Innovation in highly regulated markets: How digital platforms can gain legitimacy in the healthcare sector.
As the digital transformation continues to revolutionise the value chain of healthcare, the question arises: How can innovative and disruptive digital platforms coexist with the strict principles and regulations that underpin this sector?
The increase of digital technology in healthcare promises a new era of enhanced accessibility and efficiency. In this context, platform-based business models in the digital primary care market are growing increasingly competitive [1]. This is contrasted by an industry renowned for its regulatory rigors and ethical mandates, caused by its strategic role in ensuring social welfare. Therefore, concerns regarding access, fairness, equality, privacy, and data sensitivity are abundant [2]. It has become increasingly acknowledged that such institutional requirements and constraints within the business ecosystem shape entrepreneurial processes [3, 4, 5]. For example, Lockett et. al. (2012), have shown how actors in primary and tertiary care interacted with the institutional boundaries of the NHS Cancer Plan, in order to drive innovation and reform of the British healthcare system [6]. A significant part of this process occurs in sociopolitical and cognitive legitimacy debates, where the former relate to perceived appropriateness according to regulations and the latter to public awareness [7]. New business ventures, particularly disruptive ones such as platform-based models attempting to enter heavily regulated market sectors such as healthcare, must manage these debates and adjust their business models accordingly as they develop [8].
A longitudinal case study of the emergence of digital healthcare platforms in Sweden:
In a study by Essen, Frishammar & Cenamor (2023), this intricate dynamic between digital health platforms seeking legitimacy and a sector deeply entrenched in established norms is being examined. The study employs a longitudinal case study approach with four digital platform business ventures in primary care. For this purpose, primary data was gathered across 30 semi-structured interviews with employees and external stakeholders from the 4 different platforms and 12 observations of health seminars. Additionally, secondary data from more than 150 documents that have documented the journey of these platforms from 2013 until 2020 were employed. Through qualitative analysis of platform strategies, regulatory responses, and stakeholder perceptions, the research showcases the mechanisms through which digital platforms attempt to attain legitimacy [8].
Responding to business model legitimacy challenges
Key to the study’s findings is the identification of a three-phased co-evolutionary process across the business model’s value creation, delivery, and capture. Across these value dimensions, the platforms must (1) respond and adapt to legitimacy challenges concerning their feasibility within the healthcare sector, followed by (2) concerns regarding their integrity, and finally (3) questions as to who would benefit from the platforms and how:
- Feasibility debates: Platforms emphasized the convenience and efficiency of online consultations for conditions not requiring physical examination to demonstrate service relevance and technical feasibility.
- Integrity debates: With expansion, they focused on enhancing diagnostic accuracy and data security to address concerns about medical quality and privacy.
- Recipient debates: Finally, they diversified services, including adding offline options and expanding offerings to cater to complex health issues, showcasing their commitment to comprehensive patient care.
The role of legitimacy in technology integration
The study underscores the indispensable role of legitimacy for the successful integration of technology within healthcare, suggesting that innovation, to be truly transformative, must withstand the legitimacy challenges arising from foundational ethics and standards. Therefore, successful business models must adjust their value propositions across creation, delivery, and capture to better conform to those concerns, whilst continually communicating and proving how they already do so. Thereby, they will respond to sociopolitical legitimacy concerns and create cognitive legitimacy, respectively.
Hence, the study offers a blueprint for navigating legitimacy debates and required business model adjustments for digital health platforms to strengthen their footing in a highly regulated and difficult-to-enter market sector. Interested entrepreneurs may further refer to Beaulieu & Lehoux (2019) [9], as the present findings extend their recommendations for institutional entrepreneurship in healthcare rather well.
References
[1] Jahn J, Bohnet-Joschko S. Healthcare startups compete in new digital spaces: the lure of virtual specialties. Journal of Business Strategy 2023; 45(1), 58-71. DOI: 10.1108/JBS-09-2022-0170
[2] Ozalp H, Izcan P, Dinckol D, Zachariadis M, Gawer A. “Digital Colonization” of Highly Regulated Industries: An Analysis of Big Tech Platforms’ Entry into Health Care and Education. California Management Review 2022; 64(4), 78-107. DOI: 10.1177/00081256221094307
[3 DiMaggio P J, Powell W W. The Iron Cage Revisitied: Institutional Isomoprhism and Collective Rationality in Organizational Fields. American Sociological Review 1983; 48(2), 147-160. DOI: 10.2307/2095101
[4] Yin Y, Chen Y, Li D. Stakeholder ties, organizational learning and business model innovation: A business ecosystem perspective. Technovation 2022; 114 DOI: 10.1016/j.technovation.2021.102445
[5] Sidri H. Impact of Formal and Informal Institutional Constraints on Innovation: Firm-Level Evidence from Tunisia. Journal of the Knowledge Economy 2023. DOI: 10.1007/s13132-023-01691-1
[6] Lockett A, Currie G, Waring J, Finn R, Martin G. The role of institutional entrepreneurs in reforming healthcare. Social Science & Medicine 2012, 74(3), 356-363. DOI: 10.1016/j.socscimed.2011.02.031
[7] Aldrich H E, Fiol C M. Fools rush in? The institutional context of industry creation. The Academy of Management Review 1994; 19(4); 645-670. DOI: 10.2307/258740
[8] Essen A, Frishammar J, Cenamor J. Entering non-platformized sectors: The Co-evolution of legitimacy debates and platform business models in health care. Technovation 2023; 121 DOI: 10.1016/j.technovation.2022.102597
[9] Beaulieu M, Lehoux P. The emergence of health tekchnology organizations among institutional healthcare and economic actors. International Entrepreneurship and Management Journal 2019; 15, 1115-1151. DOI: 10.1007/s11365-018-0551-2
