Theranos – A Case of Disruptive Innovation in Healthcare

“My own life’s work in building Theranos is to redefine the paradigm of diagnosis away from one in which people have to present with a symptom in order to get access to information about their bodies to one in which every person, no matter how much money they have or where they live, has access to actionable health information at the time it matters.”

Elizabeth Holmes, CEO, Theranos

Disruptive innovation by definition is an innovation that helps create a new market and value network, eventually disrupts an existing market and value network, displacing an earlier technology. Generally these innovations are cheaper, faster and more convenient compared to incumbents. Medical Diagnostics is an area where a lot of such opportunities exist and one company (valued at around $9 Billion) that has made big news in 2014 in this arena is Theranos.

According to Clayton Christensen, three things characterize disruptive innovations – simplifying technology, business model innovation, and a disruptive value network. Let’s examine how this maps to Theranos’ offering:

Simplifying Technology

Until now blood was drawn out of veins, stored in vials and transported to labs for testing.  Theranos has completely transformed the process with its patented technology. The technology utilizes microfluidic chips to conduct minimally-invasive tests with a drop of blood to deliver results within a few hours. Moreover, by automating most of the processes the company claims their results are more accurate and specific than traditional tests.

Business Model Innovation

By being able to provide personalized lab test data anytime, anywhere at a fraction of cost Theranos enables patients to be more engaged and participative in their own health. While higher prices, drawing blood out of veins dissuaded patients from getting tests done, Theranos’ innovative business model allows them to overcome these pitfalls.

Comparison of Theranos with Traditional Lab Tests

  Traditional Lab Tests Theranos
Average Costs $100 <$50
Time Days – Weeks Few hours
Quantity of Blood Required 3 oz. Single Drop

Value Network

Traditional blood-tests require patients to visit labs. They are essentially centralized systems. To address the problem of accessibility Theranos has adopted a retail framework to decentralize blood-testing process. It has partnered with Walgreens and a few hospital groups to administer its tests. Further, the company aims at building a pathologist-centred model and is therefore focusing on establishing relationships with pathologist groups.

In most aspects, things look very promising for the healthcare start-up. But there are a few caveats. In his article A Disruptive Solution for Healthcare, Christensen points out that disruptive innovation rarely happens in a piecemeal fashion. The new value network needs to be merged with the existing reimbursement, regulatory, insurance and provider systems. It requires disruption and remodelling from these players in the market as well. From the standpoint of Theranos, integration with payers, hospitals poses a huge challenge. If it decides to go purely via patient self-ordered tests route, educating the patient community would be crucial to its success. Whatever route it chooses, it’s certain that Theranos is here to stay and as the CEO of the company puts it, it’s here to “redefine the paradigm of diagnosis”.


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