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Stanford Business magazine

 

Health Care

Students Explore How Market Forces Might Push the Moribund System to Change

By Margaret Steen

HealthcareWhile presidential candidates debate how the government could fix the U.S. health care system, students at the Graduate School of Business are exploring how the system might be pushed to change through market forces.

GSB Professor Robert Burgelman and Andy Grove, former chairman of Intel, teach a seminar called Strategic Thinking in Action—in Business and Beyond, which in the fall of 2007 explored how a business that is established in one industry can enter a different industry and force it to change.

This concept was developed in a research paper by Burgelman and Grove, who call such companies “cross-boundary disruptors.” It requires an industry that is large enough to offer a substantial growth opportunity, yet stagnant enough that it is due for a change. Startups often try to change these industries but instead trigger a defensive reaction by the industry.

This opens the door for a more established company from another industry—often one in which growth opportunities are limited—to play the role of disruptor and lead the industry to a new structure. The disrupting company needs to have the financial, technical, and organizational resources to compete. And it needs strong strategic leadership.

As an example, Burgelman and Grove used Apple’s disruption of the music industry, which was, they wrote, following outdated rules “including a business model that was increasingly unpopular with their customer base.” When the recording industry managed to shut down startups such as Napster, it gave Apple an opening. Apple’s growth potential in the personal computer market was limited, and it had “the bold and persistent strategic leadership of Steve Jobs” when it introduced the iPod.

In the seminar, students explored this concept and looked at potential disruptors of four other industries, including health care. The team examining health care looked first at Burgelman and Grove’s suggestion in their paper that Wal-Mart “is in an excellent position to play the role of the disruptor.” It has a strong record of innovation in other areas, including introducing radio frequency identification, or RFID, technology into its supplier network. Yet it seems to have saturated its market, so it has little room to grow. Wal-Mart has started setting up in-store clinics that offer standard treatments and services for low, fixed prices of $19 to $59.

The students, in their research, didn’t dismiss Wal-Mart’s potential, but they decided to focus on Microsoft as a potential disruptor instead. The company has both the money and the political clout to take on the health care industry, said Owen Tripp, MBA Class of ’08, one of the students in the group.

“We tried to break down the industry,” said Michael Rogers, also Class of ’08. “It’s an incredibly inefficient industry, but which part of it is really getting rich where it shouldn’t be? We felt like the most inefficient part was in the administration.”

Microsoft is offering a free service called HealthVault that the group thought could improve health care administration. It captures test results and health records in an online system so they can be viewed by health care providers anywhere. This has the potential to reduce administrative costs and make it easier for patients to switch to a different doctor if they choose.

“Once you develop a history with a hospital, you’re unlikely to actually move because of that history you’ve built,” Tripp said. “You have all this experience, this data that’s stored locally with the provider.”

The team presented their preliminary ideas to the class midway through the course. “We came in and presented this: ‘Microsoft has a great product, here are the benefits, why would people not want to use it?’” said Dave King, Class of ’08. “Our classmates and professors said, ‘Here’s a laundry list of reasons why healthy people wouldn’t want to use it.’”

The list, which included consumer security and privacy concerns, prompted the group to refine their thinking about HealthVault. They concluded that Microsoft should first focus on getting people with chronic illnesses who have to monitor their health regularly to use it. If this is successful, Medicare might eventually adopt the system. “That’s the point at which we see it tipping to a much larger audience,” Tripp said.

The students emphasize that this is their vision for HealthVault, not Microsoft’s. And there are plenty of reasons why HealthVault may not disrupt the industry. Grove, for example, said he doubted that online record-keeping would be transformative. “Sometimes we technologists think that technology makes all aspects of the world go round,” he said.

And Tripp said the group’s survey data suggested the privacy issues will be a huge challenge. Microsoft is “known as the company that people try to attack with viruses,” he said, so people may be reluctant to trust it with their health data.

The ambiguous nature of cross-boundary disruptors is one of the things that makes the seminar challenging. There are no textbooks explaining how to predict which disruptors will truly change an industry, for example.

“The students are expected to be content generators,” Burgelman said. One of the things they learn when doing research to present to their classmates is how to deal with ambiguity.

“When they are faced with a situation kind of like real life—the problems are pretty vague and the solutions are left to them—we get various forms of negative reaction,” Grove said. He hopes that once students know no one will provide the answer for them that “the scientific instinct will get awoken and curiosity will take over and drive. Sometimes it happens and sometimes it doesn’t.”

Illustration by David Plunkert