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JANUARY 2020
WINNING THE ’20s IN HEALTH
CARE
• A Leadership Agenda for the Next • Creating the Critical-Care Service
Decade of the Future
• Preparing for a New Kind of • Leveraging VR to Transform
Shakeup in Health Care Assessment and Treatment of
• The New Logic of Competition Disease
• The Company of the Future • Rewriting the Rules of the Game
in Health Care
• The Bionic Company
• Women Dominate Health Care—
• Medicare Advantage Is Booming. Just Not in the Executive Suite
Why Are So Few Payers Winning?
• Chasing Value as AI Transforms
Health Care
Lessons for
Payers, Providers,
Systems & ServicesBoston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation— inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact. To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.
Preface Contents
Over the past decade, the health care services landscape FEATURE
has shifted significantly. Former pure-play organizations A Leadership Agenda for the
have become integrated, diversified businesses, blurring Next Decade 2
the lines between payers, providers, and services (PPS) or
ganizations. New entrants from the consumer, retail, and PERSPECTIVE
technology spaces are reshaping boundaries as well. Such Preparing for a New Kind of
seismic shifts in the competitive environment will continue in the next Shakeup in Health Care 7
decade. What will it take to be a winning PPS organization in the ’20s?
WINNING THE ’20s
Like organizations in any other industry, PPS organizations must prepare The New Logic
to respond to megatrends such as digital technologies and slowing global of Competition 12
growth. Here are five ways to do that:
WINNING THE ’20s
•• Master the new logic of competition. The ability to scale data- The Company of the Future 19
driven solutions will be key.
WINNING THE ’20s
•• Design the organization of the future. Reimagine how to finance, The Bionic Company 27
provide, and manage care.
PERSPECTIVE
•• Apply the science of organizational change. Overcome slowness to Medicare Advantage Is
change, and build repeatable transformation capabilities. Booming. Why Are So Few
Payers Winning? 35
•• Embrace the business imperative of diversity. Create a culture
that welcomes new ideas from diverse sources. PERSPECTIVE
Chasing Value as AI
•• Optimize for both social and business value. Develop sustainable Transforms Health Care 41
relationships with social, political, and environmental systems.
PERSPECTIVE
Our feature article delves into these imperatives. We follow that with a Creating the Critical-Care
piece looking at PPS organizations’ future challenges; a sharp focus on con- Service of the Future 48
sumer experience will help organizations attract and retain customers.
PERSPECTIVE
We also explore the advantages of service lines such as Medicare Advan Leveraging VR to Transform
tage; the impact of digital technologies; how national health systems must Assessment and Treatment
rethink health care governance; and the need for C-suite gender diversity. of Disease 53
Several pieces here come from BCG’s Winning the ’20s series—applicable
across industries, but with many interesting links for PPS organizations. INSIGHTS
Rewriting the Rules of the
Big changes provide plenty of food for thought. In the pages that follow, Game in Health Care 56
we’ve set a table of probing ideas.
FOCUS
Sanjay B. Saxena, MD Women Dominate Health
Managing Director and Senior Partner Care—Just Not in the
Global Sector Leader—Health Care Payers, Providers & Services Executive Suite 68
Boston Consulting Group | 1FEATURE
A LEADERSHIP AGENDA
FOR THE NEXT DECADE
by Rich Lesser, Martin Reeves, Kevin Whitaker, and Rich Hutchinson
T he winners in business have shifted
markedly in the last decade. When the
2010s began, the world’s ten most valuable
•• Technology is beginning to redefine the
nature of work, as well as the relationship
between the company and the individual,
public companies by market capitalization as both employee and customer.
were based in five countries, only two of
them were in the tech sector, and none was •• The rise of China is challenging the global
worth more than $400 billion. Today, all of economic order and the institutions and
the top ten are in the US and China, the rules that have defined it.
majority are tech companies, and some at
least temporarily have surpassed $1 trillion in •• Long-term global growth projections have
value.1 been falling, driven in part by an ongoing
deceleration in working-age population
Given the relentlessness of change on multi- growth across major economies.
ple dimensions, the keys to success are likely
to be just as different in ten years’ time. What •• Society is increasingly scrutinizing the
will it take to win in the 2020s? social impact of technology and the
sustainability and broader contribution of
business.
Emerging Challenges Will
Reshape Business •• Investor activism and the role of private
The future competitive environment will like- capital are rising in many parts of the
ly be shaped by multiple trends that are al- world.
ready unfolding today:
•• The combination of these forces is
•• Artificial intelligence is rapidly advancing, producing multidimensional uncertainty,
and pioneers are advancing beyond spot which confounds traditional forecasting
applications to implement AI at scale. and planning-based approaches for
harnessing the future.
•• Businesses are increasingly organized into
multicompany “ecosystems” that defy To stay ahead of these trends, leaders need to
traditional industry boundaries and blur question their current assumptions and re-
the distinction between competitors and tool their companies for the coming decade.
collaborators, and between producers and This goes for both traditional incumbents and
consumers. younger digital giants, who will face very dif-
2 | Winning the ’20s in Health Careferent but equally critical challenges in the net of Things, and artificial intelligence—will
2020s—and would do well to learn from each turn every business into an information
other’s strengths. business. The combination of an exponential
increase in data, better tools to mine insights
Many of today’s leading tech companies have from that data, and a fast-changing business
succeeded by building highly scalable digital environment means that companies will
platforms. But as purely digital opportunities increasingly need to, and be able to, compete
(especially the opportunity to dominate on the rate of learning.
broad, consumer-oriented digital ecosystems)
are depleted, new opportunities will come Scale will take on a new significance in the
increasingly from combining digital tech learning economy. Instead of the “economies
nology with existing physical assets. of scale” that today’s leaders grew up with—
based on a predictable reduction of marginal
To succeed, digital natives will need to production costs across a relatively uniform
embrace the messier world of specialized offering—tomorrow’s leaders will pursue
assets and industrial customers. They will “economies of learning,” based on identifying
also need to “come of age” by managing and fulfilling each customer’s changing needs
leadership transitions, avoiding the bureau by leveraging data and technology.
cracy and inertia that generally come with
greater size and a longer history, and devel
oping new strategies to preserve trust among
users and society at large—challenges that
Tomorrow’s leaders will focus
traditional companies have considerably on “economies of learning,”
more experience with.
not “economies of scale.”
Meanwhile, a new era of competition will
provide an opportunity for the resurgence of
some incumbents. But the ones that succeed The arenas of competition will also look dif-
in the 2020s will look very different than they ferent in the 2020s, requiring new perspec-
do today—they will have evolved their busi- tives and capabilities. The familiar picture of
nesses to harness new technologies and re- a small number of companies producing a
shaped their external relationships, organiza- common end product and competing within
tions, and approaches accordingly. well-defined industry boundaries will be re-
placed by one where competition and collab-
So, how should you prepare your company to oration occur within and between ecosystems.
avoid being left behind in the coming decade Because ecosystems are fluid and dynamic,
and emerge as a winner in a rapidly evolving and not perfectly controllable even by the or-
landscape? chestrator, companies will need to be much
more externally oriented, to deploy influence
indirectly through platforms and marketplac-
A Leadership Agenda to Win the es, and to coevolve with ecosystem partners.
’20s
While many aspects of the agenda will vary Orchestrators of ecosystems can leverage the
by industry and region, we see five powerful assets of other participants, and ecosystem-
emerging imperatives that will cut across based competition tends to have a winner-
industries and geographies. take-all nature. These factors are already
causing rapidly rising valuations relative to
Master the new logic of competition. Internet tangible assets for the top companies, as well
and mobile technology ushered in the infor- as an increasing gap between the profitability
mation age, profoundly affecting technology- of high and low performers. But there is not
intensive and consumer-facing industries yet any playbook for how to harness this
such as electronics, communications, enter- premium: practice is racing ahead of theory,
tainment, and retail. But the emerging wave and pioneers who can crack the code on
of technology—including sensors, the Inter- ecosystems will be greatly advantaged.
Boston Consulting Group | 3Finally, companies will increasingly compete slow-moving forces, such as social and politi-
on resilience. Accelerating technological cal shifts, that are increasingly transforming
change, political gridlock, a shifting geopoliti- business.
cal power map, the increased scrutiny of busi-
ness, and the polarization of society all point To learn on multiple timescales, leaders will
to an era of protracted uncertainty, in which need to design organizations that synergis
corporate life cycles are likely to continue tically combine humans and machines. Algo-
shrinking. Companies will therefore need to rithms should be trusted to recognize pat-
worry not only about the competitiveness of terns in data and act on them autonomously,
their immediate game but also about the du- while humans should focus on higher-order
rability of that game and their ability to tasks like validating algorithms, imagining
weather unanticipated shocks. new possibilities, and designing and updating
the hybrid “human + machine” organization
Most of today’s incumbents—which were de itself. This division of labor also requires re-
signed for relatively stable, classical business thinking human–machine interfaces so that
environments—are not well adapted for this humans can trust and productively interact
more dynamic environment. Therefore, with machines. Collectively, these impera-
today’s leaders need to fundamentally re tives demand a massive evolution of organi-
invent the organizational model in order to zational capabilities and the creation of new
become future winners. “learning contracts” between employees and
enterprises.
Companies will increasingly Many of these principles are already being
implemented in isolated domains, such as the
compete on their ability to operations of digital marketplaces. But to win
the ’20s, the same principles must be applied
weather unexpected shocks. to all parts of the organization in order to
create a “self-tuning enterprise” that con
stantly learns and adapts to the environment.
Design the company of the future. Big data Such organizations must be designed with
and deep learning have transformed our flexible backbone systems, evolving business
ability to learn, and the next generation of models, and, above all, a new model of
technologies will undoubtedly bring even management—one that is based on biological
more possibilities. History has shown, howev- principles such as experimentation and co-
er, that applying new technologies to existing evolution, rather than traditional top-down
processes and structures generally yields only decision making and slow cycle planning.
incremental gains. To unlock the learning Management needs to shift its emphasis from
potential of new technologies, leaders need designing hardwired structures and proce
to reinvent the enterprise as a next-generation dures to orchestrating flexible and dynamic
learning organization. systems.
Merely applying AI to individual process Apply the science of organizational change.
steps is not enough: To increase the ability of Reinventing organizations to compete in the
organizations to learn in aggregate, they must 2020s will not be a trivial task. Whether
build integrated learning loops that gather in- because of risk aversion or complacency
formation from data ecosystems, continuous- stemming from today’s increasingly concen-
ly derive insights using machine learning, and trated industries and elevated profitability
act on those insights autonomously, all at the levels, leading companies may be under-
speed of algorithms rather than the speed of standably reluctant to unleash fundamental
human hierarchies. change preemptively. But our research shows
that the single biggest factor influencing the
But organizations must not learn only on al- success of major change programs is how
gorithmic timescales—they must also better early they are initiated. It is therefore critical
understand and position themselves for the to create a sense of urgency within the
4 | Winning the ’20s in Health Care — Featureorganization to ensure that everyone truly ership, commitment to building diversity in
understands the need for change. top management, openness to testing multi-
ple ideas, and other measures to unlock the
Even for companies that are committed to full potential of diversity.
such transformation, it can be a risky endeav-
or: our research shows that most large-scale Diversity also increases resilience. Like bio-
change efforts fail. Therefore, leaders need to logical communities and organisms, compa-
employ evidence-based transformation— nies that encompass more heterogeneity are
understanding empirically what works and likely to withstand unanticipated changes
why, rather than relying on plausible asser- better. Enterprises that embrace diverse tal-
tions and rules of thumb. In an era when ent, ideas, and sources of growth will have an
many powerful forces are revolutionizing advantage in understanding and adapting to
how organizations function, building repeat- external shocks—which increasingly threaten
able transformation capabilities will be more the survival of individual businesses.
important than ever.
Leaders also need to de-average and differen-
tiate their approaches to change. Large-scale
In the long run, diversity
transformation programs comprise multiple can make businesses more
change challenges, from exploring new fields
and approaches, to adaptively refining new
effective and more resilient.
models, to implementing structured change
with clear objectives and means. Leaders
will need to diversify their approaches to Optimize for both social and business value.
change accordingly, moving beyond the Several trends are fueling resentment toward
monolithic programs centered only on PMOs business. The climate crisis and other nega-
and Gantt charts. By adopting continuous tive externalities are increasingly visible,
change as the default, episodic change pro- automation is sparking fear about the future
grams will give way to change as an ongoing of work, trust in technology is falling, in
operating imperative. equality has risen markedly within many
countries, and the most successful companies
Embrace the business imperative of diversity. are becoming larger, more visible, and more
Diversity is not only a moral imperative—it powerful. As a result, the role of business in
can also make businesses more effective in society is coming under question, risking the
the long run. Our study of more than 1,700 sustainability of the current model of corpo-
companies around the world shows that rate capitalism.
diversity increases the capacity for innovation
by expanding the range of a company’s ideas Political institutions are not likely to address
and options. And as the speed of change these concerns effectively in the foreseeable
accelerates, innovation and reinvention are future. Demographics that portend lower
increasingly necessary to stay on top. global growth, massive public debts that limit
investment, tensions resulting from inter
The most obvious sources of diversity, such as national migration, and a social media land
gender, ethnicity, and sexual orientation, are scape that amplifies extreme voices are all
indeed important in driving innovation, but likely to continue fueling divisive, populist
variety of work experience and educational politics. The rise of China, and the growing
background is also meaningful. Importantly, US response, challenge the stability of multi
these factors are mostly additive, so compa- national institutions that businesses rely on.
nies that are diverse on multiple dimensions In an era characterized by polarization,
are even more innovative. Structural diversity everything in business will likely become
alone, however, is insufficient. Organizations “political.”
also need an environment conducive to em-
bracing new ideas, and they must install open To keep the game of business going, business
communication practices, participative lead- needs to be part of the solution. All stake-
Boston Consulting Group | 5holders increasingly expect companies to Note
play a more prominent role in addressing so- 1. Based on market capitalization at the end of 2018 Q3.
cial challenges, which will be reinforced as
newly adopted metrics and standards make
their efforts and impacts more transparent. Rich Lesser is the president and CEO of Boston
Leaders need to focus on their companies’ Consulting Group. You may contact him by email
total societal impact—in other words, they at lesser.rich@bcg.com.
need to make sure that their businesses cre-
ate social as well as economic value. Not only Martin Reeves is a managing director and se-
can this increase financial performance in the nior partner in the firm’s New York office and
long run, but it can strengthen the social con- the director of the BCG Henderson Institute. You
tract between business and society, ensuring may follow him on Twitter @MartinKReeves and
that the relationship is able to endure. Lead- contact him by email at reeves.martin@bcg.com.
ers will need to master the art of corporate
statesmanship, proactively shaping the criti- Kevin Whitaker is a lead analyst in BCG’s New
cal societal issues that will increasingly York office and a member of the Strategy Lab at
change the game of businesses. the BCG Henderson Institute. You may contact
him by email at whitaker.kevin@bcg.com.
W inning the present is challenging
enough, but the more essential task of
leadership is winning the future. The fast-
Rich Hutchinson is a managing director and
senior partner in the firm’s Atlanta office and
the global leader of BCG’s Social Impact practice.
changing world will test our status quo as- You may contact him by email at hutchinson.
sumptions, and it is critical to look forward in rich@bcg.com.
developing an agenda for the next decade.
Here we’ve offered a starting point for that
journey, presenting themes that we will fur-
ther elaborate in subsequent publications.
We invite all leaders who aim to win the ’20s
to join the conversation.
6 | Winning the ’20s in Health Care — FeaturePERSPECTIVE
PREPARING FOR A NEW
KIND OF SHAKEUP IN
HEALTH CARE
by Sanjay Saxena, Nate Holobinko, Cristian Liu, and Amika Porwal
I magine this: You have a health crisis. You
pull up the health app on your phone and
dictate your symptoms to an AI assistant.
the landscape, but their disruptive power
could bring dramatic changes. And if adversity
strikes the market, it could create just the
Then you are quickly connected via video opening these formidable companies need to
chat to a coordinator in your health system gain a foothold over sleepy incumbents.
who consults with specialists and comes back Meanwhile, medical advances and new forms
to you with a customized prescription on the of treatment will demand alternative business
basis of your medical history and personal and reimbursement models. True, a handful
genomics. Your tailored treatment is “manu- of savvier existing players—such as those in
factured” at a nearby lab and delivered to the US Medicare Advantage market—have
your workplace via drone—all before you’ve been building up capabilities to meet these
left the office for the day. Far-fetched as it may new disruptive forces, establishing models that
seem to many incumbent payers, providers, will be hard to dislodge.
and health services companies, this scenario
could soon be a reality. Yet many others are asleep at the wheel or,
worse, sinking vast amounts of time and
Of course, industry shakeups are nothing capital into capabilities that do little to
new. But this time the disruptive forces future-proof their businesses and instead put
barreling toward the health care sector are them in an even more vulnerable position.
different. In the past, incumbents could rely
on the fact that new entrants faced high bar
riers to entry: the extreme complexity of Not Your Usual Adversity
managing the cost of care and the highly reg Historically, adversity in the health services
ulated, capital-intensive, and very low-margin industry has been caused by economic down-
nature of the sector. Players with strong local- turns and changes in the regulatory and legis-
market positions and relationships with key lative environment—which in turn have driv-
stakeholders—from employers and physi en bad debt, led patients to defer elective
cians to regulators and policymakers—largely procedures (and sometimes even preventive
won out regardless of the challenge. Entering care), and increased the number of unin-
this space used to be akin to scuba diving sured. These threats will not disappear. But
without a tank. Not anymore. as medical advances and the growing pres-
ence of tech giants reshape the sector, what it
Consumer-friendly tech giants have set their takes for incumbents to weather the next
sights on health care. They don’t yet command storm will look very different.
Boston Consulting Group | 7In the future, the impact of recession and pure plays by lines of business, survival will
legislative changes may be more muted and be all but impossible.
profit pools will shift. As an example, we see
new profit pools, such as data and analytics, Weathering adversity will be made harder by
supplanting the more traditional insurance the advent of expensive new treatments and
segments. (See Exhibit 1.) In a recession, we care that the traditional system will struggle to
expect government to be the key source of pay for and supply. Only a few providers are
funding for the sector. In the US, for example, currently able to deliver these types of treat-
this puts at a relative disadvantage those ments. As more come online and demand for
payers and health systems whose strategy is them grows, those who can’t provide this new
to chase commercial business for the higher type of care may be left by the wayside.
fees, while players pursuing members of
government-sponsored health plans will Over the long term, new treatment paradigms,
likely see a boost to their business. Sweeping such as cell and gene therapy and customized
legislative changes such as Medicare for All treatments, will disrupt the demand for and
or the creation of Medicare buy-in options delivery of care. Some will require a break
for older adults who have not yet reached from annual insurance cycles and a shift to
Medicare eligibility age could accelerate this population-based drug and therapy reimburse
trend, resulting in a substantial expansion of ments. Indeed, the advent of expensive but
government-funded health care. life-altering treatments—costing from hun
dreds of thousands to, in some cases, millions
Of course, while legislative changes could be of dollars per patient—will require new
highly disruptive, the direction they take will constructs that enable payment to manufac
depend on the outcome of the 2020 US elec- turers over many years, pooled risk sharing
tion. Regardless of political shifts, however, across multiple payers (given the churn
medical advances and changes in the nature among customers), and outcomes-based
and cost of cures will have a significant im- guarantees from biopharma companies.
pact on health care business models, threat-
ening to upend the viability of year-to-year Another existential threat to the payer busi-
care financing, disrupting the essence of what ness model is the rapidly advancing under-
payers and providers do. For local plans and standing of genomics. This means payers will
Exhibit 1 | Data and Analytics Will Take on a Larger Share of Profit Pools by 2023
Share of profit pool (%)
100
29% 30% Commercial group
80
3% 3% Individual
12%
60 17% Medicare Advantage
11%
11% Managed Medicaid
40
Pharmacy benefits
19% management
36%
20
20% Data and analytics
9%
0
2017 2018 2019 2020 2021 2022 2023
Sources: BCG Healthcare Profit Pool Projection Model; BCG analysis.
Note: Data and analytics include systems that perform the following for payers and providers: population health management, imaging analysis,
clinical decision support, patient engagement, administrative-processing solutions, risk-based analytics, plan design and financial analytics, claims
processing, and member engagement.
8 | Winning the ’20s in Health Care — Perspectivelikely have to fund—and providers will have customers with new entrants to the market.
to treat—patients who are in a state of “pre- Yesterday’s playbook will still have a role—
disease.” The Centers for Disease Control and but it won’t be enough on its own.
Prevention has already certified three Tier 1
conditions for which advanced screening and In a world where employer-sponsored insur
even surgery can be performed in the absence ance is shrinking in volume and becoming
of any indication of illness, on the basis of an more susceptible to negative economic forces,
individual’s genetic makeup. These include cost cutting will no longer work as a backstop
hereditary breast and ovarian cancer syn- during a recession. Shifting insurance pools
drome, Lynch syndrome, and familial hyper from private health insurance to government
cholesterolemia. As such conditions multiply, insurance results in lower industry profits,
the year-over-year funding mechanism that even when the overall pool of enrollees and
fuels payer profits may begin to break down. revenue grows larger. (See Exhibit 2.)
Then there’s the power of the tech giants to Achieving scale will become more important
disrupt. As these companies make a rapid en- as cost pressures increase. And while some in
trance into the sector, they bring with them the business of financing care and delivery
new business models and access to diverse have attained scale, their margins are razor
sources of capital. Moreover, given their abili- thin. Diversification will therefore require
ty to build trust with consumers and harness moving into new markets, even those beyond
their data to create scale—something that care delivery.
payers and providers have struggled with—
they are well positioned to compete in the
business of health care delivery.
Achieving scale in health care
It’s easy to imagine the scenario. A large tech will become more important
giant invests in building a consumer-directed
electronic health record (EHR) on its digital
as cost pressures increase.
platform and offers it to payers, providers,
and patients free of charge. As this platform
becomes the primary method by which con Part of this shift involves forming partner-
sumers choose health care, the company ships and making acquisitions. Providers will
starts buying payers to round out its finan need to integrate hospital and physician
cing and actuarial capabilities. It then part groups and diversify into outpatient settings
ners with a leading online retailer’s drone and such as ambulatory surgery centers and infu-
drug distribution division to deliver treat sion services (walk-in outpatient centers treat-
ments to consumers. Traditional payers, pro ing acute and chronic disorders). Payers and
viders, and health systems cannot compete. providers will need to move outside their
comfort zone and start to deliver what are
becoming the essential building blocks of
Your Playbook Needs an Upgrade health care, from analytics and genomics to
Medical advances and the presence of tech real-world evidence.
giants are not the only reason health care in-
cumbents need to reexamine their strategies. Transforming the cost base will take more
In the past when adversity hit, usually be- than incremental changes. It will require a
cause of an economic downturn, the standard fundamental shift in the way both care and
playbook of incumbent responses was well the business itself are organized. This means
known: cut costs by 5% to 10%, centralize and rationalizing administrative and delivery
modernize functions to increase efficiency, infrastructures to enable scale and aligning
and use those who can pay to subsidize low- service lines and care settings to minimize
margin populations. When payers and provid- redundancy. Moves to lower-cost settings
ers were competing only with one another, should also be considered, particularly for
these tactics worked. In the next downturn, patient-facing clinics, where these are essen
however, they are likely to be competing for tial to maximize throughput and quality.
Boston Consulting Group | 9Exhibit 2 | As Enrollment Shifts to Government Insurance, the Downturn Will Affect Primarily Private
Insurers’ Profit
Enrollment (millions) Revenue ($billions) Profit ($billions)
+0.7% +4.0%
+4.8%
325.1 333.7 339.3 1,149.5 46.1
1,037.1 41.8
866.1 36.3
BASE CASE
433.8
160.4 161.5 162.4 398.4 24.8
341.8 23.7
21.0
65.2 312.7 360.7
57.2 62.6
229.5 12.6
8.0 10.2
70.6 72.9 74.4
294.7 326.1 355.0
6.2 6.3 6.4 7.4 7.9 8.6
30.8 30.4 30.9
2017 2020 2023 2017 2020 2023 2017 2020 2023
+0.7%
+5.7% +3.3%
325.1 332.3 339.3 1,206.9 44.1
41.6
DOWNTURN CASE
1,043.0 36.3
142.6 866.1 449.8
160.4 156.3 21.9
417.3 23.3
341.8 21.0
65.2 360.7
57.2 61.2 291.1
229.5 12.6
83.7 8.0 10.2
70.6 75.0
6.4 294.7 334.6 396.4
6.2 6.3 41.3 7.4 8.1 9.6
30.8 33.5
2017 2020 2023 2017 2020 2023 2017 2020 2023
Private insurance Medicare Medicaid Tricare Uninsured
Sources: BCG Healthcare Profit Pool Projection Model; BCG analysis.
Note: The downturn case assumes an economic downturn in 2020, leading to a population shift from private insurance to Medicaid and uninsured
populations.
In making this transformation, no stone the largest cost components of the system,
should be left unturned, from developing and health care companies are also often
best-in-class procurement to embracing the among the biggest employers in their market.
digital age, integrating EHRs with clinical As such, while having a strong local-market
decision-making processes, and creating an position has historically benefited incum-
agile workforce. Anything that lies outside bents, the double-edged sword of local
the enterprise’s core competency can be strength is that it frequently makes imple-
outsourced. menting much-needed changes slow, arduous,
and politically charged. Over the past decade,
This means rethinking capital allocations. It incumbents have also invested hundreds of
involves moving away from making heavy millions—even billions—of dollars in areas
investments in underperforming capabilities, like EHR systems, proprietary IT platforms,
legacy systems, and physical IT infrastructure and new buildings. Choices about scaling
—and away from investing in areas where the back on some of these investments will be
enterprise has no expertise, such as hospital hard to make, and rethinking assumptions
systems building software. It’s also wise to will be challenging.
avoid investing in retail and physical locations
without a clear strategy on how to compete
in a world where consumers increasingly pre It’s All About the Consumer
fer to access services online and on demand, Tackling tomorrow’s adversity will demand
whether at home, at work, or on the road. new business models. For example, payer
and provider organizations can consider
These core transformations will be not only cross-sector partnerships to pool their risk.
expensive but also organizationally difficult And because a significant part of the shift is
for incumbents to execute. Labor is one of to value-based payments, companies can
10 | Winning the ’20s in Health Care — Perspectiveexperiment with models such as population- Nate Holobinko is a managing director and
based pricing—in which a provider receives a partner in the firm’s Seattle office. He has more
set amount of money and accepts responsi than 15 years of experience helping companies
bility for a specific group of patients over a develop new strategies and transform their busi-
fixed time frame—charging for new treat ness models across the health care industry, in-
ments only when they are successful. cluding national insurers, Blue plans, integrated
health systems, academic medical centers, bro-
Payers, providers, and health systems must kers, and private equity investors. He also co-
also steep themselves in data and focus on leads BCG’s Center for US Health Care Reform
consumer relationships. This means making and Evolution. You may contact him by email at
sufficiently high levels of investment in digi- holobinko.nate@bcg.com.
tal and analytics capabilities and potentially
transforming the cost base to allow them to Cristian Liu is a principal in BCG’s Seattle of-
remain profitable enough at government re- fice with a focus on health care across topics in-
imbursement rates. cluding care redesign and value-based care. He
has broad experience in the health care industry,
Investments need to reflect the fact that the including corporate strategy, operations, and
consumer landscape is shifting. Digital pro- public policy. You may contact him by email at
viders from online retailers to ride-hailing liu.cristian@bcg.com.
apps have led customers to expect instant,
on-demand, customized services. And since Amika Porwal is a knowledge expert in the
this is an area open to attack from companies firm’s Chicago office and a member of BCG’s
outside the sector, the development of con- Health Care practice. She leads the North Ameri-
sumer relationships should be given a razor- can payers, providers, and services (PPS) knowl-
sharp focus. In a world where cross-year edge team, which comprises dedicated industry
treatments are becoming more common, hav- analysts with expertise across a variety of topics
ing “stickier” customers also makes the eco- and industries. In this role, she coordinates the
nomics more favorable. analytical and knowledge support of BCG’s PPS
case teams, including development of products
Payers, providers, and health services that fail and intellectual capital for the sector. You may
to foster and manage relationships with their contact her by email at porwal.amika@bcg.com.
customers will lose them to the high-tech new
comers. But those that can preserve and deep-
en these relationships will be able to fend off
competition from the disruptors and build a
future-proofed business that can withstand
adversity, no matter where it comes from.
Sanjay Saxena, MD, is a managing director and
senior partner in the San Francisco - Bay Area
office of Boston Consulting Group and the global
leader of BCG’s payers, providers, and services
work within the Health Care practice. He also co-
leads BCG’s Center for US Health Care Reform
and Evolution. You may contact him by email at
saxena.sanjay@bcg.com.
Boston Consulting Group | 11WINNING THE ’20s
THE NEW LOGIC
OF COMPETITION
by Ryoji Kimura, Martin Reeves, and Kevin Whitaker
M any of today’s business leaders
came of age studying and experiencing
a classical model of competition. Most large
also look beyond today’s situation and under-
stand at a more fundamental level what will
separate the winners from the losers in the
companies participated in well-defined next decade. We see five new imperatives of
industries selling similar sets of products; competition that will come to the forefront for
they gained advantage by pursuing econo- many businesses. (See Exhibit 1.) They are:
mies of scale and capabilities such as efficien-
cy and quality; and they followed a process of •• Increasing the rate of organizational
deliberate analysis, planning, and focused learning
execution.
•• Leveraging multicompany ecosystems
The traditional playbook for strategy is no
longer sufficient. In all businesses, competi- •• Spanning both the physical and the digital
tion is becoming more complex and dynamic. world
Industry boundaries are blurring. Product and
company lifespans are shrinking. Technologi- •• Imagining and harnessing new ideas
cal progress and disruption are rapidly trans-
forming business. High economic, political, •• Achieving resilience in the face of
and competitive uncertainty is conspicuous uncertainty
and likely to persist for the foreseeable future.
In short, the logic of competition has
Accordingly, in addition to the classical advan changed—from a predictable game with sta-
tages of scale, companies are now contending ble offerings and competitors to a complex,
with new dimensions of competition—shaping dynamic game that is played across many di-
malleable situations, adapting to uncertain mensions. Leaders who understand this, and
ones, and surviving harsh ones—which in turn re-equip their organizations accordingly, will
require new approaches. And the stakes are be best positioned to win in the next decade.
higher than ever: the gap in performance be
tween the top- and bottom-quartile companies
has increased in each of the past six decades.1 Competing on the Rate of
Learning
Today’s business leaders are dealing with Learning has long been considered important
complex competitive concerns in the short in business. As Bruce Henderson, BCG’s
run. But as the 2020s approach, they must founder, observed more than 50 years ago,
12 | Winning the ’20s in Health CareExhibit 1 | Five New Imperatives of Competition
Competing on the
rate of learning
Competing on Competing in
resilience ecosystems
Competing on Competing in a hybrid
imagination digital+physical world
Source: BCG Henderson Institute.
companies can generally reduce their margi For example, Netflix’s algorithms take in be-
nal production costs at a predictable rate as havioral data from the company’s video
their cumulative experience grows. streaming platform and automatically pro-
vide dynamic, personalized recommenda-
But in traditional models of learning, the tions for each user; this improves the product,
knowledge that matters—learning how to keeping more users on the platform for long
make one product or execute one process er and generating more data to further fuel
more efficiently—is static and enduring. the learning cycle. (See Exhibit 2.)
Going forward, it will instead be necessary to
build organizational capabilities for dynamic However, there is an enormous gap between
learning—learning how to do new things, and the traditional challenge of learning to im-
“learning how to learn” by leveraging new prove a static process and the new imperative
technology. to continuously learn new things throughout
the organization. Therefore, successfully com-
Today, artificial intelligence, sensors, and digi- peting on learning will require more than
tal platforms have already increased the op- simply plugging AI into today’s processes and
portunity for learning more effectively—but structures. Instead, companies will need to:
competing on the rate of learning will be-
come a necessity by the 2020s. The dynamic, •• Pursue a digital agenda that embraces all
uncertain business environment will require modes of technology relevant to learning—
companies to focus more on discovery and including sensors, platforms, algorithms,
adaptation rather than only on forecasting data, and automated decision making.
and planning.
•• Connect them in integrated learning
Companies will therefore increasingly adopt architectures that can learn at the speed of
and expand their use of AI, raising the com- data rather than being gated by slower
petitive bar for learning. And the benefits hierarchical decision making.
will generate a “data flywheel” effect—
companies that learn faster will have better •• Develop business models that are able to
offerings, attracting more customers and more create and act on dynamic, personalized
data, further increasing their ability to learn. customer insights.
Boston Consulting Group | 13Exhibit 2 | Netflix Leverages a Learning and Data Flywheel
Number of subscribers % of streams originating from
(millions) AI recommendation1
80
150 118 80
100 75
75
50 24
0 70
2011 2017 2011 2017
More users (more data) Avg. usage per More effective algorithms
subscriber (hr/yr)
654
600
400 310
200
2011 2017
Better customer experience
Sources: Company reports; Wired; Business Insider; BCG Henderson Institute analysis.
1
Based on company releases and news reports.
Competing in Ecosystems tion between collaborators and competitors:
Classical models of competition assume that for example, Amazon and third-party mer-
discrete companies make similar products chants have a symbiotic relationship, while
and compete within clearly delineated indus- the company competes with those merchants
tries. But technology has dramatically re- by selling private-label brands.
duced communication and transaction costs,
weakening the Coasean logic for combining A few digital giants have demonstrated that
many activities inside a few vertically inte- successfully orchestrating ecosystems can
grated firms.2 At the same time, uncertainty yield outsized returns. Indeed, many of the
and disruption require individual firms to be largest and most profitable companies in the
more adaptable, and they make business en- world are ecosystem-based businesses.3 One
vironments increasingly shapable. Companies example is Alibaba, which leads China’s mas-
now have opportunities to influence the de- sive e-commerce market not by fulfilling
velopment of the market in their favor, but most functions directly but by building plat-
they can do this only by coordinating with forms that connect manufacturers, logistics
other stakeholders. providers, marketers, and other relevant ser-
vice providers with one another and with end
As a result of these forces, new industrial users. By decentralizing business activities
architectures are emerging based on the coor- across large groups of firms or individuals,
dination of ecosystems—complex, semifluid the Alibaba ecosystem is rapidly adaptive to
networks of companies that challenge several consumers’ needs and also highly scalable—
traditional business assumptions. Ecosystems resulting in 44% annualized revenue growth
blur the boundaries of the company: for ex- for the company in the past five years.
ample, platform businesses such as Uber and
Lyft rely heavily on “gig economy” workers The playbook for how to emulate these eco-
who are not direct employees but rather tem- system pioneers has not yet been fully codi-
porary freelancers. Ecosystems also blur in- fied, but a few imperatives are becoming
dustry boundaries: for example, automotive increasingly clear:
ecosystems include not just traditional suppli-
ers but also connectivity, software, and cloud •• Adopt a fundamentally different perspec-
storage providers. And they blur the distinc- tive toward strategy, based on embracing
14 | Winning the ’20s in Health Care — Winning the ’20sprinciples like external orientation, Early signs of “hybrid” competition at the
common platforms, co-evolution, emer- physical-digital intersection are already
gence, and indirect monetization. emerging. Digital giants are moving into phys-
ical sectors: for example, Amazon has opened
•• Determine what role your company can new retail stores in addition to its acquisition
play in your ecosystem or ecosystems— of Whole Foods, while Google has entered
not all companies can be the orchestrator. automotive and transportation through its
Waymo subsidiary. Meanwhile, incumbent
•• Ensure that your company creates value companies are furiously pursuing digitization.
for the ecosystem broadly, not just for For example, John Deere has invested heavily
itself. in IoT technology by adding connected sen-
sors to its tractors and other equipment. The
company collects and analyzes data from
Competing in the Physical and each machine, using the insights to provide
the Digital World updates to its equipment or suggestions to
Today’s most valuable and fastest-growing users. “Our roadmap is calling for machine
businesses are disproportionately young learning and AI to find their way into every
technology companies, which operate piece of John Deere equipment over time,”
ecosystems that are predominantly digital. said John Stone, the senior vice president for
(See Exhibit 3.) But the low-hanging digital Deere’s Intelligent Solutions Group.4
fruits in consumer services, including retail,
information, and entertainment, seem to These trends point to a new battle between
have been plucked. New opportunities are younger digital natives and traditional physi-
likely to come increasingly from digitizing cal incumbents. But unlike in the past dec
the physical world, enabled by the rapid ade, in which upstarts unseated many legacy
development and penetration of AI and the leaders with purely digital models, the next
Internet of Things. This will increasingly round is likely to be a more balanced contest.
bring tech companies into areas—such as Technology companies no longer have a lim-
B2B and businesses involving long-lived and itless social license; in the next decade, they
specialized assets—that are still dominated will have to navigate thorny issues like user
by older incumbent firms. trust, data privacy, and regulation, which will
Exhibit 3 | Young Tech Companies Were the Biggest Winners of the 2010s
DEMOGRAPHICS OF TOP TEN GLOBAL COMPANIES BY MARKET CAPITALIZATION
Primary sector1 Median company age2
57
70% 34
20%
2010 2019 2029 2010 2019 2029
Financials Materials Consumer staples
Health care Energy Technology
Sources: S&P Capital IQ; BCG Henderson Institute analysis.
Note: Based on market capitalization at beginning of year.
1
Based on GICS classifications; Technology includes information technology, communications services, and internet services & retail.
2
Years since company founding.
Boston Consulting Group | 15likely be even more critical in the context of business models. Long-run economic growth
hybrid competition. And incumbents will still rates have declined in many economies, and
have to fight against institutional inertia and demographics point to a continuation of that
the long odds of disruption, but they will be pattern. Competitive success has become less
able to better leverage existing relationships permanent over time. And markets are in-
and expertise in the physical world. There- creasingly shapable, increasing the potential
fore, the next wave of “natural selection” in reward for innovation. As a result, the ability
business is likely to test both digital natives to generate new ideas is more important
and incumbents—and winners could emerge than ever.
from either group.
However, creating new ideas is challenging
What will make the difference? To succeed in for many companies. Inertia increases with
hybrid competition, companies will need to: age and scale, making it harder to create and
harness new ideas: our analysis of companies
•• Build strong relationships with actors on around the world shows that older and larger
both sides of the ecosystem—customers companies have less vitality, the capacity for
and suppliers. sustainable growth and reinvention. (See Ex
hibit 4.) And business and managerial theory
•• Rethink existing business models in order has emphasized a “mechanical” view—one
to win the battle for new hybrid markets. dominated by easily measurable variables like
efficiency and financial outcomes—rather
•• Adopt good practices for governance of than focusing on how to create new ideas.
data and algorithms to preserve users’ trust.
To overcome these challenges, companies
need to compete on imagination. Imagination
Competing on Imagination lies upstream of innovation: to realize new
Companies can no longer expect to succeed possibilities, we first need inspiration (a rea-
by leaning predominantly on their existing son to see things differently) and then imagi-
Exhibit 4 | Older Companies Are Generally Less Vital
BCG vitality score1
8
6
4
2
0
–2
–4
10 30 100 300
Company age (log scale)2
Information technology Consumer discretionary Health care
Financials Industrials Other
Source: BCG Henderson Institute analysis.
Note: Shows 1,083 companies worldwide (companies with $10 billion+ revenue or $20 billion+ market cap through year-end 2017); excludes
energy, metals & mining, and commodity chemicals.
1
Based on 18 metrics weighted by ability to predict future long-term growth; see “The Global Landscape of Corporate Vitality,” BCG, 2018.
2
Years since company founding.
16 | Winning the ’20s in Health Care — Winning the ’20snation (the ability to identify possibilities threat from social divisions and political grid-
that are not currently the case but could be). lock. Society is increasingly questioning the
Imagination is a uniquely human capability inclusivity of growth and the future of work.
—artificial intelligence today can make sense And planetary risks, such as climate change,
only of correlative patterns in existing data. are more salient than ever.
As machines automate an increasing share of
routine tasks, individual managers will need Furthermore, deep-seated structural forces
to focus on imagination to stay relevant and indicate this period of elevated uncertainty is
make an impact. likely to persist: technological progress will
not abate; the rise of China as an economic
How can companies compete on imagination? power will continue to challenge internation-
al institutions; demographic trends point to-
•• Focus on anomalies, accidents, and ward an era of lower global growth, which
analogies, rather than averages, in order will further strain societies; and social polar-
to spark inspiration. ization will continue to challenge govern-
ments’ ability to effectively respond to na-
•• Enable the open spread and competition of tional or global risks. (See Exhibit 5.)
ideas—for example, by limiting hierarchy
and empowering employees to experiment Under such conditions, it will become more
and make imaginative proposals. difficult to rely on forecasts and plans. Busi-
ness leaders will need to consider the larger
•• Become a “playful corporation” that is able picture, including economic, social, political,
to effortlessly explore new possibilities. and ecological dimensions, making sure their
companies can endure in the face of unantici-
pated shocks. In other words, businesses will
Competing on Resilience effectively need to compete on resilience.
Looking ahead to the 2020s, uncertainty is
high on many fronts. Technological change is Survival is already challenging for many
disrupting businesses and bringing new so- businesses today. Building resilience is often
cial, political, and ecological questions to the at odds with traditional management goals
forefront. Economic institutions are under like efficiency and short-run financial maxi
Exhibit 5 | Global Risks Are Elevated Across Many Dimensions
PLANET
SOCIETY
ECONOMY
TECHNOLOGY
Growth Future of Work
Plastics
AI governance Uncertainty Inequality
Global warming
Data privacy Trade regime Inclusion
Water
Trust US vs. China Cohesion
Source: BCG Henderson Institute.
Boston Consulting Group | 17mization. But to thrive sustainably in uncer Notes
tain environments, companies must make 1. Based on the average difference in EBIT margin
between companies ranking in the top quartile and
resilience an explicit priority: those in the bottom quartile in each of 71 industries
(among US public companies with at least $50 million
•• Prepare for a range of scenarios to ensure in revenue).
2. Ronald Coase, “The Nature of the Firm,” Economica,
that strategy is robust and risks are
November 1937.
survivable. 3. At the start of 2019, seven of the world’s top ten
companies by market capitalization leveraged multi-
•• Build an adaptive organization that can company ecosystems: Apple, Amazon, Microsoft,
Alphabet, Facebook, Alibaba, and Tencent.
rapidly adjust to new circumstances—for
4. Scott Ferguson, “John Deere Bets the Farm on AI,
example, by constantly experimenting to IoT,” Light Reading, March 2018.
identify new options.
•• Proactively contribute to collective action
on the biggest issues facing global econo- Ryoji Kimura is a managing director and senior
mies and societies, in order to maintain a partner in the Tokyo office of Boston Consulting
social license to operate. Group and the global leader of BCG’s Corporate
Finance & Strategy practice. You may contact
him by email at kimura.ryoji@bcg.com.
The New Significance of Scale
These new forms of competition are highly Martin Reeves is a managing director and se-
intertwined. For example, companies that nior partner in the firm’s New York office and
orchestrate ecosystems will have an advan- the director of the BCG Henderson Institute. You
tage in competing on learning, because eco- may follow him on Twitter @MartinKReeves and
systems are a rich source of real-time data contact him by email at reeves.martin@bcg.com.
and digital platforms facilitate experimenta-
tion. Many companies will integrate physical Kevin Whitaker is a lead analyst in BCG’s New
and digital assets by leveraging partnerships York office and a member of the Strategy Lab at
in hybrid ecosystems. Machine learning and the BCG Henderson Institute. You may contact
autonomous action will increase humans’ him by email at whitaker.kevin@bcg.com.
need for and ability to focus on imagination.
And those shifts will collectively create fur-
ther unpredictability for business, necessitat-
ing strategies for resilience.
These five emerging aspects of competition
point to a new logic for “scale.” No longer will
scale represent only the traditional value of
achieving cost leadership and optimizing the
provision of a stable offering. Instead, new
kinds of scale will create value across multiple
dimensions: scale in the amount of relevant
data companies can generate and access,
scale in the quantity of learnings that can be
extracted from this data, scale in experimen
tation to diversify the risks of failure, scale in
the size and value of collaborative ecosystems,
scale in the quantity of new ideas companies
can generate, and scale in resilience to buffer
the risks of unanticipated shocks.
18 | Winning the ’20s in Health Care — Winning the ’20sYou can also read
