Disruptive Innovation In Healthcare 2009

Disruptive Innovation in Healthcare

12th November 2009 Loy Lobo – Global Healthcare Practice – BT [email protected]

Session Overview • • • • •

(Re) Defining Disruptive Innovation Disruptive Innovation in Healthcare Innovation Killers Making Innovation Happen Take Away

(Re) Defining Disruptive Innovation

Defining Disruptive Innovation • Disruptive Innovation – Innovations that initially exhibit inferior performance characteristics when compared to incumbents and meet the needs of a lower strata of less demanding customers. – Eventually gain in strength to invade the territory of incumbents and disrupt their business.

• Sustaining Innovations – Enhance the performance characteristics of the incumbent. – Performance tends to exceed the real needs of the customer.

(Re) Defining Disruptive Innovation •

Disruptive Technological Innovation – Scaling up of a niche market into a mass market (compact copiers, 100 cc motorcycles, consumer power tools, quartz movement, inkjet printers). – Changes the performance economics and / or expands the market.

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Disruptive Product Innovation (Radical Innovation) – Introduce products & value propositions that disturb prevailing consumer habits in a major way (car, TV, PC, mobiles). – Disrupt both consumers and producers. – More supply driven rather than demand driven. – First mover may not be an advantage.

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Disruptive Business Model Innovation (Strategic Innovation) – Discovery of a fundamentally different business model within an existing business (SaaS, no frills airlines, .online retailing). – Changes the basis of competition. – Requires different activities that are often incompatible with legacy business models due to trade-offs & conflicts. – Frequently arise in response to unmet need (demand driven).

Ref: Disruptive Innovation: In Need of Better Theory. Constantinos Markides; Journal of Product Innovation Management; 2006; 23; 19-25

(Re) Defining Disruptive Innovation • • •

So What? Disruptors: Know the nature of your disruption and what you need to do to be successful. Incumbents: Realise what you are dealing with and choose your response.

Behaviour of Disruptors (Product) • • • • • •

Initial invasion by hordes of entrants. Surge happens early before market starts growing. Product variety and rate of innovation is highest when market is nascent. High technological and product uncertainty. Entry rate subsides, followed by shakeout. Emergence of a dominant design. Market structure remains fluid for a long time.

Demand creation drives success

Behaviour of Disruptors (Business Model) • Identify unmet need in particular customer segment • Create customer value proposition that is good enough and cheap enough to capture customers left out by incumbents. • Not necessarily a superior business model. • Gradually go mainstream. • May never replace the incumbent entirely.

Response of Incumbents

Ref: Responses to Disruptive Strategic Innovations; Charitou & Markides; Sloan Management Review; Winter 2003; 55-63

Disruptive Innovation in Healthcare

State of innovation in Healthcare • The Healthcare system was designed to fix people when they fell ill and return them to better health • Interventions are designed to be episodic (even if stitched together with a care plan) • Investment continues to focus on higher end and lifesaving treatments (Sustaining Innovations) • Education system promotes further specialisation and enhancement of clinical skills & reputation (Sustaining Innovations) • Leading to a spiral of increasing cost and diminishing returns – performance is frequently beyond needs of most demanding customers.

Technological change has disrupted human biology …

Lower intensity and longer duration care models emerging for unmet needs

Cheap enough & good enough.

Ref: Will Disruptive Innovations Cure Healthcare?; Christensen, Bohmer, Kenagy; Harvard Business Review; Sep-Oct 2000; 102-112

0

Age

25

65

60-80% Lifestyle

Pre-Illness

Wellness

Non-medical model for health gain

Unpredictable Health

Illness

Predictable (Rules-based) Health

2008

Death

15

Disrupting Healthcare – Key Principles • • • • •

In population health, gene expression trumps gene disposition Large majority of health experience is daily-habit mediated What ails the globe is “Rules based” “Normal” means prevalent not “Optimal” “Optimal” across populations appears rules-based and thus Digitalisable!

• Participatory models with quick feedback loops can – – – –

Help create personal mastery over own health Elicit effort from expert users to help others Link in specialist resources / skills where required Leverage clinical resources and use external free resource (users) to make model cheap enough – Stimulate continuous improvement and enhancement around a core kernel of services.

Ref: Brigitte Piniewski MD, Director of Bio Wellness Research, Oregon Medical Labs.

Innovation Killers

Innovation Killers -1 • Misapplying Discounted Cash Flow (DCF) and Net Present Value (NPV)

• Need to value alternative strategies & scenarios instead. Ref: Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things; Christensen, Kaufman, Shih; Harvard Business Review; Jan 2008; 98-106

Innovation Killers – 2 & 3 • Using Fixed and Sunk costs unwisely – Biases decisions towards Sustainable innovations – Focuses investment on assets and capabilities that are likely to become obsolete – Fails to match investments of newcomers that are necessary to develop a new configuration of assets and capabilities.

• Focusing myopically on Earnings Per Share (EPS) – Short term executive incentives create bias against long-term investment strategies. – CEO sponsorship and clear leadership required for sustainable innovation processes in large organisations.

Making innovation happen

Innovation Processes • Stage Gate Elimination – Numbers driven; Market size, investment required, ROI. – Decision makers usually prominent in business-asusual. – Tends to select opportunities that leverage current capabilities / assets. – Innovators can game system by changing assumptions behind the numbers. – In worst case, salami slices budget so that nothing really progresses.

• Discovery Driven Planning – Minimum threshold for success is clearly defined – Supporting assumptions are articulated and challenged – Key assumptions and deal killers tested early – Correct / incorrect assumptions used to refresh strategy. “More often than not, failure in innovation is rooted in not having asked an important question, rather than in having arrived at an incorrect answer.”

Ref: Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things; Christensen, Kaufman, Shih; Harvard Business Review; Jan 2008; 98-106

Disruptive Innovation for Social Change • Participative healthcare requires social change on a national scale (Catalytic Change) • Characteristics of Catalytic Changes – – – – –

Create systemic social change through scaling and replication Meet a need that is either over-served, or not served at all Are cheap enough and good enough Generate resources in ways that are unattractive to incumbents Are ignored or disparaged by incumbents, but could be encouraged if the business model is currently unattractive to them.

Ref: Disruptive Innovation for Social Change; Christensen, Baumann, Ruggles, Sadtler; Harvard Business Review; Dec 2006; 94-101

Take Away • Disruptive innovations can bring about dramatic changes in the performance of an industry. Healthcare is in desperate need of disruptive innovations to avoid an impending crisis. • It is very difficult to make a disruptive innovation succeed. Powerful incumbents and out-dated mindsets conspire against the innovators and frequently, they win. • Healthcare presents a clear opportunity for disruption of the “medical expert model” through the creation of the “participatory healthcare model”. This is beginning to happen, but is being passively suppressed by incumbents. • Health information & Health Informatics can bring about catalytic change by enabling participative healthcare ecosystems!