Disruptive Innovation in Healthcare

12th November 2009

Loy Lobo – Global Healthcare Practice – BT
loy.lobo@bt.com
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 • Sustaining Innovations
and disrupt their – Enhance the performance
business. 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.
• 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.
• 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 life-
saving 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
 Non-medical model for health gain
Age
0 25 65
Wellness

60-80% Lifestyle
Pre-Illness

Unpredictable Health
Predictable (Rules-based) Health
Illness

Death

2008 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 • Discovery Driven Planning
– Numbers driven; Market size, – Minimum threshold for
investment required, ROI. success is clearly defined
– Decision makers usually – Supporting assumptions are
prominent in business-as- articulated and challenged
usual. – Key assumptions and deal
– Tends to select opportunities killers tested early
that leverage current – Correct / incorrect
capabilities / assets. assumptions used to refresh
– Innovators can game system strategy.
by changing assumptions
behind the numbers. “More often than not, failure in
– In worst case, salami slices innovation is rooted in not
budget so that nothing really having asked an important
progresses. 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!