Author: AbhishekSingh

Are IT Buyers Pushing for Discounts Due to the Pandemic?

Not surprisingly, we’ve been flooded with questions about the implications of COVID-19 on the IT services industry over the past two months.

Let’s take a look at the two most prevalent questions.

How are IT contracts being impacted?

Financial distress – such as a dip in revenue generation and restricted cash flow – is forcing enterprise IT to review their IT contracts. Clients are exploring three options:

  • Putting non-critical projects on hold
  • Deferring payments to keep critical projects running
  • Seeking discounts

Their preferred option is putting non-critical projects on hold. Clients are triaging to keep their business-critical functions – like transactions systems, call centers, datacenters, and supply chain systems – running. However, they’re putting non-critical engagements, such as new application development and feature upgrades, on the back burner.

Second in order of priority is deferring payments. We’re seeing deferral requests increase in frequency, especially in distressed industries such as travel, transportation, hospitality, and medical devices. And we’ve seen payment terms going up to 180 days in a few situations. However, an early trend that will soon establish itself as the IT industry norm is balance sheet (or cash pile) financing; vendor balance sheets have started to play a role in enabling billing deferrals and “deploy now pay later” models. For example, Cisco has set up a US $2.5 billion war chest leveraging its balance sheet to help some of its clients defer payments until 2021.

Our analysis shows that vendor balance sheets, both tech products and IT, are healthy. For example:

  • IT vendors’ (HCL, Infosys, TCS, Wipro, etc.) balance sheet assets over liabilities ratio ranges from 1.3x to 3.5x
  • Tech vendors’ (Adobe, Amazon, Microsoft, Oracle, etc.) balance sheet assets over liabilities ratio ranges from 1.1x to 3.4x.

And there is evidence that they may dip into them to help their clients out.

The third in priority is seeking discounts. We’re seeing anecdotal evidence of clients seeking discounts on contract value and in a few cases extending up to 50 percent of the annual contract value. But to clarify and qualify this:

  • The discount discussions are largely focused on time and materials (T&M) projects. Few are around fixed price and managed service engagements, which form a larger share of revenue profile for large IT vendors
  • And this means that smaller IT and staffing vendors – for which T&M constitutes larger share of the revenue profile – are going to be impacted more than the large IT vendors

Most importantly, we’ve seen enterprises being very flexible and collaborative with their vendors – working closely with them to keep initiatives running.

How will enterprises prioritize and fund IT initiatives during this crisis?

Enterprises are currently preparing their playbooks to navigate the ongoing recession. It’s important to note that recession does not mean that IT initiatives will be broadly deprioritized. Depending on the impact they see on their overall business and their anticipation of recovery, enterprise executives will triage their resources (cash, talent, vendors) to keep critical initiatives running.

Here’s a look at the framework we’re using to help buy-side clients prioritize their decisions:

  • Rescue business critical initiatives most severely impacted by the recession through financial engineering and aggressive cost takeout
  • Revitalize revenue-generating business functions that can gain from automation usage and cloud-driven agility
  • Reinforce the lowest impact portions of the revenue profile through M&A and product launches
  • Restructure those portions of the portfolio – such as vendors, locations, and talent – that already had redundancy and concentration risk issues

Portfolio approach by enterprises

In the coming weeks, enterprises will be using this framework to:

  • Triage between critical and non-critical IT spends
  • Build their blueprints for how they will reallocate budgets and engage with vendors
  • Identify new scope and financial models on which they’ll engage their vendors

Watch this space to see how this playbook evolves. If you have any questions or ideas on other approaches, please write to me at [email protected].

Koch Industries’ Takeover of Infor Signals Key Bet on Cloud ERP Market | Blog

Infor – a global leader in business cloud software specialized by industry – announced on February 4, 2020, that Koch Equity Development (KED) LLC, the private investment arm of Koch Industries, Inc., has entered into a definitive agreement to acquire Golden Gate Capital’s equity stake to take 100 percent ownership of Infor. Before the agreement, Koch Industries owned about 70 percent of Infor. While the official figures are not out, public sources peg the deal at close to US$13 billion, including preferred shares.

Why did Koch do this? Here’s our analysis of the key reasons.

  1. Riding the ERP demand bandwagon: Our recent analysis indicates that ERP-focused process transformation and modernization drove over 30 percent of all digital transformation initiatives in 2019. While Oracle and SAP are the largest players in this space, more than 35 percent of the market is still comprised of a long tail of bespoke ERP, where there is likely to be huge churn and consolidation. Infor promoters wanted to ride this growth opportunity through an IPO.
  2. SAP/Oracle in the equation: SAP is the largest player in the ERP market, and its current licenses are reaching end of life in 2025. Also, it’s well known that SAP is currently offering significant incentives to nudge enterprises to accelerate their move to S/4HANA, especially its cloud version. Oracle is using a similar incentive-oriented approach for its cloud-based applications. Promoters of Infor probably saw how this competitive dynamic would play out.
  3. Taking the private route instead of IPO: In a market driven by incentives, a privately-owned organization backed by a diversified cash rich promoter probably gives Infor a better shot at competing with its much larger competitors. For a listed firm, navigating a growth-oriented strategy (by de-emphasizing margins) would have been a tough nut to crack. Plus, competing with larger peers will require a significant investment in product modernization.
  4. The Koch portfolio companies: The jury is still out on whether Infor can credibly compete with SAP and Oracle in the broader ERP market. However, as the second largest privately-owned conglomerate in America (Cargill is the largest), the parent Koch Industries can enable a captive market for Infor to start with.

Deal implications

For Infor – potential growth through synergies: As we’ve already noted, this acquisition may give Infor access to a captive customer base in Koch Industries’ subsidiary and partner network. Given Koch’s presence in more than 60 countries, this may also allow Infor to expand the geographic footprint of its client base, especially in markets outside of North America where it has limited presence. This is coming at a time when enterprises in Europe and APAC are beginning to embrace SaaS offerings.

For Koch – potential RoI: We see this takeover as a typical private equity play to improve the value of an existing asset by riding the ERP demand wave. While Koch Industries has been making investments in its portfolio on the technology sector, we do not see this tweak in ownership as a sign of change in Koch’s portfolio mix. Given that a large chunk of Infor’s client base is still struggling with aging on-premises applications, Infor will need strong investment backing to convince its existing user base of its long-term cloud ERP vision.

For systems integrators – potential opportunities: Koch industries generated over US$100 billion in annual revenues in FY19. While we do not have estimates for the ERP transformation opportunities within Koch portfolio companies, it is likely to be a significant opportunity for systems integrators to focus on, using an Infor playbook.

For enterprises – better incentives, more supply-side investments: If Koch backs its investment with a large innovation fund, enterprises may gain on the following parameters:

  • Better incentives: Due to intensifying competition, enterprises may see more creative financial solutions and incentives around cloud-based ERP
  • Verticalized product offerings: Industry-focus and verticalization is gaining traction in the ERP space. Koch’s expertise in industries including manufacturing, chemicals, energy, petroleum, finance, and commodities may lead Infor to accelerate micro-vertical solutions faster than its competition.

The path forward

Infor has seen almost flat growth of around 3 percent over the past five years, due primarily to its long-term focus on SaaS revenues, which directly cannibalized its existing license revenues from on-premises offerings. In FY19, Infor’s SaaS revenue – which is about 20 percent of its overall revenue base of US$3.2 billion – grew at approximately 21 percent, while its licensing fees declined at about 12 percent. Given this strong focus on SaaS, Infor is well positioned in the manufacturing and allied verticals to overcome some of the critical cloud migration challenges and cater to some industries’ process-specific demands.

However, over the past year, there have been multiple big-ticket acquisitions in the enterprise platform market, geared to improving product capabilities – especially in areas related to cloud and analytics. In this hyper-competitive space, it will be challenging for Infor to compete credibly at scale based only on promoter-backed cash flow. Watch this space for more on how this move pans out.

Four Key Themes from J.P. Morgan’s 2020 Healthcare Conference | Blog

A couple of weeks ago in San Francisco, J.P. Morgan’s 38th annual Healthcare Conference brought together leading pharmaceutical, healthcare, and medical devices firms, global service providers, technology vendors, emerging start-ups, and members of the investment community. Because this conference happens so early every year, it usually sets the tone for the healthcare ecosystem each year.

Here’s our take on the top themes addressed during the 2020 conference.

Patient affordability – at front and center

Because 2020 is a US presidential election year, it’s no surprise that rising medication costs was a contentious topic of discussion at the conference, particularly as: several candidates are promising lower prescription drug costs; spending on drugs constitutes about 10 percent of the national health expenditure in the US; 25-30 percent of US patients find it difficult to afford the cost of their prescription medications; and, drug/device efficacy and health outcomes haven’t been improving in line with increasing prices. A recent Kaiser Family Foundation survey found bipartisan support for government action to lower prescription drug costs. And the government, healthcare payers, and patient groups alike are pressuring life sciences firms to take on more financial accountability and reconsider how they price their products.

From a services delivery perspective, we believe all this turmoil is creating a perfect environment for the adoption of innovative value-based payment models in the pharma industry. To support value-based contracts and orchestrate an integrated technology ecosystem to enable collaboration and transparency among patients, life sciences firms, and healthcare payers and providers, IT service providers will have to build capabilities like solutions for risk analysis, value analysis, and reward analysis, blockchain-based smart contracts, and IoT-based patient data capture.

Consumers continue to be the biggest disrupter in healthcare

With consumerism gaining ground in healthcare, health insurance program members and patients are demanding increased engagement, control, convenience, quality, and affordability. Thus, there were multiple discussions at the conference on digital health and wellness apps that operate outside of the realm of actual care delivery but augment caregivers’ abilities. There were also numerous sessions on why challenges such as outdated reimbursement and payment models, inadequate technological infrastructures, restrictive policies, resistance to change, and a lack of financial incentives have to be solved in order for telemedicine and telehealth options to be truly viable.

Although there are many obstacles, we’ve already seen some positive results from the implementation of telemedicine/telehealth in the form of cost savings and a vision for expanded care in the long term. At the same time, we believe the ecosystem is struggling to evolve a truly sustainable business model in consumer and digital health. Examples of these struggles include players like 23andMe, which laid off 14 percent of its staff in the wake of declining DNA test sales and is tightening its focus on the direct-to-consumer business and its therapeutics arm, and Proteus Digital Health, which is winding down its $88 million deal with Otsuka Pharmaceutical as it pivots toward oncology and infectious disease treatment adherence.

Data monetization – the new fuel for growth in healthcare?

The healthcare industry’s ever-growing repository of untapped data, from both clinical and non-clinical sources, may finally be a part of monetization use cases in the near future. Some conference participants referred to this unexploited data as “the oil of healthcare.”

The real question is if organizations will have the right resources to make data liquid, available, and accessible to the right stakeholders at the right time. In our view, the emergence of data exchange platforms (such as one announced by Amazon – AWS Data Exchange) can spur revenue generation for companies holding data assets; but that can only happen once the challenges around defining data integration, managing heterogeneous data, and extracting value from data are solved. At the same time, healthcare companies, researchers, and innovators may begin to realize improved innovation with requisite data up for purchase through data exchange platforms.

BigTechs marching into the healthcare sector

BigTechs Like Amazon, Apple, Facebook, and Google already have a track record of disrupting major industries such as retail and telecommunications. And because patient-/member-centric solutions are in high demand among resource-strained enterprises, these technology giants are now invading the lucrative healthcare industry, and many have already made and announced significant investments for transforming the industry.

At this point in time, the BigTechs aren’t competing with incumbents. Rather, their current market share lies largely outside the traditional scope of the healthcare industry (payer, provider, pharmacy benefits manager, etc.), in areas such as data and analytics, consumer devices, and transportation services. However, partnerships, like Google’s recently announced relationship with Ascension, can expand their role.

Here’s an illustration from our recent BigTechs in Healthcare: Reimagining the Ecosystem study that analyzed 11 large technology firm’s (Amazon, Apple, Facebook, Google, IBM, Lyft, Microsoft, Oracle, Salesforce, SAP, and Uber) investments in the healthcare industry The study took an objective look at the many ways BigTechs are impacting healthcare.

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Please contact us at [email protected], [email protected], and [email protected] if you’d like to hear more about these themes from J.P. Morgan’s Healthcare Conference, or learn more about our “BigTechs in Healthcare: Reimagining the Ecosystem” study.

Three Digital Healthcare Takeaways from HIMSS 2019 | Blog

I experienced three pleasant surprises at last week’s Healthcare Information and Management System Society (HIMSS) conference. They were all about a perfect storm that is building to correct all that has been wrong in the digital healthcare space all these years.

Healthcare Companies are Exploring Cures for Their #DigitalHeadache

Payers and providers alike are growing increasingly disillusioned with the outcomes of their digital programs. In fact, 78 percent of the healthcare leaders we surveyed in late 2018 indicated some sort of failure with their digital initiatives, whether big or small. The good news here is that most forward-thinking leaders are going back to the drawing board to redefine their digital strategy. Anthem, Intermountain Healthcare, and New York Presbyterian are great examples of organizations that have taken up the cudgels to fix digital healthcare where it fails – organization and culture.

There’s Increased Focus on “Enabling” the Patient Experience

To make the “patient experience” successful, enterprise leaders are taking a step back and focusing their attention on creating experiences for their workforce, clinicians, and partners (e.g., physician group, CMS, government agencies.) Don’t get me wrong, patients still need to be at the center of our universe. However, the personas that enable and deliver experience for patients need a fix first.

Innovation is Coming from Unexpected Sources

It was heartening to see the likes of Amazon, Google, Microsoft, and Salesforce steal the march from the big boys in the healthcare tech space – i.e., Cerner and EPIC – in asserting themselves as the technology visionaries in healthcare. Their focus on healthcare microservices is a relief for healthcare executives trying to navigate the “all or nothing” approach of the EMRs.

There is one player that seems keen on reinventing itself: Optum. Through a nimble product and services strategy, Optum is touching upon on all the hot buttons – MLR, analytics, PBM, and claims. Optum is the specialist vendor to watch out for when it comes to healthcare.

Last, but not least, what really took the cake were the innovative and exciting POCs related to clinical AI and visualization that Israel and Ireland – yes, the countries – showcased in their booths. These were some of the most fully baked solutions that I have seen in my 10 years attending HIMSS.

Hence, it’s with good reason that I left fairly impressed with the developing ecosystem knocking on the doors of healthcare organizations that are hungry for outcomes.

I will sign off by sharing an illustration from our recent study that analyzed the investments 27 of the leading healthcare payers and providers have made in artificial intelligence (AI), a key marker in the world of digital healthcare. This study objectively analyzed these investments from the perspective of ROI achieved.

Assessing 27 healthcare players (payers and providers) on their Artificial Intelligence investments

As you can see, there is a wide variance even within such a small sample set of healthcare organizations. FOMO (Fear Of Missing Out) pushed a lot of organizations to invest in the flashy new toy called AI. However, not all of them embarked on their investment journey by first enabling the core components of capability.

The difference between the best and the rest in healthcare is simply this: the ones to get the best ROI – those on the top right – are taking their journey through step functions that enable not only technology but also an organizational culture of innovation.

Please contact me at [email protected] if you’d like to hear more about my take-aways from the HIMMS conference or our study, named “Dr. Robot Will See You Now: Unpacking the State of Artificial Intelligence in Healthcare – 2019.”

 

Everest Group’s 3rd Annual Service Provider of the Year™ Awards: Did Your IT Services Provider Win? | Sherpas in Blue Shirts

2017 was a seminal year for IT services. Digital adoption finally broke free from the shackles of marketing’s lip service and moved from “pilot” to “program.” The of role CIOs resurged as business stakeholders relied on them to deal with an ever-growing supply landscape and procurement conundrum to deal with new-age technology. And growth challenges appeared to have bottomed out for the two key industry verticals: BFSI (the largest) and Healthcare & Life Sciences (the fastest).

Hence, our 2018 Service Provider of the Year™ awards for IT services providers – our third edition – recognize companies that not only weathered a challenging year but reinvented themselves to chart out a new phase of growth for 2018 and beyond.

Our methodology

We select the IT Service Provider of the Year award winners based on the consolidated scores they achieve in the Star Performer, Leader, Major Contender, and Aspirant positions on our PEAK Matrix™ evaluations. In 2017, 67 service providers participated in 24 PEAK Matrix evaluations.

Awards categories

This year’s awards categories:

  • Leader boards
    • ITS Top 20: A list that recognizes the top 20 service providers
    • Top 10 Challengers: New this year, this list recognizes the top 10 service providers with annual revenue less than US$2 billion that increasingly position in the PEAK Matrix evaluation segments as challengers to the established leaders.
  • Individual awards
    • Leader of the year: Recognizes the service provider(s) with the maximum number of Leader positions
    • Star Performer of the year (overall): Recognizes service provider(s) with the maximum number of Star Performer positions.

We awarded these recognitions in the following areas:

  • Overall IT Services
  • Application Services
  • Digital Services
  • Cloud and Infrastructure Services
  • Banking, Financial Services, and Insurance
  • Healthcare and Life Sciences

Highlights of 2018 Service Provider of Year Awards

Here’s a look at the top five on the ITS Top 20 leader board:

PEAK SP of the Year

  • Accenture and TCS took the top two positions in the ITS Top 20
    • Accenture retained its top slot from 2017
    • TCS moved into second place, leapfrogging Cognizant and IBM
  • Accenture won Leader of the Year (overall)
  • TCS won Star Performer of the Year (overall)
  • And in the new Top 10 Challengers category, LTI and Virtusa snagged the top two positions.

Wondering if your IT services provider – or the firm you work for – received one of these coveted awards? See the complete list of winners.

Innovation Tax for Service Providers: Pay Up or Go Belly Up! | Sherpas in Blue Shirts

“The Times They Are a-Changin” is an appropriate idiom to borrow from the great (and now Nobel Laureate) musician Bob Dylan to describe a conversation I had just a few days ago with a senior executive who leads sourcing for one of the largest pharmaceutical firms in the U.S.

Context: As you see in my most recent blog, I have been very cynical of the innovation strategies adopted by both service providers and enterprises. I have accused service providers of digital and cognitive “washing” that just pays lip service to innovation, and enterprises of resting in comfort zones where commodity and arbitrage still rule the roost.

I had no reason to tweak my view, until the discussion with this senior executive.

He was picking my brain on how to infuse innovation into his company’s existing application services engagements. He has been struggling to do so with some of the best-known names in the service provider world. When he asked, “Is there something I can do to make the service providers change?,” I responded:

  • Change is difficult in a business environment in which service providers must play both the arbitrage and digital games
  • The “arbitrage-first” service providers will push for traditional models if you blink
  • And “digital-first” providers will proactively offer innovative solutions even though they keep their arbitrage strengths handy

IT Innovation Maturity in Applications Services

IT Innovation Strategies in Application Services

The challenge is, there are more of the former than the latter, and the incentives for falling for arbitrage-driven models are still high for both procurement and service providers, irrespective of which of the above categories they belong to.

Hence, unless sourcing executives do the following, innovation will be difficult to come by.

  • Anchor: Define an innovation roadmap
  • Organize: Contract with service providers on a formal innovation program
  • Seek co-investments: Ask service providers to co-invest (put a financial stake) in your innovation roadmap

At this point, the senior pharma executive had an epiphany, and stated, “Aha. I don’t want to put it this way, but if I have to make my vendors change, I must institute an “Innovation Tax.”

There, my friends, is the sign of things to come. Enterprise sourcing executives are increasingly feeling compelled to show business value. If service providers refuse to bring value to the table, they will have to be ready for an “Innovation Tax.”

By the way, these recommendations are not a bunch of my opinions. The above was validated through a survey of 100 senior enterprise executives Everest Group conducted in late 2016.

See our reports, “How to innovate – A Comprehensive Guide to Innovation in Application Services,” and “Cracking the IT Innovation Code” for more details on how to infuse innovation into your existing and future sourcing contracts.

Reality Check on the Top 5 IT Innovation Myths | Sherpas in Blue Shirts

How do Amazon, Apple, and Tesla keep innovating? What do they do differently than many others do not, or cannot, do? And how many industry leaders can say their organization is truly innovative?

To get answers to these and other pressing questions, we conducted a focused research study with more than 100 application service executives – approximately 50 percent of whom were CXOs – in North America-based enterprises engaged in IT outsourcing programs. The research revealed startling insights. For example, only 30 percent of study participants felt their companies were somewhat innovative, even though all of them realized the importance of innovation and had made strategic investments in it.

And from defining it and its objectives, to funding it, to defining and institutionalizing the process to drive it, innovation has remained an elusive concept both for enterprises and service providers.

The study also busted innumerable myths associated with IT innovation. Let’s look at the top five.

IT Innovation Myth 1: Innovation is abstract and cannot be measured

But, over 75 percent of the study participants already have a highly effective mechanism to measure the impact of innovation. Linking the investment made to measurable results and desired benefits has enabled them to devise a formal approach for impact assessment.

IT Innovation Myth 2: Innovation should result in a disruptive idea

In reality, this is the last priority for executives of best in class enterprises! A siloed disruptive idea that does not impact the business model or enhance customer experience is the least appreciated outcome, and does little to serve the purpose of innovation. Instead, transformation is the primary lever deployed by enterprises to identify disruptive innovation. Moreover, the overall approach to it and the returns derived from it are considered more significant for driving innovation than the idea itself.

IT Innovation Myth 3: Episodic initiatives such as “idea of the month” and “innovation events” can deliver innovative results

Unfortunately, such sporadic investments have a probability of less than 10 percent to deliver innovative outcomes. Though used by most service providers, these are the least preferred approach to innovation from the enterprise executive’s perspective. Continuous innovation with prototyping and demonstrations/MVPs are far more likely to deliver on customers’ expectations.

IT Innovation Myth 4: Large scale investment is required from the enterprise or service provider to fund innovation

Though investment is required, 65 percent of the study participants with high satisfaction with their innovation program believe in shared responsibility and co-funding. Their belief is that shared responsibility spreads the risk involved, and reduces the investment required, thereby attracting the best-in-class capabilities from both sides.

IT Innovation Myth 5: A dedicated centralized team/CoE should be set up to drive innovation

Rather, best-in-class innovative businesses embed a culture of innovation across their enterprises to encourage the concept of continuous and crowdsourced innovation.

To enable enterprises to adopt a systematized innovation approach and achieve their desired outcome, Everest Group designed a unique framework on which to base their innovation strategy. We also used the framework to identify the 14 most innovative service providers in the industry.

Application Services IT Innovation Maturity

IT-Innovation-Myths-Application-Services-Maturity

For more information and insights on this research, please refer to our reports, “How to innovate – A Comprehensive Guide to Innovation in Application Services,” and “Cracking the IT Innovation Code.”

Service Provider of the Year Awards 2017 | Sherpas in Blue Shirts

Everest Group is proud to release the second edition of its annual PEAK Matrix Service Provider of the Year™ awards for IT Services 2017.

2016 was an interesting year for the IT services industry. Political upheavals (think Brexit and the U.S. presidential election), growing consumerization, the Internet of Things (IoT), and artificial intelligence were the key topics that defined the discourse of this highly watchful industry.

Everest Group took all of the above, and more, into account with its 2016 research. Under the aegis of four key IT Services (ITS) practices – Banking, Financial Services & Insurance (BFSI), Healthcare & Life Sciences (HLS), Application & Digital Services (ADS), and Cloud & Infrastructure Services (CIS) – we published a whopping 21 PEAK Matrix evaluations, assessing service providers on their capabilities and market success across multiple practice sub-segments.

Despite intense competition, politico-legal challenges, and the changing shape of technology adoption, the ITS market continues to grow, albeit at a slower pace. There are some service providers that, through their consistency and innovation, continued to lead the discourse on change and adaption. Hence, while there indeed are Leaders and Star Performers for each of the segments we evaluated, the composite picture clearly shows that some deliver consistent leadership and top performance across many different categories.

As today’s enterprises navigate the complex landscape of next-generation and legacy technology, a global business footprint, and a complex vendor portfolio, Everest Group’s PEAK Matrix Service Provider of the Year awards will help them to identify the best of the best – service providers with strong broad-based capabilities and successful service strategies that align well with the evolving enterprise IT demand.

The 2017 award categories are:

  • ITS Top 20: We arrived at this list using a consolidated score reflecting points received on individual evaluations based on tiered scores for Star Performer, Leader, Major Contender, and Aspirant positions.
  • Individual awards categories: These awards are based on the count of Leader or Star Performer positions across the category evaluated:
    • Leader Of The Year
      • ITS (overall)
      • HLS
      • BFSI
      • ADS
      • CIS
    • Star Performer Of The Year
      • ITS (overall)
      • HLS
      • BFSI

Here’s a PEAK peek at the top five on the ITS Top 20 leader board.

Service Provider of the Year Awards 2017

For the complete list of awardees, please click here.

Have you had experience with one or more of these providers? Our readers would love to hear your views about them!

Trump’s Visa Reforms: The Bitter Pill IT Needed | Sherpas in Blue Shirts

The Trump administration’s move to table H1-B visa bill in the house has led to a bloodbath for IT services stocks. While there appears to be near unanimity on the “absurdness” of the move, there is a silver lining most experts seem to have missed. I’ll explain this through two acts that have played out.

Act #1: Old Wine in New Bottle
In a November 2015 blog (“My Digital is Bigger Than Yours” and The Technology Pulp Fiction), I explained the rationale behind my cynicism for buzzwords that were driving the discourse on IT services. The story being told was that IT services was undergoing a paradigm shift in innovation. However, instead of witnessing a real shift in strategy, talent model, and offerings, what we have seen is a largely marketing driven illusion of change. Digital, cloud, automation, and cognitive are terms that are being thrown around without caution, giving an impression of disruption in services delivery. In reality, it’s just the natural course of progression in IT services getting embellished by these buzzwords. Analysts know it, service providers know it and – no prizes for guessing – buyers know it too.

As our January 2017 enterprise pulse report on buyer (Dis)satisfaction highlighted:

  1. Buyers are unhappy
  2. They aren’t enamored by these buzzwords
  3. While they consider their existing IT services mediocre, they are still hanging on to it.

Point 3 above is the reason why, as much as I would like to take service providers to task on this pretense of transformation, I believe that enterprise IT must take its fair share of the blame. They have been running mediocre, unimaginative, and long past use-by-date procurement practices. There are two primary reasons behind this inertia:

  • There aren’t any better services options at comparable current prices. Sure, they would love to get something like IBM Watson for infrastructure automation, but their annual IT budgets won’t allow for it. Pretty much a thought process like, “Why buy a Ferrari to run a NYC yellow cab?”
  • The opportunity cost of letting go of something that has been working fine for a decade and a half is huge. Enormous bureaucracies have been created around services procurement, and they are almost impossible to dismantle.

Net-net, labor arbitrage, offshoring, and time & materials still continue to drive the lion’s share of IT services. In the current scenario, despite all the “digital” and “cognitive” washing, there is no way this reality can be swept under the rug. Does this mean that services transformation is a lost cause?

Act #2: And then Trump happened….
All this is getting Trumped now. Visa regulations mean less access to the same cheap labor. Now, instead of paying lip service to service delivery automation, enterprise IT and providers will actually have to think about hyper-automation to keep the lights on and manage margin improvement expectations. Things will have to move faster towards autonomics and/or cognitive for service providers to stay afloat and enterprise IT to stay relevant for CFOs.

My message to the ecosystem to which I belong? – It’s time to put your money where your mouth is!

MACRA Nails it as the Next Big Bang of Reforms in Healthcare | Sherpas in Blue Shirts

On Friday, October 14, the Centers for Medicare & Medicaid Services (CMS) in the United States released a humongous, 2398-page rule to implement new value-based payment programs under the Medicare Access and CHIP Reauthorization Act (MACRA).

This release is a significant step forward in streamlining Medicare payments, and establishing what “value” will mean in the much debated Value-Based Reimbursement (VBR) programs.

Here’s our initial take on this release, in order of what I liked most about the rules.

CMS is making the right noises: As the CMS acting administrator, Andy Slavitt, put it, “…..changes to the rule were to help physicians focus on delivering care and seeing patients instead of performing administrative tasks.” The term in bold represented the point of conflict between a right thinking, efficiency-focused regulator and unnecessarily overburdened physicians.

How is some of this getting addressed?

Reduces confusion over quality improvement: The new set of rules consolidates three existing quality reporting programs — Physician Quality Reporting System, Value-based Payment Modifier, and Meaningful Use (MU))– and a new performance category into a single system through Merit-based Incentive Payment System (MIPS.) The definition of “merit” or value was never clearer. Here is a snapshot of the scoring model that defines the four performance categories and their weights:

MACRA Healthcare

Pick Your Pace (PYP): In order to make the above operational, CMS is allowing providers to pick their own pace, (see Andy Slavitt’s blog for more details), and choose from three data submission options or join an advanced Alternative Payment Model (APM):

  • Test the program
  • Submit 90 days of data
  • Submit a full year of data

Enabling consortiums: CMS now allows MIPS reporting as a group, enabling smaller providers to get a better deal. What this means is that a group of clinicians sharing a common Tax Identification Number (irrespective of specialty or practice site) can group together to receive payments based on the group’s performance. This will foster necessary consolidation in the ambulatory space.

Relaxes exclusion norms through APMs: Providers not eligible for MIPS can still receive a bonus payment for meeting performance criteria through qualifying APMs. The inclusion criteria are clearer than before, and the nervousness caused by stringent exclusion norms is largely addressed.

Last, but not least, provides a further fillip to IT: While use of certified EHR technology will continue to give providers brownie points for performance, the following five required measures that CMS has mandated for providers will further boost technology adoption:

  • Security risk analysis
  • E-prescribing
  • Provide patient access
  • Sending summary of care
  • Request/accept summary of care

Net-net, this new rules release is a great move forward toward settling the debate on “value,” and will energize the healthcare industry to spend more on technology. As you wade through the 2398 pages, watch this space for more of our explanations and perspectives on this topic.

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