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As much has already been written about Cognizant and its Trizetto acquisition – including Everest Group’s take: The New “Big Blue” of Healthcare IT? – it is time for us to do a post-facto check on Cognizant’s healthcare IT services business, and ruminate on the state of the healthcare IT market.
Let’s put Cognizant’s numbers into perspective with our growth estimates for the overall healthcare IT industry. With the healthcare industry set to grow at a CAGR of 12 percent through 2020, and given what we have seen since we published the following in 2013, the market size projections for healthcare appear well on track to humble the pessimists among analysts.
While services spending growth has been steady, especially for the payer and provider markets, the innovation side of healthcare IT has been sulking for a while. Yes, “sulky” is the word that comes to mind when you sit listening to a panel discussion on digital innovation at #AHIPInstitute2015 and not one panelist cites an example of innovation from the healthcare space. They either talk Uber or Airbnb. This is unfortunate.
Despite the huge numbers up for the taking, a big spike in the booming healthcare IT market will not come by unless there is a dawn of new and nimble technology start-ups that change the game of healthcare enterprises looking to move away from bespoke solutions to as-a-service models that reduce their time-to-value exponentially. For good or bad, the healthcare industry in the U.S. has always had an umbilical cord connection closer to Washington D.C. than to Silicon Valley. That is probably what curbs innovation in this industry from breaking out of its shackles to produce its own Ubers and Airbnbs. In my opinion, except for a few fitness/therapeutic/diagnostic wearable-focused investments, little causes titillation in the healthcare technology start-up space. Despite all the brouhaha on the B2C shift, consumer-focused investments are coming more from the enterprise IT side than from third-party innovation. Frankly, do we want to be in a world where Ford not only makes the cars but also drives the cabs? Hence, the question is – in a world dominated by technology vendors (Epic, GE, McKesson, and Philips) are we ready to declutch third-party innovation and let it bloom?
There was a reason we titled our blog about Cognizant’s acquisition of Trizetto, “The New Big Blue of Healthcare IT?” The simile was not to herald the dawn of a new behemoth, but to provoke the sort of nimbleness and courage in healthcare IT industry that IBM (the original Big Blue) has shown over the last many decades to stay relevant in the overall technology industry. In an industry with a muffled voice of innovation (few exciting start-ups), a few big bullies (large technology vendors, EMRs, etc.), and well-meaning presiding deities (government and legislatures), the push for change will have to come from outside.
Why did I harp on Cognizant while writing this blog? It was a rank outsider in the healthcare technology industry (well, almost, given its offshoring, pure play service legacy). Even if it becomes a US$4 billion healthcare enterprise, it will still be a fraction of the market. Via its investments, growth, and outlook, what it has given the industry is a peek into the kind of bravado that can make this market rock. We require more of this bravado. But, if it is going to be just once in a blue (pun unintended) moon, it will be rank boring. So, as the Joker would have said, let’s put a smile on that face!
This is the first in a series of blogs Everest Group is publishing on exciting opportunities and implications to watch out for in the healthcare IT services market.
Since publishing our two most recent blogs about the business situation at Infosys (Connecting All the Dots and Silicon Valley company) and comparing those perspectives to our blogs over the past two years, people have asked us: “Why did you change your point of view about Infosys?” Here’s why – it’s because most of what we predicted about Infosys came true.
We have a relentlessly objective point of view, and our blogs over the past couple of years pointed out the internal problems we observed at Infosys. We called the firm out early on its arrogance and hubris in the marketplace, evidenced in its commitment to premium pricing despite the unsustainability of its pricing vis a vis the marketplace, along with its inward-looking focus instead of focusing on customer intimacy.
As the board at Infosys started to understand the same things that we called out, they made some interesting moves; and we’re largely supportive of the moves. If they want Infosys to be a leading high-tech firm, they need to bring in different leadership. They did that by bringing in an external executive as the new CEO in 2014. And it’s clear that the firm’s leadership is now deploying a customer-facing strategy rather than continuing to be inward-looking. This isn’t just a story line; Infosys is backing up its statements with investments in new leadership talent over the past two months as well as in other actions.
Before, we saw a once-proud firm with internal problems, which talked the talk but didn’t walk the walk. We increasingly see Infosys pivot strongly to next-generation leadership, taking steps to give the firm a chance at success again.
It’s too early to say whether the recent moves and strategy will work. And as I said in my earlier blog, execution eats strategy. But the next step in strategy is putting their money where their mouth is, and there is every sign that Infosys is starting to do that. As such, we applaud Infosys’ progress.
As we called out Infosys when we saw problems, we now comment on it as it moves forward. To date, history validated our point of view. Now that Infosys is dealing with its issues and taking consistent actions to move the firm forward, we’ve acknowledged their progress and amended our point of view accordingly.
Photo credit: Infosys
At Everest Group, we’ve heard industry rumors that Infosys CEO Vishal Sikka – formerly on SAP’s Executive Board and global lead for products and innovation – recently hired two former SAP executives based in Silicon Valley. This move comes on the heels of Sikka planning to invest in startups in Silicon Valley. What does all this mean for Infosys and for the rest of the services industry?
Upon hiring Sikka from SAP, we knew Infosys was changing its direction to become an IP company, and we expected him to make significant changes. In addition to his former exec role at SAP, he earlier worked in Xerox’s research lab in Palo Alto in the Valley. He is a well-known figure in the American software world, and he continues to be based out of Silicon Valley.
As I predicted in a blog three months ago, Sikka had begun the transformation and I thought his next step would be to build on the Infosys talent pool by bringing in selected additional talent. Now he has done that and is using his relationships at SAP in Silicon Valley to recruit other executives to join him at Infosys.
This move means a number of things. Most importantly, it means that Infosys drinks its own champagne. Following Cognizant’s example, Infosys is establishing North American headquarters – but going one better. Rather than basing its business in New Jersey as Cognizant did, Infosys is building on its next-generation theme and basing its American business in Silicon Valley. This strategy has a number of potentially positive attributes for Infosys.
First, it helps reinforce the brand that Infosys is committing to the “leading technology” aspect of its new-and-renew strategy. And lining up Silicon Valley executives to supplement the Infosys leadership team is another clear demonstration of its strategy.
Significantly, having North American headquarters in the middle of the Silicon Valley ecosystem allows Infosys to tap into the Valley’s rich innovation talent pool as Infosys moves from its traditional labor arbitrage-based model to an IP-based model. It also places Infosys close to its customer base. Soon to be gone are the days of the factory control from Bangalore dictating to customers how to use services.
I think this speaks volumes around the provider’s commitment and willingness to stay the course and pace as the services industry evolves with the digital world’s new technologies and new business models. Infosys is trying to catch that wave of next-generation digital disruptive technology that emanates from Silicon Valley’s ecosystem.
Sikka talks about Design Thinking, which puts him right into the heart of how Silicon Valley thinks and tries to behave. Infosys is making a commitment to be at the heart of the Valley’s ecosystem to better leverage that thinking. Bangalore is a long way from that ecosystem. New Jersey is closer, but Infosys chose to be in the heart of it, right in the Valley.
I think this starts to ask hard questions of the rest of the industry, and I believe the rest of the industry will watch Infosys intently to gauge its success. In the event that Infosys succeeds in making this pivot, I think we can expect other Indian pure-plays to follow suit quickly.
Photo credit: Flickr
I recently had a chance to sit down with Infosys’ CEO and his team, and they shared with me their new/renew strategy. From what I understand, it resonates with where the market is heading. This is remarkable as it addresses the vexing problems and risks service providers now face in trying to change their business to address new models, new technologies and new customer expectations. It is always easy to drink the Kool-Aid, and I am definitely experiencing a sugar high. However, the Infosys strategy is one to watch as it appears to connect all the dots in a quickly evolving marketplace.
There are a number of things I find attractive about this new/renew strategy. First is the simplicity of its messaging. It’s easy to understand where they’re coming from and that they are focusing on their customers, not on Infosys like their past strategies. That in itself is powerful for customers’ understanding of what Infosys stands for and where they are heading. And it’s also powerful for the Infosys team to be able to understand what to focus on and what not to focus on. That resonates.
Second, I find the direction compelling. Clearly there is much in the market that is new. New technologies and new business models are driving the market and, when combined, are extremely powerful.
Digital changes how companies interact with their customers, and there’s nothing more powerful than that. Cloud changes the speed and agility and price at which companies can move. The consumption-based and as-a-service models allow companies to align services closely with business outcomes and only pay for services as they consume them. Taken together, these new technologies and business models are very relevant to where customers are headed with their business, and these new areas are capturing the growth in the services segment.
Infosys aligning itself with this direction makes perfect sense as they move to redesign their growth and maintain their leadership position in the services industry.
This aspect of Infy’s strategy is equally powerful. There is a second set of technologies that allows providers to change the way they deliver services. I’ve blogged often about four of these technologies: automation, analytics, robotics and artificial intelligence. Providers such as Infosys are looking to harness these technologies transform their environment, lowering costs and making their existing services far more responsive than they’ve been before.
So Infosys is tapping into the big themes in the marketplace. They’re leveraging new technologies and new models to connect the dots to new opportunities for growth. And they’re renewing their existing business by harnessing new technologies and capabilities to optimize their service delivery.
Underpinning the strategy is a sea shift in customer expectations. Enterprises are increasingly more demanding of their existing services and at the same time impatient to take advantage of new technologies and business models.
I like Infy’s new/renew strategy because I believe it is directly in concert with where we at Everest Group see the market moving – taking advantage of new technologies and rethinking how to optimize existing services. And it embraces the “old wine in old wineskins” concept I recently blogged about.
I think this strategy will position Infosys well. A word of caution: as an often-quoted lines goes, “Execution eats strategy for breakfast.” So we look forward to seeing how they execute in this marketplace.
Photo credit: Flickr
What a difference a few months with a new CEO makes. Things are different at Infosys today. When we talk with them, it’s clear that it’s a different organization than it was a few months ago because of Vishal Sikka, the new CEO. On one level, very little has changed; but on another level, there are significant changes.
Their strategy remains the same. They are leaning into the future by focusing on platforms, intellectual property and software. This is the same strategy they have used for engaging with clients for several years.
It’s the same organization, other than the new CEO. He has yet to bring a large cohort of new executives in. And the firm has the same clients and employees.
Inside of Infosys, morale is clearly better. There is a renewed sense of optimism in their strategy. We observe renewed vigor and enthusiasm in talking with their clients and in the marketplace. The result is improved execution across the board, from engaging with clients to delivery. Across the board we see improved execution.
We also see a change in customers’ attitudes. They are interested in the new CEO. They are giving Infosys a second chance, and Infosys is finding doors easier to open and audiences more receptive than they were a few months ago.
Here’s the moral of the Infosys story: in the services industry where client relationships and delivery execution means everything, vision and morale matter. Those factors alone can account for improved performance.
It’s not everything, but it’s a powerful ingredient in improving performance. We look forward to seeing what Vishal Sikka will do in reshaping Infosys’ strategy, organization and people. So far we’re seeing an effective start.