Insurance reform vs.

health care reform

1
Laptops
3/30/12 Copyright Clayton M. Christensen 2
The general process of becoming affordable and accessible
Mainframe
Minicomputers
Smartphones
Desktops
Slide
rule
1. First bring the problem to the solution.
2. Then bring the solution to the problem.
3/30/12 Copyright Clayton M. Christensen
7%
12%
18%
S
t
e
e
l

Q
u
a
l
i
t
y

1980
1975
1985 1990
Rebar
Angle iron; bars & rods
Structural Steel
Sheet steel
2530%
The pursuit of profit drives companies up-market. Moving
towards affordability and accessibility seems less profitable.
1995


S
u
r
g
i
c
a
l


s
u
i
t
e
s

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
3/30/12
Copyright Clayton M. Christensen
5
Enablers of Disruption
A new value network a new system
of suppliers and distributers
Business model innovation
Lower-cost venues of care
Lower-cost care givers
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)
PROCESSES:
Ways of working together to
address recurrent tasks in a
consistent way: training,
development, manufacturing,
budgeting, planning, etc.
3/30/12 Copyright Clayton M. Christensen 7
Why does an organizational model lock us in?
REVENUE 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 theyve 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
2007 Innosight LLC
8
7%
4%
12%
8%
18%
22%
% of tons
S
t
e
e
l

Q
u
a
l
i
t
y

1980
1975
1985 1990
Rebar
Angle iron; bars & rods
Structural Steel
Sheet steel
2530%
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
$350
340
10
Existing
Price
Cost
Net
3/30/12 Copyright Clayton M. Christensen
3/30/12 Copyright Clayton M. Christensen 9
Integrating forward to the decoupling point
Heads &
Disks
Disk
Drives
Computers
Applications
Software
Service
Heads &
Disks
Disk
Drives
Computers
Applications
Software
Service
Heads &
Disks
Disk
Drives
Computers
Applications
Software
Service
Heads &
Disks
Disk
Drives
Computers
Applications
Software
Service
Heads &
Disks
Disk
Drives
Computers
Applications
Software
Service
Government-paid systems are similarly stymied by their silo
structures: Canada, Germany, Netherlands
The structure for 90% of Americans drives caregivers to defend
and strengthen their silos. They cannot drive care towards
lower-cost caregivers and lower-cost venues of care.
Kaiser Permanente, Intermountain, Geisinger
Employer-provided care
Sweden, Finland
Those with a system perspective find that patient health
and the drive to lower-cost venues of care and lower-
cost caregivers improve profitability.
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Dave Snow, asthma
CEO, Medco
National Jewish Medical Center
Pulmonary & Respiratory Diseases
No model can
do everything
for everybody.
Fee for service
"#$%&'($) *+,%
-./ #+)0$120(#$%
/10)$#%(3 . 1$4&1(56
03(51(6% #7 8#%9140'%
Solution Shops
We need solution shops for disorders that today
are determined by symptom, not the cause:
3/30/12 Copyright Clayton M. Christensen 13
Type II diabetes
Obesity
Depression
Schizophrenia
Bipolar disorder
Epilepsy
Parkinsons
disease
Crohns disease
Arthritis
Chronic back pain
Ulcerative colitis
Alzheimers
disease
Multiple sclerosis
You
Sign in
Create Your Free Account
Explore
Places
Last 7 Days
This Month
Popular Tags
The Commons
Creative Commons
Search
Help
Community Guidelines
The Help Forum
FAQ
Sitemap
Get Help
Flickr Blog
About Flickr
Jobs
Terms of Use
Your Privacy
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Yahoo! Safely
Report Abuse

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Franais

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Shouldice Hospital:
Hernia surgery
Dave Snow, asthma
CEO, Medco
National Jewish Medical Center
Pulmonary & Respiratory Diseases
No model can
do everything
for everybody.
Fee for service
"#$%&'($) *+,%
-./ #+)0$120(#$%
/10)$#%(3 . 1$4&1(56
03(51(6% #7 8#%9140'%
Solution Shops
Fee for outcome
:0$&7034&+1$)
;<&30(#$
"#$%4+&3(#$
:6<130' 9+#36<&+6%
Process Businesses
110 1
General Hospital
ShouldiceHospital
(hernia repair)
$970 $700
Cost of supplies & direct labor
$6030 $1600
Overhead burden
$7,000 $2,300
Total cost for equivalent
length of stay
Service families offered
3/30/12 Copyright Clayton M. Christensen 15
Sources & magnitude of cost differences:
process vs. general hospitals
Business models for ongoing care
Degree to which behavior change is required
Minimal
Extensive
M
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Strong:
quickly feel
consequences
Weak:
Complications
are deferred
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Doctors office
User Networks
Employer-
Managed Care
with HSAs
Pharmacy-
based care

Better science and the pursuit of profit will enable
pharmacies to provide more and better care.
Degree to which behavior change is required
Minimal
Extensive
M
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Strong:
quickly feel
consequences
Weak:
Complications
are deferred
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Pharmacy-
based care

Business models for adherence in chronic care
Degree to which behavior change is required
Minimal
Extensive
M
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Strong:
quickly feel
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Weak:
Complications
are deferred
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Integration


Fasting and
prayer for
modularity
A common language and a common
way to frame the problem
F
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t
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c
h
a
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e

Well do
anything for
anybody.
Overhead =
85% of total
Overhead
increases 30%
for each
doubling of
complexity
Variable
quality
3/30/12 Copyright Clayton M. Christensen 20
P
o
l
i
s
h
i
n
g

D
e
p
t
.

Annealing
furnace
Turning machines
Tapping
equipment
De-burring
C
u
t
-
o
f
f

s
a
w
s

Shipping Department Office area Storage
Hobbing department
Boring
machines
Stamping
machines
Assembly
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
companys
profit model
Bad money demands that new
businesses become very
big, very past
Market Understanding that Mirrors how
Customers Experience Life
The customer rarely buys what the company
thinks it is selling him - Peter Drucker
Diabetes companies typically have targeted customers who
dont own the job of keeping healthy.
3/30/12 Copyright Clayton M. Christensen 23
Family
caregivers
Help him feel
that hes in
trouble!
Patient
Productivity
Absenteeism
Disability
Health
Retention
Profitability &
competitiveness
Employers
Business model innovation is key to
improving quality and reducing costs.
Hospital industry was
established when:
Transportation was costly
Doctors were inexpensive
Each community needed a
hospital
Though they were called
General Hospitals, they
actually were focused because
most diseases were acute
The world has changed. The
industrys paradigm has
not.
Transportation is cheap and
pervasive.
Doctors are costly
Most diseases are chronic
Most hospitals try to do
everything for everybody
90% of all costs in the hospital are
overhead inherent to the business
model
3/30/12 Copyright Clayton M. Christensen
24
Business model liquidation occurs by helping
customers to get their job done: Profits
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
3/30/12 25 Copyright Clayton M. Christensen
A common language and
a common way to frame the problem
Science and technology propels care from left to right.
The pursuit of profit drives things from the bottom to the
top.
Almost all health care cost is in overhead, not direct
Overhead is the result of complexity
Complexity is driven by marginal, rather than full cost
thinking.
Needing to do the job is the causal mechanism behind
changing behavior and purchasing products.
Better quality at higher cost, vs. Better quality at lower
cost
3/30/12 Copyright Clayton M. Christensen 26
Three levels in the architecture of a job
3/30/12 Copyright Clayton M. Christensen 27
Whats 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?
Integrating correctly to help customers get the job
done is the essence of defensible differentiation
IKEA
Federal Express
SAS
Zara
Microsoft Office
TurboTax; QuickBooks
V8
OnStar
3/30/12 Copyright Clayton M. Christensen 28
Targeting the job enables precision
in product development
3/30/12 Copyright Clayton M. Christensen 29
Product
category
Too many
features;
wrong
features
Customer
category
One-size-
fits-none
product
Job to be done
Proper
integration
of all needed
experiences
Wall Street Analysts
Pharmaceutical Cos.
Petroleum Majors
Auto companies
IT departments
Customer Supplier
Bloomberg
CROs.
Halliburton,
Schlumberger
Tier One Suppliers
TCS, Infosys, Wipro
Physicians Pharmacies
Outsourcing often sets in motion disruptive
business model liquidation
3/30/12 30 Copyright Clayton M. Christensen