Disruptive Processes

How US healthcare companies can thrive amid disruption—Part 3
The healthcare industry is undergoing sweeping change. To emerge as winners, incumbents should learn from other industries that have faced similar upheaval.
June 2014 | byBrendan Buescher and Patrick Viguerie

http://www.mckinsey.com//insights/health_systems_and_services/how_us_healthcare_companies_can_thrive_amid_disruption


I have “milked” this article for about as much as I can. The following discusses why it is often difficult for companies to see the disruption occurring often until it is too late. This follows the last two postings which discuss strategies and executive actions items, respectively, to deal with disruption.

When an industry faces disruption, companies often fail to appreciate quickly enough the nature, extent, and velocity of the changes taking place. A number of reasons explain this failure. Often, disruptions start at an industry’s periphery, among companies that provide specialized value propositions to different customer segments. In these cases, market penetration begins slowly, with barely perceptible impact. However, change can occur much more quickly when the “rules of the game” are altered. McKinsey research has identified eight characteristics that are commonly found during industry disruptions, particularly those triggered by significant regulatory shifts. 

Competitors churn. Lots of new players enter the market, but most fail. (For example, at one point after the US telecommunications industry was deregulated, there were more than 50 different long-distance fiber networks in the country. Almost all of them are gone.) However, churn is not limited to new entrants. Although a few incumbents are able to gain stronger positions, many shrink, are acquired, or disappear. 

Structural advantage prevails. When market forces become more important than regulatory rules, real competitive advantage determines the winners. Understanding and exploiting the future points of advantage can enable companies to thrive despite disruption. 

Performance differences widen. As the level of competition increases and the basis of competition shifts to true sources of advantage, the difference in the financial performance of top and bottom players increases—and the gap often persists for years 

Productivity and innovation increase. Strong financial performance depends not only on competitive advantage but also on operational efficiency. 

New value propositions reveal new customer segments. Few people knew they wanted smartphones until smartphones were invented 

Profit pools often shift. During disruptions, the most attractive industry segments often become the least attractive, and vice verse, as new entrants flock to the more attractive segments and compete away profits. 

The volume of mergers and acquisitions rises. Deal activity tends to increase during industry disruptions, but it often comes in waves as competitors attempt to keep up with one another

Disruptive Processes

How US healthcare companies can thrive amid disruption—Part 2
The healthcare industry is undergoing sweeping change. To emerge as winners, incumbents should learn from other industries that have faced similar upheaval.

June 2014 | byBrendan Buescher and Patrick Viguerie

http://www.mckinsey.com//insights/health_systems_and_services/how_us_healthcare_companies_can_thrive_amid_disruption

This is from the same article as the last posting. This focuses on what companies must do to meet the challenge when facing a disruption regardless of the strategy you may chose per the previous positing.

Responding rapidly to industry disruptions is hard. At most companies, the economic constraints of operating a business at scale hamper the ability to make changes “in flight.” Many organizations are also prisoners of their past—and the more successful that past, the harder it usually is to make changes… 

.. However, the market does not care about the past or about any of these constraints… 

.. We believe that senior executives should undertake four sets of actions if they want to get in front of the coming disruption: 

Shift focus
First, senior executives should shift their own focus. In essence, they need to take on two jobs: they must run today’s business while creating the business of tomorrow. To do this, they should have a clear vision, based on solid insights, of the future. This vision should include the key present and potential market segments. Which of these segments do the executives believe will grow rapidly or become more profitable? Which ones will shrink? Questions like these are crucial, because healthy institutions need growth—growth drives value, creates opportunity, and enables distinctiveness. 

Reallocate resources
Senior executives should also be willing to make significant changes in how and where resources are allocated. After all, a strategy is only a theory until resources are allocated to it. In making the allocation, the executives should take care to ensure that they are not under resourcing the new strategy… There is also a second danger the executives should guard against: at many companies, budget processes favor existing businesses over new ventures..  

Increase speed and capacity for change

If a company is to survive industry disruption, senior executives must increase its speed and capacity for transformation and innovation. Their ability to accomplish this will be much greater if they have a clear picture of what the organization is good at and what assets can be leveraged in other areas. Thus, before they finalize their decision about which strategy (or strategies) to follow, the executives should make sure that they have a realistic understanding of their organization’s capabilities. 

Get lean
In the post reform world, administrative efficiency will be a must-have, not a nice-to-have—and not merely because of regulations governing medical-loss ratios. If history is a guide, many new entrants will be much more efficient than incumbents are and will have more favorable cost structures. Incumbents are likely to find it difficult to compete with them unless they have “leaned out” their operations.
Furthermore, performance differences typically become much more exposed during industry disruptions.

Disruptive Processes

How US healthcare companies can thrive amid disruption
The healthcare industry is undergoing sweeping change. To emerge as winners, incumbents should learn from other industries that have faced similar upheaval.

http://www.mckinsey.com//insights/health_systems_and_services/how_us_healthcare_companies_can_thrive_amid_disruption

Here some key learning's for any company facing a disruption.

Disruptive change is now a fact of life for many industries. Healthcare is no exception. Although healthcare has been changing for decades—think about the introduction of diagnosis-related groups (DRGs) or the initial push toward managed care in the 1980s—the Affordable Care Act (ACA) promises to accelerate both the rate of change and the level of uncertainty confronting the industry… 

…. Over time, however, the transition should create new opportunities with significant upside. ……The promise of opportunity creation and upside is far from certain. In fact, the historical record is unambiguous: incumbent companies are often unseated by industry disruption……There are three strategic paths that companies in other industries have used successfully to thrive during and after disruptive change… 

Refocus your portfolio The most straightforward way to avoid the negative consequences of industry disruption is to shift the company’s emphasis to the customers or products that will benefit from the disruption (or at least be insulated from it) and to de-emphasize the areas of business that are most vulnerable…..Two challenges are inherent in this approach, however...First, when deciding where to concentrate, companies must be able to gauge the likely future attractiveness of various industry segments, not their current attractiveness…..Second, companies must be realistic about their capabilities, because the likelihood of succeeding with a refocused portfolio is far higher when an organization can build on existing strengths.. 

Transform your business model A second option is to make fundamental—and potentially radical—changes in the company’s core activities to meet the disruptive challenge head-on.  Charles Schwab used this approach after a wave of lower-priced, Internet-only stock brokerages gained significant market share in the late 1990s….The biggest challenge a company that wants to transform its business model faces is that new entrants often offer a “better mousetrap”—some combination of superior benefits and lower cost. It is usually hard for an established organization to transform itself to the extent and with the speed necessary to thrive (think about print magazines in an age of digital media). The odds of success are higher if the company can identify and exploit competitive advantages that others cannot … 

Build a major new businessThe third option is to acquire or build a new business that can leverage the company’s core capabilities and grow large enough to replace earnings lost from its existing business. This may be the most challenging of the three options….Over the past two decades, IBM has transformed itself in other ways. For example, it refocused its hardware business on high-end PCs rather than mainframes; it then sold off its PC business to concentrate on corporate-software solutions. IBM’s ability to keep transforming itself has enabled it to keep pace with several waves of change in the rapidly evolving IT market. 

Regardless of which path they took, these companies built the organizational capacity and agility required to lead during the disruption. They made big shifts in leadership focus and major changes to resource allocation, and they developed a faster organizational clock speed and leaner cost structure.

Business School, Disrupted
By JERRY USEEM MAY 31, 2014

http://www.nytimes.com/2014/06/01/business/business-school-disrupted.html


A classic dilemma of technology eating away at an existing business model. What makes this discussion so great is that this issue is challenging probably the most important business school in the world for strategy. READ THE WHOLE ARTICLE

If any institution is equipped to handle questions of strategy, it is Harvard Business School, whose professors have coined so much of the strategic lexicon used in classrooms and boardrooms that it’s hard to discuss the topic without recourse to their concepts: Competitive advantage. Disruptive innovation. The value chain.… 

…The question: Should Harvard Business School enter the business of online education, and, if so, how?... 

At Harvard Business School, the pros and cons of the argument were personified by two of its most famous faculty members. For Michael Porter, widely considered the father of modern business strategy, the answer is yes — create online courses, but not in a way that undermines the school’s existing strategy. “A company must stay the course,” Professor Porter has written, “even in times of upheaval, while constantly improving and extending its distinctive positioning.” 

For Clayton Christensen, whose 1997 book, “The Innovator’s Dilemma,” propelled him to academic stardom, the only way that market leaders like Harvard Business School survive “disruptive innovation” is by disrupting their existing businesses themselves. This is arguably what rival business schools like Stanford and the Wharton School have been doing by having professors stand in front of cameras and teach MOOCs, or massive open online courses, free of charge to anyone, anywhere in the world. For a modest investment by the school — about $20,000 to $30,000 a course — a professor can reach a million students, says Karl Ulrich, vice dean for innovation at Wharton, part of the University of Pennsylvania. 

“Do it cheap and simple,” Professor Christensen says. “Get it out there.” 

… .....But Harvard Business School’s online education program is not cheap, simple, or open. It could be said that the school opted for the Porter theory. Called HBX, the program will make its debut on June 11 and has its own admissions office. Instead of attacking the school’s traditional M.B.A. and executive education programs — which produced revenue of $108 million and $146 million in 2013 — it aims to create an entirely new segment of business education: the pre-M.B.A. “Instead of having two big product lines, we may be on the verge of inventing a third,” said Prof. Jay W. Lorsch, who has taught at Harvard Business School since 1964.

Strategy or Culture: Which Is More Important?
Although culture is much more than an “enabler” of strategy, it’s no substitute for it.
Ken Favaro

http://m.strategy-business.com/blog/Strategy-or-Culture-Which-Is-More-Important

Extremely important discussion and I strongly recommend you read the entire article

“Culture eats strategy for breakfast.” These words, often attributed to Peter Drucker, are frequently quoted by people who see culture at the heart of all great companies. Those same folks like to cite the likes of Southwest Airlines, Nordstrom, and Zappos, whose leaders point to their companies’ cultures as the secret of their success. 

The argument goes something like this: “Strategy is on paper whereas culture determines how things get done. Anyone can come up with a fancy strategy, but it’s much harder to build a winning culture. Moreover, a brilliant strategy without a great culture is ‘all hat and no cattle,’ while a company with a winning culture can succeed even if its strategy is mediocre. Plus, it’s much easier to change strategy than culture.” 

The argument’s inevitable conclusion is that strategy is mere ham and eggs for culture.
But this misses a big opportunity to enhance the power of both culture and strategy. As I see it, the two most fundamental strategy questions are: 

1. For the company, what businesses should you be in?
2. And for each of those businesses, what value proposition should you go to market with? 

A company’s specific cultural strengths must be central to answering that first question. For example, high-margin, premium-product companies that serve wealthy customers do not belong in businesses where penny-pinching is a source of great pride and celebrated behavior. Southwest has chosen not to enter a NetJets-like business, and that’s a sound decision. 

Likewise, companies whose identity and worth are based on discovery and innovation do not belong in low-margin, price-competitive businesses. For example, pharmaceutical companies that traditionally compete by discovering novel, patentable drugs and therapies will struggle to add value to businesses competing in generics. The cultural requirements are just too different. This is why universal banks struggle to win in both commercial and investment banking. Whatever synergies they might enjoy (for instance, from common customers and complementary capital needs) are more than offset by the cultural chasm between these two businesses: the value commercial bankers put on containing risk and knowing the customer, versus the value investment bankers have for taking risk and selling innovative financial products. 

Maintaining cultural coherence across a company’s portfolio should be an essential factor when determining a corporate strategy. No culture, however strong, can overcome poor choices when it comes to corporate strategy. For example, GE has one of the most productive cultures in the world, and its former leader, Jack Welch, concedes that his acquisition of Kidder Peabody was a failure because its cultural needs did not fit GE’s cultural strengths. The impact of culture on a company’s success is only as good as its strategy is sound. 

Culture also looms large in answering the second question above. In most businesses, customers consider more than concrete features and benefits when choosing between alternative providers; they also consider “the intangibles.” In fact, these often become the tiebreaker when tangible differences are difficult to discern. For example, most wealthy individuals choose financial advisors more for their personal chemistry or connections than their particular range of mutual funds. Virgin Airlines tries to attract passengers who like its offbeat, non-establishment attitude in how it operates