At Humana, the Louisville, Kentucky-based health insurance giant, the question of how to infuse innovation throughout a 55,000-person organization isn’t a new one. The company has had various innovation initiatives in place for almost a decade and a half. But Humana’s innovation group has ebbed and flowed in size and budget, and reported to different executives, and in 2013 the company shut down a high-profile Innovation Center that had been built on one floor of corporate headquarters.
We asked Nate Bellinger, Humana’s Director of Consumer Innovation, to share some of the key lessons from Humana’s experience, and describe how his 10-person Innovation Team focuses its efforts today. One major issue he emphasizes: the work of an innovation group needs to be recognized and valued within the company — it can’t just be something that outside entities appreciate.
Here are the highlights from our recent wide-ranging conversation with Bellinger.
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Corporate innovation is essential to keeping your company relevant. But a lot of the articles you read make it sound very glamourous: the innovation people are going to save the day.
Why the Innovation Center Didn’t Work
We had an Innovation Center that started about 14 years ago. (I joined the innovation efforts in 2009.) Our chief medical officer at the time wanted to have a function focused on innovation, so he created this center with three people initially. It grew over time. At some points, it was over 200 people. They worked on developing some very successful concepts that required more people, and then they’d go back down to 30 or so people. Some of those people hired were incremental staff, to bring in skill sets we didn’t have, and some were hired from within Humana.
One example of a successful concept was a new way to engage and communicate with our membership around our health insurance benefits. It developed into a tool called SmartSummary, an award-winning method of engaging what is typically an unengaged population, and trying to find new ways to explain the benefits. They developed a prototype system, initially with paper and mailings. They tested it, it grew, and when we decided it was ready, we moved it into our operations unit. It’s still in service today, being iterated upon.
The Innovation Center was one floor in our headquarters building, in downtown Louisville. We had the whole 10th floor. We had this dedicated space. There was demonstration space, and kiosks in place. There were tours given throughout the day. It was used as an area for Humana to show stakeholders and important customers some of the innovation efforts within the company, and in our industry.
It was a workplace as well as a showplace. But that creates a lot of demands: you can be trading productivity for visibility. It impacts the type and number of staff you can have. We were expected to be doing both things: demonstrating innovation and creating it.
In 2013, we shut it down. What I lead now is what remains, which we call the Innovation Team.
An Innovation Center can be a part of a robust innovation strategy. It should not be the center of the strategy, but simply an element. It can be a beacon to attract interest, new ideas, and to build awareness of what you’re doing and what you see as important. We were one of the first areas to adopt agile development within Humana, for instance. You can work differently than other areas of the company. But it can become a symbol of decadence and irresponsibility, if it’s not a part of something bigger that the rest of the company is in support of.
When it shut down, the center was around 50 people. Of those, 75 percent were transitioned to other parts of the company. The space has now turned into a more traditional workfloor. The Innovation Team is still here. There are ten of us left, but only three of us were part of the Innovation Center group.
When the Center shut down, there wasn’t a whole lot of notice. The company had stopped embracing it. It had become easier for us to have the value recognized by people outside the company, than inside the company. But the company was careful to say that we weren’t giving up on innovation, but that this was a change in approach and direction.
New Direction
In 2013, we did benchmarking, competitive analysis, and site visits to other companies. We could reach out to almost anyone. It was a meaningful first half of the year.
We determined that an innovation function at Humana needs to be able to do two things:
- Lead and drive transformational innovation for the company.
- Help the rest of the business innovate within their own means.
So we’ve built an approach that allows us to do those things.
We see two primary types of innovation within our company: Transformational and Incremental. Both are vital. Incremental helps keep our company competitive. It involves logical, timely extensions or modifications of current capabilities. Transformational innovations are more risky, and are exploratory by nature. For us, these efforts typically convert to new capabilities that Humana adopts and scales within our business. They will be directly attributed to future growth or obviously connected to what is seen as a significant business opportunity. Our ratio of focus between Transformational and Incremental fluctuates over time.
We have 55,000 people within our company. We needed an approach to teaching everyone about innovation. To develop that, we worked with Eureka Ranch. Their methodology is called Innovation Engineering, and it is derived from the work of W. Edwards Deming.
We started applying it last October. We’ve trained more than 300 people within the company, and trained 20 to an expert level. We’re empowering the rest of the business to be able to innovate in a way that’s repeatable and measurable and generates results.
Reporting Structure
Now, we report to our COO. And we’re actively hiring and recruiting for a chief innovation officer, who will report to the CEO. Previously, we reported to chief medical officer, and to the chief marketing officer. For about one and a half years, we had no direct executive report. Then, at the end of 2012 we were slotted to report directly to the chief strategy officer, who left the company in early 2013. So there has been a lot of change at the executive level when it comes to who runs innovation.
Leaders of business units are dynamic people, and they’re not going to accept a vacuum. If there’s a perception that someone [in the innovation group] is not looking beyond the next two or three turns, they’re going to do it themselves.
Measuring Portfolio Quality
When you have an inconsistent approach, and it’s hard to measure what you’re doing today and what value you’ll create in the future, that’s a problem. Having a level of consistency opens up a lot of opportunities. It gives you more credibility to your story when you have those metrics. I talk a lot about metrics, but metrics let you recognize when something should stop, or when it should accelerate.
You can measure volume — “We have this many concepts at this phase of development.” That tells you that you’re busy, and it gives you an indication of how resources are being allocated. But something that’s new for us is looking at portfolio quality. We have a standard of what we think a concept should be, a level of stakeholder engagement, and we can craft a quality score, from 1 through 10. That’s allowing us to get a feel of which concepts we should focus more on, and it lets us tell a better story to our internal stakeholders about what to expect.
Though types of concepts we pursue vary widely, there is a consistency to how we approach each one. This allows us to evaluate each concept through target user response, simulation and expert review. We are aware of traits that serve as indicators of likelihood of a concept’s viability over the next five years, and will be generating a score representative of likelihood of success. This is new for us. We consider it a test, which is how we approach all of our activities. Over time, our approach will get even better than it is today, and this will be a valuable tool to helping us manage our innovation portfolio.
If you want to isolate an innovation function from the rest of the business, you have to be careful to find the value in the distance, and not let it become a cost. What is that balance between working on longer cycle times, and learning as you go — without having the expectations that you’re going to turn something around in 3 or 6 months?
Creating Advocates for What You Do
Each year, Humana allocates operating budgets for the different parts of the company. That’s where our innovation function gets its budget from. Your customer has got to have confidence in what you can produce. I feel adequately funded by Humana to do what I feel I need to do. Our aggregate budget is lower than it has been at other points, because of the size of our staff now, but I now I have a higher percentage available for exploring, developing, testing, partnerships, etc.
There’s a political element within every company, and the innovation function is by no means immune from that. A big part of the job, if you’re the leader of an innovation function, is building excitement and advocacy for the work that you do, inside and outside the company.
