Teaming Up on Innovation

Here’s one disciplined approach to handling the onslaught of new ideas at a growing company.
Alix StuartJanuary 25, 2012
Teaming Up on Innovation

Chances are your employees have some ideas about how to make the business better. Some of them might be brilliant; others abysmal. But few companies are able to effectively corral the ideas and separate the wheat from the chaff, meaning many so-called growth strategies are simply the product of political savvy rather than holistic calculations.

Enter John Varvaris, CFO at fast-growing Best Doctors. He joined the $120 million firm, which provides an employee benefit in the form of a network of leading specialists for additional consultation on major medical decisions, in late 2008 to help it move “from the go-go stage to the middle market,” says the former Ernst & Young partner and insurance-company CFO. Besides building a finance function and tightening up the accounting, one of his first steps was to almost immediately put a process in place to support innovation.

“We have a culture of experimentation; we like to try new markets, extensions of products, new distribution partners, etc.,” says Varvaris, “though to do it in a risk-balanced way is a challenge.”

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A decision-making team was his first response to that challenge. The team, which includes Varvaris, the rest of the executive team, and any senior-level staff relevant to a particular issue, is scheduled to meet once a month but also convenes ad hoc for more pressing opportunities. Employees present the committee with business cases, often based on company-provided templates and sometimes prompted by client requests. The committee then assesses risks, looks at cost-benefit analyses, and decides whether the proposal should go on to the next phase.

Projects that get the nod go to a team of project managers who map out what other functions in the organization need to get involved to make the idea come alive. Most new ideas “have legal, finance, and/or transfer-pricing issues, so they can get complex quickly,” says Varvaris. Those that appear to have enough upside to justify the cross-functional effort then become business plans, though tentative ones.

“It’s really a series of go/no-go decisions,” says Varvaris. “We first look at ‘What do we have to do to deliver the project with low to moderate risk?’ Then, if it’s working, we build resources around it. That allows us to say keep going, build bigger, or stop, as the case may be.”

One project that has now become a product: selling health insurance into Canada. While Best Doctors’s offerings are primarily add-ons to standard health-insurance plans in the United States, the company saw an opportunity to create its own insurance product in overseas markets, where insurance regulation is more streamlined.

Baking in the core expert-consultation piece means “we have a better loss ratio” than competitors, says Varvaris. Within about a year, employees researched customer needs and distribution channels in Canada, based on about a decade of experience with its original product, and launched an insurance offering late last year. “You’ll know what the project will produce and deliver if you’ve done all your homework in advance,” says Evan Falchuk, Best Doctors’s president and chief strategy officer. While it’s early to measure the results, the company reported a 40% increase in premiums revenue in Latin America, where its insurance business is several years old.

Over time, employees have become more accustomed to what they’ll be asked and come to meetings better prepared, Varvaris says. That means a high percentage of projects, around 70%, now make it to the second phase; about 20% make it beyond that. Currently, about 30 projects have gone through the committee, including major technology implementations such as rolling out a global CRM.

“The goal for me is to build a dynamic infrastructure so we can tell the businesspeople to bring it on,” says Varvaris. From a topline perspective, that seems to be working. The benefits firm grew revenue 30% last year, to $120 million, and its staff by 21%, to 400 people, in large part by expanding in overseas markets such as Australia, Portugal, and Canada. It’s on track to hit $150 million this year, says Varvaris, an implied 25% growth rate. He also helped raise $20 million in equity from strategic investor Nippon Life last year, at a corporate valuation of $230 million.

All of which leads to the next post-go-go phase: being “IPO ready,” one of Varvaris’s top priorities for 2012. “It’s one thing that you can grow, but are you growing the right places in line with the corporate objectives? If you’re not growing in that scalable, profitable way, you might have all the right controls, but you don’t have any résumé, so you can’t go ask that next investor for a higher valuation,” he says. “Does being IPO-ready mean we’ll do an IPO? Not necessarily, but it’s one of [the] ways we prepare for liquidity.”

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