In a fast-paced market, the ability to defend a business against (and to take advantage of) disruption is crucial for staying ahead of the competition. Disruptions have traditionally altered the trajectory of many industries: Digital photography has rendered film obsolete, music downloads have diminished CD sales, and tablets have largely replaced netbooks. Health care is no exception. The field is constantly changing, with new developments in both policy and technology. Competitors are consolidating, alternative business models are emerging, and technology is improving. Some would say that the digital revolution in radiology has led to its own disruption, in the form of teleradiology. Fortunately, disruption is not a single event. It can take years, or even decades, before legacy markets disappear. People still go to movie theaters despite online streaming, cargo ships are still used despite the speed of air transport, and brick-and-mortar stores are here to stay (despite the presence of online retailers). These legacy markets persist because they offer advantages that disruptive competitors cannot: Theaters are a social experience, cargo ships can carry much more than planes can, and physical stores allow consumers to check products before purchase. In a recent Harvard Business Review issue, Wessel and Christensen¹ outline a systematic method for formulating a strategy to guard against disruption. First, identify your competitor’s strengths; second, identify your own relative advantages. After that, evaluate the conditions that will help (or hinder your competitor from adopting your current advantages) in the future. Wessel and Christensen borrow a definition of innovative disruption from Michael Raynor, DBA, business writer and Deloitte® consultant: Technological and business-model advantages change the dynamics of the market. This is not competition through pricing, but through innovation. In one example provided by Wessel and Christensen, in the early days of computing, manufacturers achieved radical cost savings by using standardized components to assemble desktop computers. In contrast, the computing solution of the time—the larger microcomputer—was built using more expensive and customized hardware. As performance and cost savings increased for desktop computers, microcomputers were eventually phased out of production. It is important to identify the strengths and weaknesses of a disruptive competitor (in terms of the jobs that it can do for customers) and then do the same for your own organization, the authors advise. For instance, many computing solutions other than desktop computers are available, from laptops to tablets to smartphones. These devices can browse the Internet, stream content, and access apps anywhere. Their portability and ease of use have allowed them to supplant desktops for general multimedia use, but for office networking, high-end graphic design, and software development, desktops are often the only solution (because of their power and versatility). No matter how advanced tablets become, they are unlikely to be as powerful as the desktops of the same year. An effective strategy predicts the impact of a disruption—and whether or not it represents a definitive shift in the market. Wessel and Christensen present five barriers to disruption that competitors have to overcome: momentum, technology implementation, the ecosystem, new technologies, and the business model. The momentum barrier concerns whether the behavior of general consumers is likely to change and how comfortable they are with the status quo. The technology-implementation barrier is the challenge of making the best use of existing technology, which can make new technology cost prohibitive. The ecosystem barrier takes into account existing infrastructure and channels of distribution. The new-technologies barrier determines whether or not the technology needed to change the competitive landscape exists. For the business-model barrier to be overcome, the disruptor would have to take on your cost structure in order to compete. Disruption Strategy After determining the nature of disruption, you must devise a strategy to deal with it. Gilbert et al² propose a method of dual transformation for companies for which legacy markets make up a large percentage of revenue. Their strategy (which they have found most effective) is to preserve the core businesses, emphasize legacy advantages, and adapt to new market conditions—but, at the same time, to lay the groundwork for future growth in new market opportunities. This dual approach maintains operational capacity while positioning the company for innovation. The key to making both transformations work is a process called capabilities exchange, which calls for a division of resources and structure between two efforts: one for retaining legacy markets and one for taking advantage of disruption. Capabilities exchange is laid out in five steps: establish leadership, identify resources that the two organizations can share, create exchange teams, protect boundaries, and scale up and promote the business. Strong leadership is required to propel the transformation effort. The person with the most authority should take charge and lead both organizations; this typically means the CEO. Cohesion is necessary, and only authority from the top can enforce it. Next, identify resources that can be shared between the two efforts. Anything that gives one side a competitive edge should be shared. Assets such as branding, logos, and marketing materials are examples given by Gilbert et al; they include hard data, performance measurements, and survey results as well. In capabilities exchange, resource allocation is the responsibility of exchange teams, which should be composed of carefully selected and highly qualified individuals. Keeping small teams focused on one resource maintains flexibility, minimizes the distance between points in the chain of command, and allows groups to break up and form again fluidly. Each organization must operate independently, with its own procedures and structures and with no interference from the other. By protecting these boundaries, organizations ensure that conflicts are reduced. This requires strong leadership, since mediation has to come from the top, allowing both organizations to work unencumbered by the concerns of the other side. The last step is to scale up and promote the new core (the disruptive side of the organization). Once repositioned, the legacy business should become self-sufficient, but the disruptive core is the source of future growth. Over time, resources should gradually shift to this side of the company. Within the ever-changing landscape of health care, practices need to manage their transition properly into a world that might see new technologies on the rise, severe cuts in reimbursement, radical changes in practice culture, and new business models. With meaningful use, accountable-care organizations, patient-care initiatives, and the shift from fee-for-service to value-based payment, organizations will have to be more nimble than ever.
Disruption Survival Guide