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6/27/2009 Copyright Clayton M. Christensen 1 The Innovator’s Prescription: How Disruptive Innovation Can Transform Health Care Clayton Christensen Harvard Business School [email protected]
6/27/2009 Copyright Clayton M. Christensen 1
The Innovator’s Prescription: How Disruptive Innovation Can Transform Health Care
Clayton ChristensenHarvard Business School
6/27/2009 Copyright Clayton M. Christensen 2
Centralization followed by decentralization: Computing
6/27/2009 Copyright Clayton M. Christensen 3
Decentralization is disruptive, and is hard to catch
Perf
orm
ance
Time
Sustaining innovations
60% on$500,000
45% on$250,000
40% 20% on $2,000
Disruptive Innovations
Time
6/27/2009 Copyright Clayton M. Christensen 4
The decentralization that follows centralizationis only beginning in healthcare
Surg
ical
su
ites
High-speed multi-
channel testersImaging: MRI,
CT, PET Scanners
6/27/2009 Copyright Clayton M. Christensen 5
The pursuit of profit and differentiation in sustaining competition amongst similar business models generally adds cost.
6/27/2009 Copyright Clayton M. Christensen 6
Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible,
and for generating corporate and economic growth
Today• Toyota• Wal-Mart• Dell• Southwest, RyanAir• Fidelity• Canon• Microsoft• Oracle• Cingular• Apple iPod• Korea, Taiwan, HK
Yesterday• Ford• Dept. Stores• Digital Eqpt.• Delta• JP Morgan• Xerox• IBM• Cullinet• AT&T• Sony DiskMan• Japan
Tomorrow:• Chery• Internet retail• RIM Blackberry• SkyWest, Air taxis• ETFs• Zink• Linux• Salesforce.com• Skype• Cell Phones• China, India
6/27/2009 Copyright Clayton M. Christensen 7Non-consumers
or
Non-consuming
occasi
ons
Diff
eren
t mea
sure
Of P
erfo
rman
ce
Time
Three Enablers of Disruption
1.Sim
plifying
Technolo
gy2. Business model
Innovation
Perf
orm
ance
Time3. New Value Network• Customers• Distribution• Suppliers
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 orchestrate6/27/2009 Copyright Clayton M. Christensen 8
Rules-Based
6/27/2009 Copyright Clayton M. Christensen 9
Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized
Experimentation& problem-solving
ProbabilisticPattern
Recognition
TECHNOLOGY
PrecisionMedicine
IntuitiveMedicine
EmpiricalMedicine
Imaging & molecular diagnostics
PROCESSES:
Ways of working together to address recurrent tasks in a
consistent way: training, development, manufacturing,
budgeting, planning, etc.
6/27/2009 Copyright Clayton M. Christensen 10
What is a business model, and how is it built?
PROFIT FORMULA:
Assets & fixed cost structure, and the margins & velocity
required to cover them
THE VALUE PROPOSITION:
A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do
RESOURCES:
People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition
to the targeted customers
6/27/2009 Copyright Clayton M. Christensen 11
Value Proposition:Don’t know what’s
wrong? We can address any problem you bring
Resources
ProcessesProfit formula
The Traditional General Hospital Is Not a Viable Business Model
6/27/2009 Copyright Clayton M. Christensen 12
Polishing Dept.Turning machines
Hobbing departmentTapping equipment
Boring machines
Stamping machines
De-burring machines
Annealing furnace
Shi
ppin
g D
epar
tmen
t
Cut-offsaws
Path
take
n
by pr
oduc
t A
A s
tart
s he
re
Pat
h ta
ken
by p
rodu
ct B
B starts hereOffice area
Storage
6/27/2009 Copyright Clayton M. Christensen 13
Sources & magnitude of cost differences: Value-adding process clinic vs. general hospital
9.02.7
751
$7,000$2,300
$6030$1600
$670$600
$300$100
General HospitalShouldice Hospital(hernia repair)
Cost of materials & supplies
Cost of direct labor
Overhead burden
Total cost for equivalent length of stay
# service families offered
Overhead burden rate
6/27/2009 Copyright Clayton M. Christensen 14
Disruptive business model innovation in physicians’ practices
Value Proposition: The solution to any problem starts here
Resources
ProcessesProfit formula
Value Proposition: Fast, convenient
resolution of rules- based acute disorders
Resources
ProcessesProfit formula
Fee for service Fee for outcome Fee for Membership, fee for use
Hospitals are expensive conflations of three types of business models
• Consulting firms• High‐end law firms• R&D organizations
• Diagnostic & intuitive activities of hospitals
Solution Shops
• Manufacturing• Education
•Food services• Medical procedures
Value-adding process businesses
• Telecommunications• Insurance
• EBay• D‐Life
• SimulConsult
Facilitated Networks
Disjointed VAP Clinic
Disjointed Solution Shop
TodayCoherent Solution Shop
Hypo- thesis
Treat- ment
Coherent Value-Adding Process Clinics:Orthopedic, hernia, eye, etc.
Stage 1 Primary care physicians disrupt
solution shops
Stage 2
6/27/2009 Copyright Clayton M. Christensen 16
Disruption of the hospital business model
Physicians’ assistants disrupt
physiciansResources
ProcessesProfit formula
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 disease6/27/2009 Copyright Clayton M. Christensen 17
© 2007 Innosight LLC 18
Market Understanding that Mirrors how Customers Experience Life
“The customer rarely buys what the company thinks it is selling him” - Peter Drucker
What jobs are students trying
to do?
•Be successful•Have fun
•Have friends
Business models for adherence in chronic care
Degree to which behavior change is requiredMinimal Extensive
Mot
ivat
ion
to
adhe
re to
ther
apy
Strong: quickly feel
consequences
Weak: Complications
are deferred
Type I Diabetes
AddictionsType II
Diabetes
Asthma
Congestive
heart
failure ObesityHypertension
Osteoporosis
CancerHIV
Myopia Crohn’s disease
Chronic back pain
Ulcerative colitis
Infertility
6/27/2009 Copyright Clayton M. Christensen 20
Diagnosis Adherence Complications
Rules-Based: Individual doctor can diagnose and prescribe evidence-based therapy
Type I diabetesHypothyroidism Cystic FibrosisHypertension Congestive heart failure HyperlipidemiaOsteoporosisCeliac disease
Business models for chronic care
Diagnosis
Type II DiabetesSchizophrenia Epilepsy Parkinson’s diseaseAsthmaUlcerative colitisChronic Back painAlzheimer’s Disease
Intuitive :Requires coherent solution shop
Business models for ongoing care
Degree to which behavior change is requiredMinimal Extensive
Mot
ivat
ion
to
adhe
re to
ther
apy
Strong: quickly feel
consequences
Weak: Complications
are deferred
Type I Diabetes
AddictionsType II Diabetes
Asthma
Congestive
heart failureObesity
Hypertension
Osteoporosis
CancerHIV
Myopia Crohn’s
disease
Chronic back pain
Ulcerative colitis
Infertility
Doctor’s office
User Networks
Employer- Managed Care
Electronic Medical Records: Organizing Principles
6/27/2009 Copyright Clayton M. Christensen 22
• 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.
6/27/2009 Copyright Clayton M. Christensen 23
Specializedsolution shops(fee for service)
Focusedvalue‐added process
clinics (fee foroutcome)
Retail clinics(fee for outcome)
User Networks(fee for membership)
High‐deductibleinsurance & healthsavings accounts
Personal carephysicians
Employer‐negotiatedpricing
Pharmacists
Personalelectronic medical
record
Electronic Medical Records, not an Individual, Must Coordinate Care
