Traditional businesses know that if they want to survive the digital revolution, they need to make changes, but where should they start? Companies need to formulate new questions and test different options until they find what really works.
How can big data save a traditional company from certain death after it has suffered a 90% drop in profits?
This is the situation that Mediq faced in 2012. The company is a major drug retailer and distributor of pharmaceutical products from its warehouses and its network of 200+ pharmacies in the Netherlands. In 2012 the government modified the regulation related to pharmaceutical compensation: instead of being compensated from the markup on a product’s wholesale price, pharmacies received a fixed fee per product sold. This change resulted in an immediate 90% drop in Mediq’s profits. In order to survive, the company had to reinvent itself. It did so using big data.
Mediq’s solution was to harness the massive amount of patient information it had collected over the years. While it had not considered exploiting this information before the “big crash,” doing so now meant that Mediq had to completely change its focus and the way it functioned. The journey started from scratch with the company going back to its core to review its mission in order to embed digital into its genes and rebuild itself on solid foundations. The top management team explored and tested different options (explained later) until it reached a workable solution. Thus, Mediq’s main mission changed from packaging and distributing medicines and medical supplies to taking care of patients. The health care company placed the patient, rather than medicines, at its centre. Improving the quality of patients’ lives and avoiding unnecessary hospitalisations now drove the company’s activities. Without the huge amount of patient data to which the company had access, this would not have been possible.
The next step was to turn this great idea into a profitable new business model. Mediq used big data to estimate the annual hospital admissions due to medication misuse for each patient as well as the total cost that this represented for insurance companies. By tracking its customers’ medical treatments and offering advice, Mediq could reduce the number of these cases and the associated costs. The company approached insurance companies and convinced them to split the savings that Mediq’s new model could achieve. Once the new business model was operational, the earnings accounted for half of Mediq’s total profits.