the rules of the game and business models in primary prevention

FP7-ICT-2009.5.1 – Support Action

Directions for ICT Research in Disease Prevention

This project is partially funded under the 7th Framework Programme by the European Commission

The Rules of the Game and Business Models in Primary Prevention

Henri Hietala8.11.2010

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Content

1. Concepts & Theory1. Understanding Business Models2. Acknowledging the ”Rules of the Game”3. The Transformation of Business

2. The Business Model Framework & Primary Prevention

3. Discussion

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UNDERSTANDING BUSINESS MODELS“Competition today is not between different products - it’s between different business models”Gary Hamel

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What is a Business Model?

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The business modelillustrates how the

company makes money.

What’s a revenuemodel then?

Hmmm???

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• A young concept first introduced in the 1990’s• Numerous different definitions, but no consensus has

been reached on its meaning• Business models are not revenue models although the two

concepts are mistakenly used as synonyms– Financial flows, both revenues and costs, are the consequence of

creating value.

• Business models illustrate how an organization creates value and captures a portion of this. – Value is the root of the business model– This is where managerial focus should be

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Key questions to ask: Offer &Value proposition: What do you sell? What value does the company create for

customers and partners?Customer: Who are your customers? How do you reach them?

Infrastructure: What resources do you need for this and how do you organize them?Finance: How do you translate the created value into earnings and what does creating the value

cost?

COST

STRUCTURE

ACTIVITY

CONFIGURATION

CORE

CAPABILITIES

VALUE

NETWORK

INFRASTRUCTURE

VALUE

PROPOSITION

OFFER

FINANCE REVENUE

STREAMS

CUSTOMER

RELATIONSHIPS

CUSTOMER

SEGMENTS

CUSTOMER

DISTRIBUTION

CHANNELS

Source: Modified from Osterwalder (2007)

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• Business models can also be seen as:– Narratives that convince, typifications that legitimate, recipes that

guide social action…– Therefore, we need a common understanding of what it means…

• Business models are sources of competitive advantage• Business models conceptually vs. Business models in real

life:– Conceptually built from the same elements– In practice every business model is unique

What about business models in ICT enabledprimary prevention?

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ACKNOWLEDGING THE RULES OF THE GAME

Prevention of diseases

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What are the ”Rules of the Game”?

1. We are surrounded by rules…2. The rules are different…

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3. Some also try to bend the rules…4. Rules are needed…

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• What about business?

• All economic actors act in the context of society, culture, the economy and politics.

• Economic activities cannot be viewed in isolation from other institutions or from the technological, political, and social context in which organizations exist

• Institutions are the rules, consisting of both the formal legal rules and the informal social norms that govern individual behavior and structure social interactions– Institutions = Rules

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• Institutions are constraints devised to structure interaction due to the uncertainties involved in human interaction.

• For markets, to work as they should, we need institutions that govern the way business is conducted.

• In other words, rules create “interoperability” in business and decrease risk for all stakeholders.

• These rules however, are not necessarily or even usually created to be socially efficient

• Rather they, or at least the formal rules, are created to serve the interests of those with the bargaining power to create such rules.

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INSITUTIONAL LEVEL: ECONOMY

ORGANIZATIONAL LEVEL:

BUSINESS MODEL

MARKET / INDUSTRY

EC

ON

OM

IC C

ON

TEX

TPO

LITIC

AL

CO

NTEX

T

SO

CIA

L CO

NTEX

TTEC

HN

OLO

GY

CO

NTEX

T

LEGAL CONTEXT

• The Rules have a significant impact on the value creation potential of organizations on a market level.

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• Creating or changing the rules has potential to create markets– A much greater effect than a change in a single business model

Case A: The Railway System

Case B: The Lead Market Initiative

What about the ”Rules of the Game” for ICT enabledprimary prevention?

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THE TRANSFORMATION OF BUSINESS“The only thing we know about the future is that it will be different. The best way to predict it is to create it.”Peter Drucker

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Service Dominant Logic

• The role of services in current economies has grown. S-D Logic goes further in arguing that everything is a service.

• Foundational premises from S-D Logic:– 1. Goods are distribution mechanisms for services– 2. The customer is always a co-creator of value– 3. All economic and social actors are resource integrators– 4. The enterprise cannot deliver value, but only offer value

propositions– 5. Value is always uniquely and phenomenologically determined

by the beneficiary

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Value

• Business models illustrate how an organization createsvalue. But what is value?– Benefits against sacrifices– Financial and / or non-financial

• Value-in-exchange: – Value is created by the firm through a series of activities, and is

embedded in the form of products and services that are distributed in the market to consumers, usually through exchange of goods and money

– Firms create value, consumers consume/”destroy” it

• Value-in-use: – Value is fundamentally derived and determined in use (value-in-

use) rather than in exchange– The roles of producers and consumers are not distinct, meaning

that value is always co-created, jointly and reciprocally

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Value co-production & -creation

• Value co-production:– Represents the joint activities of the firm and the customer in the

creation of firm output. It involves the participation in the creation of the core offering itself. It can occur through shared inventiveness, co-design, or shared production of related goods, and can occur with customers and any other partners in the value network (Vargo, Maglio & Akaka, 2008) .

• Value co-creation:– Value can only be created with and determined by the user in the

‘consumption’ process and through use or what is referred to as value-in-use. Thus, it occurs at the intersection of the offerer and the customer over time: either in direct interaction or mediated by a good because goods are distribution mechanisms for service provision. (Vargo, Maglio & Akaka, 2008)

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The N = 1 and R = G World

(a) (b)

”Old World” New N = 1 & R = G World

1900 2015

• N = 1: Refers to a shift from a focus on masses to a focus on the centrality of the individual.

• R(esources) = G(lobal): Refers to a shift from ownership of resources to access to resources.

Source: Prahalad & Krishnan (2008)

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Value Networks

• The locus of value creation is no longer perceived to reside within firm boundaries but value is considered to be co-created between various actors in the networked market

• Value network: Complex socioeconomic systems that consist of various actors that form a commercial infrastructure whose constituent companies have mutually reinforcing economic models.

• Value networks rely on the capabilities of others to enhance their value creation potential they tend to be collections of complementary and substitutive resources possessed by different economic entities

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Value Networks

TIER 2

ENABLERS

TIER 1

ENABLERS

SERVICE

PROVIDERSCONSUMERS

AUXILLIARY

ENABLERS

VALUE NETWORK

Source: Basole & Rouse (2008)

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THE BUSINESS MODEL FRAMEWORK & PRIMARYPREVENTION

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The Business Model Framework

VALUE

PROPOSITION

COST

STRUCTURE

CUSTOMER

RELATIONSHIPSCUSTOMER

SEGMENTSACTIVITY

CONFIGURATION

CORE

CAPABILITIES

VALUE

NETWORK

REVENUE

STREAMS

INFRASTRUCTURE CUSTOMEROFFER

FINANCE

DISTRIBUTION

CHANNELS

ORGANIZATIONAL LEVEL: BUSINESS MODEL

SERVICE SYSTEM LEVEL: VALUE NETWORK

INSITUTIONAL LEVEL: INSTITUTIONAL ENVIRONMENT

”Rules of the Game”

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• 3 layers: Business model, value network, ”Rules of the game”– Internal fit, external fit, configuration & re-configuration

• Conceptually easy to understand, but in practice:– Business models are extremely complex– Value networks are extremely complex– ”The Rules of the Game” are extremely complex

• Robustness (Aaltonen, 2010): Preferring common sense over lots of knowledge– Aristotelian reasoning: It is impossible to know in advance the right

means to any end as the ends emerge in the acting situation of all its complexities

• The framework does not necessarily give the right answers but helpsin asking the right questions…

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• Guidelines on a conceptual level that will help enhancevalue creation potential for individual service providers


VALUE

PROPOSITION

COST

STRUCTURE

CUSTOMER

RELATIONSHIPSCUSTOMER

SEGMENTSACTIVITY

CONFIGURATION

CORE

CAPABILITIES

VALUE

NETWORK

REVENUE

STREAMS

INFRASTRUCTURE CUSTOMEROFFER

FINANCE

DISTRIBUTION

CHANNELS

N = 1R = G

S-D Logic, value co-creation

Value co-production Open Business Models

Decrease costs through R = G Increase revenues N=1 & R = G

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Primary Prevention:

• 1) What about business models in ICT enabled primary prevention?

• 2) What about the ”Rules of the Game” for ICT enabled primary prevention?

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The Value Proposition to End-users

• Value proposition:– A value proposition is a product or service that helps customers

complete a job they’ve been trying to do more effectively, conveniently and affordably (Christensen et. al., 2009).

• What is the ”job to be done” in primary prevention?– Sick population: To get healthy– Well & At risk population: Stay healthy or not to get sick

• The ”graveyard” of failed products and services: People didn’t want what they should have wanted– Consumers are different, do we need different strategies?– Active Health & Worried Well vs. ”At Risk”

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The Value Proposition for End-Users

COMMON

GOAL:

STAY HEALTHY

CARLO, 10 YEARS

AT RISK

SONJA, 20 YEARS

AT RISK

JENNI, 31 YEARS

AT RISK

ROBERTO, 48 YEARS

AT RISKValue

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The Value Proposition for End-Users

CARLO, 10 YEARS

AT RISK

SONJA, 20 YEARS

AT RISK

JENNI, 31 YEARS

AT RISK

ROBERTO, 48 YEARS

AT RISK

Value

Value

Value

Value1) UNIQUE PERCEPTION OF WHAT

VALUE IS

2) VALUE PERCEPTION MAY NOT BE

HEALTH RELATED

1) LONG TERM HEALTH RELATED VALUE HIDDEN

BEHIND OTHER PERSONAL VALUE PERCEPTIONS

HEALTH &

WELLNESS

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What kind of Value is the Goal?

• Hidden health benefits are needed because the end-userdoes not necessarily pay for the service:– Individual: Unique perception of value, ”perceived ROI”– Corporate Wellness: ROI– Society: ROI

• Why not just a health related value proposition?– All health related value is dependent on the end-user in the long-

term (value-in-use)– If health is not the job end-users want to do they will not use and

no value will be created

• Personalized value propositions with hidden healthbenefits

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Technology & Resources

• Technology: – New technologies have no intrinsic value– The value of technologies stems from the ability of entrepreneurs

and firms to construct, often ex novo, organizational structures and networks of stakeholders and audiences in ways that allow for value realization ( = business model)

– ”The Engineer way of developing”– Technology & Value-in-use:– S-D logic: Goods are distribution mechanisms for services– Value is created through use

• Resources: – Emphasizing the behavioral context of primary prevention– Healthcare and ICT professionals alone is not enough

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HealthMedia

• Personalized Digital Health Coaching:– N = 1 & R = G– ICT enabled synergy and scale effects

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What about the ”Rules of the Game”?

Hospital

Pharmacy

Specialist-

centre

General

Practice

Home

Restaurant

Super-

market

Museum

Sports centre

Farm

Work

Car

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What about the “Rules of the Game”?

• Regulated health market: Loop 1– Growing demand for healthcare services, shortages of resources– Strict rules to assure safety and create trust– Structures do not sufficiently support personalized primary prevention

(system triggered for acute care) – Difficult to conduct business for prevention service providers

• If we know prevention is a good thing why not change the rules?:– Case Railway: One change created a market– Case Prevention: Would one change be enough? What would it be?– Much more complex: Changing an existing system with long traditions,

both the ”old” and ”new” system are needed, cross-sectoral politics(horizontal and vertical), conflicting value perceptions and different emphasis (electric cars or healthcare?), bargainning power & lobbying…

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• “Unregulated market”: Loop 2– Co-Producers as the drivers of primary prevention: 1) The healthcare

system is a small part of our lives when we are healthy 2) Factors contributing to positive or negative health = Life

– Creating a favourable market for this by changing the ”Rules of the Game”. Policy tools including taxation, subsidies, R&D…

• Making creating wellness / health lucrative

– Service Providers in this market could create more attractive services to consumers

– Liability issues, trust issues, validation of value proposition…

• Integrating the two loops: – HSR’s vision: Engineering Awareness– Co-producers supporting the healthcare system in achieving the same

goal: creating ”health”– The current way has not worked, we need new ways of thinking to solve

the problem

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• Positioning of market has major implications for business models because the rules may be different


REGULATED HEALTHCARE MARKET:

PRIMARY PREVENTION

”UNREGULATED” MARKET:

WELLNESS OR JUST LIFE

HEALTHCARE PROVIDERS:

Rules A

CO-PRODUCERS:

Rules A or Rules B?

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Where to begin?

• Who are / will be the innovators and early adopters?

INNNOVATORS

2,5%

EARLY

ADOPTERS

13,5%

EARLY

MAJORITY

34%

LATE

MAJORITY

34%

LAGGARDS

16%

100%

75%

50%

25%

0%

MA

RK

ET S

HA

RE %

Current market

”THE CHASM”

REALIZING POTENTIAL MARKET WILL REQUIRE

SYSTEM LEVEL CHANGES

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“Doggy Bag”

• Business models:– Not the same as revenue models. Conceptual models of creating and

capturing value, but in real life all business models are unique.– N = 1: Shift from a focus on masses to a focus on the centrality of the

individual. – R(esources) = G(lobal): Shift from ownership of resources to access to

resources.

• The ”Rules of the Game”:– Market creators– Much greater impact than a change in an individual business model

• Primary prevention:– We need rules that support prevention oriented value creation– Sustainable business models will be a consequence of these rules

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• Complexity: A little luck never hurts the business model…

”Doggy Bag”

Rovio Oy: Angry Birds – They could have not seen it coming…

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THANK YOU & DISCUSSION

Prevention of diseases

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PREVE partners

Valtion teknillinen tutkimuskeskus, VTT

Aarhus University

Fondazione Centro San Raffaele del Monte Tabor

Universidad Politécnica de Valencia

the rules of the game and business models in primary prevention

Health & Medicine