AbhishekSingh, Author At Everest Group

Many More PEAKs to Conquer in Healthcare and Life Sciences! | Sherpas in Blue Shirts

July 24, 2015

The Healthcare and Life Sciences (HLS) ITO market has been buzzing with activity in 2015. At just seven months into the year, Everest Group’s projected market size for the HLS ITO market size is US$39 billion.

Here are some of the standout messages from our 2015 research to date that address some of the contributors to this enormous market size.

Life Sciences ITO market: Services integration (applications, infrastructure, and BPO) and IT-as-a-Service (ITaaS) to drive a growing chunk of next-generation IT opportunities (see our upcoming Life Sciences ITO Annual Report – “Integrated Services Strategy in the age of digital”)
Payer-provider market: Growing convergence in the market will drive significant vendor consolidation and rationalization initiatives
Life Sciences ITO PEAK Matrix – This report in part discusses the intensifying neck to neck competition between the India-heritage service providers (such as Cognizant, TCS, and HCL) and the global majors (such as Accenture and IBM) – Download a preview

Europe Life Sciences ITO PEAK Matrix – This research brings out how Europe-based life sciences enterprises are opening up to outsourcing as a strategic component of their sourcing strategy and cost containment efforts – Download a preview

While robust in their coverage, these already published 2015 research reports paint only a portion of the picture enterprises need to view to address cost-cutting imperatives and deliver metrics-driven business outcomes through alignment of their technology strategy with their lines of business.

For example, an increasing number of life sciences clients, especially large pharmaceutical firms, have been reaching out to Everest Group for assistance in evaluating technology partners not only to drive digitization of their critical operational components, but also higher R&D productivity through next-generation analytics and high-tech systems. Similarly, while payer and provider organizations are starting to view technology from an entirely new prism, they are uncertain how to leverage technological solutions and platform to address concerns and initiatives including growing consumerization (patient engagement), population health initiatives, and care-risk convergence.

To inform the marketplace on issues and exciting opportunities in ITO for the HLS industry, Everest Group is significantly expanding its portfolio of published PEAK Matrix evaluations in 2015. New reports we’ll be publishing through the end of the year are:

Life sciences industry PEAK Matrix
- Digital services
- Big data and analytics
- Clinical and R&D IT services
Healthcare (payer and provider) PEAK Matrix
- IT services (payer)
- Digital services (payer)
- Big data and analytics (payer)
- Care management and patient engagement (payer)
- IT services (provider)

Everest Group’s goal is to help ensure enterprises and service providers achieve maximum success from their sourcing initiatives. Thus, we encourage you to reach out to us directly with your queries.

Abhishek Singh, Practice Director, [email protected]

Nitish Mittal, Senior Analyst, [email protected]

Mayank Maria, Analyst, [email protected]

Yet Another Healthcare Blog on Cognizant and Trizetto. Not! | Sherpas in Blue Shirts

June 23, 2015

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.

What’s up with Cognizant’s healthcare business?

[email protected] officially crossed the 30 percent revenue share mark (just behind BFSI at 39.9 percent) in the first quarter of this calendar year
Cognizant is the only WITCH (Wipro, Infosys, TCS, Cognizant, and HCL) company with healthcare among its top three industry verticals by revenue
In fact, after its Trizetto acquisition, Cognizant’s annual healthcare revenue (in the range of US$3.2 billion) will be more or less equivalent to the sum of the healthcare revenues of WITH combined
Per Healthcare Informatics’ Top 100 Healthcare IT providers: Cognizant’s 2013 healthcare revenues, if added to Trizetto’s (a sum of US$2.94 billion) make it the second largest healthcare IT vendor on the list. It is behind only McKesson, and ahead of technology and services behemoths such as Cerner, Dell, Optum, Epic, and Allscripts
For the quarter ending March 2015, Cognizant’s healthcare topline grew 42.7 percent year on year, obviously driven by Trizetto’s numbers. Given the growth outlook company has shared with the market, [email protected] is headed toward becoming a US$4 billion unit in the next 18 months – which is huge.

Is healthcare IT a great market to be in?

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.

Healthcare – why so serious?

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?

Is this a blog on Cognizant?

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.

Will it be the venture funds and geeks sitting in Silicon Valley who will do the trick?
Will it be the EMRs who open up their platforms for an integrated and interoperable healthcare world?
Will it be IBM’s Watson that will change the game?
Will a recently gone private Dell up the ante toward innovation?
Will Cognizant take up the mantle of being an angel integrator for healthcare innovators?
Will it be Infosys’ Vishal Sikka, whose US$500 million investment fund will drive traction?
Will Google or Microsoft provide the platforms that will gamify technology innovation?

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.

UHG-Aetna and Anthem-Cigna Merger Rumor Mills May Give IT Service Providers Goose Bumps | Sherpas in Blue Shirts

June 18, 2015

Rumor mills are buzzing over the potential acquisition approaches made by suitors United Health and Anthem for Aetna and Cigna, respectively. The Affordable Care Act (ACA) and the growing focus on consolidation to drive health insurance premium/cost rationalization have led to these tactical maneuvers. While the equity analysts and investment banks have already started to split hairs on the potential implications for capital markets and stocks, our focus here is on the implications these mergers may have on the IT/BPO services market.

These four companies – Aetna, Anthem, Cigna, and UnitedHealth – are star accounts for some of the largest IT service providers that focus on the payer industry. Some service providers have so much revenue exposure to these accounts that their healthcare revenues can take a hit of over 200 basis points, simply as a consequence of IT budget realignments or vendor consolidation.

Impact on IT services

These potential mergers may lead to the following key transformational IT implications:

Systems and applications integration: Merging organizations reduce redundancy by retiring transactional systems and applications, and opting for integrated systems that can work across the merging entities. The biggest impact will likely be on claims, members, and product rationalization initiatives
Database and datawarehouse consolidation: This is one of the biggest imminent implications, as some of these organizations (especially Anthem) have gone through a decade long initiative to create an enterprise view of organizational data. Going through another round of database integration will be an imperative hard to push to a future date
Infrastructure rationalization: These are huge capital assets, and mergers often present an opportunity to divest some of these assets in favor of cloud-based (most likely private) services
Vendor rationalization: There are likely to be significant vendor redundancies, given that most of these organizations have mature vendor portfolios.

Implications for service providers

The most likely beneficiaries of these mergers will be service providers that have systems experience across both the acquiring and target entities, as this will help with any integration initiative
The second most likely beneficiaries will be service providers that are strongly entrenched in one of the entities and have indispensable systemic knowledge. However, given the potential hazard of these systems being retired as part of redundancy rationalization initiatives, these entrenchments can also be huge risks for these service providers
Competitive presence will also be a key differentiator. Service providers with smaller visibility into these accounts may find their portfolios being overtaken by competitors with wider system coverage and presence in these accounts. Organizations today do not fear putting all their eggs in one basket. In fact, they rely a lot on service partners that will not only share their risk but also be strong partners in their transitional initiatives.

The following image illustrates the current exposure of key service providers in these four entities. As you see, these mergers may be beneficial for most of these large service providers. However, a few, such as Infosys in UHG-Aetna, CGI in Anthem-Cigna, and IBM in both UHG-Aetna and Anthem-Cigna, may have at-risk portfolios given competitive underpinnings and systemic maturity of the acquirers.

We’ll be reporting our views on this story as it unfolds, so keep watching this space.

Cognizant Acquires TriZetto: The New “Big Blue” of Healthcare IT? | Sherpas in Blue Shirts

September 15, 2014

Today, Cognizant announced the acquisition of TriZetto® (a leading provider of healthcare IT software and solutions) for US$2.7 billion. The deal ties in favourably with Cognizant’s dominant position in the healthcare IT marketplace, with the combined entity having US$3 billion in healthcare revenue. TriZetto has around 3,800 employees across the U.S. and India, who will join Cognizant’s existing healthcare business, which currently serves more than 200 clients.

The acquisition is a landmark deal within the Indian IT service provider community, given the size, scale, intent, and implications to the status quo, but what makes it unique is its focus on industry solutions vs. other services-centric acquisitions.

Indian IT service providers’ notable acquisitions

What it means for Cognizant’s services focus

TriZetto primarily develops and licenses IT platforms and service for healthcare providers and payers, competing with the likes of Allscripts, DST Systems, and McKesson. Cognizant aims to leverage its dominant position in the market–a healthcare IT portfolio in excess of US$2 billion–to provide an integrated portfolio across services and platforms. Investing in products and solutions has been a key area of focus for Indian IT service providers as they look to embed their solutions within enterprises buyers, use technology adjacencies, and leverage the technology-platform model instead of flexing just the labor arbitrage card. This acquisition could be one of the steps allowing Cognizant to cross-pollinate and build an integrated (applications/infrastructure/business process services) services play in an industry in which it has primarily relied on its application services strengths.

What it means for Cognizant’s growth story

Cognizant will get access to multiple software platforms and aims to realize nearly US$1.5 billion of potential revenue synergies over the next five years. TriZetto currently operates at 18.5% margins on a revenue base of US$711 million. The numbers are right in the zone for Cognizant, as it wants to continue to drive its growth-plus-margin story in the high revenue base in which it currently operates. The products, platforms, and solutions play has very unique challenges, opportunities, and operating dynamics. Whether Cognizant can navigate this fundamental transition and still maintain its growth story, will be an interesting study.

How it relates to the way Healthcare IT industry is evolving

The ongoing transformation in the U.S. healthcare system is shaping service provider’s strategies as they look to capture the incremental opportunity that is up for grabs. The focus on driving down healthcare costs, wide-sweeping reforms (driven by Obamacare and ICD-10), and blurring lines between payers and providers, are principally reshaping the healthcare delivery model. Cognizant will aim to drive increased stickiness with healthcare buyers to drive retention in an increasingly complex vendor landscape. It is aimed at garnering a large share of the growth pie, when it comes to the payer and the provider ITO market. This acquisition is an unmatched clear indication that service providers must evolve from a services-only play to a platform-based solutions play, to stay relevant in a market that has an immense potential to grow.

What this means for the competition

The deal will also have myriad implications for the overall healthcare IT services competitive landscape. Most competitors of Cognizant already have a steady revenue stream (large or small) implementing TriZetto solutions, most importantly Facets™, which is used by most payers in the U.S. How this impacts its engagements and partnerships will be tricky. Whether Cognizant will want to (and if so, how) assume a dichotomous role of a partner and competitor will be another interesting area to watch. Additionally, whether Cognizant plans to ultimately absorb TriZetto (thereby dissolving the brand) or leverage its unique positioning is also unclear.

Cognizant is ideally placed in healthcare with few like-sized competitors, allowing it to consolidate. Two things that are definitely salient here–one, Cognizant is going all out to bet big on healthcare; and two, this acquisition has the potential of taking it to a different league altogether! There are already murmurs in the healthcare IT industry equating Cognizant to a new “IBM,” when it comes to its negotiating power at the table. This is another step in ensuring it stays ahead of peers as the competitive intensity in the market increases. The deal definitely has characteristics of a long-term strategic bet than a tactical manoeuvre.

Download the complimentary breaking viewpoint: Cognizant Acquires TriZetto for US$2.7 Billion.

State of the Healthcare & Life Sciences ITO Market: 2014 | Sherpas in Blue Shirts

February 7, 2014

IT outsourcing is going to see a never before uptick in spending in the Healthcare & Life Sciences (HLS) industry. What do you think is the quantum of opportunity in dollar terms? What are the areas where the proposed IT investments will take place? As buyers, are you investing enough to stay ahead of the curve? As service providers, are you prepared to respond to these opportunities?

Watch the following video featuring Abhishek Singh, Senior Analyst at Everest Group, to find the answers to these questions.

Check out our complimentary viewpoint on this topic, State of the Healthcare & Life Sciences ITO Market: 2014

Video: Outsourcing Implications of Healthcare Payer-Provider Convergence | Sherpas in Blue Shirts

April 10, 2013

In March 2013, Everest Group released a complimentary viewpoint titled “Outsourcing Implications of Healthcare Payer-Provider Convergence.” This viewpoint delves into the technology priorities for payers and providers. Given the complex nature of the technology priorities, this viewpoint brings out the supply-side challenges for organizations and how they can go about selecting the right service partner for their technology needs. In this video, Everest Group’s analyst Abhishek Singh shares some of the key headlines from the viewpoint.

Application Development Productivity – You’ve Got to Be on the Indifference Curve! | Sherpas in Blue Shirts

November 6, 2012

The main indicator of productivity in application development (AD) – periodic reduction in the number of application defects per 1000 lines of code written in X man hours – has stood the test of time at a modular level, as have CMMI standard metrics against which any calculation of productivity can be benchmarked.

However, in the midst of mounting pressure to optimize discretionary IT spend, buyers have no option but to justify their spending via data that evaluates productivity at the enterprise level. CIOs must meet this requirement, while also facing the following two challenges:

First, they must simultaneously deliver increasing value and achieve year-on-year annual reduction in costs
Second, they have to contend with educated business users who may not have the patience to deal with a behemoth enterprise IT organization to get their functional needs fulfilled. Indeed, with the advent of market forces such as social media, mobility, analytics, and cloud (SMAC), business users today understand more about applications and technology than they ever did in the past

As a result, IT buyers must ignore all the ambient noise created by multiple metrics and focus only on the following two factors:

Business functions: The functionality that the business users are demanding, complete with SLAs
Application cost: The cost to acquire the applications that provide the required functions.

Fortunately for them, data indicates that “business functions versus cost” can be useful in benchmarking the productivity of any application development project. As the following image illustrates, for AD projects of specified complexity and type, a combination of the number of functions (F) in an application and the cost (C) to acquire that application can be plotted into an “indifference curve.” An indifference curve is a graph showing different bundles of two variables between which a consumer is indifferent. Basically, all points on the curve deliver the same level of utility (satisfaction) to the consumer.

Based on benchmarking data over many years, all points that form these indifference curves deliver an optimal level of productivity for the complexity specified.

This productivity benchmarking can be used to assess and optimize the productivity of AD projects. For instance, if a particular AD project, for example application 3 in the above image, falls below its indifference curve, it is delivering sub-optimal productivity. Thus, by using this method of benchmarking, a buyer can immediately raise a flag with its service provider and force it to either:

Reduce costs to achieve optimal productivity, or
Provide more functionality to align the project with productivity indifference curve

This benchmarking tool also delivers benefits to service providers. If their case in point AD project is application 1, which falls above the indifference curve, they: 1) have consumer surplus into which they can dig (i.e., buyers could be willing to more); and 2) can use the data to advertise their higher productivity performance to generate more business and differentiate themselves from their competition.

We’d love to hear your thoughts on this type of productivity benchmarking. Have you employed it? What lessons learned can you share with your peers?

Author: AbhishekSingh