1. 29 SpineLine | september · october 2016 www.spineline-digital.org
 Current Concepts | Health Care Management Series
After World War I, the DuPont manufacturing company wanted to diversify their product
portfolio.1 Until then, the company was the leading manufacturer of ammunition for
the US military. Soon the organization wanted to sell products to a different consumer­—the
individual. The logic for this transition was simple: they already had the factories and as-
sembly lines in place to produce consumer products. Switching the machines to make paint
or plastics instead of ammunition didn’t seem to be a great challenge and it would also help
the company diversify its portfolio of products.
Soonaftermakingtheswitch,DuPontsawitsmarginsshrink.Theirleadershipreachedout
to customers to understand why sales were so low. After multiple conversations, they soon
realized that the value proposition of these new customers was different, but DuPont as an
organizationhadnotchanged. DuPontwasusingabusinessmodelinlinewithsellingammu-
nition to the army, rather than a model for selling paint and plastics to household customers.
Why is Business Model Thinking Important?
Before selling any product or service, every business goes through an exercise in creating a
business model.2 To some degree, a business model is a set of assumptions about how an
organization will use certain resources in a particular process to deliver value to a customer
at a profit. Every business model starts with identifying the customer and identifying their
unmet needs (ie, what do they value?). In the case of DuPont, its major customer was the
military. For health care providers, specialty training identifies whose needs we will satisfy.
A pediatrician will take care of children under 18, a spine surgeon focuses on individuals
with spinal disorders who need surgery, etc. Determining what those patients value is the
challenging next step.
Before World War I, DuPont’s major customer was the military whose primary need was a
high volume of ammunition. The military was not looking for a variety of types of ammuni-
tion—they weren’t a very discerning customer. When DuPont moved into making paint, they
followed the same playbook and made very few varieties of paint colors. What they didn’t
realize was that the individual household customer was more discerning in their tastes and
wanted the ability to choose colors of their liking. They didn’t want to be limited to three or
four colors. The individual buying paint had a different value proposition than the military.
This difference in value propositions was the landmark insight that Pierre DuPont, CEO of
DuPont, needed to reorganize the company. DuPont understood that the resources and pro-
cesseswithinthecompany,itsfundamentalorganizationalstructure,neededtoberedesigned
toward the delivery of value to its new customer.
Instead of having a unified general marketing, accounting or sales department for all of
DuPont’s diverse products, DuPont created individual business units based on the product,
ie, paint, ammunition, plastic. Each business unit included individuals who were devoted to
that particular customer group (ie, paint versus ammunition), and more importantly, were
focused around delivering the greatest value to the specific customer group they were serv-
ing. This multidivisional organizational structure has been credited with leading to DuPont’s
long-term success as a business.
The Changing Value Proposition in Health Care
Health care as an industry is experiencing tremendous turbulence at this time. Cost pres-
sures on the government, employers and individuals have reached a tipping point resulting
in a fundamental realignment within the health care system. The passage of the Affordable
Care Act has only accelerated those changes. The move to a value-based system represents
a fundamental shift in the basic value proposition of the health care system that requires a
new business model.
The Value Playbook:
Disrupting Your Business Model
Alok Sharan, MD, MHCDS
WESTMED Spine Center
Yonkers, NY

2. 30 SpineLine | september · october 2016 www.spineline-digital.org
For more on the topics covered in this Health Care Management Series,
plan to attend the upcoming annual meeting symposium:
Managing the Delivery of Spine Care:
What Can Health Care Learn from the Business Community?
Friday, October 28, 2016, 1:15–2:45 pm
Boston Convention and Exposition Center, Boston, MA
Details at: www.nassannualmeeting.org
WhenMedicarewasestablishedin1965,thefee-for-service
methodofpayingproviderswasadoptedasthebasicbusiness
model. Theinitialvaluepropositioninthismodelwastoallow
accesstohealthcareforpatients. Asthecostsofcarestartedto
increase,payerstriedmanymethodstolimitspending,suchas
authorization panels, managed care organizations, etc. From
a macroeconomic perspective, these methods were attempts
atregulatingthesupplysideofcarebyregulatingtheproviders
who deliver care. As history has demonstrated, these meth-
ods of regulating payments have not slowed down spending.
Health care inflation continues to outpace general inflation
with no concomitant increase in the overall quality of care.3
When resources were plentiful, paying for access was
an acceptable goal. The customer was not discerning. As
the overall resources that can be devoted to health care are
decreasing, the end-user (ie, the patient) is becoming more
discerning. Thefundamentalvaluepropositioninhealthcare
is changing—now the question is how to continue to provide
access to high quality care at the lowest overall price. This is
requiring health care organizations to rethink their funda-
mental business model.
DuPont’s Organizational Realignment Toward Value
DuPont’s realignment represents a method of using demand-
sidethinkingtocreateanorganizationalstructurethatdelivers
value to its customers. It starts with understanding who the
customer is, what their needs are, and then effectively using
resources in a coordinated and efficient manner to deliver
value. Successful businesses map out this process in a value
chain analysis to ensure that they are able to deliver value to
their customers.4
The transition to a value-based health care system rep-
resents a fundamental redesign in the basic business model
of health care. In the past, the main value proposition to
patients was access to care. Now the value proposition is ac-
cessing effective care. Tremendous forces are pushing health
care toward this transition. Online web sites, mobile apps
and social listening through social media are giving a greater
voice to the needs of the patient. Economically, high deduct-
ible health care plans, increasing co-pays and co-insurance
are forcing the patient to be more engaged and discerning in
theirhealthcare. Paralleltothesechanges,onthesupplyside,
payment reform is increasingly pushing providers to achieve
an outcome that is of value to the patient. Bundled payments
represent an attempt to financially align the activities and
resources needed to treat a particular disease process (ie, hip
arthritis) with an outcome that the patient is looking for (ie,
value). To be successful with these new alternative payment
models, health care providers will soon have to change their
fundamental organizational structure.
The Changing Value Proposition in Health Care
After DuPont’s CEO changed its organizational structure to
devote business units to specific products, it was easier to
determine where the resources should be allocated. Rev-
enue for paints went to the paint department, marketing
for the plastics department discussed new insights with the
production department for plastics, etc. The various activi-
ties and business operations were aligned with the needs of
the unique customers based on the product. DuPont’s CEO
realized that the value proposition for the individual buying
paint was different than the customer who bought plastic.
When the organizational structure of DuPont changed in line
with this strategy, revenues for the company took off. DuPont
has been a successful company through the years because it
realized the need to critically reassess the value propositions
of its customers.
For any business model to be successful, an organization
has to carefully scrutinize the series of activities performed
as well as the resources needed to deliver value to the cus-
tomer. In health care, the transition to a value-based system
representsafundamentalreorientationtothechangingvalue
proposition of the patient, who is becoming more discern-
ing in both the quality of care as well as the costs of care.
Ultimately, organizations will have to closely scrutinize their
care pathways in treating a particular disease and remove any
non–value-added steps leading to high costs with no increase
inquality. Scrutinizingthesecarepathwaysandresourceswill
ensure that the supply side of the provider matches up to the
demand-side needs of the patient.
When the resources and processes of the supplier match
up to the demands and value proposition of the customer,
you get a successful business model (supply=demand). Any
misalignment between the supply and demand sides will
result in overcapacity and waste as well as not fulfilling the
needs on the demand side. The value playbook represents a
fundamental disruption to the current business model in
health care; it represents an attempt to reach an equilibrium
between the supply and demand sides in health care.
References
1. ChandlerADJr.StrategyandStructure:ChaptersintheHistoryofthe
American Industrial Enterprise. Cambridge, MA; MIT Press; 1962.
2. Sharan AD, Schroeder GD, West ME, Vaccaro AR. Understanding
businessmodelsinhealthcare. ClinSpineSurg.2016;29(4):158-160.
3. Conover C. Has Obamacare fixed US inflation? The Apothecary.
Forbes. March 9, 2015. Available at: http://www.forbes.com/
sites/theapothecary/2015/03/09/has-obamacare-fixed-u-s-
healthcare-inflation/#2b2967c424b3
4. SharanAD,SchroederGD,WestME,VaccaroAR. Understandinga
valuechaininhealthcare. JSpinalDisordTech.2015;28(8):291-293.
Author Disclosure
ADSharan:Consulting:ParadigmSpine(B);Other:JaypeeBrothers(A).
 Current Concepts | Health Care Management Series