This article was originally posted in Harvard Business Review on June 13, 2014.
Every CEO of a large company worries about the small competitor that will come from behind and change everything. Consider Southwest Airlines, which shook up the airline industry with its low-cost, high-customer service approach to air travel. Or that little book retailing site that opened its online door in 1995 and became the world’s largest online retailer.
That’s why leaders of large healthcare companies are looking over their shoulder and thinking, “What is that small startup that is going to shake up our industry? Who is that David to our Goliath?”
Historically, corporate Goliaths have taken one of two approaches to this kind of upstart competition—try to muscle them out of the market or bring them into the fold through acquisition. But increasingly we’re seeing a third option: collaboration. In these novel relationships, the Davids and Goliaths leverage each other’s strengths and perspectives – and everybody wins.
From a pure business perspective, the greatest value in joining forces is that it makes the pie bigger for everyone and creates more value for consumers in the process.
A concrete example comes from within my own company, McKesson, the largest health-care services firm in the US. In 2005, McKesson invested in a David called RelayHealth that was in the connectivity business before connectivity was hot. A year later, we did acquire them — but rather than swallow RelayHealth whole, we wanted to preserve its innovative DNA and disseminate it across our company.
For its part, the RelayHealth clinical business team is fiercely protective of its culture and thinks of itself as a nimble, high-performing, risk-taking group inside the larger organization. There is some tension in this independence, but with thoughtful management, we’ve been able to bring out best in both organizations.
What makes it work for our company? There are two critical elements: 1) buy-in at the senior level of the organization and 2) the willingness to compromise on some processes that are integral to a large company but can kill innovation for a smaller firm. To be sure, we are still working through some of these issues. Our team at RelayHealth would tell you that they have benefited from the financial and customer resources that McKesson brings to the table. At the same time, they have experienced frustration with some of the structure and requirements that a $137 billion firm has to have in place to manage risk and scale. But even as we work through these issues, we continue to collaborate on ways technology can transform healthcare, and our role in that.
In our relationship with RelayHealth and other similar partnerships, we are seeking new ways to innovate – and looking over our shoulder. We’re mindful of an admonition from Rushika Fernandopulle, the CEO of startup Iora Health: “If you don’t disrupt yourself, someone else is going to do it to you.”
Iora’s own partnership with Dartmouth College offers additional guidance for both the large organization seeking external entrepreneurial ideas and the smaller innovator looking to increase its reach.
Iora Health’s prescription is simple: increase the connection between the patient and their provider. Iora’s reimagined version of primary care brings intense “coach-like” attention to the most costly patients to improve patient health and reduce costs.
The young company recently partnered with Dartmouth to provide primary care to their employees and retirees. As part of the relationship, Iora is collaborating with the Dartmouth-Hitchcock Medical Center, a traditional healthcare provider that would normally be considered a large and forbidding competitor. But the leadership at Dartmouth-Hitchcock wanted to inject innovation into their primary care program.
Buy-in from the Goliath’s top leadership was critical. From Fernandopulle’s perspective, it takes “pretty progressive leadership” to pull off a successful David-and-Goliath relationship. That buy-in has to come from very senior leadership—middle management typically can’t pull off such an unusual partnership.
Fernandopulle also advises other Davids to be realistic about their expectations for the relationship with a large organization. Sometimes Goliaths are most comfortable with the smaller innovator if the innovator is already partnered with a known entity, as Fernandopulle did when he partnered with Mercer to provide primary care services to Boeing employees.
Finally, Iora’s top doctor advises Davids to put their branding ego aside and let the larger organization get the credit for the successful partnership. The startup’s value will be seen through the results of the partnership—but sometimes the larger organization’s leadership may need to claim more of the credit at the beginning of the project.
There are upsides and downsides for both organizations when large and small come together. But because large organizations may find it difficult to innovate from inside, looking outside the enterprise can help force change, bring fresh perspectives and challenge status quo thinking. At the same time, economic pressures mean companies need to be efficient and operating at scale. Goliaths can bring efficiency and scale to the table for the smaller organizations.
Given the unprecedented level of change gripping the health care industry, large and small health care organizations will need to depend on innovation, creative thinking and sometimes each other to successfully navigate the evolving marketplace.