C. Christensen

Disruptive Innovation in Education & Health Care : 

1/9/2009 Copyright Clayton M. Christensen 1 Disruptive Innovation in Education & Health Care Clayton Christensen Harvard Business School November, 2007 cchristensen@hbs.edu

Sustaining and Disruptive Innovations : 

1/9/2009 Copyright Clayton M. Christensen 2 Sustaining and Disruptive Innovations Performance Time Sustaining innovations Incumbents nearly always win

Disruptive Innovations create asymmetric competition : 

1/9/2009 Copyright Clayton M. Christensen 3 Disruptive Innovations create asymmetric competition Performance Time Sustaining innovations Incumbents nearly always win 60% on $500,000 45% on $250,000 Entrants nearly always win

Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible. : 

1/9/2009 Copyright Clayton M. Christensen 4 Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible. Today Toyota Wal-Mart Dell Southwest Airlines Fidelity Canon Microsoft Oracle Cingular Merrill Lynch Yesterday Ford Dept. Stores Digital Eqpt. Delta JP Morgan Xerox IBM Cullinet AT&T Dillon, Read Tomorrow: Chery Internet retail RIM Blackberry Air taxis ETFs Zink Linux Salesforce.com Skype E-Trade

Proper team structure is crucial in every project : 

1/9/2009 Copyright Clayton M. Christensen 5 Proper team structure is crucial in every project Business model in which product is used Product architecture: What are the components, and which ones interface with others? Change the specifications for how components must fit together Improve performance of each component Business model in which process is used Process architecture: What are the steps in the process, and what is their sequence? How must the steps in the process interface in time and space? Improve individual steps in the process Product Process Team Type Level of change

At the beginning of most industries, the architectures of products and services tend to be interdependent : 

1/9/2009 Copyright Clayton M. Christensen 6 At the beginning of most industries, the architectures of products and services tend to be interdependent Performance Time Interdependent, proprietary architectures

When technology matures, open, modular systems overtake markets because of cost and customizability : 

1/9/2009 Copyright Clayton M. Christensen 7 When technology matures, open, modular systems overtake markets because of cost and customizability Performance Time Interdependent, proprietary architectures

Conflicting mandates in the way we must teach, vs. the way students must learn : 

1/9/2009 Copyright Clayton M. Christensen 8 Conflicting mandates in the way we must teach, vs. the way students must learn Differences in how we learn mandate customization

Technology can only be deployed in existingbusinesses in ways that sustain (and addcost to) the current model. Disruption bestcompetes against non-consumptionat the outset. : 

1/9/2009 Copyright Clayton M. Christensen 9 Pocket radios Portable TVs Hearing aids Tabletop Radios, Floor-standing TVs Technology can only be deployed in existingbusinesses in ways that sustain (and addcost to) the current model. Disruption bestcompetes against non-consumptionat the outset.

Historically, most schools have “crammed” computer-based learning into the blue space : 

1/9/2009 Copyright Clayton M. Christensen 10 Historically, most schools have “crammed” computer-based learning into the blue space Core curriculum

School boards have been moving “Up-Market” to focus limited resources in the “new” trajectory of improvement : 

1/9/2009 Copyright Clayton M. Christensen 11 School boards have been moving “Up-Market” to focus limited resources in the “new” trajectory of improvement Time Importance of program Time German Statistics Psychology Economics Math Science English language & literature

This is a perfect opportunity to implement computer-based learning disruptively : 

1/9/2009 Copyright Clayton M. Christensen 12 This is a perfect opportunity to implement computer-based learning disruptively Time Computer-based learning: Compete against non-consumption Political importance of program Time German Statistics Psychology Economics English language & literature Science Math

Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized : 

1/9/2009 Copyright Clayton M. Christensen 13 Performance Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized Experimentation & problem-solving

Rules-Based Medicine Is Precision Medicine : 

1/9/2009 Copyright Clayton M. Christensen 14 Rules-Based Medicine Is Precision Medicine Ability to diagnose by cause, rather than symptom Effectiveness & Simplicity of Treatment Effective & Simple Effective but complicated Complicated and ineffective Low High Preventative Breast cancer

Molecular diagnostics and interventional radiology are important technological enablers for disruptive business models in health care : 

1/9/2009 Copyright Clayton M. Christensen 15 Complexity of Diagnosis and therapy Molecular diagnostics and interventional radiology are important technological enablers for disruptive business models in health care Intuitive Medicine Precision Medicine

Three types of business models : 

1/9/2009 Copyright Clayton M. Christensen 16 Three types of business models Value Shops Consulting, law, advertising, product development Diagnostic & hypothesis-testing activities in hospitals and specialists’ practices Value Chains Manufacturing, retailing, food service Medical procedures after definitive diagnosis Value Networks Telecommunications, insurance, banking D-Life, Crohns.org Our thanks to Oystein Fjeldtsted, Norwegian School of Management, for teaching us this framework

Slide 17: 

1/9/2009 Copyright Clayton M. Christensen 17 Sick child Nurse Family doctor Specialist Home Office Outpatient Clinic Parent Focused Hospital General hospital Simple Clarity of the rules Ambiguous Little Skill required to follow the rules Deep Simple Clarity of the rules Ambiguous Little Skill required to follow the rules Deep The enablers of disruption in health care

What is a business model, and how is it built? : 

1/9/2009 Copyright Clayton M. Christensen 18 What is a business model, and how is it built? THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do

Disruptive innovation in the hospital business model : 

1/9/2009 Copyright Clayton M. Christensen 19 Disruptive innovation in the hospital business model Value Proposition: Don’t know what’s wrong? We can address any problem you bring General Hospital Value Proposition: When you know what you need, we provide it efficiently, effectively

Sources & magnitude of cost differences: Specialty vs. General Hospitals : 

1/9/2009 Copyright Clayton M. Christensen 20 Sources & magnitude of cost differences: Specialty vs. General Hospitals 9.0 2.7 75 1 $7,000 $2,300 $6030 $1600 $670 $600 $300 $100 General Hospital Shouldice Hospital (hernia repair) Cost of materials & supplies Cost of direct labor Overhead burden Total cost for equivalent length of stay # service families offered Overhead burden rate

Disruptive business model innovation in physicians’ practices : 

1/9/2009 Copyright Clayton M. Christensen 21 Disruptive business model innovation in physicians’ practices Value Proposition: The solution to any problem starts here

Slide 22: 

1/9/2009 Copyright Clayton M. Christensen 22 The jobs of reimbursement

Five insights from the deductive perspective : 

1/9/2009 Copyright Clayton M. Christensen 23 Five insights from the deductive perspective America’s public schools have in fact been improving at an impressive rate for several decades. Problem: The definition of improvement has changed. The interdependent architecture of our present system mandates standardization in the way we teach and test. Problem: Differences in students’ learning styles or types of intelligence mandate modularity in teaching and testing. Heavyweight teams always are required to define new product and service architectures. Problem: Architectural reform cannot be done within the functional structure of existing schools. Only functional improvement is possible. Chartered and pilot schools are heavyweight teams. America’s poor performance in science, math and engineering is caused by diminished extrinsic motivation Comfort and prosperity are the culprit; intrinsic motivation is our only hope Multiplicity of jobs requires multiple business models to address them

The substitution of one thing substitutes for another always follows an S-curve pattern : 

1/9/2009 Copyright Clayton M. Christensen 24 The substitution of one thing substitutes for another always follows an S-curve pattern % new .001 .0001 .01 0.1 1.0 10.0 % new % old 09 11 07 05 03 13 15

The process of building bodies of understanding : 

1/9/2009 Copyright Clayton M. Christensen 25 The process of building bodies of understanding Observe, describe & measure the phenomena Deductive process Inductive process

The predictive power of theory improves markedly when careful researchers move beyond statements of correlation to statements of causality. : 

1/9/2009 Copyright Clayton M. Christensen 26 The predictive power of theory improves markedly when careful researchers move beyond statements of correlation to statements of causality. Categorization of the circumstances in which we might find ourselves