Compared with traditional businesses, most platform businesses have thrived during the covid pandemic. Hospitals have all the elements to become platforms, all they need is an access point, a data-centric model and leaders to take the initiative.
How are traditional businesses different from platforms?
Traditional businesses own or lease all their assets so that they can produce and sell products and services. Platform businesses use assets, free of cost, to create and share value. They focus on asset use rather than on the ownership of the assets themselves. According to ‘Modern Monopolies: What It Takes to Dominate the 21st – Century Economy’, platform businesses facilitate the connection of two or more mutually dependent groups in a way that benefits all sides. In this way, consumers and producers connect and exchange goods, services, and information.
- Reduce the dependence on owned assets.
- Provide customer convenience and extensive choice.
- Lower costs through price transparency and by reducing the burden of inventory.
- Provide digitally-driven geolocation and indoor pathfinding to identify services and goods used.
- Provide seamless payment through customer and service provider signup during on-boarding.
The power of the platform emanates from the co-creation of value which allows their community of consumers and producers to expand by creating new niche markets. This model is fully compatible with the triple aim of healthcare. It can lift healthcare from being an expensive burden on communities to a service that is fully self-funded. Airbnb, although not a good example due to the covid-19 lockdowns on travel, is still a good example of an asset-light platform.
Could hospitals do what Airbnb does?
According to the authors of ‘Platform Revolution’, platforms like traditional businesses exchange information, provide goods and services, and exchange currency. However, platforms differ because the exchange of currency takes place on the platform itself. In this way, the platform is well placed to charge a transaction fee from each party in each interaction.
The platform’s goal is to promote these exchanges – information, goods and services, and facilitate payment on the platform itself. Platforms make these exchanges mutually rewarding with the provision of easy to use search tools and rules of engagement.
It follows that the platform requires, participants, value units, and an easy way to find what each participant needs. Put simply, platforms are information factories that have no control over the inventory created yet benefit tremendously.
Where would a hospital begin to build a platform?
Platforms are complex, multisided systems that must support large networks of users who have different interests and interact in a wide variety of ways. A platform for hospitals will need to facilitate interactions among consumers and producers with widely changing motivations and frequently changing regulatory circumstances.
B.J. Moore, Executive Vice President and CIO at Providence St. Joseph Health gives us a glimpse of the complexity. His group is trying to change more than 4,000 applications across its health system. Each legacy system at a time. With such an endeavour it’s difficult to identify a logical starting point to create a platform.
As ‘Platform Revolution’ suggests, let’s begin with a core interaction that’s easily discernible and where the participants, value units, and search filters are easy to implement.
Materials are a good candidate as a point of entry
Materials account for the second-largest category of recurring spend in a hospital’s budget. The participants for the platform are easy to identify and are already well established in most hospitals. On the product side, these are the suppliers of goods and services, and on the consumer side, these are the physicians and clinicians. The value units are the goods and services already being consumed at each hospital. The missing factor is easy to use search filters to find and match products and services with consumers on the platform.
Some may think that platforms are technology businesses?
Although technology is used to create communities and markets using network effects, platforms are not necessarily technology businesses. Technology is a tool. Platforms are integrally about the new business model that has arisen from the digital revolution. A revolution that has been occurring since the middle of the last century. The pace of digital connectivity has been characterised by Klaus Schwab, the Founder and Executive Chairman of the World Economic Forum as ‘the Fourth Industrial Revolution’. This revolution is characterised by velocity, scope, and systems impact. When compared with the previous industrial revolutions it is evolving at an exponential rather than linear pace.
The anatomy of a platform business
There are many types of platforms. In this article, I focus on product marketplaces. A platform business creates value by facilitating transactions for products and services. It uses software to facilitate the connection. Hospitals have the necessary networks and elements to become platforms. All that is now required is leadership to identify the core transactions, to begin with.
The core transaction
Alex Moazed and Nicholas Johnson, authors of ‘Modern Monopolies’, say that every platform has a core transaction, which consists of four parts to:
This refers to the creation and exchange of value. The value proposition in a product marketplace is the easy purchase of product and services.
This is the process that makes it easy for consumers to connect with producers and vice versa.
Consumption is what creates the virtuous cycle for additional demand and supply. Hospitals are particularly weak in this area. While hospitals buy well, the Western Auditor General has found that hospitals cannot identify when products are used. They are unaware whether the products are still at the hospital, whether they have become obsolete or when they have been used. This detracts from the value that hospitals get. See also my article on article on ‘Covid-19 and Material Shortages in Hospitals.’
This is the seamless payment process that satisfies both consumers and producers for the exchange of value.
Although the platform enables the core transaction, it doesn’t directly control its users’ behaviours. This is a unique challenge to get consumers and producers to behave in a way that benefits everyone. This is something that hospitals must learn. See, ‘Good Ideas are Rarely Well Received’ for the three rules to get consumers and producers to journey down, ‘the long tail.’
The four platform functions
For a platform to work, first users must be attracted to the platform to be matched together. Users of the platform are the customers and the producers. It is here that technology eases the process of matching and establishes the rules that govern the network for building trust and maintaining quality. The four functions that must be performed by the platform are :
- Audience building
This is done by building a critical mass of consumers and producers on the marketplace. Hospitals already have an abundance of consumers and producers.
Having the ability to match the right consumer with the right producer to facilitate transactions and interactions.
- The provision of core tools and services
Building the appropriate data models, tools and services that support the core transaction. The aim is to lower transaction costs, reduce barriers to entry, and making the platform more valuable over time through data.
- The setting of rules and standards
Set the relevant guidelines for which behaviours are allowed and encouraged and which are forbidden and discouraged.
If the hospital platform handles these four functions well, it will be able to facilitate its core transaction repeatedly creating a virtuous cycle for demand and supply of medical items and appropriate services and most importantly charging a transaction fee from each party to the interaction.
What’s missing for transitioning hospitals to platforms?
Hospitals, especially large groups already have all the necessary elements to become platforms. A force field analysis would highlight that the biggest barriers are:
- A platform access point.
- The lack of an adequate data model, and
- the required organisational mindset to promote wider choice.
Stringent rules and regulations
The stringent rules and regulations on the clinical side of the hospital business blind leaders from seeing the obvious platform access point – a materials marketplace. The stringent rules and regulations on the clinical side of a hospital’s business model need not apply to the hospitals’ support services. As long as these services take appropriate safety measures, they could transition to a platform business model for products and support services. Jonathan Bush, the author of ‘Where does it hurt? An entrepreneur’s guide to fixing healthcare’, says that many tech visionaries have attempted to colonise healthcare because of the huge opportunities seen in this area.
Adequate data model
As Dave McComb and BJ Moore point out the key issue is to overcome the deep ‘technical debt’ of legacy systems that hospitals are using today. If hospitals stay focussed on their purpose, overcoming ‘technical debt’ is not an insurmountable issue when taken in incremental stages. Dave McComb suggests how this can be overcome with ‘The Data-Centric Revolution: Restoring Sanity to Enterprise Information Systems’.
The organisational mindset
Changing the entire hospital’s systems to a platform is a huge undertaking. B.J. Moore, the chief information officer of St. Joseph Health has started on the journey. The group is trying to change more than 4,000 applications across its health system. One legacy system at a time.
Starting with a data-centric approach for the procurement function and materials management is a good access point. Materials account for the second-largest area of spend in hospitals and the savings made in this area could fund the rest of the data-centric revolution. This requires as Professor Klaus Schwab suggests, leaders who are emotionally intelligent, and able to model and champion co-operative working. They ought to coach, rather than command; they ought to be driven by empathy. The digital revolution needs a different, more human kind of leadership. Having worked in hospitals for thirty years, I believe that hospitals have an abundance of such leadership.
Please share your thoughts about creating hospital platforms in these troubled times. Does your hospital have what it takes to create a platform?
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