differentiation in healthcare isn’t merely about being different; it’s about creating meaningful value that resonates with those you serve. By exploring the question, "What must be true?" leaders can challenge their assumptions and refine their strategies to ensure they align with their goals and the needs of their stakeholders.
Call to Action
Take a step back and ask, “What must be true?” the next time you’re refining a strategy. Use this approach to ensure your differentiation efforts are grounded in reality and to build a sustainable competitive advantage.
