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Innovation: Grappling with the 'Make' or 'Buy' Decision


Healthcare institutions face a difficult decision of whether to make or buy innovation. Consider these insights before making your choice.

Ideas, innovation, light bulb, physician entrepreneurship

Many sick-care institutions are grappling with whether to make or buy innovation. The makers are trying to bring their innovation structure and processes in house, while the buyers are partnering with other entities, like industry, entrepreneurs and investors, to outsource or take primary responsibility for the results, usually in the form of accelerators or incubators. Both have their detractors and critics, while some are claiming impressive success.

I believe institutions should consider some things before they decide to buy or rent:

1. The goal is to build long-term innovation and brand equity. It is hard to do that over the long run as long as you are renting.

2. You have more control when you own than when you rent

3. While the initial transaction and startup costs might be bigger when you buy, the long-term return on investment is potentially higher.

4. The ROI on innovation and brand equity is hard to define and measure and should include metrics that go beyond financials, like winning the war for talent, reducing turnover, employee satisfaction and engagement and strengthening your competitive position and unique selling proposition to stakeholders.

5. Most outside accelerators are not physician-user-friendly or have the same cultural clinical norms.

6. Many outside vendors have a hard time reconciling the ethics of medicine with the ethics of business.

7. Making innovation requires an adjustment in your accounting mindset to long term equity accrual from short term, cash based pay as you go schemes.

8. Making innovation requires vision, leadership, strategic alignment, incentives, and rewards. Those things are sometimes hard to find inside your organization.

9. Creating a sustainable innovation business model can be difficult and require frequent iterations and experiments to get it right. The opportunity costs to do so can be high.

10. Success of either model, particularly when it comes to digital health, depends on changing physician and patient behavior, which is not for the faint of heart and frequently independent of innovation leadership structures.

Culture change can take a very long time, like rebuilding a house you just bought to make it just the way you want it and that will appreciate in value over time. If that does not fit your budget or mindset, then maybe you should rent after all.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice