TRANSFORMING PATHOLOGY:

Emerging technology driving practice

innovation
 The Innovator’s Prescription:
An Examination of the Future of Healthcare
Through the Lenses of Disruptive Innovation

Jason Hwang, M.D., M.B.A.

Executive Director, Healthcare

jhwang@innosightinstitute.org

04/19/11 Copyright Clayton M. Christensen

and Jason Hwang
 Disruptive Technologies:
A driver of leadership failure and the source of new growth opportunities

a ce of cal
P
o l ogi
hn s
Incumbents nearly always win Tec rogres
P
Performance

t io ns
no va
in
in ing
ta
Sus
e rfo rm a nce that customers
P
sorb
can utilize or ab

Disruptive Entrants nearly always win

technologies

Time

04/19/11 Copyright Clayton M. Christensen 3

and Jason Hwang
Beat competitors with asymmetry of motivation

% of tons
25–30%
Steel Quality

55%
Sheet steel
eel
’ st
ills 22%
m 18%
ed l
ra
t Structural Stee
eg
int eel
f t 8%
i tyo eds
u al d uc gle ir o n; ba rs & rods
Q p ro 12% An
ill -
4%
inim Rebar
o fm
a lity 7%
Q u

1975 1980 1985 1990

04/19/11 Copyright Clayton M. Christensen 4

and Jason Hwang
The Three Enablers of Disruption

• Technological
• Business Model
• Commercial System

04/19/11 Copyright Clayton M. Christensen 5

and Jason Hwang
Disruption is facilitated when historically valuable
(and expensive) expertise becomes commoditized

Experimentation
Performance

& problem-solving

Pattern Recognition

Rules-Based

04/19/11 Copyright Clayton M. Christensen 6

and Jason Hwang
 Molecular diagnostics and imaging technologies are
important technological enablers for disruptive business
models in healthcare

Experimentation i ne
Performance

& problem-solving d ic
M e
e in e
i t iv ic
t u e d
In a l M i ne
ir ic dic
p Me
Em io n
i s
ec
Pr
Rules-Based

04/19/11 Copyright Clayton M. Christensen 7

and Jason Hwang
The Three Enablers of Disruption

• Technological
• Business Model
• Commercial System

04/19/11 Copyright Clayton M. Christensen 8

and Jason Hwang
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
04/19/11 Copyright Clayton M. Christensen
and Jason Hwang
PROCESSES:
Ways of working together to
address recurrent tasks in a
consistent way: training,
development, manufacturing,
budgeting, planning, etc.
RESOURCES:
People, technology, products,
facilities, equipment, brands,
and cash that are required to
deliver this value proposition
to the targeted customers
9
 Three Types of Business Models

Solution Shops Value-adding Facilitated User

process businesses Networks

• Consulting firms • Manufacturing •

• High-end law • Food services Telecommunicati
firms • Retailing ons
• R&D • Medical • Insurance
organizations procedures • EBay
• Diagnostic • D-Life (for
activities
Fee of
for service Fee for outcome diabetes patients
Varies
hospitals & families)
 Business Model Disruption in Health Care

Hospitals become focused

solution shops, practicing Hypo- Treat-
intuitive medicine thesis ment

Focused value-adding
Today’s hospitals process hospitals & clinics
and specialist provide procedures after
definitive diagnosis
physician practices
are agglomerations
of solution shop,
value-adding Facilitated networks take
process, and (a few) dominant role in the care of
facilitated network many chronic diseases
activities
04/19/11 Copyright Jason Hwang and Clayton 11
M. Christensen
 Turning machines
Polishing Dept.

Hobbing department

uc n
tA
od e
Tapping equipment

Shipping Department
pr tak
A starts here

by ath
P
Annealing
furnace
Boring machines
Cut-off Storage
saws

by product B
Path taken
De-burring machines B starts here
Office area
Stamping machines
04/19/11 Copyright Clayton M. Christensen 12
and Jason Hwang
 Economies of scale and countervailing costs of product-line complexity
10.010
Overhead Burden Rate

8.0 Cost of Complexity: Burden rate

increases 27% for each doubling
Pontiac of product families
6.0 (20)
(4) Essex
5.0 (4)
Lima (10) Saginaw
4.0 (10)
(5) (6) Fremont 16 product families
Tiffin
Sandusky
3.0
(2) 8 product families
Lebanon (2)
4 product families
Maysville
2.0
2 product families
Economies of Scale: Burden rate
drops 15% for each doubling
1 product family

1.0
10 20 40 80 100 160 320
1
10 100
Plant Scale (sales in $millions)
04/19/11 Copyright Clayton M. Christensen 13
and Jason Hwang
 Disruptive innovation in the hospital business model
Focused value chain
General Hospital Hospital

Profit formula Processes Profit formula Processes

Value Proposition: Value Proposition:

Don’t know what’s When you know what
Resources Resources
wrong? We can address you need, we provide it
any problem you bring efficiently, effectively

04/19/11 Copyright Clayton M. Christensen 14

and Jason Hwang
Sources & magnitude of cost differences:
Specialty vs. General Hospitals
Shouldice Hospital
General Hospital
(hernia repair)
Cost of materials & supplies $100 $300
Cost of direct labor $600 $670
Overhead burden $1600 $6030
Total cost for equivalent
$2,300 $7,000
length of stay

# service families offered 1 75

Overhead burden rate 2.7 9.0

04/19/11 Copyright Clayton M. Christensen 15

and Jason Hwang
Disruptive business model innovation in physicians’ practices

Profit formula Processes Profit formula Processes

Value Proposition:
Value Proposition:
Resources Fast, convenient Resources
The solution to any
resolution of rules-
problem starts here
based acute disorders
04/19/11 Copyright Clayton M. Christensen 16
and Jason Hwang
The Three Enablers of Disruption

• Technological
• Business Model
• Commercial System

04/19/11 Copyright Clayton M. Christensen 17

and Jason Hwang
TRANSFORMING PATHOLOGY:
Emerging technology driving practice
innovation