DIGITAL INNOVATION IN HEALTHCARE COMPANIES
Digital technology has been and is still transforming industries, opening prosperous new value pools. Yet, it is also posing a risk to longstanding business models. While some industries like retail, banking or media already went through significant digital transformation, the healthcare industry is on the brink of change with disruptive potential. Although executives in healthcare are aware of opportunities and risks posed by digital technology, they are uncertain about which initiatives to focus on and how to pursue them in the best possible way.
This series aims to illustrate major trends favoring digital transformation in healthcare companies, indicate common pitfalls in “going digital” and provide a three-phase model to fruitful and sustainable digital efforts.
1. Which digital trends are expected to transform the pharmaceutical industry?
As with all trends there is great uncertainty which of them will diminish over the course of time and which will sustain and grow in importance. However, what many experts do agree on is that digital technology as such will affect the pharmaceutical industry significantly in one way or the other. Below we have listed three trends with high transformational potential for the pharma industry:
Value-based care moving into the limelight
With the rise in chronic diseases and an overall increase of healthcare costs, payors and governments are managing costs while delivering improved patient outcomes. To justify market access and price point, pharmaceutical companies are even more compelled to demonstrate the value and efficacy of their products based on real world data – in addition to clinical trials. Ranging from early (self-)detection, increasing drug adherence to substitution of existing treatments, digitally enabled “around & beyond the pill” products are becoming crucial in this balancing act of costs and enhanced outcomes.
Digital healthcare opening the door for new competitors
The enormous potential of digital healthcare is not going unnoticed: With capital investments of $13.7B in 2019, funding in digital health start-ups increased fivefold since 2013. However, only 5% of these investments are accounted for by the 10 biggest pharma companies. As capability requirements are diversifying, more and more tech-savvy companies and venture funds are moving into diverse opportunities around digital healthcare. Therefore, the healthcare industry is going to change significantly which will also affect market positions of long-established companies.
 StartUp Health Insights, 2019
Increasing patient engagement shifting pharma focus
In a digital age, patients are no longer exclusively relying on the advice of healthcare professionals but are increasingly able and willing to conduct extensive research on their conditions and treatment options themselves. The current global pandemic situation might accelerate this trend even further. Broadening the focus from HCPs to patients, many pharma companies are starting to (actively) engage with “end users” to ensure a seamless and convenient experience. In exchange, these companies are gathering and learning from extensive data provided by patient’s smart devices. With a 15-fold increase in healthcare data generation from 2013 to 2020, this data offers companies an unprecedented entry point to identify global macro developments and trends in disease patterns and consumer behavior.
 International Data Corporation (IDC)
Approaches towards digital Innovation in Healthcare
To meet the trends described above healthcare companies are utilizing different approaches towards digital innovation and most do not rely on one single concept. Find a variety of approaches of how companies are engaging in digital innovation in the following graph:
Established healthcare companies that strive for digital transformation of their core business frequently choose an internal lab approach linked to existing corporate locations. Also, accelerators, incubators and network programs are frequently used approaches to access external innovation capabilities. Many companies define their digital ambitions and challenges that they want to solve internally before seeking solution options to these challenges from external sources. Typically, the more disruptive innovations a company aims at, the stronger its external orientation.
2. Why do many digital innovation initiatives run into trouble?
When entering the field of digital innovation, large healthcare companies typically run into diverse challenges that face severe obstacles to achieving its digital ambitions. The most frequently observed challenges are listed below:
Little experience across organization & project teams
Digital innovation requires capabilities that differ significantly from those available in healthcare companies. This gap does not only relate to technical knowledge, but also working methods. Not comfortable to deviate from well-established R&D and commercialization processes, healthcare companies struggle to adopt agile, iterative practices. Instead they manage initiatives in digital innovation based on requirements and habits of the core business, thus disregarding key success factors of digital innovation.
Missing key stakeholder engagement
While many efforts within digital innovation are driven by small teams in early stages, most initiatives become intertwined with the wider organization at some point. Key stakeholder and opinion leaders play a pivotal role in safeguarding access to critical resources. However, these stakeholders are frequently not involved early enough in the project and thus are not able to adequately mobilize the organization as a whole.
Digital not embedded
With bold statements, considerable investments and parallel cultures, healthcare companies try to close the gap to technology companies. Yet, if the wider organization is not involved adequately, this frequently leads to confusion, resource competition and a rejective stance towards digital innovation. Especially in situations where digital products or services are integrated into the core business along their lifecycle, this rejective stance can jeopardize the product’s or service’s overall success.
Little attention towards cultural change
Despite being addressed frequently, many leaders still underestimate the importance of managing the “people side of change”. As with many high impact changes, insufficient change management to promote the mindset needed for digital innovation can undermine success.
Insufficient involvement of external partners
Although partnerships are a long-established and valuable tool in the “conventional” drug lifecycle process, healthcare companies tend to approach digital partnerships to a rather limited extend. Bringing in external expertise is crucial to shorten time to market and attract required talent to the company when it comes to digital innovation. However, many healthcare companies struggle with strategic partnership management or simply lack adequate processes to enable flexible and short-term partnerships in the digital sphere. Moreover, an active management of a digital ecosystem of new companies with promising technologies with the right approach to bring them close to corporation but not too close to lose their start-up advantage, can rarely be seen with large healthcare companies.
3. How can pharmaceutical companies succeed in digital innovation?
There is no “royal road” to digital innovation which can be applied to all organizations and requirements. However, to address typical challenges and to account for the difficulties of a comprehensive transformation touching all dimensions of a company, healthcare companies can choose to follow this three-phase approach:
Phase 1: Provide a safe environment for digital innovation
Digital innovation initiatives are different from core business activities in many ways. However, the gap between requirements of a digital innovation and established ways of doing things might differ based on the type of initiative and company at hand. Nevertheless, legacy processes, systems, and structures frequently represent a burden to digital innovation initiatives, impeding these initiatives from realizing their full potential. Consequently, digital innovations evolve ideally in a safe environment with specific “digital-focused” boundary conditions.
Therefore, regardless of the type of digital innovation – e.g. an accelerator program, a digital lab, or a strategic alliance – in the first phase of a digital effort there should be a distinct separation from the existing organization, regarding:
Budget, steering and incentives
Establish a fixed budget for digital initiatives that is not in competition with other business or functional budgets to ensure a certain degree of independence in the decision process. Steer and incentivize by qualitative parameters derived from goals of the digital initiative / program
Processes and organization
Apply processes and methods customized to digital innovation requirements and unbiased by existing structures and approaches.
People, skills, and culture
Ensure focus by establishing dedicated roles with specific skillsets and fitting mindsets. Digital initiatives typically intend to breakout from existing thinking models, which requires fresh outside perspectives and talents.
Phase 2: Foster culture of digital innovation
Changing people’s behaviors and ways of doing things is important to realize digital innovation and requires a change in mindset first. Therefore, it is important to strengthen the recognition of the opportunities and advantages of digital innovation to achieve more institutionalized digital transformation in subsequent steps.
Use successful digital initiatives as lighthouse success stories. Foster individual engagement of different parts of the organization with the digital innovation initiatives and start deriving implications for other working situations. There are different ways how a “spirit of digital optimism” can be strengthened in the organization:
Job rotation program
Integrate individual employees for a certain period of time in in digital initiatives or organizations for them to experience the mindset of these teams and their different ways of working first-hand. These colleagues might then serve as advocates and champions for digital innovation in the rest of the organization. There is obviously a difference between working on a digital initiative and reading about it on the intranet. Open door or dialogue days are other formats that can have a similar effect on the overall culture
An effective way to engage the corporate community is to offer a dedicated channel for employees to actively contribute to digital innovation, e.g. by providing ideas to real problems of the company.
Phase 3: Integrate digital innovation
To become an accepted part of the organization and deliver sustainable value, digital initiatives must be integrated into the organization at some point of their lifecycle. However, this needs to happen in a modus operandi that respects and caters for the requirements of the digital initiative, the core business as well as the needs of external partners.
This integration means finding processes and organizational forms to make digital initiatives work in the corporate context. Depending on the long-term strategy and the needs of the digital initiatives, there are different forms of integration, for example:
Scale up organization
Provide an organizational frame for growing digital business initiatives, making use of established corporate structures and support processes
Digital Business Area
Establish an independently steered digital business unit, focusing on delivering value from digital innovations
Digital capability pools
Build up a center of expertise for digital innovation. Pool scarce digital capabilities and deploy them to digital initiatives as required
When it comes to the decision on how to integrate digital innovation into the organization, digital innovation has already reached some maturity in a company. Still, this step is decisive to ensure that digital can deliver long-term value and contribute to growth as an accepted element of the set-up.
Santiago as trusted partner in digital transformation
In recent years we have successfully supported several leading healthcare companies with different digital programs and initiatives. Some examples are the buildup of a global digital innovation network, the setup of a digital commercialization organization or the realization of a digital transformation roadmap in R&D. In close partnership and with targeted approaches we have supported our customers in accomplishing their digital goals by leveraging our deep expertise in digital strategy and organizational development. We would be happy to discuss your digital transformation goals and how these could be broad to live or further developed sustainably.
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Your expert for Agility & Digitalisation:
Dr. Alexander Tarlatt
+49 2156 4966 910
Your expert for Agility & Digitalisation:
+49 2156 4966 910