Clayton Christensen left the business world to go back to school for his Ph.D. when he was 40. As he studied businesses, he had two basic questions:
- Why do so many companies, once prominent, fade into oblivion?
- Why do so few innovations succeed?
He says principles of good management actually undermine successful innovation, because companies have difficulty rationalizing diverting resources from their core businesses to pursue simplifying technology. They don’t want to cannibalize their profitable businesses or invest in low-margin, lower-quality that make products simpler and more affordable, to produce products their best customers don’t find useful.
Christensen says head-on competition among businesses with similar business models actually increases prices. It takes a disruptive competitor to drive the costs lower. In his model, we need to take technology from the big hospitals to the outpatient clinics and then to the primary care physician and then to nurse practitioners and physician assistants, just as mainframes were disrupted by minicomputers which were disrupted by PCs which were disrupted by notebook computers which are being disrupted by handheld devices.
Christensen says there are three enablers of disruptive innovation:
- Simplifying Technology
- Business model innovation
- New value network of customers, distribution and suppliers
Scientific progress that commoditizes expertise plays a critical role in disruption. It enables industries to go from intuitive, highly expert solutions to commoditized, rules-based solutions that can be implemented by less-trained individuals.
In healthcare, he says we need to move from “Intuitive Medicine” to “Empirical Medicine” to “Precision Medicine.” Molecular biology will be the technological enabler that will move diseases from the high-cost, intuitive side to the commoditized.
Christensen says the traditional general hospital is not a viable business model because it is an “expensive conflation” of three types of business models:
- Solution shop: diagnoses problems and recommends solutions. This is the intuitive medicine. Almost always fee for service.
- Value-adding process business: Fee for outcome. Manufacturing, Education, food services.
- Facilitated Networks: Telecom, Insurance, EBay, D-Life. These are Fee for Membership or Fee for Use.
Christensen there will always be a need for a few Mayo Clinic-type organizations, but he believes the general hospitals need to be divided into Value-Adding Process Clinics (e.g. Orthopedics, hernia repair, eye, etc.) and Coherent Solution Shops.
It’s extremely difficult to capture the essence of Christensen’s presentation and thinking in a single post, but I highly recommend you check out his book on health care innovation, The Innovator’s Prescription. Here is a related video from one of his previous presentations. I haven’t watched it, but I expect it covers many of the points made this morning.