Adrian Slywotzsky - Oliver Wyman

WHO WINS WHEN
INDUSTRIES CONVERGE?
SEPTEMBER 17, 2014
Adrian Slywotzky
Oliver Wyman
Value Migration
Value Migration
$ BB
$ BB
US Steel Nucor
US Airways Southwest Airlines
Sears Walmart
Compaq Dell
Motorola Nokia
Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

No profit zone: Airline industry example
Industry net profit
8
4
Net Profit (1995 $BB)
-2
-4
-6
-8
-10
-12
'71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07
+46.54/58.50 Source: Air Transport Association of America.

Evolving no profit zones
Airlines Beverage in grocery
Consumer electronics Films
PCs Agriculture
Homeowners insurance Environmental remediation
Cars Lots of manufacturing

Are there any evolving
no-profit zones in healthcare?
2014?
2017?

My Profitability X-ray
Market share
a very tricky idea
Automotive 1970s
15%
GM
10%
Profitability
Ford
5%
Chrysler
0%
0% 10% 20% 30% 40% 50%
Market share

Automotive 1990
15%
10%
Profitability
Chrysler
5%
Ford GM
0%
0% 10% 20% 30% 40%
Market share

Automotive 2002
15%
10%
Profitability
5%
GM
Chrysler
Ford
0%
0% 10% 20% 30%
Market share

Automotive 2008
15%
10%
5%
Profitability
0%
-5%
Ford
-10%
Chrysler
-15%
GM
-20%
-25%
0% 10% 20% 30%
Market share

My business design
Today Next
Customer selection
Unique value proposition
Profit model
Strategic control
Scope/alliances

What happens when
value migrates and
industries collide?

Technology
Telco
Media/content/advertising
Consumer electronics

What is a hassle map?
Before Netflix
Fight with Go to Search Pick three Go home Fight Watch Forget to Return
spouse store and again return five days
what movie search pick one later, pay
to see whats late fee,
you that trailer get mad
decide I saw?
Netflix in 1999
Get online; Receive Watch Put in Automatically

construct films by mailbox to receive next
queue; get mail return film in queue
recommendations
Netflix now
Stream content
instantly

M=FE

Bloombergs little box/big box value proposition
The financial trading frustration chain: life without/with Bloomberg
Without Bloomberg:
Data
Multiple
Multiple A la carte Many screens Incomplete comparison/
connections/
logins pricing and computers information download
subscriptions
problems
With Bloomberg
Easy to
Single
Sleek dual- manipulate:
comprehensive
screen terminal access and
platform
downloading

The traders terminal The physicians desktop?
30,000 functions Patient history

Consistent/comparable data Predictive modeling
Analytical templates Best protocols
Creating algorithms Best process
controls/checklists
Diagnostic algorithm
I have all I need at my fingertips. What would the physician say?
Oliver Wyman | AJS-20140720-AHA-San Diego

Tech market cap (in trillions) , and broader universe
6.5
2.5 Telco, media,

consumer electronics
4.0
1.9
2005 2014

Retail market cap
1000 1000 Ralph

$935B Lauren
Macys
900 900 IKEA
Target
800 800 Lowes
Costco
700 700 Walgreen
CVS
600 600
Inditex
500 500
Home
400 400 Depot
Other
300 300 Amazon
Department
$200B Stores
200 Kmart 200
JCPenney
100 100 Walmart
Sears
Walmart
0 0
1994 2014

The Value Universe Expands
AND value shifts.

Value Migration
Four-Chain World
2000 value 2010 value
21 Leaders $2.6 trillion $1.6 trillion
11 Cross-chain players $80 billion $1 trillion
Share of value 3% 40%

The key point of the Four-Chain World
Start with the customer

Ask:
Who owns the hassle map of the customer?
Connect the dots to fix it.
Who is improving it the most quickly?

The laws of perception: What do you see?
Huge threat to my
business
Cool device Huge opportunity to
create better experience
for the customer
E-book

What new things will my team have
to learn in the next three years?

Boundary Blurring

Amazon
Apple
IBM
Samsung

Amazon stock price: 1998 2014
$400
$350
$300
$250
$ BB
$200
$150
$100
$50
$0
1998 2000 2002 2004 2006 2008 2010 2012 2014

Market capitalization: Sony versus Apple
$400
$350 Apple
$300
$250
$ BB
$200
$150
$100
$50
Sony
$
1999 2001 2003 2005 2007 2009 2011

IBM stock price: 1978 1993
180
160
140
120
100
80
60
40
20
0
1978 1980 1982 1984 1986 1988 1990 1992 1994

IBM stock price: 1978 2014
$250
200
150
$ BB
100
50
$0
1978 1984 1990 1996 2002 2008 2014

Samsung stock price: 1996 2014
$1,750
1,500
1,250
1,000
$ BB
750
500
250
$0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Different clocks"
Tech
Media
XX
The Second Half of the Game
King Kong vs. Godzilla
Four chains to eight
Tech
Telco
Tech
Media
Telco Consumer
electronics
Tech
Media Retail
Education
Consumer
electronics
Financial services
Healthcare

Healthcare convergence
Cross-chain competition
Hassle map
Capacity dislocations
Compete/collaborate ratio
Business design

Momentum building Digital health funding growing at
nearly 30% per year
Number of rounds over $2M Venture funding of digital health companies
100 $2.2 $2,170M
90 7x growth 89 2.0
over 5 years
80
1.8
70 1.6
Number of rounds
$1,542M
Venture funding ($BB)

70
1.4
60 $1,300M
55
1.2
50
1.0
40 $824M
.8
30
.6
20 17
.4 $329M
12
10 .2
0 $0
2009 2010 2011 2012 2013
200 201 201 201 201
9 0 1 2 3
Source: Crunchbase data referenced at http://techcrunch.com/2014/01/15/vcs-investing-to- Source: Thomson Reuters and Crunchbase for 2008 2010 data, Rock Health and
heal-u-s-healthcare/ Crunchbase for 2011 2013; includes top Rock Health digital health
Note: Healthcare software and apps company early stage funding. innovators and selected innovators identified by OW
Note: Only deals >$2M.

Retail
Market cap Revenue
Walmart 250 BN 500 BN
CVS 95 BN 100 BN
Walgreens 61 BN 70 BN
Kroger 26 BN 90 BN
Rite-Aid 6 BN 25 BN
Target 30 BN 70 BN
~ 480 BN ~ 900 BN
Q: What is retail?
A: $900 BN looking for growth

Retail: Rapid evolution
Diagnostics
Simple
coordination
(with PCPs)
Telehealth
Wellness
programs
distribution
Kiosk/
information
Acute
episodic,
flu shots

New sources of competition for value
Tech/Telco
They love hassle maps
Healthcare
Retail
They love high costs

Even the toughest hassle maps are opportunities
U.S. healthcare Risk of Need to
adverse minimize
selection costs Staff
Costly death focused on
senior spiral Health costs, not
care
Small
Plan prevention
margin for
Medicare Hard to
Redundant patients Denial of find quality
treatment coverage docs Byzantine
Expensive Hard to be billing
co-pays ideal doc
Expensive No time or $ to
hospitalization No end-of- talk end of life
life plan
No
Too many More
Coordination of patients, too billing staff
Emergency? Care little time than
15-20 Call 911 nurses
medications Emotionally
attached
Complicated Patient Problems Doctors

Wait weeks
referrals go to see
unnoticed doctor Professional
frustration
Hard to fit
Cant Miss patients in
Drive Appointmen schedule
Multiple ts Lack resources
specialists to manage
Conflicting No holistic chronic
treatments care illnesses
Afghanistan Stability/COIN Dynamics

Healthcare = Hassle Map Heaven

Ellen
Dan
Joe

Illustrative
How do we reduce hospitalizations for CHF patients?
Fee-for-service
Day 1 Day 7 Day 13 Day 14 Days 1419 Day 19+?
Difficulty
Cough up Call 911 &
Ventilator, Permanent Impaired quality of life
Fluid breathing, drugs, damage,
build up onset of
frothy emergency
cardiac on oxygen Cost: $25,000
sputum room
edema catheter indefinitely? +$200/mo for oxygen
Hospital
CareMore
Day 1 Day 1 Day 1 Day 1 Day 7
Steps on
CareMore Quality of life
Fluid nurse calls, Sees NP, Crisis maintained
wireless
build up makes appt, new Rx passes
scale, +3lbs Cost: $600
sends car
CareMore Clinic
56% FEWER READMISSIONS

Source: Interview with Alan Hoops, CareMore Senior Medical Officer and CEO respectively, conducted by Adrian Slywotzky and Karl Weber (08/10/2010); Zipprich, Bernard, Interview with
Dr. Carlos Cowley, cardiologist, (10/5/2010); 56% figure comes from Delivering Integrated Patient Care for Seniors, CareMore (11/2008), p. 35

Geisinger Standardization
$112K
90 days
Diagnostic Pre-op Recovery
Consultation Procedure post-op
tests prep days follow-through
One invoice/one price

One point of accountability $88K
Pro-patient standardization

NCQA PCMH growth ACO growth
30,000 700
27,820
606
600
25,000
Clinicians 500
20,000
400
15,000
300
10,000
200
5,739
5,000
100
Sites
0 0
Q4 2010 Q4 2011 Q4 2012 Q4 2013
Dec Dec Dec Dec Dec May
08 09 10 11 12 13
Note: Clinicians include physicians, physicians assistants, and nurse practitioners Source: Leavitt Partners Center for Accountable Care Intelligence
Source: http://www.ncqa.org/Portals/0/Public%20Policy/2013%20PDFS/
pcmh%202011%20fact%20sheet.pdf

The Sound of One Hand Clapping

A cascade of capacity dislocations
Retail General practitioners
Care teams Hospitals

Specialists
Care teams Hospitals

(+ Tech + Retail) Specialists

Compete/collaborate: Timing
Collaboration
should begin
Industry
profit
margin Collaboration
begins
Change the compete/collaborate ratio

soon enough to make a difference

Compete/collaborate: Ratio
Compete Collaborate
100 0
90 10 What is the compete/

collaborate ratio in my
80 20 industry today?
70 30 What should be my
compete/collaborate
60 40 ratio?
50 50

Where do we allocate
capital to activities that
give us no differentiation?

Collaborations
Tech/Telco
Healthcare
Retail

My business design
Today Next
Customer selection
Unique value proposition
Profit model
Strategic control
Scope/alliances

Business model evolution
Category Design #1 Design #2

Bloomberg for health
IBMs Watson Technology licensor
professionals
iPhone-like health
iWatch Cool device
ecosystem
Medium-term prevention Invest in biosensors, big
(reduced hospitalization, data, Watson, genomics,
Care team
reduced specialist coaches to add 20 more
usage) good years
Cost-cutting, Partner with and co-create
Hospital
consolidation smart care teams
Clinic + telehealth + health
Pharmacy Clinic
coaches + care teams
Payor Insurer Consumer health company
What other important new business models will emerge/
are emerging already?
How effective are they?
Which ones do a great job for consumers and investors?
Which ones would you invest in? And why?

Business models
Asset Margins
Type Growth
intensity
Hospitals $0.70 5%
Care teams .20 15% 15%
Tech companies .10 20% 30%

Business models
Asset
Type Margins Growth
intensity
Hospitals $0.70 5%
Care teams .20 15% 15%
Hybrid .45 10% 8-10%

Who wins?
Incumbents who pivot in a fast, focused way, and who play

30% defense
70% offense
Hassle map fixers
Newcomers with the BEST new business models
Those who have mastered the art of collaboration
The most aggressive exporters
The CONSUMER

Strong business models exploit change;
weak business models lose value faster.
E.g. taking advantage of

retail, mobile, telehealth,
Watson, genomics

The Scarcest Commodity
LEADERSHIP

Stock prices
Apple Amazon
IBM Samsung

The Scarcest Commodity
LEADERSHIP

Additional
Background
Material

The Four-Chain World consumer
Jennifer Stone: 50-year-old, small business owner

The Four-Chain World consumer

Managing my business
Bloomberg iXpenseit
Get updated information for stocks Create expense reports
and markets and summaries

iSpreadsheet Omni Invoice
Create, edit, and share Generate sales quotes
spreadsheets and customer invoices
LinkedIn OmniFocus
Access your professional Track tasks by project, place,
network and contacts person, or date
iShare Streamtime
Connect to Microsoft Track customer information
SharePoint Server
Oracle Business Approvals for Managers FileMagnet

Make intelligent business decisions on the go Wirelessly transfer files from
desktop computer

Starting to manage my health?
Kaiser Permanente
Healthy Diet & Grocery

Food Scanner
The Eatery AARP Magazine
WebMD
Map My Run
RunKeeper
CVS Caremark
ZocDoc
Healthline
Vitals
iTriage Weight Watchers Mobile
SparkPeople
My Pregnancy Today
Fitbit
HealthTap
Rite Aid
First Aid by
American Red Cross
Nike+ Running
Restaurant Nutrition

The tech attack
Scale
Momentum
Critical mass/company
Consumer relevance
Silicon speed

The power of the extended care team
Leverage: Adding ultra-low-cost capacity to smart care teams
Prevention
Excellence
PCMHs Smart Care Team
Doctors D A much broader

The base for the pyramid
Nurses N
Resource Top of license on
Pyramid Behaviorists B
Medical steroids
Assistants MA
Costs significantly
Retail lower
Telehealth
Self-directed consumers

What will happen to competitive intensity?
Internal competition
Cross-chain competition
Risk of downward spiral
Recall 2.6 1.6

Whos at the edge of our radar screen?
Major tech New tech

incumbents companies
Hospital systems
Medical groups
Insurers
New/independent
Retailers
care teams
Competitors for value?

Good ideas?
Great partners?

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WHO WINS WHEN

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

+46.54/58.50 Source: Air Transport Association of America.

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Airlines Beverage in grocery

Consumer electronics Films

Homeowners insurance Environmental remediation

Cars Lots of manufacturing

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Unique value proposition

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Get online; Receive Watch Put in Automatically

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

30,000 functions Patient history

Oliver Wyman | AJS-20140720-AHA-San Diego

2.5 Telco, media,

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

1000 1000 Ralph

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

AND value shifts.

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

2000 value 2010 value

21 Leaders $2.6 trillion $1.6 trillion

11 Cross-chain players $80 billion $1 trillion

Share of value 3% 40%

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Start with the customer

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Venture funding ($BB)

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Complicated Patient Problems Doctors

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

How do we reduce hospitalizations for CHF patients?

56% FEWER READMISSIONS

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

One invoice/one price

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt

Oliver Wyman | 20140917-Medifuture-Tampa-AJS.ppt