Running IT like a business in the healthcare industry

Running IT Like a Business in the Healthcare Industry

April 2011

The results from Accenture’s third global IT performance research initiative underscore the challenges that CIOs are facing as they cope with the continued effects of the economic downturn while also striving to increase the strategic impact of IT. Forging an optimal path forward depends on making investments in new applications and technologies. Yet in today’s economic environment, the ability to make those investments depends on a smarter, more targeted approach to cost management and control. Simultaneously managing cost cutting and reinvesting is one of the toughest challenges CIOs face.

In the healthcare sector, CIOs participating in the Accenture High Performance IT research study revealed their struggles in driving increased business value from the IT function. On the one hand, healthcare technology executives show a strong commitment to helping their organizations meet the needs of their customers: Using IT solutions to increase customer satisfaction was named as the No. 1 strategic priority by healthcare CIOs, a higher ranking than any other industry analyzed.

On the other hand, the ability to manage IT like a business, with the proper focus on both effective cost management and business case analysis, was found to be lagging in the healthcare sector compared with industry peers.

To achieve and sustain high performance, healthcare organizations should focus on a smarter and more focused approach to IT cost reduction and management, shifting their spending away from “keeping the lights on” and toward capabilities and applications that better support revenue growth.

The Accenture study and subsequent analysis have identified several key initiatives that healthcare CIOs should embark on now, ranging from IT budget reviews that expose redundant services to investments in areas that support connected health activities such as electronic medical records.

Directing spending toward more strategic initiatives
For IT departments, applications are the lifeblood of business value. Our research found that compared with their lower-performing peers, high-performance IT organizations invest more heavily in application development: 70 percent of their resources are devoted to discretionary spending, such as deploying, testing, integrating, building or enhancing applications. By comparison, other organizations spend less than 65 percent on such activities. This means lower performers are spending less time and fewer resources building new functionality and more time simply fixing and running existing, older applications.

This contrast is even more pronounced in the healthcare industry. On average, healthcare organizations spend 59 percent of their applications budget on maintenance, compared with just 38 percent for the CIOs of the high performers. At the same time, application portfolios for healthcare organizations are more prone to duplication, and they set and enforce guidelines on consistency and approach far less than is typical of other industries—let alone the high performers.

Running IT like a business
Another insight comes from looking at IT organizations’ ability to manage IT as a business, which includes driving investments from a business case and then measuring results. This kind of advanced IT governance excellence in IT governance improves the ability to turn cost savings and efficiency improvements into reinvestments in IT that add business value. We found that 69 percent of high performers say they develop a business case for nearly every new IT initiative, more than twice the percentage of other IT organizations. Just as important, high performers are eight times more likely to measure the benefits realized from these IT projects.

In this area, healthcare IT organizations lag the pack significantly. None of the healthcare CIOs participating in the Accenture survey reported that they develop a business case for new IT initiatives almost all the time; 25 percent reported they are targeting such an approach in the future. By contrast, 69 percent of high performers already drive their IT investments from a clear business case.

Healthcare CIOs also report they are facing difficulties in managing the costs of innovation. This means they may be overlooking opportunities to manage costs more effectively by using online and mobile interactions. Such interactions cost significantly less than serving customers in person or by phone, thereby freeing staff for business growth projects. The Accenture High Performance IT study revealed that on average, only 20 percent of health providers’ customer interactions and 24 percent of supplier interactions are online. By contrast, high performers offer online capabilities for 36 percent of customer interactions and 44 percent of supplier interactions.

To some extent, the cost-control challenges that health CIOs confront may relate to how they experience IT’s role in the organization. Only a quarter of healthcare technology executives responding say the IT function is strategic in helping the organization meet its objectives. This is in sharp contrast to the 69 percent of high performers’ CIOs, who see close alignment between what their IT operations do and where their organizations are going strategically.

Improving cost management for healthcare IT organizations
If the health industry is to achieve the goals of patient-centered health care while controlling costs, CIOs should borrow the following approaches from the top performers uncovered in our high-performance IT research.

Focus on more strategic metrics
In addition to traditional IT metrics, CIOs should identify the measures that are linked more closely with the organization’s most important business objectives for short- and long-term outcomes. Understanding which business functions influence these metrics the most can help determine how IT initiatives can not only support but also improve these metrics. These more significant metrics may include data points such as internal and external resources aligned to business requirements and priorities; legacy systems proactively retired; and integrated business and IT changes reflected in the IT architecture.

Improve workforce and resource management capabilities
None of the healthcare CIOs we surveyed are currently making significant investments in workforce training. This means it may take even more time for such organizations to develop the cost management capabilities necessary for success. The high performers in our research make workforce management a top priority and have made significant strides in addressing workforce challenges. It is clear that high performers view the workforce strategically as a core resource, one that must be invested in and supported with the proper tools, training and certification.

Consolidate and redirect
Based on an IT budget review matched against business imperatives, CIOs can more readily identify critical services and also discontinue functionality that may no longer contribute to operating efficiencies or business value. This review can also guide executives as they work to consolidate disparate IT assets and infrastructure. With such savings, investments can be made in important innovations related to connected health initiatives—areas such as electronic medical records and health information exchanges.

Leverage outsourcing to control costs
The use of outsourcing providers is an important aspect of effective cost management. It’s also a way to gain access to critical IT skills, improve organizational agility and flexibility, increase the effectiveness of business processes and lower the total cost of ownership of applications and infrastructure. Currently, many healthcare IT organizations are not making significant use of outsourcing strategies.

We found that IT high performers approach outsourcing as a partnership with service providers, which enables CIOs to extract significantly more value out of their application and infrastructure investments. High performers are also more effective at employing sophisticated metrics and processes to track the effectiveness of outsourcing service providers.

Conclusion: Sustainable cost reduction
Ultimately, what healthcare IT organizations are aiming for is a sustainable approach to IT cost reduction. Accenture’s research shows that companies that master such an approach can achieve 25 percent savings in IT spending while improving organizational performance. In the best cases, long-term savings can reach 40 percent.

Based on our research, healthcare CIOs have a big opportunity to improve their cost management capabilities, enabling them to run IT like a business. By improving the performance of their IT organizations they can also drive greater value to their entire enterprise and its customers and shareholders.

1Because of the survey sample size, the findings specific to health providers are not necessarily statistically representative and should be used only directionally.

About the author
Craig Mindrum is the managing editor of the Outlook Point of View program.

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 This Article is Tagged: Health & Life Sciences/Pharmaceutical.
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Managing the Costs of Health Care

Running IT like a business in the healthcare industry – Accenture Outlook 
New research from Accenture shows how healthcare organizations can get smarter about IT cost management, shifting their spending toward applications that better support revenue growth.
healthcare organizations, it cost management, accenture research
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