Disruption Overkill? What Healthcare Can Learn From Blockbuster, Borders
Last week I wrote a blog on preparing for change in healthcare and cited Harvard Professor Clay Christensen's work on disruptive innovation. After I published the piece, Becker's Managing Editor Molly Gamble stopped by my desk to see if I had seen this week's New Yorker.
In it is an article by staff writer Jill Lepore, who holds a PhD from Yale, that rails against disruptive innovation. While disrputive innovation, as a theory, describes why some legacy companies fail, it doesn't do much of anything to help those same companies not fail, which would seem of the most value, she argues.
According to Lepore:
"Disruptive innovation as a theory of change is meant to serve both as a chronicle of the past (this has happened) and as a model for the future (it will keep happening). The strength of a prediction made from a model depends on the quality of the historical evidence and on the reliability of the methods used to gather and interpret it. Historical analysis proceeds from certain conditions regarding proof. None of these conditions have been met."
Despite a lack of clear evidence supporting the theory, Lepore argues, 'disruptive innovation' has become an ubiquitous part of the American business lexicon, and has led many leaders to adjust their business strategy accordingly. Lepore writes:
"If the company you work for has a chief innovation officer, it's because of the long arm of 'The Innovator's Dilemma.' If your city's public-school district has adopted an Innovation Agenda, which has disrupted the education of every kid in the city, you live in the shadow of 'The Innovator's Dilemma.' If you saw the episode of the HBO sitcom 'Silicon Valley' in which the characters attend a conference called TechCrunch Disrupt 2014 (which is a real thing), and a guy from the stage, a Paul Rudd look-alike, shouts, 'Let me hear it, DISSS-RUPPTTT!,' you have heard the voice of Clay Christensen, echoing across the valley."
Throughout the article, Lepore presents counter arguments against many of the cases used by Christensen and his followers as illustrative of his theory. I won't get into the nitty-gritty of her counterarguments, but I encourage you to check out the article in its entirety if you get the chance. Here, a few of the arguments she makes:
- Dominant firms that are "disrupted" by innovators aren't always doomed. "Victory in the disk-drive industry appears to have gone to the manufacturers that were good at incremental improvements, whether or not they were the first to market the disruptive new format," she argues. (emphasis mine)
- Many of the "new entrants" selected by Christensen were new incarnations of existing companies in an industry, at least according to Lepore.
- Many of the "disrupted" legacy companies didn't do as badly as Christensen would have readers' believe.
- Many legacy companies that disrupt, fail (i.e., the financial services in the early 2000s).
Instead, Lepore argues that success or failure is due to much more traditional internal and external factors:
"Many of the successes that have been labeled disruptive innovation look like something else, and many of the failures that are often seen to have resulted from failing to embrace disruptive innovation look like bad management."
She also argues that the theory is applied too broadly — to institutions with goals that extend beyond profit alone, such as hospitals.
"Innovation and disruption are ideas that originated in the arena of business but which have since been applied to arenas whose values and goals are remote from the values and goals of business. People aren't disk drives. Public schools, colleges and universities, churches, museums, and many hospitals, all of which have been subjected to disruptive innovation, have revenues and expenses and infrastructures, but they aren’t industries in the same way that manufacturers of hard-disk drives or truck engines or drygoods are industries."
Hospitals are in the midst of an era of significant — and perhaps unprecendented — change. We'll have to innovate, and we'll have to change our business models to better meet the demands of our payers and patients for higher-value, more transparent care.
But will we have to disrupt to get there? Will we be out of business if we don't?
Lepore summarizes Christensen's theory as: "If an established company doesn't disrupt, it will fail, and if it fails it must be because it didn't disrupt."
Yet, there are many reasons organizations fail, and many reasons organizations succeed. They must change, and perhaps doing so incrementally isn't as bad as Blockbuster or Borders would make it seem.
In fact, one could argue the renting of videos or the sale of books out of a brick and mortar location, and transitioning to the renting of videos or the sale of books online, isn't all that disruptive. In fact, it sounds pretty incremental. Perhaps the struggle of Blockbuster and Borders is the fact that they didn't respond with incremental change quickly enough. They were not good at incremental improvements.
Amazon launched in 1994. Netflix was founded in 1997. I can tell you I hadn't heard of either of these for 5-10 years after they were founded. I was too busy shopping at Borders and stopping by Blockbuster. If either legacy company would have looked ahead, fully grasping the power the Internet would have on consumer behavior, and moved quickly to offer a similar service, it's unlikely Amazon or Netflix would have experienced the success they have today.
Perhaps, then, legacy healthcare providers can breathe a sign of relief. They don't have to disrupt, but they must be ready to respond, and respond quickly, when someone else does.
Are you ready?
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