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Defining The Business Value Of Technology
September 27, 1999
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Drug Companies Use IT To Cure What Ails Them
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By Lenny Liebmann
While grappling with ever-increasing price pressures, suppliers and distributors in the health-care market must also tackle the impact that the Web and E-commerce will have on their industry. On one hand, established players have to determine how to cope with the emergence of new Net-centric companies such as Drugstore.com. At the same time, they also have to respond to changes in patient care in the online future.
"Technology lowers barriers to entry for new firms," says Diana McKenzie, director of IT strategy and planning at Eli Lilly & Co. in Indianapolis. "And that can potentially affect the stability of those relationships."
But that doesn't mean every Internet startup should be viewed as a threat. "We don't necessarily see them all as competition," McKenzie says. "Many of them may very well present new opportunities for us."
Fundamental Changes
But for the pharmaceuticals business, the impact of Internet technology is likely to go way beyond the appearance of new retailers and distributors. It may also lead to more fundamental changes in how drugs are marketed, prescribed, and sold. One of the more radical scenarios Lilly's IT leadership team has considered involves a future in which patients are in complete control of their own health-care needs, with drug manufacturers essentially tailoring medications to the individual. In fact, according to McKenzie, pharmaceutical companies may move to technology-driven "disease management," which looks at the full range of information about the patient and the disease. "If you mine that data the right way, there's a lot of good stuff in there about patients and their reactions to treatment," McKenzie says. "And the industry as a whole is recognizing its potential business value."
Given these new imperatives, IT's role in the drug and medical industry has obviously changed considerably. "There's been an unbelievable change in attitude toward IT," says Faden of American Home Products. "Once upon a time, it was a source of pride that our IT expenditures as a percentage of net sales were the lowest in the industry. Over the last four years, we have tripled that number."
But increased IT spending is not always reflected in IT department budgets. For example, at Mallinckrodt Inc., a $2.4 billion supplier of specialized medical equipment and pharmaceuticals in St. Louis, new applications are so strategic they don't even come out of IT's budget. "All of our projects are funded by our business divisions," says Bill Wickenhauser, director of application services. "That forces unit managers to weigh
IT projects against other needs, like upgrading a manufacturing plant, which means you really have to link spending to business strategy." Wickenhauser also sees savings coming from lower IT housekeeping costs because of centralization and standardization. "If you take those reductions into account, you'll see that we've been able to increase what we can spend on applications that directly support the business at a rate far beyond the actual increase in our IT budget," he says.
Becton Dickinson has taken a similar approach to its Genesis project, applying costs and depreciation to the business units that are reaping its benefits. And, even though his IT budget is approaching 3% of revenue, Becton Dickinson's Levin says there have been cost reductions across the board. "We're committed to an 8% decrease in expenditures once this project is complete."
Besides budget numbers, IT's elevated role in the health-products industry can be measured by executive-level participation. "Our chairman told us, 'You are sitting at the table,'" says Demetrios Lappas, VP and CIO at Warner-Lambert Co., a $10.2 billion pharmaceuticals and consumer-products company.
According to Lappas, that shift adds another challenge for IT-developing the skills to work effectively with business management. "We have to address the people challenge, not only on the technical side, but also in terms of having the kind of leadership that can, in fact, sit at that table."
Heightened awareness of business issues also means IT managers have to think outside the technology box. "We also have to think about how much change the organization can really absorb," says Wickenhauser. "We have to ask, 'Are we going to kill ourselves if we try to do all these things at once?'"
With so much change afoot and demographics in their favor, IT managers in the pharmaceuticals industry have good reason to remain optimistic. "The population is aging and will continue to do so for many, many years," says Owens & Minor's Marston. "That means that our long-term prospects are very favorable."
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