The value of value chain analysis
Arlen Meyers, MD, MBA
President and CEO, Society of Physician Entrepreneurs, another lousy golfer, terrible cook, friction fixer
Disrupting a business essentially means doing something to take market share away from your competitors or get non-users to buy your product or service at at profit. There are many examples of sickcare entrepreneurs doing it and usually the tactic is to introduce new technologies. However, according to one researcher, most disruption comes from inprovements in how you change and improve the value chain.
Value chain analysis means looking at each of your customers or potential customers and mapping out all of the activities that they are need to do in order to acquire products and services. For example, here is pharmaceutical company value chain:
In other words, how do elements of the sickcare system of systems add value from data to end users?
A major health insurer says it will jettison the complicated system that Americans use to pay for drugs, and create something that aims to be better, with partners including?Amazon.com. and the entrepreneur?Mark Cuban.
Blue Shield of California?said it is dropping?CVS Health’s?CVS? Caremark, the?pharmacy-benefit manager?it currently uses, negotiates drug prices and wraps in other services such as a mail-order pharmacy.
Instead, Blue Shield, a nonprofit health plan with about 4.8 million members, will work with a selection of companies that each perform a designated function. Amazon will offer?at-home drug delivery. Cuban said Mark Cuban Cost Plus Drug Company will provide access to low-cost medications, including through retail pharmacies. Another company, Abarca, will process drug claims.
The "system" i.e. the structure, processes and business models result from laws, regulations and rules create ecosystems
Organizations in those ecosystems deliver, manage and create products.
Those products are used and prescribed by healthcare professionals
The end users are patients and their care communities.
Each touchpoint along the way, theoretically and practically , should add value and be aligned to deliver the quintuple aim. Unfortunately, that is not now the case. Take, for example, dropped handoffs and referral leaks, a major source of medical errors, waste and bad physician and patient experience.
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WHO envisions a future where everyone in the world benefits fully and immediately from clinical, public health, and data-use recommendations.?SMART guidelines—standards-based, machine-readable, adaptive, requirements-based, and testable—are an operationalisation of this vision for a new WHO-supported approach to facilitate rapid, effective, global implementation of WHO guideline recommendations in the digital age.
Value chain analysis is a way to visually analyze a company's business activities to see how the company can create a competitive advantage for itself. Value chain analysis helps a company understands how it adds value to something and subsequently how it can sell its product or service for more than the cost of adding the value, thereby generating a profit margin. In other words, if they are run efficiently the value obtained should exceed the costs of running them i.e. customers should return to the organisation and transact freely and willingly.
Conceptually, this was an industrialized view of how a company works. The arrow starts with the supply chain, with the customer at the end. Most S&P index companies founded before the internet era still operate with this value chain mindset.
Sometimes, elements of the value chain that create a whole product solution are missing and you need to create them to create value. Examples include data interoperability and patient data ownership in personal health information technologies, a convenient electric grid for electic cars and and a network to distribute TV or video content.
A Business Model (BM) describes the way a company returns profit/value to the business while?delivering the product to customers.?A Business Model shows as such how a company?makesprofit from its products. Creating a VAST business model in sick care is elusive for many reasons. Not having one is one of the main reasons why your business will fail.
Defining the value chain to a customer helps you inentify and exploit potential business model opportunities. Here is how the value chain informs the business model canvas.
Here are some differences between the two and a brief history of how these terms have evolved.
In sick care delivery, there are three basic ways for doctors or other sickcare professionals to innovate their way out of the mess we've caused:?technology innovation or adoption, execution and customer/patient experience. In most instances, changing the value chain or business model is more effective than technology diffusion and implementation.
Value chain analysis is also helpful at the macro level when evaluating policy initiatives and opportunities for reform and improvement. While there are significant differences between the drug, device, diagnostics, digital health, care delivery and medical education and talent development roadmaps, core pillars are rules, regulations and laws governing and providing resources to education and training, basic research and development, technology transfer, intellectual property, regulatory approval, reimbursement and, ulitmately, care delivery to patients using business, organizational and financing models.
The value chain starts with basic research and development and it progresses through translational research to commercialization to overcoming the barriers to dissemination and implementation to integration into the existing US sick care system of systems as the standard of care. Governmental policies should be designed to optimize resources to achieve the most efficient and effective value chain pathway to achieve the desired combination of quality, cost, access, the patient experience and the healthcare workforce experience. By its very nature, optimization requires necessary trade-offs and compromises.
If you are trying to change sick care to healthcare, seek to understand before being understood. One step in that process is to be a problem seeker , not a problem solver and that means understand the value chain. You'll find it valuable.
Arlen Meyers,MD, MBA is the President and CEO of the Society of Physician Entrepreneurs on Twitter@SoPEOfficial