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6/23/2009 Copyright Clayton M. Christensen 1
The Innovator’s Prescription:How Disruptive Innovation
Can Transform Health Care
Clayton Christensen
Harvard Business School
6/23/2009 Copyright Clayton M. Christensen 2
Centralization followed by decentralization: Computing
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Decentralization is disruptive, and is hard to catch
Perfo
rm
an
ce
Time
Sustaining innovations
60% on
$500,000
45% on
$250,000
40% 20%
on $2,000
Disruptive
Innovation
s
Disruptive
Innovation
s
Disruptive
Innovation
s
Disruptive
Innovation
s
Time
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The decentralization that follows centralization
is only beginning in healthcare
Surg
ical
suit
es
High-speed multi-
channel testers
Imaging: MRI,
CT, PET Scanners
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The pursuit of profit and differentiation in sustaining competition amongst similar business models generally adds cost.
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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
6/23/2009 Copyright Clayton M. Christensen 7Non-consumers or
Non-consuming
occasions
Different measure
Of Performance
Time
Three Enablers of Disruption
1.Sim
plifyi
ng
Technol
ogy
2. Business model
Innovation
Perfo
rm
an
ce
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 orchestrate
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Rules-Based
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Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized
Experimentation
& problem-solving
Probabilistic
Pattern Recognition
TECHNOLOGY
Precision
MedicineIntuitive
Medicine
Empirical
Medicine
Imaging & molecular diagnostics
PROCESSES:
Ways of working together to
address recurrent tasks in a
consistent way: training,
development, manufacturing,
budgeting, planning, etc.
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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
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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
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Polishing Dept.Turning machines
Hobbing departmentTapping equipment
Boring machines
Stamping machines
De-burring machines
Annealing
furnace
Ship
pin
g D
epa
rtm
ent
Cut-offsaws
Pat
h ta
ken
by p
rodu
ct A
A s
tarts
here
Path
taken
by p
roduct B
B starts here
Office area
Storage
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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
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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
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Disruption of the hospital business model
Physicians’
assistants disrupt
physicians
Resources
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 disease
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© 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
Moti
vati
on
to
ad
her
e to
th
erap
y
Strong:
quickly feel
consequences
Weak:
Complications
are deferred
Type I Diabetes
AddictionsType II
Diabetes
Asthma
Congestive
heart
failure Obesity
Hypertension
Osteoporosis
CancerHIV
Myopia Crohn’s disease
Chronic back pain
Ulcerative colitis
Infertility
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Diagnosis Adherence Complications
Rules-Based: Individual doctor can diagnose and
prescribe evidence-based therapy
Type I diabetesHypothyroidism
Cystic Fibrosis
Hypertension Congestive heart failure
HyperlipidemiaOsteoporosis
Celiac disease
Business models for chronic care
Diagnosis
Type II DiabetesSchizophrenia
Epilepsy
Parkinson’s diseaseAsthma
Ulcerative colitisChronic Back pain
Alzheimer’s Disease
Intuitive :
Requires coherent solution shop
Business models for ongoing care
Degree to which behavior change is requiredMinimal Extensive
Moti
vati
on
to
ad
her
e to
th
erap
y
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
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• 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.
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Specialized
solution shops
(fee for service)
Focused
value-added process
clinics (fee for
outcome)
Retail clinics
(fee for outcome)
User Networks
(fee for membership)
High-deductible
insurance & health
savings accounts
Personal care
physicians
Employer-
negotiated
pricing
Pharmacists
Personal
electronic medical
record
Electronic Medical Records, not an Individual, Must Coordinate Care