Disruptive Innovation in Education _ Health Care

Disruptive Innovation in Education & Health Care Clayton Christensen Harvard Business School November, 2007 cchristensen@hbs.edu 8/11/2008 Copyright Clayton M. Christensen 1 Sustaining and Disruptive Innovations Incumbents nearly always win Performance Time 8/11/2008 Copyright Clayton M. Christensen 2 Disruptive Innovations create asymmetric competition Incumbents nearly always win Performance 60% on $500,000 Different measure Of Performance 45% on $250,000 Time 40% 20% on $2,000 Time Entrants nearly always win 8/11/2008 Copyright Clayton M. Christensen 3 Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible. Yesterday • Ford • Dept. Stores • Digital Eqpt. • Delta • JP Morgan • Xerox • IBM • Cullinet • AT&T • Dillon, Read 8/11/2008 Today • Toyota • Wal-Mart • Dell • Southwest Airlines • Fidelity • Canon • Microsoft • Oracle • Cingular • Merrill Lynch Copyright Clayton M. Christensen Tomorrow: • Chery • Internet retail • RIM Blackberry • Air taxis • ETFs • Zink • Linux • Salesforce.com • Skype • E-Trade 4 Proper team structure is crucial in every project Product Business model in which product is used Process Business model in which process is used Team Type Autonomous VP VP VP VP Level of change Product architecture: What are the components, and which ones interface with others? Process architecture: What are the steps in the process, and what is their sequence? Heavyweight VP VP VP VP Change the specifications for how components must fit together How must the steps in the process interface in time and space? Lightweight VP VP VP VP Improve performance of each component 8/11/2008 Improve individual steps in the process Functional VP VP VP VP Copyright Clayton M. Christensen 5 At the beginning of most industries, the architectures of products and services tend to be interdependent Performance Time 8/11/2008 Copyright Clayton M. Christensen 6 When technology matures, open, modular systems overtake markets because of cost and customizability Performance Time 8/11/2008 Copyright Clayton M. Christensen 7 Conflicting mandates in the way we must teach, vs. the way students must learn Interdependencies in the teaching infrastructure Differences in how we learn mandate customization Linguistic Standardization !! Spatial Bodily kinesthetic Musical Interpersonal Intrapersonal •Temporal •Lateral •Physical •Hierarchical 8/11/2008 Associational Copyright Clayton M. Christensen 8 Paces of Learning Logical mathematical Learning Styles Performance Technology can only be deployed in existing businesses in ways that sustain (and add cost to) the current model. Disruption best competes against non-consumption at the outset. Tabletop Radios, Floor-standing TVs Different measure Of Performance Path taken by vacuum tube manufacturers Time Portable TVs Pocket radios Hearing aids Time 8/11/2008 Copyright Clayton M. Christensen 9 Historically, most schools have “crammed” computer-based learning into the blue space Performance Core curriculum Different measure Of Performance Path taken by most schools, foundations and education software companies Time Time 8/11/2008 Copyright Clayton M. Christensen 10 School boards have been moving “Up-Market” to focus limited resources in the “new” trajectory of improvement Importance of program Time Time 8/11/2008 Copyright Clayton M. Christensen 11 This is a perfect opportunity to implement computerbased learning disruptively Political importance of program Time Time 8/11/2008 Copyright Clayton M. Christensen 12 Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized Performance Experimentation & problem-solving Pattern Recognition Rules-Based 8/11/2008 Copyright Clayton M. Christensen 13 Rules-Based Medicine Is Precision Medicine Preventative Effectiveness & Simplicity of Treatment Effective & Simple Tumor w/ Overexpressed HER2 protein (Herceptin) What causes that type of tumor? Effective but complicated Complicated and ineffective Breast cancer Low Ability to diagnose by cause, rather than symptom Copyright Clayton M. Christensen High 8/11/2008 14 Molecular diagnostics and interventional radiology are important technological enablers for disruptive business models in health care 8/11/2008 Complexity of Diagnosis and therapy Copyright Clayton M. Christensen 15 Three types of business models • Value Shops – Consulting, law, advertising, product development – Diagnostic & hypothesis-testing activities in hospitals and specialists’ practices • Value Chains – Manufacturing, retailing, food service – Medical procedures after definitive diagnosis • Value Networks – Telecommunications, insurance, banking – D-Life, Crohns.org 8/11/2008 Copyright Clayton M. Christensen Our thanks to Oystein Fjeldtsted, Norwegian School of Management, for teaching us this framework 16 Ambiguous Clarity of the rules Skill required to follow the rules Focused Hospital Outpatient Clinic Office Business model enablers General hospital Deep The enablers of disruption in health care Home Technological enablers Simple Sick child Parent Simple Nurse Family doctor Little Specialist Ambiguous 17 Clarity of the rules Skill required to follow the rules 8/11/2008 Copyright Clayton M. Christensen Little Deep What is a business model, and how is it built? PROCESSES: PROFIT FORMULA: Assets & fixed cost structure, and the margins & velocity required to cover them Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc. THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do 8/11/2008 RESOURCES: People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers 18 Copyright Clayton M. Christensen Disruptive innovation in the hospital business model General Hospital Focused value chain Hospital Profit formula Processes Profit formula Value Proposition: When you know what you need, we provide it efficiently, effectively Processes Value Proposition: Don’t know what’s wrong? We can address any problem you bring 8/11/2008 Resources Resources Copyright Clayton M. Christensen 19 Sources & magnitude of cost differences: Specialty vs. General Hospitals Shouldice Hospital (hernia repair) Cost of materials & supplies Cost of direct labor Overhead burden Total cost for equivalent length of stay # service families offered General Hospital $300 $670 $6030 $7,000 75 9.0 20 $100 $600 $1600 $2,300 1 2.7 Copyright Clayton M. Christensen Overhead burden rate 8/11/2008 Disruptive business model innovation in physicians’ practices Profit formula Processes Profit formula Processes Value Proposition: The solution to any problem starts here 8/11/2008 Resources Value Proposition: Fast, convenient resolution of rulesbased acute disorders Resources Copyright Clayton M. Christensen 21 The jobs of reimbursement Help me and my family become and remain healthy Fee for service Capitation National health plans HSAs & HDI Patient Jobs Help me achieve financial security Protect my assets from being taken or destroyed Pay me for services rendered. Provider Jobs Facilitate innovation. Help me cost-effectively attract and retain the employees I need. Help me avoid paying for unnecessary services Help me stay in office while I balance the budget Make health care affordable and conveniently accessible Employer Job Insurer Job Politicians’ Jobs Key: 8/11/2008 . Excellent Good Neutral Detracts Badly counterproductive 22 Copyright Clayton M. Christensen Five insights from the deductive perspective 1. America’s public schools have in fact been improving at an impressive rate for several decades. Problem: The definition of improvement has changed. 2. The interdependent architecture of our present system mandates standardization in the way we teach and test. Problem: Differences in students’ learning styles or types of intelligence mandate modularity in teaching and testing. 3. Heavyweight teams always are required to define new product and service architectures. Problem: Architectural reform cannot be done within the functional structure of existing schools. Only functional improvement is possible. Chartered and pilot schools are heavyweight teams. 4. America’s poor performance in science, math and engineering is caused by diminished extrinsic motivation Comfort and prosperity are the culprit; intrinsic motivation is our only hope 5. Multiplicity of jobs requires multiple business models to address them 8/11/2008 Copyright Clayton M. Christensen 23 The substitution of one thing substitutes for another always follows an S-curve pattern % new % old 50% % new 10.0 1.0 25% 0.1 .01 .001 .0001 03 8/11/2008 Copyright Clayton M. Christensen 05 07 09 11 13 24 15 The process of building bodies of understanding Preliminary statements of correlation Categorization by the attributes of the phenomena Anomaly Observe, describe & measure the phenomena 8/11/2008 Copyright Clayton M. Christensen 25 The predictive power of theory improves markedly when careful researchers move beyond statements of correlation to statements of causality. Statement of causality Categorization of the circumstances in which we might find ourselves Preliminary statements of correlation Anomaly Observe, describe & measure the phenomena Categorization by the attributes of the phenomena Anomaly Normative theory Observe, describe & measure the phenomena 8/11/2008 Copyright Clayton M. Christensen 26 Descriptive theory