WHO WINS WHEN INDUSTRIES CONVERGE? - Oliver Wyman...+46.54/–58.50 Source: Air Transport Association of America. No profit zone: Airline industry example ... Healthcare convergence

© Oliver Wyman

WHO WINS WHEN INDUSTRIES CONVERGE?

SEPTEMBER 17, 2014

Adrian Slywotzky

Value Migration®

© Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Value Migration®

$ B

B

$ B

B

US Steel Nucor

US Airways Southwest Airlines

Sears Walmart

Compaq Dell

Motorola Nokia


-12

-10

-8

-6

-4

-2

0

2

4

6

8

'71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07

Net

Pro

fit

(19

95

$B

B)

Source: Air Transport Association of America. +46.54/–58.50

No profit zone: Airline industry example Industry net profit


Evolving no profit zones

• Airlines

• Consumer electronics

• PCs

• Homeowner’s insurance

• Cars

• Beverage in grocery

• Films

• Agriculture

• Environmental remediation

• Lots of manufacturing


Are there any evolving

no-profit zones in healthcare?

• 2014?

• 2017?

My Profitability X-ray

Market share –

a very tricky idea


0%

5%

10%

15%

0% 10% 20% 30% 40% 50%

Pro

fita

bil

ity

Market share

Chrysler

Ford

GM

Automotive – 1970s


Automotive – 1990

0%

5%

10%

15%

0% 10% 20% 30% 40%

Chrysler

Ford GM

Pro

fita

bil

ity

Market share


Automotive – 2002

0%

5%

10%

15%

0% 10% 20% 30%

Chrysler GM

Ford

Pro

fita

bil

ity

Market share


Automotive – 2008

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

0% 10% 20% 30%

Chrysler

Ford

GM

Pro

fita

bil

ity

Market share


My business design

Customer selection

Profit model

Strategic control

Today Next

Scope/alliances

Unique value proposition


What happens when

value migrates and

industries collide?


Technology

Media/content/advertising

Telco

Consumer electronics


Fight with

spouse –

what movie

to see –

“you

decide”

Search

and

search –

what’s

that trailer

I saw?

Go to

store

Pick three Go home Fight

again –

pick one

Forget to

return

Watch Return

five days

later, pay

late fee,

get mad

Before Netflix

Get online;

construct

queue; get

recommendations

Watch Receive

films by

mail

Put in

mailbox to

return

Automatically

receive next

film in queue

Netflix in 1999

Stream content

instantly

Netflix now

What is a hassle map?


M = F × E


Data

comparison/

download

problems

Incomplete

information

Many screens

and computers

A la carte

pricing

Multiple

logins

Multiple

connections/

subscriptions

Easy to

manipulate:

access and

downloading

Sleek dual-

screen terminal

Single

comprehensive

platform

With Bloomberg

Without Bloomberg:

Bloomberg’s little box/big box value proposition The financial trading frustration chain: life without/with Bloomberg

© Oliver Wyman | AJS-20140720-AHA-San Diego

The trader’s terminal The physician’s desktop?

• 30,000 functions

• Consistent/comparable data

• Analytical templates

• Creating algorithms

• Patient history

• Predictive modeling

• Best protocols

• Best process

controls/checklists

• Diagnostic algorithm

“I have all I need at my fingertips.” What would the physician say?


Tech market cap (in trillions) , and broader universe

1.9

4.0

2.5

2005 2014

Telco, media,

consumer electronics

6.5


Retail market cap

0

100

200

300

400

500

600

700

800

900

1000

1994 2014

$200B

$935B

0

100

200

300

400

500

600

700

800

900

1000

Walmart

Amazon

Home Depot

Costco

Lowes Target

Inditex

CVS

Walgreen

IKEA

Macy’s

Ralph Lauren

Other

Walmart

Sears

JCPenney

Kmart

Department Stores


The Value Universe Expands …

AND value shifts.


2000 value 2010 value

$2.6 trillion $1.6 trillion 21 Leaders

$80 billion $1 trillion 11 Cross-chain players

3% 40% Share of value

Value Migration® Four-Chain World


The key point of the Four-Chain World

• Start with the customer

• Ask:

– Who owns the hassle map of the customer?

– Connect the dots to fix it.

– Who is improving it the most quickly?


E-book

• “Huge threat to my business”

• “Huge opportunity to create better experience for the customer

“Cool device”

The laws of perception: What do you see?


What new things will my team have

to learn in the next three years?


Boundary Blurring


• Amazon

• Apple

• IBM

• Samsung


Amazon stock price: 1998 – 2014

$ B

B

2006 2000 2002 2004 2008 1998 2014 $0

$50

$100

$150

$200

$250

$300

$350

$400

2012 2010


$ B

B

Apple

Sony

Market capitalization: Sony versus Apple

2007 2001 2003 2005 2009 1999 2011 $

$50

$100

$150

$200

$250

$300

$350

$400


IBM stock price: 1978 – 1993

0

20

40

60

80

100

120

140

160

180

1984 1980 1978 1986 1990 1994 1988 1982 1992


IBM stock price: 1978 – 2014

$ B

B

2002 1984 1990 1996 2008 1978 2014 $0

50

100

150

200

$250


Samsung stock price: 1996 – 2014

$ B

B

2006 2000 2002 2004 2008 1996 2014 $0

500

1,000

1,500

2012 2010 1998

$1,750

1,250

750

250


X X

Tech

Media

“Different clocks"

The Second Half of the Game

King Kong Godzilla vs.


Tech

Telco

Media

Consumer

electronics

Tech

Telco

Media

Consumer electronics

Retail

Education

Tech

Financial services

Healthcare

Four chains to eight


Healthcare convergence

• Cross-chain competition

• Hassle map

• Capacity dislocations

• Compete/collaborate ratio

• Business design


12

17

55

70

89

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013

Nu

mb

er

of

rou

nd

s

Number of rounds over $2M

7x growth

over 5 years

Source: Crunchbase data referenced at http://techcrunch.com/2014/01/15/vcs-investing-to-

heal-u-s-healthcare/

Note: Healthcare software and apps company early stage funding.

Venture funding of digital health companies

$2,170M

$1,542M

$1,300M

$824M

$329M

$2.2

2.0

1.8

1.6

1.4

1.2

1.0

.8

.6

.4

.2

$0 V

en

ture

fu

nd

ing

($

BB

) 200

9

201

3

201

2

201

1

201

0

Momentum building … Digital health funding growing at nearly 30% per year

Source: Thomson Reuters and Crunchbase for 2008 – 2010 data, Rock Health and

Crunchbase for 2011 – 2013; includes top Rock Health digital health

innovators and selected innovators identified by OW

Note: Only deals >$2M.

http://techcrunch.com/2014/01/15/vcs-investing-to-heal-u-s-healthcare/














Retail

Q: What is retail?

A: $900 BN looking for growth

Market cap Revenue

Walmart 250 BN 500 BN

CVS 95 BN 100 BN

Walgreen’s 61 BN 70 BN

Kroger 26 BN 90 BN

Rite-Aid 6 BN 25 BN

Target 30 BN 70 BN

~ 480 BN ~ 900 BN


Retail: Rapid evolution

Diagnostics

Simple

coordination

(with PCPs)

Telehealth

Wellness

programs

distribution

Kiosk/

information

Acute

episodic,

flu shots


Tech/Telco

“They love hassle maps”

Retail

Healthcare

New sources of competition for value

“They love high costs”


No

Coordination of

Care

Hard to fit

patients in

schedule Lack resources

to manage

chronic

illnesses

Doctors Wait weeks

to see

doctor

Too many

patients, too

little time

No time or $ to

talk end of life

Emotionally

attached

Byzantine

billing

More

billing staff

than

nurses

Hard to be

ideal doc

Professional

frustration

Miss

Appointmen

ts

Problems

go

unnoticed

Can’t

Drive

Complicated

referrals

15-20

medications

Patient

Expensive

hospitalization

Multiple

specialists Conflicting

treatments No holistic

care

Emergency?

Call 911

Expensive

co-pays

No end-of-

life plan

Health

Plan

Redundant

treatment

Hard to

find quality

docs

Costly

senior

care

Risk of

adverse

selection

death

spiral

Need to

minimize

costs Staff

focused on

costs, not

prevention Small

margin for

Medicare

patients Denial of

coverage

Even the toughest hassle maps are opportunities U.S. healthcare


Afghanistan Stability/COIN Dynamics


Healthcare = Hassle Map Heaven


• Ellen

• Dan

• Joe


• Impaired quality of life

• Cost: $25,000

+$200/mo for oxygen

Difficulty

breathing,

onset of

edema

Day 7

Steps on

wireless

scale, +3lbs

Day 1

• Quality of life

maintained

• Cost: $600

Fee-for-service

CareMore

Cough up

frothy

sputum

Day 13

CareMore

nurse calls,

makes appt,

sends car

Day 1

Ventilator,

drugs,

cardiac

catheter

Days 14–19

Permanent

damage,

on oxygen

indefinitely?

Day 19+?

Sees NP,

new Rx

Day 1

CareMore Clinic

Call 911 &

emergency

room

Day 14

Hospital

Source: Interview with Alan Hoops, CareMore Senior Medical Officer and CEO respectively, conducted by Adrian Slywotzky and Karl Weber (08/10/2010); Zipprich, Bernard, “Interview with

Dr. Carlos Cowley, cardiologist,” (10/5/2010); 56% figure comes from “Delivering Integrated Patient Care for Seniors,” CareMore (11/2008), p. 35

56% FEWER READMISSIONS

Crisis

passes

Day 7

Fluid

build up

Day 1

Fluid

build up

Day 1

How do we reduce hospitalizations for CHF patients? Illustrative


Geisinger – Standardization

Recovery

days Consultation

Diagnostic

tests

Pre-op

prep Procedure

90 days

post-op

follow-through

• One invoice/one price

• One point of accountability

• Pro-patient standardization

$112K

$88K


27,820

5,739

0

5,000

10,000

15,000

20,000

25,000

30,000

Dec

10

Dec

09

Dec

08

May

13

Dec

12

Dec

11

0

100

200

300

400

500

600

700

Q4 2010 Q4 2011 Q4 2012 Q4 2013

Clinicians

Sites

Note: Clinicians include physicians, physicians’ assistants, and nurse practitioners

Source: http://www.ncqa.org/Portals/0/Public%20Policy/2013%20PDFS/

pcmh%202011%20fact%20sheet.pdf

Source: Leavitt Partners Center for Accountable Care Intelligence

ACO growth

606

NCQA PCMH growth


The Sound of One Hand Clapping


A cascade of capacity dislocations

• Retail General practitioners

• Care teams Hospitals

Specialists

• Care teams Hospitals

(+ Tech + Retail) Specialists


Industry

profit

margin

Collaboration

should begin

Collaboration

begins

Change the compete/collaborate ratio

soon enough to make a difference

Compete/collaborate: Timing


Compete

100

90

80

70

60

50

Collaborate

0

10

20

30

40

50

• What is the compete/

collaborate ratio in my

industry today?

• What should be my

compete/collaborate

ratio?

Compete/collaborate: Ratio


“Where do we allocate

capital to activities that

give us no differentiation?”


Tech/Telco

Retail

Healthcare

Collaborations


My business design

Customer selection

Profit model

Strategic control

Today Next

Scope/alliances

Unique value proposition


Business model evolution

Category Design #1 Design #2

IBM’s Watson Technology licensor •“Bloomberg” for health

professionals

iWatch Cool device • iPhone-like health

ecosystem

Care team

Medium-term prevention

(reduced hospitalization,

reduced specialist

usage)

• Invest in biosensors, big

data, Watson, genomics,

coaches to add “20 more

good years”

Hospital Cost-cutting,

consolidation

•Partner with and co-create

smart care teams

Pharmacy Clinic •Clinic + telehealth + health

coaches + care teams

Payor Insurer •Consumer health company


• What other important new business models will emerge/

are emerging already?

• How effective are they?

• Which ones do a great job for consumers and investors?

• Which ones would you invest in? And why?


Tech companies

Hospitals

Care teams

Type

.10

$0.70

.20

Asset intensity

20%

5%

15%

Margins

30%

–

15%

Growth

Business models


Hybrid

Hospitals

Care teams

Type

.45

$0.70

.20

Asset intensity

10%

5%

15%

Margins

8-10%

–

15%

Growth

Business models


Who wins?

• Incumbents who pivot in a fast, focused way, and who play

– 30% defense

– 70% offense

• Hassle map fixers

• Newcomers with the BEST new business models

• Those who have mastered the art of collaboration

• The most aggressive exporters

• The CONSUMER


Strong business models exploit change;

weak business models lose value faster.

E.g. taking advantage of

retail, mobile, telehealth,

Watson, genomics


The Scarcest Commodity

LEADERSHIP


Stock prices

Apple

IBM

Amazon

Samsung


The Scarcest Commodity

LEADERSHIP


Additional

Background

Material


The Four-Chain World consumer

Jennifer Stone: 50-year-old, small business owner


The Four-Chain World consumer


http://images.google.com/imgres?imgurl=http://www.7gadgets.com/wp-content/uploads/2008/01/10110_47_2.jpg&imgrefurl=http://www.7gadgets.com/2008/01/18/home-stereo-system-with-sub-for-ipod/4445&usg=__4tam9XIta8MYf9TRsisEgPY-aEs=&h=351&w=500&sz=20&hl=en&start=19&um=1&tbnid=XwUgaQP3i_32ZM:&tbnh=91&tbnw=130&prev=/images?q=stereo+system&hl=en&rlz=1I7EGLA_en&um=1


Bloomberg

Get updated information for stocks

and markets

iXpenseit

Create expense reports

and summaries

Omni Invoice

Generate sales quotes

and customer invoices

OmniFocus

Track tasks by project, place,

person, or date

Streamtime

Track customer information

FileMagnet

Wirelessly transfer files from

desktop computer

iShare

Connect to Microsoft

SharePoint Server

Oracle Business Approvals for Managers

Make intelligent business decisions on the go

LinkedIn

Access your professional

network and contacts

iSpreadsheet

Create, edit, and share

spreadsheets

Managing my business


http://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftware?id=281941097&mt=8











Starting to manage my health?

RunKeeper

Weight Watchers Mobile

Nike+ Running

WebMD

Map My Run

Healthline

First Aid by

American Red Cross

Kaiser Permanente

Restaurant Nutrition

Fitbit

SparkPeople

ZocDoc

My Pregnancy Today

Healthy Diet & Grocery

Food Scanner

iTriage

Vitals

HealthTap

CVS Caremark

The Eatery

Rite Aid

AARP Magazine


The tech attack

• Scale

• Momentum

• Critical mass/company

• Consumer relevance

• Silicon speed


The

Resource

Pyramid

• A much broader

base for the pyramid

• “Top of license” on

steroids

• Costs significantly

lower

Doctors

Nurses

Behaviorists Medical

Assistants

PCMHs Smart Care Team

Retail

Telehealth

Self-directed consumers

The power of the extended care team Leverage: Adding ultra-low-cost capacity to smart care teams

D

N

B

MA

Prevention

Excellence


What will happen to competitive intensity?

• Internal competition

• Cross-chain competition

• Risk of downward spiral

Recall 2.6 1.6


Who’s at the edge of our radar screen?

New tech

companies

Retailers New/independent

care teams

Major tech

incumbents

• Hospital systems

• Medical groups

• Insurers

• Competitors for value?

• Good ideas?

• Great partners?

Documents

WHO WINS WHEN INDUSTRIES CONVERGE? - Oliver Wyman...+46.54/–58.50 Source: Air Transport Association of America. No profit zone: Airline industry example ... Healthcare convergence