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Disruptive Innovation and the Nigerian Health Sector

Disruptive innovation was explained by Clayton Christensen of Harvard Business School in his book “The Innovator’s Dilemma”. Disruptive innovation is “an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market leading firms, products and alliances”. Thus, the term is used to describe innovations that create new markets by discovering or aggregating new categories of customers, partly by developing new business models and harnessing new technologies.

Netflix is a good example of disruptive innovation, switching from the old business model of sending out rental DVDs by post to customers to a new business model where it streams on-demand videos to its customers. In many instances, disruptive innovations usually find their first customers at the bottom of the market pyramid; hence they usually use a market penetrating strategy in their pricing models. Market incumbents are usually either unaware or too comfortable to recognise the threat that the new starters (disruptors) pose to their businesses and markets, until they start eroding their traditional market base and end up reshaping the entire market. We have other examples of successful disruptors such as record stores (iTunes), taxis (Uber), long distance calls (Skype and Facetime), newspapers (online blogs, twitter, etc.) and libraries (Google).

In recent times, we have experienced some other disruptive innovations in Nigeria. BAU, an organisation being led by a young Nigerian, is introducing quality executive education programs to SMEs and individuals at very affordable rates. Shopping malls are gradually overshadowing our local markets, apart from the various e-commerce websites with home delivery packages. Banks such as GTB and Fidelity Bank recently introduced new ways to initiate banking transactions using the mobile platforms (*737* for GTB, *770* for Fidelity Bank, etc.). Uber, starting from mid-2015, is offering newer and neater vehicles for transportation at very competitive rates (apart from the convenience and safety of the passengers) and it is gradually signalling the end of the “yellow taxis” in Lagos.

Based on a recent industry report from its Business Connection Group (BCG), Roedl & Partner (a professional services firm providing market entry advisory and business match-making services) has suggested that that the most unexpected disruptive innovations in Nigeria might come from entrepreneurs (local or foreign) who are inventing new ways of delivering healthcare for a fraction of the fees of the current leading healthcare providers.

The Nigerian health system has been primarily public sector driven and in principle, decentralised into a three-tier structure with responsibilities at the federal, state and local government levels. The health system is divided into primary, secondary and tertiary healthcare providers. The primary healthcare providers, known as comprehensive health centres, are meant to be the first point of call for medicare. Such comprehensive health centres should have about three doctors and should offer some secondary clinical services in addition to the primary health care services. There should be at least one health centre in every local government area. Patients are to be referred to the secondary healthcare providers, referred to as “General Hospitals” (managed by the state governments) if the health centres will be unable to handle the required level of care. The tertiary healthcare providers, teaching and specialist hospitals are the final “bus stop” for healthcare delivery.

The federal government is responsible for policy and technical support for the entire national health system and the provision of services through the tertiary and teaching hospitals. The state governments are responsible for the secondary hospitals (“general hospitals”) and for the regulation and technical support for primary healthcare services. Primary healthcare is the responsibility of the local governments. While this structure appears seamless and well-coordinated, there appears to always be confusion of roles and responsibilities, thus leading to weak coordination and poor performance tracking.

In these three levels of healthcare service delivery, which are predominantly public sector managed and funded, it appears that the entire chain of healthcare service delivery is, in a lot of instances, in comatose and thus should itself be placed in an “intensive care unit” to revive the sector. Government funding for health appears to have been improved over time, but it is still generally considered as low when health spending per capita is compared with other developing countries. Fluctuations in public funding, poor management of the health facilities, poor coordination of national health programs between the three tiers of government, and political interference limits the efficiency and effectiveness of the healthcare service delivery.

It is no longer news that many health centres in many local governments do not have experienced nurses – lets not talk about doctors. In many (if not, most) of the government hospitals, patients have to sleep on the floor or in the car park due to insufficient beds, surgeries are being done in darkness due to absence of alternative power supply, patients are abandoned due to strike actions as a result of recurring conflicts between the various levels of government and medical doctors, demotivated medical personnel due to irregular salary payments, insufficient medical equipment and diagnostic tools, basic amenities such as bathrooms and toilets for patients are practically not in existence, etc.

Recently, I had the opportunity of having a “business” discussion with a group of medical doctors. One of the key take-aways that we agreed at the discussion is that the training of medical doctors (at least, in Nigeria) does not adequately prepare medical doctors for leadership and management roles, not to talk of entrepreneurship and business management. This is probably partly responsible for the limited innovations in the healthcare sector despite the several opportunities that are available in that sector. We discussed the failures of some private hospitals in Lagos and some of the gaps in the ones that are still managing to survive (e.g. poor customer service, poor record keeping, very high consultancy and treatment bills, high turnover of medical personnel due to use of “locum doctors”, etc.).

The general “Nigerian” syndrome in many businesses also affects the health industry. Nigerians like titles and accolades – we prefer to be the Founder/Chairman/Chief Medical Director of a very dysfunctional small clinic (using a very large building and thus having low occupancy rates) than being part owner of a functional and profitable hospital. In many of the private hospitals, the entire organisation is built around the founder. I have always wondered why medical consultants usually want to own a large multi-specialist hospital whereas their counterparts in other nations will have a small facility consisting of a reception area, consulting room and probably just two small rooms for administering immediate care and monitoring progress before referral to the teaching hospitals.

The above gaps in the healthcare service delivery in both the public and private healthcare organisations create huge opportunities for innovative disruptors in the healthcare industry. The industry report from the BCG team of Roedl & Partner concluded (and rightly so) that the huge population of low and middle income earners in the urban centres like Lagos, Port Harcourt, Abuja and Kano, coupled with the poor service delivery in government owned healthcare organisations and the expensive charges from the not-so-better alternative private sector providers, provides a huge opportunity for an innovative disruptor to consider a privately owned social enterprise that will operate a national network of health centres that will be reasonably equipped with diagnostic and laboratory equipment.

Based on the proposals in the exclusive report from Roedl & Partner, the business model could be structured in a way that the operating company will provide medical personnel and manage the national network, with contracts with foreign suppliers of medical equipment and devices (such as lease arrangements and equipment placement partnerships) and the deployment of a web-based medical record system (that allows the records of a patient to be retrieved anywhere in the country as soon as the patient provides certain information such as name, phone number and customer ID). The report also recommended that the disruptor might also consider a strategic alliance for mobile medical insurance with mobile phone operators and an insurance company.

Based on Nigerian laws, it is possible for entrepreneurs outside of the medical profession to invest in the healthcare sector. There are also some incentives that could be benefitted by foreign investors in this sector. The opportunities are huge, the market is there, but time will tell.

ABOUT THE AUTHORWF Oluyemi is a chartered accountant and business advisor. This post was originally written for the periodic newsletter of WFO Roedl & Partner, a professional services firm providing accounting, tax, advisory, business process outsourcing, company secretarial services, market entry advisory and business matchmaking services. Roedl & Partner, headquartered in Germany, is present in about 110 locations globally.

Published on July 31, 2016 by Oluwole Oluyemi. Accountant and Business Advisor | Corporate Strategist | DBA Candidate | Educator |

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