Marina Gorbis's Blog, page 1533

Reimagining Primary Care: When Small Is Beautiful

The attempts to “fix” the U.S. healthcare system have taken at least one well-worn market-based path: strive for economies of scale. Hospital consolidation is on the rise, a trend that shows no signs of abating as providers try to streamline back-end operations and deploy big data analytics in hopes of improving outcomes and lowering costs. Businesses try this every day.

However some primary care physicians are looking at the exact opposite approach: de-scaling and taking cost out by radically simplifying their practices as a way to make them clinically, financially, and personally sustainable.

What makes these practices different?  1) Each is based on relationship quality rather than production volume; as a result, each is smaller than the average U.S. practice; 2) Visits are longer and the doctor may provide a broader range of services with minimal support staff; 3) They have business plans that demonstrate how their model can be financially sustainable; and 4) Each used their variation on the general model to offer greater satisfaction to their patients as well as to their own personal and professional lives.

My colleagues Leonard Marcus, Barry Dorn, and I met three such physicians in the course of researching our book, Renegotiating Healthcare: Resolving Conflict to Build Collaboration. We recently revisited them to see how the evolution of their distinct approaches to primary care might inform the larger discussion of the future of healthcare.

Dr. Pamela Wible of Eugene, Oregon, had considered leaving medicine. She contemplated waiting tables so that she could have more meaningful interactions with people. She was burning out working in a typical large practice with its fast-turn appointments and gatekeeper-to-specialists role for the primary care provider. Instead of tying on an apron and heading to the local diner, she turned to her patients and asked them to help her reimagine a model medical practice. They gave her more than 100 pages of ideas.

The result is something as unlike the typical primary care practice as you can imagine: It is a living room-like setting with minimal electronic equipment. Wible is the only staff. Patients never have to wait in a waiting room. Appointments start on time and are 30 to 60 minutes long. Conversation and physical touch are central to diagnosis. Wible chose to cut the size of her practice to restore some balance to her life and to have more meaningful relationships with her patients. Thanks to lower overhead, she is able to earn a full-time salary working part time.  ”It’s actually very easy to run a solo ideal medical clinic in 2013,” she said.  She now consults with physicians and hospitals nationwide as they learn to design true patient-centered practices.

Dr. Gordon Moore of Rochester, New York traveled a parallel path. He could not see a way toward a viable financial future given the expenses of a traditional primary care practice with a large support staff. Like Wible, he decided to practice solo to minimize costs though he eventually added a nurse when his practice reached 400 patients. Even with the additional duties of scheduling, greeting, and billing, he found that he could spend more time with patients and was deriving great personal and professional satisfaction from these relationships. He made himself available 24/7 to his patients yet they called him less than when he was the on-call physician in a larger practice; he granted full access to them and they, in return, were greatly respectful of his time.

Moore left his practice in 2008 to help build a movement around what is called the Ideal Medical Practices or IMP. Not limited to solo practitioners, IMP rests on the pillars of access to care, time for relationship to build, and comprehensive, coordinated care and services. Patient experience is the critical variable for both controlling costs, improving outcomes, and keeping physician caseload manageable. There are now 500 IMP practices nationwide.

Dr. Richard Donahue had been the only year round physician on the island of Vinal Haven, Maine for a decade. He said that his patients frequently told him that if he couldn’t treat something, they’d learn to live with it rather than incur the expense and take the time to travel to the mainland for treatment by a specialist. He said that this pushed him to continually improve and expand his skills so that he could meet patient needs. He has taken his “island doc” philosophy to the city and is currently Medical Director of a family-oriented concierge practice that serves “CEOs to social workers” in Boston.

There are, of course, challenges. According to Dr. John Brady of Ideal Medical Practices, these are often administrative as initiatives such as basing payment on productivity do not take alternative practice models into account. It can also be harder for small independent or solo practices to coordinate care with a large hospital system or specialists. However these can usually be overcome through planning, technology, and tenaciousness.

Practices like these are a tiny minority yet they highlight important issues for our health care system. First is that a system designed by policy makers and business interests may look markedly different from how two critical stakeholders envision it: doctors and their patients. Those differences may have implications for both costs and outcomes. Second, when patients have a meaningful, trust-based relationship with their primary caregiver, they may actually ask less of the overall system: fewer optional tests and unnecessary trips to the emergency room, for example. Third, it may be useful to ask primary care physicians to do more for fewer patients.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation

From the Editors of Harvard Business Review and the New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
Getting Big Results from a Small Business Unit
How We Revolutionized Our Emergency Department
How to Get Health Care Innovations to Take Off

Time to Hang Up on Voice Mail

Who writes with fountain pens? When did you last prepare transparencies or exchange faxes?  RIM? RIP. Sic transit gloria mundi. When once-innovative technologies descend—decay?—into anachronism, it’s time to put them out of your misery. Disconnect enterprise voice mail.  Now.  Be honest—you don’t really want to leave a 90-second message after the beep and you certainly don’t care to listen to one. You’ve got faster, better and friendlier ways to communicate.

You’re already using them. There’s not a Fortune 2000 enterprise worldwide that wouldn’t enjoy a healthy productivity jolt by ridding itself of this tool that’s degenerated into handicap. Who do you know in your organization uses it well?  By contrast, which colleagues leave voicemails secure in the knowledge that you will never—ever—retrieve them? (Surely you would never do such an ambiguously unethical thing….)

That the technology is in decline is no secret. In 2012, Vonage reported its year-over-year voicemail volumes dropped 8%. More revealing, the number of people bothering to retrieve those messages plummeted 14%. More and more personal and corporate voicemail boxes now warn callers that their messages are rarely retrieved and that they’re better off sending emails or texts. Consequently, informal individual policies have metastasized into de facto institutional practice. Is that wise?

The truly productive have effectively abandoned voicemail, preferring to visually track who’s called them on their mobiles.  Irritated office workers, by contrast, despair that their desk phones can’t display who’s called and when. They’d be far better off if office calls were forwarded to their devices with the relevant Caller IDs attached. Yes, unified communications protocols and technologies were supposed to address these gaps but they’re taking an inordinately long time to do so as other messaging alternatives improve. Google Voice and other audio-to-text transcription services could also obviate the aural inefficiencies but, frankly, few organizations have bothered to make that investment.

The result is the worst of both worlds: A legacy system drag on organizational productivity and individual confusion around the technology’s role and relevance in getting work done. That’s wasteful. What’s worse, it signals enterprise laziness and complacency.  What’s the big deal? If people want to call, they’ll call; if the want to text, they’ll text; if they want to email, they’ll email. More choice is used as an excuse for not thinking through how individuals and teams should be productively communicating.

Focus and ingenuity come as much from useful constraints as usable options. Back when I did use voice mail, the most important constraint I implemented was limiting messages to no more than 30 seconds. I had friends and colleagues who were leaving one, two and even 4 minute messages. This wasn’t good when you’re calling in between flights. Now, of course, the only voicemails I listen to are from people I don’t know. (Talk about inefficient!)

Which raises a provocative point:  For most organizations, the only people who matter going into voicemail are customers and clients! How smart and customer-centric is that?! Not very. Voicemail’s technical flaws and shortcomings reveal something very important about the customer engagement future. Nobody wants to be put in voicemail anymore and it’s quite likely that customers and clients aren’t listening to your voicemail messages either.

But for everyone inside the firewall, it’s long past time to end the futile and time-wasting games of telephone tag.  A communications medium that was once essential has become as clunky and irrelevant as Microsoft DOS and carbon paper. You want to have better, faster and more responsive communications inside your organization and save some money besides? Have an online conversation about online communications—and unplug your voicemail system.   If you’ve got a problem with that, don’t bother to comment. But do feel free to call me and leave a message.

The Act of Choosing a Treatment May Boost Its Effect on You

For people who have a need to feel in control, making a choice about health treatments strengthens their chosen treatment’s psychological component, says a team led by Andrew L. Geers of the University of Toledo in Ohio. For example, people who put a hand in ice water for 75 seconds reported less pain (20 versus 24 on a scale up to 44) if they were given a bogus pain-prevention cream; but for high scorers on a “desire for control” test, the effect was more pronounced if they were able to select between two (equally bogus) creams. The findings are part of a growing body of research showing that patient involvement enhances treatment effectiveness.

Can Internal Crowdfunding Help Companies Surface Their Best Ideas?

Crowdfunding platforms like Kickstarter and Indiegogo have proven adept at channeling funding – millions of dollars in cases like the Pebble watch – to innovative new products and projects, often by previously unknown inventors and designers. Can larger companies employ the same type of system to find and fund internal innovation?

IBM has been experimenting with such “enterprise crowdfunding,” where the company gives its employees a small budget and encourages them to commit it to each others’ proposed projects. The experiments are the subject of an academic paper by IBM researchers, and the results have been promising, with a few surprises – crowdfunding may help improve morale, for instance. I spoke with one of the authors, Michael Muller about what he and his team have discovered. Following is an edited version of our conversation.

Tell us a bit about the experiments with crowdfunding at IBM.

IBM has been interested in finding different ways to support innovation inside of companies — inside of IBM and inside of clients companies — for a long time. When we bring it inside the enterprise, what we call enterprise crowdfunding, several things are different.

Number one, we don’t have people use their own money An executive allocates a budget to the participants in the experiment. In our first case, a vice president in research allocated $100 to each of the 500 people in his organization. There was a website that was inspired by Internet crowdfunding websites, where members of the organization could propose projects, and members of the organization could take their $100 and spend it on each others’ projects. The trial lasted about a month and the funds where available on a use-it-or-lose-it basis, meaning you could only spend it on somebody else, not on yourself. And at the end of the trial, if you didn’t spend the money you didn’t get to keep it. A second trial in research was at IBM’s Almaden research center [in San Jose, California]. The third trial was in a relatively large IT part of IBM, roughly 5500 people strong.

What kinds of projects were funded?

Many addressed a bunch of technical challenges that we have been having. I don’t think they were new inventions here so much as they were making technology available so that people could have new thoughts around the technology which would then lead to inventions, we hoped. In the first research project people had said that they needed access to a micro-tasking site — an example of this would be Mechanical Turk — and it was hard to negotiate how to do those payments through the standard IBM channels. It was funded and the vice president moved heaven and earth to get that through the IBM purchasing organization. And I have seen conference papers based on the data that were collected through the use of that particular set up. In that case, not only did the project go through, but it’s enabling useful research.

There were also some other projects that addressed morale issues and the culture.

Several of the proposals had to do with things that people would have to do together in order to participate in it.  One was “afternoon beverages”. It was at a standard time and if you came for afternoon beverages you are going to talk to you peers and network.  Another was simple small-scale pieces of athletic equipment, generally speaking for shared use.  The theme seemed to be over and over again, ‘We’ll do this together, we’ll use this together, we’ll talk to each other, we’ll meet each other.’

What was participation like?

We ran this really not knowing what to expect. We knew the standard figures for social media, where about 10% of the people would be pretty active, or at least somewhat active.  Then the 90% of the people would maybe occasionally contribute or mostly look around to see what was going on. We had those kinds of expectations in mind, and what happened really surprised us: we had well over 45% participation.

We had thought, well maybe it’s going to be the case that the higher you are in the organization — the more influential you are — the more likely you are to get funding. We found the reverse, actually. People as high as IBM fellows were making proposals that did not get funded; it was really grassroots.  Since then we have done two other trials and in one of them the effect of rank in the organization was a complete wash, no statistical effect at all.

You found considerable participation across geographies, correct?

Unlike the two research groups, the IT group from the third experiment was geographically distributed across 29 countries and a bunch of different divisions. We thought maybe geography will get in the way, and we found that people collaborated pretty easily across geographical boundaries.  For a proposal that was successfully funded, it was well over eight countries among the various investors.

We felt maybe even though geography didn’t get in the way, maybe people sharing a common geography might still give an extra oomph, and it turned out that [it] did.  If you share the country you are a bit more likely to invest. A few other “things-in-common” worked similarly. If you share the division you are more likely to invest. If you are on the same large-scale international working group or team you are a bit more likely to invest. But none of these stopped people, they just gave people an additional encouragement.

What can you say about the motivation of the participants?

Especially on sites like Kickstarter and Indiegogo, people often invest in order to get something. Many of the product-oriented projects are actually kind of a pre-order, like the famous Pebble watch. We made available to people the ability to specify that if you invest $10 of the money that the vice president gave you, than you’ll get this, if you invest $50 you’ll get that. It turned out very little of that seems to matter to people.  What matters to people is that they can see shared utility amongst themselves, or for clients, or for IBM, or for customers. When we did this project with the IT department, everybody we interviewed knew exactly who is going to benefit from the project; it was almost uncanny the way that they had worked it out. Within the research organization people said things like, ‘There are projects here that can benefit all of us’; ‘I need access to these resources and I am not the only one.’ The individualistic model based on Internet experiences was transformed, behind the firewall, in to a series of community projects.

What about follow-through on the projects? And how did you deal with the allotment of staff time toward funded projects?

Not everything is completed — I think more than 50% is — but we don’t have as accurate a tracking on that as I wish we did. In the Research crowdfunding trials, if people got their funding, then they had to run the projects while they still did the rest of their jobs.

The IT department was again different. By allowing you to propose the project they were making a commitment that they could spare you for some percentage of your time, if the project was approved.

So what do we know about where this will work?

If the individual budget for a person is $100 or is $2,000, it works. If the domain of the projects you can propose is wide open, or if it is limited to software technology innovation projects, it works.  It works if there is no limit on how much or how little a budget can be, or if there are strict rules.  It seems to be very flexible.

What don’t we yet know?

We don’t know how big is too big, how little is too little.  We don’t really have a sense yet of what correct amount of money to allocate per person in order to get a budget spent.  I think we want to do more work on your question, which was a follow-through question. Are there projects that are doomed at the outset and shouldn’t be allowed in?  We don’t know that yet. We think that enterprise crowdfunding increases employee engagement, but we don’t really have the numbers to prove that.

What advice would you give companies who want to try this?

It’s important for the sponsor to say what kind of innovation he or she wants to see, and what is out of bounds.  Also, organizations should actively campaign to get everybody involved, otherwise money doesn’t get spent, which can at least be fixed by over allocating the money. People should be considering not why the project would be good for them or for a narrow little slice of people, but what the community value of the project is.

We also need active campaigns by the project proposer, and people were extremely ingenious. One of my favorite examples was that the people promoting a 3D printer put up signs next to all of the regular printers, saying: ‘Don’t you wish you were printing on a 3D printer right now?’ They got funded. There was a project in the Almaden research centers in which, because there are some remote members of that organization, people wanted to set up social robotics, a robot on wheels that could run around the corridors and be the social presence of the remote researcher.  They went out and borrowed one, and it went up and down in the corridors and advertised the project. And they got funded.

It was definitely the wisdom of the crowd speaking here. One of our old IBM mantras goes: ‘None of us is as smart as all of us.’ We really need all of our brains engaged on these things.

Executing on Innovation

An HBR Insight Center




Why Large Companies Struggle With Business Model Innovation
Innovation Isn’t Just About New Products
Three Signs That You Should Kill an Innovative Idea
We Need a New Approach to Solve the Innovation Talent Gap

Story-driven Data Analysis

Great analysts tell great stories based on the results of their analyses.  Stories, after all, make results user-friendly, more conducive to decision-making, and more persuasive.

But that is not the only reason to use stories.  Time and time again in our experience, stories have been more than an afterthought; they have actually enabled a more rigorous analysis of data in the first place.  Stories allow the analysts to construct a set of hypotheses and provide a map for investigating the data.

We recently worked with a department store retailer and a team of analysts looking for creative insights into customer loyalty.  Based on our work with a department store expert, we started out with a storyline, a narrative hypothesis, according to which a customer experiences different journeys through the department store over time and rewards the retailer with a certain level of loyalty.

How will these journeys unfold? Does the customer start in cosmetics and then move into clothing?  Does she go from the second floor to the first floor to buy a handbag to match a new outfit?  Does she have shopping days where she takes a lunch break in the restaurant before continuing her shopping?  Do less loyal customers make different journeys from more loyal ones?

In other words, we were interested not just in what customers were buying, but in the mechanics of how they make their purchases and how this may make them loyal.  After the analysis, the true story of a customer’s path to loyalty is in fact revealed.

Where do these stories come from?  In our experience, they can come either from the experience of an expert in the sector or brand, as was the case in the previous example, or from qualitative research using observation or in-depth interviews.

We recently advised a telco client in developing the “jobs to be done” for a range of new products and services.  We interviewed consumers and heard their own stories of how they go about using their mobile devices throughout the day.  The general narrative hypothesis we drew from listening to these stories is that consumers cobble together mobile solutions to suit their lifestyles.

One consumer revealed that he actually owns two SIM cards for the same smartphone and told us in what context he changes from one to the other.   Another customer told us about the parental control and other relevant apps and browsing that she has discovered and collected and which facilitate her lifestyle as a mother.

What we are seeing here is a multi-usage context (characterized by two SIM cards) and a “Mobile Mommy” context, each of which calls for a distinct analysis and possibly different products/services to be developed subsequently.  In other words, we found that the customers’ homemade solutions could be used by brand managers to identify what kind of data to gather and what kind of analysis to perform.

The analyses will in their turn enrich the initial stories and lead to deeper insights.  What is important here is that the storyline, told before the analyses, enables an authentic human element to surface that would be more difficult to extract from the data alone

In order for a story to truly enable analytics, the story development process needs to be rigorous.   We use the framework of Grounded Theory to ensure that the data and overarching storyline inform each other and are coherent with each other.  The idea is for the analyst to navigate back and forth between the data and the developing story to ensure a good balance between the creative narrative and the analytics that reveal the facts and details of the story.

The enabling storyline should not be too restrictive: it needs to support the development of the plot and characters as they emerge from the analysis, but without bias.  Conversely, the storyline can suggest specific questions to be asked of the data for a more in-depth analysis.

In a world that’s flooded with data it becomes harder to use the data; there’s too much of it to make sense of unless you come to the data with an insight or hypothesis to test. Building stories provides a good framework in which to do that.

Design Lessons From iOS 7

With over 200 million devices upgraded to Apple’s iOS 7 in just five days, it is clear that Apple has another success on its hands. Revamped in just eight months (an unheard of timeframe for an OS redesign), iOS 7 represents the first major software release under Sir Jony Ive’s leadership of Apple’s software group. Throughout the new OS, his influence is easily identifiable, in both good ways and bad.

iOS 7 represents a final and emphatic break from skeuomorphism – design that takes its cues from physical objects — something that has been a raging debate in design circles for years. (You can read about it here, here, here, and here.) But within this break from skeuomorphism lies a great commitment to realism. This iteration of iOS is easily the most intricately tied to the iPhone hardware. Its connections to the sensors of the device allow it to behave according to the laws of physics, making it feel of this world, as opposed to drawing on simple visual metaphors.

This, more than anything, represents both the true breakthrough of iOS 7 and is the primary evidence of Sir Ives’ touch. For years, Ive has obsessed as much about the internal construction of Apple hardware as he has over the external design (jump to minute 3:25 of this video to hear him gush about a thermal system). This unrelenting focus on the marriage of a device’s internal workings with its external experience is what gives Apple products their specific appeal and quality. Ive has done the same thing with iOS, obsessing over the internals of the phone and building an operating system that takes the maximum possible advantage of them. The result is an OS that feels alive, responsive, and modern.

Imperfections

But iOS 7 is not perfect. The easiest targets for criticism are the garish color palette and the unreadably-thin typefaces which have inspired their own meme, though they make more sense now that we have seen the color lineup for the iPhone 5C. The icon grid put forth by Ive’s team is mathematically precise, but lacking in many areas digital designers have been refining for years, such as color choice, visual appeal, and metaphor. Finally, Apple continues its stubborn refusal to introduce dynamic information into the top-level experience of the OS. Yes, the control panel is better than before, but Android and Windows Phone are much more dynamic with their home screens, enabling users to gather crucial information without requiring an app to be launched. This lack of glance-able information and user-customizable interfaces is going to become a very real crutch soon enough.

At its core, iOS 7 represents a new foundation for the world’s most profitable mobile platform. And as a first offering, it has great promise. Unfortunately, it does not yet fully live up to its potential, which is how Apple has worked historically. The first generation of OS X was a revolution, but it was laggy and buggy. The first Macbook Air suffered multiple problems before becoming the laptop it is today. Even the first generation of iOS was locked down before establishing the mobile developer ecosystem. This is Apple’s pattern: release a revolutionary experience and then relentlessly iterate and perfect it over time.

Strategic Risks

However, this launch is different than previous efforts and presents two primary risks to Apple. The first is that Apple’s competitors are also building extremely compelling mobile ecosystems. Android, long lamented for its design shortcomings, is starting to gain traction from an experience standpoint, with influential designers like Twitter’s VP of Design, Mike Davidson, adopting the OS for the first time.

Secondly, the rapid adoption of iOS 7 could potentially serve as a negative for the developer community. Updating an application from iOS 6 to iOS 7 requires more than simply updating graphics and preparing the software for the new phones. iOS 7 is fundamentally different and requires some serious rework to ensure that an application feels native to the system. This level of effort should be compensated, and indeed some developers are gearing up to charge for their iOS 7 apps, but consumers have been conditioned to getting OS upgrades for free and the press is already calling out developers for “double dipping”. One party in this exchange is bound to feel frustrated. The consumer will be unwilling to pay and the developer may be frustrated at giving so much work away. With Android continuing its marketshare dominance and Windows Phone finally emerging as a viable option, this could represent an inflection point where more developers begin looking at other platforms first.

After six years of iteration on the original iPhone OS, iOS 7 is a refreshing reset. Without a doubt, Apple’s new operating system will look and feel dramatically different a year from now. It will take advantage of the hardware in new and innovative ways and has the potential to once again reshape our expectations of what our mobile devices are capable of. The big question for Apple will be whether or not consumers are willing to travel along this road of iteration once more.

What Markets Do and Don’t Get About Innovation

In 2007, Clayton Christensen co-founded Rose Park Advisors, a hedge fund devoted to investing in disruptive companies. The idea was to transform his theory of disruptive innovation into an investment thesis. Disruptive innovation can take several forms, and the market understands some types better than others. But do markets really follow the logic of an academic theory?

Great investments are both non-consensus and correct, and examining the valuation process shows that consensus tends to coalesce differently around each type of innovation.

Four types of disruption

Disruption theory reveals four innovation types that could shape an investment thesis:

Low-end disruptive  – a dramatically cheaper way of producing worse products for customers who are over-served by existing options
New market disruptive  – a cheaper, more accessible, and worse-performing product that turns non-consumers into customers
Quality-sustaining  – Christensen’s “sustaining innovations”: incremental improvements to product performance, leading to higher cost; companies’ bread-and-butter when products aren’t yet good enough
Efficiency-sustaining  – incremental innovations that make products cheaper and businesses more efficient; these are important all the time, but particularly when product performance becomes “good enough” for most customers; the realm of LBOs and the iPhone 5C

Why the market values some kinds of innovation better than others

Sustaining innovation inhabits the world of incremental change, deliberate strategy, and most financial and management theory. Disruptive innovation, on the other hand, is more difficult to value — and potentially a more fertile ground for investment. Investors’ core valuation methods (comparables and discounted cash-flow analysis) both extrapolate past performance into the future — but they fail to predict when the future will be radically different from the past.

Sustaining innovations are more easily quantified than their disruptive counterparts, and hence easier for the market to grasp. Efficient-sustaining innovation is essentially cost-cutting, and should be the easiest of all four categories to predict. Costs are concrete and immediate. And incorrect analysis often falls into well-understood categories — the overestimation in M&A synergies, for example.

Quality-sustaining innovations also tend to follow well-known rules: expected sales yields of marketing investment, established norms for product improvements and price increases. But forecasting revenues requires identifying market shifts, particularly the point where products go from being “not good enough” for many customers to “good enough.” As a result, sometimes, changing circumstance strips away expected results, or strategy leads products to outperform historical precedent (consider HBS marketing professor Youngme Moon’s examples of Reverse, Breakaway, and Hostile positioning in brands like Ikea, Swatch, and Red Bull). Mostly, though, markets get things right.

Disruptive innovations, however, entail a discontinuous shift from “how things worked” in the past to how they work today. Without theory to tell us how the rules are changing, many tools of management and finance seem to break down.

New-market disruption is more complex. Because products and customers are entirely new, it’s harder for analysts to mistakenly force these innovations into the old paradigm. As a result, outlooks are more likely to be positive or mixed.

The recent influx of capital into low-cost 3D printing is a good example. Desktop 3D printers are a classic new-market disruption: fundamental changes in technology allow much cheaper, more accessible, and worse performing products to become available to new customers. And many investors intuitively recognize this innovation as a new-market disruption that could unleash a wave of creativity in product design and revolutions in the manufacturing, retail, and software industries. So money piles into the sector, and crude bets based on disruptive potential become increasingly risky. The task shifts from merely identifying innovations to evaluating strategy, tactics, people, and prices.

The difference between low-end and new-market disruption is that, in pure low-end disruption like Nucor, the market tends to miscategorize disruptors as if they were low-quality incumbents. Because a low-end disruptor’s customers are the incumbent’s worst customers, and because its products are low-quality substitutes, it’s easy to miss the discontinuous change in a product’s performance trajectory and the inevitable sustaining innovations that will allow the disruptor to move up-market. As a result, analysts have higher confidence that the disruptor is playing by the same rules that are effective in valuing incumbents, and incorrect consensus is more likely — creating a big opportunity for investors who recognize the signs of disruption.

Instead of just crunching the numbers on less valuable sustaining innovations, market analysts ought to be looking for signals of disruption. For instance, over-served customers in markets where sustaining innovations have overshot customer demand. Instead, markets often miscategorize low-end disruptors as low-quality incumbents.

Next, market analysts should look for new-market disruptors — companies that are converting non-customers with a worse product. Because growth from non-consumption is often fast, we expect new market disruptors to be consensus bets much more often than low-end disruptors. First, analysts should look for a lack of consensus: when analysts are betting against new-market disruptors. Only then should they consider consensus bets, to evaluate whether the market is ignoring any part of a darling’s disruptive potential.

The tools of financial analysis are particularly ill-suited to disruptive innovations, because they offer no insight into when circumstance changes so that past rules no longer apply. This is when disruption theory can inform investors on the value of innovative companies. This creates opportunities for investors who understand disruption and are willing to bet on it.

If Crowdfunding is the New Day Trading, Look Out

Paul Volcker famously said the only financial innovation to improve society in recent memory was the ATM. Not everyone agrees. In an essay earlier this week on the evolution of money and finance, GigaOM founder and venture capitalist Om Malik argued that crowdfunding will be the new day trading, the latest financial innovation to “cut costs and [drive] wider participation in a previously closed and clubby market.” Advocates of crowdfunding had better hope not.

To be clear, Malik isn’t talking about Kickstarter where funders make a donation that acts like a pre-order. He’s talking about the public buying stock in private companies, something that may soon be legal thanks to the JOBS Act, and which took a step forward this week with new rules from the SEC allowing private companies to advertise investment opportunities for accredited (read: rich) investors. Now startups and hedge funds alike can advertise the fact that they’re raising money, and some day soon you or I might join wealthier citizens in investing in them.

There’s no doubt that this will drive broader participation in startup investing, but the comparison to day trading confirms crowdfunding skeptics’ greatest fear: that when the party’s over, the public will be left with substantially lighter wallets.

That’s what happened in the case of day trading.

A 2004 study of day traders in Taiwan concluded that, while a small group of traders made money consistently, “more than eight out of ten day traders lose money.” (Subsequent research determined that fewer than 1% of day traders consistently beat the market.) Two of the same researchers found something similar in a broader paper in 2000 on stock trading by U.S. households (not just day trading), which they provocatively titled “Trading is Hazardous to Your Wealth.” Once commission was taken into account, the researchers determined that households did substantially worse than they would have done investing in index funds. Notably, they found that the more households traded, the worse they did:

Our most dramatic empirical evidence is provided by the 20 percent of households that trade most often. With average monthly turnover of in excess of 20 percent, these households turn their common stock portfolios over more than twice annually. The gross returns earned by these high-turnover households are unremarkable, and their net returns are anemic. The net returns lag a value-weighted market index by 46 basis points per month (or 5.5 percent annually). After a reasonable accounting for the fact that the average high-turnover household tilts its common stock investments toward small value stocks with high market risk, the underperformance averages 86 basis points per month (or 10.3 percent annually).

In other words, it’s far from clear that widening participation in the stock market — at least at the level of active trading by individuals — was a good thing.

Malik nods toward this problem, writing of financial innovations:

People race to try it, hoping to earn higher returns, and that works; for a while, anyway. Inevitably, however, the innovation attracts too many newcomers that those returns collapse, leaving huge losses

In the case of day trading, at least, the data suggests lack of knowledge is a more relevant constraint than timing; nonetheless the questions at hand are whether such “innovation” does us much good, and whether equity crowdfunding will be any different.

There are reasons for skepticism: venture capital as an asset class has underperformed the S&P 500 for the last decade, and pouring more capital into VC has historically led to lower returns. Only the top 20% or so of VC firms have a track record of beating the market, and they have the advantage of seeing the best deals (which may never be available to the average crowdfunding investor, at least at comparable terms).

In the case of startups, at least, the time frames involved are long enough that frequent trading is basically impossible. But the central bias the researchers identified as causing individual stock traders to lose money is just as relevant for crowdfunding: “People are overconfident.”

When it comes to the stock market, the deck is firmly stacked against the little guy, and so the best way for most people to invest in it is through a boring old index fund. If investing in startups is anything like picking stocks in that sense, there’s likely to be a dark side to democratization.

An Investigation of Online Reviews Uncovers a World of Lies

I Give This Blurb 3 StarsOperation Clean Turf and the War on Fake Yelp ReviewsBusinessweek

Were the 19 companies accused of commissioning fake online reviews the only firms out there engaged in this nefarious practice? Mmm, no. Not likely. The U.S. Federal Trade Commission says 15% to 20% of all reader reviews might be fake. A lot of the attention generated by the New York attorney general’s investigation has focused on Yelp, but in fact Yelp came out of it looking pretty good. The review site now says it helped identify businesses to investigate. The AG’s office, for its part, says Yelp is the “most aggressive” of the major review sites in filtering out suspect reviews. But you have to take Yelp’s word for it that its filter is effective, because the company won’t say how the filter works. That would only tip off the mendacious. – Andy O’Connell

Career Ladder to Nowhere? All LinkedIn with Nowhere to GoThe Baffler

You probably have a LinkedIn profile. I do. It's one of the prerequisites of modern professional life. But maybe you and I should be asking ourselves: What has my LinkedIn profile really done for me? That's among the questions Ann Friedman asks in The Baffler. She ends up essentially eviscerating the site paragraph by paragraph. First there's the phenomenon of "frenetic networking-by-vague-association" in which you pretend to know people you want to be associated with, a system that creates an online "Escher staircase masquerading as a career ladder." Then there's the advice from "thought leaders," whose writing sometimes "reads like management-speak Mad Libs.” She points out, however, that LinkedIn does offer a few advantages. For one thing, yes, sometimes recruiters really do troll the site’s profiles. 

Unanswered QuestionsTragedy in Switzerland: What Drove Two Top Executives to Suicide?Fortune

It was perhaps this summer's most chilling business story: the suicide of Zurich Insurance Group CFO Pierre Wauthier, who left a note condemning the company's chair, Josef Ackermann. In this analysis, drawing on the Swiss biweekly Bilanz, Vivienne Walt highlights why Wauthier's suicide, and that of Swisscom CEO Carsten Schloter just weeks earlier, rocked the global business community. In both cases, personality and business conflicts in the upper echelons caused immense pressure, which was magnified by the always-on nature of business reporting and shareholder analysis. And while it's impossible to know why any one person commits suicide, people close to both men suggest factors included their 24/7 professional lives, their competitive natures, and the intense financial pressure to perform.

In Your Medicine CabinetUse Only as DirectedProPublica

Can Tylenol kill? According to this investigation it can, with overdoses of the drug claiming the lives of more than 1,500 Americans between 2001 and 2010. Yet it's widely considered one of the safest over-the-counter medications. There’s a lot in this piece, but one of the most interesting stories is about how Tylenol became such a powerful brand. Because Johnson & Johnson doesn't have a patent on the drug, it had to find a way to convince consumers the premium price would get them extra value. First, the company persuaded doctors and hospitals that Tylenol is safer and more trustworthy than aspirin. Then, after a few capsules were tainted with cyanide in the 1980s, the company pulled all its products off store shelves, turning a PR disaster into a coup. Today, more than half of all acetaminophen sales come from J&J-owned McNeil.

BONUS BITSGeeking Out

Bill Gates: "Control+Alt+Delete" Was a Mistake (PC Mag)
10 Cool Features Hiding in iOS7 (Time Techland)
Quora’s Search for What the Internet Doesn’t Know (MIT Technology Review)

Getting Big Results from a Small Business Unit

Earlier this year Sun Yat-sen University, a well-regarded institution in Guangzhou in the Guangdong province of China, announced that the university and affiliated hospitals were entering into a novel collaboration with Johns Hopkins Medicine. The agreement would see Hopkins faculty working bilaterally with Sun Yat-sen’s medical faculty both in China and at Hopkins in order to help the university become a world-class biomedical research institute. The deal has significant implications for U.S. hospitals because, facing declining revenues, international collaborations like these offer a new path for growth.

It was the 30th major, revenue-producing, international healthcare collaboration for Johns Hopkins Medicine, with several more currently under negotiation — when the rest of the world combined has perhaps a few dozen similar partnerships. One reason Hopkins is outpacing others is because it created an agile satellite unit – Johns Hopkins Medicine International (JHI) – within the much larger parent organization solely dedicated to these projects.

JHI’s activities illustrate how large healthcare organizations, often bound by size, complexity and conservatism, may need to turn to satellite units if they are going to tap into the innovation and flexibility needed to explore new opportunities for growth. But to be effective, such units have to cultivate key differences from their parent organizations, while at the same time maintaining close ties to the mother ship and adhering to its main tenets.

The Sun Yat-sen project offers a good example of how JHI took advantage of its smaller size, specialization and agility to identify, structure and close an ambitious, unusual and potentially highly rewarding deal that might well have eluded the main organization. It’s well known how difficult it is for large U.S. companies to do business in China profitably, if at all, and even many of our fellow private academic institutions have struggled in their efforts to establish partnerships in China. Our success depends on a set of capabilities any healthcare organization will need in venturing into similar international deals. They must:

Seek out novel relationships and challenges. Large U.S. healthcare organizations like JHM tend to enter into types of partnerships that don’t require them to operate in a substantially new way such as with other large domestic healthcare institutions, or with local hospitals.  Our unit, however, is set up to be more attuned to different types of opportunities. We have staff on the ground throughout Asia and the rest of the world to network and look for potential collaborations like the one in Guangzhou, which, being far from Beijing and Shanghai, fell under everyone else’s radar. The proposition for this collaboration would have had most executives at large medical institutions scratching their heads — there are no clear models for how to help another university develop its research expertise. We didn’t have a model to work with either, of course, but we were willing to innovate and develop one from scratch to make the collaboration work. We routinely partner with private investors, ministries of health, non-healthcare corporations, and other players who aren’t part of typical healthcare deals with U.S. academic medical centers.

Maintain unusual expertise. JHM’s strong reputation in patient care, research and education provides us with an invaluable brand halo that opens doors and motivates partnerships, and defines our mission. But striking international deals calls for a range of other competencies that our parent organization and others like it would have trouble assembling and deploying. These include being familiar with the variation from country to country of social norms, healthcare traditions, religious influences, negotiating tactics, contract law, effective local sales and marketing strategies, media coverage, and political influence. How many healthcare organizations are equally comfortable dealing with government officials in Asia and royal family members in the Persian Gulf? Or are capable of predicting how the next election in a small, developing nation is likely to affect hospital revenues there? Our teams deal with these sorts of offbeat challenges every day, and if we don’t have a resident expert we know how to get one. Critically, for every region we have a dedicated manager capable of championing a project there.

Embrace risk. Hopkins’ reputation is its greatest asset. But it also leads to an organizational culture that tends to shy away from doing anything that risks denting that reputation in any way. A sound policy, to be sure, but one that can sometimes pull the organization away from potentially rewarding opportunities. Our unit also places a high priority on protecting our parent organization’s reputation. But because of our experience and focus, we’re better able to understand and manage the risks associated with international collaborations that JHM itself might be. For example, we allow some of the hospitals that collaborate with us in other countries to identify themselves as Johns Hopkins Medicine International “Affiliates,” but only when we’re intimately involved in setting up, monitoring and maintaining patient care and safety processes and standards. The joint research coming out of our Guangzhou collaboration will bear the Hopkins name, but only in those cases in which Hopkins researchers have played a meaningful role. We also structure our deals in phases, typically starting with pilot projects and moving gradually into more extensive and challenging levels, so that if we have misjudged the risk in a project we’ll catch it early and be able to step away before any real damage is done.

Move with agility.  John Hopkins Medicine is a massive, complex organization that prefers to move into partnerships with great deliberation, because a large number of decision-makers have to buy in, and because there’s more risk in acting quickly. But when a health ministry or a group of private investors in a small country give a big health care project a green light for funding, they’re not going to wait around for two years for a potential partner to sign on. So we’ve developed business processes that enabled rapidly pulling together a team to efficiently evaluate the Sun Yat-sen opportunity, perform due diligence, structure the deal, line up the resources needed to live up to our end of it, set up contracts, and present JHM — which still has to approve all our deals — with a solid, complete package that can be decided on relatively quickly, all within six months. It helps, of course, that we’ve earned the trust of JHM decision-makers over the years, that I myself am a senior vice-president of JHM in addition to my role leading the international innovation unit, and that we consult with key JHM executives every step of the way so that there are no surprises.

The result of these competencies is that our satellite unit has been able to help the mother ship extend its health care mission globally. That’s a huge payoff to the entire organization–even before factoring in the substantial revenues that have come along with these projects.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation
From the Editors of Harvard Business Review and the New England Journal of Medicine




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