“Disruptive innovation” is a popular term in debates about health care reform, but how many of us know exactly what it means? This week we’ll cover the basics, so you can talk your way around disruptive innovation and impress your friends. Next week we’ll talk about some leading trends for disruptive innovation in health care technology.
Disruptive innovation refers specifically to an innovation – a new product, service, or even a business model – that helps create a new market, eventually disrupting existing markets and displacing previous technologies. Put differently, disruptive innovation theory explains how industries transform to provide increasingly affordable and effective products and services to consumers.
The guru of disruptive innovation is Clayton Christensen, a Harvard Business Professor who introduced the concept way back in 1995. He explains that we’ve seen disruptive innovation happen over and over, in industries like computing, photography, telecommunications, and retail. There are two important takeaways from these examples. First, the change resulting from disruptive innovation has always been positive, leaving us with better products and services than before. Second, it is almost always the new entrants into the market that figure out a better way of doing things.
An easy example is the computer market, which transformed from offering $2 million mainframes to $200 smartphones in less than two decades. When personal computers popped up in the late ‘80s, they performed only simple functions, so minicomputer producers didn’t invest in the new product. But as the new machines became more powerful and convenient, they transformed the market entirely. Because the minicomputer producers didn’t adapt their business models to compete in the personal computer market, the traditional institutions were eventually displaced by disruptive innovators like Microsoft, Dell, and Intel.
Like most disruptive technologies, the personal computer endured a difficult period before it truly became a low-cost, higher quality alternative. It started as a product designed for a new set of customers, opening up the market to consumers who didn’t previously exist. This created space for profit and innovation, allowing superior and lower cost products to replace previous technologies – and voilà! The smartphone.
Christensen contrasts disruptive innovation with “sustaining innovation,” which is what the minicomputer producers kept doing by making their product better and cheaper for existing customers. Sustaining innovation improves products at the high end of the market – but the rate of this improvement can outstrip consumers ability to absorb it, overshooting the needs of average consumers. For the visually-inclined, here’s a nice graph to show the process (graph courtesty of stratechery.com):
Our medical system today has a serious case of sustaining innovation. While we’re quickly making progress in specialized disciplines (like precision medicine for cancer treatment), we clearly haven’t solved making health care affordable and effective for the majority of Americans. The health technologies industry has overshot the needs of most patients, and put up substantial barriers that make it hard for new innovators to shake things up. Next week we’ll talk more about who’s doing the shaking.