We need new players in healthcare because they, not the incumbents, are the innovators

'Remove the barriers to healthcare innovation'

'Remove the barriers to healthcare innovation'

'Remove the barriers to healthcare innovation'

When the Office for National Statistics published productivity reports on the public and private sectors last year, it revealed some striking differences. Public sector performance declined by 4 per cent between 1997 and 2007 while private sector productivity rose by 23 per cent over the same period. The question is why?

Commentators with an ideological point to prove argue it is simply because the private sector is better, but the truth is more interesting.

Much academic effort has been spent researching the drivers behind innovation that leads to productivity gains. The explanations have been somewhat surprising, although encouragingly simple. It was not, as some might like to think, that wise captains of industry are the ones providing new solutions. Study after study has showed that the vast majority of innovation comes from new entrants to a sector and not the incumbents, be they public or private. For example, a University of London examination of UK manufacturing in the 1980s showed that 80 per cent of innovation and productivity increases were the result of efficient new entrants entering the industry and inefficient producers leaving. It was not British Leyland that made our automotive industry more vibrant, but new entrants, such as Toyota and Nissan.

The IT sector provides continuing examples of highly successful innovations originating from a seemingly endless stream of new entrants.

From 1988-93, barriers to entry fell away as expensive mainframes were replaced by cheap PCs. As networks of PCs became the dominant IT architecture, mainframe manufacturers logged $20bn operating losses. None of them were able to adapt their business model to compete in this new era of technology, yet disruptive innovators such as Intel, Sun, Microsoft and Dell were creating extraordinary value.

In turn, none of these organisations was able to do what Yahoo did. And yet, Yahoo could not achieve what Google did, and Google did not create YouTube or Facebook or Twitter.

I will make one prediction here and now: none of these big names will create the next big thing in IT. I’m confident making this prediction because history has shown one unfaltering truth about innovation: it does not happen just because one asks incumbent organisations to become more innovative.

Innovation happens because barriers to entry are removed and the prime law that “the intelligence of many is superior to the intelligence of a few” is given the chance to produce results. It happens when all sorts of people are encouraged to provide a whole variety of solutions, and where the best and most appropriate can be adopted by unprejudiced recipients according to their specific needs. This is the “ideas world”, equivalent to the prime law of genetic evolution and equally as powerful.

To encourage innovation, we must focus on creating the context in which it can thrive. There are two equally important steps. First, we must lower the barrier to entry to encourage more people to put forward their solutions. We need to create the atmosphere and the positive incentives to make it irresistible for the best talents from wherever they are to offer the widest and most unimaginable variety of solutions. The environments created in Victorian England and 1990s Silicon Valley are exemplars of the primacy of context.

Second, we must ensure the judgement on these solutions is not limited to an establishment that has a vested interest in the status quo. Simply put, innovative and disruptive ideas cannot thrive if they first need to seek the permission of those who did not do the inventing, or are about to be disrupted. If groundbreaking innovations do not come from incumbents, then incumbents should not be allowed to come between the new solutions and the final recipients either.

Over the next decade, we face a choice in healthcare. We can protect inefficient practices, processes and providers, be they public or private, on the basis that it is they and the investment already put into them that matter most, and as a consequence see the value of their services provide diminishing returns. Or we can focus on creating the necessary environment that actively promotes new solutions, irrespective of where they come from, and that focuses on the needs of patients and taxpayers.

The priority for this new government must be to create the conditions for new entrants, be they splinters from existing public or private providers or completely new solutions, to provide our healthcare systems with a flurry of new solutions from which the end user can freely choose. If history is to be trusted, and the NHS is to thrive, there is no alternative.