Kaiser Permanente: Building a Digital-First Health System

Kaiser Permanente is a leading not-for-profit, integrated health system with 12.5 million members and over 200,000 employees, including more than 85,000 clinicians, and a 2021 operating revenue of $93.1 billion.⁶ Their philosophy is to take care of their members holistically and keep them healthy. In the building platform capabilities phase, Kaiser Permanente responded to the disruptive changes in healthcare by developing a “digitally enabled” health system with a direct-to-consumer business model and clinical and business processes enabled with powerful, user-friendly technologies.⁷ The organization laid the foundation for its platform mindset transformation in 2004 when it began the rollout of an integrated electronic health record system across all its regions.

Prat Vemana, chief digital officer at Kaiser Permanente, explained:

We made the commitment to electronic medical records as our foundation for all of our future transformational work. It did not just capture and store records, but it became the way physicians and clinical staff collaborate to deliver care. It made our organization more powerful as an integrated model of care. It was a big step, and one of the first of such systems in the market.⁸

Over time, leaders recognized that growing numbers of members were accessing their records on mobile devices, motivating Kaiser Permanente to create a mobile strategy in 2010. The mobile strategy evolved into a holistic consumer digital strategy that the organization considered critical for attracting and retaining members. Diane Comer, chief information and technology officer, explained:

Kaiser Permanente’s integration of care and coverage is a powerful and distinctive model within the health care industry. This model focuses on delivering high quality, affordable care rather than the common fee-for-service model used elsewhere. The broad array of capabilities underlying the “care and coverage” model spans all aspects of payer and provider offerings and is instantiated in our technology. Our shift to be a digital-first system, coupled with support for physical access for those who need or want it, has resulted in seamless delivery of everything from enrollment, to appointment and advice, to medical records, to prescriptions, to lab work. Our members and patients have an amazing breadth and depth of technology available to them via our digital assets.⁹

To drive member engagement, the consumer digital strategy focused on providing personalized and contextually relevant experiences throughout the process of identifying health issues and selecting the appropriate channel of interacting with physicians, whether it be email, phone, video, or in-person visit. As part of the strategy, Kaiser Permanente carefully weighed digital innovations and customer expectations regarding privacy.

To leverage the powerful platform, Kaiser Permanente established new ways of working, including a transformation of the IT organization in 2016 to support the rapid delivery of digital capabilities through DevOps.

In the rapid innovation phase of a pathway 1 transformation, Kaiser Permanente is transitioning from a “digitally enabled health system” to a “digital first health system,” in Prat Vemana’s words. Kaiser Permanente increasingly leverages digital technologies for continuous monitoring and intervention. For example, Kaiser Permanente innovated to solve a big problem with their virtual cardiac rehabilitation program. There are around 735,000 heart attacks per year in the United States,¹⁰ and the completion rate of traditional cardiac rehab programs is only around 50 percent,¹¹ leaving many patients vulnerable to setbacks. The healthcare provider partnered with Samsung in 2018 to develop an at-home program that uses digital technologies (Samsung’s wearable devices, the customized HeartWise app, and Kaiser Permanente’s real-time clinical dashboard) to guide rehabilitation after a heart attack.

The innovation team, led by chief innovation and transformation officer Dr. Tadashi Funahashi and Dr. Columbus Batiste (at the time division chief of cardiology and, since 2018, the medical director of the home-based cardiac rehab program) first addressed decision rights—they got clinical, medical, and technology leadership buy-in from the Southern California region and are now expanding to all regions. Then they used a test-and-learn approach to codevelop the program with partner Samsung.¹² They created a small, multidisciplinary core team with people from operations, medical services, technology, and administration. The team collaborated with Samsung partner teams in technology design, user research, engineering, and service development, using human-centered design methods to understand the needs of patients and caregivers. The team developed a prototype, piloted the full app with all rehab components (including exercise, medication, adherence, education, and behavioral modification) with thirty-seven patients over a six-month period, and then provided training and support for regional deployment. Throughout the process, the team measured value in multiple ways, including the bond between patient and provider, via direct patient feedback to doctors, adherence rates, and chart reviews.

In phase one of this pathway 1 transformation, Kaiser Permanente focused on building platform capabilities and creating value from operations and customers. Members who engaged online were healthier and more satisfied, based on Kaiser Permanente’s studies. Most importantly, members were twice as likely to stay with Kaiser Permanente if they engaged online.¹³

In the rapid innovation phase, Kaiser Permanente is creating increased value from ecosystem partnerships with innovative digital offerings. For example, customer engagement increased dramatically with the virtual cardiac rehab program. More than 80 percent of patients completed this rehab compared to only 50 percent of patients in-clinic. Operational costs decreased because hospital readmissions were less than 2 percent compared to 10–15 percent for in-clinic programs.¹⁴ “We are taking an existing service, but we are digitally enhancing it in a way that it not only improves the lives of the patient, but also provides efficiencies in the health system,” explained Prat Vemana.¹⁵ The longer-term goal is to become a single destination for Kaiser Permanente members, enabling them to manage their health, wellness, and lifestyle holistically around health conditions.

Hiring Kaiser Permanente’s first chief digital officer marked the launch of phase two in the transformation in 2019. One of his first steps was to create a new organization, KP Digital, that combined the formerly separate Digital Experience Center (the business side of digital) and the IT group (the technology side of digital). The new Value Management and Data Analysis group was tasked with developing a dashboard that would show where value was being created and help accelerate the spread of ideas and discourage others that were not working. The group characterized value in four areas—membership, utilization, affordability, and quality—and created metrics across four levels, including a CEO dashboard that the executive team and the board review each quarter. In addition, they created a dashboard for experience teams who deliver the digital offerings, which the teams review weekly. These metrics show, for example, how members use new services, like online mailed prescription refills. Because Kaiser Permanente is in the middle of phase two, most metrics in the value dashboard illuminate value from customers (e.g., number of members) and value to customers. The latter metrics deeply focus on understanding customers and the customer experience across the continuum of care, which includes shopping for coverage, enrolling, managing a health condition (like ordering refills online or signing up for notifications), and many others. One category, named next-level dimension metrics, is about identifying members with unmet needs, medical or social (e.g., food and home security, childcare, literacy), that the health system could address through collaborating with other ecosystem partners like community organizations. The value dashboard is becoming an important tool to measure progress in the rapid innovation phase of pathway 1 by enabling evidence-based decisions.

Tetra Pak: Developing Industry 4.0 and Moving to One Firm for Customer Experience

Tetra Pak, part of the privately owned Tetra Laval Group, is a global market leader in aseptic food and beverage carton packaging, with a total 2020 net sales of €11 billion. While packaging is its biggest source of revenue—the firm produces over 183 billion packages a year—it also offers food processing and adjacent services. Tetra Pak has made significant progress in transformation, primarily following pathway 1, achieving better customer experience through operational excellence, elegantly dealing with the four explosions described in chapter 2.¹⁶ Like Kaiser Permanente, Tetra Pak illustrates a typical order of importance of managing the explosions for pathway 1 firms: (1) changing decision rights; (2) creating a platform mindset; (3) organizational surgery; and (4) new ways of working.

At the start of the twenty-first century, Tetra Pak recognized the importance of operational efficiency on a global scale. Rather than operating as a collective of over 160 firms selling the same base product, management focused on developing a coherent operating model driven by process automation and a single standardized enterprise resource planning solution to become a global firm selling in over 160 countries. Then, in 2015, its strategy and IT departments recognized the potential impact of digital technologies that had become readily available, such as social media, mobile, analytics, cloud, and Internet of Things (IoT) solutions.

Dennis Jönsson, former chief executive officer, explains:

Our starting point is strong. We already have a range of industry-leading activities underway in the digital arena; we have put in place a single shared platform on which we run our entire global business; and we have lean and modern IT operations in many areas that provide a solid foundation on which to use information as a strategic asset.

Tetra Pak’s digital transformation effort in the building platform capabilities phase focused on industry 4.0, creating fully integrated collaborative systems that are more efficient and respond in real time to changing customer demands and conditions in factories. The development of a unified plant management service that offers end-to-end control of operations required Tetra Pak to take its platform mindset to the next level. To handle this organizational explosion, Tetra Pak partnered with leading technology firms to help service-enable what made the firm great—its plant operations—and guide the firm on how it could best use its data as a strategic asset. The platform focused on three main areas: (1) connecting equipment and devices for the provision of useful data across the firm’s entire ecosystem; (2) leveraging that data through advanced analytics to conduct predictive maintenance; and (3) making the firm’s collective knowledge and expertise available to employees globally through mobile devices and augmented reality. The technology providers were more than suppliers—they understood Tetra Pak’s business and engaged in mutual learning. These strategic partnerships were key in ensuring that the firm could experiment and execute its digital strategy on a global scale. This set of activities focused on capturing value from operations.

Unfortunately, the platform did not address the customer experience. Customers still had to deal with representatives from various processing, packaging, and/or services units: “We can say we are one firm all we want, but if we don’t change the way we meet the customer, it’ll never happen,” explained Mark Meyer, chief information officer.

To improve its platform and further differentiate customer offerings in a competitive market, Tetra Pak steadily shifted its focus from operational efficiency toward customer experience, transitioning into the rapid innovation phase. This shift required two additional organizational explosions: a radical change in decision rights triggered the need for organizational surgery. Rather than create a centralized customer experience division, Tetra Pak realigned decision rights with front-end units to improve customer journeys across all touchpoints. Cross-functional key account teams took end-to-end responsibility for customers locally, leveraging a deep understanding of individual customer needs to integrate interactions. This required changes to metrics and incentives, away from back-end efficiencies and cost savings (which became the responsibility of centralized operational divisions) toward sales and net-promoter scores. Although this approach helped solve some initial customer frustrations of dealing with multiple business units, it did not address the underlying business complexity and suboptimization. The packaging, processing, and services silos still existed, and key account managers had limited control over back-end operations—a requirement for further improvement of the customer experience. That is why the firm pursued a major reorganization under the theme “one firm, three businesses”—focusing on what is required to succeed as one firm and how it approaches customers. This set of activities focused on capturing value from customers.

Alongside the other organizational explosions, Tetra Pak is making steady progress toward new ways of working with a large training program to raise awareness and understanding of key elements of the transformation, including industry 4.0 components, customer journey mapping, and the agile methodology. The latter was especially challenging for a firm that has long focused on efficiency and unified operations, as employees were less inclined to use test-and-learn approaches: “[One of the] biggest challenges we’re having is the change management with people. I’m not at all worried about the technology. It will work well. It is to change the way people work. That is going to be tremendously difficult,” said Goren Liden, IT director.

Today, Tetra Pak focuses on the rapid innovation phase of pathway 1. There are a number of exciting initiatives underway that help Tetra Pak create value from ecosystems. For example, in 2019, Tetra Pak began working on the digitization of food manufacturing in an initiative named “Factory of the Future,” with partners, including Microsoft, ABB, SAP, and the automated logistics solutions provider Elettric80.¹⁷ In 2019, Tetra Pak also launched its connected packaging platform to provide end-to-end traceability for producers, greater supply chain visibility for retailers, and more information for customers (including where the product was made, which farm the ingredients came from, and how to recycle the container).¹⁸ In 2020, Tetra Pak developed a new collaborative innovation model to solve some grand challenges. For example, Tetra Pak works with researchers, startups, suppliers (e.g., paperboard manufacturers), and customers (food and beverage brands) on developing packaging solutions with low impact on the environment. The goal was to design a total production plant that would make it easy to simulate, evaluate, and select optimal solutions for specific customers’ needs.¹⁹ Laurence Mott, executive vice president of development and engineering, explained:

The old notion of a linear supply chain is gone. We need to work in an ecosystem, in close partnerships with our development partners, who also are our suppliers. And at the same time, we need to work in close collaboration with our customers. It’s a very, very big challenge to do it all simultaneously.

Like many firms looking to grow in the digital era, Tetra Pak recognized that it couldn’t do it all alone. Digital partnerships will help all parties grew faster.²⁰ This set of activities focused on capturing value from ecosystems while still building value from customers and operations. Figure 3-2 summarizes how the four explosions were handled at Tetra Pak. We suggest you create a similar diagram for how you will manage explosions in your firm. And then assess how effectively you are managing those explosions!

Building Platforms

The building platforms phase requires firms to identify their crown jewels and then build digitized platforms to turn them into reusable digital services. The building of these platforms takes time, often more than a year, and leaders need to help everyone understand why this build time is important and what to expect and when. The largest value, and therefore focus, in this first phase comes from operations, but firms also create some value from customers and from ecosystems (which increase in the rapid innovation phase). Measuring that value, sharing success stories, and explaining how these platforms create the foundation for future success is a critical part of the leadership role for pathway 1.

Creating a platform mindset is critical to the success of this phase. For some firms, this platform mindset is quite natural—manufacturing firms often find creating a platform mindset around digital a natural extension of what they have done on the shop floor and in supply chains. But for other firms (e.g., many banks, insurance companies, professional services, and educational institutions), it is culturally a big change to move from creating local solutions to creating reusable platforms. Changing decision rights has to be tackled first, particularly in firms that are used to creating local solutions.

To effectively navigate the digitization desert at the beginning of pathway 1, senior leadership has to shift the decision rights balance away from the product and customer experience people to the operations leaders and platform builders. For example, there will be a lot of demand for new features to better serve customers to be added to the platforms that are under construction. Who gets to decide whether these new features are added and when? For firms that manage the digitization desert successfully, decisions are typically made jointly by operations and customer experience leaders but weighted perhaps slightly in favor of operations so they can take responsibility for building and delivering the platforms. This is not an easy political challenge to manage, and it requires transparency and good metrics. As you think about how you will do this in your firm, we suggest you review how Tetra Pak manages the explosions (see figure 3-2).

Rapid Innovation

The earlier you can begin the rapid innovation phase, the better—reducing the time in the digitization desert! One of the leadership lessons from pathway 1 is to build the platforms so that the digital services come online in phases and can be used for innovation rather than waiting for the platform to be completed. For example, if you’re building a mortgage platform for a bank, and two of the services required are “customer onboarding” and “customer identity,” those services can be used before the full mortgage offering is complete.

Value from operations continues to accrue in the rapid innovation phase, but value from customers and ecosystems increases more rapidly and therefore requires more attention from leaders. Adding metrics for value from customers and ecosystems at this stage is important. This mindset change typically requires focus on the last two explosions—new ways of working and organizational surgery.

New ways of working, like test-and-learn approaches and evidence-based decision-making, help speed up innovation. Like Amazon and other platform companies, you can now test several different strategies with your customers and get feedback very quickly through A/B testing.

These new ways of working and other changes typically surface a need for organizational surgery. The surgery is often around reorganizing to bring the customer-facing skills together with the operational data and digital skills to facilitate that rapid innovation. We have not observed any one best way to do this, but often it’s about creating more horizontal capabilities—for example, shared services or reusable modules that the customer-facing verticals can use to rapidly innovate.

In chapter 7, we will introduce a dashboard to help you create, measure, and capture the value from operations, customers, and ecosystems with two lenses (i.e., what value is created and how the value was created through capabilities). As you lead a pathway 1 transformation, we ask you to prepare by identifying your key metrics for each of these three types of value and the capabilities you plan to develop to drive them.

Action Items from Chapter 3

The first three actions are common to every transformation.

1. Communicate today (and every day) that your firm is focusing on a pathway 1 transformation to become future ready. Paint a picture of what working in the firm will look like in the future, and articulate the steps along the way to help people understand their roles.
2. Collect stories of early success and distribute them widely—internally and externally. It’s those early indicators of success that help keep motivation high, drive commitment and progress, and stem the impact of the doubters.
3. Create a plan for managing the explosions.
4. As part of your firm’s communication plan about proceeding on pathway 1, describe the two phases in pathway 1—building platforms and exploiting those platforms to rapidly innovate—each with a different focus, actions, and value creation. The building platforms phase requires firms to identify their crown jewels and then build digitized platforms to turn those jewels into reusable digital services. The rapidly innovating phase typically requires that the firm implement new ways of working and focus on reusing the capabilities from the build phase. Elaborate with details what will happen at each phase in your firm.
5. Try to begin the rapid innovation phase as soon as possible, ideally well before ending the building platforms phase. This will reduce the time your firm spends in the digitization desert and speed up value creation.
6. Identify and track metrics of operational value.
7. Review the Kaiser Permanente and Tetra Pak examples to identify good ideas that can be adjusted to align with your firm’s culture.