Tuesday, April 25, 2006


The Healthcare Industry and SAP

As we have learned in class, the increasing ability to communicate electronically via increase in bandwidth, connections, and computer processing power has accelerated the transition from the Industrial Age to the Network Era (NE). The resultant technological, financial, and social networks are reshaping the competitive landscape of many industries by being the driving forces behind new trends and disruptions.
Where once competitive advantage lay in a company’s ability to manage its portfolio of products or portfolio of businesses, derivation of competitive advantage in the Network Era has shifted to successfully managing portfolios of capabilities and portfolios of relationships. As such, identification and mitigation of inflection points in a changing competitive landscape becomes extremely important to the survival of incumbent companies and becomes a platform from which new entrants may penetrate a market.

In the healthcare industry, Order Effects of NE-influenced trends and information technologies stand to have significant business impact by shifting the boundaries of functions, causing disintermediation by reconfiguring layers of capabilities, and creating new or consuming old architectural control points. This blog post highlights a few of the inflection points and outlines possible consequences.

Though nothing new, the use of social networks as a source of information and as a decision making tool has burgeoned with rise of the internet. The growing popularity and facility of use of search engines, email, blogs, wiki’s and social networking sites such as friendster, myspace, the facebook, and linkedin have rendered geographic boundaries obsolete and have given rise to the increased cultural acceptance of seeking advice from people several degrees of separation distant.

Take for example the sheer amount of information that people post about their healthcare experiences on the internet. Though in part hampered in choice by cost or by the healthcare package from one’s job, patients can network with other patients – essentially creating a customer market where one is “shopping” for hospitals or doctors based on evaluations of others. Though currently decentralized, should this trend rise in regularity or a communal data store on physicians and hospitals come into existence, power will shift further into the hands of patients or to their employers who can aggregate information on which service providers their employees wish to use.

In addition to this, sites like Wikipedia, WebMD and The Cancer Blog have become hubs for people seeking information and exchanging advice, exponentially increasing the amount of data points available for making decisions. With doubts on the veracity of information on the internet tempered by both increased acceptance of social i-networks and endorsements from corporations, advocacy groups, or reputable third party organizations, use of these hubs will continue to grow. Traditionally patients would go to their doctors for answers about illnesses or medical conditions (and at most sought a second opinion); with web-based information available from social networks these patients are now able to self-diagnose. I postulate that in the future, doctors will find themselves having to explain less, yet convince more.

As business transformers, NE-influenced technologies are perhaps the most visible means of possible industry disruption. The multiplicative effect of technology and education will increase the amount readily accessible data. I find it easier to delineate my thoughts by highlighting some current trends and their possible outcomes in the table below.


Today’s Trend

Tomorrow’s Vision

Smart Objects

The i-Pot, The Life

Seamless integration will allow constant monitoring of at-risk patients

Networked PC’s

Distributed/Grid Computing

Idle pc’s accelerate discovery, exponentially increasing power at the hands of scientists racing to find cures

Video Game Visualization

Rendering the Genome

Networks that straddle traditional industry boundaries (not just video games!) will deliver capabilities which promote understanding of
the human genome and other healthcare issues; capabilities that flow across
industries will blur the traditional definition of the healthcare industry

Internet-Enabled Robotics

Telesurgery, Remote

Technology and sourcing competencies change the geography
of work; Specialists and surgeons will remotely do rounds and perform
operations, thus removing geography as a boundary for finding the best
healthcare available

Electronic Medical Records


Easily indexed records increase ability for healthcare
providers to network data on patients with similar healthcare issues and thus
link more data points for analysis, increasing the chance to discover
causality and correlation

Why Should We Care?
These networks are the cause of business transformation – they “impact top-line growth, render current competencies obsolete, shift sources of profit margins, change competitive space, restructure business relationships (complementors, competitors, suppliers, and customers), and possibly creates new business models” (Venkatraman, 2006). With the NE, there is a much more active role of the customer; the customer’s search for data is the starting point which brings networks at the center of value creation. Directly correlated to this is the fact that software and infrastructure is becoming ubiquitous – they are embedded into processes while it is the information and search capabilities that are becoming the focus of value.

So we realize we exist in a Network Era, yet our “business practices lag due to legacy organizational and structural constraints” (Venkatraman, 2006). The question is posed: how do we then manage in a network-centric way and capture value that is being created or shifted? From a Darwinian standpoint, if we don’t adapt we succumb to the fittest.
Recognizing these trends and technologies as inflection points is the first step, but we must also consider the best way to respond to these issues. In class discussions we determined that there are two dominant avenues for value capture – economies of scale created by specialization within layers, and economies of scope created by integration across layers. With this in mind, we are able to prepare stratagems for the individual corporations which we chose to research.

SAP – Adapting to Survive in the Network Era
SAP’s ability to adapt its strategy and business model will be a critical source of competitive advantage against all comers, not just incumbents. There are pressing issues that immediately come to mind. First, I have already established that software and infrastructure is becoming ubiquitous – serious threats to the applications layer of the stack. Second, there are a finite amount of ERP systems that can be sold and delivered. Even if ERP companies like SAP can battle and overcome new best-of-breed solutions and if the companies’ revenue streams can be maintained through services and licensing fees, the only way to grow market share will eventually be acquisition. Continued consolidation will have altered the structure of the industry, leaving fewer, larger players in command.

It is here that cross-industry networks will be of value as the capabilities of SAP ERP systems straddle several (notably healthcare, the focus of this post). Though already playing in the space with healthcare-specific modules, there will be opportunity for further economies of scale. With EMR for example, there is an incredible opportunity for clinical data exchange between healthcare providers, payers, patients, and others with interest in the data, like life scientists and analysts. As mentioned in today’s presentation, first order effects of EMR will ease transfer of data across vast distances and enable electronic governance, provide ease of indexing and put data in a format which will facilitate discovery, reduce costs required for physical storage, and create efficiencies for medical staff.

There are, however, several obstacles to overcome as I wrote in an earlier post:
» Lack of standards for interoperability and ownership issues
» Government policies, security, and privacy issues
» Doctors don’t know what to purchase
» Technology regarding digital imaging may not yet be there
» Clinical and administrative staff may be resistant to disruptive technology

Companies that can capitalize and overcome these obstacles stand to gain value from the move to EMR and subsequent second and third order effects. I propose SAP continue to leverage its brand name and customer base, retaining and acquiring customers while providing further services. This will be done by turning SAP’s module expertise toward developing apps which make possible the aggregation and analysis of data. As such, the SAP module by definition must also be EMR standard and help industry players conform to government policies, security and privacy issues. Where once companies turned to SAP ERP modules for cost efficiency and operational cohesiveness, SAP will be integral to healthcare organizations’ ability to comply with standards. SAP should take an active role in defining the standard of EMR, and will thus be able to add to their product as well as consulting service with regards to compliance and security.

Note to self:

Security as a layer in healthcare - authentication and identification of the actual "owner" of the information. (IT issues -biometrics? encryption methods?)

Who owns information? Ebay user feedback owned by ebay and not transportable to other venues. Friendster "testimonials" - I used this to find my current roommates.
Great analysis. Good job.
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