Life sciences companies that not only embrace partial digitization but also scale-up digital will maximize their competitive advantage.
The life sciences core markets, products and services that address patient treatment and care, are under increasing threat. Even though opportunities for growth are still relatively high—we estimate additional volume growth of US$75 billion (or 10 percent of current market size) by 2020—competitors are pouring in. Many of them are new entrants, unencumbered by the pharmaceutical industry’s traditional development processes and timelines. Witness, for example, the recent forays into healthcare by technology giants including Google, Apple and Samsung.
However well established a company’s traditional products and services might be, they won’t stand a chance against the digital disruptors’ new business models built around personalized, predictive healthcare. Over the next five years, we estimate that most of the market growth new business models drive will be due to cannibalization of current core markets.
The consequences for those still saddled with non-digital models will be dire. By 2020, companies could not only be putting current profitability at risk, they could also be foregoing opportunities to improve profitability, having missed the chance to reduce costs through partial digitization.
Our research indicates digital all-rounders—those who have embraced partial digitization and scaled up to maximize their competitive advantage—will not only grow revenues faster (by as much as 35 percent), they could also improve today’s profitability baseline by as much as 61 percent.
It’s critical for companies to move quickly. Only those players who invest in digitization before their competitors will be able to establish the nucleus for the next generation of industry-dominant business models. But it’s also important to recognize that successful digitization doesn’t hinge on getting it right the first time. Building a new business model is a four-step process:
Ship to the customer.
Learn from mistakes.
Pharmaceutical companies need to regain their confidence in this process, and drive their digital initiatives to the next level by considering the following recommendations:
Provide clear guidance from the top. Digital is here to stay. It needs the same top management attention as any other strategic initiative. Installing a Chief Digital Officer is not sufficient. Every executive needs to make digital a priority and act as an obstacle solver.
Address the market as a whole. Seek to create value for the entire health ecosystem—from prevention and care in core markets, to offerings for others. Consider, for example, how Merck’s spin-off Vree Health helps healthcare organizations meet patient engagement, accountable-care and care coordination goals.
Look for market growth. If you target the right markets, profitability will be your reward. But think disruptively. Make a completely new attempt to drive success, even if you don’t yet have the performance metrics to prove its worth.
Learn, share and partner to create new business opportunities. With the right partner you will develop a wider value orientation. Pfizer, for example, has hooked up with the startup, Akili Interactive Labs, in a clinical trial to evaluate whether or not a video game can be used to predict Alzheimer’s disease.
Foster a digital culture and mind-set and build required skills. Sales experience, not digital experience, currently sets the agenda for most pharmaceutical players. That needs to change. Companies must find ways of making life sciences attractive to talent with proven digital skills—the kind of talent behind Google, Twitter, Facebook and Netflix.
Winning in the outcomes-driven life sciences markets of the future will be challenging. But companies that think creatively about what makes them unique in the marketplace, attract the talent to transform their capabilities and commit to a clear agenda for change can leverage their assets for lasting advantage. The time to start is now.