Greetings from Savannah, Georgia and the 2013 Spring Conference of Mental Health Corporations of America. During yesterday’s keynote by Dr. Jason Hwang, the coauthor of The Innovator’s Prescription: A Disruptive Solution for Health Care, my thoughts were turned once again to strategy – specifically strategy in a time of industry disruption.
Dr. Hwang’s message, in short, was that new knowledge and new technology disrupts established markets in unique ways. The market leaders of the current paradigm are rarely the market leaders of the new paradigm – and the effects of disruption are just starting in the health and human service sector.
In markets with incremental innovation, market leaders gain market share and increase profit margins by providing similar, but better, services for current customers. However, when new knowledge or new technologies permit highly specialized centralized expertise to become cheaper and faster through decentralization, disruptive innovation occurs. Dr. Hwang’s example – our 30-year journey in computing from the mainframe, to the microcomputer, to the PC, to the smartphone.
Dr. Hwang noted that there are two core concepts to understand in an era of decentralized expertise: One, “automating everything that is automatable” – using the power of computers to replace human effort (physical or mental) whenever possible. And two, “deploying consumer self-service.” (I was fascinated by his statement that “Patients compose the greatest unused workforce in health care.” I’m still pondering what that means.)
The same market tsunami of decentralization of expertise that has happened in computing (and travel and banking and real estate and music and publishing) is just starting in health care. Why so slow? Dr. Hwang described it as the “autoimmune response” of special interests and protectionism in health care. This includes political exemption of services and consumer groups from new models, protective regulation and licensure requirements, and other means for sectors of the field to protect their current revenues from new forms of service. All of these factors slow the adoption of innovative solutions (and sometimes kills the early adopters).
In the health care arena, hospitals are analogous to the mainframe computer – described by Dr. Hwang as the centralized repository of both expertise for solutions and for processes. The “decentralized” model is to push consumer diagnosis, treatment, and management away from facilities to generalists (or consumers themselves) in the community. My mental map of his analogy looks something like this:
So where will the leaders of the new paradigm be created? Dr. Hwang’s bet is on the integrated care coordination organizations – those that have non-FFS financing to disrupt current payment silos and use the unconventional (i.e. decentralized expertise) service delivery models. To me, this just added even more importance to the current race to take the lead in patient care coordination across the various health care markets (see The Future Of Care Coordination: Planning For Medical Homes & Health Homes In 2013 and Controlling Coordination = Controlling Referrals all members).
Market leaders rarely remain in the position of market leaders in a new paradigm of decentralized expertise. Why? Because market leading organizations want to preserve their current margins for established services from established customers, and they do not have the incentives to cannibalize their current business model. This raises three big questions about strategy development for any organization with a business model firmly rooted in the old model. First, how does your organization develop a “vertical” strategy to have influence in the emerging care management models in your markets. This is a topic I covered a few weeks ago in Sustainability – During & After The Perfect Storm all members. Second, what is the “next generation” business model that incorporates the decentralization of expertise for the consumer you serve? And, finally, how does your organization move to that next generation business model and stay a market leader? These are the new questions for strategy in the emerging era of disruptive innovation in health and human services.
For another free resource, see Making Innovation Your Secret Weapon all members