The Innovator’s Prescription: How Disruptive Innovation Can Transform Health Care
Clayton Christensen Harvard Business School
6/23/2009 Copyright Clayton M. Christensen 1 Centralization followed by decentralization: Computing
6/23/2009 Copyright Clayton M. Christensen 2 Decentralization is disruptive, and is hard to catch
60% on $500,000 ons vati inno ing tain Sus
Performance 45% on $250,000
Time
s ations Innov ptive Disru
Time 40% 20% on $2,000
6/23/2009 Copyright Clayton M. Christensen 3 The decentralization that follows centralization is only beginning in healthcare
Im lti- C ag mu T ing ed s , P : M spe ter ET R h - tes Sc I, Hig nel ann an ers ch suites Surgical Surgical
6/23/2009 Copyright Clayton M. Christensen 4 The pursuit of profit and differentiation in sustaining competition amongst similar business models generally adds cost.
6/23/2009 Copyright Clayton M. Christensen 5 Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible, and for generating corporate and economic growth Yesterday Today Tomorrow : • Ford • Toyota • Chery • Dept. Stores • Wal-Mart • Internet retail • Digital Eqpt. • Dell • RIM Blackberry • Delta • Southwest, RyanAir • SkyWest, Air taxis • JP Morgan • Fidelity • ETFs • Xerox • Canon • Zink • IBM • Microsoft • Linux • Cullinet • Oracle • Salesforce.com • AT&T • Cingular • Skype • Sony DiskMan • Apple iPod • Cell Phones • Japan • Korea, Taiwan, HK • China, India 6/23/2009 Copyright Clayton M. Christensen 6 Three Enablers of Disruption Performance
3. New Value Network Time OfPerformance ng 1. Differentmeasure yi • Customers implif • Distribution S Technology • Suppliers
r o 2. Business model rs e g um in ns m Innovation Time co su n - on o -c s N n on 6/23/2009 Copyright Clayton M. Christensen 7 o si N ca oc Who can pull this off? • Integrated fixed-fee providers. They profit from wellness – Reimbursement issues disappear – Licensing & accreditation don’t block disruption – Personal electronic medical records – Assessment of systemic value; integration of supply, demand, and value to define price • Orchestrators that profit from wellness – Major employers – Government cannot orchestrate
6/23/2009 Copyright Clayton M. Christensen 8 Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized
TECHNOLOGY Imaging & molecular diagnostics
Probabilistic ExperimentationIntuitive Empirical Precision Pattern Rules-Based & problem-solvingMedicine Medicine Medicine Recognition
6/23/2009 Copyright Clayton M. Christensen 9 What is a business model, and how is it built?
RESOURCES: THE VALUE PROPOSITION: People, technology, products, A product that helps facilities, equipment, brands, customers do more effectively, and cash that are required to conveniently & affordably a deliver this value proposition job they’ve been trying to do to the targeted customers
PROCESSES : PROFIT FORMULA : Ways of working together to Assets & fixed cost structure, address recurrent tasks in a and the margins & velocity consistent way: training, required to cover them development, manufacturing, budgeting, planning, etc.
6/23/2009 Copyright Clayton M. Christensen 10 The Traditional General Hospital Is Not a Viable Business Model
Value Proposition: Don’t know what’s wrong? We can address Resources any problem you bring
Profit formula Processes
6/23/2009 Copyright Clayton M. Christensen 11 Turning machines Polishing Dept.
n Hobbing department e A k t Tapping equipment a c t u th d a ro P p y b Annealing
A starts here starts A furnace Boring machines Cut-off Storage saws Shipping Department Shipping Path taken taken Path by product B product by De-burring machines B starts here Office area
Stamping machines 6/23/2009 Copyright Clayton M. Christensen 12 Sources & magnitude of cost differences: Value-adding process clinic vs. general hospital
Shouldice Hospital General Hospital (hernia repair)
Cost of materials & supplies $100 $300 Cost of direct labor $600 $670 Overhead burden $1600 $6030
Total cost for equivalent $2,300 $7,000 length of stay
# service families offered 1 75 Overhead burden rate 2.7 9.0
6/23/2009 Copyright Clayton M. Christensen 13 Disruptive business model innovation in physicians’ practices
Profit formula Processes Profit formula Processes
Value Proposition: Value Proposition: Fast, convenient The solution to any Resources Resources resolution of rules- problem starts here based acute disorders 6/23/2009 Copyright Clayton M. Christensen 14 Hospitals are expensive conflations of three types of business models
Solution Shops Value-adding process Facilitated Networks businesses
• Consulting firms • Manufacturing • Telecommunications • High-end law firms • Education • Insurance • R&D organizations •Food services • EBay • Diagnostic & intuitive • Medical procedures • D-Life activities of hospitals • SimulConsult Fee for service Fee for outcome Fee for Membership, fee for use Disruption of the hospital business model
Stage 2 Stage 1 Primary care Coherent Solution Shop physicians disrupt Today solution shops Hypo- Disjointed thesis Solution Shop Treat- ment
Physicians’ assistants disrupt physicians Disjointed VAP Clinic Resources
Coherent Value-Adding Process Clinics: Orthopedic, hernia, eye, etc. Profit formula Processes 6/23/2009 Copyright Clayton M. Christensen 16 Breaking the trade-off • The cost is in overhead. – Focus reduces overheads • Quality comes from tightly coupled integration – Focus on a job enables appropriate integration • The concept of hospitals emerged when transportation was expensive and doctors were cheap. • Costs will fall and outcomes will greatly improve when focused solution shops emerge for major categories of disease
6/23/2009 Copyright Clayton M. Christensen 17 Market Understanding that Mirrors how Customers Experience Life
What jobs are students trying to do?
•Be successful •Have fun •Have friends
“The customer rarely buys what the company thinks it is selling him” - Peter Drucker
© 2007 Innosight LLC 18 Business models for adherence in chronic care
Strong: Crohn’s disease quickly feel Myopia Infertility consequences Chronic back pain
Cancer Ulcerative colitis HIV
Asthma Type I Diabetes Congestive Motivation to Motivation Osteoporosis adhere to therapy to adhere heart failure Obesity Weak: Hypertension Type II Complications Addictions are deferred Diabetes Minimal Extensive Degree to which behavior change is required Business models for chronic care
Diagnosis AdherenceDiagnosis Complications
Rules-Based: Intuitive : Individual doctor can diagnose and Requires coherent solution shop prescribe evidence-based therapy
Type I diabetes Type II Diabetes Hypothyroidism Schizophrenia Cystic Fibrosis Epilepsy Hypertension Parkinson’s disease Congestive heart failure Asthma Hyperlipidemia Ulcerative colitis Osteoporosis Chronic Back pain Celiac disease Alzheimer’s Disease 6/23/2009 Copyright Clayton M. Christensen 20 Business models for ongoing care
Strong: Crohn’s disease quickly feel Myopia Infertility consequences UserChronic Networks back pain Cancer Ulcerative colitis HIV
Doctor’s office Asthma Type I Diabetes Congestive Motivation to Motivation Employer- Osteoporosis adhere to therapy to adhere heart failure Managed CareObesity Weak: Hypertension Type II Diabetes Complications Addictions are deferred Minimal Extensive Degree to which behavior change is required Electronic Medical Records: Organizing Principles
• Must help users do a job that they’re trying to do. Records themselves create no value – they sit on a disk drive instead of in a file drawer. • Patients and providers need to pull the records into use. If EMRs are pushed upon them they will not be used. • Data must be open-source, readable by all. Proprietary applications that help patients and providers do the jobs they need to do can then be built upon the data. • Problems must surface before the problems can be solved. Interoperability problems, in particular, will be resolved only after they are encountered.
6/23/2009 Copyright Clayton M. Christensen 22 Electronic Medical Records, not an Individual, Must Coordinate Care
Specialized Employer- solution shops negotiated (fee for service) pricing
Focused value-added process Personal care clinics (fee for physicians outcome) Personal electronic medical record Retail clinics Pharmacists (fee for outcome)
High-deductible User Networks insurance & health (fee for membership) savings accounts
6/23/2009 Copyright Clayton M. Christensen 23