Blue Cross and Blue Shield of Minnesota, one of its most important customers, was squeezed between rising medical costs and the unwillingness of its own customers to pay more for health insurance. To get out of this stranglehold, Blue Cross needed to find a way to reduce the expense of caring for its worst-off patients — the 15 to 20 percent who accounted for 75 to 80 percent of the medical outlays. American Healthways offered an innovative approach: Instead of just selling disease-management services and leaving Blue Cross responsible for the reductions in cost and improvements in patients’ health, it offered to reorganize the relationship between the two companies to accomplish both goals, accepting increased downside risk and the opportunity for greater upside reward.
Today, American Healthways nurses oversee the care of Blue Cross’s most persistently ill and costly patients with regular, individualized over-the-phone attention; its payments for this service depend on Blue Cross’s cost savings, and on whether regular contact with nurses improves patient health. If American Healthways meets the fiscal and health-care benchmarks set down in the Blue Cross arrangement, its fees over a 10-year period could reach $300 million — a significant benefit for a company with $75 million in revenue in 2001.
Real Solutions for the Real Economy
The inventive response of American Healthways to Blue Cross’s painful market challenge is a fitting illustration of a new business tactic known as a solution — a response to the query, “Where do our customers have to go to succeed in the marketplace, and how can we be a partner in helping them get there?”
Although the concept of customer solutions is new and unfamiliar in most industries, that hasn’t stopped the phrase from becoming one of business’s most overused terms. Sixty-three percent of the Fortune 100 already claim to offer solutions, according to a Booz Allen Hamilton survey of public documents and marketing materials. With the highly visible success of bellwethers like IBM Global Services and General Electric’s Power Systems, solutions are a fast-growing strategy for companies caught up in price competition and confronted by the threat of commoditization.
But the term solutions is tossed around carelessly, often unattached to a real solutions strategy. Very frequently, the word solution is merely a costume thrown over a repackaged, existing set of products or services. A real solution, in our view, is a fundamentally different approach that creates additional value for customers and suppliers by meeting five criteria:
- It is co-created by a customer and a supplier.
- It integrates products with services to meet essential customer needs.
- Suppliers accept some of the risk, often through performance-based and/or risk-based contracts.
- Relationships between suppliers and customers are unusually intimate, far beyond a traditional buy–sell relationship.
- Solutions, therefore, are tailored to each customer.
Applying the five-part test can help customers find real solutions among the welter of sales pitches and proposals crossing their desk — a crucial identification, if lasting, beneficial change is the goal. Similarly, the test can help would-be suppliers distinguish their solutions offerings from the pack, and achieve continuing, profitable relationships with existing and new customers.
Many strategies that companies call solutions don’t meet all five parts of our test. For example, the Dell Computer Corporation can tailor a personal computer to suit a customer’s desired configuration; however, there is little or no co-creation, integration, shared risk, or new intimacy involved. The Home Depot Inc. provides customers names of contractors who can install merchandise it sells, and Microsoft furnishes lists of certified software engineers who can support its products, but such arm’s-length referrals don’t create additional value, involve no customer–supplier integration or risk sharing, and are neither tailored nor intimate. Similarly, the myriad firms bundling products and services under the rubric of one-stop solutions shopping aren’t changing the customer–supplier relationship in ways that meet the real solutions test.