Disruption for Doctors 1: What’s Disruption?
We’re number 46!
Healthcare in the United States is a $1.27 trillion dollar industry known for
very high prices
terrible customer service (long waits, short visits, poor coordination)
impossible-to-understand billing
antiquated information technology (e.g. using fax machines in 2022)
While the saving grace for a long time was that the healthcare system got outstanding results, that doesn’t seem to be the case anymore. While the US spends much more on healthcare than other rich countries, for example, the country is number 46 for life expectancy at birth — right behind Estonia.
And a recent study published in the Journal of the American Medical Association demonstrated that for many common health issues (e.g. colon cancer, heart attack, infant mortality), even the richest Americans often had worse healthcare outcomes than the average citizen of many European countries.
Ripe for disruption — whatever that is
Whenever you have a very expensive product with major problems, there is always an opportunity to find ways to improve or replace it. One important type of replacement using technology is called “disruption”, and it is one of the main strategies that Big Tech companies and others use to take over major segments of whole industries (see: advertising, retail, music, travel, photography, etc).
Unfortunately, most doctors, nurses, PAs, techs, and others aren’t familiar with the term — and are unaware of how technological trends have already begun disrupting their current business models.
The purpose of this and some following posts is to give folks working in healthcare a framework to better see what’s happening in healthcare and better prepare for the future — a future which will be very different from the traditional doctor-and-hospital-centric healthcare model.
What does “disruption” mean?
If the fire alarm goes off at the grocery store while I’m looking for tomatoes, that would definitely “disrupt” my shopping — but this is not the disruption I’m talking about. Likewise, I don’t just mean the introduction of something “new” or “innovative.” And I definitely don’t mean a new style of denim shorts:
Ah . . . no.
I’m using the concept of disruption as defined by the late Clayton Christensen in his incredibly influential book The Innovator’s Dilemma (TID), originally published in 1997. TID talks about how technological change can sometimes improve existing companies’ products, while other times putting such companies out of business.
The Bible of Disruptive Innovation
As a way to explain these two very different outcomes Christensen divides tech innovation into two categories: sustaining and disruptive.
Sustaining innovations
A sustaining innovation is a new technology that helps existing companies (“incumbents”) make their products better for their existing customers.
A great innovation — but not a disruptive one.
LED light bulbs are a great example of a sustaining innovation. They’re definitely way better than incandescent bulbs — much longer-lasting, way more energy efficient, cooler — and they’ve helped big incumbent light bulb manufacturers like Philips and GE to make better products, and serve their customers better, and to increase their profits. This sustaining innovation makes incumbents more profitable.
Other examples of sustaining innovation are not hard to find: many of the products we use everyday get better over time. Detergent pods? New versions of your phone’s operating system? Bigger (flatter!) TV screens? Better cushioning material in your running shoes? Self-checkout at the grocery store? Waterproof/breathable rain gear?
Sustaining innovation example #3,452,778
None of these innovations are putting anyone out of business. They’re “just” incremental improvements that make useful products even better.
Disruptive innovations
A disruptive innovation is a new technology that lets new companies make a product or service more affordable and accessible to more people in a way that puts incumbents out of business.
Characteristics of disruptive innovations usually include:
they are typically worse in many respects than existing tech (this one is a bit counterintuitive, but read on)
they are typically better in at least one respect, usually some combination of price and simplicity
by being cheaper, or simpler to use, they create a new market of users that couldn’t afford to participate using older technologies
they are ignored — or laughed at — by incumbents because they don’t (initially) make much money. Plus, they’re clearly worse (see #1, above).
A great example of disruptive innovation that most of us have lived through is Netflix’ original business model (before they became a streaming giant). You might remember that when Netflix came online in 1997 there was no streaming (the internet wasn’t fast enough yet): Netflix was a DVD rental company. They pioneered a new way to rent DVDs, by ordering them online and receiving them through the mail, which was in direct competition with Blockbuster and other physical video rental shops.
How was this classic disruption? Let’s go through the points:
worse — the first thing I thought when Netflix came out was “who wants to wait 3 days to get a DVD in the mail??” Most people liked the instant gratification of going to the video store and walking out with a movie a short time later. Netflix was definitely much worse in this respect, and was the butt of many jokes when it started.
better — the thing people hated most about Blockbuster and other video retail shops was . . . the late fees. You’d get the DVD or VHS tape for cheap but if you forgot to return it on time you were nailed with a big late fee. In fact, according to Netflix lore, Netflix founder Reed Hastings got the idea when he forgot to return a copy of Apollo 13 on time and got hit with a $40 late fee. Netflix had NO late fees: you could keep a DVD as long as you wanted and just paid the same subscription fee each month.
new market – the market for Blockbuster was obviously limited to places with a Blockbuster store. Netflix, on the other hand, could bring in more customers because they were (1) cheaper and (2) available to anyone in the US that could get mail (i.e. everyone).
ignored/laughed at — a lot has been written about why Blockbuster didn’t/couldn’t adapt to the challenge from Netflix. Christensen would say that it’s because Netflix was offering a mail-order subscription service that — at least initially — Blockbuster’s customers weren’t asking for, and Netflix wasn’t making much money doing it. In fact, in 2000, the Netflix founders tried to sell Netflix to Blockbuster, and they remember that at that meeting the Blockbuster CEO “was struggling not to laugh.”
Netflix initially got subscribers who were angry about late fees, or who didn’t have a good video shop nearby, but as they got more popular their business grew. The last straw was in 2007, ten years after Netflix started, when they announced that they would start streaming movies.
This removed the last objection anyone had to Netflix (having to wait for the mail), and actually made them a faster option than Blockbuster. Three years later, as everyone got used to picking and immediately watching movies without getting up from the couch, Blockbuster went out of business.
Other examples of disruptive innovation include social media — which has put many traditional news media like newspapers out of business — and electronic messaging like email, WhatsApp, and Skype, which has nearly eliminated traditional paper-based messaging. Not to mention the smartphone — which by making computing simpler and cheaper (especially with low-cost Android phones) has brought BILLIONS of new computing users into the market.
Sometimes people argue about whether a new technology is sustaining or disruptive, and the answer can depend on who, exactly, is getting disrupted. The iPhone, Tesla, Uber . . . all of these clear innovations have had people arguing both sides. To read more about the example of Tesla, try “Is Tesla Disruptive” by Ben Evans. To read why even Clayton Christensen, the father of disruption theory, got the iPhone’s disruptive potential wrong, try “What Clayton Christensen Got Wrong” by Ben Thompson.
So what does this have to do with health?
When you work in a very expensive system with arguably poor results, it’s a natural question to think “how can we improve this?”
If you work outside the system, and you understand disruption theory, the natural question is “how can we disrupt this system?”
These questions are being asked throughout healthcare, and by companies outside healthcare. We’re seeing sustaining innovations like better drugs and electronic medical records, as well as potentially disruptive innovations like urgent care centers run by Walmart, and smartphone apps that treat depression without a human therapist
In my next post I talk about the many, many ways that information technology is acting as a catalyst for both sustaining AND disruptive innovations, and the implications for traditional healthcare.