Customers don’t want MP3 players: they want music.
Customers don’t want trains: they want to get from here to there.
Customers don’t want computers: they want solutions.
Patients don’t want drugs: they want better health outcomes.
These fundamental principles of business were underlined to big pharma in an interesting recent article on Forbes from Dave Chase, CEO of Patient Portal Relationship Management company, Avado.com. IBM’s Reinvention Should Inspire Flat Pharma Businesses.
He writes: “The handwriting is on the wall for pharma companies: They will succeed or fail based not on how many drugs they sell, but on how well their offerings improve health outcomes… Looking at the 10-year stock charts of these organizations you see flat or declining stock prices. It’s quite clear that reinvention has yet to happen for virtually all of the Life Science companies… Do pharmaceutical companies see themselves in the drug business or the disease management business? Or, where possible, in the disease prevention business? These are the key questions that will determine whether they will survive and thrive.”
While big pharma continues to pursue the nirvana of the blockbuster drugs like Pfizer’s [PFE] Lipitor with wide application, the future may lie elsewhere. Instead of blockbuster drugs, the future may lie through other paths that lead to better outcomes for patients, often at lower cost.
What big companies often miss with disruptive innovation is the possibility of reaching a much larger number of customers. The margins may be smaller, but the market is much larger. Instead of trying to invent a high-value drug that meets the needs of a small number of patients with a particular disease, there are much larger potential gains from reaching huge numbers of people with a slimmer margin of a low-cost solution.
“Many of these diseases lend themselves to applications (mobile web) or biometric devices,” writes Chase. “This is going to drive a greatly expanded focus on non-traditional partnerships…. Most pharma companies are where computer makers were in the late 80′s: the handwriting on the wall is clear but pharma is still mainly focused on milking the cash cows just as DEC, Data General, Wang were in the 80′s. We know how that turned out.”
“With ever-increasing requirements to run healthcare more efficiently and providers who often don’t possess the skills to address new reimbursement outcomes requirements, technology-enabled services are going to become more common. Purveyors of technology-enabled services don’t sell technology. Instead, they are selling an outcome.”
Examples of improved customer outcomes
- Doctor-patient interactions: firms like ZocDoc enable a fuller docket of patient appointments for doctors (not technology). ZocDoc gathers supply and demand insights no one else has for healthcare services while helping consumers find open appointment slots.
- Remote device monitoring for doctors: Ambucor provides Ambulatory Electrocardiographic and Remote Device Monitoring services for cardiologists. These span devices, disease and health management. It can be used for serious diseases, as well as wellness programs as personal biometric devices become more pervasive.
- Population Management: Keeping track of the portion of their patient population that is up-to-date on vaccines, health checks, etc. and scheduling them for appropriate services. This could solve the problems of Patient-centered Medical Homes and Accountable Care Organizations, as well provide necessary data input for pharma’s research needs.
- Family Medical History: Helping healthcare providers take advantage of Medicare’s funding of annual wellness visits.
- Apps for Rx: enabling the prescription of an app on a mobile phone but also the accompanying app adherence.
- Telehealth: Providing more and more services remotely by providing the tools and services to manage conditions remotely This is already happening behavioral health.
The problem? It may be easier for big pharma to milk their cash cows rather than reinventing their businesses from the customers’ perspective. But therein lies the path to corporate death. In the case of IBM, it was only a dire crisis that finally awoke IBM from its lethal trajectory.
How IBM survived
“The pharmaceutical giants,” says Chase, “look remarkably similar to the IBM of the late 80′s and early 90′s… Remarkably, IBM demonstrated how it’s possible for a large company to shift from a product-centric culture to a customer and service centered company.… IBM was able to use their near extinction to reinvent themselves over a 10 year period.”
When Gerstner came to IBM in 1993, IBM was losing money in massive quantitites. His predecessor, John Akers, had decided to split up IBM into its component parts. Gerstner had the good sense to start listening to clients. He discovered that the biggest problem that all the big companies were facing in 1993 was in integrating all the separate computing technologies that were emerging at the time.
So while continuing to cut costs, Gerstner reversed his predecessor’s decision move to spin off IBM business units into separate companies. Having understood IBM’s customers, he recognized that one of IBM’s greatest strengths was its ability to provide integrated solutions for customers – a firm that could represent more than piece parts or components—something he would not have learned by listening to the proponents of different technologies within IBM. Splitting the company would have destroyed IBM’s unique competitive advantage.
The key to long-term survival: outside-in
IBM’s experience is pivotal, as explained in Professor Ranjay Gulati’s guide to long-term corporate survival, Reorganize for Resilience
The thrust of Gulati’s marvelous book is that in today’s white-water world of rapid change and massively enhanced customer power, the only road to resilience is, like Gerstner at IBM, adopting an outside-in perspective by solving clients’ most pressing problems or finding unexpected ways to delight them.
Delighting clients is not enough
But merely focusing on customer or patient needs by itself is not enough. That’s because the hierarchical bureaucracy of the traditional Fortune 500 company will undermine and ultimately kill single-fix initiatives to shift the firm’s focus to patients or customers.
The other aspects of radical management—the shift in the role of managers from controller to enabler, the shift in coordinating work from bureaucracy to dynamic linking, the shift in values from efficiency to values that will grow the firm and the shift from commands to conversation—are necessary changes to support the goal of delighting customers.
IBM adapted but didn’t learn
So it’s true that in 1993 IBM was rescued from its near death experience through the efforts of a CEO–Lou Gerstner–who listened to clients and Fortune smiled. Gerstner discovered that the very issue that was most bothering the clients (difficulty in integrating different technologies) happened to be exactly the kind of service that IBM as a large multi-faceted technology company was ideally situated to provide. In the process, IBM discovered the joys of a “blue ocean” strategy: a big opportunity with little competition.
Gerstner saved IBM by a strategic master-stroke i.e. guiding the firm to a competition-free “blue ocean” where its steep, lumbering bureaucracy would not be the crippling handicap that it was in its existing businesses.
While Gerstner made the critical strategic decision in 1993 that saved the firm by listening to the clients, it was a single, one-shot decision. It didn’t cure the underlying disease: the inside-out mindset of a bureaucracy. The steep, lumbering hierarchy remained. Gerstner saved IBM but he didn’t institutionalize listening to clients as the driving force of IBM’s culture.
The inside-out perspective persists at IBM
As at all companies, IBM’s leaders often talk about listening to the client. But if you look at IBM’s mission statement on their website today, it still reflects an inside-out perspective:
“IBM is a values-based enterprise of individuals who create and apply technology to make the world better.”
Here, there is no explicit mention of the customers or clients. The statement reflects the fact that the customers and clients are still not front and center in IBM’s thinking. In effect, IBM has still not succeeded in institutionalizing listening to its clients and customers as the central thrust of its culture.
Nevertheless, as in most big organizations today, there are parts of IBM in which radical management is flourishing, such as the Quality Software Engineering group at IBM which is responsible for software development processes and practices across the company.
Just as the future of IBM will depend on how far they are able to shift the formal focus to the customers and transform their management systems from traditional command-and-control bureaucracy to the more agile 21st Century radical management, so the future of big pharma will depend on making a similar shift and make the outcomes for patients a central pre-occupation of everyone in their firms.
And see also:
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