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Thought leadership and innovation for the Pharmaceutical Industry

In part two of our exploration of the impact of value-added services, we look at some of the practical implications.

By Nick de Cent on Jan 21, 2016

Companies’ have an ambition to position themselves as integrated health providers, with 41.5% of respondents to a recent survey claiming their business model to be “a provider of integrated healthcare solutions in partnership with stakeholders”, according to a new report: Value Added Services Report 2015 – Services as a Key Component of any New Business Model.

But what are the practical implications for implementing a services strategy?

Need for clear definitions

The authors argue that this starts with a need for clear definitions within each company on what “value”, “added”, and “services”, as well as “solution”, mean. “The definitions will be paramount for the company’s strategic options.” In this context it is important to note, nonetheless, that:

1. Value in healthcare relates to health outcomes; and

2. Services are fundamentally different from products – they are intangible, perishable, inseparable from the provider, unique, and require involvement of the customer in delivery.

Organizational approach

Companies are taking three different organizational approaches to service development:

1. In a central department or team in the commercial branch;

2. In a central department or team in the R&D branch; and

3. In a business unit separate from the development and commercialization of drugs.

“Regardless of where the development lies within the organizational structure, the interviewees express a need to separate the service development from the core business,” the authors explain.

The development process for services is different from that of pharmaceutical products. The interviewees expressed similar ideas of how the process should look. Iterative in nature, it should go through five stages: planning, ideation, evaluation, execution and implementation.

The process needs to take its starting point in specific customer needs: “The role of the customer in the development process is fundamental.”

Funding issues

Some interviewees expressed a need for funding coming through partnerships either with customers or partners. However, so far, the industry is making the full investment for the projects.

Others describe how the company has actively stood for the investment in order to be sole owner of the project.The choice on external investment in the project will, in the end, have to be adapted to the strategy for monetization from the service. If pharma expects direct financial returns or reimbursement, it will most probably have to stand for the initial investment as well.

Legal and compliance considerations

Legal and compliance departments are among the departments most frequently involved in the development of services, although ownership of the development more commonly lies with brand management, central marketing or centers of excellence.

Given that the development process for services is completely different from products, the legal and compliance capabilities needed are also different. Some interviewees suggest setting up a separate legal and compliance structure for services. This capability may have to be acquired from outside the industry.

However, even if the development structure is separate, the services team will have to work very cross-functionally.

External partnerships

“Partnerships will be essential in the development of services,” the authors stress. Vendor partners will have to be more integrated; customers will play a more integral role both in development and implementation.

Routine vendor contracts are still the most common form of partnerships (47%), but some companies are forming more long-term partnerships (38%).

Service delivery and implementation

A complicating factor, salient when comparing services and products, is that services requires a high degree of co-creation with the customer. This co-creation not only takes place in the development stage, but also in the delivery/implementation stages. Thus, the process beyond development must also have a high degree of flexibility and operational agility.

Scaling

The authors identify four main obstacles to scaling of services:

1. Differences between healthcare systems;

2. Differences between customers and/or partners within healthcare systems;

3. Lack of user uptake; and

4. A dearth of internal capabilities in the pharma company.

“These obstacles have hindered the industry from seriously moving beyond testing, piloting and implementation on a local scale,” the authors argue.

Six key success factors

Six key success factors could be extracted from the interviews conducted by the authors, and these correlate well with the survey respondents’ answers:

1. A long-term commitment from senior management

2. Independence from the pharmaceutical development and/or commercialization;

3. Clearly stated intentions;

4. An experimental and iterative development process;

5. Co-creation with customers;

6. New capabilities – hire or partner

Because the industry is still on the journey towards its final objective, these success factors are reflective of the journey so far and new factors may rise in prominence as that journey progresses.

Moving towards an integrated care solutions business model

A services model, if widened enough, may cannibalize the pharmaceutical business. However, it is also a matter of perspective; if the patient were seen from more of a lifetime-value perspective the benefits of, for example, prevention would become more apparent.

Creating a service system: from need to service

A pharmaceutical company that aspires to move towards an integrated health business model should consider creating a services system anchored in unmet needs. The authors conclude that this should take into special consideration these six key aspects:

1. The specific healthcare system;

2. Therapeutic area;

3. Customer’s internal capabilities;

4. Pharma company’s own internal capabilities;

5. Company-customer relationship; and

6. The way in which reimbursement or monetization should occur.

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Value Added Services Report 2015 – Services as a Key Component of any New Business Model by David Laws and Magnus Franzen, with research by Rob Halkes, is published by eyeforpharma.