Thursday, October 8, 2015

10:14 AM

Innovations and disruptive technologies drive a new generation of change. 

By Jim Stinson

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Many of us are taught to believe that disruption is bad. But at Simon Business School, students learn that disruption can be a very good thing. Beyond lessons in the classroom, Simon students examine the benefits of disruption. In fact, they often hear from alumni who are positively disrupting their own industries—especially in some of America’s most high-tech companies—through the deepening connection between the tech industries and Simon.

Of course, disruption as the business term means something a bit different from how the word is used by grammar experts. A few online dictionaries, such as dictionary.com, have added a business definition of disruption: “(A) radical change in an industry, business strategy, etc., especially involving the introduction of a new product or service that creates a new market.”

It is that definition of disruption that has become the practice of many businesses—and it is likely to be the general direction of enterprises around the world. Businesses, including those led by many Simon alumni, are encouraging their managers and employees not to fear the changes that disruption will bring, but to embrace new models of production, service, and delivery that well-thought-out disruption can entail.

Some leaders, however, are not simply embracing disruption. Instead, they are urgently working to assess its ongoing impact and assert that the current generation of changes caused by innovation and disruption could be bigger than any other changes the marketplace has seen for centuries.

Mark Zawacki
Mark Zawacki ’96S (MBA) is the founder of 650 Labs, an innovation lab in the heart of Silicon Valley. According to Zawacki, his Mountain View, California, company, named for the Silicon Valley area code, helps nontechnology multinational companies “seize the potential of the myriad disruptive forces exploding out of the Silicon Valley.” Part of a strategy that 650 Labs encourages is to get nontech companies to establish a Silicon Valley presence because so much is happening there. Zawacki says he tells his fellow business leaders that “we are entering a period of heightened change” and to expect something with the same innovative impact as the invention of the assembly line—and to expect it regularly. If they don’t heighten their awareness, he says, businesses become like a world seeing a meteor coming, a world that realizes its time to deal with imminent impact has long since passed.

Zawacki also argues that disruption needs to be better defined and understood. “[The term] ‘disruption’ ought to win an award for the most overhyped word of the decade,” he says. “Everything is ‘disruptive’ these days, it seems. In order for a new product or service to be truly disruptive, it must meet two conditions. It must gain meaningful market share against the incumbents it is competing with, and the incumbents cannot adequately respond/copy/mimic the product or service in any way.”
Disruption was around long before the Internet and digital age. Until recently, its history has been most evident with the rise of the Industrial Age, and it continues in the modern Information Age with advances in technology and a marked increase in global trade. But the modern age of innovation has accelerated, caused as much by the Internet and computer chips as by notable moments in human cleverness.

David Tilson
According to David Tilson, associate dean of the Full-Time MBA program and a clinical associate professor of computers and information systems, consumers have already noticed some radical changes brought by the digital revolution. Consumers are streaming movies through computer devices at home, paying a fee to do so. Not so long ago, consumers were largely driving to movie-rental businesses such as Blockbuster stores. In only a few years, streaming became a popular choice for consumers, causing Blockbuster to shutter most of its stores.

“Our conceptions of how established industries work are rooted in the limits of the physical and
analog worlds,” he notes. Tilson argues that when disruptive change happens and business patterns are disrupted, the old constraints are actually shattered—often by the application and recombination of new digital alternatives. This reconfiguration, he says, results in improvements on the delivery of goods and services, and sometimes even the emergence of entirely new industries. As we will learn, Simon alum George Gibson ’99S (MBA) describes disruption and innovation as taking the friction out of business transactions and improving the business flow.

Health care and disruption

Health care in particular will see major changes, says Abraham (Avi) Seidmann, Xerox Professor of Computers and Information Systems, Electronic Commerce, and Operations Management at Simon Business School. The reason won’t solely be digital technology, Seidmann says, but the fiscal need to manage growing costs in an aging America as well. He notes there were about 44 million people on Medicare in 2004; by 2013, that number jumped to about 55 million. And that number will hit about 80 million in 2030, Seidmann says.

Avi Seidmann
An aging population with labor-intensive needs may not be the first thought when discussing disruption and innovation. Big ships turn slowly, but Seidmann believes the cost issue will change that, forcing policymakers and health officials to look at alternatives—and to do so relatively soon.

Seidmann and Ray Dorsey MD, MBA, professor of neurology at the University of Rochester Medical Center, are not waiting around to simply observe the change. On May 29 in Manhattan, they co-chaired a major industry event about disruption and innovation. The d.Health Summit was held at 7 World Trade Center, bringing together 250 leaders in health care, technology, policy, banking, and innovation. It was the first joint conference held by Simon Business School and the University of Rochester Medical Center, Seidmann says. Its focus was on how to shake things up in delivering care to aging America while the nation’s finances get tighter.

“We don’t see where the money [for Medicare] will come from,” says Seidmann. “So there’s going to be a lot of disruption.” And where will the disruption be targeted? Seidmann believes nursing homes and hospitals will see the biggest changes, largely because policymakers and doctors will allow, he notes, more “aging at home.”

One major disruption could be in the delivery of nursing, Seidmann says. It is conventional wisdom that to get nursing around the clock, one has to go to a hospital or nursing home. Seidmann says that is about to change. The use of “telemedicine” will allow many patients to consult with their doctors through audio and visual data streaming. Telemedicine and the Internet take the distance out of the equation, he notes.

Seidmann is enthusiastic about what he calls “hospital at home”—a practice that could come after a discharge following surgery. The patient would go home and receive around-the-clock nursing during the recovery. It would be a radical departure from expecting patients to come to hospitals to be nursed. Seidmann predicts that once approved by medical policymakers, “hospital at home” will become the “Uber of health care,” a comparison to the ride service that has disrupted taxicab systems worldwide. And having nurses care for patients at home won’t be cost-prohibitive, Seidmann says. “It’s still cheaper than keeping the patient at the hospital,” he notes. “The numbers speak for themselves. We are going to see huge changes in how health care is given.”

Ray Dorsey
Dorsey believes the medical sector is catching up to other industries that have implemented technology to disrupt the marketplace. “The current delivery of health care to aging Americans, and Americans generally, is lacking,” says Dorsey. “Other service industries all have been reshaped by technology to provide largely more convenient services. We think the same can be done for health care and have used simple video conferencing to deliver specialty care to individuals with Parkinson’s disease—directly in their homes, for example.”

Dorsey is working on “mPower,” a smartphone research study application for Parkinson’s disease that Apple released as part of its open-source ResearchKit platform. Dorsey says more than 14,000 individuals have enrolled in the study, which combines standard surveys, structured tasks like voice recordings and assessments of gait and posture, and passive monitoring of activity and GPS. “The objective is to evaluate the variability in individuals’ symptoms and progression over time, and identify potential modulators, including exercise, diet, and medications, of Parkinson’s disease,” he notes.

Taking the friction out of business

George Gibson and other Simon alumni are working on such disruptive health care changes every day. Gibson, a member of the Xerox Innovation Group, is the director of market strategy for PARC, a Xerox company. Though he recognizes that health care is a particularly hard nut to crack for innovators, he believes that health care can be disrupted and costs can come down, despite the “horribly bureaucratic” nature of some institutions. Founded in Rochester, Xerox has a large health care business, Gibson says, handling Medicare and Medicaid claims in 36 states and the District of Columbia, serving roughly two-thirds of privately insured persons in the United States and over 1,700 hospitals.

One area of cost concern is the processing of insurance claims. Gibson says this expensive area of health care is ripe for the “friction” to be removed. He gives an example of why: He says a friend’s wife fell down the stairs. After treatment—she was not seriously hurt—their health insurance claim was denied. Gibson says the friend will now engage in a back-and-forth with the insurance company, appealing the rejection and likely winning because of a coding error. The whole process is labor intensive and hands-on. Gibson hopes to see the addition of smarter information technology help change that, bringing down health care costs.

Gibson admits information technology has not always done this, and believes “new chaos” in the health care industry always seems to slip in. But the disruptors are not giving up. Gibson speaks of at least two innovations in development at PARC. One takes advantage of the fact that so many people worldwide carry smartphones—little digital assistants that pack the power of what bulky personal computers did just a decade ago. Fittle+ is a project that builds on PARC’s current mobile behavior-change platform and Carnegie Mellon University’s smartphone-based activity analysis. Gibson says Fittle+ provides support for individuals and teams to progress through lifestyle challenges, helping people to master one health-improving habit after another, in a way that builds on previous achievements.

“Users can choose from a variety of third-party health challenges to accomplish goals via an intelligent coaching agent and personalized and engaging user experiences,” Gibson says. “These challenges are either conversions of existing behavior-change programs that have been developed over the years or new programs, all created by current professionals.”

Other ongoing projects include efforts to use printed technology to create super-low-cost medical diagnostic testing and video sensors that could be used to monitor heart rate and EKG readings remotely. Using Xerox’s detailed knowledge in personalization, the technology could also help improve medication adherence, a problem that by itself will drive about $300 billion of avoidable expense into the US health care system this year alone.

But what about institutional cost cutting? “We are working on fraud detection in health care,” says Gibson. “This is clearly an important yet difficult problem. We present a fraud-screening solution to identify suspicious pharmacies from a large dataset of pharmacy claims. Our solution has stemmed from collaboration with medical-claim investigators and has proven useful to investigators by discovering real fraud cases.” Gibson says his department at Xerox focuses on a “concrete problem” of probabilistic outlier detection from a feature set designed for such claims. Although the reported results are specific to pharmacy claims, this work is not restricted to such claims, Gibson notes. “We are currently extending the solution to fraud screening of more general medical claims and fraud detection in other verticals,” he says.

Disrupting industries

Disruption is already well under way in industries in general. Associate Dean Tilson notes the world has seen innovative disruption in movies, music, transportation, and more. Causing particular disruption in transportation is Uber. So disruptive has it been that on June 29, French authorities detained two Uber officials. The Associated Press reported that the detention followed a sometimes-violent taxi strike in France.

Digital disruption, in fact, is causing headaches in many industries that have been fairly immune from complete digitization. Tilson says other problems could arise when an industry begins to offer more digital choices but lacks a long-term game plan.

One example Tilson gave was newspapers. Media analysts have been predicting the rise of digital media over printed products since at least 2001, but being replaced by Internet options hasn’t been the sole cause of what has made the ride so rocky for newspapers. Tilson says many newspapers decided to put their content online for free at the same time that Internet sites such as Craigslist were taking away classified-advertising business that had been so lucrative.

Compounding problems was the rise of aggregating sites, which also diverted advertising dollars from newspapers—the original creators of the content to which the aggregators were pointing. Newspapers continue to offer dual products of print and Web-based content, but struggle to see digital revenues catch up to print revenues.

Perhaps the best example of disruption started to happen around 2000, as digital photography rose. Such disruption had a marked effect on the Rochester region. Disruption in the photography industry changed how Kodak looked at the ways consumers use film and, eventually, digital cameras and smartphones.

The change happened relatively rapidly. In 2000, consumers were still largely using film. In 2015, however, people are largely using smartphones and digital cameras. Film had been taken out of the larger consumer equation—the product had almost completely been digitized. It was perhaps a preventable fate for Kodak. “I am pretty sure Kodak would like to rewind the tape to 1995 and have a ‘do-over,’?” Mark Zawacki says. “Sadly, disruption can be swift and devastating.”

Big does not equal immortal

Zawacki notes big companies such as Kodak are vulnerable. In fact, a recent study shows big companies need to be concerned about their growth patterns. “Large companies are not growing,” he says, citing 2012 research by Rita Gunther McGrath that found only eight percent of nearly 5,000 large companies studied achieved five percent growth or better for two years running. McGrath wrote that only “a paltry 10 companies achieved growth of five percent or better for a decade.”
“Large incumbents like to say they are innovative, but it’s not showing up in the growth rates of their companies,” Zawacki notes. “Now the good news: Large companies have assets to leverage, healthy balance sheets, distribution channels, and brand awareness and existing customers ... What’s lacking, though, is a general sense of urgency.”

Zawacki says he agrees with business pundits, including MIT’s Peter Diamandis, who believe there is a “mass extinction” event lurking in the next decade for many companies now listed on the S&P 500. Zawacki says he knows why these large business incumbents, feared for now, will die out like the Tyrannosaurus rex and Brontosaurus—beaten by smaller, quicker competitors who disrupt the marketplace with new ways of doing things.

“[Big companies’] pace of decision-making has slowed dramatically as analysis moves up and down the organizational chart,” Zawacki says. “We have a crisis in the C-suite, where the time horizon of the meteor impact is outside the anticipated tenure of the executives making the strategic decisions—thus, delay. Quarterly results, EPS, current cash flow, and dividends take precedence over the Crater Lake of 2020.”

But why are companies slow to counter new competitors or to adopt new ways of doing things? “Incumbent businesses often see competitive threats, yet they don’t normally act on them in time,” says Zawacki. “Incentives are aligned to optimize the existing business, the competitive threats aren’t taken seriously early enough, organizations are often not optimized to react quickly to competitive threats, and other such thinking.”

Yet Zawacki sees tech companies constantly evolving, not just rising as information providers but also expanding into non-digital marketplaces and selling tangible items. “Silicon Valley companies have shifted from being mere technology providers to ones that want a larger piece of the pie,” he says. “Twitter is a media company, Google delivers groceries to my home every day, and my Apple Watch has conveniently incorporated mobile payments.”

These innovative and disruptive strategies are winning, Zawacki says, meaning that while other companies may fear change and disruption, Silicon Valley companies do not. “If you take a basket of 15 very well-known Silicon Valley companies—Google, Facebook, Apple, Netflix, eBay, Twitter—you discover two things: the average age of these companies since founding is a mere 13.5 years, and they have created an average of $108 billion in shareholder value per company over that period,” Zawacki says. “One hundred eight billion per company! It certainly does not appear that Silicon Valley companies are currently fearful about what they have unleashed. What they are currently worried about are privacy and regulatory issues, particularly from Europe.”
Simon career services also pursues disruption

Planning for disruption and pursuing innovation are important to business schools, as they are businesses. One example is the way Simon Business School is looking at how it helps students launch after graduation. Karen Dowd, Simon’s assistant dean for career management and corporate engagement, says the rise of interest in West Coast jobs in the high-tech industry is one reason the School is rethinking how it provides career services to students.

Dowd says that not long ago, she started noticing large groups of students seeking or getting jobs on the West Coast, particularly in tech areas such as Silicon Valley and Seattle. As many as 15 percent of students accept employment with tech companies, she says. In addition, she notes, there was “organic development,” with alumni in the tech areas popping up at Simon to help current students make career connections.

In December 2014, Simon took a “Tech Trek” to Silicon Valley. The trip, co-organized with the Consulting Operations Technology and Analytics (COTA) student club and Class of 2016 MBA candidate Ayal Prizant, included seven faculty, four staff, and 20 students. A subgroup later went to Seattle, home to tech giants Amazon and Microsoft. The groups met with seven companies in Cupertino and three in Seattle.

The second part of the trek was a curriculum roundtable moderated by Dean Andrew Ainslie. Seventeen tech companies participated in the roundtable, which discussed the curriculum and examined if Simon was offering appropriate classes for the tech-heavy future.

So what are tech companies looking for? Dowd says they are seeking graduates with superior interpersonal communication skills and leadership acumen; candidates who have product management skills, project management experience, and tech-related customer service skills are particularly valued. She notes while on the West Coast, the companies really hit hard on a key quality: a passion for technology and disruption. To continue Simon’s dialogue with some of America’s top tech companies, another Simon School trek to the West Coast is planned for December 2015.

Disruption for positive change

So while disruption has cut a deep swath from Rochester’s Kodak to Blockbuster, the business activity of consumers is merely being shifted to new industries. The business activity is not disappearing, but popping up elsewhere, as Tilson suggests. Disruption is also increasing efficiencies and changing policies.

And the public seems ready for the new wave of disruptive industries. When New York City Mayor Bill de Blasio recently said he would crack down on Uber’s passenger services by capping its numbers, he was met with a barrage of media ads and criticism from celebrities such as Ashton Kutcher and model Kate Upton. E-mails flooded into city hall.

De Blasio backed off, indicating today’s politicians and regulators are adapting to a world that will be disrupted by change. And university officials are already adapting to placing alumni in these new industries. Companies are fueling growth with disruption. Even disrupters like Netflix have branched out into new services, producing—not just delivering—content, and doing so successfully: Netflix’s House of Cards won the first major Emmy for a Web or streaming series in 2013.

So get used to it, and live comfortably in it, say Simon alums. Taking his message to Australia earlier this year, Zawacki told MBA students Down Under that businesses need to increase their comfort level with disruption, and to make waves. “I think corporations generally need to increase their pace of experiments,” he says.

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