How Outside Industries are Changing Healthcare
How should companies transform themselves to respond to the challenges and opportunities arising from this new era of digitalization?
The pharma industry today is facing a complex and difficult situation. Digitizing industries are entering the healthcare market with innovations that have the potential to change the way healthcare is provided to people. Customer groups demand the same level of digital services that they experience in other sectors. Beyond that, practitioners and payers expect solutions that use digital innovation to drive efficiency and increase the quality of healthcare service provision. Pharma companies face a situation in which parts of its business may be disrupted by new market entrants, whereas other areas will be suited to a traditional business model for many more years. The industry, therefore, needs to avoid introducing immature services too fast in areas where there is no urgency and to correctly set priorities.
This article outlines the nature and origins of the disruptive pressure on the pharmaceutical industry and how companies should transform themselves to respond to the challenges and opportunities arising from this new era of digitalization.
New offerings from outside the industry
Many of the innovative solutions that digital health offers are being developed by non-traditional entrants to the healthcare arena. They are now providing new offerings that are very quickly changing the dynamics of how the ecosystem works, and, in particular, how the individual patient is engaged.
One telling measure is the amount of venture capital that is continuing to flow into the digital health market. According to digital health start-up accelerator Rock Health, USD2.1 billion was invested in digital health start-ups during the first half of 2015 – up 25% compared to the previous 12 months. The biggest portion, USD387 million, went to wearables and biosensing companies, but analytics and big data, as well as electronic health records, are other categories that are seeing significant investment activity and a vibrant innovation environment.
The innovations coming from outside the traditional healthcare industry span a wide spectrum of products and services, but all take advantage of advances in digital technologies and the ability to analyze and present large amounts of data in new ways. From new biosensor technologies and smart devices to portals and physician guidance tools, there are numerous exciting breakthroughs that allow enhanced self-monitoring capabilities and patient adherence – and ultimately superior clinical decision-making and treatment success. Add on the data analytics capabilities that are now being put to use by purchasing bodies (payers) and hospital systems, and it is clear that healthcare is in the middle of a profound transformational shift.
How should a pharma company act in the midst of this rapid change if it is to remain relevant going forward? In our work, we have found that many companies are struggling to fully understand the new landscape. This is particularly due to the constraints of being vertically integrated organizations with business models that are essentially built around independence and self-reliance, meaning they have promoted internal solutions over broader ecosystem collaborations.
A common theme among the new solution providers and the digital health innovations they are creating is that they tend to have a much stronger consumer mindset as a natural part of their organizational “DNA” and thinking relative to pharma companies. This is evident in digital health solutions such as new continuous blood glucose meters which, connected to a smartphone application, directly empower the patient to take control of his or her own diabetes by guiding insulin therapy through access to real-time glucose levels.
It is becoming clear that in order to stay relevant in the future healthcare ecosystem, pharma companies must look to business models that foster much more direct patient engagement than previously. New methods offer significant potential in increasing the quality and efficiency of care. Digital health solutions could, therefore, solve the major long-term issues of pharma’s most important client groups – patients, providers, and payers – all at the same time.
Focusing on the relationships in the connected ecosystem
In order to understand the disruptive power of digital health and its impact on pharma, one has to take a closer look at the relationships within this well-connected ecosystem. Traditionally, healthcare providers, payers, and pharma companies have had a conventional supplier-consumer relationship. However, there are now increasing demands from payers and providers around the delivery of better health outcomes and greater cost-effectiveness. These provide a strong driving force for pharma companies to more actively engage in the opportunities arising from the digital revolution and patient-centered care. More than ever, regulatory bodies now insist on pharma companies demonstrating benefits and cost-effectiveness, with many countries introducing reforms that aim to restrain overall spending. Ensuring responsiveness to treatment and patient compliance, while minimizing side effects, are therefore key success factors if pharma companies are to meet society’s demands.
From product-centric to patient-centric
In order to achieve these new success factors, pharma companies need to begin a process of transformation. The proven classical, product-centric approach with an indirect value chain (as shown in Table 1) will not be able to embrace the required speed, new collaboration needs, flexibility and ability to learn quickly. A pharma value chain in a digitalized environment needs to incorporate new characteristics. Therefore, as a first step, the company needs to develop a vision of how it will earn money in the new digitalized world. Will the revenue model stay? Will the business model instead be built around new manufactured products or services? What will the portfolio and customer experience look like? A vision of how a transformed organization can be structured is shown in Table 2.
Table 1
Table 2
In such a vision, pharmaceutical product offerings can be strengthened through complementary digital software/digital services offerings. These help patients with their treatment, help practitioners with their work and give them insight into the success of their treatments while helping payers and legal entities to receive proof of efficacy. Depending on the pharmaceutical product, medical devices and sensors will measure the consistency of product usage and its success. The combination of all three product groups results in an integrated digital health offering that is able to give a new competitive advantage.
The “customer” is at the center of this vision. This includes not just the patient/consumer, but also the practitioner and the payer. All products and services, as well as all administrative processes, focus on long-term customer value through customer group-specific journeys.
To coordinate product offerings, the customer-centric view and the multiple touch points, strong strategy and governance are required. Furthermore, big data analytics capabilities will integrate information from R&D, existing products, and customers, as well as other touch points, to generate additional value and improve products, services, processes, and touch points.
We see that large pharmaceutical companies are already defining their visions, strategies, and initiatives. Corinne Le Goff, VP CNS Marketing, Sanofi-Aventis, stated that a “lack of customer understanding is a threat to our revenues and to our health. We need to understand customer value and do it better than our competition". Pfizer has implemented customer journey mapping for customer-centric decision-making, Johnson & Johnson has established a cross-franchise digital center of excellence and GSK is pushing multi-channel marketing campaigns.
To create action plans and concrete initiatives, the transformational need has to be cascaded down to processes, data and technology requirements, and management capabilities. The major challenge to success is the need to integrate organizations, concepts, processes and technology. A successful transformation program typically incorporates the major pillars of the new vision within four fields of action, as shown in Table 3.
Table 3.
1. Integrated offerings
To define integrated digital health offerings, we have to set the overall future business model and its components, incorporating existing products and business units. By analyzing the existing product portfolio and comparing it to the new business model components, gaps become apparent. We can define and decide where to build up skills and capabilities internally, and where to use new partnering models and external interfaces. The overall product strategy is communicated and a product development excellence project is set up, such as enabling an approach to personalized medicine.
2. Customer management
Customer management is the core of the transformation program. Here we define the strategic components as well as the governance structures for a customer-centric and digitalized pharma company. The different customers (patient, practitioner, and payer) are analyzed and high-level customer journeys are defined. These journeys are the basis for more detailed use cases – experiences with the brand from the customer point of view – such as a treatment process or information gathering across different touch points. It is not possible to drive this transformation through a deep-dive, top-down approach, especially for big pharma. Therefore, we favor a “highly aligned, but loosely coupled” approach in the execution of the program, in which the detailed use cases will be run by dedicated owners who have end-to-end responsibility for both budgets and success. The company will run a lean customer integration office where the use cases are consolidated. Existing company committees for budgeting and prioritization will be extended so that top management is able to make decisions based on customer and business value.
3. Customer-focused touch points
As major enablers of customer-focused use cases, touch points and their back-end capabilities need to be built and integrated. Based on the use cases and their requirements, we define and prioritize touch-point projects, such as online consumer chat or a new digital sales representative application. Overarching capabilities for an integrated journey are defined as well, covering customer data and customer relationship management, as well as knowledge management. Projects to implement these basic enablers are the highest priority as they span multiple use cases and touch points.
4. Big data analytics
A digitalized and customer-focused value chain offers new opportunities for gaining insight, measuring success and driving improvements. As a basis, we recommend creating a lean, cross-business-unit, technology-focused big data analytics team that has the technical and consulting capabilities (covering data scientists, the provision of a big data cluster, etc.) to help business units with the implementation of new analytics methodologies. Within the business units, capabilities need to be created for each purpose, such as using the technology in R&D for personalized and precision medicine based on field data. Clear data analytics responsibilities are set for each business unit to enable fast learning, such as touch-point analytics to assess how well particular touch points are accepted and how they can be improved.
About the authors:
Dr Ulrica Sehlstedt is a Partner in the Stockholm office of Arthur D. Little and a member of the Global Healthcare Practice.
Nils Bohlin is a Partner in the Stockholm office of Arthur D. Little and leads the Global Healthcare Practice.
Fredrik de Maré is a Partner in the San Francisco office of Arthur D. Little and leads the US West Coast Healthcare Practice.
Dr Richard Beetz is a Principal in the Frankfurt office of Arthur D. Little and a member of the Global Technology and Innovation Management Practice