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"At the end of the day, the only reasonable conclusion is that we waste a huge amount of money on the most nuttily cumbersome administrative system in the world."

— Henry Aaron, Brookings Institution economist, writing about the U.S. health-care system.1

As we've wrestled in our research with the challenges of making health care higher in quality, lower in cost, and more conveniently accessible, it has become quite clear what needs to be done. The basic problem is not unique to health care: improving quality, cost, and accessibility has been an issue in the history of many industries. In each of these other cases, it was disruptive innovation that transformed expensive, complicated products and services into simple and affordable ones. This has consistently required three enablers—technological, business model, and a value network—which is the case in health care too.

The technological enabler is the ability to diagnose diseases more precisely by cause—an achievement that generally is a prerequisite to developing predictably effective, rules-based therapies. Then, as we discussed in Chapters 3, 4, and 5, we need disruptive business model innovations that can take the simplified solutions cost-effectively to market. Initially this will come from disaggregating the work of hospitals and physicians' practices into coherent solution shops and value-adding process clinics, and by relying on patient and disease management networks in which patients and providers can profit from wellness and the care of many chronic diseases. Disruption will then continue within each of these categories, as lower-cost venues of care and lower-cost caregivers become more capable.

These disruptive changes are no small order. Who in the world is going to pull all of this off? The answer lies in the third enabler of disruption, which we call a value network—the context in which new methods coalesce to govern interaction and coordination among the new disruptive actors in the system. What value networks are, how new ones emerge in industries that are being disrupted, and how to make it happen in health care are the topics of this chapter.


A value network is the context within which a firm establishes its business model, and how it works with suppliers and channel partners or distributors so that together they can respond profitably to the common needs of a class of customers.2 The business models of each of the firms in a value network tend to be consistent with those of the other firms in the system—firms from whom they buy and to whom they sell. Together, their business models determine their perceptions of the economic value of various innovations, shaping the rewards and threats they expect to experience through disruptive and sustaining innovations.

An example we mentioned briefly in Chapter 1 that illustrates the role of value networks in disruption occurred in the consumer electronics industry ...

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