Clayton M. Christensen, professor of business administration at Harvard Business School, has written a number of influential books on innovation, including The Innovator's Dilemma and The Innovator's Solution. He is best known for his theory of disruptive innovation, which describes the way new technologies can displace old ones. Christensen has also applied his ideas about disruptive innovation to public education -- and now health care. With two physicians -- Jason Hwang and the late Jerome H. Grossman -- Christensen recently coauthored a book on health care, The Innovator's Prescription (McGraw-Hill, 2009). Christensen spoke with MIT Sloan Management Review about the role of innovation in financial markets and the challenges facing the U.S. health care system.
What do you think the effects of the financial crisis and economic downturn will be on the environment for innovation?
I think it will have an unmitigated positive effect on innovation.
That's counterintuitive.
Well, it will force innovators to not waste nearly so much money. One of the banes of successful innovation is that companies may be so committed to innovation that they will give the innovators a lot of money to spend. And, statistically, 93% of all innovations that have ultimately become successful started off in the wrong direction; the probability that you'll get it right the first time out of the gate is very low. So, if you give people a lot of money, it gives them the privilege of pursuing the wrong strategy for a very long time. And in an environment where you've got to push innovations out the door fast and keep the cost of innovation low, the probability that you'll be successful is actually much higher.
Some commentators have made a distinction between technological innovation, which they see as generally beneficial to the economy, and innovation in the financial markets, which may not always be good -- and they point to the recent problems in the financial markets as an illustration of that. Do you think there are some markets where innovation is better than others?
No. I think innovation is universally good, but there are some markets where the public good isn't necessarily served by capitalism. Health care is a market like that. Education is a market like that. The securities industry is a market like that, as is the airline industry. Those markets need to be regulated, and one aspect of that regulation is an assurance phase that involves ensuring the quality of the products and services that are sold. That assurance phase really wasn't done for this new class of structured securities such as collateralized debt obligations and credit default swaps.
Tell us about your new book, The Innovator's Prescription.
It turns out that the problem we face in health care -- that it is very expensive, very complicated and quite inaccessible -- is not a problem that's unique to health care. If you go back in the history of nearly every industry, in the beginning, the products or services were only available to people who had a lot of money and a lot of skill. And if they were services, they could only be provided by people who had a lot of skill. For example, when I got out of graduate school, if I wanted to compute, I had to take my punch cards to the corporate mainframe center, where a PhD computer scientist ran the job, and the computer itself cost a couple of million dollars. So we just couldn’t compute very often.
It was the same case with automobiles, with balanced portfolios, with telecommunication. At the beginning, the products and services were so expensive and complicated that only people with a lot of skill and money could play in the game. In each of these cases, however, the products and services became transformed into things that were truly affordable, simple and conveniently accessible to millions and millions of people. The mechanism for transformation was always disruption.
Every disruption has three components to it: a technological enabler, a business model innovation and a new commercial ecosystem. It's a combination of the technology and business model that makes formerly complicated, expensive, inaccessible things affordable and accessible. In health care, the enabling technology is the ability to diagnose diseases precisely. It turns out that our bodies have a very limited vocabulary that they can draw upon to express that disease is afoot, and the body's vocabulary consists of physical symptoms. You've got fevers, blood sugar, blood pressure, lumps, pains, rashes and so on. And there just aren't nearly enough symptoms to go around for all the diseases that exist, so the diseases share symptoms in common.
One thing this has meant is that you had to leave the care of patients in the hands of highly skilled and very expensive physicians. But now, through molecular diagnostics, enabled by our understanding of the genome, and through imaging technology that allows people to look inside the body with remarkable clarity, we are acquiring the ability to precisely diagnose more diseases by their cause, not by their symptoms. That ability then enables us to develop rules-based treatments and a predictably effective therapy. That's what molecular medicine is doing for us, at a very rapid rate.
Now, the trick is to be able, for those diseases for which rules-based treatments have been developed, to embed the delivery of care into a disruptive business model. Our hospitals are, like mainframe computer companies, hopelessly complicated and very expensive. To ever expect today's hospitals to become cheap is a pipe dream. Instead, we need to bring technology, in the form of precise diagnostics and predictably effective therapy, to outpatient clinics so you can do more and more and more of the things there that in the past required a hospital. And then we need to bring better diagnostic technology to doctors' offices, so you can do more and more things there that previously required a clinic. And to nurse practitioners, so they can take on more and more of the things that in the past required a doctor.
It's the technological enablers that bring about lower-cost venues of care and lower-cost caregivers to do progressively more and more sophisticated things. That's the mechanism by which health care becomes affordable.
This article is adapted from “Good Days for Disruptors,” by Martha E. Mangelsdorf, which appeared in the Spring 2009 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.