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  • Brendan Shaw

Disruptive innovation in the health sector – are we ready for it?

“Breaking an old business model is always going to require leaders to follow their instinct. There will always be persuasive reasons not to take a risk. But if you only do what worked in the past, you will wake up one day and find that you’ve been passed by”

- Prof Clayton M. Christensen, Harvard Business School

If it’s one thing that unites practically everyone across the health sector it’s that things need to change.

Nobody I have met in the health sector in any country or international institution is saying anything like “We don’t want change and we just want things to stay the way they are”.

Today, the calls for radical reform, disruptive innovation, breakthrough treatments, new ways of working, game changing strategies and even outright revolution have reached a crescendo. Whether you are the World Health Organization or the World Bank or industry or Bill Gates or Medicines Sans Frontiers or political leaders, everyone is calling for substantial changes to the way healthcare is developed, financed and delivered.

Talk of disruptive innovation is probably in part inspired by what people have seen happen in other industrial sectors ranging from what smartphones and apps have done to communications and information technology through to Elon Musk firing his sports car on a space rocket to the asteroid belt.

Amid all of this, life sciences companies are thinking about how to manage disruptive innovation to improve public health and maintain commercial success. Companies are looking at how to continue developing new therapies, new business models, new ways of partnering with other organisations, new distribution models to improve supply chain integrity and combat counterfeit medicines, new ways to engage with healthcare practitioners and patients, and new ways to provide information.

As the industry and broader health sector are grappling with how to encourage radical change, there is a wealth of studies, evidence and conclusions from business and management research on disruptive innovation across many industries on how well such radical new changes are embraced.

And the news isn’t good.

The conclusions seem to be from across different sectors and industries that companies and other organisations can often find it incredibly difficult to introduce new, disruptive innovation. But the reasons for this can be surprising.

It turns out that one of the reasons that companies don’t adopt an emerging radical new innovation can be because – wait for it – their customers don’t want it.

Often when a new process, technology or business model is developed, their customers show no interest in it. Customers don’t always know what innovations they want. Often the best innovations are the ones that no one realises they need until they understand the potential. People like Steve Jobs and Henry Ford are famous for reportedly saying their success in introducing radical innovation is because they didn’t listen to their customers.

It can often take five to 10 years for the customers to realise they want an innovation and for the product to become a big seller, by which stage it can be too late for a company to try to get into the market to supply it if other disruptive competitors have got in ahead of them. There are many examples of successful innovations that took years to catch on with consumers long after they were initially developed such as compact discs, microwave ovens and pagers. This is an example of the product life cycle for innovative products and the pattern of the diffusion of innovation, where initially it is only early‑adopter consumers that accept and demand new innovations. The majority of consumers follow on later as the technology becomes established.

These same patterns of delayed customer demand can be observed in the diffusion and adoption of new innovations and technologies in healthcare. Anyone who has spent time dealing with payer and health technology assessment agencies will relate to this phenomenon.

Another reason companies don’t always embrace radical disruptive innovation is because often they don’t want it either. Often disruptive innovation means cannibalising the company’s existing business and profits, management and employees losing their jobs or having their careers turned upside down, existing capital and intellectual investments becoming obsolete, whole divisions within companies becoming redundant, and previously successful management strategies being abandoned. The structures, investments, norms, standards and interests in organisations can prevent them adopting new, radical innovations. They can get trapped in their own paradigms.

This is not to say that companies and industries are not innovative, just that when it comes to major disruptive innovations that turn a market or an industry on its head it can be really hard for even the most competitive, innovative companies.

Corporate history has many classic examples of companies that tried to introduce radical innovations and failed because of this. Classic examples include Kodak’s failure to make the digital camera a success even though Kodak invented it, Nokia’s failure to adapt to change mobile phone markets, Blockbuster failing to adequately respond to the emergence of Netflix, or Xerox failing to succeed in the personal computer market despite developing many of the base technologies itself later commercialised by other companies such as Apple and Adobe.

This is not to single out private sector companies as the only ones having this problem. Public sector agencies, be they government departments, state-owned corporations or international agencies can be woeful at embracing innovation and much worse than the private sector. Many of the problems companies have in introducing innovation are replicated in the public sector and compounded by public agencies facing additional barriers to radical change from things like public accountability measures, competing structures in political systems, managing multiple stakeholders and conservative risk‑management.

And finally, even if all of this wasn’t enough, there’s another big problem.

Even if you manage to overcome all the hurdles in a company and introduce radical innovation or a major new technology it may not work or it may not be the right innovation to adopt.

At any one time there are a multitude of potential new breakthrough technologies, innovations or opportunities confronting a company’s management team. There might be five, 10 or 20 different options to choose from. Some of these will work and some will turn out to be a waste of time, money and peoples’ careers. The problem that is at the time the innovation first emerges, no one knows for sure whether it is going to be a world-changing success, a flop, or an unmitigated disaster. And what might be the right innovation for one company might be inappropriate for another company. But at the time the investment decision is made no one knows for sure.

So, what does all this mean for embracing disruptive, radical innovation in health care? Life sciences companies are grappling with these strategic decisions every day. What lessons can be learned from the study of management and business that might inform innovation in health care?

How disruptive innovation is affecting the pharmaceutical and biotech industries is the topic of much conversation. There are a number of trends that are having an impact on the sector - so many, in fact, that it's hard to keep up. These include genomics and personalised healthcare, patient empowerment, nanotechnology, big data, predictive analysis, mobile and wearable technologies, augmented and virtual reality, supercomputing, 3D printing and virtual clinical trials modelling the impact of new treatments to name just a few.

One lesson coming out of the business strategy and management literature is for established companies to think about how they adopt disruptive innovations, including whether to create a separate business unit to take an innovation forward. Not all companies need to do it, but it can be a strategy for some. These days the news is full of ‘outsiders’ in an industry or market driving more radical technologies and innovations in a market compared to established companies – think Uber in taxi transport, Amazon in online sales, Tesla in electric cars, or Dyson in vacuum cleaners. New business units should ideally have an arm’s-length relationship with their parent company and have an entrepreneurial approach. One example is Medtronic’s creation of a new business unit Nayamed to deliver cheap pacemakers and defibrillators.

Another idea is to ensure that the culture in a company encourages risk-taking, accepts failure when people try new ideas, supports experimentation, and allows the company to develop ideas that cannibalise their business in the short term. Whether existing incumbent organisations and companies in a sector or industry can adopt an innovation may depend, in part, on the extent to which staff in those organisations are empowered and given permission to take a chance.

The 'customer' in healthcare and their attitude to innovation is also vital. Funders need to consider their role in encouraging or discouraging innovative behaviour in the private sector. In my experience public health agencies almost never take their role in this seriously. Management and business studies over many years show the importance of discerning customers that value innovation driving the development of new technology. Public regulators, payers and policy makers should be aware of this and think about how they can encourage it.

The health sector does need to see major innovation and reform in the coming years.

The question is who’s ready for it.

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