Why Disruption is Leading to Collaboration

What is common in between these pairs of companies?

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Apart from being stellar companies in their respective fields, the above are pairs of disruptor-incumbent in the healthcare space. Apple launched its HealthKit and partnered with EMR giant Epic to revolutionize patient engagement. Theranos teamed up with Walgreens to bring its innovative lab diagnostics services to the masses. 23andMe announced collaboration with Pfizer to conduct genetic studies through its research platform. To me these partnerships highlight one interesting trend – disruption is leading to collaboration.

Businesses are often perceived as ‘dog eat dog’ establishments with little scope of interconnectedness. On the face of it collaboration seems to be counterintuitive. After all why would high potential disruptive company want to pool its intellectual capital with an incumbent? And from an incumbent’s perspective, why would it pool its resources with a disruptor?

Firstly, because they both share a common vision. Successful companies are driven by a vision and tend to work with those that share that vision with them. For example, Apple envisions HealthKit’s user generated data as a major game changer for patient-engagement. But it also realizes that to get a holistic view of a patient’s health, EMR data would be necessary. That’s where Epic comes into the picture which understands that the traditional EMR silo wouldn’t lead to patient-centred care – the new paradigm of healthcare.

Secondly, collaboration allows to share expertise. With its powerful genomic data 23andMe can make personalized medicine a reality. Since the company lacks industry knowledge in the area of drug research and development it gave Pfizer access to its repository. Pfizer has more than a century of expertise in drug development can tap this new information to study the associations between disease and genes.  This new partnership could lead to identify new targets to treat disease and to design clinical trials. It’s certainly a win-win for both the companies.

Finally, it allows them to leverage an established network. Theranos teamed up with Walgreens to deliver lab tests rather than opening its own retail clinics. Because it realized the importance of access to the right network at the right time. In an industry where having the first mover advantage can mean a difference between success and failure, Theranos tapped Walgreen’s well established retail networks to reach its targets.

It is an exciting time to be a player in the healthcare field today, both as a disruptor and as an incumbent. And in these exciting times the business model that is sustainable is the one that hinges on the spirit of collaboration.

Thoughts?

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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”.