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Course of Study:
(MIS712) Ebusiness Strategies
Title of work:
Strategies for e-business: creating value through electronic and mobile
commerce : concept and cases, 3rd (2014)
Section:
Case study 4 - American well: the doctor will e-see you now pp. 402--423
Author/editor of work:
T Jelassi, A Enders, FJ Martinez-Lopez
Author of section:
T Jelassi, A Enders, FJ Martinez-Lopez
Name of Publisher:
Pearson
MULTIPLE READINGS
Source: Jelassi, T, Enders, A & Martinez-Lopez, FJ 2014 Strategies for e-
business: creating value through electronic and mobile commerce:
CONCEPTS AND CASES, Pearson, United Kingdom.
Due to copyright compliance issues it is necessary to combine these readings into one
electronic file.
First Reading:
Case study 2
From e-banking to e-business at Nordea (Scandinavia): the worlds biggest clicks-
and-mortar bank
pp. 373-388
Second Reading:
Case study 4
American well: the doctor will e-see you now
pp. 403-423
Third reading:
Case study 15
Spreadshirt: mass-customization on the internet
pp. 577-596
Fourth reading:
Case study 19
Novartis SMS for life (A): a public-private collaboration to prevent stock-outs of
life-saving malaria drugs in Africa
pp. 639-652
From e-banking to e-business at Nordea {Scandinavia)
The world 's biggest clicks-and-mortar bank
This case study was written by Albrecht Enders, Research Fell ow at INSEAD (Fontainebleau), under the supervision of Tawfik Jelass i,
Affil iate Professor ofTechnology Management at INSEAD, and Charles Waldman, Senior Affil iate Professor of Marketing at INSEAD. It is
intended to be used as the basis for class discussion rather than to illustrate effective or ineffective hand ling of a management situation .
This case study was made possible by the cooperation of Bo Harald, Head of Electronic Banking at Nordea.
Copyrigh t fl;) 2004 IN SEAD, Fontainebl eau, France.
373
Part 4 Case studies
I
Finland Merita
1
Denmark Unidanmark } - Urn.d anmark
TRYG J
J Nordea
Vesta
Norway Christiania Bank
Og Kreditkasse
On completion of the merger process at the end 2002. Corporate and institutional banking accounted
of 2002, the market capitalisation of Nordea reached for 19%, asset management for 4%, investment bank-
12.6 billion, making it the fifth largest company in ing for 2%, and group treasury for 1%.
the Nordic region and the fifteenth largest bank in At the end of 2002, Nordea had 10.6 million private
Europe. Today, it is the largest financial group in the customers, which the bank considers to be its main
Nordic region with approximately 262 billion in total asset. Some 45% of the total population in the Nordic
assets. Its market share in the Nordic banking markets countries has either a main or secondary account
ranges from 40% in Finland, 25% in Denmark, 20% with Nordea. At least 3.2 million customers are active
in Sweden, to 15% in Norway. In the life insurance e-banking customers (see Exhibit 2). In addition to its
market, Nordea has a market share of 35% in Finland, retail business, the bank also serves 950,000 corpo-
10% in Denmark, 9% in Norway and 6% in Sweden. rate customers. Nordea employs 35,000 people and
Retail banking represents the most important busi- has 1260 branches throughout the Nordic and Baltic
ness area, constituting 74% of Nordea's income in region (see Exhibit 3).
To outline the bank's purpose and goals, Nordea
has formulated the 'Nordic Idea' and the 'Nordea
Exhibit 2 Evolution of Nordea customers
Vision'. Its Nordic Idea states that:
and e-banking
We share and exchange Nordic ideas.
(.0
12 0 We are Nordic in operations while personal and local
,..._ in delivering services. We think Nordic and act locally.
r 10
8
co
c.O
cO
Our market is of a size that makes it worthwhile to
c develop joint concepts, products and services. 4
~ 6
~ Nordea's Vision for the future is built upon three main
4
"": pillars:
q
2
We will be valued as the leading financial services
0
u..... Ol
z0al Ol
.-
co ~
co
al 0
.c C\J
0 ~o
Ill
(.)
0
~
ea
- 0
C!J C\J
Ct)
oo C\J
al 0
group in the Nordic and Baltic financial market
with a substantial growth potential.
c: + 1ii
Q) C\J
:
..... :::i 0 ~
Q) a.. 0 We will be at the top of the league or show superior
~ +
+ z
profitable growth in every market and product area
D Personal and corporate customers in which we choose to compete.
D e-Banking customers
Source: Nordea Bank. 4 Taken from Nordea company website.
374
Case study 2 Fro m e-banki ng to e-business at Nordea (Scand inavia)
Branch or subsidiary
e Associate bank
_..//.>
Moskva
:__..... ..
Berlin \ Radom ...
.. -...........
' . Fra~.~f~-~i"': .. >. . . / :
Luxemb~rg ,-::... :....."L:_,.......... ,.~~,- ............,_-_ ':
..
.. J - ~ : ,
We will have the leading multi-channel distribu- and white compared to the co lor Internet, but it was a start
tion with a top world ranking in e-based financial and it gave us the experience.7
services and solutions.5 Starting out early also helped to keep costs down.
Harald says:
1
Nordea s approach to e-banking e-Banking is not expensive if you start early and you bui ld it
up gradua lly.. . .. However, it can be very expensive if you
Bo Harald has been the main architect of Nordea's wake up in the middle when things are already happening,
approach to e-banking. He joined the Union Bank of because then you need to ask expensive con sultants for
Finland in 1975 after studying law and economics, and advice and you end up buying al l the expensive bells and
opened the bank's first foreign office in Luxemburg in whistles to outsh ine your competitors.
1977 and in Asia in 1980. His job assignments pushed With the advent of the Internet, Bo Harald became
him to use computers to carry out banking transactions: Head of Internet Services at Merita Bank with the
While away from home, I started using the computer to au- explicit mission to put as much business as possible on
thorize payments. The beginn ing of PC banking in 1984 was the Web in order to reduce costs and free up branch
a blessing for me. It became so much easier to do things employees to focus on selling complex, higher-margin
from a distance. 6 financial products.
Union Bank introduced electronic payment systems
and started to phase out cheques in 1982. 5 Taken from Nordea company website.
6 'Online extra: Q& A with Nordea's Bo Harald', Business
I think the secret of our success was to start early. We started Week online, 16 April 2001.
back in 1982 with te lephone voice commands. By 1984, we 7 'Online extra: Q& A with Nordea's Bo Harald', Business
added PC banking w ith a dial-up modem . It was like black Week online, 16 April 2001.
375
Part 4 Case studies
Nordea's e-banking strategy evolved through dif- someone on a high enough level who pushes e-business,
ferent stages. The first was the creation of an 'e-habit' then the CEO does not have to do it Actually, I am a little bit
afraid if CEOs become too obsessed with something. They
among its customers. To achieve this it was crucial
have such a big voice that it might be overdoing it. It must
to involve the 35,000 branch staff who enjoyed the be planted somewhere in the bank, and I have been lucky
trust of customers and were in frequent face-to-face to have that role at Nordea. I would love to have had more
contact with them. In addition, the bank strived to support in the past, though. We would have taken off much
keep e-banking simple to understand and use in earlier!
order to create a higher level of customer satisfac- While Nordea and other Scandinavian banks were devel-
tion. The underlying principle was that the bank's oping their e-banking know-how, their e-customers
website should be designed in a way that would be simultaneously built up other assets important for the
easy even for 65-year-old customers to understand. success of e-banking. These included 'e-trust' (in the
Harald explains: security and reliability of electronic banking channels)
I met the CEO of an important corporate customer. He had and 'e-habit' (the routine use of the Internet for bank
said before that he would never use a PC and that he would transactions).
never retire. Now, at the age of 78, he had decided to retire.
Then he came to me and said: 'Now that I am retired, I don't
have my secretary doing my banking transactions anymore, Sustaining Nordea's Internet lead:
so I have to do it myself. And I started using your Solo serv- from e-banking to e-business
ice [the Nordea online banking system] and it works ex-
tremely well.' Now he is really fond of our basic e-banking The e-trust and e-habit have prompted Nordea to
service. He is even talking about it to the people of his own leverage the competencies built up for its e-banking
age group. They tested it [Solo] themselves, and they also
services to also provide e-business solutions. In fact,
like it. That's how it works: first, our customers become be-
lievers [in e-banking] and then they become preachers.
Harald believes that e-banking alone is no longer a way
for a bank to differentiate itself from its competitors:
The goal of the second stage was to interconnect
e-Banking services are kind of passe. Every bank offers
customers by integrating the different banking
them. The really important thing is launching e-banking
channels: e-banking, mobile e-banking (or m-banking), services for e-business. It's a huge market! Banks are get-
branch-based banking, contact centre and providing ting their acts together but very slowly. So I am worried
different types of e-services such as e-payment, that banks are losing their opportunity to earn substantial
e-billing, e-signature, e-ID, e-salary and e-invoicing. income from e-business.
All the Internet services are concentrated in Nordea's Nordea started to move into e-business by leverag-
Internet bank, 'Solo', which provides the following ing the capabilities it had built up for e-banking. Bo
banking services: account management, transfers Harald explains:
between own accounts, domestic and foreign invoice
The underlying principle is that we try to reuse technologies
payments, equity (domestic and foreign), mutual funds
that we already have. For instance, we have file transfers for
and bond investments, electronically signed credit accounts, so why not have file transfer for bills as well?
facilities, as well as life and general insurance.
The goal of the third stage is to personalize fur- The main e-business services that Nordea currently
ther the e-banking services and customise offerings offers to its private and corporate customers include
by tapping into the value of data-mines. But for Bo e-identification, e-signature, e-billing, e-salary and
Harald, when developing new products and services e-payment.
at Nordea: 'We avoid asking customers directly. We
would rather use our colleagues and their experience e-ldentification
in the branches.' 8 Through Nordea's e-identification services, Nordea
Getting top-management support for e-banking customers can identify themselves on the websites
has not always been easy, Harald acknowledges: of other participating companies and governmen-
Either you have a CEO who supports e-banking right from tal agencies. For the latter, the Finnish Ministry of
the beginning and has the staying power to see it through,
or he lets you take care of it yourself. I can't say that our
CEOs early on were particularly excited about it. If you have 8 'Learn from the largest Internet bank of the world',
accessed atwww.tietoenator.lv
376
Case study 2 From e-banking toe-business at Nordea (Scandinavia)
Finance has officially stated that if customers need largest telecom operator in Finland, that customers
reliable identification, they can and should use the could get a loan online, they said: 'Look, if you can
bank's identification standards. For example, consider sign up for loans through your system, you should
the case of citizens who want to access the state pen- also be able to sign a phone subscription contract.'
sion system to find out the balance of their pension Within a few weeks, Nordea reached an agreement
in order to decide how much to save for retirement. with Sonera to send all interested customers an
Initially, they access the state pension system's web- online phone contract through a link to Nordea's
site with links to all major banks in Finland that pro- Solo Internet bank website where they could identify
vide e-identification services. They then choose their themselves and then sign the contract. This system
bank, access the respective website and identify them- was later extended to other businesses that wanted to
selves with their one-time password. Upon registering provide e-signatures for their contracts.
there, they can switch to other services, including the
state pension service, while staying within the identi-
fied area. 'This state pension site is accessed 2000 e-Billing
times a day', says Bo Harald. Through Nordea's e-billing services, companies can
send their invoices electronically to the bank, which
Our e-identification service is so convincing that the Finnish
post office has stopped its own identification service. They then forwards them to their customers who have
use banks because it's very expensive to have a reliable e-banking agreements, while those customers without
identification service only for the post office. Why should e-banking accounts automatically receive a printed
they do it themselves? invoice via the mail (see Exhibit 4). Customers who
get their invoice through their e-bank connection are
e-Signature asked: 'Do you want to pay this bill?'; they approve
The e-signature service came about 'by accident'. the payment with a mouse-click and the bill is paid.
When Bo Harald told executives from Sonera, the This service was first used in 1998 by Finland's main
377
Part 4 Case studies
telephone companies to send invoices to customers important reason for going into e-banking because each
via Internet. Bo Harald comments: and every company and governmental agency is increas-
ingly moving to digital value chains and the bank has a big
In Europe, there is a cost of $50 billion every year for role to play there for customer identification, direct payment
paper invoices. Who pays for that? In the end, it is always in real time, invoicing, e-salary, e-pension and e-signature.
the customer. We can eliminate that when we go to elec-
tronic invoicing. In Sweden, we are sending out invoice files
to a Nordea switch, which are then distributed to private Banking channels at Nordea
and large corporate customers [e.g. a telecom company
that sends invoices to its customers]. In the future, you will After introducing online banking in 1984, Nordea
see it with other banks as well. What's fantastic about this is continued to introduce new customer interfaces
that if you are an entrepreneur you can pay your bills online such as Internet banking, 1V banking, WAP-enabled9
and you can also send out your invoices easily and quickly.
The party that is sending the bills doesn't have to worry. Isn't
mobile phones and digital TV (see Exhibit 5).
that the obvious way? We are already sending these bills According to Bo Harald:
to other banks in Finland, Sweden, soon to other banks in
When adding channels, a bank's main goal should be to add
Denmark and Norway, and later to the rest of Europe. value ... But it is also crucial that all channels and services
have the same look and feel so as to offer customers a con-
sistent user experience. The key is to have one core to our
e-Salary electronic bank and then to keep adding doors to it.
Through the e-salary function, companies can send
Kaisa Juhanni, a Nordea customer from Finland, con-
income statements straight to the e-bank of their
siders Nordea's reliable multichannel services to be a
employees, thereby eliminating the need for printed
major asset of the bank:
salary statements sent via mail.
I like the quick and instant access without having to queue
If you have enough staff, say 10,000 employees, it makes up at a branch. I also like the flexibility of being able to do
sense for the employer to send out e-salaries instead of pa- my banking any time and any place, be it from home, the
per salaries. That's where getting to a critical size really starts office or through the mobile phone. The Solo system is
to matter. also very reliable. The system has probably been down just
once during the past six and a half years. Finally, Nordea
has also a very large installed base of users in Finland
e-Payment
which allows me to transfer money to them without any
Thee-payment function is an adaptation of the invoic- delays.
ing function, which online merchants on the Solo
platform can use for settling payments. It allows cus-
tomers to go to the website of any online store in the ATMs and pay terminals
Solo marketplace, place an order and click on a link Automatic teller machines (ATMs) and pay terminals
to Nordea's e-payment system where they request an still play an important role in cash withdrawal and
electronic invoice. After approving the payment with a other transactions. However, as card payments and
mouse click, the amount is instantly transferred to the Internet transactions become more important, the
seller's account. This method has a twofold benefit: role of ATMs and cash in general becomes less rel-
the merchant does not need to send out paper invoices evant (see Table 1). Bo Harald explains:
or to worry whether the buyer pays. To ensure that
In our Danish organization, we have the highest number of
there is no fraud on the merchant's side, Nordea con-
card payments per capita in the world; the second highest
ducts a reliability check on all 2000 merchants who is our Finnish organization. Actually, Finland has the lowest
sell goods in the Solo e-marketplace. Says Bo Harald: amount of cash in relation to GNP [gross national product].
As a result, ATMs have become less important. Earlier this
For corporate customers, the value of the Solo e-market-
year, we saw a fantastic development in Finland, which we
place grows exponentially with the increase in the number
consider as a laboratory. Compared to 2002, cash withdraw-
of retail customers ... We have achieved a critical mass
als have gone down by 15-16% in our branches and 8% from
among our retail customers so we now have people who
our ATMs. That's excellent because ATMs are very expensive:
want to buy all kinds of things - from CDs and stereo systems
to kitchen appliances and bicycles. That's what we need for
the e-marketplace. As part of this move into e-buslness, 9 Wap stands for Wireless Application Protocol, a secure
we see the evolution of value chains in which the banks specification that allows users to access information
are supplying essential parts. In the future, this is the most instantly via handheld wireless devices.
378
Case study 2 From e-banking toe-business at Nordea (Scandinavia)
c 2002
0
:;::
0
2001
~
~
... 1999
Q)
E
~::I 1998
()
1992
1982 Devices
you have to keep the money there, you need to protect them m-Banking
and sometimes they are destroyed. Cash is actually the most Nordea's wireless service started out with WAP phones
expensive way to pay for things. Transactions at pay terminals
in 1999. Through WAP-enabled phones, Nordea cus-
are also quickly decreasing. We have started to charge peop le
for using these terminals, so thi s year they shou ld go down tomers can track their account and credit card trans-
quite drastical ly.Just like ATMs, pay terminals are also unprof- actions, transfer funds between accounts, pay bills
itable. Actually, I don't want to see them at all five years from both domestically and abroad, trade equities and
now. People shouldn't be paying their bil ls in the street; th ey read customer mail. The WAP service extends to the
shou ld do it at home. Why shou ld people use cash at al l? It's
mobile phone Nordea's Internet services originally
unhygien ic, it's unsafe to carry around and there is a high risk
of counterfeit money. It's irrational! available through Solo. In 2000, Nordea introduced
stock trading and bank transfers via mobile phone and
fab le 1 Household transactions in Finland also made it possible for customers to purchase movie
tickets which are debited directly from their Nordea
Transactions % account. Adapting Internet services to the WAP cost
~~~~~~~~~-
(millions) change Nordea less than 500,000; it mainly required adding
1999 - a server for wireless services. However, Harald sees a
1999 2000 2001 2002 2002 lot of potential for wireless banking:
Manual transactions 184.9 163.9 141.0 125.3 -32.2 I firm ly believe that, with Nokia, Fin land wil l continue to
Pay terminals 35.5 35.6 34.3 31.7 - 10.7 play a leading ro le world-wide in mobi le phone technol-
ogy. I was recently on a trai n from Arlanda airport [in Stock-
Card payments 234.3 263.l 306.9 363.0 +54.9
ho lm] and I saw a group of teenagers all using their mobi le
Cash-withdrawal ATMs 197.9 202.5 207.2 204.4 +3.3 phones. These are our future customers. 10
Direct debit 69 75.3 78.5 81.5 + 18.1
Solo payments 32.7 58.2 78.2 97.6 + 198.5
Total 754.3 798.6 846.1 903.5 + 20
10 'Online Extra: Q & A with Nordea's Bo Harald', Business
Source: Nordea Bank. Week online, 16 April 2001.
379
Part 4 Case studies
In January 2002, Nordea expanded its wireless Nordea decided consciously to offer no consultation on
services by providing a more elaborate m-payment the Internet and very little on the phone. You must keep
your offer simple to succeed in Internet business and to
version for Finnish customers who have GPRS 11
gain the necessary confidence and trust of your custom-
handsets and are connected with Telia's, Sonera's or ers. That's difficult but necessary, and if your offer is simple,
Radiolinja's wireless communication networks. This you don't need to provide expensive instructions over the
service was made possible via a joint launch with Internet. For complex [financial] products, customers go to
Nokia of a dual-SIM 12 handset for mobile transac- the branch anyway. However, the shift of transactions to
electronic channels frees up resources for improved service
tions. The phone has two separate slots: one for the
levels in the branch.17
operator's SIM card, the other for the m-payment
card issued by Nordea, which is based on wireless Tuukka Seppa, a Nordea customer from Finland, is
identification module (WIM). 13 Harald believes that fond of Nordea's banking services:
customers should be free to choose the supplier of What l really like is the simplicity of the authentication proc-
their banking services: ess and the website itself. It is also very helpful that it offers
immediate transactions between two Nordea accounts.
You don't buy groceries from a furniture store, so why
should you buy your banking services from the mobile op- Today, all Internet banking activities at Nordea take
erator? Plus, it's really not a big deal nowadays to make a place through Solo, the company's online banking
handset with two chips. 14 service, which has become increasingly popular (see
Table 2). This is demonstrated by the following statis-
PC banking tics (figures correspond to the highest month of usage):
Wells Fargo, Citibank and Bank of America have, similarly, Student loans: 84% of all student loans are com-
as many customers as our Internet Bank 'Solo'. But with pletely paperless. Students apply online by provid-
124 million payments over the Internet in 2002, no other
ing information about their financial status and the
bank can keep up [with us]! This number might be about
twice as large as those of the previously mentioned banks loan is approved within one hour through a com-
combined. puterized scoring system. Once approved, students
(Bo Harald)1 5 sign by keying in their customer number once more
Online banking at Nordea started as early as the and a one-time password. 18
mid-1980s when Nordea allowed its customers to start Equity orders: 80% of all equity orders are made
doing transactions from computers at their workplace. through Solo.
Harald explains: Mutual funds: 65% of all mutual funds are man-
In the mid-1980s, people didn't have computers at home, aged by Solo.
and if they did, they didn't have modems. So we asked our
large corporate customers: 'Can't you allow your employees
to log on to their banking account through the workplace 11 General Packet Radio Service (GPRS) is a technology used
computer? That will save you a lot of time and money be- to send and receive data via packet delivery over a wireless
cause people won't have to go to the branch any more.' Ever network allowing the user to stay connected to the Internet.
since, workplace access has been a very important pillar for 12 A subscriber identity module (SIM) is the smart card
our e-banking. inside a mobile phone that identifies the user account
to the network, handles authentication and provides
e-Banking and bricks-and-mortar banking have never data storage for user data such as phone numbers and
been in competition at Nordea. Rather, they are con- network information. It may contain applications that
sidered to be complementary, as Harald emphasizes: run on the phone.
13 WIM allows users to identify themselves with digital
One of the main reasons for our success is the fact that we signatures to confirm their banking transactions.
made e-banking already part of our branch business in 1982. 14 'Two slots are better than one', Silicon.com, 23 May 2002.
We never considered it to be a competitor. e-Banking is not 15 'Learn from the largest Internet bank of the world',
a separate profit center. That is important in order to quickly accessed at www.tietoenator.lv
achieve a crucial size. Without the support of the branch 16 'Learn from the largest Internet bank of the world',
employees, one is not able to reach that goal. 16 accessed at www.tietoenator.lv
17 'Learn from the largest Internet bank of the world',
However, direct online consultation from bank employ- accessed atwww.tietoenator.lv
ees either in a branch or a call centre is kept to an abso- 18 For more information on the one-time password, refer to
lute minimum: the authentication section below.
380
Case study 2 From e-banking toe-business at Nordea (Scandinavia)
Table 2 Evolution of on line usage at Nordea not so far fulfilled the high expectations associated
with it. Says Bo Harald:
Jan-July 00 Jan-July 01 Jan-July 02 Jan-July 03
Clearly, every family has a TV in their house, so in principle
Log-ons it should work well ... but we believe that people just do
Denmark 6 091 418 8 924 759 11 721 765 14 659 759 not want to check emails or do their banking in front of the
Finland 17495518 20 582 125 24 671 753 28 199 328 whole family. Those are rather private things and that's why
Norway 1 595 000 3 562 704 4 528 822 6118 581 the TV in the living room is not well suited. That's the reason
Sweden 4 640 100 11 562 033 16 738 683 22 863 322 why we haven't invested more in this channel. We only offer
Nordea 29 822 036 44 631 621 57 661 023 71 840 990 basic services fore-payments. With the continuing conver-
gence of the TV and the PC this might change, though.
Online payments
Denmark 2773192 5 186 359 7 220 065 8 781 289
Finland 20 774 000 26 293 637 30 712 994 35 626 067
Norway 2 150 000 4 121 013 5 236 914 6 641 027 Branch-based banking
Sweden 6 660 147 18845501 25 202 502 31 401 953 The role of branch offices at Nordea has changed in
Nordea 32 357 339 54 446 510 68 372 475 82 450 336
recent decades. While in the past bank clerks spent
Source: Nordea Bank. most of their time keying in transactions manually,
this has drastically decreased (see Table 1). For 2003,
Bo Harald expects a further reduction of 20 million
manual transactions:
If every transaction takes one minute, what can you do
Foreign payments: 59% of all private and small with this time once customers start banking online? It frees
business foreign payments take place via Solo. up the branch staff to give customers advice. We use our
Customers key the account number of the recipi- branches primarily for establishing personal relationships
ent into their computer (or mobile phone) and the with our customers, which is important when making a big
money is received as fast as international transfers decision (such as purchasing insurance or a pension scheme)
that requires personal trust. In a sense, banking is local but
travel - within Nordea one day at most. Fees are it doesn't always require an expensive branch. Sometimes
15 in a branch and 7 for online payments. an office is enough. You don't have to offer transfers there
Currency deposits: 30% of all currency deposits take but you will never be able to replace either the personal
sales nor the fostering of personal relationships. To achieve
place through Solo.
this it is absolutely paramount not to create separate profit
Foreign exchange: 35% of all foreign exchange centres for Internet and branch banking because the two
transactions occur with Solo. have to feed each other. There mustn't be competition but
co-operation between the two channels. Combining and
Car finance: 25% of all car financing takes place leveraging high-tech and high-touch is the key to success.
through Solo.
Nonetheless, the number of Nordea branches in
Home mortgages: 24% of home mortgages come in Finland decreased significantly during the last decade -
through the Internet. down from 1300 in 1991 to 400 in 2000. The number
Bo Harald summarizes Nordea's challenge for of employees shrunk to less than half during the same
2005: 'All the numbers mentioned should be up to period, falling from 22,000 to 10,600 (see Exhibit 6).
80% or 90%. That's the challenge in our bank.' 19 Getting strong and influential labour unions to agree to
such staff reductions has not always been an easy task.
Bo Harald recalls:
TV banking
We had to speak to the unions in great length and we had
TV-based banking was launched in 1996 through
to hand out very generous packages since no employee
the use of a set-top box that connected to normal was actually fired ... But we also tried to show that Solo
household TVs. Through this box, Nordea customers [the Nordea Internet bank] had led to a great increase in
could log on to the Nordea banking system and carry customer satisfaction and that this would make Nordea a
out basic banking transactions. The underlying idea more competitive and stable institution in the future. We
was that those people who disliked computers would
use the TV to write emails and to check their account 19 'Learn from the largest Internet bank of the world',
balance. However, as it turned out, TV banking ha,S accessed atwww.tietoenator.lv
381
Part 4 Case studies
also showed the [labour] unions that Finland is absolutely Because of its large size, Nordea takes a mass-
world-class when it comes to Internet banking and that it market approach to its banking activities. Bo Harald
was necessary to make changes in our organizational struc-
explains:
ture in order to maintain this lead. Finally, we pointed out
that it was problematic to have people do this type of man- If you are as big a bank as we are, you can't afford not to
ual, repetitive, low-paid work and that it would be much target all customers ... There is also a misconception that
more valuable if we educated these people to do a more there is a clear distinction between profitable and unprofit-
creative and interesting job. able customers. Of course, there are customers who come
to the branch every day. They are unprofitable, but there
Today, Nordea operates 1,288 branch offices through-
is no way to get rid of them, so you might as well not even
out the Nordic region and employs 34,600 people try. Another typical feature of less profitable customers is
(full-time equivalents). In addition to the Finnish that they are young. However, soon enough they'll need a
branches, there are 267 branches with 8,500 employ- mortgage and a retirement plan. If you look at the older
ees in Sweden, 151 branches with 4,400 employees in segments, you don't find that many unprofitable customers.
Thus, when you want to talk about profitability, you really
Norway and 348 branch offices with 9,400 employees
need to take a dynamic view of customers.
in Denmark Says Bo Harald:
In its marketing activities, Nordea differentiates
We have been cutting branches for a long time, partly
between two types of customer:
thanks to mergers and now thanks to the internet ... Finland
used to be over-branched, but now it is almost under- Internet believers. These customers have been
branched. The future is to change the way branches work:
online for years and have the know-how and trust
we are now opening teller-less branches in places such as
shopping centers. The idea is to use the branch to sell and to navigate the Internet, to shop online and to
provide services, not to make transactions. The branch staff do their banking online. To them e-banking is a
should add value for customers. They shouldn't do routine, normal day-to-day activity; something that is not
uninspiring work. 20 worth talking about with their friends. From a mar-
keting perspective, these customers are therefore
considered to be 'infertile'.
Marketing
Non-believers. These customers are just starting
Due to its early start in e-banking, Nordea has spent to surf the Internet. They require substantial con-
little on marketing its Internet initiatives in com- vincing to build enough trust and know-how to
parison with other online banks. From 1996 to 2001, start doing e-banking. Friendly branch employees
Nordea spent about 18 million to market its Finnish are best suited for removing that insecurity. Once
Internet initiatives. This money was not directed pri-
marily towards attracting new customers but instead
towards getting the nine million branch customers to
20 'Online extra: Q & A with Nordea's Bo Harald', Business
move to the Internet. Week online, 16 April 2001.
382
Case study 2 From e-banking to e-business at Nordea (Scandinavia)
383
Part 4 Case studies
384
Case study 2 From e-banking toe-business at Nordea (Scandinavia)
is that you always need to carry the pass-code list with Applications: roughly 9,000 applications.
you in order to access the service.' Networks: four different branch networks.
For the future, Nordea plans to develop a public-
key infrastructure (PKI) 26 that would allow customers Since then, Nordea has undergone efforts to integrate
to log on to PCs or mobile phones using smart-cards the various IT systems and organizational structure to
equipped with chips. streamline its activities. For example, real-time process-
ing systems, which have been in place since 1985,
Technology needed to be aligned. On the organizational side, the
changes are reflected in the increased importance of the
The evolution of the technological platform at Nordea- group processing and technology unit (see Exhibit 7).
the backbone of all its e-banking operations - has been The electronic banking and production and productivity
strongly influenced by the original individual banks units were moved over from retail banking. The cor-
which all had different technology platforms. For porate and institutional banking unit handed over the
instance, the Finnish Merita bank had an e-banking
infrastructure that allowed customers to log on to
their system with just a browser and a simple pass-
word system. At the Swedish Nordbanken, on the 26 Public key infrastructure is an electronic framework for
other hand, customers needed to install special soft- trusted security. Participants in a PKI each obtain a dig-
ware and get a smart-card reader before going online. ital certificate from a trusted certificate authority (CA),
which then authenticates their identity when initiating a
After the completion of the merger, Nordea was secure transaction. Individual transactions are encrypted
faced with a very complex IT infrastructure which by each participant using their own pair of electronic
included the following: keys, one of which they keep for their own private use,
while the other - the 'public key' - is made available to
Production: four main production centres with other participants. PKI has been widely adopted as the
multiple platforms. basis for secure Internet and web services transactions.
Nordea
Production and
productivity
Global operations
services
385
Part 4 Case studies
386
Case study 2 From e-banking to e-business at Nordea {Scandinavia)
try to set up an Amazon.com-type bank any more. It's just Come and do your banking with us on our great website!' -
too expensive and it doesn't work in our business. 28 what would people say? That's why we have never tried to
penetrate foreign markets where we don't have a physical
Customers who have been clients of Nordea for a long branch network.
time are a major asset for the bank. Tuukk.a Seppa said:
In addition to expanding geographically, another
Initially, I was a customer of Kansallis-Osake-Pankki (KOP), main growth area for Nordea is expanding its service
which became Merita in 1976. For personal purposes, I
started using the Solo online service in 1995. Through it I
range:
pay all my bills, review my account transactions as well as Even in our Finnish market, we can expand quite a lot by
my credit card charges. I also use it to authenticate access to offering new services that we didn't have before. If you look
my electronic mailbox which is hosted by the Finnish Post. 29 at these services, you can only offer some of them over the
Internet, but not at a branch. For instance, customers won't
Where will new competition for Nordea come from?
come to the branch to check the balance on their credit
Will it be from software houses, large international card but would like to do it through their mobile phone.
banks (such as Citibank or Deutsche Bank) or others?
Bo Harald replies: For Nordea, there are two promising future e-business
opportunities. First, to develop further customer rela-
These companies don't have the local branch structure tionship management, the bank is turning towards
and they don't have our cost-income ratios ... Telecom
operators that have very broad access to their mobile
triggered data mining, which works as follows: when
phone customers might enter the competition. there is a change in a customer account - for instance,
a large incoming money transfer, change of address or
However, contrary to popular belief, he does not
marital status - a trigger in the database is set off and
believe that customer retention has gone down as a
informs the bank of the change, which then raises a
result of e-banking:
number of questions: what does it mean for financing,
The idea that the next bank is only one click away is abso- for long-term payments, for insurance and e-services?
lutely not true. To become a customer, you need to go to
Based on the answers to these questions, Nordea
the bank and open up an account. When you are used to
one system, you don't want to change.
plans to make an offer either via mail or face-to-face
in a branch. While Bo Harald sees substantial value in
this approach, he wants to go a step further:
Growth opportunities Triggered data mining is not enough because it looks into
the past. Instead, we should ask the customer directly: What
In its domestic markets, where Nordea operates its are you going to be doing next? What's your next life event,
branch network, there is limited opportunity for as we call it? For instance, the most important thing that can
growth. Bo Harald explains: happen to a man in Finland is the purchase of a new car. We
want to invite the customer to tell us about it and then ask
We can't grow very much in Finland. In Sweden, we are the
ourselves: What can we do? What can the private sector do?
second biggest bank. In Denmark and Norway, we are still
What can the public sector do? Well, he'll have to look for a
too small in private and corporate banking, which leaves
car. Our Solo partners can send him car offers. He'll have to
plenty of room for growth. In neighbouring markets such
buy the car and sign a contract - this can be done through
as Estonia, we are already the third largest bank with sub-
e-signature. He'll have to pay for the car - this opens up
stantial growth potential. In Poland, we bought four banks,
the opportunity for financing arrangements. He'll have to
which we now need to consolidate before we can start
have his car inspected - again an opportunity for one of
thinking about further growth. our partners on the Solo marketplace ... Of course, when
Moving into other European markets as a puree-bank we think about these services, a major concern is always
the issue of data privacy, to which we are very sensitive.
without a branch network is not a real option for
Nordea never shares any information with anyone outside
Nordea: the bank. Customers voluntarily decide to share informa-
As a pure play, you might be able to attract the tech-savvy tion with, say, the car seller. During the initial stage it's even
people who are constantly checking interest rates. Those possible to have a protected identity which is unknown to
guys easily sign up for anything new but this market seg- the merchant.
ment is very small. Our experience has been that if you don't
have a strong brand name and a solid branch structure that
allows you to get in personal contact with your customers, 28 'Online extra: Q & A with Nordea's Bo Harald', Business
you will have problems addressing the mass market. I mean, Week online, 16 April 2001.
if we went to southern France and said, 'Hi, we are Nordea. 29 Personal interview, 5 October 2003.
387
Part 4 Case studies
The second major opportunity is risk management which fell by 4% while expenses increased by 2%.
services fore-businesses: However, Harald believes that another important fac-
In the electronic world, business partners do not know
tor is that investors do not value e-banking activities
each other well. At the same time, market volatility is very appropriately at the moment:
high, which has led to numerous big crashes. Therefore
Those who know e-banking know that we are the number
you shouldn't trust anybody. To accommodate this you can one in the world. During the dot.com bubble we had invest-
either use direct payment [e-payment as explained above]
ment bankers and analysts here every single day- I could've
or get credit ratings. Today. most companies have a lot of spent all my time just talking to them! They told me: 'You
people working in risk management. They pay tens of shouldn't really be classified as a bank, you should be an IT
miHions for credit information and insurance in order to
company and have a valuation that is ten times higher than
reduce credit loss. In general this works well but it raises the your current valuation.' Actually, our valuation went up quite
question: How much should you pay? If you could use the
a bit. But now, how many analysts come to see us? What 1
bank's knowledge and its ready-made credit information
am complaining about are the analysts. Now that the real
and integrate it into the billing process, you could save a thing is happening, why are they not interested in it? They
lot of money. That's what we plan to make available in the
were only interested in sensation. The underlying problem
future. Every company in the world has a bank and usually is that people tend to overestimate new technology in the
the bank has made a credit evaluation of that company and
short run but underestimate its influence in the long term.
established a credit line. These banks have the most in-
depth information and therefore it's probably the best credit Regarding the future, he sees the importance of
evaluation anybody can get. If all banks made these evalu- e-banking and e-business in a broader perspective:
ations available electronically by issuing trade-related bank
guarantees on the Internet, companies could save a lot of Getting people accustomed toe-banking is really a social task
money. It would be a lubricant on thee-business machinery. to make Europe more competitive. We can't afford not to do
This is a very obvious idea but sometimes the things that are it. e-Banking services can be used to make people more pro-
so simple and self-evident don't take off. That's the way the ductive to compete with the US and the Far East. Due to our
world works - never quite perfectly. high costs and our powerful [labour] unions, we can't afford
not to increase productivity. To achieve this, the all-important
thing is the national resource of e-habit that we have been
Future outlook building up [over the years]. That's the key to the future. None-
theless, you can't plan or foresee the future, you can only cre-
In spite of its successful e-banking and e-business ini- ate it - and that's exactly what we want to do at Nordea. 30
tiatives, Nordea's stock performance has been below
average in the last few years, falling 28% in 2002. This 30 'Learn from the largest Internet bank of the world',
was due, in part, to a drop in the bank's total income accessed at www.tietoenator.lv.
388
American Well
The doctor w ill e-see you now
On a crisp morning in November 2009, Ida Schoenberg and telephony to connect physicians and patients,
was walking briskly through Boston's Logan Airport within minutes in real time. Since its founding, the
when he spotted his brother, Roy Schoenberg, stand- company was successful in developing the necessary
ing in line to board a flight to Washington, D.C. technology platform, and its efforts to market the
The two brothers, cofounders of American Well, vision to major health insurance companies (also
the Online Care company, were taking a flight to called health plan providers) in the U.S . had started to
Washington to deliver a presentation at the World yield results. In fact, Blue Cross Blue Shield of Hawaii
Health Care Innovation and Technology Conference was the first to roll out the service earlier in the sum-
(WHIT) . With the debate over health-care reform rag- mer on a statewide basis, and so far the implementa-
ing in Washington and with Bill Clinton as the keynote tion of the platform had gone well.
speaker, this year's conference was sure to be a big American Well management faced several press-
event. As the flight lifted off, the view from the plane's ing questions regarding where the company should
window revealed the historic Boston cityscape, where go next. Although focusing on a nationwide rollout
many significant events leading to the American and adding more health insurance companies to the
Revolution had taken place. But as they settled in for service would be a monumental task for any start-up
the short 90-minute flight, Roy and Ida had a different company, Ida and Roy were already considering new
revolution on their mind. applications for their platform. Being well aware
Just three years ago, Ida and Roy founded American of the first-mover advantage that American Well
Well in an attempt to forever change health-care enjoyed, they were thinking about the next service
delivery and improve the way patients interact with concept, called "Team Edition." While the service
physicians. Traditionally, patients had two primary offered in Hawaii facilitated connectivity between
choices when seeking medical care - to show up at an patients and physicians, the next generation of serv-
emergency room or a similar acute-care facility, or to ice, if developed, would add connectivity between pri-
submit themselves to the schedule of their physician, mary care physicians (PCPs) and specialists. Patients
which could result in weeks of waiting for an office would no longer have to wait for weeks to see the
visit. American Well's vision was to use the Internet specialist and then more time before coming back to
Professor Elie Ofek and Dr. Ron Laufer, Adjunct Professor, Indiana Un iversity Ke lley School of Bus iness, prepared th is case. HBS cases
are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or
illustrations of effective or ineffective management.
Copyright 2010, 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-S45-7685. write Harvard Business
School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted , or
transmitted, without the permission of Harvard Business School.
403
Part 4 Case studies
their PCP for follow-up. Instead, Team Edition would Exhibit 1 U.S. health expenditures by source of funds,
connect the PCP and specialist instantly during the 2008 ($ billions)
patient's initial office or online visit.
Ido and Roy were also contemplating new cus- 2008
tomer segments for American Well's platform, includ-
Private
ing hospitals, retail clinics, and pharmacies. While the
Consumer out-of-pocket $277.8
platform held the potential to boost efficiencies and
Consumer private health insurance $783.2
revenues for each of these would-be customer chan- Other private (e.g., philanthropic sources) $171.1
nels - and for American Well-pursuing these markets
would divert resources from the company's existing Public
404
Case study 4 American Well: the doctor will e-see you now
Exhibit 2 U.S. health expenditures by type, emergency rooms often served as the main source of
2008 ($ billions) care. There were regional shortages of some special-
ists (e.g., mental health, obstetrics, and gynecolo-
gy); as such, the patient experience of receiving care
2008
varied between and within states. Insufficient access
Hospital care $718.4
to care was especially problematic in rural areas,
Physician, clinical, and other professional $561.9
where provider shortages, low population density,
services
and disproportionate reliance on self-employment
Dental services, other personal health-care $169.3
and low-skill jobs - which had low rates of employ-
Horne health-care $64.7 er-sponsored health insurance - created barriers
Nursing home care $138.4 to care. 10
Prescription drugs $234.1 The U.S. system for financing patient care was
Durable medical equipment, nondurable $65.5 a complex web of public (federal and state) and
medical products private-sector payors. Coverage requirements, pre-
Gov. admin and public health work, $229.0 mium limits, reimbursement levels (for Medicaid),
private insurance net cost and other constraints imposed on insurers varied
Investment in research, structures, and $157.5 by state. As of 2008, 53% of health spending was
equipment funded by private payors, including health insurance
Total health expenditures $2,338.7 companies, individuals, and philanthropic sources. 11
Health insurance companies offered several types of
Source: Adapted from "National Health Expenditure health plans at different price and coverage levels.
Data-Historical-NHE Web Tables (Table 2)," Centers for Individuals with private coverage either purchased
Medicare and Medicaid Studies, http://www.cms.hhs.gov/ plans independently or received coverage through
NationalHealthExpendData/02_Nationa1HealthAccountsHistorical
.asp#TopOfPage, accessed December 2009.
their employer. Most firms with 50 or more workers
Note: Numbers may not add to totals due to rounding. offered health coverage; smaller companies were less
likely to do so. 12 The format of employer-sponsored
405
Part 4 Case studies
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Source: "Fast Facts- Costs/Insurance-Commun ity Hospital Payment-to -Cost Ratios, by Source of Revenue, 1980- 2007," Kaiser Family Foundation,
http://facts.kff.org/chart.aspx7ch= 179, September 16, 2009, citing American Hospital Association and Aval ere Health analysis of 2007 American
Hospital Association Ann ual Survey data, for community hospitals, Trendwatch Chartbook 2009, Trends Affecting Hospitals and Health Systems,
Table 4.4, p. A-35, accessed December 2009.
'Note: Ratios illustrate the extent to which each payors' reimbursement to hospitals covered the hospitals' cost of providing patient care. They
cannot be used to compare payment levels across payors, however, because the service mix and intensity vary. Medicaid includes Medicaid
Disproportionate Share payments.
insurance varied, but typically involved employees that 14% of Americans did not see a doctor due to cost
paying a portion of premiums (periodic payments to concerns in 2008.14 This was even true of many who
the insurer) and employers covering the rest. In 2009, had insurance, because their plans had high deducti-
the average annual premium for employer-sponsored bles - the required out-of-pocket payment before
insurance was $4,800 for individuals (17% paid by insurance kicked in - or had limits to the services or
employee) and $13,400 for family coverage (27% dollar amount that would be covered.
paid by employee) .13
The balance of health spending (47%) came from
Health-care IT background
public payors, chiefly Medicare (federal program for
Americans age 65 and over) and Medicaid (state pro- American Well's novel service model, which the com-
gram for eligible low-income and disabled residents), pany termed Online Care, came on the heels of a
as well as the Department of Veterans Affairs (for mili- number of developments in the use of telecommuni-
tary personnel) and SCHIP (State Children's Health cations and computer-based tools to collect, manage,
Insurance Program). In some cases, public payors did and communicate health-care-related information
not cover the full cost of care delivery, leading provid- and transactions. Examples included computerized
ers to rely heavily on revenues from privately insured decision-support and order-entry systems for physi-
patients. (See Exhibit 3 for community hospitals' cians, electronic health or medical records (EHRs or
payment-to-cost ratios from different payors from EMRs), and tools for searching for health informa-
1980 to 2007.) tion (e.g., WebMD). Patients' use of health-related
Patients without health insurance - about 17% of
Americans under age 65 - paid for care out of pocket 13 "Employer Health Benefits - 2009 Summary of Findings."
and, in many cases, went without: one survey found 14 "State Health Facts - Providers & Service Use."
406
Case study 4 American Well: the doctor will e-see you now
Exhibit 4 Private health insurance net administrative costs' per person covered, 1988 to 2008 ($)
r
$500 $471
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
1988 1992 1996 2000 2004 2008
Source: Adapted from "Fast Facts- Costs/Insurance-Private Health Insurance Administrative Costs Per Person Covered. 1986-2008," Kaiser Family
Foundation, http://facts.kff.org/chart.aspx?ch=217, January 7, 2010, citing the KFF calculations NHE data from Centers for Medicare and M edicaid
Services, Office of the Actuary, National Health Statistics Group; and private health insurance en rollment data from Centers for Medicare and
Medicaid Services, Office of the Actuary, National Health Statistics Group, accessed February 2010.
' Note: Data show the net cost of private health insurance per private enrol lee {includi ng Blu e Cross/Blue Shield, commercial insu rance, HMOs,
and self-insured plans). as calculated by the Centers for Medicare and Medicaid Services (CMS). Net cost of insurance is the difference between
premiums earned and benefits incurred, and incl udes insurers' costs of paying bills, advertising, sales commissions, and other administrative costs;
net add itions/subtractions from reserves; rate credits and dividends; premium taxes; and profits or losses. Private enrollment is estimated by CMS
using the National Health Insurance Survey and the Current Population Survey.
websites increased through the 2000s, and by 2006, online communication was on the rise: one survey
80% of respondents to a survey of Internet users of Internet-using physicians in the U.S. noted that
reported searching online for health-related informa- from 2001 to 2008, physicians who communicated
tion.15 Other electronic exchanges included bill-pay with patients online increased from 23% to 36%. 17
services, appointment scheduling, and communica- Some data suggested online communication created
tion of lab results. Many of these innovations aimed efficiencies by reducing the number of patient visits
to reduce the administrative burden facing provid- to physicians and decreasing the volume of phone
ers and payors. (See Exhibit 4 for private insurance calls to physicians' offices; for example, a 2007 study
administrative cost data.)
Electronic patient-physician interaction 15 "US Internet Users Who Have Searched Online for
Health Information, 1998-2009 (%of respondents)," via
By the mid-2000s, patients and physicians were eMarketer Digital Intelligence, accessed December 2009.
becoming more comfortable communicating elec- 16 "Is There a Doctor in the Chat Room? " October 4, 2006,
tronically through e-mail and secure messaging (also via eMarketer Digital Intelligence, accessed December
referred to as e-visits). In 2006, a survey found 2009.
that 74% of respondents wanted to communicate 17 "US Physicians Who Own a PDNSmartphone, 2001-
2008 (%of respondents)" and "US Physicians Who
with their doctors using e-mail, but only 4% were Communicate with Their Patients Online, 2001- 2008
actually doing so, largely because such a service (%of respondents)," via eMarketer Digital Intelligence,
was not offered. 16 Concurrently, physicians' use of accessed December 2009.
407
Part 4 Case studies
Exhibit 5 Survey responses by U.S. consumers on advantages of e-mailing their PCP or family doctor regarding
an illness or condition, August 2009 {%of respondents)
It is less embarrassing
Source: "Hassle-Free Healthcare, Delivered Digitally," November 9, 2009, via eMarketer Digital Intelligence, citing "Consumers Would Embrace
Email Communication with Their Doctor," Lightspeed Research press release (Basking Ridge, NJ, September 29, 2009), Chart 2, p. 2,
http://www.lightspeedresearch.com/pdf/LSR_PR_ConsumersWould EmbraceEmailCom mu nication.pdf, accessed December 2009.
Note: n = 1,000
of Kaiser Permanente, a large health-care system, in 1996 to address privacy and security risks stemming
found that e-mail-using patients were 7% to 10% less from increasing use of electronic channels to transmit
likely to schedule an office visit, and physicians offer- patient information. The act applied to providers,
ing e-mail communication received about 14% fewer insurance companies, group health plans, govern-
phone calls. 18 (See Exhibit 5 for consumer attitudes ment payors, and health-care clearinghouses (entities
about e-mailing their PCP in 2009.) that processed other entities' health-care transac-
Yet, many doctors were reluctant to engage tions). 20 HIPAA's Security Rule set national standards
patients via e-mail, as an April 2008 article noted: for protecting electronic health information, and its
Some [physicians] say they worry it will increase their work- Privacy Rule dictated how patient information could
load, and most physicians don't get reimbursed for it by
insurance companies. Others say they fear hackers could
compromise patient privacy - even though doctors who
18 "Patient E-Mail Cuts Office Visits," July 10, 2007, via
do e-mail generally do it through password-protected Web
eMarketer Digital Intelligence, accessed December 2009.
sites. There are also concerns that patients will send urgent
19 Alicia Chang, "Is Medical Advice Just an E-mail Away?
messages that don't get answered promptly. And any prob-
Not for Many; It's No LOL: Few US Doctors Answer
lem raises the specter of legal liability. 19
E-mails from Patients," The Virginian-Pilot & The
Ledger-Star, April 23, 2008, via Factiva, accessed
HIPAA January 4, 2009.
20 "Understanding HIPAA Privacy," U.S. Department
The market success of health-care IT innovations
of Health and Human Services Office of Civil Rights,
depended on their compatibility with HIPAA (Health http://www.hhs.gov/ocr/privacy/hipaa/understanding/
Insurance Portability and Accountability Act), enacted coveredentities/index.html, accessed January 2010 ..
408
Case study 4 American Well: the doctor will e-see you now
be used and disclosed. 21 Since1996, HIPM had been between patients and providers. In 2006, McKesson
revised in light of technological advancements, but Corporation, a health-care IT and automation supplier
users of new health-care IT remained wary about acquired RelayHealth. Bymid-2009, 50 health-care sys-
HIPM compliance and malpractice risk. tems and hospitals had contracted with RelayHealth. 26
Payment Medfusion
Physician adoption of new technology was also con- North Carolina-based Medfusion, founded in 1996,
tingent upon payors' willingness to reimburse for also facilitated online physician-patient communi-
electronic communication with patients. Physicians cation through its Virtual Office Suite, a secure,
were typically reimbursed on a fee-for-service basis. HIPM-compliant web-based platform through which
For classification and billing purposes, services were physicians could connect with patients by phone or
"coded" by the American Medical Association (AMA) online. 27 This included appointment requests, bill
in conjunction with federal payor agencies. AMA payment, prescription renewal, and other services.
assigned a descriptive phrase and numeric code to each Medfusion also offered virtual office visits, employing
medical service, and issued new codes periodically as an interactive questionnaire similar to that used by
the nature of services evolved. Payors would not reim- RelayHealth. 28 In 2009, Medfusion served more than
burse services without a code. As such, the issuance of 28,000 physicians, including over 4,000 practices,
codes was critical to the success of new health-care IT in various specialties across the U.S., and had over
innovations. In 2009, codes had been issued for some 1 million patient accounts. 29 "We are committed to
forms of health-care delivery via IT platforms, and the
number of health insurance companies covering such 21 "Security 101 for Covered Entities," HIPM Security
care was increasing. However, most insurers remained Series 2, no. 1 (revised March 2007): 1-4, Centers for
reluctant to cover online services due to concerns over Medicare and Medicaid Services, http://www.hhs.govI
security, privacy, and uncertain patient demand. 22 ocr/privacy/hip aa/administrative/securityrule/
securitylOl.pdf, accessed December 2009.
22 Jonnelle Marte, "Doctor Is In - Online," Wall Street
Journal Online, August 9, 2009, via Factiva, accessed
Recent developments in health-care
June 2010.
prov1s1on 23 "Future Health 100 - Giovanni Collela," http;//healths-
pottr.corn/fhlOO; and "Contact Us," RelayHealth web-
Tele-medicine services
site, https://www.relayhealth.com/ general/contact Us/
The term "tele-medicine" described a range of pro- default.aspx, accessed January 2010.
grams and services that involved health-related elec- 24 Anna Wilde Mathews, "The Doctor Will Text You Now;
tronic exchanges with the objective of improving Patients Visit With Their Physicians Online as More
patient care. A number of companies offering such Insurers Begin Paying for Digital Diagnoses," Wall Street
Journal Online, July 9, 2009, via Factiva, accessed
services are described below. December 2009; and "Patient Quick Tour," RelayHealth
website, https://www.relayhealth.com/ general/
onlineQuickTour/html/PatientQuickTour.html, accessed
RelayHealth January 2010.
Founded in 1999, Georgia-based RelayHealth offered 25 "Provider Quick Tour," RelayHealth website, https://
online solutions for facilitating patient-physician com- www.relayhealth.com/general/onlineQuickTour/html/
munication.23 Through RelayHealth, patients could ProviderQuickTour.html, accessed January 2010.
26 "RelayHealth; 50 Health Systems and Hospitals Use
schedule appointments, update their health records,
RelayHealth's Information Exchange Capabilities to
and request lab results, prescription renewals, and Create Connected Communities," Biotech Week,
referrals. For nonurgent issues, patients could com- October 28, 2009, via Factiva, accessed January 2010.
plete interactive online questionnaires describing their 27 ''About Medfusion," Medfusion website, http://
symptoms; 24 this information was then transmitted to medfusion.net/medfusion_about.html; and "Corporate
Overview," Medfusion website, http://medfusion.net/
the patient's physician, who determined whether an
docs/MF%20Co%200verview%200707. pdf, accessed
in-person office visit was necessary. 25 Most provid- January 2010.
ers replied within eight business hours. RelayHealth 28 Mathews, "The Doctor Will Text You Now."
pioneered the use of secure (HIPM-compliant) e-mail 29 "Corporate Overview," Medfusion website.
409
Part 4 Case studies
meeting our clients' demands to optimize communi- whose provider network included nearly 600,000
cation with their patients .... [Medfusion offers] a physicians and 5,000 hospitals. 36
self-service technology providers want to make avail-
able to their patients so that patients can be more Convenient "Offline" care
involved in their care," noted Medfusion CEO Steve Nurse practioners (NP)
Malik in 2009. 30 The idea for NPs was conceived in the 1960s to
address the problem of PCP shortages in rural areas.
TelaDoc NPs underwent more training than registered nurses
Founded in 2002, TelaDoc offered patients year- and were licensed to perform many of the same tasks
round, 24-hour by 7-day phone access to a network as physicians. 37 In 2009, NPs worked in numerous
of physicians in a call center model. 31 In a 2007 settings, including hospitals and emergency rooms,
interview, TelaDoc CEO Michael Gorton described private practices, retail clinics, nursing homes, and
the question that had driven the creation of TelaDoc: schools. In addition to clinical care, NPs engaged in
"What percentage of primary care visits could be han- health promotion and education, disease prevention,
dled with just a telephone and an electronic medical and counseling. Each year, NPs engaged in approxi-
record?" 32 The company suggested patients use the mately 600 million patient visits. 38
service when their PCP was unavailable (e.g., after
normal office hours), when traveling, for short-term 30 "Medfusion Maintains Leadership in Patient Portal
prescription refills, and to obtain physician advice to Performance," Medfusion press release (Raleigh, NC,
December 18, 2009), http://www.medfusion.net/docs/
supplement that provided by their PCP. To request a Medfusion%20Maintains%20Leadership%20in%20
medical consultation, which cost $38 or less, TelaDoc's Patient%20Portal%2012-17-09F.pdf, accessed January
more than 1.6 million "members" could access their 2010.
online account or call TelaDoc. 33 After reviewing the 31 "What Is TelaDoc?" TelaDoc website, http://www
request and the patient's EHR, a physician licensed .TelaDoc.com/what-is-TelaDoc/; and ''About TelaDoc,"
TelaDoc website, http://www.teladoc.com/
to practice in the patient's home state phoned the aboutteladoc/overview/, accessed December 2009.
patient, typically within one hour. 34 After the consul- 32 Michael Gorton, as quoted in "Interview: Michael
tation, physicians updated the patient's EHR, which Gorton, TelaDoc," Scribemedia.org citing Consumer
could be viewed online by the patient and her PCP. Heath World, January 2007, http://health.scribemedia.
org/2007/01/15/michael-gorton-interview/, accessed
January 2010.
Cisco TelePresence 33 "What Is TelaDoc?" TelaDoc website.
34 "How Does It Work?" TelaDoc website, http://www
Founded in 1984, Cisco was a leading global provider .TelaDoc.com/how-does-it-work/, accessed January
of networking technology. 35 Cisco's TelePresence, 2010.
which enabled live video conferencing and collabo- 35 "Fact Sheet," Cisco website, http://newsroom.cisco.
ration, was adapted to the health services setting to com/dlls/ corpinfo/factsheet.html, accessed March
create HealthPresence, which combined TelePresence 2010.
36 Chris Payatagool, "UnitedHealth Commits 'Tens of
with medical devices to enable real-time interaction Millions' to Cisco TelePresence Health Initiative,"
between health-care providers and patients. Using Telepresence Options website, http://www.
HealthPresence, patients could interact with physi- telepresenceoptions.com/2009/07/unitedhealth_
cians over video conference while also sending data commits_tens_of_m/, accessed March 2010.
(e.g., blood pressure) collected from medical devices 3 7 "A Comparison of Changes in the Professional Practice
of Nurse Practitioners, Physician Assistants, and
to the physician, enabling a real-time evaluation. At a Certified Midwives: 1992-2000," U.S. Department
specific time and location where the HealthPresence of Health and Human Services Health Resources
technology was set up, trained professionals oper- and Services Administration, http://bhpr.hrsa.gov/
ated the medical equipment and helped the patient healthworkforce/reports/scope/scope 1-2.htm, accessed
communicate with the remotely located physician. January 2009.
38 "FAQs about Nurse Practitioners," American Academy of
In 2009, Cisco was creating a nationwide network Nurse Practitioners website, http://www.aanp.org/NRI
based on HealthPresence technology in collaboration rdonlyres/6 7BE3A60-6E44-42D F-9008-DF? C1F09 5SF7/
with UnitedHealth Group, a large U.S. health insurer 0/2010FAQs WhatisAnNP.pdf, accessed March 2010.
410
Case study 4 American Well: the doctor will e-see you now
MinuteClinic cies and Take Care Clinics began offering walk-in vac-
MinuteClinic was a provider of walk-in health clinics cinations for the HlNl flu virus in December 2009. 47
based primarily in large pharmacy or grocery chains
(e.g., CVS, QFC, Cub Foods), as well as malls and cor- The entrepreneurial roots of
porate and government offices. In 2009, MinuteClinic American Well
had locations in 25 states offering medical care for
Before becoming an entrepreneur, Ido Schoenberg
nonemergency needs, as well as preventive care
was trained as a physician at the University of Tel
and vaccinations. 39 Clinics were open seven days a
Aviv Sackler School of Medicine in Israel. In 1996,
week, including evening hours, and patients were not
Ido and his wife, Phyllis Gotlib, cofounded iMDsoft,
required to make an appointment. In a visit that typi-
a health-care enterprise software company. iMDsoft
cally lasted no more than 15 minutes and cost $62,
was among the first to recognize the opportunity for
a physician assistant or NP could examine a patient
IT to have an impact on the nature and quality of
for issues stemming from a minor illness or injury.4
critical care. Initially focusing on adult, pediatric, and
Patients often paid out of pocket, though many health
specialty (e.g., burn, cardiac) intensive care units,
insurance companies covered MinuteClinic services.
iMDsoft developed an expert system that monitored
critically ill patients. Previously, doctors and nurs-
RediClinic
es had to continuously observe several monitoring
Like MinuteClinic, RediClinicwas a walk-in, retail-based
devices and integrate the information on the fly in an
clinic offering treatment for routine health issues, as
attempt to translate independent clinical measure-
well as vaccinations and certain health tests and screen-
ments into a comprehensive clinical assessment. The
ings. RediClinics were located in the stores of Texas-
software of iMDsoft integrated the separate meas-
based grocery and pharmacy chain HEB and staffed by
urements, enhanced the quality of decision making,
physician assistants and NPs. 41 "Research over the past
reduced errors, and improved the financial perform-
30 years has consistently shown that the primary care
ance in one of the most high-cost units of any hospi-
provided by nurse practitioners is comparable in quality
tal. The company then expanded its product line to
to that provided by physicians," said Webster Golinkin,
cover the full peri-operative environment and general
CEO of RediClinic. 42 Several insurers covered RediClinic
wards. In 2000, Ido left the company but continued
visits-treatment of conditions such as ear infection and
common cold cost $79-though many patients paid out
of pocket. 43 Golinkin noted that, "research shows that 39 "Locations," MinuteClinic website, http://www.
as many as 50% of the people who seek care at over- minuteclinic.com/en/USNClinics.aspx; and "Services
burdened emergency rooms could be treated much less and Costs," MinuteClinic website, http://www.
expensively in convenient care clinics."44 minuteclinic.com/services/, accessed January 2010.
40 "Services and Costs," MinuteClinic website.
41 "Frequently Asked Questions," RediClinic website, http://
Take care clinic www.rediclinic.com/faq.asp, accessed January 2010.
Part of Take Care Health Systems, a wholly owned 42 Web Golinkin, "Health Care When You Want It," Wall
subsidiary of convenience and pharmacy chain Street Journal, August 2, 2007, via Factiva, accessed
January 2010.
Walgreens, Take Care Clinics were located inside
43 "Frequently Asked Questions," RediClinic website.
certain Walgreens locations throughout the U.S. 44 Golinkin, "Health Care When You Want It."
Take Care Health Systems also managed workplace- 45 ''About Us," Take Care Clinic website, http://www
based health services through its Take Care Employer .takecarehealth.com/about/, accessed January 2010.
Solutions division. In 2009, there were more than 46 ''About Us: Our Commitment," Take Care Clinic website,
340 Walgreens-based Take Care Clinics and some 370 http://www.takecarehealth.com/about/ our-commitment.
aspx?tab=tc_our_commitment, accessed January 2010.
workplace-based health centers.45 Offering walk-in 47 "Walgreens Offering HlNl Vaccine in 27 States,
appointments starting at $65 for treatment of com- Assisting Federal and State Governments in Nation-
mon ailments, Take Care Clinic claimed to "deliver wide Inoculation Effort as Many States Lift Priority
healthcare that fits your life."46 Illustrating the grow- Group Restrictions," Take Care Health Systems press
release (Deerfield, IL, December 16, 2009), http://
ing role of the "retail clinic" industry in delivering
www.takecarehealth.com/about/press-release.
direct-to-consumer health care, Walgreens pharma- aspx?id=12.16.09_1, accessed January 2010.
411
Part 4 Case studies
to serve as chairman of its scientific advisory board. I settled in an apartment in Herzliya, Israel, overlooking the
Gotlib stayed on to lead the company in becoming a Mediterranean, and got into the vacation routine of relaxing
on the beach in the morning, enjoying Jong lunches, and
global leader in hospitalwide acute care information
hanging out with friends. The problem with taking time off
systems. in your thirties is that all your friends are working during the
In 2001, Ida became CEO of CareKey, a provider day and available only at night, so l had lots of time on my
of electronic health management systems that his hands. I started to reflect on all that we had learned through
brother Roy founded the previous year using capital our CareKey experience about health-care IT. Of all the
ideas ldo and I di~cussed, the issue of affordable, conven-
raised from angel investors. A graduate of Hebrew
ient access to quality care, particularly in terms of place and
University Medical School, Roy had worked as an time of delivery, was an area where technology could really
internal medicine physician in Israel before pursu- make a difference. I thought about my own experience as
ing a research fellowship at the Center for Clinical a clinician. Health care for patients is still perceived as see-
Computing and a master's of public health degree ing a doctor. That is how it has been for centuries- physi-
cally bringing the pain to a health-care professional. I asked
from Harvard University. As a fellow, Roy published
myself whether someone is developing the technology to
a scientific paper in the British Medical Journal that imitate that interaction with a doctor online. But everyone
described a hypothetical online system of personal still thought the Internet was about redistribution of medi-
health records (PHRs). cal records. People did not recognize that you can redis-
The brothers envisioned CareKey as a model for tribute medical services. And there was the opportunity. At
that point, we decided the vacation was over. It was time to
enabling more direct interaction between patients
found a new company.
and health insurance companies. CareKey was first
to provide patients with Internet-based PHRs coupled
with a comprehensive personalized set of tools to self-
Online care: from concept to reality
manage certain health and wellness issues, as well as
communicate effectively with nurses and other staff The two brothers formed American Well in 2006.
members at their health plan. CareKey's platform As chairman and corporate CEO, Ido oversaw the
greatly assisted health insurance companies in tran- company's business strategy and affairs, while Roy,
sitioning from the episode-of-care model - simply who served as president and CEO of American Well
paying for each covered service an insured member Systems, was in charge of product development and
received - toward an advanced care-management operations. The cofounders believed technology could
model, which sought to minimize members' long-term be leveraged to extend traditional health care into
health costs through prevention and early detection. people's homes and workplaces. They envisioned
In the typical approach to care management, in which a brokerage system that used web-based technolo-
nurses phoned patients when they were due for a test gies and telephony to bring patients and physicians
or checkup, patient compliance was poor. CareKey together in real time. "In most health care today,"
helped narrow this compliance gap by giving patients explained Ido, "supply and demand is geographically
access to a personalized, on-demand platform for and temporally constrained - by the physical location
self-management and transactional communication and time availability of physicians and patients. We
with health plans' staff and resources. After growing devised a service that eliminates these restrictions and
CareKey over the next five years, Roy and Ido sold links excess supply, wherever it is located and when-
the private company to the TriZetto Group, one of ever available, with excess demand."
CareKey's early corporate partners. By the end of Physicians who were enrolled in the system would
2009, more than 45 million people were using the be able to log on essentially any time they wanted to
CareKey system (renamed CareAdvance). conduct 10-minute sessions with patients. A patient
After selling CareKey, Ido and Roy frequently met would log on to the system, provide her credit card
to discuss the remaining gaps in health care and ways information, indicate what type of doctor she would
IT could help bridge those gaps. Both agreed that like to consult with, and instantly get a choice of the
insufficient access to affordable, quality health care current doctors online that matched her request. The
constituted a major opportunity. chosen doctor would receive access to the patient's
In the summer of 2006, Roy returned to Israel for a medical records and then interact with the patient
few months. He recalled: via the phone or the Internet (including video or live
412
Case study 4 American Well: the doctor will e-see you now
chat options). Once the interaction ended, the system working as usual. but on the weekend will be able to make
would manage the billing process seamlessly. Ido additional money. Young docs will be able to add a secon_d
shift in the evening time, in case they have to leave their
explained the novelty of the American Well solution:
office early to pick up their kids from day care or sc~ool.
"All health-care today is point-to-point: doctors and Even retired docs will be able to come back to practice -
patients need to be at a specific place at a specific people that quit midlife and didn't want to llve the life of a
time in order for the service to take place. We've built traditional clinician.
a platform that is many-to-many: there is no appoint-
ment, no specific time and place, but rather care can
Choosing a customer
be delivered from any place at any time. The American
Given the value to patients and doctors, a direct-to-
Well marketplace coordinates this."
consumer (DTC) model, where American Well would
The novel system was designed to provide different
directly sign up patients and doctors to a nationwide
value propositions to the different parties involved. For
system run by the company, was definitely conceiv-
patients, the focus was on immediacy, convenience,
able. As Yael Glassman, vice president of marketing,
quality, affordability, and choice. The company rec-
noted, "if we were running the service on our own,
ognized that there would likely be skepticism about
as a DTC company, we would have total control over
whether physicians could effectively assess patients'
the user experience. Not to mention that we would be
health needs without a hands-on physical examination.
able to establish ourselves as the one and only place to
However, there were other dimensions that American
go to for Online Care." Yet, there were also significant
Well would be adding: there would not be a need
benefits to building American Well as a B2B company
to schedule the appointment in advance, the patient
that marketed to health insurance companies. Selling
would be able to take the appointment at her location of
to insurers would be similar to a franchise model,
choice (as long as it had a phone or Internet connection,
"though the end product is different between states
preferably with a webcam), and it would offer a new
and health plans. We can adapt the platform and the
form of privacy, thus eliminating potential elements
interfaces for patients and physicians for each health
of shame. (For example, it was believed that many
insurance company," Glassman explained.
of those with symptoms of depression did not seek
One argument for pursuing a DTC model was that
medical attention because of the social stigma associ-
adoption by insurance companies could be hampered
ated with the disease.) 48 In addition, patients using
by the volatile U.S. health-care environment, com-
American Well's system would enjoy a much greater
bined with the economic recession. President Obama
choice of providers and could seek a second opinion
had committed to reforming the health-care system,
immediately after receiving a diagnosis. The patient
and it seemed he might actually be the first president
experience was also more personalized: patients could
to do so in decades. However, 11 months after Obama
access and manage their online medical information,
took office, it was still unclear what such reform
personal self-management tools, and records of care
would look like. As a result, a wait-and-see attitude
before and after connecting with a physician. (See
started to dominate the health-care services industry.
Exhibit 6 for a description of the patient experience.)
Many health insurance companies had implemented
For doctors, the value proposition was different.
spending freezes, and it remained unclear when such
Having been clinicians themselves, Roy and Ida were
restrictions would be lifted.
well aware of what a service provider needed to put
Danielle Russella, executive vice president of sales,
in place before she could practice medicine. That
argued that opting not to be a DTC company could be
included accreditation, leasing and equipping an
a competitive advantage: ''I'm not saying we can't do
office, hiring and training staff, setting up a transac-
DTC, but there are other companies which are trying
tion system, purchasing necessary insurance, and so
to do that with call centers of doctors. In fact, that
on. The American Well system would alleviate the
[could be] a differentiator for us."
need for much of that infrastructure and provide doc-
tors with a new level of flexibility, as Roy explained:
Docs that have had a clinic for many years and are fed up 48 M. Goodman et al., "Industry Overview: A Bright Out-
with the routine will be able to work in their clinic less days look for Depression," Morgan Stanley Equity Research,
and make up the revenue from home. Others will keep June 7, 2002.
413
Part 4 Case studies
American Well makes it easy for consumers to talk to physicians, immediately, from home. Consumers don't need
to call ahead or wait for a doctor. By logging on or using their phone, consumers can connect to a physician of
their choice immediately. Of the many doctors available on American Well, the service helps consumers choose
the physician who is right for them. Consumers can review doctors' credentials, satisfaction ratings, and even
watch personal video introductions. Once the consumer selects a physician he or she is comfortable with, a live
conversation begins.
Some consumers may be unsure about what kind of physician to talk to or may have difficulty describing the exact
nature of their symptoms or conditions. Consumers may present with a symptom, (e.g., headache) and need help
identifying the right type of provider to see. American Well guides the patient to the most appropriate provider
and helps articulate discussion topics for the conversation. By helping to structure the consultation process, the
service ensures that consumers maximize their time with the physician.
Once connected, the consumer can interact with the physician using online chat, live web-conferencing,
or phone. The consumer can also share relevant medical information and past conversations. American Well
maintains a full record of the discussion, allowing consumers to forward comprehensive care reports to primary
care physicians, ensuring continuity of care.
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Ultimately, American Well decided health insur- panies had internal resources they could commit to
ance companies should constitute its primary target the marketing efforts needed to encourage physicians
customer. Although the industry's spending freeze and patients to use Online Care. In addition, because
was worrying, Ido believed insurers would view health insurance companies were financially strong,
American Well's service as part of a solution to their they represented a more lucrative customer chan-
problems. Moreover, these customers could serve nel than individual patients. (See Exhibits 1 and 8
American Well as "aggregators," providing easier for major health insurers' 2008 revenues and net
access to large pools of patients and doctors. They incomes, respectively.) The value proposition for
could also facilitate ac:;cess to patients' medical records, health insurance companies had a clear economic
and, importantly, they could sponsor online medi- component, as online visits would cost less than in-
cal consultations directly or indirectly (via employer person office visits. Under available health plans,
groups that would promote its use). Insurance com- health insurance companies paid PCPs depending op
414
Case study 4 American Well: the doctor will e-see you now
Exhibit 7 Top publicly owned managed care organizations, 2008 revenues($ millions)
$90,000
$80,000
-Ill
c:
$70,000
~ $60,000
E $50,000
~
Ill
<II $40,000
:I
c:
~ $30,000
/!}.
$20,000
$10,000
$-
~Q # e~
<:-'b ~'b
~,,_o 9.o ~'li
~
~"<:-
~ ~"
~
e1f.
~e
# I
.:J~
J
Source: Adapted from Phil lip M. Seligman, "Healthcare- Managed Care- Industry Profile," April 16, 2009, Standard & Poor's Industry Surveys via
NetAdvantage, accessed February 2010.
Exhibit 8 Top publicly owned managed care organizations, 2008 net income($ millions)
(
$3,500
-
Ill
c:
$3,000
~ $2,500
e
~ $2,000
<II
E
0
v $1,500
.5
....
<II
z $1,000
$500
$-
$(500)
.:,.Q ...~ -<:'-'b ~'b
<- ~o e"
~
~?i
~"<:-
q,1>
~e ~"
~e
#
.:J~
Source: Adapted from Phi llip M. Seligman, "Healthcare- M anaged Care- Industry Profi le," April 16, 2009, Standard & Poor's Industry Surveys via
NetAdvantage, accessed February 2010.
415
Part 4 Case studies
Exhibit 9 Breakdown of costs for commercial health plan and estimated savings using on line care
The actuarial model estimated that Online Care would enable a $3.36 net difference in first-dollar costs
per-member-per-month, representing a 9.3% difference on a starting cost estimate of $36.06 in traditional
service on a per-member-per-month basis.
Source: Adapted from Art Wilmes, FSA, MMA, "What if Healthcare Worked Like iTunes?" The Actuarial Digest, Summer 2009, p. 10.
the complexity of the visit, geographic location, and Health insurance companies have a valuable asset, their
other factors; but on average, PCPs were paid about network of doctors, but few ways to monetize that asset.
The American Well platform will allow offering online con-
$100 for new patients and $75 for existing patients.
sultations to anybody willing to pay out of pocket. Health
Most specialists were typically paid at levels well insurance companies will be able to determine how much
exceeding those earned by PCPs (from hundreds to they want to charge for that service, with $45 to $50 seem-
thousands of dollars). The typical copay (portion of ing quite reasonable, and generate revenue from a market
cost paid by the patient) for a primary care office visit they never pursued before.
was approximately $15 to $20, and for a specialist Ido added, "Health insurers offering Online Care
visit was approximately $25 to $30, though these could also see significant revenue and strategic gains
varied depending on the patient's health plan.49 For by opening their physician network to nonmembers.
emergency room visits, payors reimbursed hospitals Offering such a service to nonmembers can facilitate
and physicians also according to the complexity of a dialogue with potential new clients often covered
care delivered. This could vary extensively - from a by the competition." Health insurance companies
brief visit to multiple tests (e.g., X-rays and CT scans) would also see benefits from the improved provider-
to complex surgery- and cost hundreds to thousands driven care management enabled by Online Care. Ido
of dollars. A 2009 analysis from The Actuarial Digest explained:
estimated that Online Care could save insurers $3.36
Rather than a nurse working for the health insurance
per patient per month (see Exhibit 9).so company calling the patient at home out of the blue at an
Roy elaborated on that point: inconvenient time to explain how taking future steps could
improve their health, our system can alert physicians or
One of our main value propositions to health insurance
other providers during an active online session that the
companies will be significant savings. The amount they re-
patient's gaps in care warrant discussing certain interven-
imburse the physician per 10-rninute online consultation,
tions. Patient compliance is likely to be much higher when
expected to be roughly $25, will be less than the reimburse-
a physician recommends a certain test or service to a
ment of an office visit and significantly less than that of an
patient-and when the patient is ready to receive guidance
emergency room visit. Being able to resolve health prob- 11
( a teachable moment") in a session she originated. Access
lems online, at the cheapest point of care, will create those
savings. In addition, our platform will allow treating medical
conditions earlier because of the immediacy of receiving
professional medical attention. For patients, this will mean
49 "Kaiser/HRET Survey ofEmployer-Sponsored Health
better health outcom~s. but for the health insurance com-
Benefits, 2009," Kaiser Family Foundation website,
panies, it will mean less costly complications.
http://ehbs.kff.org/, accessed February 20010.
Another value proposition will be the ability of health in- 50 Art Wilmes, FSA, MMA, "What if Healthcare Worked
surance companies to "open their doors" to nonmembers. Like iTunes?" The Actuarial Digest, Summer 2009, p. 10.,
416
Case study 4 American Well: the doctor will e-see you now
to personalized content and tools before and after theses- improve retention; second, because faster access to
sion is also helpful. Employer groups are much more likely care would enable discovery of health issues at an
to sponsor this new type of highly targeted care manage-
earlier stage, employers would probably see higher
ment versus the existing model.
employee productivity and incur less cost associ-
Ido believed health insurance companies would ated with catastrophic illness and time off from work;
also see a reputational benefit by offering Online and third, kiosks with webcam-equipped computers
Care. Historically, the public image of health insur- could be added to worksite health clinics, afford-
ance companies had often been unfavorable. This ing employees the convenience of American Well's
was especially true recently, as health-care reform service and avoiding the need to take time off to visit
advocates argued in editorials and on nightly news a doctor. Early trials had shown high employee utili-
programs that insurance companies were out of zation of Online Care-equipped worksite clinics. Ido
touch with average Americans and primarily driven commented, "Because of the strong value of Online
by profit. By offering a novel, convenient, afford- Care to employers, health plans offering the service
able, and personalized care service, insurers could can be significantly more attractive when competing
build goodwill with their members. Most important- for employer group business, especially in the 'open
ly, insurers could improve their image by offering enrollment' period."
Online Care to nonmembers, including underserved
populations, individuals living in remote locations, Capturing value for American Well
disabled patients, and uninsured Americans whose
As far as the business model was concerned, American
lack of access to health care was frequently blamed
Well would seek a combination of upfront and recur-
on insurance industry greed. Insurers could be seen
ring revenues. Health insurance companies offer-
as proactive in solving other health-care issues, such
ing Online Care would pay a one-time fee for each
as clogged emergency rooms.
"addressable life" (individual members and nonmem-
Lastly, health insurance companies could use
bers) who would have access to the service, an annual
Online Care to address one of the most intractable
maintenance and support fee for each addressable
problems they faced: aligning their financial incen-
life (a percentage of the one-time fee), and an annual
tives with those of physicians. Because physicians
hosting (on computer servers) fee per addressable
were usually paid on a fee-for-service basis, they were
life. While this revenue stream was independent of
often incentivized to increase the number of services
utilization, American Well would also earn $2 to
they delivered; meanwhile, more services resulted
$7 for every Online Care transaction (a session that
in higher costs for insurance companies. However,
lasted longer than 10 minutes would be prorated).
health insurers' costs could decrease if physicians
In addition, if the health insurance company wanted
encouraged their patients to use Online Care for non-
continued tailored assistance in IT or marketing,
emergency and follow-up appointments. American
American Well would provide these services on a per
Well believed that by arranging to share these new
project basis (as a consultancy).
cost savings with physicians, insurance companies
would encourage greater Online Care utilization by
physicians, resulting in a win-win situation for both Rolling out the plan
parties. Moreover, Online Care could improve reten- With a business plan in hand, Ido and Roy set out to
tion of PCPs and other providers by offering them a finance their new company. However, their previous
more attractive way to practice. experiences led them to shy away from traditional
Employers also stood to gain from the American financing practices. Ido recalled:
Well model. Most medium-size and large compa-
J would urge entrepreneurs not to think sequentially. The
nies provided health benefits to their employe.es and
"salami financing" of seed, early, mid-stage, and late-stage
negotiated with health insurers for an attractive ben- rounds makes management focus on milestones that may
efit plan at the lowest possible cost to the employer. not be relevant after a while. Every round creates anxiety
The value proposition to employers was threefold: and distraction and is bad for the company's development.
first the convenience and choice of American Well's It is better to over-finance and worry less about dilution. We
' mainly raised capital from high-net-worth individuals who
service would likely boost employee satisfaction and
are sophisticated investors, many of whom invested in our
417
Part 4 Case studies
previous companies. Financing is not an event; it is a mark of a few dollars per session. It will cover physicians using our
of a relationship. So you need to look for investors that are platform on a per consultation basis, regardless of whether
like minded. High-net-worth investors are often entrepre- their regular malpractice coverage includes Online Care or
neurs who made their money the same way as we are trying not. What was interesting to realize was that the cause of
to. They are like minded. malpractice insurance claims is often something physical
which the doctor did to a patient during the office visit. By
We raised capital twice - the first round took 10 days, and
keeping the interaction on line, less is likely to go wrong.
the second round, a week. But that is the result of long-term
relationships and preparing people. When it was time, we Once the platform was near completion, Ido, Roy, and
put a fair term sheet on the table and did not open it for Russella started to present the concept in industry
negotiations.
circles. As Russella recalled:
Having secured financing, the company began the Prior to American Well, I worked for one of CareKey's com-
daunting task of building the platform. While many petitors. In fact, ldo and Roy were my formidable competi-
of the ideas in the business plan required novel tech- tors and that's how I got to know them. As a result, we had
nology solutions, those were also an opportunity complementing Rolodexes in an industry that values rela-
tionships and track record. We started to meet with execu-
for the company to develop proprietary intellectual
tives from the large health insurance companies. Initially,
property that could serve to block competition in the they had several challenging questions for us. First, they
future. American Well invested $70 million to create had concerns about overutilization-giving people a new
a sophisticated technology platform that enabled phy- "hobby" that will lead to overconsumption of health-care
sicians and patients to transition seamlessly among services. Second, they were concerned about the ability
to recruit doctors into the system. They would often ask:
communication modalities - phone, video conference,
"Aren't our doctors already overworked?" Third, there were
and live online chat - and also allowed asynchronous questions about practicing medicine without being able to
communication (e.g., leaving a voice or e-mail mes- perform a physical examination. But we had answers for
sage). Using this platform, a patient could begin chat- all those concerns. For example, we acknowledged that
ting with a physician online, then, without any time the system is not for every medical condition. In fact, we
facilitated a major study by the firm that sets the industry's
lag, reroute the conversation to his phone by simply
insurance guidelines to determine which medical condi-
pressing a button. In addition, the technology allowed tions are most appropriate for Online Care [see Exhibit 10
patients to view the queue for a specific doctor online, for selected episodes of treatment]. For the rest, there is still
and, if the patient wished to speak to that specific doc- the office or the emergency room.
tor, she could add herself to the virtual queue. When American Well made a point of attending and often
the doctor became available, the patient would be speaking at industry-related conferences. Roy's and
notified by phone or e-mail. "The platform eliminates Ida's past track record and the desire of health-care
clinical waste," explained Ido. He continued: executives to learn about how they could innovate
Not just with respect to wasted cost, but also getting the often resulted in packed sessions whenever they
wrong service. Today, many patients see a doctor when their spoke. At the 2007 WHIT conference, Ido and Roy
issue could be handled by a nurse practitioner, and patients
delivered a talk and hosted a dinner, inviting select
often see nurse practitioners when they could just be get-
ting advice by accessing personalized content or tools. By
health-care industry players as guests. Among the
offering a prescreening tool, our system can also improve attendees was an executive from the Hawaii Medical
the match between medical need and care recommended, Service Association (HMSA), a member of the Blue
with tiered pricing and reimbursement depending on the Cross and Blue Shield (BCBS) Association. Ido and
level of care provided.
Roy had established a positive rapport with BCBS
From a marketing standpoint, the company put an during their time at CareKey, and they believed
emphasis on anticipating potential future barriers Hawaii would be an ideal environment for launch-
to adoption and addressing them ahead of time. ing American Well's service. First, access to care was
For example, physicians' fear of malpractice litiga- an issue in Hawaii: due to the unique geography
tion was one such anticipated barrier. Matt Jarman, of the state, HMSA often had to fly doctors from
American Well's vice president of corporate develop- one island to another to meet its members' needs.
ment, elaborated: Second, the state was small and isolated, the perfect
We worked with a leading insurance company in develop-
setting to experiment with the new service. Ida con-
ing unique malpractice coverage for Online Care at the cost vinced the executive to seriously consider American
418
Case study 4 American Well: the doctor will e-see you now
Source: Compiled from Arthur l. Wilmes, FSA, MAM, "An Actuarial Analysis of Online Care-Appendix: Chart F.5," Milliman, pp. 1-17.
419
Part 4 Case studies
420
Case study 4 American Well: the doctor will e-see you now
Exhibit 11 Average time new patients wait for appointment with family practice physician, selected
cities, 2009'
I
Miami I
l
Seattle l
Portland
Dallas
I
=
Philidelphia
Atlanta l I
Minneapolis
Detroit
I
I
I I I
Denver I
I !I II
Houston ! II
San Diego I I
New York
I
II I
Il
I
Washington, D.C. I
I
Los Angeles
Boston
I I
--e------~-~ ~----~J
0 10 za 30 40 50 60 70
Source: Adapted from "2009 Survey of Physician Appointment Wait Times," Merrit Hawkins & Associates, p. 9, http://www.merritthawkins.com/pdf/
mha2009waittimesurvey.pdf, accessed February 20? O.
'Data reflect results of phone survey of physician offices (10-20 per metropolitan area) conducted by Merrit Hawkins & Associates from September
2008 to March 2009.
421
~
N Exhibit 12 Average time new patients wait for appointment for cardiology, dermatology, and obstetrics/gynecology {OB/GYN), .,,
Ill
N
selected cities, 2009 ;::i.
.j:>.
n
~
70 -
Ill
"'c:
0.
iii'
. "'
60
Cardiology Dermatology OB/GYN
so
iii
~
-
"'C
QI
E 40
'
I=
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::"'
QI 30 - -
bl)
"'...
QI
~
20 --- - - - ----- .,_____ -
- -
-
10 - - -----I
-
----- f--
- - - - ..._ - .....__
----- .....__ -
0
J_ - ..__
- _[_ -
'!f.,"b ~o~ ~tS'
e._ c,~ o~ -::..,e"' ~
:-..
~"' ~ ~ ~ 0 ':\.e (.,
~'l>~ Q~ ~~ ~ ~ -~~ ~o ~o ~ ~'I><:> e~ ~.... Q
~
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~<::> ~e
~ ;;."r.
'{$-~ ~o
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~~
Q~ ,e o~'
'Vo"' ~ ~ ~'(" ~ ~~
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Source: Adapted from "2009 Survey of Physician Appointment Wait Times," Merrit Hawkins & Associates, p. 8, http://www.merritthawkins.com/pdf/mha2009waittimesurvey.pdf,
accessed February 2010.
Data reflect results of phone survey of physician offices (15-20 per metropolitan area) conducted by Merrit Hawkins & Associates from September 2008 to March 2009.
Case study 4 American Well: the doctor will e-see you now
access to physicians through an online service could physicians or pharmacists through a hospital, retail
boost patients' perceptions of the legitimacy of retail clinic, or pharmacy channel, the insurance company
clinics. Retail clinics could also use the Online Care would lose out.
platform if the NP was not able to address a patient's
issue or if the patient wished to obtain an immediate
A change of direction?
second opinion.
Pharmacy chains represented yet another potential Ido and Roy were pondering these questions as their
customer base. Pharmacists provided expertise on flight began its descent into Washington, D.C. To
prescription medicine usage, potential side effects, both brothers, it seemed that the Team Edition serv-
dangerous drug combinations, and other important ice offered a value proposition that would appeal to
information. However, many patients failed to ask patients, providers, and payors alike. Team Edition
questions of pharmacists in person, whether because held the promise of alleviating some of the greatest
they were embarrassed to do so in front of other cus- frustrations in a health-care delivery system fraught
tomers or simply forgot to ask at the time of the trans- with costly inefficiencies. Roy and Ido also agreed
action. If pharmacists were available online using that American Well could offer significant value to
American Well's platform, patients would have the health-care delivery networks. But with only limited
freedom to ask pharmacists questions at the time and adoption of its core service so far, was it too soon for
place of their choosing. American Well to launch a major new undertaking?
Finally, American Well was considering expand- Furthermore, pursuing any of these opportunities
ing its service internationally; would-be customers would likely require additional hiring (at the end of
in Australia, Germany, and the United Kingdom had 2009, the company had under 100 employees) and
already expressed interest. Pursuing this route would, securing additional funds.
of course, require extensive changes to American Ido and Roy believed that the essence of American
Well's organizational structure. The company would Well's model - linking real-time excess capacity with
also have to tailor its service to each individual real-time excess demand - had applications well
market, as regulations governing privacy and online beyond the health-care industry. Numerous types of
transfers of health information varied from country expertise -legal advice, accounting services, even reli-
to country. gious counseling - could be delivered using American
As they considered these options, Ido and Roy rec- Well's platform. As they weighed the benefits and
ognized that any new venture would require a sig- disadvantages of pursuing the almost endless oppor-
nificant marketing investment and divert resources tunities they envisioned, Ido and Roy kept returning
from the U.S. health insurance market, where to the same quagmire: diverting resources to focus
American Well was just starting to make inroads. on new ventures could undermine the company's
Moreover, serving both the insurance and deliv- initial Online Care rollout, but if American Well
ery network markets could create conflicts of inter- waited too long, would another company seize these
est with respect to noninsured patients. If nonmem- opportunities? They agreed that the most important
bers accessed American Well's platform through the thing was to maintain excellent client satisfaction,
insurance company channel, the insurer would reap the concluding that "you are only as good as your first
revenues; however, if this patient population accessed failure."
423
Spreadshirt
Mass-customization on the Internet
This case study was written by Sebastian Bartz, International Business Master student, under the supervision of Dr Albrecht Enders,
Assistant Professor of Strategic Management, Harald Hungenberg, Chaired Professor of Strategic Management (all three from Uni -
versity of Nuremberg). and TawfikJelassi, Dean and Professor of e-Business and IT at School of International Management of Ecole
Nationale des Ponts et Chaussees {ENPC, Paris). It is intended to be used as the basis for class discussion rather than to illustrate
effective or ineffective handling of a management situation.
This case study was made possible by the cooperation of Lukasz Gadowski, Chief Executive Officer, Spreadshirt and Konrad
Marx, Country Manager (Germany, Austria, Switzerland), Spreadshirt.
577
Part 4 Case studies
Along with other Campus Consulters (that is what was responsible for marketing and business proc-
the members call themselves), Gadowski did market esses. In May 2002, the first fully automatic version
research projects, built and sold websites and content of the website went online. Now, people interested
management systems. They founded a limited liability in a Spreadshop could open it themselves online and
company and started selling and implementing con- offer merchandising articles they designed. This was
trolling software; however, long-term success was the enabler for the subsequent growth in the follow-
not in sight. One semester later, Gadowski founded a ing years. In order to finance this growth, Gadowski
mobile commerce company, but again it did not suc- attempted to raise some capital:
ceed. Market conditions were not favorable since it was Throughout the year, J was trying to get in touch with
right after the Internet bubble burst. He remembered business angels in order to convince them of our busi-
the idea he had been thinking about for some time: ness model. However, I never succeeded. Very often, I was
already turned down by the secretary saying: 'We don't do
In 2000, one of our first clients was a small textile printing Internet anymore.' It was such a waste of time.
company in Hesse. Through this project I got to know the
printing technology and market. And the Spreadshirt idea
popped right up. [... ] I was also inspired by the Amazon af- Growth
filiate program that enabled people to put adequate books
on their websites. So if it worked with books, why should it Spreadshirt's growth had to be financed internally,
not work with shirts? resulting in a business that hit break-even right from
{Lukasz Gadowski) the start. The innovative business model even won a
business plan competition in Saxony in October 2002.
Realizing that his strengths lay within management
rather than IT, Gadowski first went to the University The FutureSAX 2002 award was very important to us be-
of Mannheim (Baden-Wuerttemberg) to study busi- cause it generated a lot of attention right from the begin-
ning. Furthermore, the 2004 HP Business Vision Award
ness administration, but later decided to pursue a meant a lot to us because it was the first international one
diploma programme at the Leipzig Graduate School we received.
of Management4 that is renowned for its entrepre- (Lukasz Gadowski)
neurial focus.
By the time Gadowski finished his studies at HHL in
June 2003, Spreadshirt already registered more than
5,000 shop partners. Since the number of orders and
Foundation
sales volumes grew exponentially, Gadowski and
In the summer of 2001, the first website bearing the
Spiess hired more staff - especially for customer
name Spreadshirt was launched. Gadowski explains
service. Potential candidates were found quickly
where the name stems from:
via placards or Internet ads. The first job interviews
I chose this name because the business model was to took place in the HHL lecture rooms because at the
spread shirts via the Internet. Furthermore, the company it- time the company had no office. All candidates had
self would be spread on the web through all the shop part-
ners, which would also spread the word about us. l didn't
to pass several tests like writing service emails, fig-
want a central portal where people could only go to order uring out brainteasers, solving maths problems, and
their shirt. I wanted thousands of other mini-entrepreneurs designing t-shirts. A lot of students were grateful for
to create their own products in their own shops using my the opportunity to work for a dynamic and success-
platform. ful start-up. There were not many student jobs in
The first website version, however, did not allow users Leipzig that offered such a broad range of interest-
to create their own shop by themselves. Gadowski had ing tasks.
to do it manually and thus concentrated on the most
important customers - requiring at least 100,000
page impressions 5 per month in order to set up a 4 In German: Handelshochschule Leipzig, HHL (Saxony).
Spreadshop for them. 5 A page impression is a request to load a single page of a
website. It serves as an indicator for a site's traffic and
Late in 2001, one of the first Spreadshop owners,
thus is often used to evaluate the expected revenues from
Michael Spiess, joined. Gadowski, and both founded advertisements on the page.
Spreadshirt GbR6 based in Leipzig. Henceforth, Spiess 6 GbR - Gesellschaft buergerlichen Rechts (Engl.: civil-law
took charge of the IT development while Gadowski association).
578
Case study 15 Spreadshirt: mass-customization on the Internet
579
Part 4 Case studies
Taucha
(Production)
Leipzig
(HQ)
Cork Paris
(Marketing/Sales) (Marketing/Sales)
Spreadshirt
(sprd.net AG)
~~-~-spr-ea-dsh-irt~ ~-x__des-lg_n_er~
Shop partner
EJ ~ 00 I I Design Bulk
sozeug
Handmade
End customer platforms
platform competition orders things
580
Case study 15 Spreadshirt: mass-customization on the Internet
be considered the core business. However, the three The process of opening and operating a Spreadshop
remaining business areas (La Fraise in particular) also works as follows (Exhibit 3 visualizes the process):
contribute significantly to the company's success. potential shop partners need to register online before
they can start creating and selling their own merchan-
dise. Currently, there are about 80 different types of
Spreadshirt.net
merchandising articles and several hundred designs
The award-winning Spreadshirt business model d if-
to choose from. Additionally, shop owners can upload
fers substantially from the traditional textile print
their own vector or digital graphics. At the end, they
shop around the corner, although at first sight it
determine the margin for every customized article,
may appear as if Spreadshirt, too, only refined shirts
i.e. a price equal or above the base price charged by
and other articles. However, the company uses the
Spreadshirt (currently EUR 12.90 for the Men's Slim
Internet to enable virtually anybody to become an
Contrast Tee, EUR 9 .90 for the mug, EUR 3.00 per motif
entrepreneur and sell merchandise; or, as Gadowski
or text) . The assortment (see Exhibit 4 for examples)
puts it simply: 'We enable users to do their own thing. '
ranges from classic t-shirts, casual, trendy apparel, and
He is referring to the so-called Spreadshop system
sportswear, to accessories and gifts including mugs,
that has been offered at spreadshirt.net from the
mousepads, badges, and bags. Commission levels are
beginning:
uncapped and earnings are paid out quarterly. Also,
Our business model is that we offer everybody the poss ibi l- shop partners have the option to personalize the shop
ity to open their own shop and to start selling cu stomized
itself in terms of colors or fonts , for example.
merchandising articles within minutes. Since shop manage-
ment is done onl ine, all you need is an Internet connec-
By December 2006, the company had about
tion to get started . Spreadsh irt takes care of all the rest: the 200,000 shop partners including private individuals,
shop software, inventory manageme nt, printing, packaging, associations, companies, sports teams or artists. Very
shippi ng, payments, and after-sales service. Thus, our value often these are people interested in a specific niche
creation lies within the order fulfi llment where we generate
which they want to promote online, or webmasters
revenues per unit.
I ~
t- t- t- t-
,[)''
spreadshirt.net
~ ~ rr@
Open your Create your Set the Start Collect your
shop product price selling commission
-----
Source: Spread sh irt.
581
Part 4 Case studies
Promodoro Lady
Sonar Retro Shirt Winter Cap Messenger Bag
Leisure Jacket
~
0
a.
en
t:
:c
(/)
"C
<II
~
a.
en Nike Park Plus Adidas Avantis
J
Jako Short Cardiff Puma Stirrups
Jersey Jersey
who simply want to earn some extra money with their offers. Regular shop partners do not encounter any
website. fixed costs, and therefore do not need to sell any
Once a regular Spreadshop is set up and is running articles. Only when items are sold are they paid the
successfully in terms of sales, a shop partner may con- individually selected commissions. Like Spreadshirt
sider upgrading it to a premium shop. For EUR 10.00 itself, every regular shop hits break-even right from
a month, a premium shop operator benefits from sev- the start. Premium shop sales, however, will have to
eral advantages: compensate the monthly fee charged for the extra
functions.
Offering the shop in 13 languages,
Running the shop without Spreadshirt advertising,
Spreadshirt Designer/Spreadshirt Sports
Having almost unlimited motif uploads, The Spreadshirt Designer allows.online users to create
Including a personal logo on invoices and delivery their customized apparel, accessories and gifts with-
notes, out opening a shop. Personalized designs and texts
Offering limited editions, and are printed on any item in the Spreadshirt assortment.
It is an on-demand solution that does not require
Offering sales discounts to best customers.
any minimum order quantity. The company does not
Some of Spreadshirt's most famous premium shop define a typical Spreadshirt Designer customer; any-
partners include: Harry Potter, BoingBoing (see one looking for a gift can use it.
Exhibit 5 for screenshots) , Eurosport, Ryanair, A special form of the Spreadshirt Designer is
Napster, Tiscali, Linkedln, Texas Instruments, RTL, Spreadshirt Sports. Here, the product line is adapted
and Coca-Cola. to the needs of people interested in sports. Among
The success of spreadshirt.net is due to the easy the different types oft-shirts, users also find several
handling of the shop by its owners and users as jerseys, shorts, and socks that are not available at the
well as the completely risk-free profit opportunity it regular Designer.
582
Case study 1S Spreadshirt: mass-customization on the Internet
~ .. ~i-~~~l~~~~~~~~;:~~~;_;~---~~~~~~~=~~=--==~-~=--~~=-~ i, ~- ~~~;~~~-~~~~~~~~~~~~=~-~] .P
~ <Sr ~~~:-,;;;-------- --------------~ 0 ~ ~ $ ,.., O ""n - G ifJ. 8
..... -~--- -----~~---.-~-------~-~~-~~--~...--...-----
Konrad Marx, Spreadshirt's D-A-CH 11 Country Man- forms are dime a dozen on the market. So every one of
ager, comments on the importance of having the Desig- them has to buy customers through marketing campaigns
and hope they will stay loyal and come back. In contrast.
ner and Spreadshirt Sports next to the Spreadshops:
shop partners are businesses themselves. They want that
The shop partner platform is the core of Spreadshirt's their products sell. We only provide the platform for it.
bus iness. It is the main reason why we were able to grow
exponentially in the past. However, the designer shops are The three business areas presented above resort to the
important, too. Internally, we call them the 'own shops' that same fulfillment process displayed in Exhibit 6. After
independently promote our customized merchandising
articles. They account for more than 40% of the sales. But
they have a big disadvantage: Online shirt designer plat- 11 Germany, Austria, Switzerland.
Customer
Order receipt Preparation Warehousing Operations Logistics
service
583
Part 4 Case studies
receiving the individual order, production prepara- to get set up, he began selling t-shirts aiming at the
tion takes place, depending on the printing technol- geeks and gamers community. Within only a short
ogy used. In the case of flex or flock printing, the time period, he started receiving the first submissions
motifs are plotted on colored plastic foils and then from community designers visiting the online shop
separated from the foil rests. In the warehouse, motifs and blog - the design competition was born. Cassard
and their corresponding merchandising articles are explains how it works:
brought together and a first quality check takes place. Designers submit their drafts directly on the website. The
Thereafter, the motifs are transferred onto the articles. following week, the designs are subject to the visitors'
Flex and flock motifs, for example, are pressed onto a votes. At the end of the grading period, and in concord-
garment under strictly controlled conditions of heat ance with several criteria, we award a EUR 1,000 cheque
to the selected designer and print a limited edition of 500
and pressure. In a second quality check Spreadshirt
shirts. Usually, we pick between 16 and 20 new designs
employees meticulously examine the operations' out- every month.13
come and take action where necessary. Then, the cus-
tomized articles are packed and ready for shipping. This model strongly benefits from viral effects because
International after-sales customer service is done by users generate the content and each one of them has
native speakers from Leipzig headquarters. the incentive to gain new users, e.g. by saying: 'Hey,
can you vote for my design please? Thanks!' Also,
users have a different relation to the shirts produced-
The Derby/La Fraise
after all, they have voted and thereby influenced their
The Derby is a continuous online t-shirt design com- fate. Most important to the leveraging of viral effects
petition, which was introduced by Spreadshirt in is the quality of the products, i.e. the quality of the
April 2006. All amateur and professional designers designs. And thanks to the active and professional
are encouraged to upload their motifs which are then community of more than 70,000 users, the designs
subject to popular voting. Every two weeks, the win- are usually very fancy, funny as well as graphically
ning designs are eventually awarded a certain amount appealing.
of money, produced in a limited edition, and offered Cassard knows the reason why the community is so
to the public in the Derby online shop. The Derby active in contributing content:
customers are typically fashion-orientated individual-
I always made sure to take their opinions and comments
ists who do not fall for brands and want something
into account. The website is all about its community. It isn't
special. limited to marketing but is an everyday reality. In a way, a
After only two months in business, Spreadshirt sort of huge board of directors. 14
decided to back up its Derby by going offline and
opened its very first bricks-and-mortar shop in According to Gadowski, the success of La Fraise is due
to several factors:
Berlin 12 , called The Derby Store. Since then, the
Derby winner shirts could not only be ordered online, One thing is that it came to market relatively early. Also,
but also picked up at the store. CEO Lukasz Gadowski its website is really simple and pleasing. Last but not least,
there is Patrice [Cassard] who composed the very popular
explains this move:
'boss blog' of La Fraise and who simply has the talent to
The Derby Store is an additional channel that distinguishes build a community. 15
us from our competitors. Furthermore, our shop partners
and design contributors at The Derby like the shop. Now we After months of meetings with Spreadshirt, Cassard
are able to present their motifs offline. We can even imagine decided to sell his company and signed the contract
expanding this [physical] channel. But this is not our priority in July 2006.
number one right now. We'll only open more stores in case
of special opportunities.
584
Case study 15 Spreadshirt: mass-customization on the Internet
Patrice's motivation [to sell La Fraise] was probably to do for small-scale orders where delivery time and flex-
something different. Furthermore, there is a big difference ibility are essential, but are sourced out to partner
between starting an enterprise and running it on a day-to-
print shops. The same measure holds true for the
day basis. The latter makes different demands on the organ-
ization, administration, and logistics. Not everybody wants La Fraise limited editions that do not require a mass
to be bothered by this. 16 customization approach either. Spreadshirt benefits
(Lukasz Gadowski) from a strong bargaining position with its textile
suppliers because of its huge purchasing volume.
For Spreadshirt, however, acquiring La Fraise was
Therefore, Spreadshirt is able to compete on the price.
an important move into this new market segment of
online t-shirt design competitions. In addition, La We probably have the best purchasing conditions of all
Fraise would foster Spreadshirt's shop partner busi- textile refiners in Germany. Thus, small print shops cannot
compete with us at all. On top of that, we hardly need to
ness. Designers whose drafts do not make it to market
actively acquire any customer because most of the requests
will most likely open up their own Spreadshop and come from our shop partners. Our competitors do not pos-
sell their work there. This leads to additional shop sess this enormous customer network. And there is another
partners and additional sales for Spreadshirt. beneficial side effect: The more articles we process at DDS,
the better our conditions get because the typical orders are
We are proud and feel honored that Patrice decided to sell always significant in quantity. Recently, for example, we sold
[La Fraise] to us. That's indeed a great sign of confidence. 15,000 shirts to General Motors.
And such a takeover is by all means delicate because, after (Konrad Marx)
all, it's a community business.[...] Thus, there was some tur-
moil [within the community] after Patrice's announcement
[of the deal], but which he was able to 'blog-manage' with Sozeug
calmness.17
(Lukasz Gadowski)
Sozeug is a German online platform for buying and
selling handmade things which went online in March
For a short while, Spreadshirt was thinking to keep 2006. But according to its founder Hannes Diedrich,
both design competitions - The Derby and La Fraise. it differs considerably from established online market-
But it became obvious that one of them would even- places such as eBay or Amazon. At Sozeug, designers,
tually lose. In terms of usability and high profile, artists, and others do not just buy or sell products.
La Fraise was the better platform, so it was decided to Instead, they are the focus themselves, acting and
phase out The Derby and to refactor and internation- communicating with each other - corresponding per-
alize La Fraise instead. fectly to the first of the 95 cluetrain theses: 'Markets
are conversations.' 19 People can leave comments or
DDS write messages to each other. The products for sale
DDS 18 is the bulk order service of Spreadshirt which online, and thereby their creators, are linked via
offers the whole range of merchandising articles for tags. Thus, the conventional hierarchical structure is
quantities starting at 25 pieces. Ironically, it was never replaced by a more flexible mode. 20 Revenues are not
intended to engage in such a business, as Konrad generated by charging the offering of a product, but
Marx explains: by a 7% sales commission to the company.
We didn't plan to take part in the classic textile printing Diedrich came up with the Sozeug idea after
business because of the fierce competition. There are thou- observing many designers in Berlin who had at best
sands of textile printers in the world and probably around their own small stores, but mostly sold their self-made
30 in Leipzig alone. Usually, the customer invites offers from products at the weekly market. On the one hand, he
10 companies and decides upon the price. However, we re-
realized that this is a business that works. On the other
ceived so many requests with order quantities of 100, 200
or more, and many of our proposals were even accepted
by the customers - which surprised us. Then, the requests
became so relevant that we decided to form a separate unit 16 Ibid.
to deal with this business. So we hired a bunch of people 17 Ibid.
who created the DDS in early 2004. 18 DDS stands for Deutsche Druckservice (Engl.: German
Printing Service).
Orders fulfilled by DDS - which very often come from
19 http://www.cluetrain.org.
larger corporations - do not resort to the company's 20 http://www.sozeug.de/pressematerial/sozeug-
own production capacities, since these are reserved pm230306.pdf.
585
Part 4 Case studies
D,A,CH
UK
Scandinavia - - -
PL
USA --
586
Case study 15 Spreadshirt: mass-customization on the Internet
At.Spreadshirt, there is the so-called owner principle of And what's more obvious than resorting to the ideas and the
responsibilities. Everyone can assume as much respon- joy to create of our on line community? 24
sibility as desired. At all times, there is a list of project As Milles states, the OLP was aimed at the vast inter-
proposals posted on the Intranet. Everybody can take national Spreadshirt community which, at the time,
what they want. The area or country manager then represented more than 100,000 shop partners, many
simply activates the budget for it. If someone seizes a of whom were either professional or amateur design-
project, nobody is going to mind as long as the project ers. Before giving the starting signal, Spreadshirt
is managed in a professional way. However, if the framed several important guidelines for the project
project does not advance well, others will try to get it. (see Exhibit 8).
Besides defining the OLP's objectives and require-
Open Logo Project ments, Spreadshirt explained how it would proceed
In December 2005, Spreadshirt launched the Open Logo with the submissions and what the awards for the
Project (OLP) in order to refresh its corporate design. As winners would be.
the name suggests, the design development process was Spreadshirt will choose up to 10 winners from all entries.
not conducted confidentially with a professional design The grand prize of EUR 5,000 (USD 6,000) will be spl it
agency as most companies do it. Instead, Spreadshirt among the winners. In addition, there will be a special prize
587
Part 4 Case studies
for the most original design. Copyrights must be passed on Exhibit 9 The Fingerprint - the winning design of the
to Spreadshirt before any prizes are distributed. Until prizes Open Logo Project
are awarded, all designs remain your property. Spreadshirt
employees are excluded from entering the competition. 25
(Andreas Milles)
Jl]~[j]~~I
called The Fingerprint (see Exhibit 9), which not only
the community liked, but also Andreas Milles: 'The
result [of the voting] thrills us. The Fingerprint is a
perfect metaphor for Spreadshirt.'27 I, Leipzig Taucha Greensburg Paris London J
Colin's logo concept managed to combine vari-
ous important issues of Spreadshirt and its busi- Source: Spreadshirt.
ness model: First, the fingerprint clearly symbolizes
uniqueness, which is exactly what Spreadshirt's mass- 25 http:/I olp.spreadshirt.net/wordpress/? addon =brief.
customization approach enables. At the same time, it 26 http://olp.spreadshirt.net/wordpress/?p= 1485.
also represents the first capital letter 'S' of the com- 27 http://www.spreadshirt.net/28_03_2006.809.0.html.
28 http://olp.spreadshirt.net/wordpress/index.
pany's name; or, as Colin puts it: 'That's the logic link php?p=lll3.
between the design and the [... ] word'. 28 Third, the 29 http://companice.twoday.net/stories/1818009/.
logo also symbolizes the viral effect, resembling water 30 http://www.spreadshirt.net/About_Us.124.0.html.
588
Case study 15 Spreadshirt: mass-customization on the Internet
11
2002 2006
2 100k 100
Since Spreadshirt already is the European market it is. A start-up cannot afford to work with average
leader and has grown tremendously during the past staff for a very good reason:
years (see Exhibit 11), the company seems to be on
Excellent people replace [corporate] rules. You can't set up
track. Gadowski anticipates that Spreadshirt will have as many rules as you would need. That's why you definitely
become number one worldwide by 2010. need excellent people. 31
(Lukasz Gadowski)
Success stems from many factors: we are just different and
we execute well. We have a strong long-term perspective In order to find excellent employees, Spreadshirt has
and we think about real customer value. We have a good
software and, above all, excellent people. That's probably
developed a multi-level recruiting process. Incoming
why so many companies have failed and we're sti ll around. applications are analyzed and promising ones imme-
[.. .] Also, right from the start, we've approached the right diately forwarded. Before inviting a candidate to
customer segment and got something across - a message a personal interview, a telephone conversation is
that was commercial but that people could identify with . arranged to evaluate the applicant's basic social fit.
(Lukasz Gadowski)
The first personal interview usually takes place with
the participation of Human Resources staff and two
or three department managers. If the candidate is
convincing, a second personal interview is conducted
The Spreadshirt people
only days later, led by a division manager and/or a
For Gadowski, it is the Spreadshirt people who make member of the management board. Thereafter, the
the difference. That is why it has always been of final decision is quickly taken and communicated
utmost importance to him to identify the ones that fit. to the applicant. Although Spreadshirt is currently
We really expect much from our employees - during the
having trouble filling all the vacancies with excel-
interviews and on the job. Our motto is: 'Good is not good lent people, the Leipzig area offers a well-educated
enough.' This means that everybody, including the service labour pool.
personnel, has to contribute more than just the ordinary.
Especially during the first two years, we have been rigorous Sometimes venture capitalists are sceptical and ask me:
with our staff. I've even fired people who did their job quite 'Do you get the talent in Leipzig?' They th ink the only place
well. So I guess, even today, there are still some people in where you can do business is Silicon Valley. That's nonsense!
(Lukasz Gadowski)
Leipzig who think I'm a lunatic.
(Lukasz Gadowski)
589
Part 4 Case studies
After a new employee has joined the team, the so- Especially job candidates often arrive with the expectation
called Spreadshirt Academy program fulfills important that we're only a start-up and everything must be chaotic.
But then, they're surprised.
on-boarding functions, ensuring immediate knowl- (Konrad Marx)
edge transfer during the first days on the job. It con-
sists of different modules that a mentor can combine. Project management, for example, is very important
Each module contains a set of tasks whose execution at Spreadshirt. Everything that takes longer than one
creates interaction with other Spreadshirt people. day requires a project plan which is created on the
Some introductory tasks only require getting a login company's Intranet - based on a Wiki32 platform - and
and a password. Others, for example, assess the defines the main project parameters:
knowledge about Spreadshirt's products and competi-
Project team and leader,
tors in the form of a written test. Furthermore, newly
hired employees working at the Leipzig headquarters Project objectives,
carry out a so-called Production Day in order to learn Milestones,
how the customization is done. They take part in each Deadlines,
stage of the entire fulfillment process, from plotting
External contacts,
the motifs on the flex and flock plastic foils to the
packaging of the refined articles for shipping. Internal/external dependencies, and
As job motivation is crucial, Spreadshirt regularly Possible risks.
organizes informal get-togethers in bars or other loca-
There is also a mandatory debriefing in order to share
tions. There, employees get the chance to talk about all the lessons learnt from the project. Furthermore,
other than work-related issues. More professional Spreadshirt employs sophisticated performance
topics are addressed in the monthly general assembly
measurement systems. Marketing Overview, for exam-
where latest news is spread and future objectives ple, gives control over the use and efficiency of mar-
announced. Good communication as one motivat- keting channels. Cockpit is used regularly to provide
ing factor is also guaranteed by frequent intra- and
relevant key performance indicators on a monthly
inter-departmental meeting sessions. Moreover, the basis. Additionally, Spread.Reports is a reporting sys-
company intends to motivate in monetary form: Most
tem (based on open-source SQL) that supports vari-
of Spreadshirt's employees receive a performance ous queries to Spreadshirt's database (see Exhibit 12).
bonus besides their base salary. For the sales staff,
performance is quite easily quantifiable, but for oth-
ers it depends on the quarterly 360 degree feedback Competitive advantage
based on the following six criteria: Our competitive advantage is just a better seNice level. No
other competitor is able to deliver as fast as we do.[...] More
Responsibility,
than 80% of the articles ordered are ready for shipment
Results/Effectiveness, within 24 hours; the rest within 48 hours at the latest. [...]
The secret lies within our back-end. It's our people, our proc-
Efficiency,
esses, and our management.
Organization, (Konrad Marx)
590
Case study 15 Spreadshirt: mass-customization on the Internet
C:~O:-_.,~,.....,....,..,.._,_,
!'.I
more important competitors to be watched closely
oU
(see Exhibit 15 for a table of Spreadshirt's most impor-
.,
tant competitors):
."
u
591
Part 4 Case studies
2002
2004
2006
Source: Spreadshirt.
592
Case study 15 Spreadshirt: mass-customization on the Internet
Exhibit 14 Spreadshirt's diversification strategy allows people 'to create, share and celebrate [ ... ]
unique interests and passions'. 38 Zazzle started in
1999 producing on-demand products with automated
2002 2003 2004 2005 2006
manufacturing systems; however, it did not go online
Spreadshirt.net
until 2003. Today, customers can shop at zazzle.com
and choose from existing designs and products, cre-
DDS ate their own customized merchandise, or publish
their product in a gallery earning a 10% commission
Spreadshirt Sport every time their creation is purchased. According to
the website, Zazzle combines 'innovative manufactur-
Spreadshirt Designer ing, a robust community, the largest online collection
of customizable digital images and unmatched per-
The Derby sonalization tools to empower [customers] to create
apparel, posters, cards, stamps and more.'39
La Fraise i The main international competitor to La Fraise is
Organic growth Threadless 40 - the initial project of Skinny Corp, 41
Sozeug which was launched in 2000. Today, the Chicago-based
Acquisition
Zazzle Zazzle
USA
Printfection Printfection
593
Part 4 Case stud ies
ongoing design competition is probably the most In order to expand on the Asian market, Spreadshirt is
famous one in the world. Since La Praise's founder currently planning to build its own production capaci-
Cassard was inspired by Threadless, the two concepts ties in Beijing in 2007. By doing so, the company will
are very similar. At Threadless, the submitted designs not only be able to operate in Japan (as it already does
get scored for seven days, usually receiving between today), but also in China, Taiwan, and South Korea to
2,000 and 3,000 votes. Then, the four to six top-scoring achieve its 2008 worldwide market penetration goal
designs are picked, printed in a limited amount, and (see Exhibit 16). According to Gadowski, by 2010
sold online. The winning designers are awarded up Spreadshirt's turnover could be made up of 40% from
to USD 2,000 in cash and prizes. Although Threadless Europe, 35% from North America and 25% from Asia.
may appear very US centric, its large and active com- Spreadshirt is continuously enhancing its prod-
munity is actually international: 35-40% of all orders ucts and processes in order to sustain and further
and 50% of the winning designs come from abroad. strengthen its market position. The focus is put on
The 2006 sales are predicted to be near USD 20 million, the Spreadshop platform. From January 2007 on, not
with a sales volume of over 80,000 shirts a month. 42 only big accounts but also premium shop operators
will be able to integrate the Spreadshirt Designer
interface into their website, thereby increasing the
Future outlook
customization features for buyers. There are also
Spreadshirt's future business strategy focuses on the plans to further interconnect the tens of thousands of
following four factors: Spreadshops via an online social networking platform.
Currently, shop partners can create their own profiles
Conquering the Asian market,
and send messages to each other. However, the
Pushing the offline model, objective is to set up a central motif database through
Creating new business areas, and
Growing through small acquisitions. 42 http:// boetter.dk/podcast/category/customermade/.
594
Case study 15 Spreadshirt: mass-custom ization on the Internet
which the participating shops' content becomes avail- bricks-and-mortar stores or online. Via its Spreadshop
able to everybody. 43 This adds value to most of the technology, however, Spreadshirt 1.0 capitalizes on
partners, as Konrad Marx explains: viral effects by spreading the company's front office
Imagine you're a shop partner, but you hard ly have any traf-
online. Konrad Marx explains how this may function
fic on your site. Now you can make all your designs avail- in practice:
able to the whole community. If somebody buys a product
Suppose you're a Harry Potter fan and one day you find
with your design, the earnings are split between you and
out that the official online shop is run on a Spreadshirt
the selling shop.
platform which anybody can use for personal merchandis-
ing purposes. So you decide to open your own shop selling
By these new initiatives, Spreadshirt aims at becom-
ing a Web 2.044 business. Exhibit 17 illustrates the
network effects generated through this business 43 An early beta version has already been launched at
model as well as its distinctive features compared to a www.spreadshops.de.
classic shirt shop and the initial Spreadshirt 1.0 busi- 44 The term Web 2.0 suggests a new Internet generation
ness model. Likewise, it assigns the various success after the bursting of the dot-com bubble in 2001 and be-
came popular in 2004 when the first Web 2.0 Conference
factors to each business type. was held in San Francisco. For a definition of the term
With the right technology, a classic shop can offer by its creator Tim O'Reilly visit http://radar.oreilly.com/
mass-customized products to its customers, either in archives/ 2005/ 10/ web_20_compact_definition.html.
Mass-customization
E-commerce
Entrepreneur partners
User-generated content
Social network
Creativity generation
Growth potential
Source: Spreadshirt.
595
Part 4 Case studies
jerseys of your soccer club, for example. Then, one of your Peers trust each other much more than any company
team-mates likes the idea, starts running a shop for his dog- slogan.
breeding association, and tells his friends about it.
Moreover, Spreadshirt sees future growth oppor-
Through this approach, all shop partners become tunities by:
entrepreneurs and promote their ideas and designs
Educating its shop partners - especially in terms of
within their social environment - or even beyond
self-marketing,
by using Google ads, for instance. In the end, such
actions lead to higher sales for Spreadshirt because Pushing its brand,
fulfillment can only be done with them. Furthermore, Promoting La Fraise design competitions, and
the Spreadshirt Designer tool allows users to gener- Acquiring more corporate customers, especially
ate their own content which many make use of, again among small and medium-sized enterprises.
leading to higher sales.
Spreadshirt's next step is to develop a Web 2.0 busi- Through the above measures, Spreadshirt aims
ness model driven by the effects of a social network at doubling its worldwide sales in 2007 and 2008
through which people not only communicate with the respectively (see Exhibit 18 for its sales perform-
hub, but also with each other. The other main pillar of ance until 2006), while keeping its market focus and
Spreadshirt 2.0 is the creativity generation whose basic innovation drive. Regarding the company's future,
assumption is that people are creative, but that they Gadowski says:
do not (or rather did not) have the means to express What keeps me up at night are rather internal questions like
their creativity. Spreadshirt 2.0 not only enables users 'How are we going to enhance our organizational structure,
to generate their own designs and thereby express keep high quality levels and organize our product develop-
ment?' We are not afraid that somebody attacks our mar-
their creativity, but also to find a market for their kets and threatens our position. [ ... ]One day. there might be
products through the Spreadshops' network. By this someone who emerges with an innovation. But it will be up
social network, shop partners can inform potential to us to respond quickly.
customers about their products and the ideas behind
them, exchange experiences with each other and
recommend certain designs, sell products at a self- Exhibit 18 Spreadshirt's sales performance
determined margin and let Spreadshirt do the rest - (in EUR million)
all without any upfront costs. If Spreadshirt 1.0 is
the showroom for one's creativity, Spreadshirt 2.0 is 15
the marketing platform that will bring in visitors and
potential buyers.
Growth opportunities are obviously far greater for
Spreadshirt 2.0 than for the classic shop. There are far
more individuals on-board, i.e. the tens of thousands
of Spreadshop partners involved in creating value for 8
customers. All of them have the incentive to promote
their shops in order to achieve higher sales, thus lead-
ing to higher sales for Spreadshirt. Connecting them
via a social platform will result in even higher growth 2.5
opportumt1es. Intra-community communication
should make trends emerge more quickly and spread
further, again leading to higher sales for Spreadshirt. 2002 2003 2004 2005 2006
Users will be able to make recommendations about
their designs and products, or about Spreadshirt. Source: Spreadshirt.
596
-~=====================~------~--
----------===============----------
Novartis SMS for Life (A}
A public-private collaboration to prevent stock-outs of
life-saving malaria drugs in Africa
Every 30 seconds a child dies of malaria. Over 40% of adventure. By January 19, 2009, he was sitting alone
the world's children live in countries in which malaria is in an empty office, with only his computer, a phone
endemic. Each year, approximately 300 to 500 million and a solitary desk and chair. It was a few days after a
malaria infections cause about one million deaths, US Airways pilot had successfully landed his plane in
most of them African children under the age of five . the Hudson River after birds flew into the engines. Jim
Increasing resistance to anti-malarial drugs, coupled described his thoughts at the time:
with widespread poverty, weak health infrastructure I was tremendously motivated. I was excited. I felt inside
and, in some countries, civil unrest mean that mor- that this was a problem I could so lve. I thought about the
tality from malaria in Africa continues to rise. The pi lot, who did such a fantastic job landing that plane in the
tragedy is that the vast majority of these deaths are Hudson River and I remember him saying afterwards that
he felt his whole life, everything he did, all his training, was
preventable. The main reason why malaria is still such
preparing him for this one moment. I can really relate to
a threat, despite the existence of drugs to cure the dis- that, and I fe lt that this project was someth ing that wou ld al-
ease, is a supply chain problem. Supply does not meet low me to utilize all the skills, training and experie nces I had
the demand where it occurs, and stock-outs of drugs gained from 40 years in IT. If I could apply all those learnings
to treat malaria cost lives. to solve this one problem, this wou ld be just magic.
Jim Barrington, former chief information officer
Malaria as a disease
(CIO) at Novartis and current director of the SMS
for Life project, had been trying to solve the problem Malaria is a mosquito-borne infectious disease caused
since 2006, when he first heard about the "last mile" by the plasmodium parasite. The species Plasmodium
problem from Silvio Gabriel, executive vice president falciparum is the most common cause of infection and
(EVP), Novartis Malaria Initiatives. At the end of is responsible for about 80% of all cases of malaria,
2008 Jim decided to commit 100% of his time and and about 90% of deaths.
effort to an initiative to solve the supply chain prob- Malaria is a public health problem in over 100
lem and, after receiving the green light from Novartis countries worldwide, inhabited by over 2 billion
to leave his current job as CIO, embarked on this new people. It occurs in tropical and subtropical regions,
Research Associate Anna Moncef prepared this case under the supervision of Professor Donald A. Marchand as a basis for class
discussion rather than to illustrate either effective or ineffective handling of a bus in ess situation.
Copyright \ti 2010 by IM O, Lausanne, Switzerland (www.imd.org). No part of this publication may be reproduced. stored in a retrieval system or transmitted in any form or by
any means without the permission of IMD.
639
Part 4 Case studies
including parts of the Americas, Asia and Africa. cerebral malaria, and loss of investment and tour-
About 85% of the 300 to 500 million cases annually ism.4 In some countries with a heavy malaria burden,
occur in Africa, over 50% of them in five countries: the disease may account for as much as 40% of public
Nigeria, Democratic Republic of the Congo, Ethiopia, health expenditure, 30% to 50% of hospital admis-
Tanzania and Kenya. 1 The African region accounts sions, and up to 50% of outpatient hospital visits. 5
for 90% of malaria deaths globally, of which 85% of
deaths are of children under five, especially in remote
rural areas with poor access to health services.
The fight against malaria
Although malaria is preventable and fully curable, it
Causes and symptoms is a challenging task for African countries to control
and eliminate it. In the last few years some progress
Malaria is transmitted to humans by the bite of an
has been achieved, with 9 countries in Africa and
infected female Anopheles mosquito, which injects
29 elsewhere documenting reductions in malaria
the parasites into the bloodstream. 2 The parasites
cases of more than 50% in 2008 compared with 2000.
travel to the liver, where they grow for six to nine
However, the number of cases fell least in countries
days. They then leave the liver and invade red blood
with the highest incidence rates. 6
cells, where they multiply rapidly until the cells burst,
releasing thousands of parasites into the bloodstream,
which then attack other red blood cells, and the cycle Malaria prevention
continues. Malaria can be prevented by the use of prophylactic, or
It takes between 7 and 21 days for symptoms to preventative, drugs; by mosquito eradication through
appear. These include waves of fever (when the blood indoor spraying with insecticides; or by avoiding
cells are attacked), followed by shivering (when the mosquito bites by using mosquito nets impregnated
blood cells burst), plus other symptoms such as sweat- with insecticide. The first method is recommended to
ing, headache, joint pain, vomiting, anemia and con- short-term visitors and travelers to countries where
vulsions. If not treated within 24 hours, P. falciparum malaria is endemic. Intermittent preventative treat-
malaria can progress extremely rapidly and cause ment is also recommended for pregnant women in
death within days or even hours. Overall fatality rates areas of high transmission, where a single curative
in endemic areas can be as high as 10% of all malaria dose of an anti-malarial drug is administered at least
cases. Young children and pregnant women are espe- twice during pregnancy. It is not practical and too
cially vulnerable. expensive to be used for all full-time residents.
Malaria is a major cause of anemia in children and Vaccines for malaria are currently under develop-
pregnant women, of low birth weight, premature ment, but no effective vaccine is yet available.
births and infant mortality. Infants and children who
have suffered from severe malaria may also develop
mental impairments and even brain damage.
640
Case study 19 Novartis SMS for Life (A)
641
Part 4 Case studies
and distributing financial resources to prevent and chain problem. He thought it would be a good chal-
treat HNIAIDS, tuberculosis and malaria. This part- lenge for his team to take on and asked Rene Ziegler,
nership between governments, civil society, the pri- head of Global IT Governance and Operations, to
vate sector and affected communities represented a go to Zambia, where Novartis had been supplying
new approach to international health financing. The Coartem to the public sector since 2001, to explore
Global Fund worked in close collaboration with other the situation.
bilateral and multilateral organizations to supple- Rene met with the Zambian Ministry of Health and
ment existing efforts dealing with the three diseases. visited medical stores, hospitals, dispensaries and the
It provided three quarters of all international funding like. He looked at the healthcare system, in particular
for malaria, with an allocation of $1.8 billion over at the processes for drug distribution, consumption
the next five years. Every year a round of funding reporting and needs forecasting, as well as the avail-
was conducted and grants were awarded to countries able technology and telecommunications. He discov-
based on the assessment of the programs requesting ered that the stock-out problem was huge, there was
support. In 2010, the 10rh round of funding opened for no consistent forecasting and consumption reporting
applications. The funding came from about 50 donor in place, and ordering was paper based and sporadic.
governments and private sector donors, for example He produced a report with his main findings which
the Bill & Melinda Gates Foundation. highlighted two main problems. First, the informa-
Despite the increased funding from international tion and communications infrastructure was still very
sources (from $0.3 billion in 2003 to $1.7 billion in poor - especially in rural areas- computers were not
2009) there still was a major gap. 12 The estimated readily available, there were frequent power cuts, and
global requirement to eradicate malaria by 2015 was the mobile phone coverage was not sufficient at that
about $3.2 billion a year. time but it was growing very fast. Second, Novartis
could not assume responsibility for the in-country
distribution of Coartem, since this was the primary
Exploring the problem at Novartis responsibility of the Ministry of Public Health in each
In June 2006 Silvio Gabriel, EVP, Novartis Malaria country. They concluded that there were no practical
Initiatives, spoke at an internal Novartis IT confer- solutions to these issues.
ence in Basel designed to bring Novartis IT employees
closer to the company's patients. He talked about the Defining the solution
problem of malaria and the existence of Coartem,
which cured over 95% of cases after only three days In March 2008 Jim found another opportunity to
of therapy. At the same time he mentioned the death explore the issue further, in an !MD/Novartis execu-
statistics in Africa and the huge problem of matching tive development program called IT Excellence (ITX).
patients with the pills. The in-country supply chain Silvio once again made an inspiring presentation to
did not work very well, and there were many stock- the participants. Several of them were so moved by
outs in rural health facilities, where patients received the story that they formed a voluntary project team
free drugs, as opposed to having to pay for them from (ITX team), headed by Cathy Hein, senior project
pharmacies or private clinics. African countries found manager, to tackle the problem. Cathy recalled:
it difficult to accurately forecast the usage levels of A personal belief in the impact we could make as a whole to
the drug, which resulted in Novartis receiving a lot save lives was more than enough motivation to be persist-
of emergency orders. This meant it had to ramp up ent in overcoming all hurdles. It was particularly rewarding
to know we were contributing to the fight against malaria.
production and ship everything by air in order to meet
this sudden demand. The pharmaceutical company They went back to their home countries and contin-
could not hold too much stock of Coartem because it ued working on the project remotely. Because they
guaranteed that when the drugs were delivered they all had other work commitments their resources and
would still have a shelf-life of at least 18 months, out
of the original 24 months.
12 The WHO World Malaria Report 2009,
As CIO, Jim Barrington, participated in the confer- http://www.who.int/rnalaria/world_rnalaria_
ence and thought that IT could help solve the supply report_2009I en/index.html
642
Case study 19 Novartis SMS for Life {A)
time for the project were limited. At around this time, to help explore problems and find solutions. The pro-
Rene and Jim made a presentation to Silvio, recom- gram enlisted the help of students, who were valued
mending that the SMS 13 cell phone technology was for their fresh thinking, which was uncontaminated
the only viable IT solution for the rugged African by the "corporate way'' of solving problems.
environment. Jim and Silvio agreed to act as sponsors and to
Rene then spoke with Jim about asking for help share the expenses and finance the students from their
from IBM, Novartis's major outsourcing partner, and departmental budgets; IBM agreed to provide people
specifically from the Value Creation Centre, a joint to lead the project. There was no time to lose. It was
Novartis and IBM activity to drive innovation with already May 2008 and they had to find and hire eight
IT in the pharmaceutical company. They contacted students for a summer internship. Charlotte and Jorg
Charlotte Newton, chief innovation officer at the started recruiting immediately. From 66 candidates,
Value Creation Centre, and Jorg Sprengel, Global they chose a diverse team of 4 undergraduates and
IBM R&D Client Manager on the Novartis Account. 4 graduates, 4 male and 4 female, from various back-
Charlotte was convinced about the project: grounds and nationalities; 3 of them had malaria.
Corporate responsibility projects carry something indefin-
On July 1, 2008, they kicked off the 12-weekproject
ably motivating to allow people to reach into their own self with the sponsors and the ITX team. They started by
and to make a contribution that they are truly al igned be- mapping the existing supply chain, in particular "the
hind. And this was the case with this project, where you are last mile" problem (refer to Exhibit 1), and investigated
essentially saving babies' lives.
. -,,r
-lliiimriililliiiMi..tllil...
.,, -
,:-..-::~!t
;~:
~ .!
41 U - . . I
' ......... n....,.,
--"
"'" - ~ .,,..... .,.,
:.--=> ::::. :;_,;;.. : .. ::::::.:.
__f - .....}
4;....,.. 1.Afi:ur: Ntll'JL'"l~H.~ ,_. 1 /
VH..:_"'~En 1' rJ >r~ t1At..1J l\):r- _..
643
Part 4 Case studies
possible improvements to the Coartem in-country it and we will see. Which I did. He gave me the approval in
supply chain in Nigeria and Tanzania. Typically, once January and I purposely didn't go near him again until I had
everything in place.
stocks of drugs arrived in the country by airplane from
abroad, they were transported in trucks to a central
medical store (MSD in the exhibit). From there they Enlisting the Roll Back Malaria Partnership
went to zonal medical stores, then district warehouses In January 2009, in his new and empty office on the
and, finally, health facilities or health posts, which Novartis Basel campus, Jim set to work preparing what
each served a large number of villages. Distances he called the "SMS for Life" project proposal to present
were great and the poor condition of some roads and to Professor Awa Marie Coll-Seek, executive director
climate complicated matters. At each step in the chain of the RBM Partnership. His idea was to establish a
there was a lack of information flow. partnership project under the leadership of RBM in
Coached and facilitated by Charlotte and Jorg, order to take ownership of the project away from
the students brainstormed 142 ideas, reduced them Novartis and give him credibility and legitimacy when
to 80, refined 42 of them and produced 10 possible bringing other partners on board. When he presented
solutions, which were combined into 5 final ones: to her and her team on February 10, 2009, they were
SMS-based stock management, malaria schools initia- quite excited about the project. They liked the fact that
tive, a distribution coordination service, the year-out it tackled a major problem, and that both the problem
program, and community healthcare access. and the potential solution were clearly defined.
In September 2008 the students presented beauti-
ful posters with drawings explaining the five proposed
solutions in detail and their value assessment to Jim Finding corporate partners
and Silvio, who chose SMS-based stock management While waiting for RBM to commit, Jim started sell-
as the preferred solution. The essential idea was to ing the idea to potential corporate partners based
create an in- country forecasting system based on on the proposed project governance. The concept
the use of SMS messaging between the health posts was that each selected partner would undertake to
that dispensed Coartem and the district and regional provide skilled resources and a financial contribution
warehouses that distributed the drug. A data manage- of approximately $200,000. This would provide a
ment system with a reporting interface using charts project team of five or six skilled people and an overall
would provide stock level information from all facili- budget of $1 to $1.2 million.
ties to facilitate stock movement and supply, as well as By the end of February 2009, Jim had secured the
improving stock forecasting and planning. funding and resources from Novartis, a project man-
ager and the use of LotusLive project management
Finding the right partners software from IBM, funding and advisor resources
At the end of September the students went back to from Sara Lee, and initial interest from P&G. Sara
their universities and Jim continued thinking about Lee and P&G were both interested based on their
how to move the project forward. By December 2008 logistics experience in African countries selling low-
he had decided to resign from the Group CIO position cost essential products like Kiwi Shoe Polish and
and his boss Raymond Breu, Novartis's CFO, agreed to soap. He still needed a mobile telecommunications
sponsor him for 12 months until his early retirement company, an IT company to develop the system, and
to focus solely on special projects. Jim recalled: some type of visualization or mapping technology. He
started talking to three companies: Zain, a mobile tel-
Before this project, I had already made up my mind to re-
ecommunications company founded in Kuwait with
sign from the CIO position for personal reasons. And the
agreement with Raymond Breu was that I would be work-
operations in 17 African countries and 6 in the Middle
ing on any special project he gave me. But this project was East; Vodafone, the world's largest 14 multinational
certainly at the back of my mind and one of the areas that mobile telecommunications network company with
I was going to target like crazy. And I persuaded him that operations in 31 countries; and Google, whose map
I would like to progress it and see if I could make it hap-
pen. He didn't really think I could: He was very skeptical;
it required funding. it was highly political; and I would get
caught up in bureaucracy, he thought. But he said: Fine, try 14 Based on revenue.
644
Case study 19 Novartis SMS for Life (A)
service was of interest. Their responses and the ways the financial crisis meant it had to cut funding of all
these companies approached the potential coopera- non-essential activities. After many discussions with
tion were quite different. What was similar was that P&G, the company wrote back to say that it would not
they all wanted to do everything by themselves, with- participate in the project.
out other partners. Jim recalled: The initial concept of obtaining donations from
Google, which was by far the most enthusiastic, put six
a number of partner companies changed to having
people on the project. I was sure they would be the most fewer partners, who each would finance their own
successful. After the initial contact I talked to them twice a parts of the project. They all agreed to fund their own
week, but by April we still had nothing in writing. With Vo- travel costs and their people, eliminating the need for
dafone's team we had an initial meeting in London with the
a central project budget.
director of intellectual property, the scientific director and
the head of corporate research. After that they kept con-
tacting me and disappearing for a while as they discussed Getting ready
the project internally. Zain kept quiet.
With the partners on board, the work on designing the
He also started to look for a potential country in which
system solution and preparing for the pilot began. In
to pilot the project. Two were on his list, Tanzania
April, Jim hired Olympia Wereko-Brobby, one of the
and Zambia, and he started to talk to their Ministries
students who had taken part in the Extreme Blue proc-
of Health.
ess earlier in 2008, to help him coordinate the project.
Other members of the team were three part-time
Setting up a steering committee project members from Novartis (Tara Cook, associ-
In April, Professor Coll-Seek agreed to support the ate director, IT, sales & marketing US; Marty Putenis,
project and to chair the steering committee. Other executive director, healthcare compliance US; and
members of the committee, from a broad range of Peter Buesch, head of IT project office Germany);
backgrounds, were: Kevin Ferriday, project manager, from Vodafone; and
Peter Ward, project manager, from IBM.
Dr Alex Mwita, Tanzania National Malaria Control
Program (NMCP) manager
Dr Desmond Chavasse, PSI 15 vice president and Field trips to potential pilot countries
Global Malaria Control director The team started to refine the project scope, technical
requirements and desired outcomes, as well as plan-
Professor Marcel Tanner, director of the Swiss
ning the project in detail. In May, they departed on a
Tropical Institute
three-week field trip to Tanzania to meet with National
Professor Klaus Leisinger, CEO of the Novartis Malaria Control Program (NMCP) representatives on
Foundation for Sustainable Development the ground, including the manager Dr. Alex Mwita
Silvio Gabriel, EVP of Novartis Malaria Initiatives and the senior health officer Winfred Mwafongo. The
Jim Barrington, who became the "SMS for Life" NMCP would be the main owner and user of the SMS
program director. for Life solution in Tanzania. The team visited hospi-
tals, health centers, dispensaries and warehouses in
At the first steering committee meeting on April 20, the three districts that the NMCP had chosen to partici-
2009, Jim had to present the commitments from pate in the pilot, namely Lindi Rural, Kigoma Rural and
potential partners. By this time, he had received writ- Ulanga (refer to Exhibit 2 for the location of the three
ten confirmation from Vodafone that it would partici- districts). The three districts covered a population of
pate. It committed to cover all the costs of developing over 1.2 million people in 226 villages and 129 health
the software, for which it would hire an external soft- facilities. They were chosen because of their situation
ware house, MatsSoft Ltd, 16 as well as costs related to
implementing the pilot, including providing handsets
and covering the SMS costs. 15 PSI provides malaria control support to national Ministries
The other partners were not ready. Google was of Health in over 30 countries around the world, tailoring
its programs to the environment in each location.
unable to obtain internal approval in time. Zain did 16 MatsSoft had previously worked with Vodafone on
not respond. Sara Lee withdrew its commitment after developing an SMS-based banking solution.
645
Part 4 Case stud ies
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the country and supplied from different zonal medical the health system well, in order to benefit from their
stores; malaria was the most common cause of death experience. Based on the inputs from all stakehold-
there; and there were no other pilots running at the ers, the team modified their project. The feedback
same time, which might have skewed the results. received gave them a high degree of certainty that the
Thus, Lindi Rural represented an "average" district in designed solution would work. Once they were back
Tanzania; Ulanga was one of the top 10 most difficult in the UK, MatsSoft started to develop the system.
districts to work in, because of its remoteness and staff At the beginning of June, Jim went to Zambia to dis-
shortages and skill levels; and Kigoma Rural was so cuss implementing the pilot there. Google representa-
large that the zonal medical store was a one-day drive tives joined him on the trip to explore the possibility
away from the main town, Kigoma, and the furthest of doing the pilot in that country in place of Vodafone.
health facility was a 12-hour boat trip away.
The team explained the pilot to all stakeholders, 17 The Mennonite Economic Development Association
showed them the draft solution and obtained their (MEDA) and PSI Social Marketing & Communications
agreement to participate. They also met with a couple for Health (PSI) .
646
Case study 19 Novartis SMS for Life (A)
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647
Part 4 Case studies
with the logos of the RBM Partnership and the other register their phones in the system and send the SMS
partners. They also prepared a project website that messages (refer to Exhibit 4 for training details). The
was hosted on the RBM website. The SMS/mobile training included pharmacy best practices, which
phone system, the Web-based reporting system and were well received by the health workers who had
Google mapping were readied and tested. very little training.
On August 5, the second steering committee meet- On October 1, the pilot was launched in the first
ing took place. It endorsed the start of the pilot in district, Lindi Rural. Subsequently it was launched
Tanzania, despite the fact that the memorandum of in Ulanga, on October 15, and Kigoma Rural, on
understanding with the Tanzanian Ministry of Health October 22. The pilot ran for 21 weeks to cover two
had not been signed. quarterly order and delivery cycles.
How it worked
Piloting the solution
The solution consisted of two components: an SMS
At the end of September 2009, the first trammg management application and a web-based reporting
sessions took place. The training was tailored to tool. All of the data was collected in a central system
three different user groups: (1) central management, housed in the UK in the Vodafone MatsSoft data center.
including NMCP and MSD employees, (2) district The SMS application stored the locations of the
management, including district management officers health facilities and the personal mobile phone num-
(DMO), district pharmacists and zonal MSD repre- bers of the health workers, which were registered in
sentatives, and (3) health facility workers, who were the system to ensure that information was only sent
trained on how to store medicines, count stock levels, by authorized workers. Every Thursday at 14:00 the
r -
Central management
District
Health facility workers
District
648
Case study 19 Novartis SMS for Life (A)
system sent a weekly stock request message to all the web-reporting usage statistics - e.g. how many times
registered mobile phones. The health facility workers the web tool was accessed. Jim commented:
had to count the level of stock in quinine injectables One of our criteria was to design and build a solution that did
and four different dosages of Coartem and send back the minimum necessary and was stripped of all complexity.
an SMS with the stock count message, as shown in We felt that this was necessary because in Africa it is quite
Figure 1. In order to ensure maximum response rate, a difficult to work: remote locations, varying levels of educa-
tion and literacy. We had to come up with something that is
free phone number was established and the costs were
very simple. We designed a system that collects just five piec-
covered by the pilot. es of information every week in a very simple SMS message.
On Friday at 14:00, the SMS system sent an auto-
matic reminder message to all health facility workers
who had not yet responded. At 17:00, the system Pilot support and monitoring
sent a credit of 1,500 Tanzanian shillings (the usual Each DMO appointed one person to take the lead in
top-up amount in the area) to all mobile phones that driving corrective actions resulting from the stock
had submitted a stock level SMS message. Late mes- level visibility. This person received a Blackberry
sages were accepted but no credit was awarded. The device to access the system and was responsible
mobile phone credit was an incentive to motivate for registering new users, educating them, assisting
health workers to send the message on time and also workers experiencing difficulties, and ordering and
to recognize the additional tasks they had to perform redistributing medicines in response to the stock-outs.
for the pilot above their normal workload. Because An additional salary was paid to the district lead per-
health workers were using their personal phones, the son for the duration of the pilot in recognition of the
credit was for their personal use. extra tasks he/ she was asked to perform.
Every Monday at 12 noon, the system sent an The project team monitored the pilot in two ways.
automatic message to the DMO indicating the health There was a daily review of the online information
facilities that had not sent a message and the details available through the web application. In addition, for
of all health facilities with a stock-out. The web-based the duration of the pilot, the team conducted surveil-
reporting tool enabled access to the data through a lance visits to 116 out of the 129 pilot health facili-
secure reporting website (refer to Exhibit 5), which ties. There they registered physical stock counts and
was available via the internet or Blackberry mobile matched them against the most recent data entered
phones. It enabled the users, namely the NMCP dis- in the SMS for Life application. They also checked the
trict and central management employees, to view the GPS positioning of the health facilities and provided
current and historical stock levels at both the health answers to any questions the health workers had, as
facility and the district level. It displayed the facilities well as gathering their feedback. In total, the team
on Google maps, showed the SMS messages sending spent over 370 man days on the ground supporting
statistics, as well as any errors, and indicated the the pilot. These follow-up visits were very important
649
'
V1
0
Exhibit 5 The web-based view of the information reporting from the system
Sl!.,Sfor life
Suppl!H
B G 0 Y8RG
+ ""lMl.~C"410tHt1t,'Yt::f:.oa~Af'd~irra
OiWkts
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Alldistntts
Kigoma Rural
' ,, "9
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ltnd1Rural
Ulanga " 2J
Focllltles G
Basanta 0
Bigatwo
Bitale RHC 1 18 2l
Buban go 0 390 120 ~10
Chagu 0
Chakulu 0
ChankabYl1mba
Chankele 0 18
Ch1kon11 10 0
Ch1rombola
Ch1uia "
01mba J 12
Ebuyu 12
He1embe norepo<r.stK&IVfld
Hingawale 1 2 1 1 106
ldunda ) 0 0 15
lgalu!a 1orepor.:s~e:;ed
lgawa 8 Q 0 0 85
lgotaVA
lhawan1a ,,.
19 0 2 6
11-..i ..
for the health care workers' perception of the project 2 To demonstrate that a data-gathering infrastruc-
and its significance. Olympia recalled: ture can be made available via simple tools that
To me, the most important part of the training was the vis- can be used by people in the most remote
its we made to individual health facilities throughout the locations.
pilot. This process often involved long and difficult journeys 3 To demonstrate the effectiveness of a public -
to very remote areas, but the opportunity to catch up with
private partnership model.
people we had met at the centralized training, to experience
their daily working environment and get their feedback on By the time the pilot concluded at the end of
the project in an intimate setting, was amazing. They were
February 2010, all three objectives had been ful -
also motivated by the visits and in having their feedback
taken into account for the countrywide scale-up. I am sure filled. The SMS for Life application provided, for the
this contributed to both the accuracy and the frequency of first time ever, reliable weekly stock information
their SMS messages. The project is as much about the peo- about anti-malarials in the health facilities. This
ple you meet and learn from as it is about technology. enabled the district management to act upon the
On December 17, 2009, the third steering committee information and reduce or eliminate the stock-outs.
meeting took place, at which the pilot's progress and At the beginning of the pilot, all three districts had
initial results were discussed. The members also dis- high stock-out rates of one or more of the five drugs.
cussed handing over the pilot to the Ministry of Health During the pilot the stock-outs of all drugs were
and Social Welfare in 2010 and the possible imple- reduced from 57% to 0% in Lindi Rural, from 87%
mentation of the solution in other African countries. to 30% in Ulanga, and from 93% to 4 7% in Kigoma
To do this, they agreed to organize meetings with the Rural (refer to Exhibit 6). At the beginning of the
Global Fund, WHO and UNITAID. pilot, 26% of facilities had no stock of any dosage
of Coartem; this figure was reduced to 0.8% by
the end.
Pilot results
The average response rate over the 21 weeks across
The pilot had three objectives:
all three pilot districts was 95%, never dropping
1 To demonstrate that visibility of stock levels will below 93%. The data accuracy rate was 94%. The
prompt action to reduce stock-outs, thereby im- average usage of the system per user group was more
proving access to anti-malarial drugs. than once per day.
Total
pt
week
Last
week
Lindi Rural
1st
week
Last
week
Ulanga
1st
week
Last
week
Kigoma Rural
pt
week
Last
week
l
ACTs
Stock Level 2696 4411 541 1692 1422 1927 733 792
Quinine
Stock Level 12536 16981 6158 9694 4536 2273 1842 5014
O/o Stock-out 18 O/o 4 O/o 7 O/o 00/o 3 O/o 7 O/o 36 O/o 4 O/o
651
Part 4 Case studies
In the final report19 the team made a recommen- The collaboration with them has been absolutely excellent;
dation to implement the solution in all districts of we managed to establish a team withoutthe need for a con-
tract, without the need for a budget, without any need for a
Tanzania and other African or non-African countries
formalized memorandum of understanding or agreements.
to bring visibility to drug stock levels, which could The goodwill coming from those companies was amazing.
be used for all priority drugs, depending on national And there are external partners that collaborated, for ex-
environments. The solution could also be applied to ample British Airways gave a substantial discount on our air
disease surveillance and the public-private partner- travel, which was a major cost in the project.
ship model could be used to tackle other societal He continued talking about their motivation to work
problems. for the project:
The pilot results and recommendations were for-
The most Important was to establish the emotional connec-
mally presented and the final report handed over to tion with what we were trying to achieve. All the people in
the Minister of Health, Professor David Mwakyusa, in MatsSoft, Vodafone and IBM, they know about malaria and
Dar es Salaam on World Malaria Day, 20 April 25, 2010. they know that they are involved in a project that is directly
He said: contributing to saving people's llves. That's what drives us
and keeps us all together.
If I only had that system before it would have made my life
so much easier. I wanted to say: Thank you.
652