Cleveland Clinic Strategy: Differentiation and Global Expansion

Introduction

The Cleveland Clinic is a large healthcare provider based in Cleveland, Ohio, with a growing international footprint. In recent years, the Clinic has been an innovator in a number of areas and an early adopter in others — most notably in its use of information technology. These approaches have positioned the Clinic for sustained success. Since 1999, operating revenue has increased consistently each year, including during the recession years of 2008 and 2009, rising from approximately $2.3 billion in 1999 to nearly $7 billion in 2014. While the operating margin fluctuated during that period, it has remained above zero since 2002 and has been on a two-year upward trend. For the leadership of the Cleveland Clinic, a number of strategic and tactical options are currently on the table, including those related to international expansion, operating structure, and use of information technology. Because the choice among these options must reflect the organization's broader strategic direction, the first step toward an optimal strategy is to understand the high-level strategic thrust the Cleveland Clinic should pursue.

Differentiation Strategy

Michael Porter identified differentiation as one of the core generic competitive strategies, alongside cost leadership and hybrid approaches. At the heart of a differentiated strategy is a commitment to service and product excellence — doing things differently and better than competitors. In healthcare, where a vast body of literature and established practice informs the best approaches to each type of ailment, disease, or injury, there is nevertheless meaningful opportunity to differentiate. At the lower end of the market, services tend to be more standardized; differentiation is what allows a provider like the Cleveland Clinic to compete on quality rather than price.

One key element of the Clinic's differentiated strategy is improving the patient care experience. When Dr. Cosgrove became CEO, improving the patient experience was a central initiative, and a new executive role was created specifically to address it. Care was organized around departments and then around specific conditions within those departments, creating specialized teams able to excel at treating those particular conditions. The advantage of this higher degree of specialization is the delivery of superior care within each area. The potential downside, however, is that over time staff working narrowly defined specialties may become less flexible and lack the skill sets needed to move between departments. This can create downstream quality-of-care issues when personnel reassignments are necessary, and it may increase turnover intention among employees — particularly nurses — who see limited pathways for career progression.

A second element of differentiation is the focus on IT innovation. Information technology is becoming increasingly important in healthcare — not only for electronic health records and diagnostic tools, but also for outpatient care, marketing, data collection, cybersecurity risk reduction, and emerging AI applications beyond diagnostics. There is little doubt that technology can improve both care quality and the degree of differentiation a provider achieves. A large, well-resourced organization like the Cleveland Clinic is far better positioned than smaller providers to invest in new innovations, which typically carry higher costs during early rollout before the technology matures and becomes commoditized. Moreover, meaningful innovation requires a willingness to take risks, which in turn demands an organizational culture that supports experimentation. The Cleveland Clinic appears to have cultivated exactly that culture — to the point where two executives expressed support for a reorganization that would have eliminated their own positions. This culture, combined with the Clinic's size and reputation, bodes well for leveraging IT as a sustained pathway to differentiation.

A third aspect of differentiation is a commitment to continuous education. This is best understood by contrasting the differentiated provider with a low-cost provider. A low-cost provider seeks to maximize throughput in order to generate the highest revenue per cost unit. The differentiated provider, by contrast, invests time and resources in educating its physicians and nurses — an activity with no direct return on investment in the short term. The ultimate objective is a staff with superior training and an innovation mindset. Continuous education cultivates both the innovation orientation and the care orientation, because it reflects a commitment to offering the best care possible even when that means departing from established practice. Education of professional staff is therefore critical to ensuring that the Clinic possesses the talent to be genuinely differentiated, and that the organizational culture required to sustain differentiation is reinforced over time.

International competency represents a fourth dimension of differentiation. The expansions the Clinic has undertaken place it in a strong position to incorporate learning from other countries. International operations foster cultural competence among front-line practitioners and develop transnational management capability at the leadership level. The Toronto clinic, for example, may contribute relatively little to cultural competence in the traditional sense, but the healthcare operating environment in Canada differs substantially from that of the United States. Managers who understand both a fully nationalized system and the American model can shift perspectives more readily — a skill that would prove valuable if the Clinic were to open a location in London, where the operating environment resembles Toronto more than Cleveland or Florida. The Abu Dhabi operation adds yet another dimension: a more capitalist economic structure but a markedly different cultural context. Across all of these, the Cleveland Clinic's talent pool is meaningfully deepened by its international operations, ultimately benefiting both patient care quality and innovation at the home institution.