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1. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Can Business Model Innovation Help Health Care Delivery? Webinar 25 September 2014, 4pm KSA time
Steve Chick
Professor of Technology and Operations Management
Novartis Chair of Healthcare Management
stephen.chick@insead.edu
INSEAD

2. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Health Sector Trends
•Medical and Technological innovation
•Information: availability, generation versus consumption, privacy versus open data, variation versus averages, tons of data
•Demographics: aging, “bubbles” in age pyramid, chronic mix, number of children, dispersion of families, rising incomes and expectations
•Economics, demand and supply: health budgets stretched, aging of care givers, training delays, multinational flows of patients and providers
•Increased specialization: not just clinically: ministries of finance, education, health, environment; broader scope and service offer
•Other sectors go beyond “lean”, health is moving but is behind. Is there consistency in outcomes and is there effective coordination?
•Volatility and globalization: mix of culture, social norms, isolation of individuals and social groups
Map source: http://ancientworldmaps.blogspot.co.uk/

3. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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WHO Report on diabetes estimates 1995-2025
109,000
1995
439,000
2007
982,000
2025
Diabetes in UAE
Source: Dr. Ali Bin Shakar

4. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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What to do next?
•Efficiency?
•Rationing?
•Lower expectations?
•Do things very differently?

5. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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The IOM Quality report: A New Health System for the 21st Century
“The current care systems cannot do the job.”
“Trying harder will not work.”
“Changing care systems will.”
If the problem is the system, and not individual “bad apples,” then the focus for practice improvement needs to shift.
Need to make the right thing to do the easy thing to do… or….

6. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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…is innovation the solution?
Devices, diagnostics, genetic testing, gene therapy, pharmaceuticals and vaccines, telemedicine, IT enablers, mHealth, technology that deskills, avalanche of medical trials, RFID, online patient communities, patient experience design, reverse innovation from developing markets, patient-driven innovation, personalized medicine, …

7. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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What are the greatest innovations?

8. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Needs Markets
Solutions
Technology
OPPORTUNITY
New match between a solution (Technology) and a need (Market)
WINNING OPPORTUNITY
New value-creating match between a solution and a need delivered to a customer (user/stakeholder).
THE CONVENTIONAL THEORY OF INNOVATION
Source: Girotra, Netessine

9. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Innovating through new products is hard…

10. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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DOES R&D SPENDING DRIVE FINDING OF OPPORTUNITIES?
Technology Innovation is notoriously hard!

11. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Huge variation in spending … link to outcomes in developed countries is not clear
Source: OECD

12. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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An Alternative Approach: Business Model Innovation

13. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Build-to-order in the computer industry
Assortment planning
Production
Sales
Discounts and liquidation
Time
Production
Sales
Time
Assortment planning for components
►Results: no underproduction or overproduction
Source: Girotra, Netessine

14. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014) 14
Inventory turns=COGS/Inventory
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
Year
Inventory turns
Inventory performance with build-to-order…
DELL
Gateway
IBM
Compaq

15. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014) 15
Build-to-order model cost advantage
 Inventory carrying costs (assume 20%)
 Component obsolescence
Turns: 4 8 24 48
Inventory holding
cost as % of COG
(20% / turns): 5.0% 2.5% 0.8% 0.4%
Annual price
decrease 4 8 24 48
25% 6.3% 3.1% 1.0% 0.5%
40% 10.0% 5.0% 1.7% 0.8%
Turns
Obsolescence cost as
% of COG (Price
decrease / turns)
 Why build-to-order is the right strategy for desktop PCs but not always
for other products
 Inventory is very expensive - component prices can fall by 40% each year!
 Assembly is fast and easy - one person assembles a PC in 3 minutes.
 Customers want variety/customized solutions and are willing to wait.
 Shipping costs are not excessive relative to the value of the product.

16. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Zara’s value chain is more like Dell’s value chain than “traditional” garment value chains
Scan fashion shows
Simplify ‘hits’ into library of designs
Purchase raw material
Final Design
Manufacture
Distribute
Shopping Experience
Feedback and orders from store managers
Slow
(Seasonal)
Fast (Biweekly)

17. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Dell and Zara innovated their business models and changed the computer and fashion worlds

18. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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More business model innovators
See also: www.renaissanceinnovator.com

19. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Business model innovations:
•Retail medicine concept adapted from USA to Finland and Sweden.
•Focus (common acute primary conditions with clear protocols)
•Telemedicine concept
•Quality, cost (!), convenience, thoughtfulness

20. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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THE LONG TAIL EFFECT
Innovating The Value Creation Formula: Attacking Underserved Long-Tail Segments
THE INNOVATION
•Identify underserved market segments that you can address by mass-customization, Sell less of more.
•Provide Recommendations, customization tools
•Increase Revenue and Cost
WORKS BEST WHEN
•High desire for variety, or high inherent demand variety
•Low cost of customization (postponement, modularity, production on demand)

21. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Can this idea apply in health care delivery? Can we bend the cost curve?
•“Invert” the long tail idea: change from customers with rare requests finding “us”, to “us” proactively finding rare “high cost” customers?

22. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014) 22
Northgate I public housing
Visits Patients Charges Receipts Collected
Cooper 3,172 749 $42,144,097 $4,994,658 12%
Lourdes 811 337 $7,848,809 $1,028,611 13%
Virtua 805 331 $1,742,467 $345,092 20%
2005 838 370 $10,834,420 $1,269,373 12%
2006 738 355 $6,867,995 $881,549 13%
2007 790 369 $7,979,262 $901,181 11%
ED 3882 978 $6,150,592 $864,019 14%
Inpatient 906 408 $45,584,781 $5,504,342 12%
Total 4,788 1,070 $51,735,374 $6,368,361 12%
Primary Diagnosis
Rank ED Inpatient
1 abdominal pain (789.0) live birth (V3X.0)
2 acute URI NOS (465.9) chest pain (786.5)
3 chest pain (786.5) congestive heart failure NOS (428.0)
Source: Camden Coalition of Healthcare Providers,
Dr Jeffrey Brenner

23. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Innovating the Profit Formula: User Generated Content
THE INNOVATION
•Use the crowd for a task in the business
•Leverage the internet, social media, mass-communication technologies
•Reduce costs with potential loss to profits (quality, exclusivity)
WORKS BEST WHEN
•Tasks benefit with wide search, rigorous work, distributed knowledge, massive parallelism
•Strong committed Community
•Marketing hype, etc. is valuable
http://www.nature.com/nbt/journal/v29/n5/abs/nbt.1837.html
http://www.patientslikeme.com/conditions/9-als-amyotrophic- lateral-sclerosis

24. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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The Conventional Theory of Business Models
Revenue Model Price Volume (market Size) Ancillary Sales
Cost Structure Direct, Indirect costs Economies of scale and scope
Resource Velocity Rate of value output Lead times, turns, throughput, utilization
►The key part of any Business Model is the Profit Formula.
►Conventional description of this Formula includes three parts:
►The Revenue Model (subscriptions, transactions, contingency fees).
►The Cost Structure (fixed, variable, linear/non-linear).
►The Resource Velocity (speed of turning over inventory, utilization of assets, workers, R&D intensity).

25. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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New Business Model Theory
Revenue Model Price Volume (market Size) Ancillary Sales
Cost Structure Direct, Indirect costs Economies of scale and scope
Resource Velocity Rate of value output Lead times, turns, throughput, utilization
►The major missing piece: RISK.
►Building Business Models that are ROBUST to predominant risks in the industry (Business Process Innovation) offers significant innovation opportunities.
►The innovation may involve risk reduction and decrease in price OR risk increase and increase in price etc.
►Key to business model innovation lies in systemizing risk management opportunities.
Riskiness of Revenues, Costs and Resource Velocity Sensitivity of profits to changes in price, volume, costs, resource utilization

26. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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Example archetypes for business model innovation
•Focus: Laastari
oAlign product, process, market segment for clear value proposition
•Changing order of events: Dell, Zara
oMight be ‘higher cost’ but can create more value by lowering risk
•Going for the long tail: Amazon, Camden coalition
oPush the boundaries of the 80/20 rule, recognizing there is no “average” customer
•Front office / back office balance
oCustomer co-creates and participates (do with, not to). Laastari.
•User-generated content and crowdsourcing
oPlatform: product & service, design & delivery, by & for end users

27. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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We will explore this more on November 3, 2014 in the HPHO – 2 in Madinah, Saudi Arabia

28. © Professor Stephen Chick, Technology and Operations Management, INSEAD (2014)
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INSEAD Abu Dhabi partners with Johnson & Johnson Trust: Health delivery leadership, management and creative innovation
•Next opportunities at the INSEAD – Abu Dhabi Campus
oMiddle East Health Leadership Programme (MEHLP)
•28 Feb - 5 March 2015, Abu Dhabi
•Leading complex organizations like hospitals and health systems
oInnovators for Community Wellness (ICW)
•14 - 19 November 2015, Abu Dhabi
•Leading, thinking and doing innovation like a start-up
•Application deadline: 2 months prior to programme
oOffered for many years with diverse and dedicated group of participants
•More information on content, benefits, eligibility is at:
ohttp://executive-education.insead.edu/middle_east_health_leadership
ohttp://executive-education.insead.edu/community-wellness