Scaling Local Networks

Scaling Local Networks

Dave Chase presents an interesting idea about local networks in his book The Opioid Crisis Wake-Up Call. Local networks, Chase explains, grew from the small groups and tribes that humans evolved within. The systems and structures that allowed for cooperation in small groups, have evolved into complex structures of institutions like government, insurance risk pools, and social media. Chase focuses on the health insurance side of these local networks, and considers whether scaling local networks is really the best thing for today’s societies.

 

Chase writes, “When local networks are scaled up, you add hierarchy, says Brookfield [Venture Capitalist Chris Brookfield], and this creates opportunity for theft and redirection.”

 

The idea from Brookfield that Chase is getting at is the idea that many of our systems were formed in small groups and tight communities where social accountability and trust were easy. Everyone knew each other, the community had many close ties and interactions, and it was not hard to keep track of personal debts and obligations. As societies grew, and as our cities, nations, and global structures became more complex, we brought along the same structures of the systems that served our evolutionary tribal ancestors well.

 

However, as complexity grew within those structures, the pitfalls of scaling local networks became apparent. There are too many transactions, too many opportunities for theft and fraud, and too few people who have real oversight and understanding of how the systems work. This allows for abuse of the system and for people to get away with cheating.

 

In healthcare it might look like increasing premiums year-over-year, without a clear explanation as to why premiums are increasing. It might look like unnecessary healthcare expenditures, unnecessary healthcare procedures performed and billed by providers, and opaque systems of approving or denying medical claims. No one knows anyone anymore, no one is accountable, and no one has a clear accounting of debts and obligations. Some outright fraud occurs, a lot of abuse of the system occurs, and even more common, a lot of fudging things and pushing boundaries takes place. Our healthcare insurance system is built on a structure and idea that doesn’t fit the complex high scale realities of the world we live in today.
Scale versus replication

Replication Versus Scale

I used to work for a healthcare tech company based out of San Francisco, and the word scale was almost a mantra. Whenever we did anything, from a small policy to the introduction of a new product or service, the question was always, will this scale? It is an important and crucial question for a growing organization. Before anything was introduced, we always considered the future, whether the new process would work if we had more customers, more covered lives, more emails, and more work. If the amount of effort, oversight, and individual contribution was too high, then we new we were not looking at something that would scale. We needed processes where the amount of additional work would be negligible as we grew, that was the key to scale.

 

For many organizations, however, scale isn’t necessarily the most important goal. Instead, the focus is on replication, to grow and expand in new spaces, new markets, and new products. Replication is something different than scale. While scale sought to reproduce the same outcome, the same process, and the same expectations in all settings, replication takes a slightly different approach to the same end goal. We still want the same successful outcome, but the goal doesn’t include having mirrored consistency in approach with diminishing marginal effort for each new customer. Replication is adaptable to changing local conditions.

 

Dave Chase describes it like this in his book The Opioid Crisis Wake-Up Call, “Replication varies from application to application; scalability seeks to apply the same things everywhere. This distinction is a subtle but absolutely critical success factor.”

 

In retail, social media, and chain restaurants, scale is crucial. You want every coffee you order at Starbucks to be the same, regardless of whether you are at the first Starbucks in Pike Place, or a brand new Starbucks in a Las Vegas suburb. You want your eggplant Parmesan at Olive Garden to be the same today and next month, and social media companies want everyone to have the same account set-up and access settings so that it is easier to manage all the companies, individuals, and organizations that create accounts. Scale makes things consistent, reduces administrative burden, and keeps costs down.

 

Replication is more adaptable from region to region, setting to setting, and industry to industry. The goal might be very similar, say to reduce healthcare costs, but the organizations and spaces might vary dramatically, say from nursing homes to companies offering remote medical second opinions. What Chase argues is that many healthcare organizations shouldn’t get too caught up on scale, and should focus more on replication. Hospitals can learn from nursing homes and replicate the approaches they take to improve patient adherence to medication regimens, knowing that there is some overlap and some divergence in their patient populations. Health plans can replicate patient education models that hospitals find successful, even though the patient education from the health plan will take place in a different form and space.

 

Scale dictates what should be done to create exact copies of a process with diminishing marginal costs, but replication is necessary when dealing with multiple confounding variables in dynamic and ever changing spaces. Scale might be needed for economic success at national and multinational levels, but replication provides the flexibility and creativity needed for success when a cookie-cutter model can’t be followed.