Disruptive Innovation

A case study of equine veterinary practice

Here equine vet and RCVS Senior Vice-President Dr Chris Tufnell, in the first of our series of case studies, examines how technology has helped ambulatory equine practices to develop and ‘disrupt’ the more traditional practice-based models of first-opinion equine veterinary care. Through exploring the complex and therefore frequently misunderstood concept of ‘disruption’, Chris invites us to consider what factors could lead to similar disruption in other veterinary sectors.

Whenever new businesses, innovations or emerging competitions are discussed you can be sure the term ‘disruption’ will also be bandied about. The term, however, is frequently misapplied, and as a result we are losing a critical and specific theory that helps explain the nature of innovation and why once thriving household names such as Kodak, IBM and Nokia have all been wrong-footed by emerging competition.

To illustrate what disruptive innovation really means, we will examine first-opinion equine practice and look at how adapting technology and lowered costs are changing the structure of the sector.

Innovation in equine practice

Ever since there have been veterinary surgeons in the UK, they have visited horses at their home farm or yard. Equine-specific vets began to emerge, however, as horses moved from being a source of agricultural power to being sports and recreational animals, and as the conditions they suffered from and the care that was demanded for them became more complicated and involved.

Early diagnostic equipment such as X-ray machines and ultrasound scanners were large, unwieldy and expensive, and so advanced procedures were limited to a few specialist centres, usually veterinary teaching hospitals.

As equipment became smaller, more refined, and more accessible, first-opinion equine practices were able to use it as well. As a result, bigger equine practices invested in small surgeries where they could bring horses in for X-rays, scans and other procedures, but building these practices and kitting them out with the latest equipment required significant investment. To cover the costs, practices needed to charge higher fees and have a higher throughput of cases, as well as a correspondingly higher number of veterinary surgeons to manage them.

Practices that invested in facilities and equipment in this way have continued to develop and advance the services they offer, and to target those clients willing to pay more for a higher level of service.

This type of innovation, which ‘offers incrementally better performance at a higher price’, is described as ‘sustaining innovation’ by Clayton Christenson, Harvard Professor and foremost disruption expert (2015).

The problem that this kind of innovation creates for any business is that over time the products and service offered will start to over-serve the needs of the mainstream market (see Figure 1), so an opportunity for ‘disruptive’ competition emerges. 

The emergence of ‘disruptive’ ambulatory practices

The barrier to entry for equine vets working on the road was much smaller than for those operating from veterinary practice premises. They only needed to invest in a vehicle and portable diagnostic equipment, and refer anything more complex to bigger hospitals. At first, however, due to the limitations of the service they could provide, ambulatory practices were not considered a threat to first-opinion practices that had invested heavily in equipment and facilities.

But as the technology became smaller, more portable and lower cost, it became accessible to ‘ambulatory’ vets. Whilst it was a challenge to perform diagnostic procedures on farms and yards rather than in the controlled environment of a surgery, they were able to perform a role that was ‘good enough’ to achieve a diagnosis and initiate treatment of conditions that would previously have only been diagnosed in a surgery scenario.

Without the overheads of buildings, staff and very complex equipment they were able to charge lower fees and so appeal to the market that was being over-served by the larger practices and to new clients that had not previously been able to access this level of diagnosis before.

The emergence of ambulatory first-opinion veterinary practices in this fashion is an example of ‘disruptive innovation’ in action, passing Christensen’s two key tests to identify ‘disruptive innovation’: it ‘originates in low-end or new-market footholds’ and is ‘initially considered inferior by most of an incumbent’s customers’.

The response of most of the practices that had invested in complex diagnostic equipment, buildings, facilities and staff was to move upmarket and try and serve more complex, difficult and involved cases, many involving surgery which cannot be performed in a yard scenario. Moving upmarket to high-margin clients and leaving the lower-end to their new disruptive competitors is a logical response of any business facing disruptive competition. The issue is that the pace of disruptive innovation means that new entrants can provide in increasingly better services at a lower cost than incumbents, forcing incumbents to move yet further upmarket.

In equine practice, we can see the challenges faced by those who have invested in equipment and facilities by the ever-increasing complexity of cases that can be managed on a yard by an ambulatory vet using the latest technology.

How to respond to disruption

Whilst such ‘disruptive innovation’ may seem an unstoppable hostile force that will ultimately ravage incumbent business, whatever sector they may be in, Christensen asserts that disruption presents opportunities for incumbents a long time before it becomes a direct threat.

For existing businesses the key to exploiting such opportunities is to identify the sources of disruption and ask why clients might be moving to other service providers. Using this market intelligence, incumbent businesses can then create new businesses to exploit the opportunities disruption can bring.

Should businesses, therefore, abandon still profitable businesses and loyal clients in the quest to seize new opportunities? The answer is, of course, ‘no’ – rather, they should simultaneously continue to improve their existing businesses, meet their core customers’ needs and engage in sustaining innovation, using the profit from these businesses to invest in new disruptive business models. Thus, when their existing businesses do eventually succumb to the inevitable tide of disruptive innovation, they will own the very companies that are disrupting them.

What innovations or technologies do you think could lead to ‘disruption’ in your area of work and what opportunities could these present?  Please leave your comments below to start a discussion.

If you would like to learn more about Disruptive Innovation, this article provides a great starting point.

Bibliography

Christensen, C. M., Raynor, M. E. & McDonald, R., 2015. What is Disruptive Innovation?. Harvard Business Review, December.

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