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Understanding Different Models of Innovation

By the Innovations Exchange Team, based on an interview with Hal Stern, Senior Vice President at Sun Microsystems, Inc.

Innovations Exchange: Innovation is critical in health care—in particular with regard to clinical advancements—and yet many health care organizations seem slow to change. Why is innovation difficult for certain organizations?

Stern: Organizations can be set in their ways, and innovation involves disruption. Innovation will change existing work processes, and frequently changes points of control or information flow. This kind of disruption can be disconcerting to an organization, yet at the same time, it’s very exciting. It creates opportunities for leadership at all levels.

What factors might prompt an organization to pursue innovation?

Innovation happens for several reasons. Innovation can occur as a response to consumer demand, a need to remove or overcome constraints (including costs), a desire to pursue a new opportunity, or a need to achieve greater efficiency. Industries that thrive on innovation—the classic “high tech” label—are those that face rapidly changing demand and market conditions.

You have spoken about three models of innovation: scenario planning, “blue ocean,” and networked innovation. What are the features of the scenario planning model of innovation?

As a model for innovation, scenario planning dates back to the mid-1970s. This model embodies the idea of long-range organizational planning in the context of market forces, which can be either opportunities or constraints.

For example, a market opportunity might present itself in the form of a new pharmaceutical development. With new drugs being brought to market, we can treat certain diseases that affect smaller patient populations more successfully. What will happen if we can make a dent in Alzheimer’s disease, AIDS, and cancer? Scenario planning prompts organizational leaders to consider existing market forces and build scenarios of what the world will look like if these market forces play out in different ways. This drives innovation as we try to figure out what we should be doing differently—in other words, what we can do to leverage the opportunities that might be presented to us. 

Health care leaders can build a scenario around a policy change, a clinical change, a business change, or a consumer demand-based change. Essentially, scenario planning is like strategic planning—we think about what might happen in the future and come up with innovations to accommodate these potential circumstances, to enhance the likelihood of success in that new business environment. It is critical for health care leaders to come up with strategies so their businesses aren't saddled with bad assumptions if the market changes. By asking “what if?” you are more likely to be prepared.

A second model of innovation refers to “blue oceans.” What does this model involve?

The blue-ocean/red-ocean concept is a way to view markets. A red ocean is an existing market; in this market, the only way to grow is by taking market share away from competitors. Of course, competing for market share tends to be a central feature of business growth, but ultimately, growth is limited by the size of the market. However, a blue ocean strategy involves developing an innovation that identifies a previously unmet and perhaps unrecognized demand—in effect, creating a completely new market.

The best example of a blue ocean innovation is bagged lettuce. Who knew that bagged lettuce would be a major prepared food industry? Apparently, people will pay a significant premium to have their lettuce cut up for them if multiple types of lettuce are combined and the bags are sized for an average dinner salad. This example illustrates the key feature underlying the blue ocean strategy: if you can identify what features the market finds most valuable and synthesize those features into a product or service, you can create a new market. The challenge is to figure out what consumers really want and then change your practice so that you can deliver more of those features.

In health care, one example is “concierge” or “boutique” health care, in which people pay physicians a yearly cash retainer in exchange for more attention, greater responsiveness, and immediate access. This service innovation taps into a new market: patients who are willing to pay a premium for personalized health care. Another example is the growth in cosmetic surgery, which has become a new market in recent years; this market demonstrates that consumers place a premium on a product that is of personal, visible value to them. Other examples might be semi-customized formulations of pharmaceuticals, which would provide patients with the convenience of taking one pill rather than multiple pills. In all these cases, innovators have identified a market that did not exist before. Health care leaders should seek a more detailed, nuanced vision of what their customers really want so that they can exploit these opportunities.

The third type of innovation you describe is networked innovation. What is this?

This is innovation that occurs when resources are networked. Health care organizations can consider how to network data, people, or services in order to create a new service or an efficiency improvement. Developing a networked innovation involves identifying constraints and considering how to relax those constraints. For example, consider the development of the electronic medical record (EMR). An EMR can be very valuable to an institution, enabling providers to share complete clinical and demographic patient data in real-time—but the value expands exponentially if other institutions also adopt the same EMR. Anyone who has adopted an EMR knows that there are many constraints to overcome, including cost concerns, privacy concerns, and productivity concerns. However, by overcoming those constraints, health care leaders can foster real innovation in the way health care is delivered.

How can a health care organization encourage innovation?

First, create a culture in which ideas are encouraged and allowed to flourish. The most innovative organizations eliminate the constraints on creating a new idea and trying it out. When new ideas are encouraged as part of the culture, leaders can “portfolio manage” them to evaluate how they improve the way they do business.

Second, start small. It is often easier for organizations to try small innovations and then move on to larger efforts by “riding the wave” of past successes. Furthermore, small ideas can have a large impact quickly due to the way ideas are spread throughout networks, in what Richard Dawkins calls “network memes.”1

Third, share information. Health care is largely an information-driven business: What do we know about this condition? What do we know about the patient as an individual? What do we know about how we’ve treated this particular patient in the past? What do we know about the possible courses of treatment? The central activity in health care is bringing all this information together to increase the likelihood of the best possible outcome for the patient. It’s an inexact science, but it’s very data driven. Therefore, anything health care leaders can do to break down constraints related to information sharing will encourage better use of data, and increase opportunities for innovative ideas. This culture of sharing has existed in the medical research community, and more recently is a strong facet of the open source software developer community—they build on the strong ideas of others to benefit all involved.

Fourth, keep in mind the needs of the next generation of consumers, and then identify innovations that satisfy those needs. For example, consumer desires are driving the current emphasis on “patient-centered” care. Unlike previous generations of patients, who perhaps felt more comfortable being told what to do by their doctors, today’s patients want information, they want to be in control, and they want to participate in decisionmaking. Organizations that think “user first” will be more successful in the future.

Finally, avoid a debilitating focus on constraints. Unfortunately, many organizations do not pursue innovation because they can’t get beyond what they assume are unmovable constraints, such as financial limitations, data limitations, privacy/security concerns, or perceptions of consumer reluctance to change. One way to foster innovation is to say, “What if these constraints didn’t exist any more?” That can give you a view of the future—and then spur you to think of ways to get there.

About Hal Stern

Hal Stern is the Senior Vice President of Systems Engineering at Sun Microsystems, Inc., where he is responsible for technical leadership, training, and management of Sun's customer engineering teams in Global Sales and Services. An expert in innovation, Hal is a frequent speaker at industry and technical conferences. Hal spoke with the Innovations team about various models of innovation and how they apply to the health care industry.

Disclosure Statement: Mr. Stern has not indicated whether he has financial interests or business/professional affiliations relevant to the work described in this article.

Suggested Readings from Hal Stern

Chan Kim W, Mauborgne R. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Boston: Harvard Business School Press; 2005.

Schwartz P. The Art of the Long View: Planning for the Future in an Uncertain World. New York: Currency Doubleday; 1991.


1 Schrage M. Revolutionary Evolutionist. Wired July 1995;(3.07). Available at: Accessed July 29, 2008.


Last updated: March 26, 2014.