The Notion of Disruptive Technologies - Essay Example

Disruptive technology and innovation Introduction The notion of disruptive technologies 2. A practical road map to disruption technologies 3. Process and Product of disruptive technologies 4. Wireless technology and Health Care Conclusion Introduction Thirty-eight million people in the United States have no health care insurance and thus lack access to the most basic right: the right to affordable quality health care. An additional 56 million people are estimated to be underinsured or to lack health care insurance for some period of time in a given year, raising the specter of being without critical health care coverage when it may be most needed. Since 1980, the number of uninsured has risen by one million each year. In view of above, a number of researches and engineers have been concerned and worked over the issue of fast health care delivery. In the following paper I will be examining disruptive technologies and their importance in health care delivery. I will particularly speak of the nature of such technologies, the place of wireless and the Internet in care industry. 1. The notion of disruptive technologies If the market leader focuses on a single performance metric, but the market is not demanding that particular performance, it would offer opportunities for disruptive technologies. A disruptive technology is one that offers less performance than the leading technology, but more on a different and new dimension. Since industry leaders frequently ignore the "illperforming product," they are often surprised when the product becomes better over time and significantly disrupts the industry. We all know what the PC did to the mainframe. There is a second category of disruptive technologies, for which revenues are already significantly higher: new devices. Palm Pilots, Pocket PCs, and Web-enabled mobile phones are fast-growing examples of this category, but its proponents are much more ambitious. Michael Dertouzos, who was the director of MIT's Media Lab, called the developers to arms to "kill the PC." Dertouzos's setup project, Oxygen, aims to develop a new platform using a constellation of devices that hear, see, and respond to the user's every need. There is a strong feeling among computer gurus that there is room for a new "device world," in which ever-increasing bandwidth connects all kinds of devices. In that world, it is no longer high-performance, high-computing power that is valuable, but the constellation of devices. Bower and Christensen developed a framework for grappling with disruptive technologies. They claim that some of the deliberate strategic choices firms make, such as staying close to customers, are the root causes for failure in embracing technological innovations. The Bower-Christensen approach can be simplified into four fundamental questions. We will pose the questions and, to explain them, simultaneously illustrate how nanotechnology will affect the photolithographic-equipment manufacturing industry: 1. Is the technology disruptive or sustaining The first step is to determine that the technology is indeed disruptive to the firm's existing business. Nanotechnology will be disruptive to manufacturers of photolithographic equipment, who will have to migrate to manufacturing nanolithographic equipment that is capable of producing structures smaller than 100nm. 2. What is its strategic significance Why should a photolithographicequipment manufacturer react The answer to this question lies in the value creation to the end user. Since nanolithography will result in improved speed and accuracy of building nanolevel structures, it will eventually result in significantly more powerful microprocessors. There is clear evidence of value creation from the improved process. 3. What is the initial market How can the photolithographicequipment manufacturer capture the value it creates Since the technology creates value for computer users, chip manufacturers would pay for the improved tools. The initial market would be large chip manufacturers. 4. What can the company do The firm should create an independent organization to develop the technology. Bower-Christensen would advise the photolithographic-equipment manufacturer to create a separate division to build and sell nanolithographic equipment. 2. A practical road map to disruption technologies Some of the frameworks and analytical tools just described apply to industries at large, and others can be applied to firms. How does a firm make the right decisions if it believes nanotechnology will have an impact on the industry in which it operates How does it apply the frameworks specifically to make strategic decisions The following interpretations of the models in the context of nanotechnology offer a road map to the corporate reader for navigating through this strange new technology. Extent of Disruption The adoption of new technologies is usually characterized by an S-curve. This S-curve describes the life cycle of a firm that is creating or marketing a new technology. The beginning of the curve represents the "ferment" stage when no one really understands what is happening. It is characterized by the appearance of an enormous number of new business models or approaches. Eventually, when a company finds out what works, the era of implementation starts. This is called the golden era, in which the company experiences significant growth. Maturity-the top of the curve-is attained when the company is strong and very good at what it does. At this point, should technology change again, the company might be in trouble. Different kinds of people and skills are needed at different stages of technology life cycles, making it difficult for an established firm to move from one generation of technology to another. Disruptive technology is in the ferment stage, or the early phase of the S-curve. It is therefore likely that strong incumbents either have never heard of nanotechnology or do not possess the right skills (or do not want to use the necessary resources) to start investigating the impact of this new technology on their businesses. As analyzed in previous sections, disruptive will be a disruptive technology: It will affect existing business processes and create new ones. To the extent that incumbents fail to prepare for the take off of nanotechnology, the disruptive effect will be exponential. Knowing the sources of competitive advantage, or core competencies (branding, sales force, IT, etc.), is a critical first step in the management of a disruptive technology. No matter how disruptive the new technology wave, some existing sources of competitive advantages or assets will be critical in the next S-curve. Inevitably, though, some current competitive advantages that sustain the company will become obsolete. The second step is to establish some distance from the current consumers. Disruptive technologies create problems for established firms because the management rule "focus on your consumer" leads them to miss new opportunities. The rational, analytical investment processes are focused-for all the right reasons-on current customers and markets. The processes are designed to weed out proposed products and technologies that do not address customer needs or that have negative net present value (NPV). The bottom line is that disruptive technologies look financially unattractive to established companies. The potential revenues from discernible markets are small, and it is difficult to project market size over the long term. Any rational resource-allocation process in companies serving established markets will go upmarket rather than downmarket. All these characteristics, in fact, increase the disruptive potential of nanotechnology. Incumbents will most likely not prepare for the upcoming revolution. This dramatically increases the potential for their displacement. New companies with a relatively small R&D budget, betting on a narrow application segment, may gain a technological competitive advantage that, with some time and consumer education, will be translated into a real customer need. At that point, it will be too late for the incumbents to react. The only way to keep the customer will be to buy either the technology or the company-if it is still possible. Different types of technological innovations affect performance trajectories in different ways. Sustaining technologies maintain the rate of improvement, giving customers something more or better in the attributes they already value. Although nanotechnology could drastically improve certain existing processes, its real impact will most likely be as a disruptive technology. It will introduce a package of attributes different from those that customers have historically valued and that often perform worse along one or two dimensions of particular importance to those customers at a certain time. 3. Process and Product of disruptive technologies There will be two types of nanotechnology innovations. Process innovations will be applications to improve existing processes-to make them faster, more efficient, more accurate, more precise, and perhaps more cost-effective. Such innovations can range from lithographic tools in the microelectronics industry to drug-delivery systems in health care. Product innovations will arise from the application of nanotechnology to create revolutionary new products. It is hardly surprising that these will be more difficult to predict. Nanotechnology process innovations will appear primarily in industries in the specific phase. As industries mature, and cost efficiencies becomes the focus of production, process innovations become more important relative to product innovation. Nanotechnology product innovations will appear in industries in the early stages of their development, or the fluid phase, for similar reasons. Although we can make certain predictions about the impacts of nanotechnology on different industries and where they will appear, we cannot predict their timing 4. Wireless technology and Health Care There are many ways in which wireless technology can and does add value in the enormous health-care sector. The main driver behind the adoption of wireless technology is the desire to reduce the notorious inefficiency and to improve patient care. Wireless technology can add significant value in both areas. Our framework for analyzing the industry, however, reveals some significant obstacles to widespread adoption of wireless technologies in this industry. Market Size. The health-care industry is enormous, representing oneseventh of U.S. gross domestic product (GDP), with more than $1.5 trillion in expenditures in 1997 and a growth rate of 5 percent a year. The industry has several constituents, all of which are or will be affected by wireless technology. The market for wireless health care applications includes the following consumers: Doctors. Wireless handheld devices will deliver various useful applications for prescribing drugs, maintaining patient histories, sending and receiving laboratory tests and results, improving "charge capture, " and dictation. Only about 1 percent to 2 percent of the more than 600,000 medical doctors in the United States use PDAs to conduct transactions, though 15 percent to 20 percent of them use PDAs for other purposes. Patients. Telemetry systems will allow remote monitoring of patients through wireless monitoring systems. Hospitals. Wireless LANs will dominate the information-technology infrastructure of hospitals. Insurance companies/HMOs. Documentation and transfer of information between doctors, patients, and insurers will be digitized and take place in a wireless environment. Pharmacies. Orders for prescription drugs will be placed wirelessly, improving accuracy and reducing paperwork. Pharmaceutical companies. Handheld m-commerce applications for sales representatives of pharmaceutical companies will improve efficiency in tracking orders and checking inventory. Government regulators (federal and state). Wireless applications will streamline the process for complying with Health Care Finance In considering the market size in wireless health care, it is important to keep in mind who actually funds most of that care: insurance companies and the federal government. The complicated documentation requirements of those organizations lie behind what many see as the enormous market opportunity for wireless and other technology applications in the industry. Insurance companies, as private payers, have another set of documentation requirements for doctors and hospitals to ensure that the care given and drugs prescribed conform to policy limitations. The allowable drugs that the policy will cover for any individual is contained in a document called a formulary. When doctors prescribe non-formulary drugs, there is generally a dispute between the doctor and the insurance company about cost coverage. Such disputes form a routine part of the practice of medicine in the United States, and the wasted time probably results in billions of dollars of unnecessary transaction costs. Thus, the potential market size for wireless applications in health care is enormous. Indeed, the sheer size of the industry has drawn more attention from investors than the technology or the benefits that can be derived from wireless in the industry. Spectrum of Health-care Applications. Numerous applications are already available for point-of-care health-care workers, particularly physicians. Many companies in the wireless area are attempting to address the inefficiencies in handling paperwork related to the myriad regulations and documentation requirements. In fact, wireless PDA applications for physicians that streamline day-to-day activities and reduce the paper burden are easily the most active area of wireless investment and product development in health care. Many of these applications are already viable. The following paragraphs describe some of them (all of which run on either a Palm or Pocket PC-based PDA). "E-prescribing." This application allows physicians to electronically write, order, and renew prescriptions, as well as review critical information relating to adverse drug effects or drug interactions. There is tremendous value-added in this service. E-prescribing helps ensure formulary compliance by having the formulary for each patient available in real time at the time of prescription. This saves physicians the hassle of having to look in the formularies to confirm coverage. Drugs that are covered are shown on the screen of the PDA. Further, e-prescribing allows doctors to check drug interactions automatically, which will help eliminate a serious area of medical malpractice: prescribing drugs that may have fatal or very harmful interactions with drugs the patient is already taking. E-prescribing has benefits for pharmacies as well, in that prescriptions will be printed out in clear form rather than handwritten, greatly reducing time-consuming callbacks to doctors to clarify instructions. Charge capture. This is another important added value of wireless applications in health care. Industry studies and HCFA data indicate that practicing physicians are losing more than $25 billion a year in denied or reduced fee-for-service claims. A typical physician with average annual billings of $650,000 is currently losing an estimated $35,000 to $100,000 in annual collected revenue because of claim denials; lost billings average approximately $60,000 per physician. Those lost billings are a direct result of inadequate documentation, invalid codes for procedures or tests, and failure to bill for services rendered outside the office setting. Further, overhead related to claims submission and collection consumes in excess of 40 percent of doctors' revenues. To further complicate the situation, recent legislation, including the Health Insurance Portability and Accountability Act (HIPAA), has increased the detail and paperwork that the HCFA requires for reimbursement. The charge-capture application does not eliminate such problems, but it represents an opportunity to reduce lost billings significantly. The application allows physicians to more accurately and carefully track the procedures they perform and gives them a suggested HCFA level of care based on the inputs. Using a clear, intelligible format, doctors will be able to enter all the procedures that they followed at the time of care, and the information will be wirelessly transmitted to doctors' record-keeping systems. Real-time laboratory orders and results. Another significant function that has not been fully implemented is the use of wireless applications to order laboratory tests and receive and view results on a real-time basis. The technology for this application already exists. Libraries. Doctors will be able to wirelessly access databases containing vast amounts of information. They will be able to pull it up almost instantly on their handheld devices, sparing them book- or desk-based research while treating patients. Regulations and HCFA rules. Physicians will be able to access and display formularies, drug-use reviews, treatment guidelines, and other rules relevant to their practice areas from their wireless PDAs without the need for book or desk-based research. The future-telemetry applications. It is not hard to imagine the day when wireless telemetry will allow wireless remote patient monitoring and patient self-monitoring for many conditions. Thousands of people's pacemakers can now be monitored over phone lines. In the future, telemetry devices should be able to monitor the status of almost every kind of ailment to allow patients under the threat of remission the hope that diseases can be caught early enough to stop them. As wireless devices increasingly monitor health and other advances in biotechnology occur, patients' interactions with their physicians will be fundamentally altered. New understandings of the human genome will identify the proneness of some patients to certain illnesses, and rather than visiting a doctor to see whether a likely disease has developed, patients could be monitored through wireless telemetry devices embedded in their bodies. The image of people carrying wireless monitoring devices in their bodies creates associations with the part-human/part-machine cyborgs of science fiction lore, but advances in technology make this possibility less and less a fantasy. The future-additional technology changes that will affect wireless health care. Because wireless applications in health care are generally not data intensive, their adoption is not dependent on 3G or other high-bandwidth solutions. More significant for health care will be the widespread adoption of Bluetooth. This technology offers the prospect of physicians' being able to walk into a hospital room and instantly have access on their handheld devices to the heart monitor on the screen in front of them. If they want to do an independent analysis of the data, handhelds will provide that opportunity. The ease of printing and transferring information that Bluetooth promises will certainly facilitate the transition to wireless use throughout the industry. Also, many hospitals in older buildings can be more cheaply outfitted with wireless technology than with wire-line technology. Key Success Factors. The health-care industry is infamous for its Byzantine nature and staggering inefficiency, and one would think that given those enormous inefficiencies, doctors would be ready to help eliminate the waste. The problem that complicates the situation, however, is the same problem that complicates much of the health-care system: The entities paying for the care are not connected to the point of care. Thus, there is not always a tight link between the people who would be most likely to use the new wireless applications (doctors and other caregivers) and the entities that would benefit most from them financially (insurance companies, through reduced claims).Doctors are notoriously technology shy, and the inconvenience of disrupting their routine to learn a new technology or application has been a massive barrier to any company trying to enter this space. Further, the benefits to be derived from many of these applications are not easy to quantify for many physicians because the technologies are new. As a result, many wireless health-care companies have had a difficult time convincing doctors that the net benefits are worth paying the typical subscription costs of $100 to $200 a month. Still, some forces at work in the health-care industry could dramatically accelerate the rate of adoption of wireless technology: Widespread insurance discounting for use of the applications. Insurance companies might be willing to give significant discounts to doctors who employ e-prescribing applications because of the reduced incidence of malpractice resulting from improper prescriptions. Some insurers are already helping defray the costs of these services, presumably with the intention finding out whether they actually result in fewer claims against the doctors who use them. of Changes in the standard of care required under medical malpractice law that will make prescription-management applications a virtual requirement for all physicians. In the area of medication management (prescription services), the standard of minimum care as defined by common-law malpractice law could soon include applications that check drug interactions and scan relevant databases and client information for possible complications or adverse reactions. If medical malpractice law creates an incentive to adopt these applications, usage could become almost universal. Endorsement of the applications by the HCFA. A gigantic boost in adoption would occur if the HCFA endorsed these applications, as this approval would achieve a long-sought consistent and predictable manner of communicating with the HCFA. Conclusion The key driver in disruptive technologies adoption is in the cost/benefit category. The potential market is enormous, and the technologies already largely exist for many applications and functions. The question comes down to whether insurance companies will create incentives and whether changes in the standard of care will virtually require wireless technology from a cost/benefit perspective. Some of the wireless applications that have been or are being developed promise to alter in fundamental ways how physicians practice medicine and could result in dramatic cost savings. Companies such as Allscripts, which is well positioned to ride out the ups and downs of the market and still be in the game as adoption rates escalate, should be able to capture a large portion of this value. Companies such as Data Critical, which is exploring medical telemetry devices as well as the physician applications Allscripts provides, may capture value resulting from major changes in physicians' interactions with patients. The widespread adoption of telemetry technology is a long way off, but those companies positioned to help drive the changes could also capture tremendous value in the future. Bibliography: 1. Bernstein, Karen, and Michael Schuppenhauer. "Back to Fundamentals." BioCentury (January 8, 2001). 2. Calkins, Kathryn. "Millennium's Product Plays." BioCentury (October 15, 1999). 3. Davidow, William H., and Michael S. Malone. The Virtual Corporation. New York: HarperCollins Press, 1992. 4. Eisenberg, D.M. "Medical Malpractice Implications of Alternative Medicine." JAMA (November 11, 1998). 5. Feldbaum, Carl. "Primer: Genome and Genetic Research, Patent Protection and 21st Century Medicine." BIO, Issues & Policies (July 2000). 6. Garber, Ken. "Homestead 2000: The Genome." 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