Digital Disruption … Is Healthcare Next?

The following article was recently published in Healthcare Information Management & Communications Canada, the journal for COACH members:

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As many industries have discovered, often painfully, digital technologies can be disruptive.  Just ask Blockbuster, Kodak, or Postmedia.   Is healthcare next?

In a presentation at the 2015 Marketing Transformation Forum, Ronald Velten, Marketing Director, Global Technology Services Europe at IBM Europe, identified three waves of digital disruption.  In the first wave, starting in 1995, the shift from analog to digital content had a profound impact on music, photography, and video rental.  The second wave, which started around 2010, has pushed many traditional media companies (print, radio, and television) to the brink of extinction.

More recently, in a third wave of digital disruption, new entrants, unencumbered by existing business models and legacy systems, are taking advantage of the constantly evolving digital landscape to enter markets previously considered immune from digital disruption. These new entrants are using digital technologies, not as tools to incrementally improve existing processes, but as weapons to disrupt the status quo.

Two examples of industries with perceived barriers to entry that once impeded digital disruption are taxis and financial services.  Like healthcare, these sectors are subject to regulatory compliance and are dominated by well-established players.

That both these sectors are threatened by digital disruption is a warning sign that the health sector should heed. How each of these industries is dealing with the threat offers lessons that the health sector should consider.

Taxis

As recently as five years ago a taxi license was considered a good investment.  Today, the price of these same licenses is in freefall in many cities.  New competitors such as Uber are siphoning customers who once had few alternatives if they needed on-demand transportation services.

Taxis have, for decades, operated in a little-changed regulated environment. A GrowthHackers examination of Uber’s phenomenal and rapid growth notes:

“All told, very few people viewed finding and using taxi service as something enjoyable—it was simply something that they dealt with due to the lack of an alternative. Before Uber you were beholden to an entrenched, monopolistic entity, whose sloppy execution and lack of regard for the customer experience was evident at every touch point.”

A less colourful but equally stark comparison between the taxi incumbents and new entrants such as Uber can be found in a recent survey by Ipsos Reid (conducted for the City of Toronto as part of the city’s review of the taxi industry). The survey revealed that less than one-third (29%) of respondents were satisfied with taxi service while nearly two-thirds (65%) reported that they were satisfied with new market entrant, Uber.

How has the taxi industry and the cities that regulate them reacted to Uber’s entry into the market?  The cities are tinkering with the regulations while the drivers protest.

According to a report by the Mowat Centre as part of the City of Ottawa’s review of taxi and limousine regulations, “Canadian jurisdictions initially adopted a reactive approach to ride-sharing firms, with cities such as Toronto, Ottawa, Montreal and Vancouver cracking down on drivers for by-law infractions or otherwise imposing barriers to operation.”

Even when overwhelming consumer demand forced many cities to reconsider their position and introduce regulatory reform, the taxi industry has continued to fight changes to the status quo.

Financial Services

Even the banks are getting nervous about the disruptive power of digital technologies.  According to McKinsey & Company, banks could lose up to 60 per cent of their retail profits to financial technology startups (often referred to as FinTechs).

Toronto-based FundThrough, which operates a business-to-business online lending platform, is one of many emerging Canadian FinTechs. In a Globe and Mail article examining disruption in the financial services sector, Steve Uster, FundThrough’s co-founder and CEO, observes:

“We believe that we are only at the beginning of this trend of startups popping up and filling a hole in financial services by using technology.”

A PwC report examining how Canadian banks are responding to new FinTech market entrants notes that  “Canadian banks will employ parallel strategies that comprise collaborating with and leveraging some FinTechs while innovating to compete with others.”

Why partner with the FinTechs?  Analysts at National Bank Financial asked the same question in a recent report. “Why, we asked ourselves, is the boring but profitable Canadian oligopoly inviting third parties into their most valuable, profitable business line?” to which they responded, “Simply put, we think they are worried … worried that innovators will nip away at, and ultimately fleece, their Golden Geese.”

How will the banks compete? Victor Dodig, chief executive officer at Canadian Imperial Bank of Commerce, proclaimed in a June 2015 speech that” we are responding with nothing less than a top-to-bottom reinvention of ourselves, and the traditional banking model.”

Summary

The third wave of digital disruption will sweep over healthcare just as it is sweeping over the taxi and financial services industries.  Will existing healthcare organizations ride the wave or be sent crashing into the rocks?

In their report entitled The Fight for the Customer: McKinsey Global Banking Annual Review 2015, McKinsey & Company offers a warning I think also applies to the heath sector:

 “Those that do not seek to transform may well become somewhat digitized, but will likely be stuck in the middle – outwardly modern, inwardly struggling, and moving slowly toward extinction.”

What are your thoughts on the digital disruption of healthcare?  Please share your thoughts with me at michael.martineau@avenant.ca or on my blog at ehealthmusings.ca

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