One of my favorite things to discuss with new startup teams is strategy. Michael Porter, from Harvard Business School, has nicely described several concepts that are integral to our understanding of strategy for an existing business, a new business, or business looking to change. Professor Porter has given us a framework called Porter’s Value Stream. If you haven’t heard of Porter’s Value Stream I invite you to take a moment to go to Wikipedia and look at this powerful concept. Porter’s Value Stream has several important consequences that can and have been leveraged to great effect. There are also unique facets to this concept that can give insight to the nature of our new business, existing firm, or other system and how it competes.
For example, sources of competitive advantage may include the manner in which discreet activities in the value stream interface. Inbound logistics is one of the first primary activities of Porter’s Value Stream. Inbound logistics refers to the manner in which we bring in a substrate to which we add value. The way in which we add value include our firm’s operations. Sources of competitive advantage may include the way in which inbound logistics hands the baton off to operations. A smooth transition in that area can be a source of competitive advantage. Similarly the way in which our operations fit into our outbound logistics may be a source of significant competitive advantage. Clearly Amazon and other retailers in their space draw a portion of their competitive advantage from their excellent outbound logistics and the interface between their outbound logistics and operations. Again Porter’s Value Stream is very key.
This post builds on this concept of Porter’s Value Stream. In anther post we will discuss more of its specifics and consequences. However, here, I want you to recognize some interesting concepts around Porter’s Value Stream and how firms compete in industry. Take, for example, Disney World. You may have been to Disney World lately with your family. If you haven’t, I invite you to take a moment to just read up on exactly what Disney is doing nowadays.
Disney and other companies like Apple have created an entire ecology into which the consumer fits. That is, many of us have experienced the feeling of being seemingly locked in to Apple or Google’s products because, for example, all of our music is on our iPhone and our iPhone interacts with our iCloud. Our iCloud gives us email etc. This “lady-who-swallowed-a-fly” scenario is no accident.
Apple has created an entire ecology into which we fit and it is one that seeks to contain our spending habits. We don’t spend outside of the ecology because we obtain maximum value inside Apple’s ecology. There is no need to take the time to export our songs etc. Apple and other companies may even make barriers to exporting our music and other digital information so that we must stay inside their ecology.
Clearly this is a situation in which the firm delivers maximum value not just with the classical concept of Porter’s Value Stream but, in fact, because there is an entire ecology into which they fall. This concept of ecological thinking or consumer ecological thinking allows us to open broad possibilities for business model innovation. Let’s return to Disney’s on-location operations at Disney World.
Disney World is literally an entire world of consumerism. That is, they have the multiple theme parks, they have a resort at which you can stay, they have an entire down town shopping district and they deliver all of this in a manner which is value added. You need not rent a car to get from the airport to Disney…you can take the Disney Magical Express. The Disney Magical Express imports you into the ecology where you stay at the Disney hotel on property and take the monorail or Disney transportation to the various locations. You are encouraged to spend all of your money on Disney property in a clear Disney ecology. This is not to say this is a trap or is somehow bad or wrong, this is to say that Disney and other companies have set up a strong system that delivers maximum value within their ecology. Again, for Disney you need not rent a car or be bothered with any issues like that. Your luggage is whisked quickly and effectively from your arrival at the hotel to your room and Disney has many other value added systems they can run because of economies related to their ecology. It is truly an interesting concept.
3D printer manufactures like Makerbot realize their 3D printers are part of an ecology. So, when appropriate, they extend to supplying 3D scanners that interface easily with those 3D printers. Viola, building ecology. What are some ecologies that exist in surgery? Are there any places where the business canvas you’ve recently designed for a new service line may fit?
In fact, there are ecologies that can (and do) exist in surgery and healthcare although it may feel unusual to think of things this way. When a patient enters the hospital there is an opportunity to create an ecology for the patients and their families. Although the primary activity of the hospital is delivering excellent patient care, there is an opportunity while the family is in the hospital with the patient to direct their spending toward add-ons related to their loved one’s stay. There is nothing evil, wrong, or malicious in this; it can be the provision of an excellent service and a real patient satisfier. Where charging $12 for a cup of coffee would likely be inappropriate, allowing a Starbucks or similar chain to rent space in your lobby (or setting up a coffee cart yourself) may be a nice value-add to the ecology of your hospital.
Creating these ecologies can often occur in service lines as well. That is, vascular surgery may provide a free screening for peripheral vascular disease and thus import patients into their ecology. A patient now has contacted the vascular service, is known to them, and may come to feel comfortable with the advanced practitioner or surgeon performing the screening. It may become easier now that they know their way to the hospital or similar location to return to it for further care. These types of events are ways in which the ecology of service can be created. A trauma service may use the open abdomen technique when necessary and go on to perform add-ons for patients who require them. That is, they may then perform component separations etc where necessary. To be clear, I am not supporting doing procedures for patients who do not require them. I am saying that thinking of services lines as creations of ecology in which we can deliver maximum value is a very different way of thinking of business models but in fact these typically exist in healthcare.
When I work as a surgeon I am careful to only perform interventions for patients who need them rather than in the interests of revenue or ecology and I think it’s important to have made up our minds ahead of time about where we stand on issues like these. On another personal note, I avoid applying population level data to individual patients without extreme caution. I do not look at insurance or consider reimbursement in forming treatment plans for individual patients. (I’ll step down from the soap-box yet you may hear that again at some point on this blog.)
Again, just as Disney is seeking to do the best possible job and deliver the most value for the dollar, healthcare business model innovation can deliver the most value for patients or their families who need a given service, device or even a meal. So, next time you think of how you will innovate your business model, consider cases like these.
Innovating an entire ecology around the business model (including add-ons and additions) can often be useful especially after we have finished our business canvas and have a system that is running nicely. For more information on Porter’s Value Stream and business model ecologies, perform a quick google search and take a moment to review Porter’s Value Stream as it contributes to the margin we can obtain on different business models.