ADA Innovation in Healthcare PDF

Healthcare industry is supported by **4 major industrial sectors**: - **PHARMACEUTICALS** and **BIOTECH** **Pharmaceutical companies** are firms whose predominant activity is in the human healthcare industry, utilizing modern chemical (and generally artificial) methods and materials f...

Healthcare industry is supported by **4 major industrial sectors**: - **PHARMACEUTICALS** and **BIOTECH** **Pharmaceutical companies** are firms whose predominant activity is in the human healthcare industry, utilizing modern chemical (and generally artificial) methods and materials for research, development and production of products, treatment and disease prevention (drugs, new therapies, vaccines, diagnostic systems..); **Biotech companies** are firms that uses live organism or their products, such as bacteria or enzymes, to manufacture drugs. - **MedTech** there are 2 different markets: **MEDICAL DEVICES** (are products intended to perform a therapeutic or diagnostic action on human beings by physical mans. Example of medical devices are syringes, latex gloves, wheelchairs, X-ray machines..); **IN VITRO DIAGNOSTIC MEDICAL DEVICES** (are products which provide medically useful diagnostic information by examination of a specimen derived from the human body. Example are hepatitis tests, urine test strips, pregnancy tests, molecular diagnostics..). - **INFORMATION TECHNOLOGY** (IT) Digital health solutions are tools and services that use information and communication technologies (ICTs) to improve prevention, diagnosis, treatment, monitoring and management of health and lifestyle. - **INFRASTRUCTURE** (design, engineering and construction) Healthcare infrastructure are not only the buildings and systems used to provide healthcare services, but also the people and the process for delivering healthcare services. **HOSPITAL VALUE-CHAIN and VALUE-BASED HEALTHCARE** The **value chain** is a way of viewing a business firm, hospital, or any other type of organization in terms of value-adding opportunities. The value chain is composed of two major components: - PRIMARY activities are those activities that are involved in getting resources and customers into the organization, transforming the resources into products or services; - SUPPORT activities are those activities that help to run our business (they are not directly related to our product or service). **Healthcare Value Chain** is quite similar to most other industries; it includes manufacturers, wholesalers, distributors, providers, professionals (nurses, midwives, etc.), and payers (patients). Healthcare services\' value is to provide best treatment at minimal cost. So, the value chain of an hospital consists of: - **Payers** Government provides certain health schemes so for some services government pays. Insurance companies pay for employees or their clients. Individual pays the amount for the medical expenses. - **Providers** All the hospitals, nursing homes, clinics of all specialities, pharmacy and home health services. - **Producers** All the companies that manufacture the equipments or the medicines or any other products used in a hospital **Primary activities** of hospitals include all the activities from the time that the patient is brought to the hospital till he leaves. Also the activities done to bring patient to the hospital are considered primary activities. These include process from admission to discharge, ambulatory services, marketing activities carried out by the organization, and obviously the diagnosis treatment care and the health check-up. **Support Services** include the services like infrastructure management, procuring new staff and retaining them (human resource management), establishing new technologies and IT services (technology development), and supply chain management. So, at the core of the chain there are the SERVICE PROVIDERS (hospitals and clinicians, pharmacies, diagnostic services) that produce a service (the treatment/care/surgery for the patient). In order to function, at the upstream (there are the suppliers) of this chain there are the phases of PRODUCTION (drug and device manufacturers and digital health and technology developers, because rooms need medical devices and doctors need drugs to do their job, for example) and DISTRIBUTION (import and wholesale, transport and distribution, because we have to move the items from one place to the hospital); at the downstream there are INTERMEDIARIES (such as the information systems for example) and the PAYERS (private insurance or government). **VALUE-BASED HEALTHCARE** it is a framework that describes the value as a fraction between the OUTCOMES + PATIENT EXPERIENCE / DIRET COSTS + INDIRECT COSTS (not only costs related to a specific disease, but also costs related to the entire process of care). So, for a better value the healthcare system has to improve the quality or has to reduce the costs. So, the recognition of this value at the patient level should be then translated in a better experience of care for the patient itself, that should improve the overall population health, with the goal to decrease the per capita cost. So, all the industries in healthcare follow the same triangulation, and, when they introduce an innovation (new way for treating the pregnancy), they have to demonstrate that the new way is better on the basis of this equation outcome, expectation and direct/indirect costs **SOURCES OF INNOVATION** **MEASURES OF INNOVATION INPUT, INTERMEDIATE (patents) and OUTPUT MEASURES** **FORMS and TYPES OF INNOVATION** **PATTERNS OF INNOVATION (product life cycle, S-shape, phases, Roger's diffusion model, technology cycles)** **HARD vs SOFT INNOVATION** **WHAT IS SO SPECIAL IN HM (not physical artifact, socially constructed, user-led, stakeholders)** **ADOPTION and DIFFUSION (stakeholders and innovation elements)** **THE IMPORTANCE OF INNOVATION; DEFINITIONS OF INNOVATION; INNOVATION MANAGEMENT (ex of pregnancy) (SLIDE)** Looking at Macro perspective, Innovation is important for society because it can lead to a better life, better quality of healthcare, better outcomes, less pollution or can lead to have better products at a lower price. In fact, innovation enables a wider range of new goods and services to be delivered to people of all the world and innovation provides economic growth, employment, social welfare and significant improvements to people's lives (in fact, for example, innovation can lead improved medical technologies, better transportation and so on). However, every innovation comes with "NEGATIVE EXTERNALITIES", and this happens to a lot of industries (especially healthcare). These negative aspects are: declining industry and jobs; security (manage of data); pollution (lithium battery) or antibiotic-resistant bacteria. Looking at MICRO perspective, Innovation is important for organizations/firms and employees, in fact, firms can produce better outputs, be profitable or they can defend their position in the market (they can have competitive advantage). The primary goal of innovation is to enhance the efficiency and profitability of an organization, in fact, innovation is a source of firms' competitive advantage, because could help them to differentiate. However, a successful innovation requires carefully strategies and implementation processes by incumbents to introduce innovation to the marketplace and protect their position against new entrant rivals (it is fundamental to understand the type and nature of innovation to recognize that uncertainties are still at the heart of innovative activities). Regarding employees, we can say that innovation has to do with the concept of development of new skills (usually technological skills). Innovation has an impact also on customers, in fact, it has to do with the concept of solve a new problems. So, there are new and different needs, and innovation can lead to new solution that are able to solve that specific need trough the introduction of new products or services. This solution leads to a high quality product or service (higher quality compared to the previous one) and lower costs, and increase the customer satisfaction. Other definitions of INNOVATION: - Innovation is finding new, better and more efficient solutions to an existing problem; - It is creating a new need; - It is a new idea, device, method or technology; - It is a new product/service or process; - It is the process of bringing new products and services to the market - It is destroying existing markets, transform old ones, or create new ones; - It is responsible for raising quality and lowering prices, improving people's life - INNOVATION IS BOTH THE OUTCOME AND THE PROCESS; - INNOVATION AND TECHNOLOGY ARE NOT THE SAME; - INVENTION AND INNOVATION ARE NOT THE SAME; - INNOVATION IS SOCIALLY CONSTRUCTED INNOVATION is NOT INVENTION and TECHNOLOGY example of PREGNANCY An example of possible innovation could be the new way of treating a pregnancy through the support of virtual, ambulatory and home-based models (pregnancy it is not a disease, in fact it is just a status of a women). How we can introduce this type of innovation? What is the journey, what are the phases and who are the people involved? If we want to introduce this new way of treating this status, there are MANY STAKEHOLDER: the receiver, that is the PREGNANT WOMAN (she must agree with this new way, indeed, she may want the direct contact with the doctor); there are HOSPITALS and DOCTORS involved, in fact, this journey could be done remotely thanks to the advances in technology, and for this reasons, for example, the information system needs to be in line with this new way (there is the necessity to make a precise reorganization of the process in fact, in this case, the women go directly to the hospital only for the delivery of child, because all the other phases are done remotely); there is the presence of TECHNOLOGICAL FIRMS (medical devices companies) that provides the bracelet for the remotely control; there is the presence of AI (how safe is it?); there is a question about the data about the health status of the women (who have to manage them); who are the payers? The GOVERNMENT, the INSURANCE or the WOMEN itself? So, before to introduce an innovation, there are many problems to understand and solve. In fact, introducing a new type of innovation may find a lot of obstacles along the ways. This is a clear example that explain us, why INNOVATION is different from TECHNOLOGY and INVENTION. In fact, INNOVATION is not complete unless it is COMMERCIALIZED, unless it reaches the CUSTOMERS. So, the pregnancy example is the idea of how the journey could look like, so, it is the INVENTION (idea), but, in order to become an INNOVATION it need to be validated. In fact, innovation is only when the idea is accepted by the market in that case, when the idea is implemented, accepted and use by the market, it becomes a STANDARD (when it becomes accepted over 50% of the population). So, Innovation is not Technology; Innovation is different from Invention; Innovation can be considered as a sum between the IDEA (the theoretical conception), the technical invention and the commercial exploitation. Usually, the innovator is also the entrepreneur, so, he is the one who takes the risks of bringing an idea from the lab down to the market, accepting the potential failure. So, innovation is the whole process made up of various faces: generation of the idea, then it has to take the form of a product (it can be a prototype) and the firm has to prove the technical on humans or animals to see which are the problems. CASE GIVEN (PHASES OF INNOVATION PROCESS) an innovation is made up of: - Phase of BASIC RESEARCH and APPLIED RESEARCH there is a special budget to do that; this phase also includes a team of people working together in the labs (every people of the teams brings knowledge (tacit or explicit); - Phase of DEVELOPMENT the development of a certain technology (prototype); - Phase of COMMERCIALIZATION in this phase our technology reaches the MARKET and the customers (so, our technology is adopted by people). **CASE GIVEN** The case involves the development of the Camera Pill, that is swallowed by patient and that transmits images of the small intestine. It was invented by Gavriel Iddan, a team of scientists and Dr. Scapa. The project was initiated by Dr Scapa, a gastroenterologist, and then, Iddan, that was a missile engineer, so, he doesn't have medical background, joins to Scapa and applied guided missile concept to the problem of viewing the small intestine. So, in this way, sharing their knowledge (we are talking about complementary knowledge), they developed the Camera Pill. However, there were many obstacles to overcome (problems regarding size, quality and battery life, for example). So, they conducted several experiments with a chicken, developed a prototype and then applied it to a first patient. Then, they formed a partnership with Meron (CEO of Applitec) for capital to commercialize. From this partnership, they acquired additional capital to commercialize the product and developed additional technological expertise/competences to improve the product. Then, Given imaging company was founded to better develop and market the technology. They formed partnership with a team of scientists lead by Dr. Swaim to combine complementary knowledge, and this resulted in an highly successful and revolutionary product. In fact, in 2015, numerous studies had shown that PillCams was better than the traditional endoscopy in terms of safety and in terms of money (at 500\$ PillCams was less expensive than traditional gastrointestinal endoscopy procedures, that costs from 800\$ to 4000\$ or more). So, this PillCams has the potential to enter in a market and grown it. In 2014, Given imaging was acquired by Covindien and Medtronic (in 2015) and Givem receives larger capital resources and greater salesforces. So now, Given imaging was positioned to transform the market for gastrointestinal endoscopy. We can see different important features the importance of sharing knowledge; the fact that, big company (Covindien and Medtronic), comes into play with additional financial resources, salesforces and money, but only after that the uncertainty is no longer there (the most of the risks is for the entrepreneur). So, big companies come into play only when a technology has been developed, helping the entrepreneur and his small companies (with his product/service) to reach the market and permit that the product becomes the STANDARD that substitute the older solution. So, there are many key factors that permit to generate this innovative product: - **Individual level** the specialized and individual competences are important (doctor and engineering); the importance of complementary knowledge (sharing knowledge), in fact, great ideas come out from complementary skills (we have to put people working together); - **Company/Organization level** the importance of partnership to acquire knowledge to develop a better product/technology or to acquire money/capital to scale-up and reach the market. There could be a problem of knowledge transfer, regarding the tacit knowledge, that belongs to the individual and cannot be transferred or written into a document (if the person is substituted by someone else, that knowledge remains with him.. it is different from the codified knowledge, that is explicit and reported into documents). - **Country-level** to develop this technology there were 2 countries involved. The country have to support long-term exploration effort, implement policies to attract and retain talent or support talent mobility; the presence of universities is important; act as a potential market. **INNOVATION** Definitions of INNOVATION: - **Innovation is "the introduction of new products or services, new methods of production, the opening of new markets, the conquest of new sources of supply and the carrying out of a new organization of any industry".** - Innovation is both an outcome (physical objects) and a process (new services or new business model). It involves the act of turning an idea or invention into something that can be sold to customers or something that can be used. - Innovation and technology are NOT the same technology is "the whole complex of knowledge, skills, routines, competencies, equipment and engineering practice". - Hard technology is the physical and tangible artefacts such as computers, mobile phones or drugs. - Soft technology is the knowledge about how those artefacts work. Soft technology enables the application of hard technology to a problem. Soft technology = the practices, procedures, protocols and guidelines that are often used in conjunction with hard technologies (a protocol for carrying out an innovative surgical technique..). Types of KNOWLEDGE: - EXPLICIT KNOWLEDGE can be readily articulated, codified and accessed; - TACIT KNOWLEDGE cannot be adequately articulated by verbal means; - CODIFIED KNOWLEDGE is tacit knowledge converted to explicit knowledge in a usable form; - EMBODIED KNOWLEDGE is the routines, habits, tasks, and information we understand without conscious thought; - SITUATED KNOWLEDGE is knowledge affected by the history, language and values of the person knowing it. INNOVATION and INVENTION are NOT the same invention is creating something new, it is the action of inventing something, typically a process or device; innovation is the process of bringing the invention into commercialization and use. So, **invention** is the conception of new ideas.. it is the starting point for innovation. **Innovation** is the subsequent process of converting intellectual thoughts (new-idea or an invention) into tangible new artifacts ready for the market. So, innovation depends on inventions, but inventions need to be harnessed to commercial activities before they can reach the market, get accepted by the consumers/users/patients and contribute to the growth of an organization. **Innovation** has both: **creative** and **commercial** dimensions, in fact Innovation = theoretical conception + technical invention + commercial exploitation which includes acceptance by the market!! Summary INNOVATION is: the action or process of innovating; a new method, idea or product; the successful (the innovation is adopted by the target audience) exploitation (the idea must be implementable and potentially value generating.. innovation = invention + exploitation) of new ideas (a new or improved product, process or service, or a whole new business or business model). "New" is a relative term and it can mean "new to the world", "new to the market" or \"new to the firm". So, the commercialization aspect is important to improve innovation. It is important to study innovation from an economic perspective, and we can see that INNOVATION is an UNCERTAIN process. Difference between UNCERTAINTY and RISK: - **RISK** is when we know the potential outcomes in advance, and we may even know the odds of these outcomes in advance (rolling a pair of dice). So, it refers to a probability of an event to occur. In fact, risk can be referred to a single activity of the innovation process if we are capable to know the odds of the outcomes in advance. - **UNCERTAINTY** occurs when we don't even know the possible outcomes in advance, let alone their probabilities (complex systems, like the healthcare system, where lots of actors interact over time). So, it refers to the concept of possibility. Uncertainty occurs along the entire INNOVATION PROCESS, from the theoretical conception down to the technical invention and the commercial exploitation. It is a measure of the complexity of the entire innovation process. Regarding this, the 3 most important characteristics keys to innovation are: - Innovation can only be understood ex post I cannot predict the impact of innovation (uncertainty is an important aspect especially in the pharmaceutical industry); - The innovator/entrepreneur may be subject to cognitive biases (errors of judgements); - Innovations are grouped in time and space the time we chose for that innovation is important because it may be later or the market may not be ready for that innovation; furthermore, the innovations are linked to economic cycles and sector dynamics. **INNOVATION MANAGEMENT** refers to the management of all activities involved in the process of idea generation, technology development, manufacturing and marketing of a new or improved product or manufacturing process or equipment. Innovation management includes the management of risks and uncertainty, but primarily working towards uncertainty reducing it to associated risks **HEALTHCARE INNOVATION** can be as simple as changing a form to check out a patient five minutes faster, or as complex as an immunotherapy that targets specific types of cancer cells. So, healthcare innovations represent any developments, simple or complex, that lead to improvements in health outcomes and patient experiences (no matter how small, every innovation needs to have its introduction carefully managed). There are a lot of main challenges in the healthcare systems changing paradigm, from disease and treatment to prevention and well-being; many stakeholders (complex system); an highly politicized system, with stringent regulations; there are rising costs; there is a digital transformation (AI, mobile technology, cloud..) and privacy concerns; there are problems of accessibility and sustainability. So, innovation in health and social services is the development of new drugs, vaccines, diagnostic and medical devices, as well as new process and manufacturing engineering techniques, as well as new approaches and policies in health systems and services, including a better understanding of human health behaviour (innovation is renewing or changing something, which is then applied and has benefits). There are different classifications for innovations. One distinction is according to WHERE THE DEMAND for the innovation is ORIGINATING: - The innovation is PUSHED by the developers of a new technology or service, where there was previously NO DEMAND; - The innovation is PULLED by some kind of expressed demand (such as the need to reduce production costs or address a safety or quality issue). In practice, innovation tends to result from an interaction between the two, in which innovators simultaneously create ("PUSH") new possibilities, and at the same time identify evolving consumer or other needs ("PULL"). For innovators, it is important to maintain a balance between keeping an eye on the market (to ensure that their good ideas are actually potential innovations that people might want), and make sure that they are not so close to market demands (this could block the search for truly radical ideas). Another distinction is between "INCREMENTAL" and "RADICAL" innovation. We can classify innovations in three ways, according to: - Their SCOPE, i.e. their degree of novelty (HOH NEW THEY ARE) New in relation to the perspective of the adopter (individuals, companies or other types of organizations). Indeed, an innovative product or process may already exist elsewhere, and its novelty may be in relation to a particular industrial sector or a technological ecosystem such as a national health service. Therefore a new drug could represent an innovation in one healthcare system but not in another, where it is already widely used; **Cooper\'s model** classifies innovations based on the degree to which they are **NEW TO A MARKET** or **NEW TO A COMPANY** operating in the market. A new product line may be new to a particular company, but for other companies that product may already be well established. Or a company can develop an old product to reposition it, creating something new on the market. Truly **innovative products (or services) are new to both companies and markets**. According to Cooper (2013), since the 1990s improvements and modifications to existing products ("INCREMENTAL INNOVATIONS") have grown substantially as opposed to innovations that are new to the world and the market; Freel and de Jong (2009) categorise innovations according to the novelty of innovation outcomes and the extent to which innovation activities mean an organisation or company has to acquire new capabilities (expertise, equipment or knowledge). **An innovation that is new to a firm but not to the market may simply require enhancement in its capabilities and competence; radical innovations are not only new to the market but also require a firm to develop completely new capabilities.** - Their FORM of application. The 3 principal forms of innovation are: **PRODUCTS** tangible physical objects (phone) that are acquired and used by consumers; **SERVICES** intangible things (banking, education, healthcare, or FACEBOOK), where the consumer benefits from the service, but does not actually acquire an object; **PROCESSES** the equipment, methods, systems used by producers of products or services. It has been argued that products or industries typically display lifecycles where the emphasis of innovation shifts between products or processes at different stages. William Abernathy and James Utterback (1975) developed a model in which the early stages are marked by an emphasis on product innovation and uncertainty. After some time, a "dominant design" becomes established, which matches the market's needs and aspirations but may not be the best design in technical terms. The emphasis then shifts from the product towards process innovation, improving manufacturing processes to deliver volume and consistent quality at the right price. Finally, a mature phase emerges, characterised by incremental innovation in both product and process, and extensive competition with other firms. The cycle starts again and continues. This model suggests that companies must seek radical ideas in the early stage and develop incremental improvements in the mature stage (if they want to gain a competitive advantage). However, disruption can occur in this stage as incumbent companies' products are displaced by cheaper versions by competitors. The focus of **mature industries** tends to be on **pull** as they respond to different market needs and try to differentiate themselves by incremental innovation. **New industries**, on the other hand, are often dominated by **push stimuli**, sometimes described as 'solutions looking for a problem'. - Their INNOVATIVENESS (how much change there is in their components, compared to the current norm). TYPES OF INNOVATION Rebecca Henderson and Kim Clark outline a model with 2 dimensions: one captures the impact of innovation on the knowledge underlying the components of a product (or a service or process); the other captures the impact on the linkages between these components (the "architectural" knowledge about the way components are linked together to make the product work). There are 4 TYPES of INNOVATIONS.. RADICAL and INCREMENTAL innovation represent the extreme points. **RADICAL INNOVATION** establishes a new dominant design and, hence, a new set of core design concepts embodied in the components that are linked together in a new architecture. The main features are: major technological discoveries or applications of new technologies; involves a step change, that is non-linear and discontinuous (discontinuous innovation leads to some kind of disruption to the status quo, so, radical and discontinuous innovation describe a significant degree of change over the existing technology). So, it means new methods or materials to serve a new market (MRI radiology). It often comes from new business and it generates long jump and great technological revolution. The result is the technological saturation. It occurs at the system level. **INCREMENTAL INNOVATION** extends an established design. Improvement occurs in individual components, but the underlying core concepts, and the links between them, remain the same. The main characteristics are: improvements in components or introduction of new components within existing dominants design; process of continuous change (technology improved rather than replaced). So, incremental innovation means continuous improvement of a product/process/service. One example is the from Intel 5 to Intel 6 processors. Often comes from incumbent companies and it follows the major technological changes. It is done until technological saturation is reached (it occurs at the component level). **MODULAR INNOVATION** changes only the core design concepts of a technology. The main characteristics are: uses existing system architecture of an established product but employs new components with a different design concept. **ARCHITECTURAL INNOVATION** changes a product's architecture but leaves the components and their core design concepts unchanged. The main features are: components and associated design concepts remain essentially unchanged but the system configuration changes. The **PERFORMANCE "S curve"** this model of Richard Foster tells us that the performance of a product typically grows slowly in its early stages then speeds up before finally tailing off. The shape of the curve means that significant effort is required during the initial stages, but once this learning is achieved, performance can improve with marginal effort. For some sectors or products there may therefore be a shift towards a new curve, as radical innovation completely changes the innovation architecture. So: innovations that move along the curve are "INCREMENTAL"; innovations that shift to a NEW curve are "RADICAL" (the performance may initially be slightly lower/higher than previous performance curve). **INNOVATION as a PROCESS** INVENTION; COMMERCIALISATION; DIFFUSION. The innovation process is called \"the Schumpeterian trilogy\" and it is divided into 3 phases: - The **invention phase**, where ideas are turned into workable inventions, is typically characterised by experimentation to prove the concept. Incremental innovations may involve little or no experimentation but nevertheless require a considerable amount of technical development. The technological potential of an invention has to be transformed into economic value. - **Commercialisation** is where the latent value of a technology is unlocked in order to generate real value. There may be many possible ways to commercialise an idea, but only a few are likely to succeed. Today the term "commercialisation" is often used synonymously with the concept of "business models", which are essentially enabling devices to allow inventors to profit from their ideas. - **Adoption** and **diffusion** is the process by which innovations are taken-up and spread through a population. If the adoption of an innovative product is plotted over time, it frequently exhibits an S shaped curve. Adoption refers to the process of making a decision to do or acquire something. Diffusion is usually defined in relation to the "spread" of an innovation through a population or perhaps geographically through a region or country. These three phases tell us that successful innovation requires that the entire process, from invention to diffusion, be completed. An invention is merely a nascent innovation and it may be many years before it makes it to innovation status. Equally, a nascent innovation may never make it (it may simply remain as a patented technology that is never commercialised). Failure can occur even after the adoption of a certain innovation. (in healthcare services, the innovation process tends to be iterative, problem-oriented and collaborative, starting with an issue to resolve and defining the innovations that potentially provide a solution). So, INNOVATION = theoretical conception (IDEA) + technical invention + commercial exploitation which includes acceptance by the market!!!! Rogers distinguishes between three types of decision-making process relevant to adoption: - Individual: the individual is the main decision-maker. Decisions may be influenced by social characteristics and norms, and interpersonal relationships, but the individual ultimately makes the choice, independent of others. - Collective: choices about adoption are made jointly with others in a social system. An example would be the introduction of new policies to promote the recycling of domestic waste. - Authoritative: a few individuals within a social system who have professional status or expertise have the power to make the decision to adopt. Doctors may be in this position for some types of medical technology. So, adoption can be defined in terms of the processes which influence a decision to take-up an innovation; while diffusion relates to the spread of an innovation through a population. So, what happens when the innovation has been developed? In 1962, Roger proposed these four elements to propose and spread new ideas. We are talking about the Rogers\' innovation diffusion model diffusion is the process by which an innovation is communicated over time among participants in a social system, and it is based on: - Innovation itself on the innovation perceived by potential users; - Communication channel the way to communicate to the community its potential; - Time even if the innovation is high, it may not be the right time for that innovation, either the market may not be ready or because it is later; - Social system. So, Rogers proposed a five-way classification of adopters, based on the normal distribution: - Innovators (2.5% of the population of adopters) **they are adventurous, comfortable with a high degree of complexity and uncertainty, and typically have access to considerable financial resources.** - Early adopters (the next 13.5% to adopt innovation) **they are well integrated into their social system and have great opinion leadership potential. Other potential adopters look to early adopters for information and advice, so early adopters make great \"missionaries\" for new products or processes.** - Early majority (the next 34%) **they adopt innovations slightly earlier than the average member of a social system. They are typically not opinion leaders, but interact frequently with the early adopters.** - Late majority (34%) **they approach innovation with an air of scepticism and may not adopt the innovation until they feel peer pressure. They may have scarce resources.** - Laggards (16%) **they base their decisions primarily on past experience and possess almost no opinion leadership. They are very sceptical of innovations and innovators and need to be confident that a new innovation will not fail before adopting it.** The first groups of adopters (innovators and early adopters, who are \"technology enthusiasts\" and \"visionaries\") have different characteristics from the other potential adopters, who simply want reliable, fool proof and finished products or services. These groups have different perceptions of a product and its potential benefits (i.e. they want something reliable and finished), so, significant changes to the product or service offer may be required. **S-SHAPE CURVE** The take-up of innovations by a population over time displays an S shaped curve. The model assumes that the population of potential adopters is homogeneous. An innovation spreads because information about it is transmitted through the population by the innovators and potential adopters (with different communications and sales strategies). Many innovations will, however, deviate from this neat path because of the effects of a diverse range of interactions and circumstances that are contingent on the local context for adoption (these include the policy, regulatory or economic factors that shape adoption decisions). The factors that influence adoption and diffusion are complicated. Actual or potential users or customers are usually heterogeneous in their characteristics (they have diverse needs, and they place different values on how best to meet those needs). Moreover, their needs change over time. Sometimes what customers want is responsive to their own changing circumstances or broad societal shifts. Sometimes their own beliefs and behaviour change in response to technological innovation opening up new demands. It is often hard to get people or organisations to adopt novel products or services. In fact, most of the time, customers are unfamiliar with novel products, which almost always require them to make trade-offs between cost, functionality, added value and their requirements. Customers tend to be overly sensitive to the disbenefits of a novel product and they therefore evaluate a product on its perceived relative value. Businesses, on the other hand, often overestimate the potential benefits but underestimate switching costs for customers adopting a new product. When we analyse the diffusion of technology, we look at this other S-shape, which describes different types of users along the time (in x we have time; in y we have quantity of users). The ADOPTION of a new technology is initially slow because the technology is complex, unfamiliar and expensive. The adoption accelerates when the technology becomes better understood. And then, when the market is eventually saturated, the rate of new adoptions declines. So, the S-shape curve of diffusion is in part function of the S-curve in technology improvements, in fact, when the technology becomes better, it becomes more certain and useful to users, facilitating the adoption of that innovation/technology. As learning curves and scale advantages occur, the price of technology falls, and this can accelerate the adoption. Because technology diffusion tends to take far longer than information diffusion as it might require time, the specific knowledge or expertise and the development of complementary resources may be key. We have to remember that the advantages of the new technology need to be understood also looking at the costs from a customer point of view. The adoption is slow, also because the concept of innovation is a socially construct. So, there are more challenges regarding an innovation adoption. These barriers can be summarized in four main factors: - Organizational culture (traditionalist or proactive) - Resistance to change from normal routine - Adapt to previous technologies - Institutional pressure What are some of the reasons that established firms might resist at the adoption of a new technology? Because this technology might require investments in new competences (competences that they don't have). We can apply this reason also to pharma companies, that have to bet on which one of the new technologies could emerge at the dominant one. So, innovation is competence destroying vs competences enouncing, and this is another aspect that companies have to look (they are afraid of losing competences). So, the companies can have a consolidated position within a specific industry, but they can think to invest in other industries. But, why does the adoption of innovations can fail? In fact, sometimes a very good innovation doesn't spread, and this happens for many reasons: - **Autonomous value of innovation are insufficient** therefore the functions that the technology allows customers to perform, the aesthetic qualities, ease of use, etc.; - **Network externalities** (this is a phenomenon independent of the decision of the actors, and the adoption of the innovation depends not only on the innovation itself but also on the benefits of such adoption) therefore the compatibility with the installed base of the technology or the availability of complementary goods (e.g. video games and PSP, operating system and software, Tesla and charging, care and petrol); - **Market failure** the market is unable to detect the value of an innovation. It may happen that inferior technologies prevail over superior ones (e.g. OS/2 vs Ms Windows: the first was more design and had more applications and multitasking, but the second is very large and efficient based on installation and changes cost). So, for example, we can have a path dependency, a lack of complementary products, or the market fail in detecting the value of an innovation, wrong time, insufficient marketing and communication, or worse coalition, sponsorship and so on. - **Institutional barriers** innovations not complying with regulations, government intervention that blocked the process of innovation, an innovation unfit with the available technological standards or appropriability regimes. PRODUCT LIFE CYCLE (MED vs DRUGS) Pharma and MedTech companies are 2 of the main sectors of healthcare industry. Usually, the products of the pharma and MedTech have 2 different product life cycle, in fact, the SHAPE is the same, but the pharma products (drugs) usually have a longer pipeline and a longer product life cycle compared to the MedTech. MedTech (medical devices) is associated with an INCREMENTAL type of innovation, because the life cycle is short and so, most companies need to pursue a strategy related to incremental improvements if their products. PHARMA (drugs) is associated with a RADICAL type of innovation. In both cases we can study the shape in relationship of SUPPLY side (looking at the improvements) and DEMAND side (looking at the level of adoption), and we have to look the break even point. So, what we analyse here is the fact that the technology improvements goes along the S-SHAPE CURVE. In fact, the technology trajectory (cycle or wave or path) regards the direction of advancement that a technology follows over time. This path may refer to its rate of performance improvements, its rate of diffusion and other change aspects. As we can see both the technology performance improvements (efforts, so, amount of resources allocated by firms within an industry; and time) and the rate at which the technology is adopted follow a S-SHAPED-CURVE. Usually, at the beginning, a new technology performs very little because there are very few people able to manage that technology (we are in the phase 1, so Basic research; Few companies & researchers; Technology improves slowly at first because it is poorly understood; EXPLORATION PHASE); then the technology will improve based on learning effects, in fact, there are more engineers and more investment by other companies that lead the technology to improve (we are in the phase 2, so Applied research; more companies and researchers involved; technology accelerates as understanding of the technology increases; EXPLOITATION PHASE); then, we have the phase 3, that is the phase where the technology reaches its maximum development, and in this phase, usually, a new technology comes in. So, usually, the existing technology is substituted by the new one (the old technology had reaches the limit). S-SHAPE TECHNOLOGY IMPROVEMENTS Technologies do not always get to reach their limits. They may be displaced by new, *discontinuous technology*. A discontinuous technology fulfills a similar market need by means of an entirely new knowledge base (for example, switch from carbon copying to photocopying, or vinyl records to compact discs, and so on). Technological discontinuity may initially have lower performance than incumbent technology (for example, 3D printing). However, firms may be reluctant to adopt new technology because performance improvement is initially slow and costly, and they may have significant investment in incumbent technology to dismiss. We can see that, the same SHAPE can occur for USERS (looking the ROGER MODEL). THE PHASES OF INNOVATION are (Schumpeter viste prima): - INVENTION/DEVELOPMENT PHASE The development phase requires **experimenting** and **exploring** many different potential interactions among parts. The more is the number of interacting variables, the higher is the **complexity** of development and thus, innovating. **Ideas** are turned into workable **inventions**, is typically characterized by experimentation to prove the **concept** followed by the development of the concept into a **prototype** to be exploited; - COMMERCIALISATION There may be many possible ways to commercialize an idea, but only a few are likely to succeed; The **stand-alone value** of a technology may be not sufficient to unlocked and generate real value. - ADOPTION AND DIFFUSION When Innovations are taken-up and spread through a population. **Rarely takes place at a steady, linear rate**. A **dominant design**, is "*de facto*" a *standard* in the form of a single product or process architecture that dominates a product category (usually with 50% or more of the market). Roger said that focussing on the relative advantage of an innovation will only give a part of the story, because **innovation is socially and culturally constructed** it means that healthcare innovation is socially constructed because there are so many actors that are involved in the healthcare value chain, such as PURCHASERS (government, employers, individuals, employer coalitions), FISCAL INTERMEDIARIES (insurers, HMOs, pharmacy benefit managers), PROVIDERS (hospitals, physicians, integrated delivery networks, pharmacies), PRODUCT INTERMEDIARIES (wholesalers, mail order distributors, group purchasing organizations) and PRODUCERS (pharmaceutical and biotechnology manufacturers, medical devices makers and medical supplies, information technology firms). TECHNOLOGY CYCLES and DOMINANT DESIGN Technological trajectories are, in some aspects, metaphors of **Schumpeter's view of innovation as a creative destruction phenomenon**. Technological trajectories are, therefore, an interplay between ruptures (*discontinuity*) in the knowledge process about a specific technology or application of a technology, followed by the incorporation of knowledge into a new product or process (*continuity),* up to the acceptance of a dominant design. A ***dominant design*** is a configuration or set of features that becomes the accepted market standard. A ***dominant design*** is such when a product/service or process is adopted by the majority of producers (more than 50% market share); it creates a stable architecture on which the industry can focus its efforts. However, it might evolve over time. Each discontinuity inaugurates a period of turbulence and uncertainty (*era of ferment*) with a great level of competition until a dominant design is selected, ushering in an *era of incremental change*. During the era of incremental change, firms often cease to invest in learning about alternative designs and instead focus on developing competencies related to the dominant design. A dominant design always rose to command the majority of market share unless the next discontinuity arrived too early. The dominant design was never in the same form as the original discontinuity, but was also not on the leading edge of technology. It bundled the features that would meet the needs of the majority of the market thanks to new solutions. **WHAT IS SO SPECIAL IN HEALTHCARE?** - **Healthcare technology cannot be just a physical artifact** we are talking about Product, Service and Solutions; Hard innovation the physical artefacts, product or process (drugs, devices, equipment, infrastructure); Soft innovation the practices, protocols, services (telehealth for elderly people combining sensors, wearables and other devices for home care services). - **Healthcare innovation is socially constructed** there is the presence of patients, doctors, nurses, hospitals and national systems. - **Often healthcare technology is USER-LED** so, there is the involvement of patients. Very often it is the consumer, with his needs, who drives innovation (it is a problem because sometimes it is the patients and sometimes the doctors..). - **There are many stakeholders, in fact, the models of adoption and diffusion are greatly influenced by multiple stakeholders** healthcare organizations, leadership, regulations, politics, and so on. **How does innovation adoption in healthcare look like?** Adoption and diffusion often take place in a context that is more ambiguous or complex. In fact, the adoption decision is taken by an **organization** rather than individuals; it may target hospitals, which are peculiar **organizations**; knowledge-driven adoption, because individuals might not have the right amount of **knowledge** to assess the healthcare innovation; it might be heavily influenced by **government** objectives; **reimbursement** system can be a significant barrier to the introduction of innovation in healthcare. So, as the healthcare is a complex system which follows its specific rules, innovation adoption follows different trajectories. the main difference is that the adoption is often lead by organizations rather than individuals, as they may not have the skills and competences to evaluate an healthcare innovation, new pills or new machine. **SOURCES OF INNOVATION** Innovation can arise from many different sources and the linkages between them. In fact, there are several actors that might come into play, such as INDIVIDUALS, FIRMS that work in an entrepreneurial manner and ENTREPRENEURS, UNIVERSITIES, PRIVATE NON PROFITS and the STATE (GOVERNEMENT or FUNDED RESEARCH) that, according to classic economics, should intervene into the economy only for adjusting the market failures (we will see how the state can acts in an entrepreneurial manner, fostering innovation). Who is the ENTREPRENEUR? The entrepreneur is the personification of INNOVATION, in fact, he is the individual behind the innovation process and, in particularly, he takes the risks of bringing an idea from labs to the MARKET (during the commercialization phase). So, the entrepreneur do not merely INVENT (think of a new concept or device), but actually COMMERCIALIZE the inventions by committing resources and accepting RISKS to implement the invention and to bring it to the MARKET to generate a profit. In the past, most of the innovations were associated to the inventors (inventors = innovators), but, today, innovation is a "team game", so, when we think about innovation, we are talking about the company behind the process of innovation. These companies act in an entrepreneurial manner (there are groups of people within the organization that working together to create/generate an idea and develop a new technology/product/service). We are talking about START-UP. The entrepreneur is not necessarily an independent actor, in fact he can be part of a TEAM in a START-UP. The entrepreneur can be an employee of a large company with entrepreneurial function (in this case we talk about intrapreneurship). Moreover, the entrepreneur can also be attracted by means different from profit (we are talking about Social innovators/entrepreneurs), changing the value proposition of their business model. **PROCESS OF INNOVATION** innovation is a process made of 2 moments: CREATIVITY and COMMERCIALIZATION. The creativity is the ability to generate new and useful idea; the innovation is the implementation of creative ideas into a new product or process exploited on the marketplace and accepted and adopted by customers. 2 types of creativity INDIVIDUAL CREATIVITY is a function of intellectual abilities (problem solving, vision..), knowledge (understand field, but not anchored to paradigms), style of thinking (understand importance of problems), personality (confidence in own capabilities), motivation and passion, environment (support and rewards for creative ideas), use (users who create solutions for their needs); ORGANIZATIONAL CREATIVITY is a function of creativity of individuals inside the organization, social processes and contextual factors that shape how those individuals interact and behave. There are different methods (formal and informal) to encourage organizational creativity, trough, for example, idea collection systems (idea box, 20% time..), creativity training programs, and culture that encourages (but doesn't directly pay for) creativity. DIFFERENT TYPE OF KNOWLEDGE EXPLICIT, IMPLICIT (TACIT), and others (vedere pagine prima) TWO WAYS of TRANSFORMING CREATIVITY INTO INNOVATION: - TECHNOLOGY PUSH the innovation proceeds linearly from basic science, so, we have scientific discovery, then we have the invention, the manufacturing and the marketing (so, it is R&D PRODUCTION MARKETING our product/service has to satisfy one possible need of the customers). This is an endogenous phase (internal to the firm), and starts with the R&D, goes through the production of a product, that is put on the market and adopted/brought by the customers. - DEMAND PULL the innovation is driven by the perceived demand of potential users, so, we have customer suggestions/needs, then we have the potential invention (idea from the company) and them the manufacturing of the product/service that has to satisfy the need of the customer. So, this is an exogenous process that puts at the center of the process the need of the customers, and this specific need guides the R&D phase. So, this approach puts the customer at the very beginning of this process, in fact, they, through their feedback, give at the company the information on which the firm will do research for generating new ideas, in order to develop a product or service that can satisfy the needs of the customers. **THE ROLE OF THE STATE** usually, classic economic tell us that the State should be away from the economy, because it is able to regulate itself, but, it should intervene only when there are MARKET FAILURES. So, how can measure the innovative level of a state? Through, for example, the % of R&D expenditure in innovation over GDP. We can observe that in Italy, the R&D expenditure (as % of GDP) is lower than the average of EU countries. Example of APPLE according to Marianna Mazzucato, in the IPHONE, there are technologies developed by STATE money. So, in fact, many of the technologies that make the iPhone and other products and services "smart" were funded by the US government (the internet, GPS, touchscreen display, SIRI..). So, who has benefited from this innovation? APPLE and their stakeholders. Apple did not just benefit from government-funded BASIC RESEARCH ACTIVITIES. In fact, it also received its early stage finance from the US government's program for the APPLIED RESEARCH. So, the concept is that the STATE should stay away from innovation, but it can still finance basic investments. In the case of the iPhone, all the technologies were financed by the State, and this had one effect: reduce level of uncertainty. The State, beside the financing, should also be capable of benefiting from the money spent, but in this case who benefited from the State investment was APPLE only. Venture capitalists entered only after that government funding had gotten the company to the critical proof of concept. So, the point is that, the STATE could support innovation at whatever level, for whatever industry, but, we have to bear in mind that it needs to put in place policies that non only finance innovation, but make sure that citizens benefit from the innovation generated. So, if the State promotes innovation, it is easier for companies to be able to develop an innovative product or service (it makes the process less uncertain). In sum, being "foolish" is much easier in a country in which the State plays the pivotal serious role of taking on the development of high-risk technologies, making the early, large and high-risk investments, and then sustaining them until such time that the later-stage private actors can appear to "play around". **Chapter 2 SUMMARY** Definitions are important we need to make a distinction between \"technology\" (which is the application of knowledge to solve problems and not just a physical artefact) and \"innovation\". Innovation does not simply refer to inventions it is both, a process which embraces different stages from initial idea to adoption and diffusion, and it is also an outcome of this process. We talk about 'an innovation' when referring to something new. There are different ways of looking at an innovation we can see it in terms of its \"newness\", its form (whether it is a product, process or service), or its type (is it radical, incremental or some other type). The performance improvement of a specific technology or product can often be seen as an S shaped curve, where performance initially improves slowly, but then speeds up through the application of R&D and new knowledge. Eventually it begins to tail-off as it reaches a limit. The adoption and diffusion of innovation is influenced by a range of factors, including the attributes of the innovation itself, the adopting individual's or organisation's context and the compatibility of the innovation with that context, and the degree to which the innovation offers the prospect of benefits. The processes involved in the adoption of innovations by organisations tend to be more complex and are influenced by factors like organisational culture and leadership, and the range and power of stakeholders. The adoption of an innovation can be plotted (typically) as an S shaped curve, with slow initial take-up followed by faster adoption by the majority of users, before tailing off. **Chapter 3 SUMMARY** The environment into which new healthcare technologies are adopted is complex and often quite unlike that of other industries or sectors of the economy. This is because healthcare is an immensely complex system involving interactions between a wide range of organisations, institutions, and regulations. In healthcare, it is often less clear what the "innovation" is than in other industries. Many innovations do not take the form of well-defined physical products and bring together elements of new technology and organisational or service model changes. Healthcare innovations may lead to changes in healthcare services outside the immediate context for adoption and other unintended consequences. The economics of technological innovations in healthcare are unlike innovations in other industries (often costs to the health system, or payers or governments, rise because new technologies allow a larger overall "quantity" of care to be provided. The role of evidence for the impact of healthcare innovations, and how it is used in adoption decisions, differs from other sectors of the economy. Positivist scientific methods such as RCTs may not appropriate for many types of complex healthcare innovation. There has been a trend towards "process" studies of healthcare innovation adoption emphasising the dynamic and complex innovation processes in healthcare. **CHAPTER 4** Definition of CLUSTER Definitions include geographical closeness or proximity, concentration and interconnectedness of companies or processes. A common thread is the way the growth of all parties involved can be enhanced by physical co-location, which enables mutual exchange of knowledge and skills, or the sharing of infrastructure. Some definitions focus on the importance of linkages between firms and organisations from public and private sectors as a way of fostering innovation. Clustering also involves transfers of knowledge and highlights the importance of firms collaborating with research leaders such as universities, private research institutions, research laboratories and hospitals to stimulate innovation. So, a cluster is a geographic concentration (agglomeration economies) of related companies, organizations, and institutions in a particular field that can be present in a region, state or nation. In the healthcare field there is the Cambridge pharmaceutical/biotechnology cluster, where, in one geographic location, we can see the concentration of many actors, that support the process of innovation (there are venture capitalists, institutions, pharma company..). In fact, cluster is a facilitator of the innovation process. In a cluster there is a creation and development of knowledge, that which should be transferred, with the technology, inside the cluster, in order to reach the commercialisation phase. Of course, there are Benefits (positive spillover) and Downside (negative spillover): - Benefits of geographical proximity for knowledge exchange greater innovation productivity; complex or tacit knowledge flow due to close and frequent interaction; development of trust and reciprocity norm. - Downside of agglomeration economies lock-in effects; congestion, pollution (increased hosing prices, increased schools fees..); competition (think about "battle for talent" like those battles between firms fighting for the best engineers and when they choose their firm, they will bring their tacit knowledge); the likehood of firm's competitors to gain access to the firm's knowledge (this need to be red in the light of bullet points above). Different from the cluster, is the innovation ecosystem, which is different because you don't need to be located in the same area. An innovation ecosystem is "the complex relationships that are formed between actors or entities whose functional goal is to enable technology development and innovation". The actors include the material resources (funds, equipment, facilities..), the human capital (students, faculty, staff, industry researchers, industry representatives..) and the institutional entities (universities, venture capitalists, banks, research institutes, government agencies, start-ups, existing firms..). The definition does not specify the locations of the actors (geography being pertinent to innovation systems), or the kinds of interactions/relationships among them. **INNOVATION FUNNEL** Usually, an IDEA goes through a process, that is represented by a FUNNEL. This means that, on one side there is the lab with the scientists, and on the other side there is the market. So, from 3000 raw ideas we move on to a single product or service that addresses a specific need (we have to find a solution for a customer's need), in order to make the customer's journey easier. So, Innovation is not a simple process, and in fact, it requires companies to question themselves and accept risks, but it is also the only way to remain competitive in a constantly evolving market. This is why the Innovation Funnel is such an important tool: it allows companies to develop winning ideas and manage business innovation in a rational way, avoiding wasting money and resources and remaining constantly focused on the objectives to be achieved. So, Innovation Funnel, is a scheme used by companies to systematically process the feasibility of innovative ideas. Thanks to it, it is easier to distinguish winning ideas from those that are not worth realising. It reduces the unknowns to a minimum, maintaining focus on the objectives, helping to ensure that the resources work in an efficient and consistent way with the established process and monitors the results accurately. The Innovation Funnel is divided into six phases, that goes from the \"widest\" part of the funnel, which represents all the preliminary stages to the development of the innovative idea, to the \"narrowest\" one, which represents the realisation of the winning idea: - ANALYSIS Customer needs are examined and market trends are analysed in order to set concrete objectives and evaluate the real opportunities that can be achieved; - BRAINSTORMING it is a comparison phase in which ideas are formulated freely; - SELECTION OF IDEAS the ideas developed during the brainstorming phase are selected, and those considered less effective are eliminated; - CONCEPTUAL ELABORATION in this phase, the best ideas become prototypes to be tested and the budget for research and production is established. - CONSUMER TESTING the prototypes are tested on a series of people who are part of the target audience, who will provide useful feedback to understand if they are winning products or if updates or changes are needed. - LAUNCH OF THE PRODUCT it is the realization of the innovative idea. The Innovation Funnel brings numerous benefits to companies, and the most important are: - High quality idea development process; Clear definition of objectives; - Accurate budget preparation; - Efficient use of resources; - Effective reduction of the time between the start of the development process and commercialization. However, R&D expenditures on scientific research may simply fail to discover new scientific knowledge of any potential usefulness. And, even if a new scientific knowledge does emerge from research findings along the funnel, it may never lead to a new marketable product (for example, because of a long period of expenditure). But even if research does eventually lead to a new, valuable product concept, many further questions remain to be addressed: How well will the new product perform, not only technologically, but in economic terms? Will a high performance be attained, but only at a prohibitively high cost? How rapidly will performance improve and how rapidly is the cost of production likely to decline? The DRUG DEVELOPMENT and APPROVAL PROCESS: - What is missing here is the TIME! Regarding the DRUG DEVELOPMENT APPROVAL PROCESS, we can see that the development of a new drug lasts around 15 to 20 years, and, as we can see it goes through a number of stages (PRECLINICAL TESTING, CLINICAL STUDIES, REGISTRATION, PRODUCTION and COMMERCIALIZATION). - As we can see, inside each phases we have a number of subfaces, and then, there is a phase in which government bodies will approve or not approve the previous work (the government come into play). So, ONLY ONE PRODUCT (DRUG) WILL REACH THE CUSTOMERS. - Furthermore, we can see that there are a number of increasing patients. - This industry is fragmented, in fact, on one side, in particular on the preclinical and discovery phase there is the presence of BIOTECHNICAL FIRMS (science activities); on the other side, in the clinical phase there is the presence of PHARMACEUTICAL COMPANIES (that bring the requires investments for completing the clinical status). - In each phase we can have input measures, such as R&D; but also INTERMEDIATE MEASURES, because we can have the presence of PATENTS. So, at the beginning of the process, where science plays an huge part, we can have a lot of competences (that are necessary to obtain a patent). A patent (that is an intellectual property right and not the final product) can be used in a strategic manner, in fact, it can lead to a number of activities that involve the company collaborating with others during the development of that particular new piece of science. So, for example, we can talk about: the IN-LICENSING, so, In-licensing refers to the process **where a company (the licensee) acquires the rights to a product, technology, or intellectual property from another organization (the licensor)**. This can include rights to develop, manufacture, and market a particular pharmaceutical product. In-licensing allows the licensee to expand its product portfolio, access innovative technologies, and enter new markets without having to develop the product or technology in-house. In-licensing agreements usually involve that the licensee have to pay royalties, upfront fees, or milestone payments to the licensor. These payments can be based on the product's development progress, regulatory approvals, or sales milestones); or we can talk about the OUT-LICENSING, so, it is** when a company (the licensor) grants another organization (the licensee) the rights to use its product, technology, or intellectual property.** In this case, the licensor typically receives royalties, upfront fees, or milestone payments from the licensee. Out-licensing allows the licensor to generate revenue from its assets, capitalize on the licensee's expertise, or enter new markets through the licensee's established presence. Out-licensing can also help the licensor mitigate risks associated with product development, as the licensee assumes the responsibility for the product's development, regulatory approval, and marketing. So, behind a collaboration there is always an intermediate measures, that permits the development of that technology and guarantee the economic return out of the initial investment for the companies. There are different types of collaboration: alliances (collaboration between 2 different labs); mergers and acquisitions (pharma and biotech companies); join ventures. **EXTERNAL vs INTERNAL SOURCING** So, firms must often choose between performing innovation activities ALONE or in COLLABORATION, and collaboration can enable firms to achieve more, at a faster rate and a less cost and risk. However, collaboration also means sharing CONTROL and rewards (there is also the risk of partner malfeasance). So, there are reasons for going solo and reasons for collaborating. REASONS for **GOING SOLO** (this is the way to go for a STARTUP): - **FREEDOM** a business idea that seems perfect in your head can prove unfeasible once you subject it to the market. So, one of the benefits of going solo at the start is the freedom to change your mind without the need to refer to a third party. If something isn't working as you thought, you don\'t have to worry about third parties. - **SPEED** for a one-person business, decisions are near instantaneous. When you choose to move in a certain direction, your only constraint will be the resources needed to actualize that decision (in a company the decisions goes through multiple individuals). - **MORE LEARNING** going solo allows you to have good ideas about every part of the business, and allows you to make informed decisions (know the consequences). - **THE PROFIT IS ALL YOURS** a firm can generate a great return (but there is much more risk); - **FLEXIBILITY** by not having to answer to a partner or a fellow shareholder, you can prioritize what matters the most to you (when the situation demands it). So, a firm don't depend on other parties and it will have extreme control over technology, use and intellectual property. REASONS for COLLABORATING in fact, collaborating can offer the following advantages: - Obtaining needed SKILLS or RESOURCES more quickly; - Sharing COSTS and RISKS; - Reducing asset commitment and increase FLEXIBILITY; - LEARNING from partners - Can build COOPERATION around a common standard - So, share ideas, new knowledge, new skills, some new money come in, less risk because a firm can share it, and the share of complementary knowledge. - **LICENSING** that is a contractual arrangement between 2 organisations over an intangible good that can be IN- or OUT- licensed (vedere sopra). So, a licensing is a contractual arrangement that gives an organization (or individual) the rights to use another's intellectual property, in exchange for royalties (money). HOW IT WORKS? We have the licensor (the firm that have a patent on something) and the LICENSEE. The licensor leases the rights to use its intellectual property (patent) to the licensee. The licensee uses the intellectual property to create products for local sale and pays a royalty (money) back to the licensor. So, the licensor earns new revenues with relatively low investment (the licensor is monetizing the use of the patent, in order to get money, additional capacities, acquire knowledge and increase the possibility that the technology becomes a STANDARD). There are some ADVANTAGES and DISADVANTAGES from the point of view of the **LICENSOR**, we have: (ADV) obtaining substantial profits, dissemination of its own technology, access to greater production capacity, statement of a standard and resolving the IMPERFECT COMMITMENT problem. Regarding DISADVANTAGES we have: erosion of the exclusive monopoly on the market, disclosure of relevant proprietary information necessary to make technology transfer effective, transfer of the competitive advantage to the licensee that could develop a better innovation that is imposed on the one given under license; from the point of view of the **LICENSEE**, we have: (ADV) diversification, access quickly to those for which there is no internal capacity, saving costs regarding R&D, learning and participation in the affirmation of a standard. Regarding DISADVANTAGES we have: strong dependence on external sources of innovation, erosion capacity and internal resources. - **STRATEGIC ALLIANCES** they are formal or informal agreements between 2 or more organizations (or other entities) to cooperate in some way. We can have: JOINT VENTURES (JV), that are 2 or more firms join together to create a new business entity that is legally separate and distinct from its parents; COOPERATIVE ALLIANCE (CA), that are 2 or more firms agree to cooperate in any value-chain activity. The ADVANTAGES of a strategic alliances are: Diffuse and reduce risks and costs; Acquire new skills; Avoid counter-competition; ensure safe vertical and horizontal connections; Increase knowledge. The DISADVANTAGES are: Partner selection; Type of alliances; Agreement and contractual issues; Form of ownership and management; Build trust and commitment; Assess performance. - **OUTSOURCING** when an organization (or individual) procures services or products from another firm rather than producing them in-house. **From Closed to OPEN INNOVATION** There are several models through which users and companies interact with each other in the development and marketing of new products. We can also consider the degree of openness which means how freely innovators reveal their intellectual property (IP). We can have 3 different models: - **Closed systems** the knowledge underlying an innovation is generated internally or acquired externally; assumption: to profit from R&D, to control our IP (the competitors don't profit from our ideas), to arrive first into the market, to be the first to commercialize the product (get money), all the smart people in that field work for us (it's not true today); - **User-centered models** where the \"lead-users\" contribute significantly to the innovation process; - **"OPEN INNOVATION" models** the users take the lead role in the creation and development of an innovation. **Open innovation** (a term coined by Henry Chesbrough) refers to a distributed innovation model involving inflows (outside-in open innovation, refers to external knowledge, in fact, means enriching the company's own knowledge base through the integration of suppliers, customers, and external knowledge sourcing) and outflows (inside-out open innovation, refers to earning profits by bringing ideas to market, selling IP, and multiplying technology by transferring ideas to the outside environment) of knowledge managed in a purposeful manner across organizational boundaries, for pecuniary and non-pecuniary reasons, in line with the organization\'s business model. This model also involves non-traditional sources: external cooperation, technology market, creative consumers, communities of innovative users, independent researchers, online platforms. So, the key features of open innovation are GOVERNMENT/PUBLIC, ACADEMIA, INDUSTRY and CITIZENS, that collaborate together to drive structural changes (that any other lonely organization could NOT achieve on its ow). So, the reasons for CLOSED or OPEN INNOVATION are the following: Assumptions of OPEN INNOVATION ideas are widely distributed (so, no one has monopoly of useful knowledge and there is a central role of users); not all the smart people work for you (as a firm), so, it's more useful to create the architecture connecting technologies (=platforms) rather than another technological building block; IP management is necessary to access external IP to fuel our business model, and to profit from our own IP in others' business model. Example of DOCTORLIB it doesn't own patents on the platform that puts in contact doctors, specialists and patients, and doesn't own the IP behind the platform itself. They own and have developed the idea using and leveraging the intellectual properties rights of other people (firms). **MEASURES OF INNOVATION INPUT, INTERMEDIATE (patents) and OUTPUT MEASURES** When we talking about measures of innovation, we can have 3 different measures: - **INPUT** measures we usually refer to R&D expenditure and R&D personnel. So, how to develop innovations? An innovation process begins with **RESEARCH**: we have **BASIC RESEARCH** the goal is to increase the understanding of a topic or field without an immediate commercial application in mind. So, a quest without any purpose, to gather information on how nature and people are brought together. Basic research can be exploratory, descriptive, or explanatory (for example, research analyzing the components of human DNA); also, we have **APPLIED RESEARCH** the goal is to increase the understanding of a topic or field to meet a specific need. Usually referred as SCIENCE. So, the goal of this research is to increase the understanding of a problem in order to satisfy a particular need (for example, applying knowledge of DNA to understand how individuals may or may not develop cancer diseases). Then we have the phase of **DEVELOPMENT**, that refers to activities that apply knowledge to produce useful devices, materials, or processes. Usually referred as TECHNOLOGY. - **INTERMEDIATE** measures such as the intellectual property rights (patents, trademarks). An example could be the patent of a drug, that is the exclusive trademark of the pharmaceutical manufacturer and lasts 20 years. For this entire period the pharmaceutical company, that developed the drug, can market it "exclusively". - **OUTPUT** measures those can be medical devices, new product, new drugs, but also new processes or new business models or new types of solutions. NEW PRODUCT DEVELOPMENT (an example from Pharma R&D process) The R&D process of the pharmaceutical industry is risky, time consuming and costly. Some estimates suggest that it takes around 14 years from basic research until a new drug is licensed and brought to the market, and it can cost over USD 1 billion to bring a new compound to initial marketing approval in the USA. There are 2 types of risk: - Technical risk over time it was growing harder to develop drugs for complex disease areas; - Commercial risk an increasing number of drugs were reaching the end of their patents and were subject to competition from other manufacturers; at the same time payers were growing more unwilling to cover the cost of expensive innovative drugs. Two of the key determinants of the costs of R&D in the pharmaceutical industry are drug development success rates and development times. In essence, the process of creating new drugs comprises two different value chains welded together to create a business model: - The business of scientific innovation discovery and early clinical development. - The business of innovation adoption creating the information that regulators and customers need and communicating it to them. The clinical research process itself is highly structured, essentially following a stage-gate approach but with the addition of a highly formalised process of regulation and evidence gathering. Basic and applied research (discovery) leads to phase I and II trials to test for toxicity and clinical efficacy, then to larger phase III trials, further clinical development, registration, marketing and finally approval. After launching the drug onto the market, there may be more follow-up studies (phase IV) to monitor for any safety issues that might become apparent only when the sample size and the duration of the study are large enough. So, the research has several phases: - **PRE-CLINICAL PHASE** discovery program in which potential lead compounds are synthesized and tested in cultured cells and animals to evaluate toxicity or efficacy; - **CLINICAL RESEARCH** The number of potential lead compounds is usually narrowed down to the most useful drug candidates, which then advance to the clinical development phase (e.g. human testing), which involves three phases. **PHASE I** the compound is being tested on a small number of healthy volunteers to establish safe dosages and gather information on possible side effects, as well as data on absorption, metabolic effects and distribution. **PHASE II** involves a larger group of volunteers, all affected by the target disease. This phase involves randomized double-blind studies to ensure objectivity. The goal in this phase is to collect evidence on safety and preliminary data on efficacy. Then we have the **PHASE III** it is a large-scale study (single or multicenter) that can involve thousands of volunteers affected by the target disease. This study is designed to collect substantial and reliable information on the safety and effectiveness of the treatment. Finally, after gathering sufficient evidence, developers submit the findings to regulatory authorities for marketing and distribution approval. Finally, **PHASE IV**, that is a post-marketing surveillance begins after regulatory approval and it is part of the "pharmacovigilance" process. So, developing a new drug is, therefore, a multi-stage process, characterised by strong regulation to ensure drugs are safe, efficacious and accessible to consumers. Each stage of development requires different levels of resources and scientific knowledge, and distinct competences from university and other research organisations, and pharmaceutical and other firms. The stages of the R&D process are heterogeneous in duration, scope, investment requirements and probability of success, depending on the drug target, the market characteristics and the company's strategy. A failure can occur at any point throughout the pipeline. Failure rates have generally increased over time, although this depends on the development stage and type of therapeutic area. Some researchers estimate that only around 10% of drug candidates successfully complete the phase II of drug discovery. ADOPTION IN HEALTHCARE Sometimes the conventional models of adoption and diffusion from other industries are applicable in healthcare. This may happen when there is no ambiguity in the innovation itself or when the adoption decision is taken by more or less fully informed individuals who can weigh up the pros and cons and make a decision to adopt, uninfluenced by others factors. In healthcare adoption and diffusion often takes place in a context that is ambiguous or complex. It is useful, therefore, to distinguish between different contexts for adoption decision-making: - Decision-making in situations where the individual is the main decision-maker, independent of peers; - Decision-making where choices are made jointly with others in a social system and accompanied by peer pressure or formal requirement to conform (collective); - Situations where decisions are taken by a few individuals because of their power, status or expertise (authoritative). The latter is particularly characteristic of healthcare systems. **CHAPTER 6** Disruptive Innovation is often used to embrace any innovation that is seen as somehow \"radical\" (perhaps new-to-the-world) and potentially disruptive to existing ways of working. A disruptive technological innovation is a fundamentally different proposition from a disruptive business model, and a disruptive product is not the same as a disruptive service innovation. A disruptive innovation brings to the market a more affordable product (or service) that is simpler to use. Because of this, it may be taken up by those customers who are not currently in the market because they demand less. To qualify as a disruptive innovation, the new product or service must enlarge the overall existing market by attracting new customers. The markets created around disruptive innovations therefore comprise different types of customer and have different success factors compared to those within established markets. Disruption does not mean that incumbent companies are necessarily destroyed. **Characteristics for disruptive innovation** Not a sustaining technology (so not resulting in price inflation); Produced by an organisation autonomous or separate from the incumbents who dominate the market; Less expensive than traditional technology; Maintains cost-competitiveness over time; Enabled by a rapidly evolving technology (and may start-off worse than existing product but improve over time); Demonstrated effectiveness in real-world use (perhaps requiring significant trial and error). Performance of VALUE ADDED and PRODUCT/TECH NOVELTY. So, Disruptive innovation is about bringing to a market a much more affordable product or service that is simpler to use, and thus more likely to be taken up by less demanding customers. These innovations may start-off with a lower performance than an existing product but improve over time. Insurgent companies producing disruptive innovations may invade established markets and displace the incumbent company. Disruptive innovations are not incremental, 'sustaining' innovations, so they do not result in price inflation and they maintain their price-competitiveness over time. There is great interest in potential disruptive innovations for expensive healthcare systems, which might help to shift care from high-end, complex technologies towards solutions that simplify complex problems. The introduction of disruptive innovations has implications for the infrastructure of healthcare (the distribution of hospitals and other facilities). So, technologies often improve faster than customer requirements demand, and, low-end technologies may eventually meet the needs of the mass market. We can distinguish 3 types of market: - The HIGH-END MARKET is the market where all the innovators are allocated (they are those to willing to pay a premium price); - The MASS MARKET is the market (curve) where the majority of people are allocated; - The LOW-END MARKET the market where the laggards are allocated. So, the concept of disruptive innovation refers to an innovation (so, a product or a service), that has how target the LOW-END MARKET (so, it has how objective the "laggards"). In fact, we are talking about a new product or service that is less expensive and that perhaps performs worse that an existing technology, but it has the potential to overcome the existing technology, thanks to its technology and its business model. So, we are talking about an innovation that changes the competition in an industry on the basis of a new value proposition (that is the combination of benefits to be delivered to the customer). Basically, a disruptive innovation has to respond to 3 type of questions: - WHO the disruptive innovation has to target NO EXISTING customer and unmet needs; - WHAT type of solution we provide for that need and for that customer? - WHY should the customer prefer and buy our technology (product or service) compared to existing one? DISTRUPTION INNOVATION disruptive technologies create an entirely new market through the introduction of a new kind of product or service, one that's actually worse, initially, as judged by the performance metrics that mainstream customers value (for example, the mobile phone, initially low performing in reception and heavy, but disrupted the market for home phones). So, disruptive innovations serves a market segment that did not exist before (unmet market need). SUSTAINING INNOVATION sustaining technologies are innovations that make a product or service better in ways that customers in the mainstream market already value (for example, intel developing faster and faster chip speed or Microsoft developing operating system). So, sustaining innovations tend to maintain a rate of performance improvement; so, they give customers something (product or service) more or better in the attributes of an already value (product). DISRUPTION of healthcare institutions IN HOME CARE is the new performance that patients need or can use (it can disrupt in-office care, outpatient clinics and focused-care centers or general teaching hospitals). Or SELF-CARE \> nurse practitioners, primary care doctors, specialists). **PROTECT INNOVATION** When we talk about the protection of innovation, we immediately think of patents companies trying to defend their secrets. It is important to protect innovation because the ability to claim an exclusive right to an innovation stimulates future innovations (the goal of protecting innovation is to **stimulate future innovations**). Imagine if you invest a lot of money in R&D and you end up to developed a very important and profitable innovation, but then your competitor imitates your innovation, tackling it, facing zero costs in R&D and profiting from your research and expenses. This way no one would be encouraged to innovate. In this sense, legal instruments stimulate future innovations, ensuring that inventors benefit from a temporary monopolistic income. Monopolistic prices are higher than prices in perfect competition (for example, a newly discovered drug has an extremely higher price than a generic drug). This happens because patents provide a temporary monopoly and monopoly income to pharmaceutical companies. Before analysing the tools that protect innovations, we must introduce the concept of innovation **APPROPRIABILITY**, that is the degree to which a firm can capture rents from its innovation (the greater is the appropriability, the less imitable it is by competitors). In general, appropriability depends on two different circumstances: tacit knowledge and knowledge of socially complex interaction. Tacit knowledge is a type of knowledge that is difficult to imitate/codify (ability to do something in a way that competitors are unable to do). The opposite of tacit knowledge is explicit knowledge. The intellectual property rights is a group of legal rights that provides protection over things, that are create or invent by people. So, the legal instruments to protect innovations are: - **PATENTS** exclusive rights over a new product process, substance or design. They are the most common instruments. *In essence, it is the right given to the patent holder to exclude the other from imitating the patented invention*. - **COPYRIGHTS** exclusive rights applied to intellectual works. - **TRADEMARKS** *exclusive rights to words, symbols or other marks to distinguish goods/products and services; the trademarks are registered at the patent office.* - ***TRADE SECRETS** the protection of chemical formulae, recipes and industrial processes.* Regarding Patent, we can say that it is the right granted by the government thanks to which, a company for example, receive a monopolistic power over an invention.. so, the firm can protect itself against others that cannot using, producing or selling that particular invention. What can we protect? - Article of manufacture (light bulb); - System (cell phone) - Composition of matter (compounds) - Process (process of making or using) - Search engine (Google) - 1-click purchase (Amazon) We can have 3 types of patent based on the nature and content of the goods: - **UTILITY PATENT** regarding the new manufactured product (new machines or new combinations of materials). So, protect new and useful machines, processes, manufactured items or combinations of materials. - **DESIGN PATENT** granted to manufactured goods. So, protect original and ornamental designs for manufactured items. - **PLANT PATENT** granted to a scientist for cash or discovery of a new plant. So, protect distinct new varieties of plants. REQUIREMENTS FOR PATENTING AN INNOVATION a PATENT need to have: - **NOVELTY** *it is not included in the state of the art. The innovation must be new compared to what has been done in the past (which is called the previous state of the art);* - ***NOT OBVIOUSNESS** it must be NON obvious to the person with average/medium knowledge in the sector;* - ***USEFULNESS** (utility) the innovation must be useful (practical use) and must have an industrial applicability.* *These requirements are typically verified by a patent application committee. Normally the length of the approval process between application and patent is between two and five years.* *What CANNOT be patented?* - *Substitution one **MATERIAL** with another (plastic for metal);* - *Changing the **SIZE** of an existing device;* - *Making something more **PORTABLE**;* - *Substituting an element or altering an item's **SHAPE**.* *A patent is the property right that protecting an invention that gives to the owner the exclusive rights to a new and useful product, process, substance, or design; patent is a document that excludes others (third parties) from applying or using the patented inventions. Its regulation is a national level and lasts 20 years.* ***PATENT APPLICATION PROCESS** The most important part of the patent application format is the **claim**, which contains all the information about the technology of the invention. In a patent application the claims define in technical terms the extension (the scope) of the protection conferred by a patent or the protection searched in a patent application.* *The patent application must be filed with the national office, and in the meanwhile the patent is called \"**patent pending**\". Then there is the patent review process and if it is approved it is published; in this way the patent is rented and can also be issued by third parties or other people who can claim it. The patent application has both pros and cons: pro because it provides details and information, and in the case someone infringes the patent in the future there is the claim (which is extremely detailed); cons because a lot of information must be provided.* *In general, there are two uses of the patent:* - ***ACTIVE FORM*** *the traditional use of the patent consists in obtaining it for a new product or process that one wants to perform exclusively, or in granting a LICENSE to third parties for a fee;* - ***PASSIVE FORM** it is useful if I don\'t want to market my invention; it is a strategic choice because innovation is important to exclude competitors from future technological advancement. It consists of obtaining patents for those discoveries whose production is not of immediate interest but is strategically important for future exploitation and prevents competitors from patenting the same invention.* ***Patents can bring several advantages to companies:*** - ***The guarantee of architectural control it can be very variable, especially in technology. Architectural control means that if I patent a relevant innovation/invention, I will be first in this market and benefit from first mover advantage. By controlling the architecture of the technology, the firm has the ability to determine the future development path of the technology and can ensure that the technology is compatible with its complement, while also limiting its compatibility with complements produced by others.*** - ***Raise barriers to new entrants, who would incur excessive costs to enter the market and share profits with incumbents.*** ***PATENT LEGISLATION Patent protection works at a national level, so to enjoy patent protection in multiple countries the inventor must apply the patent to his innovation in all countries where he wants to receive legal protection. Furthermore, patent regulation can be different in all countries: to simplify the inventor\'s life, several international treaties have been stipulated to try to harmonize different regulations; for example: Priorities of the Paris Convention, Patent Cooperation Treaty. This process is complex, expensive and difficult to manage (weak points).*** ***The patent system is managed at different levels:*** - ***NATIONAL here we find each national office (Italian Patent and Trademark Office);*** - ***EUROPEAN the intermediate level with the European Patent Office which does not replace the national offices;*** - ***WORLD World Intellectual Property Organization (WIPO).*** ***PATENT STRATEGIES:*** - ***Aggressive/LICENSING strategy patent everything; it is an expensive up front, but it ensures that you cover everything and eventually provides a revenue stream;*** - ***Blocking strategy patent technologies that a competitors might use (passive); it has moderate costs but provides essential protection and cross-licensing opportunities, if a firm can identify the key technologies;*** - ***Defensive strategy only patent critical features that are difficult to design around; it has lower initial costs, but a firm risk to miss hey technologies.*** ***EFFECTIVENESS OF THE PROTECTION MECHANISM In the pharmaceutical industry patents are a very effective mechanism for protecting innovation, but in other industries (electronics or software) defining a patent claim and applying for a patent is easy. Sometimes companies choose not to patent. So, in this case we can distinguish between:*** - ***ADVANTAGES OF PROTECTION Proprietary systems offer greater rents appropriability and possibility to exercise market power; Rents can be used to invest in further development, promotion, and distribution; Give the firm the control over the evolution of the technology and complements.*** - ***ADVANTAGES OF DIFFUSION May accrue more rapid adoptions if produced and promoted by multiple firms; Technology might be improved by other firms (though external development poses its own risks, for example lack of coordination for development and low quality complements).*** - ***Entirely proprietary system this is the cas