Podcast Episode: Innovators vs. the Rulebook. Who Wins?

Innovation can be difficult at any company. However, highly regulated industries with a thick rule book — both internally and from the government — face more roadblocks along the innovation journey. In this episode of Innovation Answered, we ask, “How do you make innovation happen in a highly regulated industry?

Podcast host Kaitlin Milliken sits down with Mohan Nair, Chief Innovation Officer at Cambia Health Solutions, to find out how his team continues to experiment with new ideas and build an innovative culture in healthcare. Steve Faktor, host of the McFuture Podcast and the former Vice President of Business Growth and Innovation at American Express, shares his insights on working more cohesively with legal and compliance. And Ludwig Melik, CEO of the an agile innovation company Planbox, shares tips for how teams can continue to innovate within legal constraints.  

Listen to the full episode or read the transcript below. You can listen to past episodes of Innovation Answered on StitcherSpotifyApple Podcast, and our website.

Special thanks to our friends at Planbox for sponsoring this episode.

[THEME MUSIC]

Steve Faktor: In entrenched, highly regulated businesses, status quo is what rules.

Ludwig Melik: Innovation teams have a lot more hoops to jump through.

Mohan Nair: When you start an idea how do you know that it won’t be blocked or destroyed.

Kaitlin Milliken: Hey, you’re listening to Innovation Answered, the podcast for corporate innovators. In each episode, we ask a central question about the things that make change hard at large companies. Then, we get answers from experts about how businesses can overcome these challenges and make an impact. I’m Kaitlin Milliken from Innovation Leader.

Our big question this episode: How do you make innovation happen in a regulated industry?

Breaking rules and testing new ideas, that’s in innovator’s DNA. And even when failure lurks around every corner, innovation teams are willing to take risks in search of business opportunities.

But that tendency to push the envelop isn’t always welcomed, especially in industries required to follow a thick rule book — both internally, and at the state and federal levels.

Steve Faktor: So you start to really, you know, threaten status quo and in entrenched, highly regulated businesses status quo is what rules. It’s not like in tech where the status quo is change. Here a lack of change is the status quo.

Kaitlin Milliken: That was Steve Faktor, host of the McFuture Podcast. Steve spent eight years in the highly regulated world of financial services. He worked for Mastercard and Citi Group. He’s also the former Vice President of Business Growth and Innovation at American Express.

More rules create more hurdles for internal innovators. That’s also true in financial services which has a large number of legal and compliance-related constraints. As a result, Steve says that his team experienced tension with groups across the organization.

Steve Faktor: I found myself up against PR people, HR people, you know, not only compliance. Compliance is sort of the expected, sort of, opposing force to regulate new things. But you find that in every part of the organization. So your anti-bodies start long before the regulatory and compliance issues kick in.

Kaitlin Milliken: But don’t worry, Steve also had tips for how teams can de-risk ideas, defuse tensions, and eventually chalk up innovation wins.

Steve Faktor: One is you may need to in a very conservative organization frame things in a way that are historically consistent with successes the company’s had in the past for example. So you might want to cast it in familiar terms or say, “Hey, remember when we did this and it was a big success because of X, Y, and Z?” So the move you can draw parallels with to that past, the better.

Another thing that you can do to de-risk it is partnership with companies that have already absorbed some of the critical risk points. So that’s kind of the rather than building it internally, I’m going to bring in a company from the outside world that’s already doing 70 percent or 80 percent of what you need. Because they’ve already taken all the lumps on the outside, so when you bring them in and they have traction, you’re no longer talking Power Point slides you’re talking real business and real customers.

Kaitlin Milliken: So pointing to tangible examples can help innovation teams gain their colleagues trust. What else helps highly regulated businesses create change? To find out we talked to Cambia Health Solutions’ Mohan Nair. We’ll be back with Mohan after this break.

[AD JINGLE]

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[MUSIC]

And we’re back with Mohan Nair. Mohan is the Chief Innovation Officer at Cambia Health Solutions. He’s been at the company for nine years, and in his role, he also runs the company’s health startup accelerator. Mohan has also written multiple books about business transformation.

Not everyone who will be listening to this is really acquainted to the world of health care. Can you talk about some of the regulations that cambia health deals with that create the innovation environment that you live in?

Mohan Nair: The hospitals have their regulatory requirements and their compliance requirements. Insurance companies have the same. Physicians that have them as well. And the brokers that work in the system also have their own regulatory environment. And consumers have regulatory protections like HIPAA and the like. But most of all, we are guided by a sense of ethics.

The accountable care act was a significant regulatory and business enabler for the healthcare industry. But long before that, HIPAA and the rules of HIPAA and the guidelines associated with that are also factors.

Medicare and medicaid are government funded and enabled models that have a very strict level of regulatory enablement and requirements. I mean for example, if you want to do a marketing piece to our elderly population, you have to send it to the government to make sure its okay. They have to pass on their enablement to you.

So it’s not like you go off and come up with a fancy and launch it like you do in the commercial markets. So each industry from the individual market to the large group market to the small group market to the medicare market to medicaid all have regulatory back planks that one has to keep in mind at all times.

Kaitlin Milliken: So you just mentioned a lot of different acts, and rules, and all of these different things. How do you make sure when you’re doing something new that everything is going to comply to all of those constraints, and also be ethical?

Mohan Nair: Innovation can be representative of breaking the rules rather than bending the reality that people have assumed to be rules. The status quo does not mean rules and the status quo does not always imply regulatory restrictions. But in institutions that have been calloused through the years — maybe through a hundred years — of following rules and then making the rules institutionalized like they are regulations; the mistake is often made that those are one in the same.

But an innovation task and the job of an innovation team is to parse out what are status quo, historic habits versus what are truly regulatory restrictions and goals to protect the constitution of healthcare. And the art of managing both of those falls right in the hands of the innovation head connecting with the privacy head, or the of compliance, or even the head of operations.

Those relationships have to be founded on trust and partnership and learning how to dance through all of these elements.

Kaitlin Milliken: We often hear from innovators that working with legal and compliance can be tough in spaces where there are a lot of regulations. Has your team worked to ease that tension that might exist?

Mohan Nair: Ethics is easy for us. Cambia has made a stance and has always had a stance on the ethical challenges and how to deal with them and how to engage so we hire for ethics and we fire for ethics. The bigger issue is when you start an idea, how do you know that it won’t be blocked or destroyed? You don’t.

You start a recipe of an idea and you test it around the way. But you bring the regulatory teammates both in compliance and in privacy and in security and also the regulations. But if we tap them too early they could shut us down. Because very quickly they’re trained to say, “No, we don’t do that.”

So what we do is we sit on the egg a little longer than we should until we’re ready to express an idea. And as we’ve done that over the years, these teams have said, “Why don’t you bring us in earlier? We can work with you. We’re not gonna be that tight.” And they’ve become innovative also. They’ve started to look at how ideas should not be killed to early. They should be explored and maybe they’ll learn something. We’re working in concert to say, “These are the rules. These are the regulations. These are the compliance. These are, of course, the ethical conditions that we need to follow. How about growing this idea.”

My advice to people who are in the regulations world is you should make sure that regulations are followed and compliance is followed. When you come to an innovative environment, listen and engage and see the complete story and then engage at that point, rather than shut it down too early. Because if you shut it down to early you might not have seen the full narrative.

I am by no means implying that you break or bend regulatory ethical, legal, and compliance rules. That’s a no no. I am implying that we use innovation in its full sense. So innovation requires listening to be a major part of the activities that we perform. It may sound kind of soft; it’s not.

Kaitlin Milliken: So you spent a lot of time in your career focusing on transformation. How can businesses where there are a lot of rules achieve that level of transformation and start doing things differently?

Mohan Nair: First, I have to put context on that if I may. Number one is in my research, after 12 years of research, discovering that the idea of transformation is slightly different than the idea of disruption. That disruption means you find a lower cost, lower valued solution that has enough value to attract an audience, then rise in price and value as you start to capture market share. That would be Clayton’s model of disruption. In the industry I’m in, people want more for less. And they don’t have early adopters. In this industry of regulated businesses, early adopters are not the model.

So what is that model for regulated businesses? The model is transformation — observing customers as their values and their value proposition changes. And I know that you say, “How can values change?” Well sometimes, their values are never recognized by the system.

The healthcare system has not met the values of consumers, let alone the value propositions of consumers yet. They did in the early years, but as the industry has matured and the needs matured, people’s values are not being met. So understanding what values based innovation is and understanding what value based propositions for those industries are is very very important. And as these values changes being able to migrate with the consumer transformation is what transformative innovation is, not necessarily what disruptive innovation is.

I may sound academic, but the model in which we at Cambia have created five companies in seven years and launched them, created over $170 million worth of value over the period of the last year, and also generated shall I say 86 percent engagement in our company of over 5,000 employees is through that ideology, is realizing the principles of transformation and enabling those transformative actions from my office.

Kaitlin Milliken: This process has led to a lot of solutions at Cambia. Do you have any examples of some of those initiatives?

Mohan Nair: We’ve created five companies that reflect those values and the transformational needs. One is Health Spark, a company that is focused on transparency so a consumer can look at prices and look at choices they can make in hospitals and doctors.

The other is a company that we focused on with drug transparency. I’d say about 10 to 15 percent of drug choices are lacking real true research. And so, when you take a drug, how clear are you about its side effects? How clear are you about its efficacy to you? And how clear are you about the trails and test that have gone through that allow you to be given the opportunity to take that drug. So we created a company that came from an idea from an employee. He came up with the idea of grading the drugs like A, B, C and D to show the level of efficacy that has research to back it.

We’ve never seen it in the marketplace. Nobody’s got a drug efficacy map that allows a consumer to look at the grades of the drugs. We can grade a car. We can grade stars for something else, but we cannot yet grade drugs — a daring endeavor. But we’ve been doing it in the building for multiple, multiple years, because we have to manage the choice in our formulary as an insurance company. So we took that, patented that process as an innovation team, borrowed him and brought him to our side of the building, started a group around him, and he became the chief pharmacy officer of a company we launched called Med Savvy. And now he’s actually the CEO.

Kaitlin Milliken: Last time we met, you had a really interesting story about how Cambia Health started a social network for patients, can you share a little bit about that?

Mohan Nair: So Regence BlueCross BlueShield in the Pacific Northwest of our nation decided we should create a social network for our consumers to engage in dialogue and not be in the way, and not be sort of moderating where you’re trying to sell them something. But to really listen in on conversations that could happen between patients and their families and the like. When we first started to do that, of course the regulatory muscularity came out, and the legal muscularity came out as well.

It’s like, how can you do that? What if somebody says they to, dare I say it, hurt themselves? And who’s responsible? How do we plan the legal considerations of all those? And I remember being in the room with 20 people telling us why it shouldn’t happen. And my CEO, who I completely respect and adore, made the decision very directly that consumers need to speak and we need to be the custodian of that conversation and never own that conversation. And we launched a social network.

That network created, within our website, created such a tension and the anticipated conversation that we expected and was afraid of which is, “I hate you. I don’t like you. You’re a bad insurance company. Blah, blah, blah.” The bad mouthing that you would think would happen, didn’t happen. And it could be because we have a relatively strong brand, but I would content it was because the conversation people are having are not demonizing each other. It’s about asking for help and dialogue within the framework of healthcare.

Many women, right? Many women with kids participated in that network. Several of these conversations were related to divorce, depression, and mental health. So we were looking for almost seven to eight years. We saw the spikes in conversation around these topics I talked about, and the help people needed was around these conversations. And so we learned the art and science of the freedom of being able to communicate and engage in communications as humans to humans, instead of worrying about, “is this regulatorily a pressure? Is this legally wrong? What will happen to us if we cross the boundaries of the consumer needs?” And the like.

We played with it and experimented with it and learned the hard way and the easy way to be apart of the conversation, to not be institutionalized.

Kaitlin Milliken: A lot of these projects that you mentioned, there’s a level of risk and forging into the unknown. What tips do you have for people in industries that are looking do this forcing and moving forward with their innovation journey when there that level of anxiety?

Mohan Nair: One is be always consumer transformative focused, even if you’re B to B, B to B to C, always be B to you, right? I am going to be something for you as a consumer.

The second is we hear the words agile all the time and we try to adopt it in larger institutions but agile is one form of the mechanics of making yourself move fast, but agile does not mean you’re design led, product led, market led or person led. It’s all of those things working in concert together. So create a multifaceted, very diverse cohort team to enable the best ideas and execute together at the same time.

Third is you know the power of culture is really important. Is your institution capable of having a maker culture versus a petting zoo culture. That culture is adequate but for the industries that I’m talking about, it’s not adequate anymore. We have to have a maker culture within our larger institutions, and our maker culture likes to build things, and likes to enjoy building things. And the people you pet that come in, that are entrepreneurs respect maker cultures also so it creates a sort of synergy.

The fourth is what I really truly believe in is the people, and the values and the cause, are as important as the financial goals,That those two have to work in concert. So I would say balance your purpose with your profits and learn how to manage the two very well. And that management is your job as an innovation head.

And then the fifth and final item that I can think of is it takes years to really become an overnight success. So anything you hear that are quick fixes take a second look at, because I’ve never seen in my life, quick fixes to innovation challenges to large complex problems. So start the journey now and take those years you need to take. But, it doesn’t have to be chronological. Hard work can overcome chronological years. So those are my tips if I’m asked.

Kaitlin Milliken: Engaging employees across the organization in innovation can help reduce internal tensions and build forward momentum. As a result, Cambia Health has been able to experiment and evolve, even within the constraints of the healthcare sector.

To find out how other highly regulated companies achieve innovation wins, I sat down with Ludwig Melik. Ludwig is the CEO of Planbox, an agile innovation platform designed to help teams manage their ideas. Planbox is also a sponsor of today’s episode. Ludwig and his team have worked with companies in many highly regulated industries, including Sun Life Financial.

Kaitlin Milliken: Which industries operate under the most regulation and how does this relate to innovation urgency?

Ludwig Melik: Sure, so I think energy companies, especially in the area of nuclear. Of course, financial institutions, health care, and life sciences are amongst the most highly regulated industries in the world. In each case new regulations, disruptive technologies and new delivery systems, growth aspirations, shareholder demands and customer expectations are forcing these organizations to amp up their innovation activity.

For example new startups in fin-tech, who are not constrained to the same regulations that apply to the banking sector, and new clean tech startups who likewise are offering new energy solutions do not have to play by the same rules that govern highly regulated companies. Therefore, the need to innovate faster and more effectively, while remaining more accountable and in compliance with regulations is greater than ever and getting more important by each passing day.

Kaitlin Milliken: So you mention a couple different sectors. What challenges do companies in these sectors face that’s different than what other businesses have to work around and what are their unique roadblocks?

Ludwig Melik: Absolutely. So although any company’s business can be disrupted, these organizations must operate under the watchful eye of regulators and oversight committees, the pressure stems from the potential impact and liabilities of non-compliance or any errors that can cause major havoc and lead to sometimes immeasurable losses that can ruin the company’s reputation or substantial cost that would destroy the entire company.

Kaitlin Milliken: So there are a lot of risks, some of which you just mentioned. How do these teams innovation portfolios differ from other businesses to try to mitigate that risk?

Ludwig Melik: So I think for many limiting their focus and efforts to continuous improvement initiatives and horizon one, you know, incremental innovation pursuits are the primary innovation objectives to pursue. Many operate at close to 100 percent in this area, which is a fall cry from the 70, 20, 10 portfolio mix normally recommended for businesses, whereby 70 percent is dedicated to continuous improvement, and incremental innovation 20 percent to adjacent innovation to explore new markets, and focus areas for existing offerings, and 10 percent to completely new transformational opportunities.

Kaitlin Milliken: Every company has that legal and compliance department. How do these teams in highly regulated industries work with the people in legal and compliance? Is there more or less friction than organizations that face fewer rules?

Ludwig Melik: Clearly innovation teams have a lot more hoops to jump through, and generally there are no easy or fast solutions. Although, the advent of massive technological change has also created a lot of interesting opportunities to identify and explore new problems, to solve, and new ways to look at old problems that were simply not possible — in some cases — even months ago.

So developing a strong presence from legal and compliance teams in all innovation system development and campaign plans is really a time saver. … Allowing the innovation teams to work with a lot more buy in and better insights to future deterrents and blockers that could kill a great idea down the funnel is, you know, very important. So working collaboratively with cross functional teams allows these organizations to define a better approach that ultimately saves them a lot of time and money by incorporating regulatory awareness into any new concepts or experiments being contemplated.

So more effective innovators are really developing the right working model with their legal and compliance teams from the outset, rather than thinking about how they can avoid or delay their involvement.

Kaitlin Milliken: Great. So we always like to hear some success stories on this show. Are there any companies that are highly regulated that have been model innovators?

Ludwig Melik: Yes, Novartis is a great example that comes to mind. They’re a model innovator they actually introduced a new drug which is, you know, a moon shot every company strives for. And in 2017, they did just that with the CAR T Therapy used to treat the most common cancer affecting children.

So Novartis takes innovation very seriously, and they are recognized as one of the companies with the largest and the most productive R&D span. We have seen first hand their intent to develop their innovation management competency and bring more visibility into the R&D investment by clearly identifying the key focus areas, overall portfolio, and overall return on investment, ROI.

So a smart strategy we have seen by leading innovators like Novartis is to work on creating, developing, expanding, and nurturing an innovation ecosystem that in time becomes a major source of generating and developing new ideas and concepts. This ecosystem also helps the organization build a sustainable innovation practice. The connections people develop in this ecosystem allows them to tap into not only the collective intelligence of their employees, but also expand out to see how they can better work with their partners their suppliers. And just learn from their and go even further by systematically engaging with universities, experts, researchers, the startup community, and even the general public.

So to do so requires building communities, launching innovation campaigns, focusing on identifying and solving the right challenges that the selected participants care about and of course it aligns with the corporate strategy.

Kaitlin Milliken: Thank you so much for sharing your insights, and we do have one final question. Can companies in regulated industries actually be innovative, and if so, how?

Ludwig Melik: Great question. And of course, the answer is yes. One can argue that they must be the most innovative since the regulatory environment in which they operate can, at the same time, pose a substantial barrier to entry and is a significant innovation obstacle to overcome. Therefore, being innovative requires a lot more of a deliberate process and approach to make it a reality.

And history shows that some of the most interesting innovations that we enjoy today come from biotechnology, financial services teams that are amongst the most highly regulated sectors. So exceeding the industry standards imposed by regulators is a goal that in itself can create a competitive advantage by changing the rules that govern the market to demonstrate the highest level of excellence to customers. And of course now we see consumers are increasingly interested in choosing to do business with organizations that are good corporate citizens with fair business practices that protect the environment, take care of their diverse employees, while providing a compelling offering and value proposition with the right level of privacy and data protection.

Kaitlin Milliken: So companies in highly regulated industries can create space for new ideas. But the projects they pursue require careful planning and close collaboration with teams across the organization.

[ACKNOWLEDGEMENTS]

You’ve been listening to Innovation Answered. This episode was written and produced by me, Kaitlin Milliken. Editorial assistance was provided by our intern Dave Sebastian. Special thanks to Mohan, Steve, and Ludwig for sharing their advice. To join the Innovation Leader community, sign up for a membership on our website.

Check out innovationleader.com/podcast for other great resources. If you loved this episode, rate and review us on Apple Podcast, that helps other innovators find the show. Thanks for listening and see you next time.

[SPONSOR MESSAGE]

Special thanks to Planbox for sponsoring this episode. Okay, so how is agile innovation management better than traditional innovation management?

In short, Agile innovation combines design thinking, lean concept development, and agile experimentation — it allows you to innovate consistently, experiment cost effectively, and get great returns on your investments.

You’re able to discover and focus on the right problems to solve, choose which ideas to develop and use agile experimentation to iterate and develop your best concepts.

Planbox has worked with Honeywell, Great-West Life, Sun Life Financial, Whirlpool, and a bunch of other companies. Using Planbox as your system of record for innovation allows you to spend more time executing on your best ideas. Visit planbox.com for more information.

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