Feature / Stepping into the unknown

‘Innovation is the way – the only way – we can meet [current] challenges. Innovation must become core business for the NHS.’ So wrote David Nicholson introducing last year’s Innovation, health and wellbeing report. But innovation means risk taking – identified by the NHS Institute for Innovation and Improvement as one of seven key dimensions that characterise an innovative organisation. Yet the NHS is often described as risk-averse and finance directors portrayed as being more interested in avoiding risk than taking it.

The NHS Institute says that it is obviously important to avoid taking inappropriate risk in the health service. But its Creating a culture for innovation guide insists: ‘A healthy organisational culture seeks a balanced assessment that avoids prematurely rejecting ideas due to over-estimation of risk’. It adds that leaders in innovative organisations ‘are more interested in learning from failure than in punishing it’.

The guide is littered with examples of innovation, mostly from the private sector. But Lynne Maher, the institute’s director for innovation and design, rejects the frequent assertions that the NHS is somehow different from the private sector.

‘Many people – particularly senior people – say taking risk is not the same in industry as in the NHS,’ she says. ‘Of course, some industries are not the same, but many industries have similarities, including those related to health, the nuclear industry, the railway industry. All of them are responsible in some way for people’s lives.’

The health service has already learned a lot from industry – she points to the airline industry and work around safety and checklists. And she wonders if the NHS has become fearful of taking risks or somehow become too conservative.

Her biggest argument is that managers often don’t fully consider the risks involved with staying with the same approach to delivery. ‘We often don’t assess the risks of the status quo, yet we are happy to say for a new idea that it has too much risk. Of course we must scrutinise any new innovation but we need to scrutinise them fairly against the status quo.’

Ms Maher believes there is scope for more risk taking, although she is not advocating a free-for-all in innovation. She would like measured steps to be taken towards new practices and ways of working – small number tests on new pathways, for example, and greater use of the ‘plan, do, study, act’ cycle in testing changes.

She acknowledges that innovation can seem a ‘big personal risk’ for finance directors. Someone else might take the risk in using a new approach, but the finance director may be in the firing line if this leads to overspent budgets.  Again she urges a measured approach, growing confidence and building the case so that new schemes can be expanded, with any earlier financial savings turning into investment funds to support the new approaches. And she believes finance directors already have many of the skills – particularly around measurement and project management – that will underpin the implementation of successful innovation.

Ian Moston, finance director at The Christie NHS Foundation Trust, says the last thing the NHS needs is cavalier finance directors. ‘Boards need a balanced set of people around the table,’ he says. ‘They certainly need entrepreneurial spirits associated with risk taking but that doesn’t necessarily sit with the finance director.’ But equally he says finance directors have to move away from the historical image as the person who shackles innovation and risk – the abominable no-men, as they’ve often been characterised in the past.

Getting the balance right

Attempts to get the right balance on risk can be seen with the trust’s approach to its own financial risk rating. Its strategy targets a financial risk rating of 4 or more, rather than aiming for the highest 5 category.

Mr Moston suggests that a risk rating of 5 could suggest an overly cautious organisation not recycling enough of its surplus back into service development. The Christie assesses the cash it is likely to generate on a five-year rolling basis. It then looks to make 80% of this available spread across infrastructure and major equipment refresh, minor equipment and major investment. Required returns on investment reflect the risks being taken

‘Our strategy aligns with our aims of being ambitious and pushing the boundaries but keeping one eye on finances and the way that regulation works,’ he says.

One risk he believes finance directors need to take is devolving finances within their organisations. He believes this is unquestionably the right approach and has overseen the devolution of costs and income to individual services lines at The Christie.

In a centralised system, finance directors may effectively be able to take the surpluses in one area (or withhold growth funds) to cover the overspends in another. Overall the

position balances, but this would often put pressure on the growing or productive areas while not providing the right challenge and rigour to the areas where difficult decisions need to be taken.

‘I haven’t lost control but I do have less direct control,’ he says. ‘It puts resources in the hands of the people at the front-end, and not all their spending decisions will be good ones.

‘I probably have to work harder on the controls and processes to manage financial risk at the corporate level. But the consequences are an organisation that can be more entrepreneurial. That to me is risk taking and gets you good clinical engagement.’

Increasingly commentators are suggesting the NHS will need to find new business models to deliver services. This might involve greater specialisation, with a re-division of some services across multiple organisations and much greater reliance on networks and partnership.

‘There is no doubt we will have to challenge existing service models,’ says Mr Moston, ‘and there are risks in that. When we set our corporate strategy back in 2008/09, the board recognised that it wouldn’t be able to deliver success in the same way going forward as it had done in the past. There simply wouldn’t be the availability of capital resources and the world was changing.’

Partnership was seen as the way forward. There are risks related to reputation and finances and clear challenges, but the board has followed up on its strategy with projects such as a joint venture with Salford Royal NHS Foundation Trust to deliver the ‘Christie at Salford’ radiotherapy centre – one of the few places in the country equipped to undertake stereotactic radiosurgery for the treatment of brain tumours.

Investment to achieve a stepped change is an area in which Beccy Fenton believes finance directors will need to get more comfortable with risk – but risk for the wider health economy not just their own organisation. Ms Fenton, a director at KPMG’s healthcare consultancy, believes this is an added dimension for many practitioners. ‘In the past, an acquisition may have been dismissed on the grounds that it was too risky [for the acquirer] or jumped at because of the immediate financial gain. But the current context means we need to understand not just the risks and gains for one organisation, but the wider implications across the whole economy.’

Ms Fenton suggests collaboration between NHS organisations offers an opportunity to deliver significant benefits, without the cost and distraction of a full-blown merger or acquisition. However, this is not something the NHS has done particularly well in the past.

‘It can be a risk to open up those conversations because it normally involves organisations admitting that they need help,’ she says. ‘So there needs to be an element of trust and risk taking from both parties.’

According to Ms Fenton, the NHS is primarily focused on delivering emergency services and the culture in the NHS tends to be very much about dealing with day-to-day crisis management. Organisations need to think about building capability to enable them to think more strategically to deliver transformational change.

‘Risk taking is really about one’s appetite for major change and in the past the NHS has not necessarily needed to prioritise planning for and implementing major change,’ she says.

It’s not a criticism, suggests Ms Fenton, but often it was not clear where the NHS was trying to get to and what the benefits would be (to patients, staff and the financial position). Many organisations and health economies are now recognising that they need to refresh their strategies and determine their long-term strategic visions to ensure they remain clinically sustainable and financially viable.

Ms Fenton also identifies perverse incentives in the system that do not help organisations take risks or think longer term. One example is the A&E department access targets.

‘The fact that the accident and emergency 95% target is monitored on an hourly, daily, weekly and monthly basis can provide a perverse incentive for an organisation to radically transform,’ she says. ‘The risk facing organisations that want to transform is that the service performance may get worse before it gets better and this is sometimes a risk that providers feel unable to take.’

Perverse incentives inhibiting innovation were also highlighted by Imperial College Business School in its submission to the Department of Health’s work on innovation last year. With tariffs based on current price, it argues that providers could not cover the cost of more expensive clinical procedures that might improve quality over time.

‘If an innovation improves efficiency by reducing activity, a trust may be penalised because it will receive less under the tariff system,’ its submission says.

The Department acknowledges the issue. Although there are already flexibilities for pass-through payments to support innovation in payment by results rules, the Department’ innovation report recognises the ‘need to align organisational, financial and personal incentives and investment to reward and encourage innovation’.

Ms Fenton says there is also an onus on finance directors to look beyond short-term costs and consider long-term quality improvements and savings when assessing business cases. Cost reductions will need to be pinned down, but she says that finance managers need to help operational areas to identify those savings and measure the benefits being realised going forward.

Finance directors may also need to examine their attitude to risk in the running of their own departments. While the private sector has seen wider adoption of business practices such as shared financial services, there has been relatively limited uptake within the NHS – particularly among provider trusts. The common excuse is the risk of losing control or lack of flexibility.

‘We see greater innovation in this area from the private sector,’ says Ms Fenton. ‘In the past, shared service models in the NHS have not negotiated good contracts that ensure a high-quality service is provided at lower costs and because of these past experiences some people use this as a reason not to take a risk and  do something new. We ought to consider that if something isn’t our core business then we should let other people deliver the service if they can do it better.’

Risk taking also has a place in commissioning. The now defunct ‘world class commissioning’ regime clearly stated: ‘World class commissioners are not risk-averse. They are the local innovators and entrepreneurs who, in partnership with clinicians and providers, are prepared to experiment where the potential benefits justify the risks.’

Claire Yarwood, now finance director of NHS Greater Manchester, remembers that risk taking was identified as a weakness in her previous organisation, Salford PCT, as part of an otherwise very good score in the assurance process. ‘We were told we were good at analysis, providing evidence and measuring, but that we didn’t take enough risks,’ she says.

CCG benefits

She believes this was really a comment on the time taken to implement some changes and the bureaucratic nature of the process. She says the move to clinical commissioning groups should help address this. Clinicians will be involved earlier in the process and actually initiate the ideas. We can’t and don’t want to avoid due process and business cases, but this should help get us there quicker.’

But Ms Yarwood is also aware that taking risks around innovative practices is no easy matter. Back in Salford, in response to GP requests, a £3m innovation fund was created to support practice-based commissioning. ‘Even though we put £3m effectively at risk, it proved quite hard to spend,’ she says.

She suspects that the NHS sometimes sets the bar too high for the evidence it requires to try something new. The problem is the evidence doesn’t always exist. Some of the public health initiatives around reducing alcohol intake, for example, may have parallels with smoking cessation, but can often draw on no direct evidence of their own.

Organisations do need to start taking risks with some of these schemes, using plausibility rather than evidence as the measure, argues Ms Yarwood. And then, crucially, organisations need to ensure that the learning from these pilots is effectively industrialised across other commissioners.