the panda’s thumb in health care - king's fund · the panda’s thumb in health care ......

1

The Panda’s Thumb in Health Care Clayton Christensen Harvard Business School

6/21/2013 Copyright Clayton M. Christensen 2

Decentralization is disruptive, and is hard to catch

Perf

orm

ance

Time

40% 20% on $2,000

Time

Incumbents dominate sustaining battles

Entrants typically win at disruption

45% on $250,000

60% on $500,000

Surg

ical

su

ites

High-speed multi-channel

testers

Imaging: MRI, CT, PET Scanners

Specialist physicians

Personal physicians

Nurse practitioners

Pharmacists

Clinics

Offices

Homes

The decentralization that follows centralization is only beginning in healthcare

1. Bring the problem to the solution. 2. Then bring the solution to the problem.

Retail Clinics

Family care

http://www.antiagingdoctor.co.za/?p=173�

http://www.fsu.edu/news/2008/05/13/family.physicians/�

http://nurseweb.ucsf.edu/www/spec-anp.htm�

http://www.ucdmc.ucdavis.edu/chronicdisease/diabetes_education/combination_pills.html�

http://www.citytowninfo.com/education-articles/career-guides/how-to-become-a-pharmacy-technician�

Probabilistic pattern

recognition Rules-based

Intuitive, trial-and-error

problem- solving

Synthetic fibers: Nylon Polyester Acetate Kevlar

Infectious diseases; Cervical

cancer

Bipolar disorder; Seizures asthma

Scientific progress that commoditizes expertise plays a critical role in disruption

Empirical medicine

(Evidence-based medicine)

Precision medicine

(Personalized medicine)

Intuitive medicine

(symptoms < diseases)

Shouldice Hospital: Hernia surgery

Dave Snow, asthma CEO, Medco

National Jewish Medical Center Pulmonary & Respiratory Diseases

Typical hospitals are not

complicated. They are

impossible.

Fee For service

• Consulting firms • R&D organizations • Diagnostic & intuitive activities of hospitals

solution shops

Fee For outcome

• Manufacturing • Education •Construction • Medical procedures

process Businesses

• Telecommunications • Insurance • EBay • D-Life; Crohns.org

Facilitated networks

Fee For memBership

http://www.flickr.com/photos/10692236@N08/938558065/lightbox/�

http://creativecommons.org/licenses/by-nc-sa/2.0/�

http://creativecommons.org/licenses/by-nc-sa/2.0/deed.en�

http://www.flickr.com/change_language.gne?lang=zh-hk&magic_cookie=78931250795a66a290d4093174b351e1�

http://www.flickr.com/change_language.gne?lang=ko-kr&magic_cookie=78931250795a66a290d4093174b351e1�

http://www.flickr.com/photos/10692236@N08/938558065/in/photostream/�

© 2007 Innosight LLC 6

Market Understanding that Mirrors how Customers Experience Life

“The customer rarely buys what the company thinks it is selling him.” - Peter Drucker

I need to get this to there as fast as possible,

with perfect certainty.

6/21/2013 Copyright Clayton M. Christensen

7

Horseman & chariot

Telegraph, railroad

Airplane

FedEx

Four levels in the architecture of a job


What’s the job-to-be-done? (Each job has functional, emotional & social dimensions)

What experiences in purchase & use must we provide to do the job perfectly?

What and how to integrate?

Purpose Brand

Integrating correctly to get the job done means:

• IKEA • TurboTax;

QuickBooks • Whole Foods • Disney • Zara • NxStage • OnStar • i-Tunes


• Jobs are very stable over long periods; they are not vulnerable to product life cycles

• Whereas products are easy to copy, integration around a job creates defensible differentiation.

• Customers are happy to pay a profitable price, instead of a zero-sum relationship.


The advantage of focuing on a job-to-be-done.

New York

Times

AutoTrader.com R

ealtor.com

Met

ro

Bloomberg

Buy or sell stuff.

Buy or sell a car. Find a job

or fill a job

Sell or buy a home

Keep me productive while I wait

Keep me deeply

informed Up-to-date business

news

Help me unwind


Focusing on a job creates:

• More growth • Enduring

differentiation • Few customers from

customers’ perspective • Stability: No product

life cycle

Inte

grat

e Ex

perie

nces

Jo

b


When two business models predictably converge into one


When one business model predictably will diverge into two

Business models for adherence in chronic care

Degree to which behavior change is required Minimal Extensive

Mot

ivat

ion

to

adhe

re to

ther

apy

Strong: quickly feel

consequences

Weak: Complications

are deferred

Type I Diabetes

Addictions Type II Diabetes

Asthma

Congestive heart failure

Obesity Hypertension

Osteoporosis

Cancer HIV

Myopia Crohn’s disease

Chronic back pain

Ulcerative colitis

Infertility

Business models for ongoing care

Degree to which behavior change is required Minimal Extensive

Mot

ivat

ion

to

adhe

re to

ther

apy

Strong: quickly feel

consequences

Weak: Complications

are deferred

Type I diabetes

Addictions Type II diabetes

Asthma

Congestive heart failure

Obesity Hypertension

Osteoporosis

Cancer HIV

Myopia Crohn’s disease

Chronic back pain

Ulcerative colitis

Infertility

Doctor’s office User Networks

Employer- Managed Care

with HSAs

Pharmacy- based care


Apprenticeship

Tradition

Salesmanship

Decapitation

Religion

Broad consensus

No consensus

Extent to which there is pre-existing consensus about what actions will lead to the needed results

No consensus Broad consensus

Power Tools

Management Tools

Leadership Tools

Culture Tools

Measurement Systems

Training

Standard operating procedures

Strategic planning

Financial incentives

Negotiation

Exte

nt to

whi

ch th

ere

is

Con

sens

us o

n w

hat w

e w

ant

Rituals

Democracy

Folklore Religion

Vision Charisma

Role modeling

Salesmanship

Coercion

Fiat Threats

Role definition

Control Systems

Decapitation

The Tools of Cooperation

PROCESSES:

Ways of working together to address recurrent tasks in a

consistent way: training, development, manufacturing,

budgeting, planning, etc.


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

Agenda


Per

form

ance

Time

Pocket radios

Portable TVs

Diff

eren

t mea

sure

O

f Per

form

ance

Time

Hearing Aids

Tabletop Radios, Floor-standing TVs

Path taken for transistors by vacuum tube manufacturers

The customers are enticed into the new system, not vice versa.

The metric of performance changes



Time

perf

orm

ance

Pell Grants Student Loans

Pell Grants

Student Loans

As tuition has soared – it now averages of $28,500 a year, including fees, at private

schools – student-loan debt has exploded.

"What a Drag" Barron's April 16, 2012


Original Technology Pure-play deployed against non-consumption

Hybrid when deployed as a sustaining technology

against consumption

A Theory of Hybrids


A Theory of Hybrids

Perf

orm

ance

Time

Time Peapod: Are there customers that would love a car that won’t go far, and won’t go fast?

Competing on cost, design, reliability, and

performance on the California Freeway

Tesla $100,000

Prius Hybrid

http://keetsa.com/blog/eco-friendly/toyota-selling-the-certified-used-prius-on-ebay/�


The Church of New Finance


The high priests: business professors; partners in private

equity, venture and hedge funds

I. Return on net

assets (RONA) II.

Economic Value-added (EVA)

III. Gross Margin %

IV. Internal Rate of

Return (IRR)

V. Earnings per share (EPS)

VI. Return on Capital Employed (ROCE)

VII. Marginal Revenue /

marginal cost VIII.

Thou shalt be data-driven and fact-based.

Efficiency Innovations


The economic engine

Empowering (Disruptive) innovations

Jobs

Capital

Empowering

Creates

Uses

Sustaining

Neutral

Neutral

Eliminates

Creates

Efficiency

Perf

orm

ance

Time

Time

Sustaining innovations

7%

12%

18%

Stee

l Qua

lity

1980 1975 1985 1990

25–30%

Efficient Innovations






Rules in writing vs. rules in use

• Four rules in use in design and manufacturing at Toyota

• Org. Chart in use at Apple • Financial rules in use



7%

4% 12%

8%

18% 22%

% of tons

Ste

el Q

ualit

y

1980 1975 1985 1990

25–30% 55%

Evaluating investments on marginal rather than full costs biases incumbent leaders to leverage what they have, instead of building what they need

$350 285 65

Minimill $350

15 335

Marginal $350 340 10

Existing Price Cost Net

Present cash flows: The typically assumed

base case of doing nothing

Foreseen cash flows from investing in an innovation

DCF and NPV methodologies implicitly make

this contrast

Time

Mag

nitu

de o

f cas

h flo

ws

The common methods of financial analysis systematically bias managers against innovation

Returns from innovation realistically must be contrasted to the deteriorating stream of cash

likely to result from doing nothing

+

-

Outsourcing often sets in motion disruptive business model liquidation

Mother boards

Computer assembly

Supply chain & logistics

Product design

Brand

Dell AsusTek

Simple circuit boards

Mother boards

Computer assembly

Supply chain & logistics

Product design

Brand

6/21/2013 30 Copyright Clayton M. Christensen

Wall Street Analysts

Pharmaceutical Cos.

Petroleum Majors

Auto companies

IT departments

Customer Supplier

Bloomberg

CROs.

Halliburton, Schlumberger

Tier One Suppliers

TCS, Infosys, Wipro

Outsourcing often sets in motion disruptive business model liquidation



The right product architecture depends upon the basis of competition

Perf

orm

ance

Time

Compete by improving functionality &

reliability

Compete by improving speed, responsiveness and customization

Dell PCs, Linux


Integrating forward to the decoupling point

Heads & Disks

Disk Drives Computers Applications

Software Service

Heads & Disks


Software Service

Heads & Disks


Software Service

Heads & Disks


Software Service

Heads & Disks


Software Service

Changes in product architecture have profoundly changed the architecture of the computer industry

Equipment

Materials

Components

Product design & assembly Operating system & applications software

Sales & distribution

Field service

1960 - 1980

IBM

Con

trol D

ata

Dig

ital E

quip

men

t

---------- 1990 – Present -------

Intel, Komag, etc.

Dell, HP, Quanta, Acer

Best Buy

Geek Squad

Microsoft

Monsanto, Sumitomo Metals, Komatsu, Shipley, etc.

Teradyne, Nikon, Canon, Applied Materials, Millipore, etc.

App

le C

ompu

ter



Copy features

Add features

The law of conservation of attractive profits

Commoditization thru modularity, over-shooting

De-Commoditization: services & products that make use of the product more effective

De-Commoditization: sub-systems that drive the performance of the modular product

6/21/2013 Copyright Clayton M. Christensen


So what should the Harvard Business School Do?

Implications of the Law of Conservation of Modularity on where the money will be

Modular: unattractive profitability

Interdependent: attractive

profitability



profitability


Desktop computer Microprocessor Fab Mfg. Equipment Components



profitability



profitability


profitability

Hand-held devices System-on-chip Fab Mfg. Equipment Eqpt. Subsystems

Reusable “silicon IP;” Design tools

Corolla Camry Avalon

4-Runner

Tundra

Toyota

Tacoma

Sienna

Cobalt Malibu Impala

Trailblazer

Colorado Avalanche

Uplander

Chevrolet


Focus on product categories leads to feature proliferation and undifferentiable products

Corolla

Camry

Avalon

4-Runner

Tundra

Toyota

Tacoma

Focus on a job defines the correct mode of proprietary integration


Avalon

Full-

size

Sub-

com

pact

Com

pact

Mid

-siz

e

Min

ivan

SUV

Ligh

t tru

ck

Full-

size

truc

k

Big-screen Blackberry; hands-free phone; automatic expense-reporting system;

CRM software; laptop docking station, swing-out keyboard; fold-out desk; 3G

access; Peltier box; storage systems

Purpose Brand: “My car is my office”

Different kind of dealers

The Resource Allocation Process: Decisions about what gets resources: what

to do & what not to do

Intended Strategy: Analytical project

followed by implementation

Emergent Initiatives Responses to

unforeseen opportunities and problems

Stream of new products, services,

processes and acquisitions

Actual strategy that is implemented

Processes of Strategy Formulation and Implementation

Priorities embedded in company’s

profit model

Discovery-Driven Planning is a better way to manage the flow of projects through the development funnel

Platform-based planning

1. Make Assumptions

2. Build projections based upon assumptions

3. Make decisions to invest based upon projections

4. Implement the deliberate strategy

Discovery-driven planning

1. Make Projections

2. What assumptions must prove true for the projections

to happen?

3. Implement a plan to learn -- to test whether the critical assumptions are reasonable

4. Move to the next stage when key assumptions prove

valid 6/21/2013 41 Copyright Clayton M. Christensen

The poor performance in many corporate incubators is rooted in the planning and budgeting process.


Laptops


The general process of becoming affordable and accessible

Mainframe

Minicomputers

Smartphones

Desktops

Slide rule

Surg

ical

su

ites

High-speed multi-channel

testers

Imaging: MRI, CT, PET Scanners

Specialist physicians

Personal physicians

Nurse practitioners

Pharmacists

Clinics

Offices

Homes

The decentralization that follows centralization is only beginning in healthcare

1. Bring the problem to the solution. 2. Then bring the solution to the problem.

Retail Clinics

Family care






How future universities might be built


Unit of accreditation: the institution

Unit of accreditation:

the course

A different type of university

Standards: thru course acceptance

How marketing drives innovation off the rails


Organization around products and components:

Irrelevant innovation

Focus on customer: Commoditization

The same job needs to be done

The job to be done


The interaction between the ability to improve products, and the ability of customers to use them

Perf

orm

ance

Time

Abi

lity

to u

tiliz

e im

prov

emen

t

Per

form

ance

Time

Pocket radios

Portable TVs

Diff

eren

t mea

sure

O

f Per

form

ance

Time

Hearing Aids

Tabletop Radios, Floor-standing TVs

Path taken for transistors by vacuum tube manufacturers

The customers are enticed into the new system, not vice versa.

The metric of performance changes


Disruption breaks the trade-offs.

Higher quality and lower costs

Trade-offs are binding: Higher quality requires

higher costs

Better care for individuals; better health for

populations; lower per-capita

costs

TPS – IHI system

Standards to unsure that

technologies are not over-used

Empirical / evidence-based medicine (Brent

James) Employed

vs. affiliate; hospital own

vs. tenant

Insurance embedded

into the provision of

care

Disruption of venues of care and

providers of care

Value-adduing process eqpt.

FDA / Regulatory

change

Care of the elderly: nursing homes, hospice,

etc.


Over time, the organizational structure comes to mirror the established product’s architecture.

Component A

Component B

Component C

Component D

Component

E

F

Component

Group A

Group C

Group

E Group B

Group D

F Group

Product Architecture Organizational Structure & Interaction Patterns


Proper team structure is crucial in every project

Business model in which product is used

Product architecture: What are the components, and which ones interface with others?

Change the specifications for how components must fit together

Improve performance of each component

Business model in which process is used

Process architecture: What are the steps in the process, and what is their sequence?

How must the steps in the process interface in time and space?

Improve individual steps in the process

Product Process Team Type

Leve

l of c

hang

e

VP VP VP VP Autonomous

VP VP VP VP Heavyweight

VP VP VP VP

Lightweight

VP VP VP VP Functional

We’ll do anything for

anybody.

•Overhead = 85% of total

•Overhead increases 30% for each doubling of complexity

•Variable quality

6/21/2013 Copyright Clayton M. Christensen 52 Po

lishi

ng D

ept.

Annealing furnace

Turning machines

Tapping equipment

De-burring

Cut

-off

saw

s

Shipping Department Office area Storage

Hobbing department

Boring machines

Stamping machines

Assembly

the panda’s thumb in health care - king's fund · the panda’s thumb in health care ......

Documents