Nitish Mittal
All Posts By

Nitish Mittal

Nitish Mittal is a member of the IT Services team and assists clients on topics related to Healthcare and Life Sciences (HLS) IT. Nitish’s responsibilities include leading Everest Group’s HLS IT PEAK Matrix evaluations as well as custom engagements on emerging technology themes, sourcing constructs, demand-supply dynamics, and thought leadership initiatives.

The Digital Health Unicorns Are Proving Their Value | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences, Mergers & Acquisitions

In August 2016, Everest Group published an analysis of hot digital health startups that were disrupting the status quo of the industry landscape. It ended becoming a unicorn-spotting analysis…cut to February 2018, and by healthcare and life sciences organizations have acquired three — Flatiron Health, NantHealth, Practice Fusion — and among the top 25 players. While we speak, there are multiple conversations around the others as investor interest peaks.

HC startups Blog

What are the key business reasons behind these three acquisitions?

  • Flatiron Health by Roche: Flatiron Health has an end-to-end cloud-based EHR platform (OncoEMR) exclusive for oncology that curates the evidence-based drug development process. As oncology is one of Roche’s major focus areas, this is extremely valuable for the company while devising cancer drugs. No wonder Roche agreed to a US$1.9 billion acquisition price, in addition to its existing stake in the company. Flatiron Health also has a OncoAnalytics module that leverages big data analytics for better diagnosis and treatment.
  • NantHealth by Allscripts: NantHealth is a cloud-based healthcare firm that aims to improve patient outcomes and personalized treatment. Its proprietary learning system, CLINICS, utilizes machine learning and cognitive computing to provide information for better care delivery, tools and insights for efficient care financing, and wellness management programs for enhanced patient engagement. NantHealth fits well within Allscripts’ ambitious plan to build a healthcare company that drives innovation in patient care and improves evidence-based research in R&D processes.
  • Practice Fusion by Allscripts: Practice Fusion is a web-based cloud EHR platform that also provides patient engagement and practice management assistance. Unlike traditional EHR platforms, Practice Fusion provides a simple and intuitive user interface. Beyond these capabilities, this acquisition also adds ~30,000 ambulatory sites to Allscripts’ client base in the hard-to-crack independent physician practices segment.

What’s working with these healthcare startup acquisitions

Here’s what is common among these recent acquisitions:

  1. Data is the new oil: The real asset is access to critical healthcare data. Companies that convert the data into actionable insights, resulting in better patient care, emerge as clear winners.
  2. Uberization of everything: Healthcare enterprises have struggled with huge fixed investments in EHR platforms, on-premise infrastructure, etc. This has created a deep dent in their profitability numbers. Because Flatiron Health, NantHealth, and PracticeFusion and are cloud-based companies, there are no more fixed costs, everything is demand-based. Clearly, the as-a-service model has become the choice for healthcare firms.
  3. Care – of, by, and for the people: Accelerated R&D cycles, augmented physician capabilities, and improved precision in diagnosis and treatment all ultimately result in improved patient care, enhanced clinical outcomes, and boosted patient engagement. All three of these acquired companies focus on improving at least one of those factors. And they all allow the acquiring companies’ patients to take center stage.

Digital moves from pilot to program

At a broader industry level, these acquisitions mirror the change in sentiment around digital initiatives. Our research shows signs that enterprises are moving beyond proof of concept to proof of value. While digital, as a market, lends itself to smaller deals with focuses on design thinking, first principles problem solving, and business model redesign, we see these initiatives now scaling up.

Digital HC blog
As the digital marketplace matures, investment activity is only going to intensify. While early adopters are reaping rich rewards, valuations and competition for viable targets are likely to skyrocket. It’s clear that healthcare enterprises see significant business value, and are willing to put their money where their mouth is. Stay tuned to this space for more analysis of what’s happening in the healthcare and digital spaces.

Amazon, Berkshire Hathaway & JPMorgan Chase, Team Up to Tackle the Messy Business of Healthcare | Sherpas in Blue Shirts

By | Blog

On January 30, 2018, Amazon, Berkshire Hathaway, and JPMorgan Chase & Co.  announced a partnership to address healthcare for their U.S. employees. The goal is simple – provide their employees and their families with simplified, high-quality, and transparent healthcare at a reasonable cost, through technology solutions. They intend to pursue this opportunity through an independent company that is free from profit-making constraints.

The rationale behind this move

While this might not be the big Amazon-disrupts-healthcare reveal the market had been hoping for, it is still a meaningful move. Employer-sponsored health insurance currently covers around 157 million people in the United States, and people are not satisfied with the present state of affairs:

  • Insurers and employers are shifting the burden of increasing healthcare costs to the employees. Employees are now facing much higher deductibles and insurance contributions.HC PremiumsEmployers are moving towards programs with narrower networks. And if employees choose to visit a doctor outside the network, they have to spend more out of their own pocket.

HC Deductible_1

  • Health insurance premiums are growing faster than employee wages for both private and public workers. On average, premium as a ratio of wages has increased by four percentage points in the last five years.

The new healthcare normal calls for a fresh approach

Amidst rising costs, evolving consumer preferences, changing operating models, and an uncertain regulatory environment, stakeholders in the healthcare ecosystem are trying to create innovative partnerships and business models. For example:

  • CVS is buying Aetna for US$69 billion, creating a mini healthcare ecosystem
  • Anthem broke up with Express Scripts, its long-term pharmacy benefit management (PBM) partner, and is building its own PBM capabilities with some help from CVS
  • Intermountain Healthcare is leading a collaboration with Ascension, SSM Health, and Trinity Health, in consultation with the U.S. Department of Veterans Affairs, to form a new, not-for-profit generic drug company. The goal is to make essential generic medications more available and more affordable, bringing competition to the market for generic drugs
  • At last count in 2017, there were 923 accountable care organizations (ACO) covering approximately 32 million lives.

The Amazon-Berkshire Hathaway-JPMC trio could well lay down a marker on how employers shape and drive their own healthcare mandates. Consider the firms’ complementary skill sets:

  • Amazon has the deep technology expertise and experience-first approach crucial to addressing needs of an evolving workforce and consumer base. And from a data standpoint, AWS has already stated interest in leveraging longitudinal health records for population health and analysis efforts. E.g., it could use expertise in logistics to rethink warehousing and distribution to make drugs more cost efficient.
  • Berkshire Hathaway and JPMC can help improve the financial engineering that underpins the new endeavor, provide scale, and improve collective bargaining power.

 How might the mega-alliance play out?

This alliance can potentially have a huge impact on all the healthcare stakeholders.

HC Impact_1

The road ahead

The mega-healthcare company will currently focus on its combined employee base of approximately 1 million employees – plus their families – in the U.S. If it’s successful, it can take the model to other employer groups to help them address inefficiencies in their current healthcare setup.

However, it’s critical to keep in mind that healthcare differs from other areas disrupted by tech. It is often messy, fragmented, and lacks interoperable/standard data. Strikingly similar initiatives have faced hurdles and shut down (…remember Dossia?) Many initiatives to reimagine healthcare from outside have failed to move the needle meaningfully.

Given the lack of clarity around specifics of this partnership, some amount of skepticism is warranted. But for now, everybody’s looking at what the future holds.

What is your take on this mega-alliance? We would love to hear from you at [email protected] and [email protected]

Office Depot Acquires CompuCom in an Amazon–Driven Pivot | Sherpas in Blue Shirts

By | Blog, Mergers & Acquisitions

The adage, “Disruption does not discriminate,” rang true again with Office Depot’s acquisition of CompuCom last week.

The beleaguered office supplies retailer bought the IT infrastructure firm for US$ 1 billion, illustrating yet again the disruptive impact of Amazon and the digital economy. With this deal, Office Depot expects to add US$1.1 billion in revenue, and achieve cost synergies to the tune of US$40 million in two years. As part of the transaction, Thomas H. Lee Partners LP, the PE firm that owns CompuCom, will assume an 8 percent ownership in Office Depot.

The why

The deal comes at a time when Office Depot’s business is in the doldrums due to diminishing demand for traditional office supplies as offices go digital and online retailers eat into brick and mortar sales. CompuCom had its own share of problems, with four CEOs in the past four years, declining revenue, and diminishing investor confidence.

As the proposed takeover by Staples fell at the antitrust altar last year, Office Depot had been looking for ways to strengthen sales that had continued to slacken for several quarters. Its hiring of a slew of tech executives indicated that a drastic change was in the cards.

With this acquisition, Office Depot aims to pivot towards a business services and technology play in order to achieve:

  • Superior value proposition: Provide a stronger story to customers around the “workplace ecosystem” for enterprises
  • Cross-sell opportunities
    • Leverage its “Last Mile” footprint to provide Tech-Zone help desks in Office Depot’s 1,400 retail locations, thus increasing CompuCom’s service-based opportunities
    • Use the Tech-Zone help desks to increase on-premise traffic, thus driving traditional sales
  • Topline growth from recurring revenue streams
  • Synergies around the SMB market: Both companies target this highly fragmented market, with Office Depot’s omni-channel strategy offering access to nearly 6 million SMBs.

So, all ends well…right?

While the CompuCom acquisition is in line with the “Software Eats Everything” theme, meaningful questions exist:

  • Uninspiring investor confidence: Office Depot’s share price dropped by 15 percent following the announcement. Although this can be considered a short-term consequence, both firms have struggled as secular market trends reshape their core industries. Will the combined entity realize its promised value?office depot acquisition of compucom blog
  • Digital innovation: There is little clarity on the combined entity’s innovation strategy around the digital workplace construct. The onus is on it, especially CompuCom, to deliver a value proposition centered on seamless customer experience
  • The Amazon conundrum: With Amazon disrupting traditional business models – via e-channels and innovation across physical channels through concepts such as Amazon Go – the combined entity must chalk out a strategy to counter Amazon’s onslaught from both the retail and technology perspectives
  • Change management: The combined entity needs to guard itself against organizational inertia, as the pivot from a brick and mortar model to a services play will require considerable structural changes and incentive restructuring
  • Customer education: The combined entity must educate customers about its new value proposition and what it means for their business and their business as usual to assuage any concerns that lead to customer flight.

The way forward

There have been previous instances of retailers acquiring Managed Service Providers (MSPs) to enhance their value proposition and margins. This includes Staples’ acquisition of Thrive Networks in 2007, and Best Buy’s acquisition of mindSHIFT in 2011. Although worthy pursuits, these acquisitions failed due to executional fallacies, lack of a clear-cut strategy, and their erroneous belief that SMBs would choose them to outsource their IT in a managed services model.

On the other hand, most of CompuCom’s revenue comes from conventional project-based and procurement engagements. The customer experience point is important here. If Office Depot can make this model a de facto choice for customers looking for a better customer experience, this might just work.

That said, the continuous disruption by players such as Amazon and the proliferation of digital users who demand a personalized user experience across all channels will play a key role in determining the success of this acquisition.

Creating a definitive digital value proposition aligned to customer expectations and chalking out a clear, dynamic execution strategy are the key tenets Office Depot must embrace for the CompuCom acquisition to succeed. Indeed, they are our words to the wise for any service-related organizations considering M&A activity in today’s digitally-disrupted environment.

What is your take on Office Depot’s pivot? We would love to hear from you at [email protected] and [email protected]

Outcome-Based Contracts in Life Sciences – An Age-old Idea Taking a New Avatar | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences, Pricing

Outcome-based contracts in the life sciences industry are essentially a risk sharing agreement between a drug manufacturer and its consumers, which include healthcare payers, healthcare providers, and physician groups. The agreement guarantees that if defined care outcomes are not achieved, the drug manufacturer is liable to pay compensation.

This type of contract is not a new concept in life sciences. For instance, money-back guarantees from snake oil liniment companies and for products such as Emerson’s Bromo-Seltzer have been advertised since the 1800’s. However, the idea is getting a makeover, thanks to value-based healthcare, Medicare Access and CHIP Reauthorization Act (MACRA), falling R&D productivity, and the slow death of the blockbuster drug discovery business model.

outcome-based contracts

Comparing volume versus value

Given the push for value-based healthcare, outcome-based contracts in life sciences are gaining momentum. Leading life sciences companies are making a transition from volume-based contracts to outcome-based contracts to drive higher accountability and ownership, better quality of care, optimized R&D costs, and competitive differentiation.

Outcome-based contracts

Indeed, many pharma companies, such as Amgen, Merck, and Novartis, are already experimenting with outcome-based contracts for areas such as cardiovascular treatments, diabetes medication, and cholesterol cures.

Operationalizing outcome-based contracts

To operationalize outcome-based contracts, drug companies, consumers, and technology-providers must work in tandem.

  • Life sciences firms must have a risk appetite to share the financial burden with their consumers
  • Consumers must be willing to appreciate and reward innovation provided by drug companies
  • Technology is the key catalyst in accelerating an outcome-based contracts model. In fact, it becomes the key pillar in risk analysis, value analysis, and reward analysis. Technology providers must co-innovate with pharma firms in identifying and measuring care outcomes. For example, they can provide cloud-powered IT infrastructure to enable clinical trials orchestration across multiple trial sites, and implement predictive modeling techniques to help drug companies understand consumers’ unmet needs.

Outcome-based contracts challenges

Although outcome-based contracts open new vistas for drug companies, significant challenges hamper adoption. A study conducted by the “American Journal of Managed Care” indicated that incremental investments – in both money and time—is the biggest hindrance, and pharmaceutical firms mention they are not yet witnessing evident RoI from these investments.

Stakeholders’ reluctance and regulatory restrictions are also deterring outcome-based contracts adoption.

outcome-based contracts implications for stakeholders

Implications for stakeholders

Life sciences firms
With outcome-based contracts gaining momentum, life sciences companies should be more accountable for their products. They should interact with healthcare entities and consumers to understand the efficacy of their products, and work towards improving care outcomes.

Payers
As life sciences firms embrace outcome-based contracts and providers embrace value-based care tenets, payers will have a direct financial impact. They can derive breakthrough value from their operating costs as any medication or procedure charges are directly linked to the drug quality and/or quality of care. This, in turn, optimizes claims costs and reduces fraud and abuse incidents.

Technology partners
Technology vendors and IT service providers that are struggling to open new business arenas with life sciences companies must see this as a lucrative opportunity to propose high-value technology services. Example opportunities include infrastructure modernization, cloud orchestration, a data analytics suite, interoperable API creation, customer experience management solutions, pricing analytics, etc. Overall, developing outcome-based contracts can not only create market success with life sciences clients but also help technology and IT service providers cross-leverage these capabilities in other industry verticals.

Has your company ventured into or fully-embraced outcome-based contracts? What successes and challenges have you experienced? Feel free to contact the authors (either Nitish Mittal or Chathurya Pandurangan) and let us know.

Life Sciences Startups: Catalyzing the Innovation Ecosystem | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences

Did you know that global funding for startups dipped more than 20 percent in 2015-16? But that life sciences startups were a rare breed that continued to find favor with those who hold the purse strings? Do you want to know who these startups are? Read on.

First, the context: while life sciences firms make extremely fat margins and sit on huge piles of investment dollars that focus on research, increasing regulatory interventions, slowing growth rates, and growing consumerism have become their new normal. To chart out a new growth path in the face of these challenges, life sciences firms are increasingly looking at tapping the innovation ecosystem that exists outside their legacy environments.

Startups are playing an important role in this transformation journey. By introducing technology solutions that address CXOs’ key imperatives, startups are bringing innovation right to life sciences firms’ doorsteps.

Life Sciences Startups Innovation 1

To understand the dynamics of this trend, Everest Group analyzed over 150 start-ups in the life sciences industry. The results of our analysis are encapsulated in our recently published report, “Hot Life Sciences Startups: Friends, Foes, and Frenemies in the Innovation Ecosystem.”

This life sciences startup research helped us answer the following questions:

 

What is the big deal?

While funds are drying up globally for start-ups, life sciences start-ups continue to find favor with venture capitalists. Niche therapeutics within life sciences such as cancer therapies and medical devices are attracting investments like never before.

Life Sciences Startups Innovation 2

Where are these dollars headed?

The majority of the focus is on biopharmaceutical start-ups that are aligned to three value chain functions: drug discovery/product development, clinical and pre-clinical trials, and sales and marketing. The start-ups leverage analytics, cloud computing, social media, mobility, and automation to create significant impact in the three life sciences segments.

Life Sciences Innovation Startups 3

Who are these investment magnets and innovation leaders?

Everest Group assessed the startups against three key criteria – level of business disruption, level of technology disruption, and market buzz. Our scoring methodology led us to select the following as the top 20 “Hot Life Sciences Startups” for 2017.

Life Sciences Startups Innovation 5

What are the implications for the global services industry?

These start-ups provide enterprises with enhanced access to bleeding edge innovation. This is evident with various life sciences firms investing actively in start-ups through corporate venture arms. For service providers, the startups provide an attractive channel to catalyze their innovation journey with a view towards partnership or acquisition. They also help providers move away from their cost-sensitive business model to focus on growth and capability development.

What’s your take on the life sciences innovation ecosystem and seminal role of start-ups? Do you have direct experience with any of them? We’d love to hear your story!

The Battle over Healthcare: Round One Ends with a Whimper and Uncertainty | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences

Healthcare reform has become a political slugfest, casting a spell of ambiguity as the world’s largest healthcare economy attempts to fundamentally transform itself.

Consequently, the global services industry is waiting with baited breath to see how this upheaval pans out. For context, healthcare has been a saving grace, growing at three times the rate of the overall IT-BPO market, which is facing challenging times of its own.

On March 6, Republicans unveiled their plan to repeal the Affordable Care Act, or ACA, popularly known as Obamacare. The ACA, which was signed in March 2010 and came into effect during latter half of 2013, was the most significant regulatory overhaul to expand coverage since the passage of Medicare and Medicaid (Social Security Amendments) in 1965. One of the key highlights of President Trump’s campaign was to repeal and replace the ACA, which he dubbed “broken.” Soon after he took over the Oval Office, he realized that complete overhaul of the law would be a lengthy and complex process, contrary to his promise of quickly instituting a completely new health law. Despite the significant advantage of Republicans controlling both House and Senate, President Trump’s bid to replace the ACA with the American Health Care Act, or AHCA, (essentially a variant of Speaker of the House Paul Ryan’s health plan), failed to see the light of day, with Ryan conceding defeat on March 24.

What went wrong with the American Health Care Act

The principal problem with the AHCA was that it was nowhere close to the promised repeal and replacement of the ACA, but essentially a stop gap plan. It was a contentious bill, which lacked widespread appeal. Key stakeholders and their objections included:

  • Almost all the large payers (except Anthem) were opposed to this law, as it would significantly reduce their enrollment base and, in turn, impact their top-line
  • Healthcare provider associations (such as the AHA, AMA, and American Nurses Association) also opposed AHCA, as it would put extra pressure on providers who are already reeling with bottom-line and revenue problems
  • Various consumer groups, including the American Association of Retired Persons (AARP), expressed concerns as the bill was not in favor of the sick and older populations that require healthcare services the most
  • Conservative Republican lawmakers (i.e., The Freedom Caucus) dubbed it Obamacare-lite.

The uncertain future for healthcare payers, providers, consumers, and IT-BPO service providers

The currently regulatory limbo has a cascading impact on each stakeholder group.

Healthcare payers

Health insurance companies are left with little clarity on their participation in the healthcare exchanges, which have become value-dilutive, and appear even shakier given the current administration’s disdain of the ACA. Large payers, including such as Aetna, Anthem, Cigna, Humana, and UnitedHealth have threatened to pull out of the exchange markets if the uncertainty is not resolved soon. There are theories that the executive branch could act independently of Congress to improve functionality of the individual insurance exchanges.

Healthcare providers

Failure of passage of the AHCA resulted in an increase in some of the leading hospital networks’ stock prices. This was primarily driven by the fact that the decline in enrollment, especially around Medicaid patients, has been delayed. Most of these hospitals improved their bad debt when their respective states expanded Medicaid, as hospitals became eligible for payments for patients who could not afford healthcare. While providers are relieved right now, uncertainty remains. They have struggled with high operating costs, thin margins, and talent issues, and these are only going to intensify.

Healthcare consumers

With the June deadline for submittal of initial rates for exchange plan fast approaching, some consumers may be left with limited health plan options, as some of large payers are hedging on exchange participation. At the same time, ACA plans have witnessed a resurgence in popularity.

Healthcare IT-BPO service providers

Service providers will have to deal with spending decision delays from both payers and providers as they look towards the new healthcare bill. We have already seen leading vendors face revenue headwinds. For example, Cognizant’s healthcare revenue grew by just a mid-single digit in CY2016 after a stellar performance in CY2015. Any new decisions around outsourcing will most certainly be deferred for now, whereas existing keeping-the-lights-on spend is expected to continue. Deal renewals are expected to be for shorter duration as buyers (both payers and providers) wait for veil of uncertainty to be lifted.

The road ahead for healthcare and global services

After this initial bruising, the Republicans are unlikely to give up without a fight. Speaker Paul Ryan recently mentioned that House Republicans will resume work on healthcare reform, but offered no timeline. This will be easier said than done, as GOP leaders need to overcome the deep divisions that ultimately led to the failure of the bill.

Healthcare policy requires hard work, and rushing through a half-baked plan such as the AHCA just won’t cut it. Obama spent over a year on garnering support for the ACA, and the new administration’s heavy handed attempt reiterates that there are no real shortcuts to the process. The GOP should regroup and take a fresh look at the problem statement.

The outcomes might have even greater implications on the global services market. Until then, buyers are likely to twiddle their thumbs and delay key decisions amidst the tremendous uncertainty.

Gazing into Everest Group’s Crystal Ball: Enterprise Technology in 2017 | Sherpas in Blue Shirts

By | Automation/RPA/AI, Blog

It is that time of the year again when we channel our inner psychic about enterprise technology trends. We expect these secular technology trends to play out over 2017 and into early 2018.

  1. The beginning of scary AI democratization
    2016 seemed like the year Artificial Intelligence (AI), and its subset machine learning, turned the corner. A lot of this has been due to the cloud-enabled ease in advancing computing resources, a pre-requisite for AI/machine learning. Self-learning and “intelligent systems” give rise to a multitude of applications. Technology giants such as Amazon, Facebook, Google, IBM, and Microsoft are leading the way through dedicated groups and high-profile hires for advancing the AI mandate. As the technology looks for sizable scale, we are going see the “democratization of AI” help broaden access to its immense potential. For example, Elon Musk’s Open AI alliance released Universe, a software platform for measuring and training an AI’s general intelligence across games, websites, and other applications. Google’s parent Alphabet is putting its entire DeepMind Lab training environment codebase on GitHub. Microsoft is also taking a multi-pronged approach to help make its AI resources available to anyone via the cloud. Although these moves are aimed at catalyzing innovation, only vendors with real skin in the game and an inherent understanding of AI’s potential stand to benefit, limiting the impact system integrators can have via the typical operating model (which is focused on incorporating the latest buzz words in pitch decks and sales collateral). While this democratization will help people accelerate the time-to-value of their AI-enabled initiatives by avoiding the heavy lifting, it will lead to a certain level of commoditization as well. Since every solution will bear the AI tag, enterprises will find it hard to separate the wheat from the chaff. The AI market resembles the cloud wave from some years ago where there was a clot of “cloud-washing” versus “true cloud” implementations. Although the buzz around AI and machine learning is visible from the profile of its varied use cases – whether it is a hedge fund streamlining most of its operational tasks using algorithmic model from its employees’ brains or a law firm hiring an AI lawyer for its bankruptcy practice. Even outgoing U.S. president Barack Obama weighed in, reflecting the importance of AI in shaping our future.
  2. Conversational analytics to focus on engagement
    While conventional analytics – which sounds quite like an oxymoron – will still be viewed through the lens of reporting-descriptive-predictive-prescriptive, conversational analytics and engagement solutions will continue to receive a tremendous fillip. We have analytics engines where one can almost talk or query in human language. At an overall level, this theme represents an amalgamation of product design, natural language processing (NLP), AI, and the platform economy for the right user experience. In the consumer world, Amazon has made it a reality with the Alexa-powered Echo speaker/personal assistant, while Google is trying to replicate that through its assistant-enabled speakers. One particular use case – chat bot – is increasing exponentially, and is now beyond the realm of fancy to tangible use cases across multiple industries. While Facebook Messenger is the most mainstream (consumer-facing) example of these phenomena, there are various interesting experiments across Google (Allo), Microsoft (Tay, Xiaoice), Salesforce (NLUI Server Demo), etc. New conversational analytics offerings will take inspiration from chat bots, and also try to become context-aware for greater value tasks.
  3. SaaS mess becomes messier
    The enterprise applications market is going to witness more bloodshed as legacy and SaaS natives continue to battle it out for supremacy, further stepping on each others’ toes. While Workday leads its surge beyond the HCM domain to financial management, SAP and Oracle will put their considerable resources behind their cloud push. As these players (and others) continue to eat into each others’ pie, there will be an increase blurring of lines between segments and dilution of a unique value proposition. Also, large independent software vendors have confused the market by masking their hosted offerings as SaaS (read: more cloud-washing), which has increased the competitive intensity. Additionally, the SaaS-ification of everything has left the enterprise application landscape looking very messy. CIOs have a considerable governance and management issue when it comes to their app portfolio, upgrades, patches, visibility, usage, etc. You get a feeling that something’s gotta give, and there will be more consolidation among SaaS vendors in the race for market dominance and scale.
  4. Workplaces to move the needle on productivity versus just engagement
    The emergence of Facebook at Work and Slack, (among others), represents the true vision of what is often called the “consumerization of IT.” This refers to the confluence of consumer imperatives such as seamless user experience (UX), BYOD/CYOD convenience, and boundary-less communication within an enterprise IT framework. Digital technologies are reshaping the workplace of the future, while enterprise applications tend to be stuck in a bygone era. Slack/Facebook and their ilk aim to redefine this paradigm. Microsoft has also bought the bait, and launched Teams aka “Slack-killer” in November 2016 (selling it as a part of the Office 365 subscription suite). The focus of these changes has largely been on improving employee engagement, while focus on productivity has been diluted. We expect enterprises to focus more on productivity through differential strategies. Buyers tend to approach these policies in wide variance depending on their business and culture. Think Amazon, which abhors meetings and has a ruthless focus on execution, or Apple, which actively encourages meetings as ideation pods, coming from a culture which is obsessed with making the best products. Bringing machine learning into the mix can help coalesce people, organizational resources, and data. True that workplace collaboration and productivity seems almost unrecognizable.
  5. The automation tsunami will begin to gather speed
    Automation dominated headlines (and earnings calls) in 2016, as enterprises and their service partners alike realized the widespread implications of this technology wave. We believe that the impact on the jobs market is just starting as automation takes roots in mature people-intensive processes/functions. The short-medium kerfuffle will be focused on job losses and pricing pressures, with more pertinent questions around the fundamental nature of employment going forward. 2017 will continue to see similar headwinds, with the bulk of the bloodshed still a couple of years away. Beyond the immediate hullabaloo, the automation narrative is much more profound. While machines can already perform many forms of manual labor, the workforce needs to be reskilled/upskilled to remain relevant as the machines move toward more cognitive tasks. Contrary to popular belief, any wave of industrialization such as automation almost invariably leads to a redistribution in the profile of work, with employees focusing on higher value processes/functions. We are just getting started with the immediate pain that precedes an upward shift in the workforce. Unlike others waves of hyper industrialization, e.g., when cars were invented, there are less systemic problems for technology to solve. Riding this wave will require massive social changes in terms of organizational design, training programs, incentive structures, STEM education, demographic policies, etc.

While most of these themes are already playing out in certain shades, they will gather more wind beneath their sails as we dive into 2017. Although Niels Bohr presciently remarked that “prediction is very difficult, especially if it’s about the future,” we would love to hear what you have to say about enterprise technology in 2017 and beyond.

Looking Beyond the Hype – Healthcare in the Trump Era | Sherpas in Blue Shirts

By | Blog, Healthcare & Life Sciences

Healthcare is one of the principal areas facing upheaval after Donald Trump’s U.S. presidential win last week. Beyond being a major socioeconomic issue (it does consume close to 20 percent of the U.S.’ GDP, which is ~2x that of any other developed country), it is also President Obama’s key legacy given his championing of the reform through the Affordable Care Act (ACA, dubbed Obamacare). Broadly, Trump’s proposed healthcare plan is likely to feature the following changes:

  • Partial repeal of the ACA (complete repeal is more likely to be political posturing)
  • More decentralization of public healthcare spending
  • Ceasing Medicaid expansion and changes to funding
  • Medicare reform
  • Broad implementation of free market principles to let “animal spirits” prevail
  • Prescription drug reform
  • Increased push for price transparency
  • Use of Health Savings Accounts (HSA), and allowing states to regulate health insurance
  • Ability to purchase insurance across state lines
  • Allowing premium deductions on  tax returns

Here’s how the cards stack up

Trumpcare

The good…

Commercial payers
Any kind of partial repeal or change to the ACA will actually be in line with what leading commercial payers have stated, given how broken and unviable the current HIX model is. Most C-suite execs indicate that such a repeal will make health insurance companies more competitive and more influential. This should bode well for large national payers such as Aetna, Cigna, and UHG, which have been bleeding money. This could provide a spurt to discretionary spend, which had seen a pause following mega mergers in the industry, Department of Justice injunction, and HIX losses. At a broader level, the Trump camp has proposed “following free market principles and working together to create sound public policy…” Some early reactions are calling this a welcome change that will allow free enterprise back into healthcare, and let patients, not government agencies, manage their health.

Medicaid-focused payers (states and managed care organizations)
Another key element will be the decentralization of healthcare, as Trump’s plan focuses on giving more Medicaid and other public spending power to states. Combined with the modularity mandate, (essentially breaking down state’s Medicaid Management Information Systems into smaller reusable components,) this is likely to give state health departments more bargaining power as prices decrease and competition – which in the MMIS market has been restricted to players such as CNSI, CSRA, HP, Molina Information Systems, and Xerox – intensifies. Also, managed care organizations (MCO) will benefit from the continuing shift away from state Medicaid.

Consumers
Trump has also recommended that Congress break down state barriers to allow insurance companies to offer plans in any state, as long as the plans are in compliance with state requirements. This should increase choices for consumers, and result in more competition. However, such an environment has not found much favor with payers struggling to manage the risk on their books, and will likely not find much with the challenge of entering new markets.

Life sciences firms
Most pharma and biotech stocks have soared in the past week, driven by Trump’s lukewarm stance on price regulation, as compared to Hilary Clinton’s more hawkish position on drug price reforms. Throughout her campaign, Clinton repeatedly vowed to limit the power of drug manufacturers, and suggested introducing monetary penalties to punish price gouging. The industry’s much maligned tax inversion practices have also ranked rather low on the president-elect’s agenda.

The not so good…

ACA
Despite the political posturing in the run-up to November 8, Trump/the GOP is unlikely to be able to fully repeal the ACA. It’s more likely that they will pursue a partial repeal through the budget reconciliation process, which allows bills related to spending and revenue to be passed by a simple majority, without being subject to a potential filibuster. Trump is likely to sign a bill similar to the one GOP lawmakers passed earlier this year as a counter-measure to the “failings of Obamacare/ACA.” Broad-based changes are likely to be equally, if not more, unpopular than the perceived problems with the ACA. Most of the market has invested considerable resources in reinventing their fundamental business models, and rolling back the clock is not really an option. The market will be forced into a period of uncertainty as stakeholders evaluate options amidst upheaval. While HIX plans have been value-dilutive for most payers, some such as Molina have made it work as a viable business model. However, the movements toward value-based care won’t be affected as the Medicare Access and CHIP Reauthorization Act (MACRA) and other reform tenets will continue it.

Consumers
Repeal of the Individual mandate may result in truncated consumer choices for coverage of pre-existing conditions, premium hikes due to reduced competition, and limited-benefit plans.

Medicaid
Any repeal would likely include the elimination of the ACA’s Medicaid expansion, insurance subsidies, individual and employer mandates, and several taxes that help fund the law, effective two years after the bill’s passage (this was vetoed by President Obama after the House and Senate earlier this year passed a partial ACA repeal bill through the reconciliation process.) Depending on how block grants play out, providers could experience a shortfall in government spending, and may need to rebalance their exposure to commercial payers.

Medicare
If the current GOP plan to transition it to a premium-support plan continues, there is likely to be a rise in financial uncertainty as payers’ reimbursements get linked to average versus submitted bids. This will further sharpen the focus on payers’ cost efficiency and optimization efforts to manage business models.

… and the uncertain

In most of these scenarios, we can only make an educated guess about what the Trump era means for healthcare. The next few months will be crucial in setting the tone for the changes to come – leadership appointments, policy moves, etc. The ACA seems to be the most contentious piece, and likely the first to be tackled by the administration. However, Trump’s public posturing will need to contextualized with the complexities of the legislative process to fully assess the material impact.

We would love to hear your views on how this will play out.

Digital Graveyard: Verizon Acquires Yahoo for US$4.83 billion – Why Amazon, Apple, Facebook, and Google Need to Beware | Sherpas in Blue Shirts

By | Blog

After a long, drawn-out, and scrutinized sale process, Verizon is acquiring Yahoo’s core operating business for ~US$4.83 billion in cash, marking a tumultuous fall for the once-iconic Internet giant, which once had a market capitalization exceeding US$125 billion. Verizon’s purchase includes “core” Yahoo, which spans search, email, advertising products, and the media business, including Yahoo Finance. It does not include Yahoo’s ~ 3,000 patents with an estimated value of over US$1 billion, which reportedly are being hived off through a parallel auction process. Beating out competing bids from a range of probables such as Advent International Inc., AT&T, Bain Capital, TPG, and Vista Equity Partners, the deal adds an important dimension to Verizon’s burgeoning digital media and advertising business, building on its 2015, US$4.4 billion acquisition of AOL.

Not surprisingly, numerous digital revolution themes are reflected in this deal.

  • The pace of disruption is unprecedented: We are increasingly witnessing companies achieving meteoric status, then being forgotten. While the demise of Blockbuster, Kodak, and RadioShack can be attributed to the innovators’ dilemma, fundamentally new technologies and consumption require companies to master the art of reinvention. Akin to running on a treadmill with a continually increasing pace or incline, being the poster child of one technology wave, even the Internet, is no guarantee of future relevance if you don’t reinvent and respond nimbly to market changes. Looking back at the history of the modern enterprise, there are only a handful of firms – think GE and IBM – that have reinvented themselves and continue to be relevant today. Verizon is prepping its arsenal as it looks to battle against the likes of Amazon, Facebook, Google, and Netflix for the fickle attention of an increasingly mobile consumer. It has made meaningful moves, but integrating AOL and Yahoo into its broader digital content and advertising narrative will be crucial for these bets to pay off.
  • Time-to-value is experiencing exponential contraction: The lifetime of technology companies (and enterprises in general) has shortened drastically. This has fundamental implications for business strategy, as modern leaders don’t have the luxury of time in the wake of quarterly Street expectations, fickle investors, intense competition, and extreme scrutiny. Companies need to stop overthinking about the long term, and instead focus on meeting shorter hurdles. There’s no longer room or relevance for a five-year horizon, as there’s no saying what the next wave of technology onslaught is going to be.
  • The law of gravity catches up: Yahoo, despite being ubiquitous during its heyday, is still a relatively young company born in 1995. Its downfall was hastened by the likes of Facebook and Google eating up the advertising pie. As the volume, variety, and velocity of competition keeps increasing, we may need to redefine the definition of long-term. For example, the common thread among Airbnb, Dropbox, Fitbit, Instagram, Pinterest, Slack, Snapchat, Spotify, Tumblr, Twitter, and Uber is that all are billion dollar companies (Unicorns) that didn’t exist 10 years ago. Yet, other than Salesforce – which started in 1999 and now has a market cap of over US$50 billion – most technology companies have failed to meaningfully scale, and have died a slow death or been acquired by a bigger fish.
  • Tactical re-engineering can only get you so far : Yahoo failed to adequately respond to challenges in its core business, and once caught off-guard, it responded with successive leadership changes (Marissa Mayer is its fifth CEO since 2009), employee layoffs (Mayer culled nearly 15 percent of the total workforce), and overvalued acquisitions made out of desperation (it bought ~58 firms since 2009, including Tumblr for US1.1 billion in 2013). None of these moves dramatically changed its fortunes, as they only tangentially addressed its core travails. Companies lacking a “real” asset will always be at risk. Yahoo, like Microsoft to a certain extent, missed the bus on social, mobile, and cloud. While Microsoft has belatedly begun to make amends under Satya Nadella, Yahoo remained stuck in a bygone era, underscoring the importance of looking out for future trends and placing bets early.

Going forward, we expect other marquee tech companies to also face the heat, whether it’s Apple trying to tackle plateauing iPhone sales, and perhaps pivoting to a rising enterprise business, Facebook/Google endeavoring to increasingly monetize their saturating mobile advertising moats, or Twitter attempting to answer its user acquisition dilemma. The future is uncertain, and there are no longer clear winners in the digital era.

Slack and the Future of Enterprise IT | Sherpas in Blue Shirts

By | Blog

Unless you’ve been living under a rock, you would have heard of Slack. It is not another enterprise collaboration application. It merely aims to redefine how organizational communication takes place and upstage this little thing called email. As far as start-ups go, the company has witnessed a meteoric rise. In its most recent round of funding in April 2016, it raised US$200 million at a post-money valuation of US$3.8 billion (with an annual recurring revenue of US$64 million last year), which is all the more impressive when you consider that it launched just three years ago and has raised almost US$540 million. An incredible amount of money at a time when VCs are supposedly tightening the screws and we are witnessing a ‘correction’ in the investment climate. To Slack’s credit, it has built an incredibly popular platform. In May, it reached a significant milestone when it announced three million Daily Active Users (DAUs; a much revered metric of app usage vs just installs) and two million connected users. It has grown at breakneck speed – less than a year ago, it had one million DAUs, and in October 2015, one million connected users.

The changing face of enterprise IT

Slack is built on the premise of seamless communication in an increasingly complex enterprise world across platforms, teams, and applications. It has 430 employees and counts NASA, CNN, LinkedIn, Harvard, McKesson, Ogilvy, and Spotify as enterprise customers. Slack represents the true vision of what is often referred to as “consumerization of IT”. It refers to the confluence of consumer imperatives such as seamless user experience (UX), BYOD/CYOD convenience, and boundaryless communication within an enterprise IT framework. Digital technologies are reshaping the workplace of the future while enterprise applications tend to be stuck in a bygone era. Slack, and its ilk, aim to redefine this paradigm. Slack, in particular, aims to make messaging the primary form of communication among co-workers. As an illustration, they can place documents saved in Dropbox into their chat streams, collaborate on revisions and assign tasks without leaving Slack, and search previous conversations and files. It also has fully native apps on iOS and Android with syncing across devices.

This is a far cry from current legacy enterprise collaboration applications, which have seen their fair share of experiments. The most high-profile one was probably Yammer, which was sold to Microsoft in 2012 for US$1.2 billion. One primary reason why Yammer has not scaled as hoped is that it still operates as a separate tool from the rest of the enterprise workflow, much like the IM tools that came before it, which also fall short of meeting the requirements of digital enterprises. Microsoft has tried to salvage its Skype bet with the integration of Lync (now Skype for Business), but the jury is still out on it.

Peers of Slack (Campfire, HipChat, Skype) can copy its core features, but the implications of its network effect and ecosystem of integrated apps/chatbots are quite profound. It meaningfully differentiates on the basis of its pricing models as well. While other SaaS providers typically charge on a per-user basis (regardless of how many users actively use the software), Slack tweaks this to activity-linked pricing. For example, with other applications, if you buy 1,000 seats but only use 100, you still get charged for 1,000. Slack, on the other hand, will charge on the basis of how much it is actually used (say number of messages exchanged).

Challenges and the road ahead

That’s not to say Slack is not facing intrinsic issues. The enterprise version of the software was initially delayed and there are reports that ride-hailing company Uber dropped Slack because it couldn’t handle the number of communications it required. Scaling from micro-teams to coordinate multiple Slacks in a large organization has been a problem. As Slack aims to replace email as the standard of organizational communication, there is a very likely danger that it might end up having the same problems that have made modern-day communications so tedious and sub-optimal. Execution will be a key area of scrutiny. There are very few industries where companies experience this type of hyper growth, especially on the enterprise IT space, so managing the pitfalls become all the more tough.

To Slack’s credit it has not displayed a lack of ambition when it comes to pivoting its future, which clearly needs to be a platform-based play for any meaningful and scalable business model to emerge. The goal now will be to turn its software into a platform that integrates with other software so that a user can accomplish all enterprise objectives inside the ecosystem and thereby create stickiness. To further this ambition, Slack announced an US$80 million investment fund in December for developers to build apps that integrate with the platform. Right now, the Slack Platform consists of a new Slack App Directory (with ~160 apps), a Slack Fund (to invest in new apps), and Botkit (a new framework to easily build new apps). As Slack scales up its aim to be a ubiquitous SaaS ecosystem, it can unlock a significant opportunity by becoming the identity layer of the enterprise. This is similar to the intent Microsoft is driving toward with the US$26.2 billion acquisition of LinkedIn. Ultimately, if Slack’s platform picks up, it can drive other services such as single login and identity access, effectively serving as the singular identity provider for an employee across the enterprise ecosystem. Slack has the momentum and intent on its side to redefine the enterprise application paradigm, and it’s hard to see anyone else (apart from Microsoft) having a bigger opportunity to succeed.