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The Inevitable Disruption of Healthcare

September 2, 2015 // Erik Nelson

To look at any industry that has been disrupted by innovation is to see what will happen to the U.S. healthcare market.

The music, computer, phone and automobile industries were all turned upside down by innovations that introduced simplicity, convenience, accessibility and affordability. New entrants redefined consolidated industries that were once dominated by large, powerful and well-run companies. Those entrants exploited niche markets with cheaper, simpler, and more convenient products and services.

Some corporations, like IBM, survived. But many others, like Kodak, Blockbuster and Borders, failed. They failed because they were too focused on their current market. They did not measure trends in how consumers were using their products and services.

Make no mistake about it. Disruptive innovation is going to hit the healthcare industry.

Disruptive Innovation

Over the next decade, we will see a slew of current industry leaders fall to the wayside as others adapt, survive and thrive amidst a rapidly changing landscape. Survival will depend, in large part, on an organization’s ability to identify and respond to disruptive innovations.

By disruptive, we do not mean innovations that sustain or improve products and services within an existing market. Rather, we mean innovations that create new markets by offering a different value proposition from existing markets.

An Example of Disruption: Convenience Care

Primary care clinics are positioned to offer high-quality comprehensive primary care services. New treatments and diagnostic technology may be radical in nature, but they are innovations that sustain the existing market — they improve it, but do not disrupt it. In other words, the fundamental value proposition remains the same.

Convenience care, on the other hand, is focused on an entirely different value proposition. It centers on convenience and cost, not on providing comprehensive services. For a market that is fully insured and price insensitive, the existing primary care market is the preferred choice. For an emerging market with high deductibles and significant out-of-pocket expenses, however, cost becomes more important. Therefore, the value proposition offered by convenience care all of a sudden becomes more attractive.

Given these market changes, it’s easy to see why the convenience care market is now a $15 billion business and is poised to further disrupt the $246 billion primary care market.

The Importance of Identifying Disruptive Innovations

While convenience care is just one simple and well-known example, it highlights why it is important for existing organizations to identify and respond to disruptive innovations. Interestingly enough, most organizations are aware of disruptive innovations. The just choose not to pursue them because they conclude it is not rational for them to do so.

Given the demands and constraints placed on healthcare delivery organizations, it’s not surprising that most dismissed convenience care as unworthy of their attention when it first emerged around 2000. It was a tiny market with low margins. But choosing to ignore innovations that are truly disruptive can be detrimental to an organization’s long-term viability.

How to Survive Disruption

There are two things that every organization needs to do to withstand significant disruption:

  • First, organizations must have a mechanism for identifying disruptive innovations. This is not as difficult as it may seem. Organizations simply need to identify existing innovations that may be disruptive—they need not predict the future.
  • Second, organizations must develop a specific strategy to address a disruptive innovation. This is the more difficult task of the two. Because a disruptive innovation requires a fundamentally different set of capabilities than existing organizations possess, most successful strategies call for an autonomous organization to capitalize on the disruption most effectively. As a result, planning for this kind of strategy is challenging, time consuming and complex.

Organizations cannot afford to ignore the potential damage caused by disruptive innovations. Do not follow in the paths of Blockbuster and Borders—instead, pave a new path to survival, and even success, by planning for disruption now.