by Marcy Murninghan

Massive transformations in public expectations of health care make the job of a CEO and other top managers  – not to mention boards – more challenging than ever. Whatever the jurisdiction and however complex the firm, changes affecting providers, patients, payers, regulators, and policymakers require adjustments to business models and strategies to remain competitive. Digital technologies also have changed the healthcare infrastructure, decentralizing power so that individuals can more readily monitor and manage their care. Digital technology also enables nimble and influential stakeholder networks, offering great opportunity for improving performance.

This AA Insight lays out current business risks and opportunities facing the pharmaceutical sector as a result of these changes in public expectations, players, and infrastructure. It does so within a larger context of both sustainability and solutions, which affect other industries and business models throughout the world but have special significance for Pharma. It offers a way of constructively addressing these challenges via three overlapping realms affecting Integrity, Innovation, and Immediacy. And, it presents interrelated and self-reinforcing action steps within each to help pharmaceutical firms improve sustainable competitiveness and stakeholder responsiveness in healthcare’s new world.

Pharma CEOs, top executives, and boards can apply this 3I Mandate as they reframe their strategic approach and address risks and opportunities throughout the value chain.  That is, they can strengthen Integrity, foster Innovation, and rely intelligently on digital tools to meet increasing demands for Immediacy. These constructs cover a range of activity – from building trust to the latest in material information disclosure, to cultivating diverse new partnerships and improving performance – all aimed at generating superior outcomes for patients, shareholders, and stakeholders.

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Taking a proactive approach to ethics and risk management is a critical first step toward strengthening Integrity, particularly in the face of rising stakeholder activism, media scrutiny, and institutional mistrust. Doing this means examining marketing and sales practices, potential for bribery and corruption, quality of drug trials and patient safety, financial management, and political activity. Strenngthening integrity means identifying what is important to stakeholders, identifying ways of delivering goods and services that meet their needs, and delivering on what is promised. This includes developing more sophisticated measurement tools and analytics for disclosing sustainabilit y materiality data, as well as better reporting mechanisms. It also means taking a leadership role in current efforts to expand definitions of materiality to incorporate sustainability performance in social, environmental, and governance realms.  In this respect, Roche, Novo Nordisk and Takeda Pharmaceutical Company Limited stand out. Roche has long been a leader in sustainability, and Novo Nordisk and Takeda are road-testing the Integrated Reporting Framework developed by the International Integrated Reporting Council, which will serve as model for other companies throughout the industry. Greater transparency and accountability leads to an increase in public trust and loyalty, which will positively affect the industry’s bottom line.

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Cultivating Innovation involves meeting patient needs within a vastly changing research, development, and delivery system. This involves forming new and diverse partnerships and viewing them as opportunities for collaborative learning and product development. As major drug makers such as Abbott, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Pfizer, Roche, and Sanofi know, partnerships can build upon the wealth of human genetic knowledge amassed over the past few years. This can lead to innovations in targeting and tailoring treatment to individual patients, which can help lower costs. It means developing multi-tier price models and providing data-driven evidence of the benefits of product to patients themselves, and the insurance plans that cover them.

It also means focusing on health and wellness in ways that leverage the power of emerging technologies, big data, social media, learning theory, and behavioral medicine. This helps personalize products and services by factoring in patient healthcare and lifestyle considerations with more effective results.  The new model calls for viewing customers as managers of their own health care by adopting a two-way exchange of information with stakeholders for knowledge management and monitoring of healthcare solutions. Viewing health and wellness and improved access for stakeholders as a framework for delivering value is something actively promoted at Merck.

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Technological disruptions will continue to shape Pharma’s evolution, which means retooling for Immediacy. This involves understanding and deploying digital and on-demand information tools to benefit the company as well as the consumers and stakeholders it serves. Elements include smart investments in information technology and improved forms of communicating with stakeholders. The field of Healthcare Information Technology and data analytics is exploding, not only with respect to product development, safety, pricing, and efficacy, but also with disclosure and reporting. Companies need to be prepared to deal with users that have more knowledge of company activities than ever before—particularly insurance companies and providers.

In addition to consumer demand for better services, regulators and policymakers are pressuring companies to widen and deepen their information sharing, particularly regarding evidence-based outcomes. This means bolstering real-time approaches to corporate reporting and disclosure, information transparency, and data accuracy. It also means drawing on an arsenal of interactive approaches, including social media, to improve stakeholder communication and awareness. As health care becomes more “connected”, widespread use of digital tools – especially tablets and smartphones – represent opportunities for value creation. These devices can generate a wealth of information and “learning loops” that Pharma can use in their business processes, while improving lives. Using digital platforms for better stakeholder engagement and for professional development are two areas that are primed for further development.  Johnson & Johnson has pioneered the use of social media in communicating with shareholders and other stakeholders, while other firms are trying to figure out better uses for Facebook, Twitter, YouTube, and Google+.

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The healthcare industry is undergoing a fundamental transformation as boundaries between individual corporate performance and the broader social, environmental, and economic ecosystems continue to be more tightly integrated. In addition, the future of healthcare is becoming more decentralized and personalized, due to innovations in behavioral science, technology, and  services. Therefore, it is not surprising that Boards, CEOs, and senior executives of large firms are elevating the focus on sustainability-related dimensions of performance.  New ways of thinking are crucial, ways that focus on improving access, outcomes, and health and wellness. The 3I Mandate helps Pharma leaders accomplish their competitive performance goals in this new era of “connected health.” This involves integrated business processes and solutions along with technology-driven personal healthcare systems. The Mandate also helps insulate Pharma firms from trust erosion due to questionable sales and marketing practices, bribery and corruption, flaws in the drug trial process, and fraud. Pharma’s ability to “target and tailor” also can increase cost-effectiveness, even as it raises new questions about payer and physician incentives, medical records privacy, and the ethics of clinical trials. A steady focus on Integrity, Innovation, and Immediacy enables Pharma to answer these questions and remain competitive within an environment characterized by ongoin g change and increased scrutiny.