How do healthcare companies best organize their digital business

Healthcare companies including pharma, insurance, MedTech have used different governance models to manage their digital health business in the past. There are four main governance models and a trend towards outsourcing.

The healthcare industry is using digital health solutions for multiple reasons that have also changed over time. The companies are reacting on key market trigger points (see also article: How Trigger Points Influence The Strategies Of Thousands Of Digital Health Companies) and on the changing importance of the digital health business.

Pharma companies have been actively exploring and publishing digital health solutions since the beginning of the app eco-systems in 2008/2009. Top 10 pharma companies have published hundreds of digital health solutions. Concepts and implementation were in the responsibility of digital health teams in a central unit, but these teams were more often subsets of a larger business unit/franchise. Innovation coming from digital health solutions was organized within the company. The same thing applied to other healthcare segments including MedTech, with the major difference that digital health solutions could be more closely linked to the core business of the company. Manufacturers of heart pacemakers, BGMs, CGMs, blood pressure cuffs, stethoscopes, and many more linked their devices to a digital solution. The digital layer was part of the MedTech’s service offering. Therefore, the governance of the digital health solutions was within and still is a part of the business unit.

With the increase in partnerships with digital health companies to foster innovation, the governance structure for digital health businesses has also changed. Companies have been organizing their digital health business in ecosystems for a few years. Accelerators or incubators took over a large part of the management of the partner companies. Most of the leading healthcare companies now have one or more of these governance structures in place.

Healthcare companies that decided to use digital health solutions to venture into new markets and to create a new business around it have also created separate units that build and grow the digital health business at arm’s length of the parent company.

Today there are four main governance structures that healthcare companies make use of to manage their digital health business. In some companies all of these four governance structure co-exist or have been applied over time.

1. Central strategy units: A central team that typically sets guidelines and the strategic ambition of a healthcare company. The teams have been vital in educating the organization about the potential benefits of digital health solutions for the company and developing the first digital health roadmaps. Now the team role has shifted towards securing larger corporate deals and producing guidelines for the business units on how to manage digital health solutions.
2. Decentralized teams: A team or teams that sits within the business unit responsible for the business. Teams are typically more implementation focused with access to budgets and resources. Often teams report directly to the BU head or are organized into larger project teams that drive implementation of digital health solutions.
3. Partner ecosystems: Teams are typically set up to scout and contract a larger number of 3rd party solution providers. Companies that have implemented ecosystem governance structures often use accelerator or incubator concepts with a standardized partnership approach and value proposition.
4. Carve outs: Teams organized in a separate business unit or company to manage the digital health business. Typically used at a later stage of the digital health business pathway of a healthcare company to gain the flexibility and agility needed to drive new revenue streams from the digital health business. Managers typically report to the parent company board or to the business unit heads that work on most of the new digital health business.

All governance models can coexist within digital health companies or are applied over time.

Companies should choose the best governance structure based on their level of experience in developing and managing digital health products and solutions, the proximity of digital health to their core business, and the ambition to venture into new markets.

The digital health market is characterized by countless startups led by increasingly industry-experienced managers or owners. Healthcare companies should always keep this in mind and ask themselves via which governance structure they can compete best with the agile and entrepreneurial digital health companies. Many have therefore now opted for a cooperation model in the form of an ecosystem approach. Building digital health ecosystems requires a lot of time and effort. Successful ecosystems needed 3-5 years to arrive at a significant scale. (Get your copy of R2G’s whitepaper: Building Digital Health Ecosystems: The eight building blocks of a digital health ecosystem.)

R2G has helped healthcare companies worldwide to set up their governance structure to develop a successful digital health business. There is no one fits all solution. Companies need to set their goals first and then decide on their governance structure. We are happy to share our experience in building governance structures that work.