My Prescription for Innovation in Today’s Complex Landscape: Part II — The Emerging Markets
The aromas of savory street food wafting through the air, the sight of bursts of color in every direction, the energy of things moving around you in every dimension, the constancy of lively background chatter, and the sound of horns blaring — just because. Those who have spent time in areas known to the business world as the “emerging markets” understand this sensory immersion. Those who are unfamiliar with Mumbai, Cairo or Sao Palo may be overwhelmed with the complex dynamic they perceive while walking down their streets for the first time. The reality, however, may be deceiving.
I would argue that the dynamics governing the emerging markets, particularly when it comes to healthcare, are actually quite simple and sensical. Just follow what I call thevalue chain– the collective economics of products, services and models involved in monetizing portions of the care pathway.
The first step is to map out the value chain of the care pathway of interest. Note, the value chain does not necessarily parallel those in the “established markets” — even for the same set of goods. In order to map out the value chain, it is important to truly understand the flow of how things are done in that geography pertaining to that set of goods. While solutions addressing some of the individual pain points in that flow presents the opportunities for incremental innovation, changing the entire path presents an opportunity for disruptive innovation. And those solutions can take the form of service models and business models — not just product. As a matter of fact, the most disruptive innovations are multifactorial; a novel business model may enable a product innovation and a novel product may enable a service model innovation.
This may all sound like mumbo jumbo but a couple of examples may help explain:
Arthroscopic repair of soft tissue injuries in major joints usually involve the placement of small implants through incisions under endoscopic visualization. To serve cost sensitive markets such as India, large US-based companies in this space often take older generation versions of their technologies, de-feature them, manufacture them in low cost geographies, and slap them with a lower price point. However, marginally decreasing the cost of the implants does little to address the total procedural cost.
Mapping out the value chain.
In India the majority of arthroscopic products are sold by authorized distributors. To perform an arthroscopic repair, in addition to the consumable (implant), you need a tower of capital equipment that comprises a power supply unit, a camera system unit, a pump unit and a resection unit . When a case is scheduled, distributors are called into the hospital. They have to disassemble and pack this tower of equipment into their trunk, lug it through traffic to the clinic, re-assemble it at the hospital, wheel it into the OR, and set it up for the case. This process often limits the distributor from covering more than two cases per day. In order to expand, the distributor would need to invest several hundred thousand dollars per additional tower of equipment. And at the cost of capital in India, the payback period is long.
Instead of defeaturing and selling implants at a lower price point, consider addressing one of the rate limiters in unlocking that market. Consider an inexpensive CMOS based camera, like the one on your smart phone, that doesn’t require a large power supply and image processor units. Also, perceive a simple resection system that is akin a cordless drill, along with a simple pump that delivers a variable pressure/flow without bells and whistles. Imagine all that capital equipment previously in the tower now combined into one component that is integrated into a rollerboard. The cost could be cut to a tenth of that of the original tower with performance that would only be slightly decreased but more than good enough to accomplish the objective. This would allow distributors to cover more cases and sell more implants, all in a more capital efficient manner.
In most of the established markets, clinics are fairly centralized. When a patient sees their PCP and a test is ordered, the patient can usually walk down the hall to the lab, get the test done and go home. When the results are completed, they are entered into the clinic’s system and forwarded to the patient’s physician.
Mapping out the value chain.
Now let’s look at this exact same process in many of the emerging markets. Many the physicians run their clinical practice out of converted apartments where due to teaching engagements, primarily see patients in the evenings. Patients will often queue at the physician’s office for two — four hours before getting in. Given the volume of the patients seen by the physician that evening, physicians allocate approximately 5–10 minutes per patient. After a quick conversation and physical assessment, the physician will almost always order some lab work. The physician writes a script for the lab work and the patient leaves. It is up to the patient to then look for an independent lab, where they will again wait in a long queue, do their diagnostic and then go home. Days to weeks later, the patient is responsible for going back to the lab, waiting in the queue again and picking up the reports. They then make another appointment with their physician and sit in a long queue again to bring them the lab results. Sometimes, depending on the findings, the physician may even order further testing and this entire process is repeated. Obviously, the pain points along this process and therefore the value chain is very different than in the established markets. First, the time it takes to get a diagnosis is needlessly long. Second, the patient journey is exhausting. The challenges of that journey are accentuated by poor traffic conditions in large metropolitan areas, and long and arduous travel for those living in remote areas.
Imagine a capital-lite, smartphone-based mobile diagnostic that with a simple finger prick, can take basic blood panels. Such a product may not be as impactful in an established market clinic, but could greatly minimize cost, time and effort.
Even the word “emerging markets” is a catch-all term encompassing geographies from Latin America, Middle East / North Africa, Eastern Europe, and Southeast Asia, and despite some commonalities, all have different care pathways. The same “global” product, even if it is defeatured and less expensive, may have very little impact in emerging markets.
To truly innovate in these spaces by transforming the care pathway, start by mapping out the value chain!