What Does it Take to Lead? Developing Organizational Strategies to Address Disruptive Innovation in The Market Monica E. Oss, Chief Executive Officer, OPEN MINDS March 15, 2011

OPEN MINDS © All Rights Reserved. Environment Drives Strategy... & Strategy Drives Structure... & Systems Support Structure... To paraphrase Peter Drucker... 2

OPEN MINDS © All Rights Reserved. Sustaining innovation Incremental improvements Serve existing customers Maintain current systems Disruptive innovation Disruption of professionals – permits ‘less skilled’ professionals to provide services (and consumer self-service) Disruption of institutions – permits service delivery in less intensive settings (or at home) 3 Innovation Model in Health & Human Services Changing

OPEN MINDS © All Rights Reserved. Effect of Disruptive Innovation on Health & Human Services Complexity of diagnosis and treatment Outpatient clinics and focused-care centers Hospital and intensive residential services In-home care Consumer self-care Time Performance that consumers need or can use 4 Create new markets that undermine market share of existing market leaders Brings crisis to established institutions that cannot adopt their business model

OPEN MINDS © All Rights Reserved. Synergistic Effects On Successful Market Models & Industry Leadership Changes in Health & Human Service Budgets & Financing Models Emerging Developments in Neuroscience New Functionality in Telecommunications & Information Management Synergistic & Simultaneous Disruptive Innovations in Health & Human Services 5

OPEN MINDS © All Rights Reserved. The Strategic Issue For Behavioral Health Specialist Organizations Is Market Power  Market power is the degree of influence that an organization has over another organization.  In economic terms, it is the ability of a seller to raise prices without losing business.  In U.S. health and human service system, the market power and market position of specialists is shifting “downward”  Much of this market phenomenon due to disruptive innovation in market 6

OPEN MINDS © All Rights Reserved. Specialist Provider Organization Strategic Challenges  Redefining “demand” for specialty care in current (and future) environment  Managing unit costs in era of rate freezes and declines  Increased demand for charitable care – by consumer type and by service type  Competition for ‘profitable’ consumer care segments  Investments in new services  Marketing and business development investments  Maintaining competitive advantage in face of new technology, rules-based treatment options, industry consolidation, and health care reform 7

OPEN MINDS © All Rights Reserved. Emerging Market Models For Behavioral Health (& Other Specialist) Provider Organizations 8 Location-Based Services Destination Specialty Services One-Stop Health Service Shopping Location- Independent Services Mobile, Home- Based, & Community Care Services E-Health & Remote Services

OPEN MINDS © All Rights Reserved. Mastering Disruptive Innovations Key To Competitive Advantage in “New Normal” Future Competitive Advantage Bargaining Power of Suppliers Labor Proprietary knowledge systems Cost of new technologies Bargaining Power of Customers Payer purchasing policy Financing models Consumer choice and access Threat of New Market Entrants Primary care Urgent care clients Home care providers Threat of Substitute Products Neurotech, biotech, and pharma On-line service providers Rules-based ‘automated’ service delivery models Consumer “self-service” tools 9

OPEN MINDS © All Rights Reserved. Successful Organizational Response to Chaotic Market & Disruptive Innovation Requires a Scenario-Based Market Oriented Strategy  Most organizations need to move forward with strategy implementation without “final” information  Most practical option is concurrent scenario building and planning – and structured plan to execute 10

OPEN MINDS © All Rights Reserved. Scenario-Based Planning Process Monitor market intelligence to update scenarios and action plans Continuously update both the scenarios and the implementation plans based on new market intelligence Determine the “common elements” in the scenario implementation plans When building the operational implementation plan, implement the “common elements to all scenarios” first Build scenarios of likely future situations and high-level implementation plans for each 11

OPEN MINDS © All Rights Reserved. Common Planning Scenarios For Organizations in Behavioral Health Market Space Widespread Adoption of New Neurotech (Scans, Avatars, Cognitive Retraining, Etc.)Medicaid or Medicare Coverage of SPMI Population Moved To Managed Care or ACOs Service Provider Organizations Moved To Case Rate Contracting or P4P Decrease of Fee-For-Service RatesElimination of ‘Safety Net’ Funding For UninsuredPayers Increase Coverage of E-Health Services & Remote MonitoringIncreasing Proportion of Behavioral Health Expenditures Paid By IndividualsExpanding Role of Urgent Care Clinics in CommunityMandatory Adoption of EBP Via Comparative Effectiveness Research 12

OPEN MINDS © All Rights Reserved. New Environment Demands Both Transactional & Transformational Leadership Skills  Transactional leadership is about coping with complexity – purpose is to keep current system functioning and improve current system Planning and budgeting Organization structure and staffing Organizational controls, monitoring, and problem solving  Transformational leadership is about coping with change – purpose is to produce useful, non-incremental change system Setting a direction Aligning people in the organization Motivating people in the organization 13

OPEN MINDS © All Rights Reserved. Definition of “Leadership” in the Current Environment Is Often Confusing  Advocacy is not the same as leadership  Focus on “What the Environment Could Be” is focus on political and advocacy activities – typically part of overall organizational marketing strategy (the “6Ps”)  Focus on changing “Positioning & Operation of Our Organization” is focus of organizational leadership 14

OPEN MINDS © All Rights Reserved. Transforming Organizations in the Emerging Market Traditional“The New Normal” Inwardly and historically focusedExternal market orientation Slow to plan and make decisionsQuick to plan and make decisions Risk averseRisk tolerant Few performance info systemsWidespread real-time performance measurement Performance data to execsPerformance data to all staff Compensation based on process and tenure Compensation based on results Centralized controlDecentralized empowerment Bureaucratic and multi-levelNon-bureaucratic with few levels of management Management training to senior staff only Widespread staff management training 15

OPEN MINDS © All Rights Reserved. “It is not necessary to change. Survival is not mandatory.” Peter Drucker 16