Current Concepts | Health Care Management Series
After World War I, the DuPont manufacturing company wanted to diversify their product portfolio. 1 Until then, the company was the leading manufacturer of ammunition for
the US military. Soon the organization wanted to sell products to a different consumer—the
individual. The logic for this transition was simple: they already had the factories and assembly lines in place to produce consumer products. Switching the machines to make paint
or plastics instead of ammunition didn’t seem to be a great challenge and it would also help
the company diversify its portfolio of products.
Soon after making the switch, DuPont saw its margins shrink. Their leadership reached out
to customers to understand why sales were so low. After multiple conversations, they soon
realized that the value proposition of these new customers was different, but DuPont as an
organization had not changed. DuPont was using a business model in line with selling ammunition to the army, rather than a model for selling paint and plastics to household customers.
Why is Business Model Thinking Important?
Before selling any product or service, every business goes through an exercise in creating a
business model. 2 To some degree, a business model is a set of assumptions about how an
organization will use certain resources in a particular process to deliver value to a customer
at a profit. Every business model starts with identifying the customer and identifying their
unmet needs (ie, what do they value?). In the case of DuPont, its major customer was the
military. For health care providers, specialty training identifies whose needs we will satisfy.
A pediatrician will take care of children under 18, a spine surgeon focuses on individuals
with spinal disorders who need surgery, etc. Determining what those patients value is the
challenging next step.
Before World War I, DuPont’s major customer was the military whose primary need was a
high volume of ammunition. The military was not looking for a variety of types of ammunition—they weren’t a very discerning customer. When DuPont moved into making paint, they
followed the same playbook and made very few varieties of paint colors. What they didn’t
realize was that the individual household customer was more discerning in their tastes and
wanted the ability to choose colors of their liking. They didn’t want to be limited to three or
four colors. The individual buying paint had a different value proposition than the military.
This difference in value propositions was the landmark insight that Pierre DuPont, CEO of
DuPont, needed to reorganize the company. DuPont understood that the resources and processes within the company, its fundamental organizational structure, needed to be redesigned
toward the delivery of value to its new customer.
Instead of having a unified general marketing, accounting or sales department for all of
DuPont’s diverse products, DuPont created individual business units based on the product,
ie, paint, ammunition, plastic. Each business unit included individuals who were devoted to
that particular customer group (ie, paint versus ammunition), and more importantly, were
focused around delivering the greatest value to the specific customer group they were serving. This multidivisional organizational structure has been credited with leading to DuPont’s
long-term success as a business.
The Changing Value Proposition in Health Care
Health care as an industry is experiencing tremendous turbulence at this time. Cost pressures on the government, employers and individuals have reached a tipping point resulting
in a fundamental realignment within the health care system. The passage of the Affordable
Care Act has only accelerated those changes. The move to a value-based system represents
a fundamental shift in the basic value proposition of the health care system that requires a
new business model.
The Value Playbook:
Disrupting Your Business Model
Alok Sharan, MD, MHCDS
WESTMED Spine Center