INNOBLOG

It is easy to grab the attention of students of disruptive innovation: just put the words “cheap” and “portable” in large type. Low price points and the convenience and new opportunities inherent in portability are signifiers of potential paradigm-busting leaps downward. So it is with a recent Technology Review article on a very serious subject: disaster wound care.

The piece describes how an MIT graduate student’s simple, $3 suction cup does a good enough job of creating negative pressure over a wound site. The pressure seems to increase blood flow to speed healing, reduce infection rates, and require less time-intensive and painful bandage changing.   It can be manually powered, in contrast to the $100 battery-powered devices used in disaster areas and hospitals today to treat things like burns, ulcers, and open wounds.

The student, Danielle Zurovcik, was planning to conduct field tests of the device in Rwanda when disaster struck in Haiti and she was called into action. Early results showed immediate benefits. The device still needs to go through rigorous clinical testing, and Zurovcik is working on improvements. But the very real impact it has already had is significant, as is the innovation principle it embodies: design to meet a need where no good alternative exists today at a price point that nonconsumers can bear. Find success in a remote foothold application, and then from that perch move on to overturn existing markets.

MIT Technology Review reports on new advances in implantable device technology -- thin, flexible silicon electronics built on silk substrates, resulting in electronics that almost completely dissolve inside the body. Says the report, "These electronics don't need protection [from the body], and the silk means the electronics conform to biological tissue. The silk melts away over time and the thin silicon circuits left behind don't cause irritation because they are just nanometers thick." The research that has made this possible took place on several fronts, including the development of flexible, stretchable silicon circuits that perform as well as more traditional rigid circuits, and making such circuits bio-compatible. 

Applications could include "silk-silicon LEDs that might act as photonic tattoos that can show blood-sugar readings, as well as arrays of conformable electrodes that might interface with the nervous system," according to the article. The same research group is currently designing electrodes built on silk as interfaces for the nervous system. Such electrodes could integrate much better with biological tissues than existing electrodes, which either pierce the tissue or sit on top of it. Electrodes built on silk could be wrapped around individual peripheral nerves to help control prostheses.

As the daughter of a clinical social worker and a social psychologist, I read with interest the findings of a recent study assessing the effectiveness of Internet-based psychotherapy. While the approach will likely overcome barriers for some patients, the potential impact on non-consumers seems limited.

The authors conducted a randomized trial of online, real-time cognitive-behavioral therapy in which each patient was assigned to a single therapist and communication took place via typed free text. At eight months, 42 percent of the intervention group had recovered from depression compared with 26 percent in the control group.

That online therapy can be effective is good news, as this approach can overcome barriers of convenience and access for the patient. Web-based counseling might also minimize the stigma of going to a public setting for mental health care and could cut down on a provider’s overhead costs. But a disruptive innovation? Not so fast. Unless online therapy is offered by a less-skilled provider at a lower cost, I’d wager that some current consumers of care will transition to this new channel but few non-consumers of therapy will be swayed to partake. My assumption is that cost and stigma are the biggest barriers to consumption, and that the largest portion of care costs derives from the compensation required by highly-educated providers. In the online model, these provider costs remain high. Additionally, the stigma of therapy that comes from simply participating in mental health care, regardless of the location, is not addressed by the online approach.

A truly disruptive offering might look more like the model employed by Cogito Health (full disclosure: the founder is a classmate and friend of mine … but that doesn’t make the business any less wicked cool). Using voice-recognition technology to identify and monitor the progress of people who could benefit from behavioral health support, the company improves diagnosis while cutting out the cost of a psychologist in screening people for depression. Lower-cost, decentralized care without the involvement of an expensive expert? Now we’re talkin’.

A recent article in the Wall Street Journal caught my eye, as it described a shift away from hourly billing by law firms that seems an apt analogy for needed changes to healthcare pricing.

While past Innoblog posts have looked at innovations targeted at those overshot by the current legal services model, law firms’ high-end customers are also demanding fundamental changes. With the recession in effect and law firms scrambling for work, large companies that consume millions in legal services each year are telling law firms they must agree to fixed-fee contracts rather than charging by the hour. Pfizer, for example, says it plans to cut its domestic law firm expenditures by 15-20% through flat-fee contracts. The pharma giant will pay lump sums to firms to handle specific areas of work, such as litigation or tax issues, telling law firms that they will no longer make their historical profit margins. This change in profit margin necessitates business model innovation for law firms, as it does for healthcare providers under pressure to lower rates.

In both the legal services and healthcare industries, consumers are not currently paying based on what matters to them – results.  In legal services, results mean completing an entire project, case or workstream.  In healthcare, results mean improved health. Currently, however, providers in both fields are incented to do more work, whether or not the customer really needs it.

Law firms have experimented with flat fees for repetitive, predictable assignments (e.g., patent applications) but stress that hourly billing will likely always be used for more complex, high-risk/-return projects.  Similarly, healthcare providers such as MinuteClinic have moved to charging relatively-low, flat fees for a finite range of standardized treatments for clearly-diagnosed ailments. More complex conditions requiring greater skill for diagnosis and care continue to be treated at higher-cost hospitals/clinics for fees and services that are not known at the beginning of care. In both fields, providers can and should scrutinize which procedures are routine enough and sufficiently standardized to be offered profitably at a lower, set price.

Using lower-skilled providers

For these more routine tasks, law firms and medical providers can hold down costs by employing lower-skilled staff. In order to offer flat rates, Orrick, Herrington & Sutcliffe LLP, for example, hires fewer grads from elite law schools and also employs college grads to perform more routine tasks.

Increasing efficiency

By realizing efficiencies, Orrick has increased by 300 percent its revenues from non-hourly billing in the last year while remaining profitable. How? First, the firm is incented to accomplish the same amount of work in shorter time. Second, tools provide information on efficiency to allow educated adjustments in time allocation. For example, a software system alerts lawyers when they hit certain percentages of a flat-fee budget and biweekly reports indicate how a lawyer is spending his/her time.

The biggest shift required of law firms and healthcare providers, however, is a change in the value proposition they offer to customers. As Pfizer’s general counsel commented, while the company could have simply demanded a discount from law firms’ hourly rates, it instead hopes to create a system in which the firms work more collaboratively with Pfizer and Pfizer’s other law firms.

Innosight analyst Curtis Chan recently co-authored the blog post, "Swiffer Solutions for Health Care," with Eva Luo, a regular contributor to the IHI Open School for Health Professions blog. The post recounts the observational research Procter & Gamble did in developing Swiffer and offers up one health-care "Swiffer story":  Project HEALTH, a nonprofit organization located in Boston that through observational research uncovers links between specific poverty conditions and poor health outcomes, then seeks to break those links.

According to the post: "This is the logic: The hospital is the site where health care is delivered — and with just a minor stretch is also a convenient site where psychosocial interventions can be introduced to better and more comprehensively improve the health of kids and their families. The systems redesign answer is a crew of motivated college students stationed in the hospital. If doctors feel their patients need assistance obtaining housing, have food insecurities, or can benefit from utilities bills discount programs, doctors can now refer patients to Project HEALTH volunteers who work with patients to obtain those resources right there in the hospital.

How could health care improve if observational research was more commonly used? Are there Swiffer-like solutions for every health care problem? Following the model of observational research itself: Let’s look and see."

• Learning, and Profiting, from Online Friendships , by Stephen Baker - BusinessWeek

  Exploration of the innovation taking place as companies work to figure out how to make money from the wealth of data they're beginning to have about our online friendships.

• A Real ROI from Twitter? The Start of Social Medical Networks, by Tom Steinert-Threlkeld - Between the Lines blog, ZDNet.com

  Tweeting to your doctor about the status of your health could revolutionize the treatment of chronic diseases.

• Gin, Television, and Social Surplus, by Clay Shirky - Here Comes Everybody

  Participation in social networks represents the shift of "cognitive surplus" from billions of hours of TV watching to a more participatory culture.

• Getting Money from Readers Who Won't Pay for Online News, by Steve Outing - Editor & Publisher

  It's too late for newspaper publishers who are not already charging for content to start doing it, says Outing as he puts forth a business-model concept of multiple revenue streams and describes what some of those might be.

• TRIZ-enabled Mergers and Acquisitions, by Jim Belfiore - InnovationTools.com

  TRIZ, a well-established method used for product and process design evolution, has elements that can be successfully used as an early-stage M&A planning and research tool to help predict and identify potential evolutions of products, technologies and markets.

A new wireless microsensor that measures oxygen levels in brain could become the basis for tiny devices to help test drugs and other treatments for patients with traumatic brain injury, Alzheimer's and Parkinson's diseases, and other conditions, report scientists from Italy and Ireland who have been working on the technology. In addition to being much smaller than current brain monitoring technologies, the new microsensor gives second-by-second, real-time readings of brain oxygen levels that help provide a better understanding of the brain in health and disease, the researchers say.

Other research by Harvard University Professor George Whitesides has resulted in diagnostics devices made of paper. The result is a disposable, quick, inexpensive test that can check a tiny amount of urine or blood for evidence of infectious diseases or chronic conditions. The finished devices are squares of paper roughly the size of postage stamps. The edge of a square is dipped into a urine sample or pressed against a drop of blood, and the liquid moves through channels into testing wells. Depending on the chemicals present, different reactions occur in the wells, turning the paper blue, red, yellow, or green. A reference key is used to interpret the results. The test could make diagnosis much more effective in undeveloped areas. For example, in order to use the devices in remote locations without medical facilities, the researchers have also begun work on coupling the paper tests with cell phones, so that the results can be photographed, sent to a center, and read by a technician who can send recommendations back via phone.

Image courtesy of Discover magazine.

Any time a barrier prevents consumers from satisfying an important job, the market is ripe for disruption. Consider the significant barriers keeping physicians from adopting electronic medical record (EMR) systems, or expanding on those systems they do have. In a study published in the New England Journal of Medicine, 88 percent of physicians without electronic medical record (EMR) systems and 80 percent of physicians who already have EMR systems cite “cost of capital” as a barrier to adoption or expansion.

Who can blame them? Widely published estimates cite the costs of electronic medical record (EMR) systems as ranging from $15,000 - $50,000. However, this does not take into account the costs of hardware, implementation, training, and ongoing support, which can easily take the full costs of an EMR system to $250,000 - $300,000 for the first year.

So who will enable the disruption for which this market is ripe? Enter WalMart. Long known as a purveyor of cheap toothpaste, toilet paper, and televisions, WalMart announced this week that it has partnered with Dell and EClinicalWorks to offer physicians a package of hardware, software, installation, maintenance, and training for the everyday low price of $25,000 for the first physician and $10,000 for each additional physician in the first year.  While WalMart’s announcement is significant (especially to incumbents in the healthcare IT space), it is also significant, and important, to note that they are entering healthcare IT in a classically disruptive manner: 

1. Understand the important and unsatisfied jobs of key stakeholders: Physicians today are not just caregivers, they are businesspeople forced to deal with the bureaucracy of managed care and the headaches of managing an office. Any solution that enables them to spend more time with clients and less time on paperwork without a significant impact on the bottom line will be quickly embraced.
2. Create an innovative business model: With its understanding of physicians’ important and unsatisfied jobs, it was likely easy for WalMart to create a solution with an appealing value proposition. However, they likely realized that additional resources would be needed (or at least helpful) to execute the strategy. Enter Dell and EClinicalWorks. Each brings its unique experience and reputation to the solution creating something greater than the sum of its parts: 
   • WalMart claims that its role is one of an integrator. While this is true, largely because of their purchasing scale, it does offer three other key resources: widely recognized expertise in logistics and coordination, an existing physician customer base of approximately 200,000 physicians, and an existing distribution network through its 600 Sam’s Club stores. 
   • Dell supplies the hardware – either a desktop or tablet PC – and the installation services. While WalMart could likely have partnered with another hardware vendor, Dell’s experience in supply chain management and reputation for good customer service likely gave it an edge over cheaper but less well-known hardware companies.
   • EClinicalWorks supplies the Internet-based electronic medical record and practice management software, training, and maintenance. Already used by 25,000 physicians, EClinicalWork brings credibility in the healthcare IT space.
3. Use an emergent strategy: This is neither the beginning nor likely the end of WalMart’s foray into healthcare. In 2007, it partnered with the University of Arkansas and Blue Cross Blue Shield to conduct research on how to improve healthcare IT in the US.  In February 2008, it opened co-branded clinics with a common EMR platform operated by EClinicalWorks (surprised? You shouldn’t be), and in September it promised to provide all employees with access to electronic health records. It’s reasonable to assume that each of these activities were small steps to resolve assumptions related to IF and HOW WalMart should enter the EMR space. 

Supported by the Obama administration’s $19 billion investment in healthcare IT via the Recovery Act, WalMart’s foray into EMR is likely to be yet another successful step in its journey into the healthcare space. In the short term, WalMart is likely to benefit from sales of the system and the ability to influence patients and physicians to fill their prescriptions at WalMart’s pharmacies or to buy medical supplies and durable medical equipment at Sam’s Club. In the long term, its savvy use of the principles of disruptive innovation positions it well to successfully disrupt incumbents.

Given the shaky state of the world economy, companies are in a tough spot: while there is the need to be fiscally conservative, it is more important than ever to push initiatives for current and future growth. However, attracting new customers can be an expensive process, and a common response to a financial crunch is cutting marketing and advertising budgets.

We here at Innosight always recommend that companies address nonconsumption, since doing so is the surest way to create new growth. But nonconsumption does not exclusively refer to noncustomers; an oft-overlooked dimension of nonconsumption is the nonconsuming occasion. In other words, consumers of your product may not be consuming in all the ways and at all the times that they could.

That’s why existing customers might be the easiest place to look for new growth. Among the population of consumers that already know and like a product, there may be barriers preventing them from more frequent consumption. Understanding these barriers to full consumption helps to illuminate solutions. Two disparate industries, pharmaceuticals and home cooking, illustrate what such solutions might look like.

Pharmaceuticals and Packaging

Although more than half of Americans take at least one prescription drug, massive nonconsumption exists in the form of medical noncompliance. Noncompliance is such as widespread problem, in fact, that the Boston Globe reported recently that the US economy loses $100 billion annually as a result. In addition, health insurers pay for expensive hospitalizations and procedures that might have been preventable, employers experience reduced employee productivity, and, of course, the patients themselves may face injury or death. And yet one of the major contributing factors to medical noncompliance is simple forgetfulness.

Accordingly, combating forgetfulness would be a logical way to boost sales for the pharmaceutical industry (not to mention reduce costs for health insurers). One new product that offers a potentially inexpensive and effective way to remind people to take their medication is Vitality GlowCaps, pill container lids that glow and eventually play a tune when it’s time to take your medicine. Already available for sale, the company believes that with volume, such technology could be a fairly cheap and ubiquitous part of medication packaging. Embedding such a sensor and alert system into pill bottles could eliminate the forgetfulness barrier, reducing nonconsumption among existing pharmaceutical users.

Home Cooking and Marketing

PAM cooking spray has long been a choice of home cooks for preventing cookies and muffins from sticking to the pan. Con-Agra has recently decided to push PAM into contexts in which consumers currently use other products like oil or butter, or in many cases, nothing at all. Con-Agra is banking on the idea that consumer awareness of PAM’s myriad uses is a barrier to consumption in those additional contexts.

A recent print and tv advertising campaign educates consumers that PAM spray can perform such tasks as helping cooks work with sticky food like popcorn balls, give baked potatoes a crispy skin, and prevent spaghetti from clumping while cooking.  Even simple marketing solutions — like printing additional use suggestions on packaging — could spell big returns if they overcome such awareness barriers.

It is worthwhile to periodically consider your existing customers and any barriers they might have to more frequent consumption. Opportunities like these may be low-hanging fruit for growth, without the need to create a new product or attract a new customer. Keep an eye out for them! 

Here are some thoughts about how three pieces of the $787 billion stimulus package could affect healthcare companies:

1. $17B for roll-out of Electronic Medical Records (EMR) over the next 5 years - EMR has the potential to vastly increase payor (e.g. Aetna, UnitedHealth) power over physicians, mandating the use of standardized protocols and evidence-based medicine. This is more bad news for the traditional high-touch sales and marketing model of device and pharmaceutical companies, and means that the days of me-too competition in a therapeutic class will be short in number.

Suppliers to the industry will need to focus and differentiate, partly through offering total solutions vs. pill or device widgets. Many of these solutions may require partnerships with firms whose identity as long-term friend or foe remains uncertain (e.g. Microsoft, Medco). Pharmacy Benefit Managers will try to leverage EMR and their own databases to be high-value repositories of information. Vendors of decision algorithm software will grow rapidly in number.

The stimulus included privacy and opt-in provisions around health records; the impact of those rules is unclear, but likely it creates benefit for those who own the patient relationship and who therefore can get the opt-in most easily. ...

Read the rest at Scott Anthony's Harvard Management blog.

In the January 14 issue of Strategy & Innovation, we offer up our annual Year in Preview story (free reg. reqd.) by Scott D. Anthony. This year we've added a new feature to this feature — we asked Innosight partners to write short industry specific predictions of the industries in which they have expertise.

Some overall themes:

• The darkening economic climate is good news for innovation — after all, abundance is at the root of many corporate struggles with innovation.
• It has never been easier to develop and scale an idea. Innovators can draw on high-quality, low-cost tools to develop, test, and begin to commercialize ideas without tens of millions of dollars of investment.
• Innovation has never been more important. Success in what we are calling the Great Disruption requires mastering perpetual transformation.
• Companies that are partially disrupted (such as print media) and those that are innovation novices will have a tougher go of it, as the current economic climate isn't favorable for their challenges.
• On-the-brink disruptive attackers and companies that have progressed in their efforts to make innovation systematic will be more likely to find their efforts paying off.
• Companies that demonstrate an ability to love the low end will find that strategy effective if they are able to master business model innovation and gain a deep understanding of how the low-end consumer measures value and develop unique offerings tailored to key value drivers.

Those industries for which uncertainty in the markets and uncertainty regarding potential governmental policy and regulations changes will struggle this year until the economy settles down and the policies of the new U.S. presidential administration begin to take shape. Finance and healthcare are two such industries.

Here are some of our partners' industry-specific predictions:

• Media: A strong likelihood of continued bankruptcies among media companies.
• Defense: A push toward decentralization and away from aircraft- and ship-specific platforms.
• Manufacturing: A shift toward innovation and away from strict reliance upon Six Sigma and cost-cutting.
• Automotive: No automakers will fold, but we will see consolidation of vehicle models in the saturated marketplace as a better linkage develops between customer requirements and available models.
• Retail: Growth among retailers targeting the low-end as well as those that can add high-level services that high-end consumers will pay for.
• Consumer products: CPG companies that do well will be those that strive to push the boundaries of their innovations, looking beyond just new products to new categories, new business models, and new channels.
• Finance: Reduced scope and size among financial global financial services firms, and an opportunity for low-cost tools and data providers.
• Healthcare: Widespread implementation of Electronic Medical Records, as proposed in the forthcoming economic stimulus package, could radically shift the balance of power between physicians, healthcare provider organizations, and insurers. 

• A Water Landing? You’ve Got to Be Kidding - Freakonomics Blog - NYTimes.com

  Look down in the comments for some suggestions for innovation that were inspired by the Jan. 15 water landing in the Hudson: 1) Play instruction videos in a loop in the terminal while passengers wait; 2) Have a real exit window in the terminal that passengers could try out to see if they really are up to exit-row duty. Also, it's hard to argue with this observation: "in the ubiquitous photos of the passengers standing on the wings (the image here was taken by a survivor from an iPhone), almost none of them are wearing their life preservers! After listening to that song and dance every time you get on a plane, you finally crash in the water and still no one listens to the instructions!"
  

• Super-Efficient Fridge Among the Innovations at Builders Show - WSJ.com

  The housing industry, poster child for the recession, offers up green innovations at the annual Builder's Show. My favorite: Solar HVAC from Lennox, industry's first integrated solar-assisted heating, cooling, and ventilation system. Cost $2K to $3K more than regular systems.
  

• 140 Health Care Uses for Twitter

  "Doctors and nurses share medical information, often as short bursts of data (lab values, conditions, orders, etc.)." says blogger Phil Baumann. Understanding that privacy issues would have to be dealt with, he offers 140 suggestions for ways that micro-sharing service Twitter could be of use in healthcare. There are probably some ideas for new businesses represented there.
  

• Puzzling Over the Invisible Economy - Freakonomics Blog - NYTimes.com

  This economist has no economic explanation for his observation that people are more reluctant to give others electronic gifts (MP3 files, digital books) than they are to give analog books and CDs. I suspect it's because giving these "less real" gifts doesn't satisfy the emotional jobs-to-be-done of the gift-giver.

The latest issue of Strategy & Innovation just went out to subscribers. (To subscribe, sign up here — it’s free.)

The issue leads off with an excerpt from the much-anticipated January 2009 book The Innovator’s Prescription by Clayton M. Christensen, Jason Hwang, M.D., and Jerome H. Grossman, M.D., which looks at our health care system through the lenses of disruptive innovation. Our excerpt, Disrupting the Hospital Business Model, argues that hospitals are burdened with multiple business models and jobs-to-be-done. Hospitals can heal — if they focus on one business model and stop trying to be all things to all patients. Specifically, according to the authors, “Hospitals providing much of today’s health care cannot and therefore ought not to be relied upon to transform the cost and accessibility of health care. Instead, hospitals need to be disrupted. We need them to cede market share to disruptive business models, patient by patient, disease by disease starting at the simplest end of the spectrum of disorders that they now serve.”

This issue’s Innovators’ Insight, by Scott D. Anthony and Tim Huse, asks How Do Disruptors Perform in Recessionary Times? Conventional wisdom would be that up-and-coming disruptive companies that have had some early success but haven’t broken through to the mainstream would certainly become casualties of today’s tough economic climate. Not so — Scott and Tim went back to look at how up-and-coming disruptors did in the face of the last three economic downturns in the U.S. In 1979 and found that 11 such companies, including Intel, Home Depot, Nucor, and Southwest, fit our criteria. Their compound annual growth over the recession between 1979 and 1982 was 22 percent. Between 1989 and 1991, the sample of 11 up-and-coming disruptors, which included Best Buy, Cisco, and Charles Schwab, grew revenues by 33 percent.

This issue wraps up with Voices of Disruption, featuring an interview with Ron Gonen, Co-Founder and CEO of RecycleBank, an interesting start-up that rewards households for recycling. Former Innosight Senior Associate Lillian Zhao did the interview, after exploring RecycleBank in this blog post.

Yesterday’s panel discussion at MIT offered what moderator Jim Poterba, former head of the MIT Economics Department and current NBER president and CEO termed “a real treat.”

Bob Solow (MIT) and Greg Mankiw (Harvard), two world-renowned economists who also hold opposing political philosophies, met to offer and discuss their perspectives on the most pressing economic topics the 44th president of the United States has to consider.

The numerous topics included the current state of the U.S. economy, income inequality, healthcare, foreign trade, energy, unions, and immigration. Yet despite pronounced differences in their political views, Solow and Mankiw were aligned in two major points.

First, they agreed that the grievous financial situation needs concerted action right now. The good news is that the U.S. is not experiencing a productivity shock; i.e., no part of our industrial base is destroyed physically. Recovery will thus happen with almost perfect certainty, even if the time horizon is unclear at this point.

Second, both researchers agreed that two sectors of the economy are of much more long-term importance: healthcare and energy. These two fields demand dedicated attention, since they directly affect the U.S. social safety net and national security. These two sectors also show enormous potential for growth.

Even the more conservative-leaning Mankiw recognized that President-elect Obama not only has access to a pool of highly-regarded economic advisors, but that he is in fact very likely to actually listen to these economists – which both Solow and Mankiw can also agree is a good thing.

So, if you are an innovator coping today with the imponderability of the current state of the economy, don’t get entirely caught up in it. Focus on healthcare and energy as two spaces where tremendous opportunities lie ahead.

The Nov. 12 issue of Strategy & Innovation has been posted, featuring these stories:

• Are You Ready for the Next Generation of Innovation? by Stefan Lindegaard explains that the move toward open innovation requires a new mindset and a new set of skills; it is no longer enough to just be a good project manager, researcher, engineer — or leader. What skills are required for this “next-generation mindset”? In his article, Lindegaard discusses these skills: collaboration, relationship-building, stakeholder management, and communication.
• Innovators' Insights:  Sick Economy Visits Doctors by Krystin Stafford discusses the affect that the economic downturn could have on physicians' practices and what innovations they might consider to minimize a drop in their revenues while ensuring that their patients get quality care.
• Disrupt-O-Meter: RingCentral Digital Line vs. Microsoft Office Communicator by Renee Hopkins Callahan describes the competitive struggles in the business VoIP space. Is tiny start-up RingCentral better positioned for growth in the enterprise than Microsoft, which historically has owned the enterprise?

 With thisi issue we are once again making the full Strategy & Innovation issue available as a .PDF download (you will need to register before downloading). The previous four digital issue sof Strategy & Innovation can also now be downloaded in .PDF format.

I’m attending the fourth Business Innovation Factory Summit in Providence. This conference is organized like TED, with presenters telling their stories in 15-minute time slots. Many are about innovation and/or collaboration, while a few are simply inspirational.

The first day featured a couple of very interesting stories about innovation in healthcare, specifically, how the intersection of healthcare and eldercare. Matt Cottam of Tellart, an industrial design firm, described the BIF-sponsored Nursing Home of the Future project. Cottam’s team immersed themselves in a local nursing home/assisted living center to find out what the experience is like from all angles.

There’s a huge strain on our current system today regarding aging, and it’s going to get bigger in the future as the boomers age. According to Cottam, there 35 million people over 65 in the world today and there will be 87 million when boomers age. It costs $80,000 for a year in a nursing home, $240,000 for three years. Cottam’s take is that our eldercare system is in such disarray that it’s really a non-system.

Essentially the immersion project was a classic analysis of the jobs to be done in the eldercare space. In the end Cottam’s team identified about 50 “low-hanging opportunities” for business innovation and design in this space. Some jobs would be satisfied by new devices or changes in product and device design. Others would require new business with innovative business models. “Opportunity is everywhere,” Cottam concluded.

Later on Joseph Coughlin spoke. He’s the founder and director of the Massachusetts Institute of Technology Age Lab, the first multi-disciplinary research program sponsored by government and business to understand the behavior of the 45+ population as decision-makers, consumers, patients, caregivers, advisors and technology users.

Coughlin discussed aging as a personal issue with profound public implications. The decisions to be made go well beyond considerations about money and 401Ks, about which we are all currently obsessing, and quite understandably so. According to Coughlin, even asking a relatively simple question such as “where are you going to live?” opens up a larger set off issues including transportation availability, access to healthcare, and even whether or not you might be able to handle stairs. And this is before you consider your chances of dealing with a chronic disease (those chances are better than average) and your ability to do so.

My takeaway at least from these sessions was a reaffirmation that innovation does not just take place in the business world – we are all faced with the need to gain an in-depth understanding of the jobs we’re trying to get done now and will need to do in the future, the constraints we are under, and then use that knowledge to innovate our own lives.

There’s much, much more going on at BIF-4. Check out the Twitter stream here.  

Healthcare companies and medical subject matter experts such as Mark V. Pauly of the Wharton School in his recent article often raise the question: is the concept of disruptive innovation applicable to healthcare, given that it holds that markets can be transformed or created by initially trading off quality for benefits such as convenience, access, and lower cost? After all, compromising on the quality of medical care is unacceptable, isn’t it?

The answer to this highly valid question emphasizes the interplay of two of our core beliefs: 1) having a common terminology is crucial for a focused discussion, and 2) a deep understanding of a concept is imperative to assess its applicability.

In healthcare, the term quality is widely used as a synonym for what is called performance in disruptive innovation research. While it is true that the concept of disruptive innovation suggests trading off overshooting (redundant) performance – or quality for that matter – for a different value proposition based on enabling technologies and innovative business models, this performance in fact is an aggregate of performance along multiple dimensions.  Our definition of “quality” must account for context.

In the case of healthcare provision, performance dimensions broadly fall into two categories: diagnosis and delivery of care. While performance along diagnosis-related dimensions might include measurement accuracy, delivery of care-related dimensions might contain ability to treat any given disease for which a treatment is known. Now, trading off overall performance (quality) simply means reducing precisely the redundant performance that stakeholders do not value enough to pay premium prices for, or, put differently, that accounts for a significant part of the high cost of the US and other Western healthcare systems without yielding commensurate health benefits.

So what does disruption in healthcare look like? Consider at-home blood glucose monitors, which are used to diagnose and control diabetes.  These are less accurate than the lab tests they disrupted, but they are good enough along the measurement accuracy dimension, as well as easier to use and fast enough for daily use, all at a significantly lower price.

Similarly, hospitals such as Shouldice in Canada and Coxa in Finland, examples of what Hwang and Christensen have termed “value-adding process businesses”, are highly specialized and do not cover the entire breadth of medical treatments as general hospitals do; respectively, they offer only hernia and joint replacement surgery. While offering less performance along the measurement accuracy and treat everything dimensions, these disruptive innovations cannot be thought of as offering lower quality of medical care per se. On the contrary, for the patients who utilize them, they are set-up to offer higher quality over time than the lab technology and general hospital business model they disrupt.

What makes healthcare nonetheless peculiar is that there are performance dimensions where overshooting is hardly imaginable, such as morbidity risk and mortality rate. Yet, taking those dimensions as fixed, there are typically other dimensions where a lower overall performance equals a more targeted solution, given a patient’s circumstance. To quote a European senior hospital chain executive I recently interviewed on the topic of indication-based healthcare: “We could never not offer a patient the best possible healthcare, yet we can very well offer the best possible care given his or her circumstances.”

Now, let us be clear: disruption is definitely not a cost-cutting game, compromising on medical outcomes that leaves patients worse off than before. Prescribing a cheaper medication that is less adequate than a current medication to successfully treat a patient is clearly not a disruptive innovation, and neither is dismissing a patient with insufficient recovery time after surgery to increase throughput – these are plain bad practices. However, given the ever-increasing financial burden the healthcare industry finds itself confronted with, really understanding and deploying disruptive innovation can actually provide lower-cost solutions in the short term while outlining the path to higher, more affordable quality in the medium and long term, and thus represents a strong building block for the future of healthcare.

Look for much more on disruption in healthcare in our colleagues’ upcoming book, The Innovator’s Prescription. 

 A growing number of physicians believe that the interoperability of medical devices — their ability to communicate with each other — could make hospitals safer and more efficient,” reported MIT Technology Review in a July 2008 article surveying the state of interoperability in the increasingly high-tech world of hospital care. Interoperability could help realize the full potential of many of the new devices now finding their way into ICUs and operating rooms, and could also help reduce the distressingly high rate of errors in hospital care.

Cited as an example was the Center for Integration of Medicine and Innovative Technology (CIMIT)'s Medical Device Interoperability Program, based at Massachusetts General Hospital. CIMIT has developed two demonstration projects that illustrate the idea of the "plug and play" operating room. One project is an integrated ventilator that tackles the job of taking an x-ray of a patient on a ventilator without having to turn the ventilator off while the image is taken, as is common today. The integrated ventilator reduces risk by "simply not having to turn off the ventilator at all," says Peter Szolovits, a professor of computer science at MIT who studies medical data integration.

Taking a different approach to the problem is Cambridge Consultants, which in March announced the release of a new platform for wireless device connectivity… said to make almost any medical device wireless for less than $10 of extra manufacturing cost, according to the MedGadget blog. The platform can be used with multiple devices, providing a connection to online records through a monitoring station, home PC or set-top box, and can even be used to transmit data via mobile phone for health and fitness applications on the move.

The Howard Hughes Medical Institute made news last week by announcing a $600 million grant to a fund a new pipeline of biomedical research. What makes this newsworthy is not the size of the grant, but how these hundreds of millions are being spent to fund an extremely ambitious, even risky portfolio of research.

The Hughes Institute follows the principle of investing in “people, not projects” — a significant difference from the way research philanthropies and businesses usually allocate innovation resources. At the National Institutes of Health (NIH), for example, grants are earmarked to tackle fairly narrowly defined disease categories such as colorectal cancer or osteoporosis. HHMI in contrast has apportioned their $600 million to 56 scientists from around the world who have been selected through a competitive application process as “investigators."

Here’s how Hughes describes the relationship they create with their investigators through their grants: Hughes Insitute investigators have the freedom to explore and, if necessary, to change direction in their research. Moreover, they have support to follow their ideas through to fruition — even if that process takes many years.

The investigator program is designed to attract and fund the most innovative researchers in the world without placing constraints on their research agenda.  For the $600 million announcement, Hughes Institute further loosened the rules of its competition to allow scientists to directly apply without the usual required sponsorship of a research institution. Their goal: encourage an even more divergent and diverse array of research interests to compete for an award.

Through its investigator program, Hughes is creating an innovation portfolio by investing in a portfolio of researchers. Past investigator competitions have focused on physician scientists. A future competition will target younger researches who are in the “angel” phase of their research careers. Hughes' investigator relationships currently number 300 researchers affiliated with 24 universities, and include 124 members of the National Academy of Sciences, and 12 Nobel Prize winners. Three hundred of the brightest and most innovative scientists in the world, well-funded to pursue their own interests and unconstrained by time limits or research boundaries … Has the Hughes Institute optimized their odds of a game-changing breakthrough? We think so, because their approach encourages an approach to innovation we describe as emergent strategy.

“People, not projects” is a great way to think about funding the furthest-reaching part of your innovation portfolio to target the boldest, most potentially disruptive solutions. Knowing that 90 percent of new ventures start off following the wrong strategy, it is important to make sure that your innovation resources are not operating under constraints that punish failure, learning, adaptation, and reorientation of the research agenda. Supporting an emergent strategy in your innovation portfolio means that you are able to deploy your innovation resources to encourage rapid iteration, maximize learning and re-direct the plan to pursue the right strategy as it becomes clearer. An emergent strategy is one where your innovators are actually rewarded for failing as long as they fail relatively cheaply and generate useful learning from that failure.

By placing unconstrained bets on people who are proven divergent thinkers, nimble performers, and highly risk-tolerant, you encourage a test-and-learn mentality that is critical to supporting emergent strategy. A Hughes investigator might begin investigating a question like, “Which genetic changes alter behavior throughout evolution?” Along the way, they may unlock a clue to preventing the common cold. Supporting an emergent innovation strategy means that investigator has the freedom and incentive to follow the new lead and potentially develop a very different, but high-impact solution. This is precisely what Hughes Medical Institute is banking will happen with its 56 newly minted investigators.

In January, Apple CEO Steve Jobs introduced the companys latest innovation: The wafer-thin MacBook Air laptop. Jobs proudly touted how it was the worlds thinnest laptop, measuring just three-quarters of an inch at its thickest point. Commercials show the laptop coming out of a thin manila envelope.

Is the MacBook Air a good product? We get asked this question in different guises a lot. Is this a good product? A good service? A good business opportunity? A good process? A good idea?

The answer is always the same: It depends.

Quality is a relative term. You can only assess quality by looking at an idea through the eyes of a potential customer. Will they deem it to be a good product, service, business opportunity, or process?

Consider MinuteClinic, a leading provider of diagnostic services that is owned by CVS Caremark

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Through July 18, enter an open source competition to identify "Disruptive Innovations in Health and Health Care: Solutions People Want," a competition funded by Robert Wood Johnson Foundation's Pioneer Portfolio and run in collaboration with Changemakers, an initiative of Ashoka that promotes enterprising solutions to social problems.

The Changemakers unique, open source competition platform provides a more dynamic and participatory means for the Pioneer Portfolio to engage innovators. Through July 18, entrants post their ideas on the Changemakers site, where a global network of social and private sector entrepreneurs gather and provide feedback and comments that the whole community can review.

A panel of judgesincluding Margaret Laws, director of the California HealthCare Foundation's Innovations for the Underserved program; Jason Hwang, Harvard Business School Fellow at Innosight; Sonal Shah, Global Economic Development, Google.org; and Nancy Barrand, RWJF senior program officerwill narrow the entry pool to 12 finalists. The Changemakers network will then vote on three winners, each of whom will receive $5,000 awards from Changemakers.

In addition, RWJF's Pioneer Portfolio will review competition entries and has up to $5 million available to support ideas that show potential for far-reaching impact.

We hope you will take part in this exciting opportunity either by submitting your entry for disruptive transformation, sharing your thoughts on the competition topic, and/or reviewing and responding to already-posted ideas. Entry guidelines, conversation threads and additional details are available at http://changemakers.net/en-us/competition/disruptive.

More information from the RWJF blog entry at: http://rwjfblogs.typepad.com/pioneer/2007/04/back_in_january.html

According to a survey from the University of Tennessee Health Center, an estimated 40 million Americans suffer from allergies. For those 40 million, a story in the New York Times today has another example of "good enough health care just in time for that seasonal ritual of watching pollen counts and allergy forecasts.

Diagnosing allergies has long been the province of specialists using a labor-intensive skin prick test to isolate and measure patients reactions to specific allergies. For the uninitiated, the test involves injecting small amounts of allergens under the skin of the arm or back dozens of times and judging the severity of the reaction by the size of the red bump that results from the patients antibodies attacking the allergen. A full panel of tests can last hours and cost hundreds of dollars.

A radically different testing method involving a simple blood test has been around since the 1970s, but initially lacked the level of sensitivity afforded by skin prick tests. Ongoing research and development has improved the sensitivity and precision of blood testing, but the industry has been slow to adopt the new method. One factor, according to the Times, is that endorsing the now "good enough blood testing method threatens the lucrative testing business many clinics have developed. The revenue from skin prick testing goes to the allergist, while the money for a blood test goes mainly to the lab. Also, blood testing does not require the experienced eye to judge a skin reaction, meaning that patients could be tested by their general practitioners, another factor sure to alarm the specialists who dominate the industry.

So what does the theory of disruptive innovation suggest for the future of allergy testing? First, in the end simpler and cheaper almost always trumps the high end solution. The prospect of a single blood test sent out a lab for processing is appealing for both patients and insurance providers. Second, subjective tests and treatments offered by specialists are eventually supplanted by rules-based diagnosis. Recent news is filled with examples of medical procedures migrating from the specialists office to the general practitioners practice to (eventually) the home remedy. Allergy testing seems poised to repeat the pattern. In fact, MinuteClinic has already started offering $60 allergy testing with their quick service model. Finally, "pain in the market is a good indicator that consumers will be amenable to alternative solutions. Large numbers of un-diagnosed or self-diagnosed allergy suffers have been scared away from the doctors office by the prospect of skin testing. Speaking from personal experience, 50 pin pricks followed by a few days of freaky looking arms, constitutes pain in the market.

February is American Heart Month. In honor of this we thought we'd pick up on an Innovator's Insight written by Scott Anthony in April 2005 on the Philips home heart defribillator. The home defibrillator is a $1k home-version of the technically-sophisticated defibrillators used in hospital emergency rooms to restart the heart of Sudden Cardiac Arrest victims. The device gives regular untrained people ("nonconsumers of the professional versions) the ability to save a persons life. Heartwarming Automatic External Defibrillator (AED) success stories have been in the news lately as offices, gyms and schools are beginning to require installation of the devices.

A natural extension of this home kit is providing AED/CPR training to this new group of consumers. Philips Medical doesn't seem well positioned to provide such training as a company that sells medical equipment through sales reps to hospitals and medical professionals. Creating a low-end training program targeted at homeowners and office workers is not part of Philips business model. Recognizing the importance of the training, Laerdal Medical and the American Heart Association created The Heartsaver AED Anytime program. It is a self-directed learning product designed to provide condensed, science-based training to get more people trained in CPR and the use of an AED in just 2 hours. The course includes device-specific training on the full line of Philips HeartStart Defibrillators. The kit sells for anywhere between $34-$70 online. Philips is able to distribute the training program by innovating their business model. Instead of selling a Philips-branded high margin durable through sales reps to medically-trained professionals, they are distributing low-end training that is produced and marketed by another company. By partnering with another company and distributing the product online, Philips is able to provide a valuable services to a group of customers in a market that it traditionally does not serve.

Yesterday Steve Case (of AOL fame) announced the launch of a new healthcare web portal, revolutionhealth.com, that will, in his words, "transform a broken industry by putting health care back into the hands of the consumer.

The offering aims to bring web 2.0 features to healthcare ratings, smart search, discussion boards, social networking, shopping tools for health insurance and health products, and so on. "Isn't it crazy that we have ratings to help us pick movies, restaurants and hotels, Case wrote in an introductory letter quoted by CNN.com, "but no comparable tools to help evaluate doctors, hospitals and treatments?

The main site will be free and ad supported, primed to take advantage of lucrative targeted advertising opportunities in the health and wellness vertical (initial front page content on the site references new kinds of sunscreen, yoga, links to product-laden tips and advice, and a free e-newsletter that will essentially be a targeted direct-to-consumer lead generation vehicle).

Unsurprisingly, WebMD, the leading online health info portal, is hot on its heels. It immediately announced a site revamp that will incorporate many of the same web 2.0 features as Revolution. The Wall Street Journal sums it up like this: "Mr. Case faces not only the challenge of changing an industry that is both highly fragmented and deeply entrenched, but he also faces heightened competition right off the bat from the most-successful health site on the Internet.

Sound like fun?

Luckily for Mr. Case and his backers who in this venture include Colin Powell, Carly Fiorina (HP), and Jim Barksdale (Netscape) the success of the site will not rest on web 2.0 healthcare content alone, but on a much bigger and more interesting bet. In addition to its health info portal, Revolution plans to offer a remote, subscription-based, quasi-concierge service for healthcare needs. For under $100 a year, subscribers will be able to access customer service agents to help unsnarl health insurance claims, get doctor and treatment recommendations from healthcare consultants, and store and manage electronic medical records online (these premium services will be offered free for one year in an initial promotion).

Messaging on the site emphasizes the value proposition "When youre sickthe last thing you need is another healthcare hassle. What with the rise of consumer driven healthcare and spiraling costs throughout the system, many Americans are finding it increasingly difficult to navigate more and more complex relationships in the quest for affordable and effective healthcare. There is certainly a very large, very important, and frequently frustrated Job to be Done in simplifying healthcare for the average consumer, and Case is betting that a concierge service combined with web 2.0 ratings, reviews, and networking will be the way to do it.

The Journal points out that web-based subscription efforts have rarely worked in the past, since consumers dont seem to like to fork over cash for content when they can find similar stuff elsewhere on the net for free. But this critique may be missing the point: if positioned correctly, this service will not be competing against free online information, but rather against the frustrating experience of attempting to self-manage labyrinthine records, infuriating customer service calls to insurance companies, and devastatingly important treatment decisions. Private Banks tend to provide such concierge services to their ultra high net worth clients; for $100 a year Revolution is offering a similar low-end service to the masses.

Of course, Revolution will have to deliver. Its customer service agents, consultants, and medical records software will have to make things markedly easier and less stressful for consumers. If it does work, revolutionhealth.com figures to join Cases burgeoning retail health venture, RediClinic, as an effective compensatory solution targeted at easing the frustrations of the healthcare system.

See:

"AOL co-founder unveils Web health service. CNNMoney.com; January 23, 2007.
"The Doctor's Office Gets Crowded on the Web. The Wall Street Journal. January 22, 2007; Page B1

This month, Toyota opened the largest corporate clinic in the United States, a $9 million facility at a new assembly plant in Texas. Toyotas facility is an outlier in terms of its sheer size, but it is illustrative of how providing healthcare at the workplace is growing rapidly. This kind of benefit used to be reasonably commonplace in the 1950s and 1960s, as people joined large employers for long careers, and then they fell out of favor in recent decades due to cost cutting. Why the resurgence? First, technology has enabled relatively less skilled providers to deliver adequate quality care for an increasingly large range of conditions. Diagnosing strep throat or flu, for instance, takes a swab and an easy-to-read test, not a complex analysis of symptoms. In tandem with advancing technology, the supply of nurse practitioners has grown rapidly, at around 10% annually since 1990. Nurse practitioners can deliver these services for significantly less cost than a Medical Doctor. This combination of circumstances has enabled the creation of walk-in clinics in retail stores, such as MinuteClinic, and has the same impact in the corporate setting. Second, employers are motivated to provide on-site care to reduce usage of expensive emergency rooms and specialist providers. Health insurance premiums continue their rapid increase, and keeping simple conditions in a low-cost, primary care setting allows the employer real savings. Indeed, a health benefits manager at Florida Power and Light recently estimated that his company saved $1.50 for every $1 spent on its three company clinics. Third, employees time can be very valuable. Wall Street firms, for instance, provide on-site care to avoid having employees take time off for doctors visits. As the incomes of rich and poor continue to bifurcate, it will make even more sense for firms to save the time of their highly compensated employees. Last, company clinics can stress preventative care in a way that many primary care physicians simply are not incented to do. Insurers are notoriously stingy in reimbursing doctors for the time they spend counseling patients on issues such as diet and exercise. Given that the average employee in a health plan stays with the insurer for only eight years, it just doesnt pay to invest heavily in prevention. However, some employers have longer timeframes in mind, and many will also see the financial impacts of prevention materialize before the health costs do (e.g., fewer days off sick, more productivity, etc.). It is curious that some physician groups see company clinics as a threat. In reality, they present an outstanding growth opportunity, albeit one that requires a significant change in business practices vs. operating the sort of doctors office to which they are accustomed. Predictably, rather than seeing local doctors seize the opportunity, we are witnessing new specialists such as CHD Meridian and Whole Health Management ride the disruptive wave. Source material for this posting was taken from "Company Clinics Cut Health Costs, New York Times, January 14, 2007

In the most recent New England Journal of Medicine, a study illustrates the vast differences in quality of care provided by highly experienced gastroenterolists in a single Illinois practice. The study examines detection rates of polyps during colonoscopies, and reveals that the doctor who took the longest time looking for polyps found them TEN TIMES more frequently than the doctor who took the least amount of time. This is disturbing for patients, who have no idea if the right amount of time is being expended. Similarly, insurers do not distinguish in their payments between those physicians who take the recommended six minutes vs. those who are more speedy. And it makes no difference to equipment suppliers -- or does it? It is only natural to expect physicians, who are reimbursed based on the number of procedures they perform, to try to work fast. It's just human nature, as is the potential for mistakes. Insisting the doctors take the full six minutes is difficult to enforce, and may not lead to more care being taken in the procedure. Rather, there is great potential for suppliers to create new, less error-prone means of polyp detection. It would be a bonus if these tests did not require a specialist physician to administer. And indeed we see that happening. New, accurate, non-invasive tests for bloody stool are being marketed by firms such as Helena Laboratories and Biomerica. These tests lack the precision of a full colonoscopy, but can screen patients with likely risk factors so that their colonoscopies are performed with much greater rigor. Given that only 2-15% of patients undergoing colonoscopy actually have colon cancer, there is also significant potential to reduce healthcare costs by concentrating these procedures on the right patients. The broader principle at work is that firms should spend less energy perfecting tests that require great human skill -- and attention -- to interpret, and more energy on creating screening exams and black-and-white diagnoses that allow less specialized providers to deliver the care in a higher-quality and lower-cost fashion. Patients whose conditions are more complex can then be seen by specialized providers. Oftentimes these innovations actually increase utilization of specialized providers -- the impact of portable ultrasound on radiologists comes to mind -- and they create wins for the patient, insurer, and supplier.

In a recent article ("More Doctors Turning to the Business of Beauty), the New York Times illustrated how physicians not trained as dermatologists are increasingly adding cosmetic procedures to their service offerings. Botox and Resylane injections, hair transplants, and vein removal are just some of the procedures moving into the medical mainstream. This process is symptomatic of a larger trend medical procedures are steadily moving from more specialized to more general practitioners. Why is this occurring? The proximate cause is that family doctors can be relatively poorly compensated compared to scarce specialists, and moreover they are being squeezed by health insurers (including Medicare) who are seeking to contain the spiraling cost of healthcare provision. At a higher level of abstraction, three phenomena are coinciding. First, lower-end providers almost always try to move upmarket. Low cost airlines are now flying all business class flights from New York to London. Wal-Mart is carrying organic groceries. It is inexorable business logic that the high-end will always be attacked, and insurers as well as physician groups are increasingly amenable to seeing this happen with medical procedures. From angioplasty enabling cardiologists to compete with thoracic surgeons, to your family doctor applying a bit of Botox, the medical professions are not immune from low-end disruptive threats. Second, service provision can move to non-specialists because it is becoming de-skilled. One advantage of a robust industry supplying drugs and medical devices is that these firms will compete to make their products easy to administer. In doing so, they can expand the market considerably, as downstreaming service delivery allows patients to consume treatment from providers they trust and are already visiting. Last, the locus of profitability in the value chain of medical care may be evolving, as it does in other industries (think of IBM outsourcing its PC operating systems to Microsoft because historically little money was made there). Revenue is concentrating at the link of the value chain which is still not "good enough for customers. As care provision becomes less risky, that link is increasingly not at the specialist level where highly-trained physicians can ensure effective treatment. Rather, it is at the level of patient convenience and trust these are buying criteria that are almost never "good enough. Care providers would do well to focus on winning in this way. The proliferation of new and simple services they can provide, from Botox to automated nerve tests, pave the way to create a deeper relationship with their patients.