Clayton Christensen is Professor of Business Administration at the Harvard Business School. He is one of the world's foremost thinkers in strategy and innovation. In particular, Clay – since I know him personally, I feel I can call him by his first name - is an expert in dealing with disruptive innovations, developing organizational capabilities and finding new markets for new technologies. In addition, he has a major quality that distinguishes him from most experts. Not only does he repeatedly come up with great ideas, but he also comes up with innovative ways of communicating his ideas so that they are accessible to lots of people in the business world and the general population.
Clay is also an accomplished writer. His first book, The Innovator's Dilemma is a classic. His second book, The Innovator's Solution - co-written with Michael Raynor – is a comprehensive guide to innovation in all aspects of a business. I use it extensively in my MIT graduate seminar.
His new book, The Innovator's Prescription: A Disruptive Solution to Health Care - co-authored with Jerome Grossman and Jason Hwang, - is scheduled to come out on September 19 of this year. When I learned that he is co-author of a new book on health care, I quickly invited him to MIT to give a public lecture on the subject. Clay came to MIT last month, and not only was his seminar - which can be seen here - excellent because of its fascinating content, but it could also serve as a master class on how to discuss a very complex subject in an accessible, interesting and elegant way.
Since Clay’s talk was about how disruptive innovations could help us address our healthcare crisis, he first reminded us what disruptive innovation is all about.
There is a well established pattern. First, a new technology shows up in the marketplace, which initially is nowhere near as good as the existing technologies it will ultimately displace. But, since the new technology is much less expensive, it starts getting used in applications that don’t require the highest quality and performance, where an inexpensive solution is "good enough."
After a while, the new technology, - having significantly improved as it made its way through the learning curve that all technologies go through, - can now be used in more demanding applications, where it now starts to compete head-on against entrenched technologies. It then starts winning away those customers of the older technology who are happy to now have a product that is much less expensive and generally simpler to use.
Soon, a new low-cost innovative business model begins to develop around the new technology, which the old one cannot possibly compete with because its business model is based on a whole different set of more expensive assumptions. Eventually, an entirely new eco-system and value chain is built around the new technology, which now has essentially displaced, - and often finished off, - the older technology in the marketplace. Examples abound, from mini-mills in the steel industry, to digital photography, to microprocessors and the personal computer.
How about health care? Are there any new technologies that could act as disruptive innovation enablers and propel the industry toward higher quality, lower cost, more accessible services, business models and value chains? The answer is of course - yes.
However, technology is only an enabler of innovation. To be able to translate technology advances into major market improvements, the business models, as well as the overall industry ecosystems must embrace the technology, adapt to it, and change as appropriate. That has not happened in health care.
Why is health care different from other industries? In the introduction to his book, a draft of which Clay was kind enough to make available to me, he offers some simple, common sense answers.
In the practice of medicine, a different diagnostic approach is called for depending on the nature of the disease. "When precise diagnosis isn’t possible, then treatment must be provided through what we call intuitive medicine, where highly trained and expensive professionals solve medical problems through intuitive experimentation and pattern recognition. As patterns in these patients become clearer, care evolves into the realm of evidence-based, or empirical medicine – where data is amassed to show that certain ways of treating patients are, on average, better than others. Only when diseases are diagnosed precisely, however, can therapy that is predictably effective for each patient be developed and standardized. We term this domain precision medicine."
A hundred years ago, just about all medicine was intuitive in nature. Over the years, advances of all sorts have resulted in the ability to apply empirical and precision medicine to the diagnosis and treatment of many diseases. Most infectious diseases now fall into this category - from strep throat to tuberculosis - where a relatively simple test, administered by a nurse or medical technician, can identify the causes of symptoms with a high degree of precision. The causes can then be attacked with a therapy specifically targeted to that particular disease. Hospitalization is rarely required.
Are there new technologies in the horizon that could significantly accelerate the move toward empirical and precision medicine for more complicated diseases? Christensen identifies three families of technologies as offering great promise for the future - molecular diagnostics, imaging diagnostics, and high-bandwidth telecommunications. However, don't expect these exciting new technologies to make a different to our healthcare crisis on their own, any more than has been the case with past technologies.
"The delivery of care has been frozen in two business models – the general hospital and the physician’s practice – which were designed a hundred years ago when almost all care was in the realm of intuitive medicine. What causes products and services to become more affordable and accessible is the delivery of the technological enabler through disruptive business models. It is due to the lack of business model innovation in the healthcare industry – in many cases because regulators have not permitted it – that we are fast becoming unable to afford healthcare."
Many physician practices and general hospitals are essentially custom solution shops, treating whatever ails their patients and solving whatever new problems need solving. In Christensen’s opinion, these solutions shops are needed to solve unstructured problems, but two other business models have a great potential to help improve the healthcare industry - value-adding process businesses (VAP) and facilitated user networks.
A VAP model is essentially the application of classic engineering to a custom solution. If when solving problems, certain tasks keep coming up over and over, it makes sense to then turn those tasks into well defined, repeatable processes, whose performance can be measured and continuously improved. This is what is done in manufacturing, retailing, refineries, restaurants, and so on. A good program for continuous process improvements will result in significantly higher quality and lower costs - think of the Toyota Way or Six Sigma.
Facilitated user networks are a newer concept. These networks take advantage of the Internet, social networks and Web 2.0 methods to help in the treatment of chronic illnesses that rely heavily on modifying patient behavior to achieve success. Diabetes and a number of mental health ailments could be particularly well suited to this approach. So could diseases whose symptoms can be treated but for which there is no cure, like certain forms of cancer and autoimmune ailments, where a properly managed patient network can provide both emotional support and helpful advice to its members.
"The health care system has trapped many disruption-enabling technologies in high-cost institutions that have conflated two and often three business models under the same roof", writes Christensen. "The situation screams for business model innovation. The first wave of innovation must separate different business models into separate institutions, whose resources, processes, and profit models are matched to the nature and degree of precision by which the disease is understood. Solution shops need to become focused so they can deliver and price the services of intuitive medicine accurately. Focused value-adding process hospitals need to absorb those procedures that historically general hospitals have performed after definitive diagnosis. And user networks need to be cultivated to manage the care of many behavior-dependent chronic diseases. Solution shops and VAP hospitals can be created as hospitals-within-hospitals if done correctly. The reason why this basic division must occur at beginning, however, is that it will enable accurate measurements of value, costs, pricing and profit."
Business model innovation is absolutely necessary, but not sufficient to significantly improve healthcare. As has been pointed out over and over, the healthcare system is not a system; the whole is much less than the sum of its parts. "Disruptions are rarely plug-compatible into the prior commercial system. When disruptive innovators assume that relying on the existing commercial system is a cheaper, faster way to succeed, they invariably find that the old commercial system kills their innovation, or co-opts and re-shapes their disruptive business model so that it conforms to the system. Vice-versa never happens. Piecemeal attempts at disruption leave the forces of reform mired in their trenches, working solely on their individual pieces of the problem, inserting their improvements into the existing system, but never enabling a new disruptive commercial system to arise."
This is why so many good ideas, improvements and innovations in individual components of health care have had such a limited overall impact. They succeed in improving their slice of the system, but that's all. When disruptive innovations take hold, a new system-wide value chain emerges around the new technologies and business models.
When that happens, the new components of the system have to be integrated, coordinated and optimized by some entity charged with improving the whole. Christensen mentions Kaiser Permanente, Intermountain Health Care, the Mayo Clinic, and the Veterans Administration as healthcare institutions that have made significant progress in their approach to health care because of their ability to manage, overhaul and keep making improvements to their overall, integrated operations.
But what happens when there is no provider like Kaiser or Intermountain to develop a well managed, efficient, high quality integrated healthcare system? Some other entity must take the lead. In the talk, Clay observed that "The ideal entity responsible for healthcare should have a long-term horizon, strong motivations to keep people healthy, and the ability to make care convenient. Who might that be?
He showed us a list that included governments, insurance companies, doctors and hospitals, employees and employers. I did not expect the answer he gave. "Doctors and hospitals make money when people get sick. But employers make money when their employees are healthy and productive. Even though many of them say they want to be freed from the burden of paying for employees’ health care, if you watch what major employers are doing, they are investing heavily to attract, train, and retain the best employees possible. As a result, employers increasingly are integrating backwards to contract directly with hospitals and clinics themselves, cutting insurance companies out of the decision-making loop."
There are few challenges in our society as important and complicated as transforming our healthcare system for the better. The Innovator's Prescription is a major contribution to this very tough challenge.