Product to Services – Advantage India?

Dell Inc. announced today that it had agreed to buy Perot Systems Corp. for $3.9 billion. Reason: “…to play catch-up with big tech rivals that have been using the recession to expand beyond their traditional businesses…”. Less than a decade ago, Dell Inc. was the big boy of IT, heralding in revolutionary process changes — customizing product innovations, using internet based distribution channels [to name but a few] — to bring prices to unimaginable levels and gain unflinching customer loyalty. Yet, in a span of a few years, this seemingly unbeatable product innovator seems lagging behind at its own game!

Key learning in general: Customers like innovative products. But more importantly, they value utilizing those innovative products long beyond the warranty period where the manufacturer is contract bound to service them. They want the manufacturer of that product to provide equivalent quality of service beyond just the product. And I am not talking of just a technician landing up at your place every time a virus crashes your hard disk! I am talking of a whole host of products and services that open up as opportunities once you ‘net’ a customer.

Key learning for pharma: AT Kearney coincidentally released a white paper Pharmaceuticals: reaching the tipping point, on Sept 14th which has similar recommendations for the healthcare industry. It states that there are three interconnected ‘tipping points’ from which the industry will emerge greatly changed. These relate to what the industry sells, to whom, and how it must be organized.

The first tipping point is — hold your breath — the move from selling therapies to service models. Basically, this means moving from being mere product innovators to offering a complete range of services and solutions. Just like what Dell decided to do. It had occurred to me that doctors are increasingly looking at the effectiveness of the treatment pathway more than the cost-effectiveness of a particular drug. They want a service model that enables therapies to be administered with high compliance and outcomes of which can be proven to be beneficial. Positioning a therapy, through disease management programs, in this context dramatically increases its value.

The second tipping point is for companies to move from niche markets to mass markets. Today, prices are based on what the US market will bear. It is, after all, the biggest pharma market in the world. Meanwhile, as the report says, healthcare demand is shifting towards the developing world, with emerging markets experiencing a dramatic increase in diseases long common in developed countries. There are pressures to create low-cost mass-market solutions. Emerging markets must be viewed, not just as an opportunity for lowering R&D costs or demonstrating market commitment, but as a source of low-price, breakthrough innovation.
My take on this is that it is just a first good step! Pharmacos in India must be keen on simplifying, streamlining, decentralizing—whatever it takes to become lean, efficient, and effective. Emerging markets such as India offer opportunities for growth and significant development. As a step forward they should focus on developing drugs for smaller patient populations because [as we are reminded ad nauseum] the blockbuster’s heyday is waning at the same time that targeted therapies and more personalized medicines are becoming possible. Fundamental yet transformational change is imperative and long overdue to bring personalized medicine to the farmer in Haryana and other parts of rural India that constitute the 70% populace without access to modern medicine. Companies must add value both to local drug development and to product portfolios. Several avenues for transformational change already exist: biologics, personalized medicines, innovative drugs that satisfy specific Indian unmet needs, therapies developed in collaboration with diagnostics, and value for money in pricing/cost to name a few.

This leaves us with the issue of affordability. India is a market with opportunities galore! In his article Health Insurance for the Poor: Myths and Realities, Economic and Political Weekly November 4, 2006, David M. Dror showed that rural India has a solvent population and the poor prioritize access to some healthcare. Hence while access to healthcare is not a big issue, awareness of facilities available is. Tapping this huge market is contingent on product development that starts from a deep understanding of patients’ needs and wants. Community-based endeavors through Public Private Partnerships (PPPs) can be a powerful resource for process innovation and for gaining acceptance by the local population (and administration) because nobody is closer-to-customer, and no other body is as effective as communities in implementing the local ethos that makes the local economy run. Community initiatives are also best placed to mediate an optimal balance between needs, costs, resources and supply, all of which are context-specific. Minor adaptations of products developed for Europe or the US are unlikely to find many willing takers in the slums and villages, where reality is completely different. Becoming familiar with the needs and priorities of the poor requires considerable innovation in processes; the logistics for data mining and access to clients. However, the long tail of the cost distribution, implying that outlier costs can be devastatingly high, makes it necessary to link local communities with a financial mechanism of reinsurance and risk equalization, thereby enabling micro-heath insurance schemes to benefit from economies of scale.

The third tipping point will see success for companies moving from integration to connection as they move from being merely R&D-driven to market-driven. Mass-market solutions will mean closer scrutiny of the supply chain as such costs become key profit drivers, as Dell demonstrated in the past. There will be further emergence and consolidation of highly efficient outsource manufacturers. Management of the contractual relationships with these providers will become core and a major driver of profitability. Advantage India!

As focus moves from impersonal hospitals towards more personalized home- and community-based care, the current shift from wholesale distribution will shift again to direct-to-patient and lead to opportunities for an entire service industry to slowly take shape around the goal of letting people age in place. Companies will cease to be only value-delivery [products based innovators] companies and and will gear entire value propositions in response to local market needs. Companies will develop and leverage penetrative technologies in as many applications as possible to gain a return on investment at a reasonable cost by targeting “bottom of the pyramid” [BoP] markets that are truly mass in nature. The truly connected pharmaceutical company will have to decide which functions to deliver and which companies it needs to partner with to deliver other services.

With a market size that is the world’s envy, proven expertise in low cost, high-quality services industry [ask Nandan Nilekani], a well developed local industry with sky-is-the-limit capabilities, eager medical professionals [Dr. Devi Shetty and his heart factory] willing to accept and percolate sophisticated health services to the lowest bottom of the pyramid at minimal cost, all that is needed is an industry willing to prove that it really wants “…to play a leading role in providing affordable and qualitative healthcare to India’s growing population”. As Fareed Zakaria wrote in his latest book, The Post American World, “…it is not about the decline of the West, but rather about the rise of everyone else [the rest]…”. The rise of the rest is Advantage India all the way!

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