Surrounded: When disruption hits on all sides (Part 2)

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Nov 17, 2022

In Part 1 of this blog series, I highlighted that disruption in health care is increasingly present at many points along the consumer value chain. Key takeaways to recall from that first post are as follows:  

  1. Disruption doesn’t stop where it starts.
  2. New entrants are rewriting the rules of competition and have asset-light business models with which incumbents must now compete. 
  3. The types of disruptors are changing and their numbers are multiplying. 
  4. These challenges are amplified because incumbents are facing one of their worst financial years in decades. 

In this piece I’ll highlight specific examples of disruption, and how despite the challenges, there are still ways for incumbents to effectively respond. 

What happens when disruptors move up-market? 

As in most industries, disruption in health care started in the realm of primary and on-demand care: the “low-end” of the market. But disruption has swiftly moved up-market, and is now found across the health care value chain. There are many areas of the market that highlight this trend, but the one I’ll focus on for this piece is women’s health. If you are interested to learn more about disruptors in other areas such as musculoskeletal and cardiovascular care, you can read more here and here

New entrants realize women’s health is a potentially lucrative arena of the health care market. Women make 80% of health care decisions. Additionally, according to a 2016 study, they spend almost 70% more on health care than men in their childbearing years. On top of that, there are multiple aspects to women’s health that each provide an opportunity for new growth. Many current offerings, like those for fertility and postpartum care, are expensive and often difficult to access. This provides two critical conditions (high costs and limited accessibility) for new entrants to disrupt the status quo. But it doesn’t stop with what we consider “typical” female health needs. 

Recent research has highlighted that health needs such as cardiovascular care, which we didn’t traditionally consider to be gender-specific, offer other arenas for startups to provide tailored care to women’s specific needs. 

As a result, there is no shortage of new entrants taking advantage of the market opportunities to attract nonconsumers of care. On top of that, some new models are serving women’s health-related Jobs to Be Done better than incumbent offerings. 

Recently, Business Insider released a piece highlighting 34 of the most promising women’s health startups of 2022. Needless to say, there are many new companies entering the marketplace to meet women’s demands for more holistic care that better meets the progress they are seeking. And in many instances, entities are attracting those who do not currently consume what is offered, and they provide it through a lower cost business model. 

Disintermediation of women’s health services matters to incumbents because of the decision-making power women yield for themselves and their families. This has near- and long-term implications for incumbents. So what is one to do in response to disruption in this, and other, realms of health care? 

Three strategies for the path forward  

When incumbents spot disruption and determine a need to respond, they have three options for how to move forward. They can…

  1. Build their own response, and launch a disruptive offering in the market, 
  2. Buy an existing model with disruptive potential – and integrate it carefully, or
  3. Partner with other incumbents, or form strategic partnerships with startups. 

Let’s look at each pathway in detail. 

Leaders who choose to take a build approach in response to disruption should ensure they have time on their side, and the ability to keep a potential disruption completely separated from the core. We often refer to this separate entity as an autonomous business unit (ABU). Building a disruptive offering can take years to design, iterate, test, launch, and scale. And if an incumbent is already in a position where their core business model is being threatened by multiple potential disruptions, or the viability of their business is rapidly declining, this may not be the preferred pathway. In this situation, leaders may be better off pursuing a “buy” or “partner” strategy where they can launch a market response more quickly.   

The next option is for incumbents to buy a startup with disruptive potential, so that they acquire the ability to respond to other disruptions in the market. If this path is pursued, leaders must be very careful to ensure the acquired entity is kept completely separate from the core business. Similar to the build pathway, this should be in an ABU where the disruptive entity is able to maintain its unique value proposition, resources, processes, and profit formula/priorities. If it is acquired into the core organization, the existing business model will inhibit the disruption’s ability to thrive, or even to survive. 

The third option is for leaders to pursue a partnership to respond to disruption in the market. They can do this by partnering with other incumbents, or by forming strategic partnerships—but not full acquisitions—with startups. Unlike new entrants, incumbents have established patient populations, which can make them an attractive partner for potential disruptors. Similar to a buy pathway, a partnership approach helps incumbents skip the unnecessary steps, extensive time, and investment in trial and error required to launch innovations. Like with an acquisition, incumbent leaders must ensure the partnership is separated from the core. They must not try to integrate partners into their core operations.  

Below is a visual that highlights how many incumbent health systems have opted to partner with potentially disruptive new entrants to enhance their own offerings. In partnering with One Medical, Carbon Health, and Tia, these organizations are pursuing a faster pathway to market than they would be able to achieve if they built their own response. 

As highlighted here, the presence of disruption in the market does not leave incumbents without a pathway to respond and maintain their viability. In fact, it opens up multiple pathways: they can build, buy, or partner in order to maintain market relevance and continue to serve their customers’ and consumers’ demands. 

For more detailed guidance on how to prepare for the future amidst payment model changes and disruption in the industry, and to determine the right path for your organization, see our latest report, Improve or Transform: Choosing the right business model to deliver health. It provides a detailed strategy guide and decision tool to guide leaders down the pathway that’s right for them.   

Ann Somers Hogg is a senior research fellow at the Christensen Institute. She focuses on business model innovation and disruption in health care, including how to transform a sick care system to one that values and incentivizes total health.