When it comes to business models, Canadian health technology spin-offs face many strategic challenges. Among these challenges is developing a business model that will match the technology that it is developing while appeasing the interests of its capital investors and shareholders.
These challenges become even more difficult when the spin-offs’ entrepreneurs are pressured to meet the demands of capital investors and shareholders who typically invest in the short-term.
Additionally, although scholars have examined the type of business models that are present in the health sector, few have studied the interplay between a venture’s business model and the technology that it is developing. This gap in innovation management scholarship is important because with a clear and comprehensive understanding of this interplay, spin-off innovators will be able to better understand the demands of both their customers and their capital investors and shareholders.
Pascale Lehoux, Geneviève Daudelin , Jean-Louis Denis, and Christopher Longo fill this gap through a longitudinal case study that examines how the business models of three Canadian health technology spin-offs affect and are affected by its health technology. Through this case study, the researchers found that although business models tend to be a “strategic set of strategic choices”, surprisingly, there is still a lack of innovative business models in this innovative technological field.
The Research Process
This research process consisted of: preliminary investigations of key informants, finding relevant policy documents and websites that describe the Canadian health innovation industry, analyzing interviews with CEOs and informants, and examining annual reports and press releases.
Through this research, the researchers focused on three award winning Canadian health technology spin-offs that differed in business models:
- A heart ablation catheter spin-off that treats heart arrhythmia disorders.
- A birthing labour decision support software spin-off that monitors and detects abnormal fetal heart rates and birth related injuries.
- A home monitoring telehealth solution spin-off that includes a remote patient monitoring and a set of coordination tools to continually care for chronically ill patients.
The researchers found that each spin-off exemplified a type of interplay between the business model and the health technology: synergistic readjustments, drastic reconfiguration, and a mismatch between the technology and the business model.
The heart ablation catheter spin-off was an example of a synergistic readjustment between the business model and the technology. One of the main reasons why this spin-off adjusted synergistically between its business model and its technology was because its technology had the particularity of offering both clinical and economic value to its users while also opening up different markets for the spin-off to capture value. Through continued research efforts, this spin-off was able to offer investors the prospect of continued expansion.
Whereas the heart ablation catheter spin-off saw its business model work in harmony with the development of its technology, the birthing labour decision support software exemplified a drastic reconfiguration of its technology to meet the demands of its business model. This drastic reconfiguration was largely a result of the spin-off modifying its technology to meet the needs of a market segment that was not initially targeted but allowed the spin-off to capture value.
Additionally, the home monitoring spin-off demonstrated a mismatch between a business model and its technology. This case study showed the greatest tension between innovation value offer and its capacity to capture value because the spin-off was unable to create an alternate revenue model that would been proportionate to the cost-savings of hospitals such as Health Maintenance Organizations (HMO). When investors saw this tension, they withdrew before value was discovered. The researchers believed that this spin-off needed more time to model capable mappings between technological approach and economic value.
Implications of the Case Study
The researchers found that these case studies demonstrated that entrepreneurs conceive business models as “an interrelated set of strategic choices” since they constantly have to respond to and predict the emerging dynamics of their firm’s activities.
Additionally, although many of these spin-offs engaged in innovative technological advancements, for the most part, the researchers found that these business models were not innovative, largely because the standards of the industry pressured them to adopt the dominant business models of this health sector. The researchers note that many that spin-offs often try to bypass this trend by offering their models to established players in this industry.
Although this research indicates that there is a lack of business models in rather innovative industry, this research also gives emerging spin-offs a better understanding of how spin-offs can either thrive off or capitulate to the demanding pressures of their investors and their industry’s standards.
P. Lehoux, G. Daudelin, B. Williams-Jones, J.-L. Denis, C. Longo, “How do business model and health technology design influence each other? Insights from a longitudinal study of three academic spin-offs“, Research Policy, Vol. 43, Issue 6, 2014, pp. 1025-1058.