Valuing Marketing and Innovation in Healthcare: One more reason it’s an uphill battle

Recently, a senior marketing executive at a mid-size health system relayed his struggles in funding his branding and service related initiatives. Because the cost of these various initiatives – which included a brand redesign, CRM and other projects – was significant, the budgeting process called for them to be reviewed by the organization’s “capital committee.” The capital committee was charged with reviewing all budget requests for the coming fiscal year over a certain expense level. All such requests were put on a list, and the items were debated by the committee and prioritized by need. A line was drawn on the list representing the cut-off point: All requests above the line had been approved, anything below was declined. At the end of this process, all of the marketing executive’s initiatives were below the line. In fact, there wasn’t a single request above the line related to branding, the patient experience, service or research. The items that were approved were all “hard” capital costs, such as equipment, facility improvements, and more.

Sound familiar? It’s not hard to imagine scenes like this playing throughout hospitals and health systems across the country. Part of the reason soft costs such as branding, service innovation and research are still not valued as they should be is that healthcare as a whole is still behind other industries in this area. Leaders – including administrators and physicians – are still learning how to value branding and marketing. And until the last couple of decades, the philosophy of “build it and they will come” held true. Thanks to deregulation, consumerism, new entrants and more, the challenge of truly competing for patients – and thus the need for sophisticated branding and marketing – is a relatively recent phenomenon.

But a recent cover story in BusinessWeek points to another reason healthcare marketing executives struggle to show the value of their discipline to their organizations. In “Why the Economy Is a Lot Stronger Than You Think,” from the February 13, 2006 issue, author Michael Mandel floats the premise that the U.S. economy is stronger than most experts believe because the measurements used to gauge the economy are rooted in outdated, manufacturing-oriented thinking. Mandel posits that the government’s decades-old system of number collection and crunching captures investments in equipment, buildings, and software, but for the most part misses the growing portion of GDP that is generating the cool, game-changing ideas.

In his argument, Mendel estimates that annually, more than $1 trillion in investments in innovation, product design, brand building, employee training or research is not counted in estimates of the U.S. Gross Domestic Product (GDP). That would represent nearly 8% of the 2006 GDP. Why is the economy measured in such a way that would miss these elements? Mendel gives two key reasons for this approach.

First, the basis for measuring today’s economy was created in the 1930s and 1940s, in great part as a reaction to the Great Depression and World War II. Leaders of the Industrial Age wanted to know how the U.S. was progressing through these events, and measurements were created that counted machines and buildings, but not education or marketing. Despite the changes in our economy, nothing has really changed.

“As we’ve become a more knowledge-based economy,” says University of Maryland economist Charles R. Hulten in the article, “our statistics have not shifted to capture the effects.”

Second, the soft investments are notoriously hard to measure. How does one capture the true value of brand building, or training, or innovation research, when the tangible benefits are so difficult to identify? Of course, just because they’re hard to quantify doesn’t mean these investments don’t have value, but it makes it very difficult to include them in measuring the economy.

And here’s one more reason to ponder. Like many economists and government statisticians, many business schools are still stuck in the past when it comes to teaching finance and economics. In MBA courses, instructors use “widgets” to teach concepts, case studies focus on factories and assembly lines, and textbooks speak of “capital costs” in terms of machinery or buildings. These are the same institutions where many of today’s healthcare leaders were educated. (For the worst example of this, we once had a COO of a large hospital tell us, in regards to the brand strategy for the organization, “Branding – you can do whatever you want with that s***.”)

Which brings us back to our story of the frustrated marketing executive who found all of his projects below the cut-off line. Think of the reasons just explained for this “old school” measurement of our economy and then apply them to the marketer’s job in healthcare. You know the value of redesigning your organization’s identity (the one that feels like it was first designed circa 1957). But the organization’s method for measuring value is based on hard investments, not soft costs. It’s difficult, if not impossible, to measure the ROI of a new identity. And your leaders are hard-wired to value CT scanners and new hospital wings, not something that’s soft and squishy like branding. Yikes.

The challenge is double for healthcare marketers trying to show the value of their discipline. Not only are they fighting the inherent prejudices of their industry, they’re also battling the accepted economic terms for assigning value to investments such as brand building, service innovation, and enhancing the patient experience. But, as Mandel points out, the time may be here to reconsider those terms.