TRANSFORMING PATHOLOGY

:
Emerging technology driving practice innovation

org 04/19/11 Copyright Clayton M.The Innovator’s Prescription: An Examination of the Future of Healthcare Through the Lenses of Disruptive Innovation Jason Hwang. Christensen and Jason Hwang .. Healthcare jhwang@innosightinstitute.D. M. Executive Director.B. M.A.

Christensen and Jason Hwang 3 .Disruptive Technologies: A driver of leadership failure and the source of new growth opportunities of ace gical P ol o chn ress Te rog P Incumbents nearly always win Performance g inin ta Sus s tion va nno i t customers erformance tha P sorb can utilize or ab Disruptive technologies Entrants nearly always win Time 04/19/11 Copyright Clayton M.

Christensen and Jason Hwang . bar An Rebar 4% 1980 1985 1990 4 04/19/11 Copyright Clayton M.Beat competitors with asymmetry of motivation Steel Quality 25–30% % of tons 55% Q d te a gr te l in f tee o s ed ity c l du ua ro Q 12% l-p il m ini m of ty 7% ali u 1975 ’ ills m l ee st Sheet steel 18% l Structural Stee 22% 8% s & ro d s gle iron.

The Three Enablers of Disruption • Technological • Business Model • Commercial System 04/19/11 Copyright Clayton M. Christensen and Jason Hwang 5 .

Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized Performance Experimentation & problem-solving Pattern Recognition Rules-Based 04/19/11 Copyright Clayton M. Christensen and Jason Hwang 6 .

Molecular diagnostics and imaging technologies are important technological enablers for disruptive business models in healthcare ine ic ed M Performance Experimentation & problem-solving e tiv tui In ed M ine ic pi r Em ca l i Pr isio ec ine dic Me n Rules-Based 04/19/11 Copyright Clayton M. Christensen and Jason Hwang 7 .

Christensen and Jason Hwang 8 .The Three Enablers of Disruption • Technological • Business Model • Commercial System 04/19/11 Copyright Clayton M.

facilities. manufacturing. planning. and cash that are required to deliver this value proposition to the targeted customers 9 Copyright Clayton M. and the margins & velocity required to cover them Ways of working together to address recurrent tasks in a consistent way: training. Christensen and Jason Hwang . THE VALUE PROPOSITION: A product that helps customers do more effectively. development. products. etc. conveniently & affordably a job they’ve been trying to do 04/19/11 RESOURCES: People. and how is it built? PROCESSES: PROFIT FORMULA: Assets & fixed cost structure. budgeting. technology.What is a business model. brands. equipment.

Three Types of Business Models Solution Shops Value-adding process businesses Facilitated User Networks • Consulting firms • High-end law firms • R&D organizations • Diagnostic activities of Fee for service hospitals • Manufacturing • Food services • Retailing • Medical procedures Fee for outcome • Telecommunicati ons • Insurance • EBay • D-Life (for diabetes patients Varies & families) .

Christensen 11 . practicing intuitive medicine Hypothesis Treatment Today’s hospitals and specialist physician practices are agglomerations of solution shop. value-adding process.Business Model Disruption in Health Care Hospitals become focused solution shops. and (a few) facilitated network activities 04/19/11 Focused value-adding process hospitals & clinics provide procedures after definitive diagnosis Facilitated networks take dominant role in the care of many chronic diseases Copyright Jason Hwang and Clayton M.

Christensen and Jason Hwang Office area 12 04/19/11 Shipping Department Tapping equipment A starts here P by ath pr tak od e uc n tA Hobbing department . Annealing furnace Cut-off saws Boring machines Storage Path taken by product B De-burring machines B starts here Stamping machines Copyright Clayton M.Turning machines Polishing Dept.

0 1 10 10 20 40 80 100 100 160 320 04/19/11 Plant Scale (sales in $millions) Copyright Clayton M.0 5.0 4.0 3. Christensen and Jason Hwang 13 .0 (20) (4) Lima Pontiac Cost of Complexity: Burden rate increases 27% for each doubling of product families (4) Essex (10) Saginaw (5) Sandusky (6) Tiffin (10) Fremont 16 product families 8 product families 4 product families 2 product families 1 product family (2) Lebanon 2.0 6.0 10 8.Economies of scale and countervailing costs of product-line complexity Overhead Burden Rate 10.0 (2) Maysville Economies of Scale: Burden rate drops 15% for each doubling 1.

effectively Processes Value Proposition: Don’t know what’s wrong? We can address any problem you bring 04/19/11 Resources Resources Copyright Clayton M.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. Christensen and Jason Hwang 14 .

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 Overhead burden rate 04/19/11 General Hospital $300 $670 $6030 $7.0 15 $100 $600 $1600 $2.300 1 2.7 Copyright Clayton M. Christensen and Jason Hwang .000 75 9.Sources & magnitude of cost differences: Specialty vs.

Christensen and Jason Hwang 16 .Disruptive business model innovation in physicians’ practices Profit formula Value Proposition: The solution to any problem starts here 04/19/11 Processes Profit formula Value Proposition: Fast. convenient resolution of rulesbased acute disorders Processes Resources Resources Copyright Clayton M.

The Three Enablers of Disruption • Technological • Business Model • Commercial System 04/19/11 Copyright Clayton M. Christensen and Jason Hwang 17 .

.

TRANSFORMING PATHOLOGY: Emerging technology driving practice innovation .