Big is no longer beautiful. Why we may all need the OFT

  |   Thought Leadership

One of the more obvious reactions to financial restructuring and change in the NHS has been for commissioners and hospitals to consider their scale of provision. A default “carve-up” reaction to hospital sustainability is still being tested in many health systems across the NHS. Are we yet able to cite a successful NHS merger to use as a case study for better outcomes and improved health performance?


This still does not deter many NHS organisations to respond to recent disruptive events with a system driven response. Structure and Size evidently still matter.


However, this obsession with size and scale is not the advantage it once was, because the nature of scale itself is changing. And for this reason, recent decisions by the OFT need to be considered using a different mind-set.


Let’s look at the Financial Services Sector:


In the last 10 years, several innovations have been created: for example, Paypal — a simple form of online peer to peer payments, Kickstarter to allow crowdfunding of projects, and Square, which can make anyone (an author, an artist, a hairdresser) a merchant without having a banker first “validate” you.


Yet, the banking industry largely continues to ignore these innovations and their categories as “anomalies”. Instead of adapting to the changing landscape, large organisations resist them, arguing that those markets are “too small” to be meaningful. At the same time, they actively fight new entrants; for example, they have fought peer-to-peer lending legislation for years, putting a halt to how others served an unmet need.


In the healthcare sector in the UK, the IT modernisation programme was out of date before it had been implemented, we have very few new entrants in the healthcare landscape, those that come in are largely mistrusted and new healthcare technologies are slow to start-up. Today we learn that Outcomes Based Commissioning may de-stabilise a hospital for tendering new contracts. Outcomes Based Commissioning resisted at the idea stage.


Why all the resistance?


The answer lies in the way we measure success. In the old days, size was central to scale. People began to organise together inside centralized organisations to do things “at scale” because the cost of coordinating work otherwise was just too much, and too hard. Over time, the ability to scale and “reach” an ever larger number of customers caused organisations to keep growing and growing until they became “too big to fail.”


The ability to scale is no longer a direct function of size.


Nilofer Merchant captures this point. — the “Social Era” in which information efficiency is taken for granted, and people can easily self-organise without having to belong to a singular organisation — dramatically decreases the cost of communication (e.g., finding people and collaborating with them), changing one of the fundamental reasons that centralised scale once created strength. The competitive advantages of scale have been commoditised. We’re at an inflection point where work and value creation can reach “scale” without having to be done by a large, single firm. We can see today that Social is more than tools, information-enabled efficiency, products, services, or processes. It is not that we have more ways to be social. It is that the cumulative difference of all these ways of being social allows for an entirely new way to scale — through and with connected individuals. The improvement in what is possible creates new economic effects that add up to a new way of doing business. Organisations that get this are changing the way they create, deliver and capture value – in essence creating entirely new business models.


Today, value creation can happen through the organising and connecting individuals together. You don’t need a merger. You don’t need to get bigger. In fact, consumers lose out when organisations become too big. Health care provider monopolies in the US have reduced choice, control prices, become “too big to fail” and their patients sit at the bottom of the value chain.


Giants have a view of the world that often makes new markets “too small” to pursue. When we see scale as the thing they must do all by ourselves, then only “big” opportunities are worth investing in. Scale, in the traditional view, means that what they produce and how they function has to be about efficiency, productivity and being bigger than the other guy — because that is, above all, the source of profits.


And in the UK NHS, what do you think this will mean for regional health systems, local provision, primary care development and patient centred healthcare?


It is this thinking — this outdated mind-set — that is the central reason so many industries (banking, retail, healthcare, cars, professional services) and their companies are failing all around us. It is not that our economy is stalled, but that our thinking has stalled.


Healthcare outcomes, efficiency and healthcare literacy are not going to be a function of size. It’s not enough to get big, get efficient, and control the healthcare supply chain. It might have made sense in the 20th century with large regional budgets and system responses, (that never worked by the way) but there are other options available to us if we consider what scale means. And our OFT and Competition Panels know it.


The risk we run is that if we make hospitals bigger through size, then they will systematically eliminate options that they need to actually embrace (primary care development, open-sourcing, IT enablement). The systematic dodging of what is deemed “small innovations” works for a while — until entire markets grow up around large institutions, causing them to pursue “efficiency” cuts over and over again instead of investing in innovations that matter.


We won’t fix our healthcare model until we realise that size and scale are no longer one and the same.