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MEET THE CURE TO AMERICA'S HEALTH CARE ILLS
"Clayton Christensen has done it again, writing yet another book full of valuable insights. The Innovator's Prescription ...
MEET THE CURE TO AMERICA'S HEALTH CARE ILLS
"Clayton Christensen has done it again, writing yet another book full of valuable insights. The Innovator's Prescription might just mark the beginning of a new era in health care."
Michael Bloomberg, Mayor, New York City
"Clear, entertaining, and provocative, The Innovator's Prescription should be read by anyone who cares about improving the health and health care of all."
Dr. Risa Lavizzo-Mourey, President and CEO, Robert Wood Johnson Foundation
"Comprehensive in its vision, astute in its diagnosis, and clear in its guidance, The Innovator's Prescription offers strong medicine for a health care system that is far from well."
Dr. Harvey V. Fineberg, President, Institute of Medicine
"A wealth of insights--with new ideas and revelations in every chapter. Read it, and you will be armed with solid ideas for making health care better."
George Halvorson, Chairman and CEO, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals
"The Innovator’s Prescription is a well researched, clearly organized road map to a sustainable
health care system."
Michael O. Leavitt, Secretary of Health and Human Services
"The Innovator's Prescription is an important and timely contribution to the national debate on health system reform. We would do well to consider it carefully."
Tom Daschle, former Senate Majority Leader and Distinguished Senior Fellow, Center for American Progress
"Clayton Christensen has helped many businesses—including our own--find new growth opportunities
through deeper insights into the future of health and the health care system. I can think of no one better equipped to lead this comprehensive global assessment."
Bill Weldon, Chairman and CEO, Johnson & Johnson
Clayton M. Christensen's bestselling books are:
"ABSORBING."The New York Times
"BRILLIANT."Michael R. Bloomberg
In the 15 years since we first introduced the term "disruptive technology" into the lexicon of business management, there has probably been as much confusion about it as there has been clarity because the terms "disruption" and "technology" carry many prior connotations in the English language. Disruption connotes something "upsetting" and "radically different," among other things. And to many, "technology" connotes revolutionary ways of doing things that are comprehensible only to Ph.D. scientists and computer nerds. As a result of these other connotations of the words we chose, many who have only casually read our research have assumed that the concept of disruptive innovation refers to a radically new technology that tips an industry upside down.
But we have tried to give the term a very specific meaning: "disruption" is an innovation that makes things simpler and more affordable, and "technology" is a way of combining inputs of materials, components, information, labor, and energy into outputs of greater value. Hence, every company—from Intel to Wal-Mart—employs technology as it seeks to deliver value to its customers. Some executives believe that technology can solve the challenges of growth and cost that confront their firms or industries. Yet this is rarely the case. Indeed, widely heralded technologies often fall short of the expectation that they will transform an industry. Anyone who has been inside a modern hospital, for example, has noted the myriad sophisticated technologies at work today, yet health care only seems to get more expensive and inaccessible. The reason is that the purpose of most technologies—even radical breakthroughs—is to sustain the functioning of the current system. Only disruptive innovations have the potential to make health care affordable and accessible.
In this chapter we first review the concept of disruptive innovation and its constituent elements. We then zero in on the concept of a business model, showing that it is composed of four elements—a value proposition, and the resources, processes and profit formula required to deliver that value proposition to targeted customers. Because business model innovation is the crucial ingredient in harnessing a disruptive technology in order to transform an industry, we then describe three different classes of business models around which the health-care industry will be organized in the future. Along the way, we offer illustrations from other industries showing that when innovators stop short of business model innovation, hoping that a new technology will achieve transformative results without a corresponding disruptive business model and without embedding it in a new disruptive value network or ecosystem, fundamental change rarely occurs. In other words, disruptive technologies and business model innovations are both necessary conditions for disruption of an industry to occur. We close the chapter by explaining the process by which existing companies and their leaders can create new business models that match the degree of disruption needed.
In the subsequent five chapters we will build upon the foundation we lay out in this one. Chapter 2 explores the technological enablers of disruption in health care. Chapters 3 and 4 show how the business models of hospitals and physicians' practices must change in order to harness the power of disruption to make health care affordable and conveniently accessible, while Chapter 5 addresses the type of business model innovation necessary to transform the management of chronic disease. Finally, Chapter 6 explores which companies and industry executives are and are not in a position to lead these disruptive innovations—and what they need to do to get the job done.
THE DISRUPTIVE INNOVATION THEORY
The disruptive innovation theory explains the process by which complicated, expensive products and services are transformed into simple, affordable ones. It also shows why it is so difficult for the leading companies or institutions in an industry to succeed at disruption. Historically, it is almost always new companies or totally independent business units of existing firms that succeed in disrupting an industry.
The theory's basic constructs are depicted in Figure 1.1, which charts the performance of a service or product over time. First, focusing on the graph in the back plane of this three-dimensional diagram, there are two types of improvement trajectories in every market. The solid line denotes the pace of improvement in products and services that companies provide to their customers as they introduce newer and better products over time. Meanwhile, the dotted lines depict the rate of performance improvement that customers are able to utilize. There are multiple dotted lines to represent the different tiers of customers within any given market, with the dotted line at the top representing the most demanding customers and the dotted line at the bottom representing customers who are satisfied with very little.
As these intersecting trajectories of the solid and dotted lines suggest, customers' needs in a given market application tend to be relatively stable over time. But companies typically improve their products at a much faster pace so that products that at one point weren't good enough ultimately pack together more features and functions than customers need. A useful way of visualizing this is to note how car companies give customers new and improved engines every year, but customers simply cannot use all of this improvement because of speed limits, traffic jams, and police officers.
Innovations that drive companies up the trajectory of performance improvement, with success measured along dimensions historically valued by their customers, are said to be sustaining innovations. Some of these improvements are dramatic breakthroughs, while others are routine and incremental. However, the competitive purpose of all sustaining innovations is to maintain the existing trajectory of performance improvement in the established market. Airplanes that fly farther, computers that process faster, cellular phone batteries that last longer, and televisions with larger screens and clearer images are all sustaining innovations. We have found in our research that in almost every case the companies that win the battles of sustaining innovation are the incumbent leaders in the industry. And it seems not to matter how technologically challenging the innovation is. As long as these innovations help the leaders make better products which they can sell for higher profits to their best customers, they figure out a way to get it done.
The initial products and services in the original "plane of competition" at the back of Figure 1.1 are typically complicated and expensive so that the only customers who can buy and use the products, or the only providers of these services, are those with a lot of money and a lot of skill. In the computer industry, for example, mainframe computers made by companies like IBM comprised that original plane of competition from the 1950s through the 1970s. These machines cost millions of dollars to purchase and millions more to operate, and the operators were highly trained professionals. In those days, when someone needed to compute, she had to take a big stack of punched cards to the corporate mainframe center and give it to the computer expert, who then ran the job for her. The mainframe manufacturers focused their innovative energies on making bigger and better mainframes. These companies were very good, and very successful, at what they did. The same was true for much of the history of automobiles, telecommunications, printing, commercial and investment banking, beef processing, photography, steel making, and many, many other industries. The initial products and services were complicated and expensive.
Occasionally, however, a different type of innovation emerges in an industry—a disruptive innovation. A disruptive innovation is not a breakthrough improvement. Instead of sustaining the traditional trajectory of improvement in the original plane of competition, the disruptor brings to market a product or service that is actually not as good as those that the leading companies have been selling in their market. Because it is not as good as what customers in the original market or plane of competition of Figure 1.1 are already using, a disruptive product does not appeal to them. However, though they don't perform as well as the original products or services, disruptive innovations are simpler and more affordable. This allows them to take root in a simple, undemanding application, targeting customers who were previously nonconsumers because they had lacked the money or skill to buy and use the products sold in the original plane of competition. By competing on the basis of simplicity, affordability, and accessibility, these disruptions are able to establish a base of customers in an entirely different plane of competition, as depicted in the front of Figure 1.1. In contrast to traditional customers, these new users tend to be quite happy to have a product with limited capability or performance because it is infinitely better than their only alternative, which is nothing at all.
The personal computer is a classic example of a disruptive innovation. The first personal computers (PCs), like the Apple IIe, were toys for children and hobbyists, and the first adult applications were simple things like typing documents and building spreadsheets. Any complex computational problem still had to be served by the back plane of competition, where experts with mainframe computers ran the jobs for us. However, the performance of these simple PCs just kept getting better and better. As they became good enough, customers whose needs historically had required the more expensive mainframe and minicomputers were drawn one by one, application by application, from the back into the front plane of competition.
None of the customers of mainframe or minicomputer companies like Control Data Corporation (CDC) and Digital Equipment Corporation (DEC) could even use a personal computer during the first 10 years that PCs were made; PCs just weren't good enough for the problems they needed to solve. When CDC and DEC listened to what their best customers needed, there was no signal that a personal computer was important—because it wasn't to them. And when they looked at the financials, the personal computer market looked bleak. The $800 in gross margin that could be earned from selling a personal computer paled in comparison to the $125,000 in margin per unit that DEC could earn when it sold a minicomputer, or to the $800,000 in margin that Control Data could earn when it sold a mainframe.
Eventually, every one of the makers of mainframe and minicomputers was killed by the personal computer. But they weren't killed simply because the margins and volumes were different. The PC simply got better at doing more things. And it wasn't because the technology was difficult; in fact, given their industry expertise, companies like DEC could build some of the best PCs in the world. But it never made business sense for them to pursue the personal computer market. Even when PCs were becoming good enough to do much of what mainframes and minicomputers could do, the business model at companies like DEC could only prioritize even bigger and faster mainframes or minicomputers.
The only one of these companies that didn't fail was IBM, which for a time became a leader in personal computers by setting up a completely independent business unit in Florida and giving it the freedom to create a unique business model and compete against the other IBM business units.
The Kodak camera, Bell telephone, Sony transistor radio, Ford Model T (and more recently Toyota automobiles), Xerox photocopiers, Southwest Airlines' affordable flights, Cisco routers, Fidelity mutual funds, Google advertising, and hundreds of other innovations, all did or are doing the same thing. They used disruption to transform markets that had been dominated by complicated, expensive services and products into simple and affordable ones.
In each of these cases, the companies that had successfully sold their products or services, often dominating industries for decades, almost always died after being disrupted. Despite their stellar record of success in developing sustaining innovations, the incumbent leaders in an industry just could not find a way to maintain their industry leadership when confronted with disruptive innovations. The reason, again, is not that they lack resources such as money or technological expertise. Rather, they lack the motivation to focus sufficient resources on the disruption.
During the years in which a commitment to succeed with a new innovation needs to be made, disruptions are unattractive to industry leaders because their best customers can't use them and they are financially less attractive to incumbents than sustaining innovations. In a company's resource allocation process, proposals to invest in disruptive innovations almost always get trumped by next-generation sustaining innovations simply because innovations that can be sold to a firm's best customers for higher prices invariably appear more attractive than disruptive innovations that promise lower margins and can't be used by those customers. In the end, it takes disruptive innovations to change the landscape of an industry dramatically.
An industry whose products or services are still so complicated and expensive that only people with a lot of money and expertise can own and use them is an industry that has not yet been disrupted. This is the situation in legal services, higher education, and, yes, health care. The overarching theme of this book, however, is that these processes of disruption are beginning to appear in health care. One by one, disorders that could be treated only through the judgment and skill of experienced physicians in expensive hospitals are becoming diagnosable and treatable by less expensive caregivers working in more accessible and affordable venues of care. True to form, most of these innovations are being brought into the industry by new entrants, and they are being ignored or opposed by the leading caregiving institutions for perfectly rational reasons.
WHAT IS A BUSINESS MODEL AND HOW IS IT BUILT?
We mention above that of all the companies that made mainframe computers, IBM was the only one to become a leading maker of minicomputers; and of all the companies that made minicomputers, IBM was the only one that became a leading maker of personal computers. The reason is that IBM was the only company that invested to create new business models whose capabilities were tailored to the nature of competition in these disruptive markets. The others, if they attempted at all to participate in these emerging market segments, did so by trying to commercialize the disruptive products from within their existing business model.
So what is a business model? It is an interdependent system composed of four components, as illustrated in Figure 1.2. The starting point in the creation of any successful business model is its value proposition—a product or service that can help targeted customers do more effectively, conveniently, and affordably a job that they've been trying to do. Managers then typically need to put in place a set of resources—including people, products, intellectual property, supplies, equipment, facilities, cash, and so on-required to deliver that value proposition to the targeted customers. In repeatedly working toward that goal, processes coalesce. Processes are habitual ways of working together that emerge as employees address recurrent tasks repeatedly and successfully. These processes define how resources are combined to deliver the value proposition. A profit formula then materializes. This defines the required price, markups, gross and net profit margins, asset turns, and volumes necessary to cover profitably the costs of the resources and processes that are required to deliver the value proposition.
Over time, however, the business model that has emerged begins to determine the sorts of value propositions the organization can and cannot deliver. While the starting point in the creation of a business model is the value proposition, once a business model has coalesced to deliver that value proposition, the causality of events begins to work in reverse, and the only value propositions that the organization can successfully take to market are those that fit the existing resources, processes, and profit formula. In other words, the available business model is often the constraint to the realization of a disruptive technology's full potential.
Excerpted from The Innovator's Prescription by Clayton M. Christensen Jerome H. Grossman Jason Hwang Copyright © 2009 by Clayton M. Christensen, Jerome Grossman and Jason Hwang. Excerpted by permission of McGraw-Hill. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Posted April 29, 2013
In The Innovator’s Prescription, Clayton Christensen and his associates address the complex issue of health care reform. Their stated purpose is to “provide a road map for those seeking innovation and reform" (xviii).
The central thesis of this collaborative effort is that there is a market solution to the rising costs of health care. The proposed solution illustrates that health care reform is a complex undertaking which involves not only lowering the cost of insurance, but also addressing other critical issues such as expensive “one-size-fits-all” business models used by hospitals and physicians. Nine major categories of problems are identified which must be addressed in order to permanently raise the quality of health care while simultaneously providing greater access at lower costs.
Christensen, a renowned consultant and Harvard scholar, applies his theory of “disruptive innovation” to America’s health care crisis. Disruptive innovation describes the phenomenon that occurs when a product typically only available to the rich is made available to the poor, albeit a product of initial lesser quality.
An example is the personal computer which initially gave rank and file individuals access to basic word processing and games. Over time, the quality of these products became better and better, eventually displacing the role of ridiculously expensive room-size computers and making high quality personal computers accessible at low costs.
The authors claim that this same phenomenon can impact America’s health care system. For example, they argue that in some instances costs can be lowered by supplanting expensive physicians with less-expensive staff or technologies which have the same capabilities.
In 2009, President Obama deplored the rising costs of health care in the United States, saying that “for all of this spending, more of our citizens are uninsured, the quality of our care is often lower, and we aren’t any healthier.”
Yet time after time in The Innovator’s Prescription, Christensen, Grossman, and Hwang demonstrate how disruptive innovation can create a market solution to the health care crisis. They carefully dissect each known problem and demonstrate exactly how more citizens can obtain high-quality, low-cost health insurance designed to improve health.
Christensen and his associates do a masterful job at objectively presenting a complex issue in a reasonably succinct and impressively organized fashion. At the same time, they are likely to incite passion in many readers. Their belief in disruptive innovation is likely to anger physicians who are hesitant to accept less expensive technologies and business models. Their claim that a long-term solution is not possible without requiring everybody to purchase insurance—something akin to the “individual mandate” of national health care reform—is also likely to frustrate many conservatives. Nonetheless, the analysis is unmistakably nonpartisan and it is easy to see that the authors are more concerned with finding a solution than placating their audience.
While the book does not make for light reading, it will be a valuable addition to the library of anyone interested in truly understanding what is wrong with our health care system. The Innovator’s Prescription provides an impressively objective analysis of what is wrong with America’s health care system and what is necessary to create a long-term solution.
Posted October 28, 2011
A must read for professionals working within our healthcare system as well as for those whom shape public policy and determine how provider organizations are paid for their services. A thought provoking read on using innovation models to help transform our healthcare system from its current state of chaos and financial decline to a sustainable business model which is based on value, efficiency while remaining patient focused. Also provides insights as to the root causes of the current nash equalibrium our healthcare system seems to be stuck in and how disruptive innovation can help to change the current status quo.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted August 29, 2009
This is an excellent book that every legislator and chief executive must read and absorb. In a third of the pages it takes the US Congress to promote an ineffective and expensive plan that merely mimicks European-style single-payer health care, Christensen, Grossman and Hwang map out well-argued, well-documented, well-reasoned innovations to the health care system, its delivery mechanism, and its funding. Based in market-driven solutions, the concepts presented in this book free those who participate in this area of our economy (that is, ALL of us) to allow health care to be treated as an economic sector, and not merely a social service. A MUST READ for legislators, practitioners and patients.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted May 9, 2009
I Also Recommend:
Most business books are actually HBR articles inflated by editors to 250-pages to meet an unwritten weight requirement. Dr. Christensen is one of the few thinkers who actually merit the book-length format and hold an experienced entrepreneur's attention throughout. This work is insightful and entertaining, while providing helpful tools and the continued expansion of the analytical framework Christensen has been developing over the past two decades. I am selective in terms of the business-oriented books I choose to finish and I wait for each addition to the Clay Christensen library. This book is well worth reading and owning, even if healthcare is not your target market.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 17, 2009
very comprehensive book outlining how health care can change how it conducts its business. business principals are related to health care industry so those with no business background can relate and understand whats being presented. the fact that the book is co authored by 2 md'd gives validity to the claims presented. the only critique is that scholars within the nursing field should have been consulted and their perspective documented seeing how the nursing role will be greatly impacted by the changes that are cited.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted July 11, 2011
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Posted August 26, 2010
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Posted December 24, 2011
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Posted January 31, 2011
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Posted February 14, 2010
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