Kodak, once the dominant force in photography, invented the first digital camera in 1975. A young engineer, Steve Sasson, developed the prototype, but Kodak’s leadership dismissed it. Fearing digital photography would cannibalize their film business, they doubled down on reliable old-school film.
The innovator’s dilemma, a concept popularized by Clayton Christensen, is, in a nutshell, “what do you do when a new opportunity is incompatible with your business model?” Essentially, the dilemma captures challenges established companies face when disruptive innovations emerge. These disruptions often start as inferior or niche products compared to existing offerings but eventually improve and reshape the market. Established firms typically fail to adopt these innovations because they focus on their core, profitable products and customers, ignoring the emerging trend until it’s too late.
Healthcare is now facing its own innovator’s dilemma. With the ballooning adoption of AI across industries (77% of companies are either using or exploring the use of AI in their businesses), it was only a matter of time before AI was applied to simplify and automate various aspects of the healthcare system, including the complicated process of payment integrity.
While it’s undoubtedly the way of the future, adopting AI is still seen as a huge hurdle, causing health plans, hospitals, providers, to lean towards sustaining instead of disrupting. Can the healthcare industry adapt or will it continue to cling to fax machines?
Sustaining Versus Disrupting Innovation
An important aspect of the Innovator’s Dilemma is the distinction between sustaining innovation and disrupting innovation.
Sustaining Innovation
Sustaining innovation is serving current customers—it’s essentially innovation based on feedback. Customers want something, so companies create to fulfill that need. Yes, there are new products or features being introduced, but ones that sustain the current market.
Companies sustaining innovation have a strange mix of nearsightedness while somehow simultaneously thinking big-picture. They’re very much focused on what’s going right in the current state and how they can expand on that. For example, they tend to ignore smaller markets and resist investing in innovations that offer lower margins or smaller returns compared to their established products. Instead, they look to refine their existing products rather than exploring completely new paradigms.
While everyone’s always saying to “be in the moment” or “be present,” that mindset can often pigeon-hole businesses. It cements their position and has potential to lead to their demise.
Disrupting Innovation
Disrupting innovation, on the other hand, is for new or emerging markets—changing the game rather than just the players. It’s innovation that fulfills future needs, maybe even needs current customers aren’t aware of yet.
Disruptive innovations typically begin in niches perceived as unimportant or unprofitable to incumbents.
Examples of the Innovator’s Dilemma
There are numerous examples that demonstrate the innovator’s dilemma—companies that were once behemoths at the top of their game, growing at lightning speed but suddenly came to a screeching halt. What’s left of them today? Often it’s shuttered, abandoned brick-and-mortar locations with ghostly silhouettes of extinct logos hinting at what once was.
- Blockbuster
Blockbuster dominated the video rental market and relied on late fees for profitability. It dismissed Netflix’s DVD-by-mail and later streaming models as unprofitable. By the time Blockbuster recognized the shift to streaming, Netflix had already taken the lead.
- BlackBerry
BlackBerry was the leader in mobile devices, focusing on secure communication and physical keyboards. It dismissed touchscreen smartphones, considering them impractical for its business customers. The rise of the iPhone and Android devices reshaped the market, leaving BlackBerry obsolete.
- Xerox PARC
Xerox’s Palo Alto Research Center (PARC) developed groundbreaking innovations like the graphical user interface (GUI), Ethernet, and laser printing. However, Xerox failed to capitalize on many of these inventions, focusing instead on its core copier business. Companies like Apple and Microsoft took these ideas and revolutionized the tech industry.
Healthcare Takeaways From the Innovator’s Dilemma
The healthcare industry should heed the warning of the innovator’s dilemma. In an industry often referred to as antiquated, resistant to change, and overcomplicated, healthcare should welcome disruption and innovation with open arms. Emerging trends shouldn’t be dismissed because they start small as they often evolve and become mainstream.
While yes, integrating AI may be a complicated process to kickstart, it’s becoming a “get on board or get out of the way” situation as AI is already being widely used by healthcare organizations. For example, Healthcare Dive, covering a report by KLAS, mentioned, “more than half of healthcare organizations are using an AI imaging tool.” Health plans are taking advantage of AI for payment integrity not only because of its cost-saving potential, but the speed in which those savings are realized.
Healthcare organizations have to look at the bigger picture and understand that AI isn’t a disruptive innovation that could happen down the road, it’s already happening. Adaptability and willingness to disrupt your own business are essential for long-term survival.
The healthcare industry should consider Kodak as a cautionary tale. Eventually Kodak came around on digital cameras but, by the time they fully committed, it was too late. Companies like Apple and Samsung entered the space with smartphones, making standalone cameras less relevant. Kodak’s failure to pivot quickly and decisively led to its bankruptcy in 2012, a classic case of corporate inertia and the “innovator’s dilemma”—where a company refuses to disrupt its own lucrative business, only to be disrupted by others.
To avoid your own innovator’s dilemma, contact us to learn how Machinify can help your health plan disrupt for positive change.
