How Established Medtech Companies Can Create Value from Digital

Updated on January 29, 2018

By Mitch Beaumont, Prashanth Prasad, Ulrica Sehlstedt and Mandeep Dhillon, Arthur D. Little

The healthcare sector has changed dramatically in recent years, due to new digital products and services emerging. However, established “analog-native” medical technology companies may need to make significant business and operational model changes in order to create significant value from these developments. We have identified a framework with two sets of primary “levers” that executives can use to impact the changes to their companies’ business and operational models to support a digital business. The specific levers used, and the degree to which they are “pulled”, will be unique to each company’s environment and its ultimate goals for digital. Most medical technology companies will focus more on two or three levers, with minor changes in the others.

Business model levers

• Digital products and services can enhance or shift a medical technology company’s value proposition in the market. Or it can offer tools such as applications and reminders to increase patient engagement and improve adherence. Typically, a digital business will want to build upon the company’s existing core value proposition, rather than creating a new one.

• Most medical technology companies have focused on selling devices, or generating revenue per unit. However, monetization of value can take on alternative forms with digital, such as service-oriented and data-centric models.

• Digital can enable a company to shift or expand the markets it serves to open up new business opportunities. Alternatively, companies may be able to create new business relationships with other value-chain players, such as home health companies, by providing information that improves the effectiveness and efficiency of in-home care delivery.

Operating model levers

• Going digital requires new ways of working. Software development cycle times are faster, and will be more effectively enabled by agile methods, which are fundamentally different from existing linear or phase-gate approaches employed by most medical technology companies. Robust technology and portfolio management methods are needed to keep up with the faster pace of technology change and ensure R&D resources are invested in the right areas.

• Becoming digital can create opportunities for medical technology companies to engage with a broader ecosystem to develop offers and reach the market. The complexity and system-like nature of many digital-centric solutions creates attractive opportunities to engage development and/or delivery partners.

• Adding digital elements to a portfolio will require new capabilities in areas such as application development, data management and security. In addition, medical technology companies will require capabilities in areas such as consumer insight and behavioral economics to ensure their digital-health solutions meet patient/user needs and expectations.

These levers are depicted in Figure 1, in which a more significant change in each group of levers collectively creates an overall more significant change along the respective dimension. Companies can use this visualization to qualitatively assess the degree of change – and change management – they will need to make to support a digital strategy and transformation.

There is a clear set of initial steps companies need to take to get started on a digital transformation, or for organizations that have dabbled in deploying digital services, to ensure strategic alignment between what the market needs and what the company does. (See Figure 2.)

• Begin by taking the time to understand the needs of your customers or users; avoid making assumptions – talk to them to learn about their experiences.

• Carefully screen to determine which needs can be addressed by digital; in addition, screen for those needs that it makes sense for the company to address.

• Evaluate solution concepts to identify the business- and operational-model changes that will need to occur to implement digital.

• With an understanding of the implications to the business model and operating model, set a strategy and develop a plan for going digital.

There is significant value to be captured with digital products and services in the healthcare industry. Many new entrants are well positioned to compete because their models are oriented towards software development – more so than existing, analog-native medical technology companies, which are organized to comply with regulations. For these companies, going digital will require significant business- and operational-model changes. Executives can proactively manage these changes and their impact by considering our recommended set of levers.

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