Innovation in Services Winter 2011 Professor Nina Ziv Polytechnic Institute of NYU Professor Nina Ziv Polytechnic Institute of NYU

Key Questions  How is innovation in services different from innovation in traditional high tech sectors?  According to Lyons et al, what are the salient characteristics of innovation in a services organization?  Can such characteristics be applied to all service based industries?

Innovation in Services – A New Way of Thinking - I  Competing on service innovation requires more intensive set of organizational practices than competing on physical product innovation or traditional engineering based innovation  In Investment banking, innovation tends to be more fluid and evolutionary rather than radical. More incremental and accumulation of small advances  Need for fostering service innovation culture which is a consistent, and comprehensive presentation of values and norms that promote fresh thinking and swift execution  Innovation in services differs from product innovation  It is not radical, disruptive or game changing  R&D, IP issues, and patents have little to do with services innovation in the traditional sense  Four distinct enablers  Client demand for services that span boundaries  Broad and deep client relationships  Tight integration between design and execution  A vision of innovation that is articulated from the top, i.e., support for a culture of innovation

Innovation in Services – A New Way of Thinking – II  Emphasis needs to be put on a culture of innovation which permeates the entire organization – this is key to success for services based firms  Distinctions between services innovation and manufacturing innovation  Innovation in services distributed throughout the organization rather than an emphasis on individual success and freedom  Innovation in services is continuous rather than done in stages. It is more fluid in nature where design and delivery are linked together  Innovation in services is relevant to hiring and promotion practices  Innovation in services is enabled by leadership where leaders are responsible for managing the seeming contradiction between a strong culture and innovation  Innovation in services balances risks and rewards. Important to create environment where there are rewards for innovative behavior and creativity  Leading through innovation means enabling people to create and deliver small incremental innovations every day.

Some Ideas from Herzlinger - I  Three kinds of innovation can make health care better  Consumer focused – more convenient, more effective and less expensive treatments and more user-friendly services  IT innovations which enable the connection of vast amounts of information and also make the system more patient-centric  Innovative business models which integrate healthcare activities, improve care and save consumers time  Six forces that affect innovation in healthcare  Players – large number of stakeholders each with an agenda and competing interests which are always clear and often conflict  Funding – the healthcare arena presents financial challenges because of lack of familiarity with the industry and the complex nature of the payment schemes

Some Ideas from Herzlinger - II  Six Forces that affect innovation in healthcare (continued)  Policy – government regulation can sometimes aid healthcare but often puts obstacles in the way  Technology – Adoption of technology can make healthcare more efficient but need to understand how and when to adopt various technologies.  Customers – People are now empowered and need to co-create with providers  Accountability – Services must be accountable to providers and consumers of the services  Avoiding obstacles to Innovation: Some success Stories  Minute Clinic – Provides basic care and uses local practitioners so the company is not in competition with these practitioners  Medtronic – develops implantable pacemakers and is successful because it worked directly with the surgeons who were involved in using the devices and therefore co-created with them  HCA – Pioneered a business model innovation in healthcare by consolidating services in underserved communities where customers were grateful for a full service hospital

Healthcare Today in the US: Some Statistics Sources : blog.cleveland.com/medical/2008/06/number_of_underinsured_america.html

7 Current State of Healthcare in the United States  Overwhelmingly focused on treatment rather than wellbeing of patients  Organizational-centric system where patient data and patients are owned by different organizations  Clearly need for implementing a patient-centric healthcare system which is driven by technological innovations designed to streamline healthcare information system and provide optimal care to patients BUT There are Significant barriers to the implementation of innovative patient-centric system

8 Current Healthcare Challenges - I  Overall barriers to implementation of innovation in healthcare include:  A culture which has been largely adverse to adoption of innovations  Insularity of industry - little incentive to innovate because industry is relatively isolated from other industries  Patients and healthcare practitioners are reluctant to change  An enormous number of stakeholders, each with their own agenda and lacking trust in other stakeholders  Government regulations, e.g., licensing of doctors across state lines  Obsolete payment system which does not reward practitioners who innovate  Reimbursement continues to be an issue  Fee for services – practitioners are paid to provide more services

9 Current Healthcare Challenges - II  Barriers to implementation of technological innovations include:  Lack of standards and interoperability between systems  Reluctance to build new systems because of revenue loss if the system becomes obsolete  Concerns about privacy and security of healthcare data  Focus on implementation of individual technologies, i.e., so-called one offs  Industry has large numbers of institutions operating in legacy ‘brick and mortar’ mode