Monday, June 30, 2014

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

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

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