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Healthcare@McCombs Symposium
Entrepreneurial entry into established ecosystems:
An investigation of strategies adopted by digital health entrepreneurs
(Work in Progress)
Shi-Ying Lim
Ph.D. Candidate, IROM
McCombs School of Business
Douglas Hannah
Assistant Professor, Management
McCombs School of Business
Keywords: Digital health, entrepreneurship, ecosystem, strategy
In this study, we examine how digital health entrepreneurs enter and succeed within established
ecosystems, which are networks of interdependent firms that produce products or services that
together comprise a valuable whole. Within ecosystems, firms create value by collectively providing
all of the components that comprise the final product. At the same time, they also compete to capture
that jointly created value. To succeed, firms must thus find and occupy a valuable niche – that is, a
position in which they can simultaneously create value with and capture value relative to their
partners (Pierce, 2009; Hannah and Eisenhardt, 2016). While this is understood in general, gaps
remain with respect to how firms can do so.
Prior research offers three perspectives on ecosystem strategy. One stream looks at strategy
within nascent ecosystems in early states of formation. They tend to be uncertain and dynamic
settings, with unclear component boundaries and unknown participants (Santos and Eisenhardt, 2009;
Hargadon and Douglas, 2001). As a result, a key strategic challenge for firms in nascent ecosystems
is to assemble the components and coordinate the partners required to create value. For example,
Ozcan and Eisenhardt (2009) explore how game publishers brought together previously disconnected
firms in media, telecoms, and software in order to launch the wireless gaming ecosystem. A key
insight is that to succeed, firms must convince partners to join them by proposing a unique and
mutually valuable vision for the new ecosystem.
A second stream of research looks at competition within established ecosystems. In contrast to
nascent ecosystems, the participants of established ecosystems typically have well-defined roles, and
the relationships between participants and components are known (Hannah and Eisenhardt, 2016;
Jacobides et al, 2006). Research has examined a number of issues within established ecosystems,
including the alignment of incentives between participants (Casadesus-Masanell and Yoffie, 2007;
Adner, Chen, and Zhu, 2015), impact of technological challenges on firm performance (Adner and
Kapoor, 2010; Hannah and Eisenhardt, 2016), and the strategies by which firms can maintain
bargaining power relative to their partners (Jacobides and Tae, 2015; Jacobides et al, 2015). Overall,
a key insight in this work is that in order to succeed, firms must be relatively “irreplaceable” in the
ecosystem – that is, they must occupy a valuable role.
A third stream of research looks at ecosystems-as-structure approach (e.g. Adner, 2017, 2006,
2012), which takes an activity-centric view of interdependence. In this approach, the ecosystem starts
with a value proposition and seeks to identify the actors needed for the value proposition to
materialize. The key strategic challenge in this approach is mutual agreement among the actors about
their positions in the ecosystem and the interactions. However, little is known about how alignment
of actors occurs in an established ecosystem, particularly given the actors’ different end goals.
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Overall, existing research 1) highlights the importance of coordinating to create value in nascent
ecosystems, and 2) identifies the characteristics of attractive positions in established ecosystems. In
contrast, less is known about how firms can identify partners to deliver a new value proposition in
established ecosystems. In particular, how and when can entrants reconfigure or reassemble existing
participants in order to create additional value, while simultaneously carving out a valuable new
niche for themselves? Several recent studies suggest that this may be possible. For example, Hannah
and Eisenhardt (2015) explore how consumer finance firms reconfigured the existing participants of
the residential solar industry (e.g., installers and panel manufacturers) into a novel ecosystem.
Similarly, Gurses and Ozcan (2015) explore how entrants were able to co-opt a subset of the
participants of the US television industry in order to create a niche for pay TV providers. But while
illuminating, these studies leave open the question of when these strategies are viable, and how they
allow firms to succeed more generally. With this in mind, this study asks: how can entrepreneurial
entrants successfully achieve alignment to a new value proposition among players in an existing
ecosystem and carve out a niche for themselves?
Research Setting and Method
Given limited prior theory on the strategic actions undertaken by entrepreneurs to introduce new
technologies into risk adverse and regulated ecosystems, we adopted an inductive, multiple case
qualitative research design. A multiple case research design is ideal since it allows for more robust
and generalizable theory building (Eisenhardt, 1989).
The research setting is the managed healthcare setting. This is an appropriate setting for this
study for three reasons. First, it is a rich ecosystem composed of several distinct participants, such as,
hospitals, physicians, and patients. This makes the process of identifying and coordinating
participants particularly salient. Second, new regulation changes in the healthcare system required a
change in the patterns of interactions in the ecosystem to achieve value-based care. To the extent that
ecosystem strategy is a function of achieving alignment between key players, how can an entrant do
so? The risk adverse nature of the healthcare ecosystem makes introducing new technologies,
patterns of interaction or activities particularly difficult: participants may be highly risk averse or
reticent to experiment with new technologies. Thus, formulating and implementing an effective
ecosystem strategy becomes particularly important. Finally, recent advances in mobile technology
and electronic data management have introduced rich opportunities for redefining the existing
managed healthcare ecosystem. Various entrepreneurial entrants have begun to exploit these
advances by developing novel patient management technologies. The healthcare setting thus offers a
unique opportunity to examine re-alignment of an established ecosystem in real time.
We have included eight entrepreneurial entrants in this study. These firms are based in seven US
states, and were founded between 2009 and 2014. All eight digital health entrepreneurial firms have
developed similar technology solutions for facilitating care coordination between patients and
healthcare providers. However, these firms have embarked on different strategies for working with
existing ecosystem actors.
Interviews and archival data analysis are underway. We rely on a number of different data
sources, including semi-structured interviews with (1) startups’ founders and team members, (2)
startups’ clients, investors and board members, and (3) industry experts and (4) archival data on each
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startup, including the startup’s websites, business publications, press media release, blog posts and
social media feeds. For analysis, a replication logic will be used to either confirm or disconfirm
emerging patterns and relationships within each case (Yin, 1994). For each startup, we interview
three to four of each startup’s founding team and other team members, four clients and two external
stakeholders, such as board of directors and investors. Interviews with multiple informants help
capture the variety of actions, perceptions and meanings of key actors involved in strategy
formulation and implementation. Archival data is also used to help capture the evolution of strategy,
and triangulate against the interview responses to reduce informants’ retrospective bias.
Preliminary Findings
Preliminary findings reveal a disconnect between regulatory initiatives and alignment of actors
needed for the value-based-care value proposition to materialize. Broadly, existing regulatory
initiatives emphasize the need for alignment amongst the key actors to coordinate care across actors
but provide little guidance on how to do so. The regulatory initiatives impose financial penalties on
healthcare facilities with poor patient outcomes post treatment or medical visit. The technology
deisgned by the digital entrepreneurs begins to facilitate care coordination between patients and
clinicians, but face low use amongst clinicians and patients. The entrepreneurs in our sample thus
identified alternative ways to align the actors in the ecosystem and grow. These strategies include
tying use of the technology to physician ratings to achieve alignment at the individual level and
partnering with other less active partners in the ecosystem who can participate in the care
coordination process. The findings also reveal challenges of scaling the technology across disease
states and identifying the right actors to approach. For instance, physician-led entrepreneurial firms
in our sample were observed to be as likely as non-physician led firms to face setbacks and pivot in
their strategies.
Proposed Contributions
This study will contribute to theory and practice. Prior research has yet to explore how digital
health entrepreneurs can enter and succeed within established ecosystems. The output of this study
will be a theoretical framework that describes how they entrants are able to do so: how they develop
and advocate a vision of the industry, how they “sell” the vision to prospective partners, and how
they ensure their own ability to occupy a valuable niche in doing so.
This study will also contribute to practice. In particular, there is a massive surge of interest today
in “disrupting” healthcare delivery. According to Frost & Sullivan, the care coordination software
market is expected to grow at a 26.1% compound annual growth rate between 2015 and 2020.
However, the context offers challenging barriers, especially because of the highly regulated
environment and risk adverse nature of stakeholders in the industry. The healthcare ecosystem is
particularly difficult to navigate due to the complexity of care delivery, the need for collaboration
amongst multiple stakeholders and compliance with regulations. This project will extend our
understanding of the challenges digital health entrepreneurs face at the ecosystem level and how they
navigate these challenges.
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