SOPHISTICATED FINANCE

The Overlooked Intangible in Healthcare—What Abstract Thought Teaches us about Entrepreneurship

 

Photo credit: Nelson Designs https://www.youtube.com/watch?v=jOrwlhBNu3Y

 

Takeaways:

1. Technology attempts to solve problems of matter, energy, space, or time,
2. To apply technology to mental health and emotional problems, look to make the abstract tangible
3. Some of the best entrepreneurship was the conversion of abstract aspirations into tangible solutions

 

I have been working recently with a talented young professor on commercializing her mental health idea based in AI. This is just after finishing up a medical device project to design a wearable for monitoring symptoms of a particular disease. Both of these projects have the same challenge, and it is the biggest challenge in healthcare. Both company solutions have to change human behavior in order to have any benefit of value and that is a hard problem. It is also why so much of healthcare is so ineffective and eventually wasteful.

 

The question becomes why do some technologies in healthcare (and any industry) succeed and others fail. Yes, sometimes we get the problem wrong or the solution, but less well recognized is that the technology itself may never be purposeful. As stated so well in the blog Code Simplicity:

“In general, when technology attempts to solve problems of matter, energy, space, or time, it is successful. When it attempts to solve human problems of the mind, communication, ability, etc. it fails or backfires dangerously.”

 

If we look at the categories in healthcare with notable commercial success, we easily arrive at diagnostic devices and pharmaceuticals. Diagnostic devices give us a window into the human body (matter and energy) and pharmaceuticals change matter. If we look back at my two examples from the first paragraph, how could we turn changing human behavior challenges into problems of matter, energy, space and time. Although my solution follows, it should perhaps not be overlooked that these four factors related to technology mirror fundamental concepts from physics.

 

When we think about changing human behavior through healthcare technology, this is akin to taking abstract problems and making them tangible. If you are not following, remember Schopenhauer’s insight into art:

“Art makes the emotions tangible.”

Art is in effect a technology that translates the abstract emotion into a tangible form in matter. If we consider Maslow’s hierarchy and the highest level of satisfaction—self-actualization or aspirations, we realize that some of the greatest commercial successes translated abstract aspirations into tangible solutions. One might argue that the iPhone, the Model T Ford and photography made tangible respectively creativity, freedom of movement and self-esteem (at a whole new level).

 

If we can translate an abstract problem, changing human behavior, into something tangible, then we can apply the logic of the four factors from physics and effectively use technology. An example may help to illustrate. Before money we had barter, but in order to transition from barter to money what was the abstract thought that had to be made tangible? Value! Coins were the tangible vehicle, gold showed physically value and the monarch’s picture created trust (all consumer behavior is based on trust). If you did not notice we also just proved that money was a technology. Every change in money—bank accounts, credit cards, derivatives, etc.—were all changes in the tangible form of money. If you cannot see money as a technology, read Daniel Goetzmann’s excellent book, Money Changes Everything: How Finance Made Civilization Possible.

 

Now to consider how to use our abstract-tangible model in healthcare, lets think about smoking cessation. Suppose we put a $25 device on your wrist, which is only removable by a device that costs $500. The wrist device loudly alarms when it smells any smoke including cigarettes. We could add a CO2 monitor as well to add value for the customer. A loud embarrassing alarm would translate the desire to stop smoking into a tangible energy format—sound waves—and increase the likelihood to stop—especially if the smoke alarm continues throughout the entire cigarette. Chantix beware!

 

I like the concept of alarms to transfer intangible concepts like emotions and behaviors into tangible sound waves. With all the AI, sensors and cyber-physical research underway, many behaviors could eventually trigger alarms. I am sure there are other ways to make tangible desired behaviors, but the alarm illustrates the point. I think it is more energy efficient and effective than shocks on the wrist. The point, we only need some creativity around the solution to use the abstract-tangible framework in healthcare.

 

 

 

Information, Capital and Blockchain

If you study complexity science you soon realize that reality is energy and information. If you study physics, one school of thinkers believes reality is binary [0,1] otherwise known as bits of information. This may not come as a surprise if we study Claude Shannon’s seminal work in information theory, which sparked the Third Industrial Revolution and the digital era. As we look at the Forth Industrial Revolution we see that information continues to be important in areas such as AI, IOT and robotics. So maybe we can conclude this information concept is important, even if we cannot tell what happened to Schrodinger’s cat or that tree in the forest.

Last week a friend was talking about healthcare and he asked me who had the most money in the healthcare system? The answer,  the insurers. Who has the most information in healthcare? The answer, the insurers. Historically, those who controlled the greatest amount of information were able to amass the greatest amount of capital. If you think about the enormous valuations of Google, FB and Baidu, one realizes that their platforms have chokehold on information from which they extract enormous value.

If you study the Blockchain and its distributed network of highly secure information, one realizes that this infrastructure eliminates the opportunity for information choke points and the related value capture. Now you know why the non-speculators are excited about Blockchain. The economics of value creation through information will remain intact but the value will be shared widely and not concentrated the way it is today.

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Why Assumptions are so Important

I have just finished my third book, tentatively titled "The Foundation of Entrepreneurship: Large Market Opportunities that have Repeated for 40,000 Years". Book deals with large market opportunities that have repeated throughout history. For example, every time money changes form, there is a new large market opportunity. Title suggestions welcome. If you would like to read the latest draft, email me.

I have started thinking about my fourth book, which will be on assumptions or maybe assumptions and boundaries and how they affect the way we think about problems. Thinking about assumptions reminded me of this post I wrote in 2010, "Why can I not Timeshare a Dog". Sometimes it takes awhile to figure things out and some times I get distracted by other issues. The delay in getting back to assumptions I will blame on a multi-year study of complexity, which resulted in four chapters in book three.

Art--A Large Market Opportunity

It has been quite awhile since I wrote about a new market opportunity. I tend to write about opportunities that I think are underappreciated.  Schopenhauer said that art makes our emotions tangible (or real). This unique mission is what, in part, makes the arts precious. Since the earliest days of computing people have been trying to bring this technology to art. However, typically they make the same mistake we see in edtech. If we use technology to duplicate an analog experience, do not expect a different outcome or much user uptake. Music streaming might be the one noticeable exception, but I would argue that streaming makes listening so much more covenient that it is not really an exception. The power of art is that it changes our perception of reality. Therefore where technology should focus Is in facilitating the understanding of perception. Rather than focusing on the art object--the music, the artwork, etc.--we should be facilitating how the participant interacts with the artist. Fred Wilson's post today, The Online Club, talks about how music performers can get immediate feedback from thousands of online listeners. Certain book sites allow readers to question and converse with authors and a new Miami company, Kurator, will allow purchasers to talk with the artist before they buy one of their works. All of these examples I think highlight a new focus and opportunity for how to change the user's experience with art.  Bloomberg reports that annual art sales alone total $54 billion, before we consider music, literature and film. Ever wonder why the Kardashians have millions of Twitter followers. All of the arts are important to us and we want more personal relationships with the artists. That is the big opportunity where I think people should focus.

Learn from a Great Designer

A few years ago I had the pleasure to work with Yves Behar at fuseproject. He was the designer for the One Laptop per Child laptop and then the tablet (the project I lead). Yves has many talents, as would be expected from a world class designer, but what I always noticed was his unwavering focus on understanding the customer.

This story from the fuseproject blog, "On Crafting Wearability", makes the customer focus clear. I inserted the bold to show the insights about the customer in the reprint of the story below.

"Wearables represent an immensely excited and daunting design challenge. There are very few things, let alone electronic devices, that we wear on our bodies 24/7. In fact, we entered wearables because we felt that, in addition to our technological assets, the key to true success would be creating something inspired and unique -- something you would love to wear. Delivering on these principles is not easy. It takes time, commitment, invention; these combined with great engineering and never tried before manufacturing methods has led to a new collection of UP2 and UP3 offerings.

UP2, already the slimmest and lightest wearable on the market, has been reimagined with a new style strap, making it look even smaller on the wrist. The rope-like TPSIV rubber band with a polished metal hook is a new style that is extraordinarily comfortable and graceful. The open strap gives more breathability on the wrist, while looking complementary next to a watch or jewelry."

Would you have researched wearables well enough to draw the insights bolded above? I particularly like the insight about the wearable looking good with a watch or bracelet.

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Why We Don't Get Technology in Education

We have been experimenting with IT technology in schools since the 1990s. There is limited evidence that it improves learning outcomes. As many have pointed out, including Papert and Christensen, if we use the technology to teach the same way as before, do not expect different outcomes. For example, computer-based flash cards are no more effective than paper flash cards.

This story from Official Google for Work Blog about using a new chrome extension in the classroom brought the point home again. The writer talks about how now a teacher can project on every student screen the same page instantaneously. Such a feature makes it easier for a fourth grade teacher to get every child to the desired website faster.

This extension just reinforces the long standing hierarchical style of teaching where the student is given the information to learn. Overlooked was the opportunity for the child to search, learn to search and more importantly share their web page face-to-face with other children. 

Note: As long as Google focuses on making teaching easier for the teacher, don't expect any change in learning outcomes. Link for Share to Classroom extension.

 

Why You Should Scale Your Business

Friday I had lunch with a very talented business owner I have known for about two years.  I was told that one division of the business (the origin of the company) was on hold, one division was growing revenue at low double digits and a new product line in a new division was about to launch. I told the owner that I now recommended for early stage and small businesses to target at least 100% annual revenue growth, as a means to build a company that can scale. The owner's response was "I do not want to scale". 

Here are the three reasons to scale a business:

1. Timing. Technology and solutions appear when societal and customer needs become large, what some call opportunities. Timing becomes important because many people will be trying to apply the solution at the same time. Within five years of the launch of the Ford Model T there were about twenty car manufacturers. Markets and opportunities go through growth phases and then mature into a battle for marketshare. It is much easier and cheaper to acquire customers when the growth curve is at its steepest. Miss this inflection point and you find yourself in an expensive fight to take share from competitors.
2. Competitors. I have a client that builds stores for national chains. He is bidding to build 15 stores in one city for a retail chain. No small local company will be able to react fast enough to hold on to any meaningful marketshare. If the local company had built out the market as fast as possible, maybe the competitor would have even skipped the city for one less competitive. Also, scaling and aggressive growth usually provide for lower product cost and spread overhead over a larger number of units, insuring the option to be price competitive.
3. Complacency. World class athletes are constantly working to improve their performance. Companies should have the same discipline. One way to establish such a discipline is to constantly be scaling the business. Scaling and aggressive annual growth targets will consistently surface opportunities for improvement, thereby avoiding complacency. Complacency is what gives disruptive innovation its foothold and allows many other weaknesses to show through.

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Driverless Cars: Ethics and More Interesting Issues

Stanford Business has a new article out this week, "Exploring the Ethics Behind Self-Driving Cars". It is a great article if you teach ethics in an academic setting, but the more important point is to put us all on notice.  There are many new issues we need to address as artificial intelligence is added to our lives.

The article frames one conundrum. Should the car be programmed to protect your life or should it also consider the lives of pedestrians and people in other cars. Personally I think we should separate the car from the software. I can buy my car from BMW but the AI software comes from Google or Apple or MIT Automotive. Yes, there may be some issues similar to using Windows on so many different computers, but I could pick the moral position I want. No General Motors ethics for me. (BTW, whose software would you trust more--General Motors or Google or Apple)

By chance I talked to some industry people on this topic last week. They say that their analysis shows that driverless cars will have fewer accidents than human drivers. Maybe, as soon as we eliminate all human drivers we will not have so many ethical questions and the professors at Stanford can go back to thinking about Resource-based Theory.

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Miami's Best Medical Project Offers Fellowships and Startup Opportunities

What do you do when you have a breakthrough diagnostic medical technology that needs more partners to develop multiple use cases? How do you find the "best and the brightest" individuals to partner with? How do you find these people with no concern for their age, background, culture or any other discriminatory factor? 

Meet Protean Labs.

To become a Protean Fellow you simply need to submit the answer to one of five questions listed under the Apply Now tab on the website. If accepted:

"Join us for a one month Protean Fellowship. You may choose to work on a problem defined by you or alternatively, a problem assigned to you by Protean Labs. You will be given access to research lab space, equipment, reagents and access to our scientific network. You will be expected to demonstrate self-efficacy and resourcefulness. At the end of your fellowship, a stop-go decision point is reached. If you have sufficiently demonstrated the potential for your project to succeed as a startup proposition, you will progress to the next phase where you will become a Partner in Protean Labs working with us to spin-off your technology into an independent company. You will be given the option to lead this company."

Just to say it again, applicants of any age will be considered.

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My New Book on Social Entrepreneurship

I have been teaching social entrepreneurship for five years at FIU in the Honors College and at MIT Sloan, which was made possible in part by my 3+ years as CFO of One Laptop per Child (OLPC). OLPC was started by Nicholas Negroponte and faculty at the MIT Media Labs to provide every child in the developing world with a connected laptop. OLPC started as a donative non-profit but converted to a social entrepreneurship model in 2009. I joined to carry out this change in business model at OLPC.

Steven Weinberg, Nobel laureate physicist, says he teaches a new course to learn a subject. I do the same thing, but courses are better for organizing conceptual thinking and writing books I think is a better method to organize practical thinking. So when I think I understand the practical side of a subject, I write a book to confirm it to myself.

The first half of my new book, Scaling Social Entrepreneurship: Lessons Learned from One Laptop per Child, deals with defining social entrepreneurship. I do this in part by contrasting it with government, non-profits and NGOs. Two themes are developed in the first half of the book:

1. Social entrepreneurship is a better model to solve social problems than the traditional ways and increasing in popularity
2. Properly taught and modeled, over time entrepreneurship should not need the modifier "social" and the debate about the morality of capitalism can be put to rest

Organizing a social project is not particularly challenging, but organizing something that can scale to multi-country or Google scale is very challenging. In attempting such an effort one has to plan for worldwide coverage from the beginning. In traditional entrepreneurship, one gradually reaches the point of scaling after product/market fit and commercialization. In social entrepreneurship, early on one needs to find the model because lower operating returns and less startup capital do not give you the flexibility to iterate. This fact is even more true if you operate  as a non-profit.

The second half of the book is devoted to the business model to scale a social venture. I strongly recommend in favor of for-profit companies in order to have better access to capital markets. I believe evaluation needs to be baked in from the beginning because access to social impact funds is becoming increasingly competitive. I advocate that one try to establish a movement to support the social objective, something akin to Gandhi, Mandela and King. That may look like a difficult undertaking, but OLPC achieved that objective--worldwide 1:1 computing for children. Lastly, I cannot say enough about the importance of partners to a social entrepreneurship venture and I recommend private sector partners.

The book is available in both paperback and Kindle versions on Amazon. I would be happy to sign a copy of the book that you give as a gift. I also think it makes a fine introduction to social entrepreneurship for a corporation looking to transform its corporate responsibility program into something more substantive. 

 

Companies Need to Keep Learning

This video on Big Think describes corporate learning at IBM. Corporate learning is the company-wide method to provide lifelong learning to IBM employees. The program covers mostly current topics in IT but, of course, that is IBM's domain. Format appears to be a MOOC.

Most interesting part of the story is that the CEO established the program and teaches a course once a month. Leadership from the top makes the commitment and objective obvious.

I think that more formalized, high value corporate training will become a big business opportunity. The business environment is becoming more complicated as AI and Big Data are more integrated into day-to-day business. Companies are increasingly narrowing the range of their business expertise partly by relying on third party providers, which will require companies to be extremely vigilant in their area of expertise. Lastly, knowledge is doubling every 13 months, which means there is 8 times more knowledge every three years. Such a scale of growth in knowledge puts pressure on companies to help their employees to stay current.  

Simple Way to Determine New Business Concept Feasibility

SSIR has an interesting article, "Why Criticism is Good for Innovation". The article advocates the use of a rubric to evaluate new projects or products. A rubric is a scoring tool to evaluate criteria relevant to an analysis. The real value is that referring to the rubric reduces the risk that a comment is taken as a criticism, thereby potentially demotivating the creative type. The article does not suggest the outline of such a rubric, but I will.

For a new product or project, a rubric should evaluate the feasibility of commercialization. The factors that should be considered would include:

1. Market--size (based on bottom up methods) and growth rate
2. Customer--target customer, estimated customer acquisition cost and lifetime value
3. Competition--Company, products, pricing, features
4. Unit Economics--marginal product revenue and  cost (assumes production has been thought through)
5. Sales and Distribution--sales and marketing cost 
6. Investment to Cash Flow Breakeven 
7. Scaleability--can the execution strategy scale

Perhaps assign ratings of high, medium and low to reflect attractiveness or risk. Smarter yet, work on each factor until it has a high positive rating.

These factors should give one sufficient opportunity for feedback on objective issues such that one would never make the "criticism" personal. 

 

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Variations on Social Entrepreneurship

I have become something of a collector of different models of social entrepreneurship. For the purposes of being accepted as an example of a different model of social entrepreneurship, the company must be for-profit and have a unique way of delivering measurable social impact. The examples I have collected are not necessarily the first such companies. The only distinction I make is I do not accept CSR projects.

Two examples recently caught my eye:

1. The Miami Herald reports that Carnival Cruise Lines is forming a new division/company where the onshore excursions will be to work with local people on socially beneficial projects (instead of going off to see sharks or polar bears). If Carnival were to develop multiple ships and cruises for this purpose I would applaud them for their social impact. If they need a local social entrepreneurship professor to help them plan their impact and projects, please let me know.
2.  Norton Sound Corporation is one of many native-owned corporations established for the benefit of indigenous people at the time of Alaska statehood. Norton Sound operates Norton Sound Seafood and Norton Sound Seafood Restaurants. All of the seafood is caught by members of a particular indigenous group near Nome, Alaska. Sale of the seafood to the corporation provides much of the livelihood for the natives. The creation of a branded product and metropolitan outlets for a product provided by indigenous people is a model I like. 

Wonder how much seafood, if any, Carnival buys from Norton Sound or any other native corporation in Alaska. The new division should consider such questions.

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GE Capital Winding Down

In the period 1950-1980 U.S. companies built an infrastructure to provide the consumer lifestyle we all know and appreciate. With the advent of computers and globalization, in the period 1981-2010 financiers de-constructed the infrastructure through leveraged buyouts, arbitrage, derivatives and specialized finance to realize vast amounts of untapped or dormant value. As the opportunities became more scarce, leverage was used to improve returns.

A poster child for this second period of "financial engineering" was GE Capital, who dominated many financial services for businesses. Not only did they provide financing at better terms than commercial banks to finance purchases from other GE divisions, but they also pioneered "new" products such as private label credit cards for large retailers.

The NY Times reported today that GE Capital is completing the tasks to basically wind down this division of GE. Many blame the financial crisis of 2007-2008 for the demise of GE Capital. Others would point the finger at increased regulation post crisis. I think GE Capital got swept up in the craziness of the ten years preceding the crisis and lacked the financial controls to properly manage the business. Of course, this is the same reason AIG, Lehman Brothers, Merrill Lynch....all failed in one way or another. Financial controls for financial operations appears to be an area where we still have much to learn. To just write the errors off to greed is to miss the opportunity to learn.

What Microsoft Learned about App Development that Google Needs to Learn

Perhaps because Google won a big contract to provide Office apps to PwC  (the large  international accounting firm), they have recently launched a PR campaign all over the web for "Google Apps for Work". An example of the PR is this Silicon Alley Insider story, "Google shares its plan to nab 80% of Microsoft's Office business". A sentence in the article caught my attention:

"Google is constantly looking at how people are using Apps and trying to entice them to use it more."

Google is renown for using data in its product analysis, which perhaps makes the above quote mundane. However, I think it points out the problem with Google's approach to software. Data only describes current usage. If we examine saving a file in Google Docs, Google sees it saved online, perhaps Google sees it downloaded to the computing device...but Google never sees it then saved in Dropbox. You might ask why someone would prepare a document in Google Docs and save it in Dropbox. There are probably ten good reasons, none of which show up in Google's user data. 

Microsoft recently launched a new Outlook app for iOS 8, which I tweeted :

Nine days later, I think that Outlook is probably the best mail iPhone app ever...and it includes a good calendar app. If the Outlook calendar app had appointment multiple alerts I would stop using a calendar app. What I particularly like about the app is the seamless integration with Dropbox and Google Drive, both of which I use daily. (Dropbox holds the docs I produce and Google Drive holds third party documents.) It also seamlessly integrates Gmail and other mail providers.

I am not a Microsoft fan boy. For many years I competed with them and I intentionally avoided their products. The only nice thing I could say about Microsoft was to my entrepreneurship students--"Microsoft is an excellent example of monopoly, which economists tout as an attractive business model". With the passing of time I have mellowed on Microsoft. (A tweet rather than a full blog post shows that I am still conflicted.) I tried the new iOS Outlook partly because in 25 years of using email, I have never found an email app on any device that I really liked until the new Outlook. However, let's get back to Google.

How was Microsoft able to develop such a great new mail app, while Google is still constrained by its data. The answer is quite simple. Most of the design and code for the new Outlook came through an acquisition, where the previous company was not constrained by the corporate mindset of a Google or Microsoft or F500.

I imagine when the Microsoft execs saw the other company's mail app, they just thought OMG and quickly bought the company. I commend Microsoft for admitting somebody understood the customer better and did a beautiful design. I wish Google would make some app acquisitions, get a better understanding of the user and perhaps learn more about UI design. BTW I use a lot more  apps from Google than Microsoft, but I hope that Microsoft's new acquisition has some new ideas for other apps. Today I am less hopeful about Google.

 

 

Understanding Amazon's "Retail" Failures

In the early 1980s I invested in one of the earliest online retailers, Comp-U-Card. Comp-U-Card succeeded and went public by understanding that customers were only willing to buy hard goods, such as autos, TVs, air conditioners, etc, and would not buy fashion items and accessories. In the early 1990s shoppers grew comfortable with buying fashion online. Today we buy everything online, in part thanks to the success of Amazon.

Many have published stories recently about Amazon pulling its diaper product, including Venture Beat here. Venture Beat also lists other product or merchandising failures, such as a payment wallet and a phone. Everyone talks about these failures as if Amazon was a retailer. I think that is the wrong way to think about Amazon. Amazon is an exchange operator that facilitates the widest range of suppliers and customers entering into transactions. Amazon's expertise is in the infrastructure to support the exchange, which perhaps explains why they have been so successful providing a non-retail service like cloud services.

When Amazon starts to think like a retailer and introduce private label products, such as diapers, they move far away fom their expertise in IT infrastructure and fail. This logic would also explain why wallets and phones were not successful. Retailers succeed in part by selecting merchandise for their target customers. Exchanges succeed in part because their infrastructure supports the needs of the exchange users. While some expertise is needed at a product level, many exchanges tend not to be discriminating. This is the case with Amazon's strategy to sell everything, from consumer products to boat parts to building supplies. Think of Amazon as an exchange and not a retailer.

Market Risk and Technology Risk

There was much discussion this weekend about Jerry Neumann's article, "Heat Death: Venture Capital in the 1980s", which chronicles the evolution of the venture capital industry from its start in the 1960s. 

One interesting part of the article was how the industry learned about the difference between market risk and technology risk. Market risk is "will people buy it" and technology risk is "will it work". In the current period, VCs generally take market risk and avoid technology risk.

However, as I thought about this dichotomy, the logic of "do something better" kept coming back to me. This approach minimizes both risks or at least frequently does, by taking an existing technology and customer base and offering something better. Google and Apple computers would be examples where the state-of-the art was advanced a bit but there was little breakthrough in terms of technology or customer base. (Amazon might have been an example of market risk and Akamai might have been an example of technology risk when they launched.)

Perhaps one is well served to understand where the business concept is on the continuum of both market and technology risk and to realize that great opportunities may exist with small changes in the market or technology risk factor.

 

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A Classroom History Project or a New Business Idea

A friend is a curator at a museum. One exhibition is of the journals of soldiers from a particular war. Interesting research material, but not available anywhere on the web in digital form. As time passes this material will be largely forgotten because it has almost no digital signature.

If teachers asked their students to read this material and transcribe it to a digital form, the students might be more engaged with history and this material would be available to the world online.

Obviously there is much handwritten material of historical significance beyond war journals that we should transcribe to digital. Might even be a way to teach foreign languages based on the material selected.

Innovation Requires Transparency

Friday morning I attended an event on how large companies can use innovation in business model to generate revenue growth. A previous post on this theme is "Innovation in Large Corporations". Much of the discussion focused on alternatives for partnering between startups and the Fortune 500 as a means to foster innovation. Some alternatives include

• Venture capital investment
• Joint ventures
• Spinning off skunk works projects
• Sharing problems

I particularly like problem sharing where the Fortune 500 brings a problem to a startup, design firm or university and the resultant solution is commercialized through a new business. 

 

However, sharing problems brings up a new problem in innovation for the Fortune 500--they need to be much more transparent. Christensen has written extensively about why large companies lack innovation, but I have not seen mention of transparency. An example illustrates the point. Electronic medical records (EMR) are not shared between competing medical service providers because they feel such records aid competitors to steal patients (according to a pioneer in defining the format for EMR). To safe guard information at the expense of patient care I would classify as extreme lack of transparency.

 

Why do companies opt for a lack of transparency, hide behind government licenses and, in general, use contrived barriers. The answer is that it is much easier and lower cost to use contrived restrictions rather than create value for customers. However, the day is not far off when customers are going to break down artificial barriers to transparency in areas such as patient medical information. The balance of power is changing in favor of the customer for transparency and corporations need to recognize this change. One way for corporations to start being more transparent is with their partners, where it might foster more innovation. 

 

After we move large corporations to transparency, we can work on the government.

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Innovation in Large Corporations

Clayton Christensen has written extensively about why large corporations cannot innovate and are disrupted by entrepreneurial startups. In summary, such large corporations are challenged to understand markets that are not already documented and suitable for ROI analysis based on cost savings. A third reason may be that no one has yet developed and documented a process that the Fortune 500 can use to innovate. Some corporations are using design thinking, but such an approach may be too "touchy feely" and hard to use for widespread corporate adoption.

An alternative approach might be to go back to "business model" thinking and see if that provides an answer. In other words, can we change the business model for an existing product/market and create new value a customer will pay for. Let's suppose we look at five key parts of the business model:

1. Revenue growth driver
2. Pricing
3. Distribution
4. Value Creation
5. Stakeholder Analysis

In my way to think about the revenue growth driver, there are five drivers--SANDS. 1) Subscribers, 2) Accounts, 3) New Locations, 4)Distribution and 5) Sales people. These are the five basic strategies to grow revenue, which are more fully described in my book. To innovate, consider whether you can change the growth driver or use a different growth driver in a particular market. There are 16 pricing methods (see book). Perhaps adding a new pricing method or two leads to increased value for the customer or perhaps spurs a reconsideration of the product to better match the philosophy of value creation from the new pricing strategy. A similar logic would be applied to distribution to see if a new channel might create value for new customers.

Value creation and stakeholder analysis require a separate explanation because they are harder to do. In value analysis we do a "deep dive" into understanding where the customer (not the company) finds value through face to face research and interviews and focus groups and... Then we look at how we would increase the value for the same or a new customer, wherein lies the innovation if the innovation is saleable.

Stakeholder analysis looks at what value each stakeholder captures in a transaction. Stakeholder is defined broadly to include everybody touched by or touching the product, including regulators, unions  and traditional constituencies such as customers, employees and shareholders. Again, heavy lifting analysis. Once the value is understood in terms of stakeholders, then we can examine how to increase that value which results in innovation if the change is saleable.

This approach may not yet be fully thought out, but the notion of revisiting the fundamental parts of an existing business model to identify new value that can be commercialized may be a way for large companies to find innovation.

BCG's 2014 report on innovation, "The Most Innovative Companies 2014: Breaking Through is Hard to Do" focuses on the challenges to create innovation.

The discussion of value creation and stakeholder analysis is derived in part from some work done on design thinking by the Taiwanese Government.

The most recent previous post on disruptive innovation and Christensen is here.

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