Rock, Paper, Scissors: Which Business Model Wins in the Internet Economy?
Posted on February 07, 2019
The following is an excerpt of a blog post that originally appeared on Kaufman Hall’s website. At this year’s Breakthrough, participants will analyze and discuss disruption in healthcare and how to design and launch a business strategy that results in better outcomes and less cost. Register and learn more.
The game of rock-paper-scissors uses a simple set of rules—rock crushes scissors, scissors cut paper, and paper covers rock—to generate a seemingly random series of wins, losses, and ties based on the decisions players make within the count of three. A rock will win if the opponent chooses scissors; it will lose if the opponent chooses paper.
Although any choice in the moment of play may seem equally valid, psychologists have discovered that the game has a winning strategy. Players who win tend to repeat the same action; an opponent can beat them by exploiting this tendency. This means that players who win benefit by not staying with what has won in the past. Instead, they think about what their opponent is likely to play next.
As the internet economy has grown and matured over the first two decades of the 21st century, three business models have taken shape: platform owner, ecosystem manager, and content provider. As with rock-paper-scissors, organizations need to understand the strengths and weaknesses of each model, must not rely on a single approach, and must recognize that the strategy that was successful in the past may create vulnerabilities in the future.
The Internet Economy Comes to Healthcare
The traditional business model of healthcare has centered on content—legacy healthcare organizations competing with each other based on the quality of their care and services. However, while legacy healthcare providers compete with one another, new competitors are emerging that rely on the platform and ecosystem models of the internet economy. These competitors are focused exclusively on the profitable, retail-oriented outpatient business, and they are intent on unbolting that business from the inpatient chassis where it has resided for the past 50 years.
One of the most aggressive and farsighted new entrants is CVS Health/Aetna. CVS CEO Larry Merlo has repeatedly described the merged company’s intent “to create a new healthcare platform that can be easier to use and less expensive for consumers” and “a new front door to healthcare in our country.” The basis for this platform is already in place, with approximately 9,800 CVS stores, 1,100 MinuteClinics, 62 million CVS loyalty program members, 5 million customers daily, and 39 million Aetna members.
CVS Health has started to reveal its plans for continuing to build this platform and for transforming it into an ecosystem. These plans demonstrate a clear understanding of the internet economy’s new rules of the game, as the company seeks to:
- Increase ease of access and consumer touchpoints by developing a “new retail health engagement model” that is “more convenient, more accessible, and more customer-focused” than the traditional model. Components include additional clinical services in CVS stores, “digital tools to support customer progress outside the store,” and a “curated assortment of front-store items.”
- Build upon the customer loyalty of Aetna members, with a focus on “populations with high prevalence of chronic disease,” and “areas lacking sufficient access to primary care physicians.”
- Commoditize and lower the cost of healthcare services by managing common chronic diseases, preventing readmissions, increasing the use of lower-cost sites of care, expanding the scope of primary care services in MinuteClinics, and managing complex chronic diseases.
The Strategy for Legacy Healthcare
Legacy health systems need to start casting bets on their business model for the future. In a realm where human lives hang in the balance, there is no question that quality of healthcare delivery “content” is and will continue to be important. However, relying on that strategy alone creates vulnerabilities in the internet business environment.
Finish reading at KaufmanHall.com.
Posted in: MHA Rounds