Summary of the first six chapters of The Innovator's Prescription: A Disruptive Solution for Health Care by Clayton M. Christensen. All chapters are summarized, that are necessary for the course Organization Design 2019/2020.
The Innovator’s Prescription
Written by: Clayton M. Christensen
Introduction
This book shows how to make healthcare affordable – less costly and of better quality.
Affordability and convenient accessibility
Today, it’s very expensive to receive care from highly trained professionals. Without the
largesse of well-heeled employees and governments that are willing to pay for much of it,
most health care would be inaccessible to most of us.
At some point, however industries (such as education and computer industry) were
transformed, making their products and services so much more affordable and accessible that
a much larger population could purchase them, and people with less training could
competently provide them and use them disruptive innovation.
Disruptive innovation consists of three elements:
1. Technological enabler: sophisticated technology whose
purpose is to simply, it routinizes the solution to problems that
previously required unstructured processes of intuitive
experimentation to resolve.
2. Business model innovation: can profitably deliver these
simplified solutions to customers in ways that make them
affordable and conveniently accessible.
3. Value network: a commercial infrastructure whose constituent
companies have consistently disruptive mutually reinforcing
economic models.
In the middle of these three enablers are a host of regulatory reforms
and new industry standards that facilitate interactions among the
participants in the new disruptive industry.
1. Disruptive technological enablers in health care
The technological enablers of disruption of health care are those that provide the ability to
precisely diagnose by the cause of a patient’s condition, rather than by physical symptom.
- These technologies include molecular diagnostics, diagnostic imaging technology and
ubiquitous telecommunication.
When precise diagnosis isn’t possible, then treatment must be provided through intuitive
medicine; where highly trained and expensive professionals solve medical problems through
intuitive experimentation and pattern recognition.
- As these patterns become clearer, care evolves into the realm of evidence-based
medicine, or empirical medicine – where data are amassed to show that certain ways
of treating patients are, on average, better than others.
o Only when diseases are diagnoses precisely, however, can therapy that is
predictably effective for each patient be developed and standardized
precision medicine.
Disruption-enabling diagnostics technologies long ago shifted the care of most infectious
diseases from intuitive medicine to the realm of precision medicine.
2. Disruptive business model innovations
The delivery of care has been frozen in two business models – the general hospital, and the
physician’s practice – both of which were designed a century ago, when almost all care was
in the realm of intuitive medicine.
- the lack of business model innovation in the health-care industry – in many cases
because regulators have not permitted it – is the reason health care is unaffordable.
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,General hospitals and physician’s practices emerged originally as solution shops, but over
time they have mixed in value-adding process and facilitated network activities as well.
- This has resulted in complex, confused institutions in which much of the cost is spent
in overhead activities, rather than in direct patient care.
For each to function properly, these business models must be separated in as “pure” a way
as possible:
1. Solution Shops: these shops are businesses that are structured to diagnose and
solve unstructured problems.
- Solutions shops deliver value primarily through the people they employ – experts who
draw upon their intuition and analytical and problem-solving skills to diagnose the
cause of complicated problems.
o After diagnosis, these experts recommend solutions.
Payment is almost always in the form of fee for service.
2. Value-Adding Process Businesses: organizations with value-adding process business
models take in incomplete or broken things and then transform them into more complete
outputs of higher value.
- VAP procedures are possible only after a definitive diagnosis has been made first –
quite often in a solution shop.
- VAP businesses typically charge their customers for the output of their processes.
They can do this because the ability to deliver the outcome is embedded in
repeatable and controllable processes and the equipment used in those processes.
3. Facilitated networks: these are enterprises in which people exchange things with one
another. These could be for instance, mutual insurance companies: customers deposit their
premiums into the pool, and they take claims out of it.
- The companies that make money tend to be those that facilitate the effective
operation of the network they typically make money through membership or user
fees.
The situation of having two and often three business models under one roof screams for
business model innovation.
- The first wave of innovation must separate different business models into separate
institutions whose resources, processes and profit models are matched to the nature
and degree of precision by which the disease is understood (solution shops
intuitive medicine, VAP empirical and precision medicine, facilitated networks
chronic diseases).
- A second wave of disruptive business models can then emerge within each of these
three types.
3. A disruptive value network: systematic reform vs. piecemeal insertion
Disruptions are rarely plug-compatible with the prior value network, or commercial ecosystem.
- Innovators typically have followed a strategy of individually exchanging or “hot
swapping” themselves for the established institutions in the current value network and
they just don’t fit.
o One by one these reformers have faced a losing battle in their attempts to
disrupt the incumbent system from within it.
In order to succeed, disruptive solutions need to be knit together in a new value network.
- When this is accomplished, as with all disruptions, patients and providers will drawn
one by one from the old system into the new.
Amassing the power to execute disruption
Companies need to integrate – combining, through a coordinated effort, the business models
that must comprise the disruptive value network.
- When there are interdependencies among the elements of the disruptive value
network – meaning that one cannot occur unless others do – the speed of disruption
is significantly accelerated if an integrated entity wraps its arms around all the
elements in order to orchestrate the changes.
2
, o Health-care systems will need to integrate so they can wrap their arms
around all the pieces of the system that must be interdependently
reconfigured.
1. The Role of Disruptive Technology and Business Model
Innovation in Making Products and Services Affordable and
Accessible
“Disruption” is an innovation that makes things simpler and more affordable, and “technology”
is a way of combining inputs of materials, components, information, labour and energy into
outputs of greater value.
- The purpose of most technologies – even radical breakthroughs – is to sustain the
functioning of the current systems only disruptive innovations have the potential to
make healthcare affordable and accessible.
Disruptive technologies and business model innovations are both necessary conditions for
disruption of an industry to occur.
The disruptive innovation theory
The disruptive innovation theory explains the process by which complicated, expensive
products and services are transformed into simple, affordable ones.
- Historically, it is almost always new companies or totally independent business units
of existing firms that succeed in disrupting an industry.
There are two types of improvement trajectories in every market:
1. The solid line denotes the pace of improvement in products in products and services
that companies provide to their customers as they introduce newer and better
products over time.
2. The dotted line depict the rate of performance improvement that customers are able
to utilize,
a. There are multiple dotted lines to represent the different tiers of customers
within any given market (varying from customers that are satisfied with little to
very demanding customers).
As a result, companies typically improve their products at a much faster pace so that products
that at one point weren’t good enough ultimately pack together more features and functions
than customers need (i.e. think about telephone).
These are sustaining innovations, whether incremental or radical that make good products
better the competitive purpose is to maintain the existing trajectory of performance
improvement in the established market.
- The companies that win the battles of sustaining innovation are the incumbent
leaders in the industry.
Occasionally, a different type of innovation emerges in an industry – a disruptive innovation.
- The disrupter brings to market a product or service that is actually not as good as
those that the leading companies have been selling in their market. However, though
they don’t perform as well as the original products or services, disruptive innovations
are simpler and more affordable.
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