Office Hours, Part II: Clay Christensen on Healthcare and Organizing R&D Teams

February 6, 2018

Editor’s Note: This is part two of a three-part web series covering our interview with Harvard Business School professor Clay Christensen, who published his influential book “The Innovator’s Dilemma” two decades ago.In the first part of the interview, IL editor Scott Kirsner posed questions to Christensen that were crowdsourced from InnoLead members. That conversation continues below, with questions asked by executives at AmSurg, Chobani, and Abbott Nutrition.

Scott Kirsner: There’s a healthcare-related question. Eric Thrailkill, who works at AmSurg, says, “Given the polarization in Washington,DC around healthcare policy, and no end in sight for a bipartisan solution to address costs, an aging population, and the enablement of true population health initiatives, do you see healthcare being disrupted in the next five years? If so, where does disruption come from?”

Clay Christensen: It’s actually quite important that you have a…personal way of thinking about the problem. I always look at the bottom of the market. That’s where disruption always begins.

When I look at the bottom of the market, I see Intermountain [Healthcare] that are trying to walk away from as fast as we can, fee for performance, and just give people an annual fee. They’ve learned that when you help your customers stay healthy, they make money.

When their patients get sick, they lose money. If they’re sick, they make money if they help them get better faster. There’s a model there. Kaiser Permanente has done a similar thing.

Then there’s a company in the Boston area — I think they’ve got more than dozen [practices] around the country — called Iora Health. Their model for personal care is, they have a coach. The coach is responsible to be sure that you lose weight.

They’re responsible to be sure that you take your pills, and that you do all these things. As I got to know them, I asked them, how can you add all of that overhead on top of horribly burdened system? Their response is, it’s actually dirt cheap.

Kirsner: Even though it feels like extra touch points, it reduces the costs of other stuff that you do to that person when things go downhill.

Christensen: That’s right. As their model coalesced in my mind, I was invited to go to Utah last summer to give a graduation event for Western Governors University. Do you know about these guys?

They are all online. They have 83,000 students. Over 90 percent of them graduate. They produce more nurses in America than any other college but one. They produce more high school science teachers than any other school in the country.

I’d known that they exist, but as I got to know the data, I realized that they have the same model as Iora. They have coaches for every student who signs up.

Kirsner: Paul LeBlanc at Southern New Hampshire University takes that same approach…

Christensen: Yeah, we started it. [Christensen is friends with LeBlanc, the President of SNHU, and as a trustee of the university, helped advise the school as it built its online division.] The people who need to learn in that environment — there are jobs to be done — is [the students who] are 39 years old, on average. They can’t get a better job. They can’t make enough money to buy a home. “We’ve got three kids.” …A key element is you have these coaches. If I don’t turn in a paper on time, this guy —

Kirsner: — the phone’s going to ring.

Christensen: They’re there to support you in every way. “Are you running out of money? Can we put you on a different track so that you’re not in debt?” They have the very same approach [as Iora]. If [students] drop out of school, it is so costly to us. I think that that model is a disruptive model, both to higher education, and to healthcare.

Kirsner: …We’ve got really good questions, including this one from Chobani, the yogurt company. It says, “Clay has divided innovation into three categories: efficiency, sustaining, and disruptive. Is there value in dividing up an R&D department at a company into three different teams, each with responsibility for one of these types of innovations?”

The second part of the question is, “Will it be beneficial, or could it learn to burnout of employees who are always working on the same stuff?”

Christensen: [Laughs.] That’s a great question, for which I wouldn’t have an answer. …We need to have those kinds of projects going on. …But the individual people. Is there a different type of person that performs well in a market-creating or disruptive innovation, versus another type that does sustaining innovations? I’m not sure that I would go that far.

Kirsner: So if you have 100 people in an R&D organization, you would just say, “Look, I think in that group, you need to be devoting some time and some people to each of those three categories”?

Christensen: That’s exactly right. It depends upon where your strategy is. If you’re running out of growth, then you’ve got to have a team of people targeting at, is there a job out there needing to be done? If you’re running out of cash, then you deploy a group of people who are efficiency innovators.

What’s gone wrong in our system is that the way we measure success causes us to over-invest in efficiency innovations, and make it very hard to invest in market-creating innovations.Kirsner: The one last one I want to try to squeeze in today is from somebody at Abbott Nutrition, who says, “Looking back on your successful and distinguished career, where do you think you got it wrong? Something that you look back on and say, “How did I get it wrong?”

Christensen: Regret?

Kirsner: Is there anything you look back on and, not regret, but just say, “I got that wrong,” and you rethought something.

Christensen: Sometimes I wish I had spent more time and energy on exercise, because it takes a lot more energy to get back in shape, and get your mind to be clear, if you’re out of shape. I regret that. I was a good basketball player, and then I assumed that I would always be a good basketball player [laughs.]

Read the last part of our interview, and listen to an audio clip, here.