IT Strategic Sourcing Can Relieve the Squeeze on Healthcare
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The document discusses how Wgroup assisted a major nonprofit healthcare system in developing more cost-effective IT sourcing strategies amidst challenges from a decentralized business model. The analysis revealed high internal IT costs and a lack of governance, leading to recommendations for a centralized IT operating model to improve efficiency and reduce costs by at least 15%, potentially saving over $7 million annually. Wgroup's phased transformation approach aims to enhance patient care and align IT services with broader organizational goals.
IT Strategic Sourcing Can Relieve the Squeeze on Healthcare
- 1. IT Strategic Sourcing Can Help Relieve the Squeeze on Healthcare Drive Your Business Case study
- 2. See how WGroup helped a major healthcare system develop more cost effective IT sourcing strategies.
- 3. The client, a major nonprofit healthcare system, had a highly decentralized business model, consisting of several clinical specialties operating as separate entities with their own IT services group. 1OPPORTUNITY Each institute had different IT service-level needs, so a decentralized business model made sense at the outset. Changes in the healthcare industry, however, forced the client to reconsider this practice and search for more cost-effective, transparent alternatives.
- 4. In this environment, the client saw a need to consider the costs and delivery models for several non-core services, including IT, and whether there were opportunities for cost reduction. The client initiated a program aligned with the Care Affordability Act which focused on enhancing patient care and safety, improving patient and employee satisfaction, and reducting costs. As this program continued, the client sought to improve efficiency by re- evaluating their decentralized operating model in regard to IT. 3 At this time, the healthcare industry had two major changes happening simultaneously. There was an increased focus on pricing transparency to help empower the customer, and fee-for-service was shifting toward a managed population model.
- 5. The client selected WGroup to aid them in evaluating their overall IT service delivery, capabilities, and performance. The client’s IT sourcing goals included increased flexibility, IT transformation facilitation, improved transparency, improved cost predictability, and a cost reduction of at least 15%. Following three failed engagements that did not proceed past the financial analysis stage, the client sought additional help. They wanted recommendations for strategic alternatives to transform IT service delivery while increasing service levels, reducing costs, and managing the risk associated with the change.
- 6. 2APPROACH The process was driven by a cross-functional business committee, rather than an internal IT effort. This shifted the focus from IT alone and instead sought to align IT sourcing with broader organizational goals. The analysis included a deeper examination of exact unit-rate costs for in-scope IT services. Instead of comparing costs to proprietary benchmark data, WGroup utilized outsourcing market rates as a reference point. WGroup used a fundamentally different approach from the client’s past failed engagements. 5
- 7. The sourcing-strategy phase of the engagement lasted three months. The first several weeks were spent performing interviews, gathering data related to services performed by vendors, and understanding resources and costs to support the IT environment. This preparation formed the basis for the sourcing analysis and recommendations. 6
- 8. Managers within all the IT towers were interviewed about storage, servers, service desk, end-user computing, facilities networking, and security. Other leaders within the organization, including those in the finance, heart and vascular, pharmacy, imaging, nursing, and medical operation departments, also were interviewed to provide insight into what IT services were needed and how changes might affect the organization’s goals. This process informed future financial modeling, services and technology modeling, and organizational modeling to form a comprehensive sourcing strategy. A secondary critical challenge for the client was shadow IT spend. There was a significant amount of IT spending occurring outside the purview of the IT department. In order to ensure that a new sourcing strategy was effective, it was critical that this spending be classified, managed, and folded into the consolidated strategy. 7
- 9. WGroup also assessed the overall IT operating model to further identify opportunities for IT transformation in support of business goals. After conducting interviews and learning about the client’s goals and sourcing situation, WGroup began identifying areas to reduce costs, increase transparency, and improve end-user outcomes WGroup identified potential partnerships based on knowledge of service providers’ capabilities and fit with the client’s needs and culture.
- 10. 3INSIGHT + ADVICE Given the client’s goals of improving end- user experience, increasing transparency, and reducing costs, a fundamentally updated sourcing strategy was required. The analysis discovered that the client lacked metrics in a wide variety of areas. Performance and volume data was inconsistent; complete IT financials were not readily available; and it was clear that effective governance was not in place. Current IT service management (ITSM) process maturity and service-level maturity were found to be relatively low for an organization of their size, and the IT operating model did not use industry-standard service-management practices. There was also an underemphasis on service-level management. 9
- 11. WGroup found that the decentralized IT operating model was not effective, driven in part by a lack of standardization across the health system as a whole. The decentralized model increased overall operating costs and did not allow for synergies between various institutes. In many cases, the internal cost structure for IT services within the organization was higher than the market rate for outsourced services. This presented a further challenge, as individual institutes were reluctant to shift services to a central IT group. There was concern over central IT’s ability to deliver quality of service consistent with their own. In order to ease these concerns and ensure the entire organization’s business needs were met, a centralized strategy with effective governance was needed.
- 12. In order to address the issues with service management, governance, and the decentralization of IT, WGroup helped the client identify opportunities to transform the IT operating model to be more cost-effective and efficient.
- 13. The analysis concluded with a recommendation to launch an RFP work stream, redesign the IT operating model, and establish and launch a more robust IT governance program. In particular, IT infrastructure services could be provided more effectively via centralization, while providing tiered service-level agreements to each of the specialties utilizing WGroup’s multiple supplier governance model. In addition to costs, WGroup carefully considered the clinical processes that are key to the hospital provider service. With the help of WGroup’s experience, this transformation will be phased in, with strong business and IT executive level participation. 12
- 14. 4RESULTS WGroup’s analysis and recommendation will help the client develop more sophisticated IT sourcing strategies — to leverage synergies between institutes, improve patient and employee experiences, and reduce costs. 13
- 15. Conservative estimates project annual savings of over $7 million for the client, primarily as a result of outsourcing services within the scope of IT towers.
- 16. With the success of this initial phase, the client has further contracted WGroup to assist in the RFP process in order to implement the recommendations laid out in phase one. This process is ongoing and expected to be complete in 2016.
- 17. Founded in 1995, WGroup is a management consulting firm that provides Strategy, Management and Execution Services to optimize business performance, minimize cost and create value. Our consultants have years of experience both as industry executives and trusted advisors to help clients think through complicated and pressing challenges to drive their business forward. Visit us at www.thinkwgroup.com or give us a call at 610-854-2700 to learn how we can help you. 150 N Radnor Chester Road • Radnor, PA 19087 610-854-2700 • ThinkWGroup.com ©2015–2016 WGroup