How can traditional businesses react to the digital transformation tsunami? Four steps to success
How can a company overcome a 90% drop in revenues? By using big data. But how? Where should it start? This is the situation that major Dutch healthcare company Mediq faced in 2012. It used to be just a drug retailer and distributor of pharmaceutical products from its warehouses and through its own 200+ pharmacies in the Netherlands. But in 2012 the Dutch government deregulated pharmaceutical fees, resulting in an immediate 90% drop in the company’s profits. In order to survive, Mediq had to reinvent itself. It did so using big data.
Prior to 2012, Mediq’s profits came from the fees it earned on the medicines it sold. Those revenues vanished with the deregulation. Mediq’s solution was to harness the massive amount of patient information to which it had access and that it had not considered capitalizing on before its “big crash.” However, this also meant completely changing its focus and the way the company functioned. It started from scratch, going back to its core essence and reviewing its mission in order to rebuild itself on solid foundations.
Under the leadership of the CEO, the top management team transformed the company’s main mission from packaging and distributing medicines and medical supplies to taking care of patients. It designed a new business model that placed the patient, rather than medicines, at its center. Improving the quality of life of patients and avoiding unnecessary hospitalizations now drove the company’s activities. Indeed, studies revealed that many hospitalizations in the Netherlands resulted from the misuse of medications. Preventing such occurrences would not only improve the lives and health of these patients but also save millions of euros in healthcare costs. With this new business model in mind, Mediq mandated an external company to estimate (based on big data) the annual hospital admissions due to medication misuse for each patient as well as the total cost that this represented for insurance companies. By knowing its customers, tracking their medical treatments and offering advice on their use, Mediq could drastically reduce the number of such cases and the associated costs.
The next step was to turn this great idea into a profitable new business model. Mediq could no longer survive on the fees paid by its patients, and besides, this was no longer its goal. Instead, part of its earnings would come from the savings achieved from implementing its new model. Indeed, Mediq approached insurance companies and convinced them, based on the results of its study, to split the savings they achieved as a result of Mediq’s new model. At the time of writing, these earnings represented half of Mediq’s total profits.