Business Modeling and Value Network Design
Case Study for a Tele-Rehabilitation Service
Lambert J. M. Nieuwenhuis
University of Twente, P.O. Box 217, 7500 AE Enschede, The Netherlands
Abstract. During the last decade, many useful telemedicine pilots have been
conducted, however, only a few telemedicine services did actually reach the
market and were successfully being deployed. One of the reasons is that costs
and benefits are not equally distributed across the organizations of a value
network. Value network analysis combined with business modeling right from
the beginning of a project may improve the success rate of telemedicine
services development and deployment. This paper presents results of this
approach used in a case study for Myotel, a wireless rehabilitation service for
treatment of chronic work related neck shoulder problems.
1 Introduction
Telemedicine may improve healthcare, both in a qualitative and in a quantitative way.
During the last decade many useful technologies have been developed but fail to
actually reach the market [4, 17]. Often, telemedicine services are provided by
multiple organizations being part of a large value network. In practice, the services
innovation is hampered by the fact that costs and benefits of a service innovation are
not equally distributed across the network. An organization with only costs and hardly
any benefits will not contribute to the innovation. A second roadblock in bringing
telemedicine services to the market is the existence of regulations limiting the full
power of the telemedicine services [4]. Business modeling is seen as a solution to
bring (technological) innovations to successful deployment and several determinants
have been identified for success [4, 2, 5]. By using business modeling right from the
beginning of a project, the failure rate of telemedicine service innovations may be
lowered. This is because such business model designs are expected to be more viable
as a result of better alignment with available resources and capabilities as well with
their external environments [17]. In this paper, we present a business modeling
approach for Myotel, a wireless rehabilitation service for treatment of chronic work
related neck shoulder problems. This approach allows for both a qualitative and
quantitative analysis needed to engineer a viable value network by allocating
activities to organizations such that costs and benefit are sufficiently matched.
Nieuwenhuis B.
Business Modeling and Value Network Design Case Study for a Tele-Rehabilitation Service.
DOI: 10.5220/0004465600880097
In Proceedings of the 4th International Workshop on Enterprise Systems and Technology (I-WEST 2010), pages 88-97
ISBN: 978-989-8425-44-7
Copyright
c
 2010 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

2 Myotel Case Description
The case consists of a so-called myofeedback tele-rehabilitation system that can be
used for patients with work related chronic neck shoulder pain. The system monitors
muscle relaxation during daily activities via sensors and actuators implemented in a
wearable garment, which is connected to a PDA. The system provides continuous
feedback when there is too little muscle relaxation. The monitoring data is sent
wirelessly – e.g., via a GPRS, UMTS or HSDPA connection – to a back end system,
which can be accessed by health care professionals. These health care professionals
can use the system for optimizing treatment working more efficiently by saving on
face-to-face contact hours with their patients and giving them more personalized
feedback as well (Figure 1 gives a high level architectural overview of the system).
Fig. 1. Myotel system overview.
3 Business Modeling and Telemedicine Services
During the 1970s the business model concept was used for describing IT-related
business processes [12, 18]. More recently, the business model concept has been used
for analyzing market structures as well as strategic choices related to positioning of
organizations within these market structures [16, 8]. A widely used business model
definition within this context is that of Chesbrough and Rosenbloom [5] who
concisely define a business model as “a blueprint for how a network of organizations
co-operates in creating and capturing value from technological innovation”. In our
view, it is important to explicitly distinguish the two main types of value to be
created: customer value (value delivered from a customer perspective) as well as
monetary value (value delivered from a provider perspective). So we define, in
similar words, a business model as “a description of the way a company or a network
of companies aims to make money and create customer value” [7, 11].
In literature, initially attention has been paid to empirically define business model
typologies [8]. In recent years business model research started focusing on exploring
business model components and developing descriptive models [11, 15].
Afuah and Tucci [1] see businesses as systems consisting of components (value,
revenue sources, price, related activities, implementation, capabilities and
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sustainability), relationships and interrelated technology. Osterwalder and Pigneur
[14] more systematically define four business model components, i.e., product
innovation, customer management, infrastructure management and financial aspects.
Broens et al. [4] identified five determinant categories that influence implementation
of telemedicine interventions: (1) technology, (2) acceptance, (3) financing, (4)
organization and (5) policy and legislation. For our case, the technology has been
addressed by medical trials proving the medical effectiveness of the Myotel treatment
[9]. A recent project focused on the acceptance by conducting Myotel trials in four
European countries. Section 4 proposes a business engineering approach addressing
the financial in particular the revenue streams and organizational aspects, i.e., value
networks and related roles. Section 5 deals with the policy and legislation.
4 Value Chain Engineering using Business Models
We engineered the value chain by addressing the differences between the current
traditional treatment and the future treatment of work related chronic neck shoulder
pain using the tele-rehabilitation service, using the following three-step approach:
• The first step identifies the main activities needed to provide the service, by
defining the role that needs to be played by an actor and a related short description. A
certain type of organization or a specific professional with a given set of competences
can play a role.
• The second step determines costs related to each role for the current and future
situation. This step clarifies the economic impact of tele-rehabilitation services by
determining the cost increase or decrease for each activity identified in the first step.
From an economic point of view, the implementation of the tele-rehabilitation service
makes sense only when the overall cost level of the future situation decreases.
• The third and last step is the “engineering of the business” by allocating activities
to existing or to be created organizations. The objective is to create a value network
where each organization benefits from the introduction of the tele-rehabilitation, i.e.,
additional costs must be compensated by additional benefits.
The above-mentioned process requires insights from business model surveys,
literature studies, as well as expert interviews. Several cross-organizational
workshops are needed to design business models, parameterize quantitative analysis
and provide feedback to all parties. The next sections describe the above-mentioned
steps needed for the engineering the business needed to viably provide the tele-
rehabilitation service.
Step 1: Identification of Main Activities. In order to develop an initial qualitative
business model design for the myofeedback tele-rehabilitation service, we organized a
half-day workshop for twelve experts within the field of myofeedback and tele-
treatments from four European countries in which the service could be offered – The
Netherlands, Belgium, Sweden and Germany. Table 1 presents the activities of the
main value network roles that will be affected by introducing the tele-rehabilitation
service.
Step 2: Quantitative Model. The next step the costs for the activities of per role are
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determined (see Table 2). We only look at the activities that change when the
traditional treatment of neck shoulder is replaced by the new tele-treatment. These
activities are presented in italics.
Table 1. Main roles and activities.
Roles Activities
Patient Gets treated by the myofeedback system
Health care
professional
Offers the professional care and guides
tele-rehabilitation activities
Tele-rehabilitation
service provider
Offers the actual tele-rehabilitation
service, including helpdesk, training &
certification, public relations,
Hardware provider Offers hardware, e.g. for communication
devices and sensors
Network Provider Offers mobile communications services
Software developer Develops the tele-rehabilitation system
software
Software platform
provider
Offers the tele-rehabilitation software
platform
Insurance company Offers health insurance to patient and
absence insurance to employer
Employer Employs persons who are patient treated
by tele-rehabilitation system
Medical research &
development
organization
Does R&D related to developing training
material and certification.
Traditional activity based costing approaches are used to determine costs of the
activities. For each activity we determine for each activity the number of times N the
activity is carried out and the cost price P per activity. With respect to cost price, we
distinguish between investments and yearly costs. The investments are onetime costs
for training and education (needed when new employees get involved) and
investments for equipment (needed when more devices are needed or old devices are
worn out). We consider a period of ten years. The volume and cost tables are part of
an Excel spreadsheet that simulates the provisioning of the tele-rehabilitation service
in year i from 2008 to 2018. Multiplying N
i
and P
i
gives the overall costs for year I for
each activity. The values for N
i
are based on an S shaped technology adoption curve.
The values for P
i
are based on today’s market prices that develop over time, i.e.,
technology prices decline (deflating prices), whereas, e.g., salary costs for
professionals increase (inflating prices). This enables Net Present Value calculations
over the ten years period as well.
In our study, experts in each country have determined the values for numbers and
cost prices for each of the four countries under study. The Excel spreadsheet presents
the set of parameters to the experts and provides for instantaneous feedback for what-
if analysis. In this way, we obtained a useful tool for evaluating costs and benefits in
direct interaction with the experts.
Results of the Quantitative Analysis. The results of the simulation for the
Netherlands are presented Fig.
2. For each year of the ten-year period, the diagram
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shows how investments and operational costs change due to replacing the traditional
treatment by the tele-rehabilitation treatment. The tele-rehabilitation treatment leads
to additional investments and operational costs changes for the following activities:
The Service Provider activities require investments in equipment, e.g., garments,
sensors and devices for the patient as well as back office equipment. The estimated
life time of the back office is three years; the life time for other equipment is set to
two years.
• The Service Provider activities require also yearly operational costs to maintain,
operate and use software licenses for the above-mentioned ICT.
• The Service Provider activities include investments to train health care
professionals in using the equipment. This is a onetime impact, disappearing once all
professionals are familiar with using the system. Also the Health Care Professional
invests time (equals money) when he or she is being trained.
• The Health Care Professional saves operational costs per patient, because fewer
treatments are needed (from nine to four treatments).
• Finally the employer of the patients saves costs due to absence reduction (fewer
treatments) and lower productivity losses (because of the treatment).
Table 2. Activities per role.
myofeedback service provider
• manage tele-rehabilitation service (overhead)
• develop tele-rehabilitation market (marketing)
• acquire tele-rehabilitation customers
• build back office
• manage back office
• build device service
• manage devices needed for treatment
• train myofeedback service delivery personnel
• deliver myofeedback service
• request reimbursement myofeedback treatment
• receive payment for myofeedback service
health care provider
• develop tele-rehabilitation treatment
• train personnel tele-rehabilitation treatment
• diagnose patient
• consult patient with traditional treatment
• consult patient with tele-rehabilitation treatment
• request reimbursement treatment
• receive payment for treatment
employer
• employ traditionally treated employee
• employ tele-rehabilitation treated employee
patient
• undergo traditional treatment
• undergo tele-rehabilitation treatment
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Fig. 2. Results of Myotel in The Netherlands.
Conclusions of the Quantitative Analysis. The cost benefit calculations revealed
three critical insights that would be unknown without quantitative business model
analysis (the related figures show the calculations for the Dutch market; for the other
three countries, similar conclusions can be made):
• The tele-rehabilitation treatment is more expensive than the traditional treatment –
mainly due to ICT related investments and operational costs.
• The IT investments are not likely to be compensated by the related labor savings
for the Health Care Professional.
• However, the expected absence reduction and productivity increase of employers
treated with the myofeedback systems compensates for the above mentioned additional
cost.
The results shows that for example in The Netherlands, we may expect that employers
obtain the most benefits related to implementing the myofeedback service. Therefore
these organizations should be seen as the main potential revenue source when
deploying the myofeedback teletreatment service.
Step 3: Value Network Engineering. The final step comprises the allocation of
activities to existing or new organizations, part of the entire value network delivering
the service to the patients and professionals. These organizations are part of a value
network delivering products and services to each other on a commercial basis, i.e.,
one company pays for the product or service delivered to the other. The roles must be
mapped such that each organization is able to cover the costs by payments originating
from benefits. The experts mapped most of the roles easily to existing organizations,
except for the role of tele-rehabilitation service provider. This role relates to costs
(operations and investments) for IT devices and infrastructure that must be financed
through the benefits of the employers. From a range of alternatives, the value network
presented in was selected as most viable implementation. The employer (or the related
€-4M
€-2M
€-
€2M
€4M
€6M
€8M
€ 10M
€ 12M
€ 14M
€ 16M
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Myotel Business Case for The Netherlands
ICT inv ICT opr SP inv HC inv ∆ HC opr ∆ empl
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insurance company) of employees suffering from chronic neck shoulder problems has
an incentive to use the tele-rehabilitation service.
Fig. 3. Value network for Myotel.
5 Regulation
After deriving a viable value network design, we focused on performing a regulatory
validation of the design for each of the four countries participating in the research.
The main goal was to get insights with respect to the influence of the national
healthcare regulation in each of the four participating countries[4]. According to
Saltman[3], the influence of national healthcare regulation on the healthcare sector in
a country can be divided into two different aspects – policy objectives and managerial
mechanisms.
Policy objectives include regulation that is concerned with specific policy goals
that influence a broad public, focusing on e.g. providing a healthcare system that is
accessible for the whole population or educating citizens about clinical services,
pharmaceuticals and a healthy lifestyle.
Managerial mechanisms have a more practical and operational character and target
specific regulations that are needed to reach the goals as described in the policy
objectives. Saltman et al [3] recognize a number of components that affect healthcare
management capabilities and are associated with greater operating efficiency and
effectiveness of both human and material resources. The following three main
components of managerial mechanisms can be identified:
• State influence – does the government control the healthcare market, is it tax
financed or is it dominated by private for profit organizations?
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• Licensure and liability – how can be ensured that healthcare professionals meet
competence standards and that malpractice will be prevented as well?
• Financial regulation – how does regulation influence the financial structure of the
healthcare system?
Because of the practical and operational character of these components and their
influence on the operating efficiency and effectiveness of both human and material
resources, it is expected that these components have the largest influence on e-health
service value networks. Therefore these three components formed the focus of our
regulatory validation. Via a workshop with the experts from the four countries as
mentioned in Step 1, we discussed the impact of national healthcare regulation in the
Netherlands, Germany, Sweden en Belgium on the value network structure that
resulted from the previous step.
When analyzing the results from the expert workshop and related expert
interviews, we conclude that from the three regulatory elements as identified, the
financial element has the most impact on the value network structure. Because
reimbursements for e-health services – e.g. teleconsults – are not fully implemented
yet, the potential efficiency increases related to the teletetreatment service cannot be
fully capitalized yet. Only in the Netherlands and Sweden, recognizes that the work
related chronic pain is a work related injury. In both Belgium and Germany only
severe injuries are officially recognizes as work related. Because of this, the
occupational healthcare can be regarded as a potential revenue source and important
value network role only in the Swedish and Dutch value network structures of the
teletreatment service. Another critical aspect appeared to be the reimbursement
factors: because a Dutch healthcare professional treating neck shoulder problems gets
paid for the entire treatment, regardless of the specific treatment, there is an incentive
to work more efficiently. In the other three countries, these healthcare professionals
are paid per hour. As a result, for them there is no strong financial incentive to work
more efficiently.
State influence also impacts the value network structure. Because of the healthcare
market in Sweden is highly regulated with relatively independent and autonomous
regional healthcare institutes, Swedish government agencies are expected to play an
important role in the Swedish teletreatment value network. However, in the other
three countries, where state influence is lower, insurance organizations are expected
to be important actors in the teletreatment value network structures. The impact of the
final component, licensure and liability, was expected to be of less influence on the
national value networks of the teletreatment service.
Based on the results related to the regulatory validation, the Dutch and Swedish
healthcare markets appeared to be currently the most viable markets for deploying the
teletreatment service. In both the Netherlands and Sweden it was possible to include
the occupational healthcare role in the value network, which turned out to be a
potential revenue source critically important for viably deploying the teletreatment
service.
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6 Conclusions
In this paper, we described our business model engineering approach to early stage
business model and value network development for a tele-rehabilitation service in the
R&D deployment phase. We use a three-step approach. First, the main activities that
are affected by the introduction of the new treatment are identified. Second, the
investments and operational costs for each activity are determined. Finally, the
activities are allocated to organizational units such that costs and benefits of the
treatment can be matched.
Step 2 and 3 of our method led to critical deployment insights that would
otherwise be unknown or learned at a much later phase of the development process.
Improving the viability and feasibility of business model and value network designs
in an early deployment stage may lead to substantial savings in costs and resources.
The analysis can be augmented by analysis considering the environmental factors
like market, technology and regulatory environments.
Although the first results are encouraging, the method and empirical results need
to be further validated and the relationships between the qualitative and quantitative
analysis as part of the business
model action design cycle should be further integrated
as well.
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