Tag: Dell

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

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?

  • Healthcare@Cognizant 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, Healthcare@Cognizant 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.

Global healthcare ITO market

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.

Are We Hearing the Swan Song for RIM Services? | Sherpas in Blue Shirts

Remote infrastructure management (RIM) services were the disrupter for asset-heavy infrastructure services over the past several years and, in all likelihood, will continue to be for the next few years. However, as we look down the road it appears that RIM will hit the speed bump of automation and cloud, which will impact RIM in much the same way that RIM currently disrupts the asset-heavy infrastructure market. At Everest we believe that about 50 percent of all current RIM workloads are viable and cheaper in the cloud and likely will migrate to the cloud over the next three years. So what’s the prognosis for the RIM model?

As shown in the charts below, RIM grew at an average of 27 percent per year while the asset-heavy space lost share at 1.6 percent a year.

RIM Growth

But the cost of operating in a pay-for-usage cloud world is about 50 percent lower than the take-or-pay world of the existing data center. Although the cloud is currently a small part of the global services marketplace, the cloud providers are operating a lot more profitably and thus disrupting the RIM providers. Automation and cloud are the areas of action and investment for growth. We need look no further than the recent acquisitions of IBM and Dell to understand how this market is evolving.

IBM’s Strategic Moves. IBM’s latest acquisitions include Cloudant, for delivering NoSQL on-demand database-as-a-service (DBaas), and SoftLayer Technologies, a global cloud infrastructure provider. And Big Blue plans to spend more than $1 billion over the next two years to bolster SoftLayer’s platform. IBM also scooped up several other strategic cloud companies over the past couple of years including UrbanCode, for software delivery automation; Green Hat, delivering software quality testing for the cloud environment; and Big Fix, providing management and automation for security and compliance software updates.

Dell’s Strategic Moves. Acquisitions adding to Dell’s capabilities include Enstratius, enabling consolidated management across multiple cloud platforms; Credant Software, providing data protection; Gale Technologies, enabling infrastructure automation; Quest Software, for value-added software solutions and virtualization; and Boomi, for SaaS integration.

RIM’s Pulse

To date the power of the cloud disruption has not yet felled the infrastructure services space. But over the next three years, we expect 30-50 percent of the infrastructure services work to migrate to a cloud model. What impact will it have on the RIM market?

First of all, RIM’s impact on the existing IT infrastructure market is not finished. We think RIM service providers have at least three more years of significant share gain shifting from IT asset-heavy infrastructure to a RIM model. After that? Not so much. And towards the third year, we expect to see cloud disintermediate the RIM market.

It will be interesting to see whether RIM providers can make the accommodations for the new cloud world. Yes, there will be a role for RIM in cloud, but we believe it will be less than in its current IT infrastructure space. And managing the the automated cloud world will require fewer people, which means lower revenue for RIM vendors.

For vendors and service providers, the non-cloud IT infrastructure space is becoming a very bad place to be.

Just Like CSC and Dell, Sell Your Truck While It’s Still Running | Sherpas in Blue Shirts

When Bobby Pinson recorded his country & western song “Don’t Ask Me How I Know” dispensing bits of wisdom, I’m sure he didn’t realize he was providing advice to service providers. But my favorite line in the song is also great advice for today’s BPO providers — “Sell your truck while it’s still running.”

That’s what CSC and Dell did. In December 2012 CSC sold its credit services division “truck” to Equifax. A month earlier, Dell sold to Conifer Health Solutions its revenue cycle solutions line of business for healthcare providers. Wisely, they sold these business lines while they were still profitable. But they were not growing and were not consistent with the firms’ long-term strategies.

The business lines were sold to providers where the assets fit well with those companies’ core business and growth strategies, and which will invest in growing those lines of business. Both CSC and Dell then used the cash from those asset sales to invest in developing cloud services, which have a greater growth potential for their business.

The BPO space is full of big ideas and big investments in industry solutions or functional solutions that grew quickly and then stopped growing. In some cases the service providers are finding that they hit on a need in a micro industry and that the total market is only four or five companies that have that need. So the service line did not expand from the initial few clients.

In other cases, the provider built an offering that is now an unattractive area, so the business faces declining margins. Or perhaps the offering is based on technologies that are under attack by new disruptive technologies.

As we look across the landscape of service providers and their offerings, it’s clear that most companies have several of these kinds of businesses. Some are starting to look like a scientist’s attic stuffed full of experiments that didn’t work out.

These business pockets arose over the last few years because of the providers’ desire to drive growth by entering new markets. Many offerings were put together and sold at a price point that would allow them to scale and then become profitable after scaling. A few of these experiments in service offerings succeeded, but many stopped growing. When they don’t scale, the provider can damage its reputation by trying to drive profit improvement exercises on them afterwards in the form of price rises or a cut back in services. Existing clients become unhappy, and it affects other work they would otherwise do with the provider.

Fundamental question for BPO providers

There are many reasons to divest these BPO experiments that didn’t grow. The CSC and Dell asset sales pose a fundamental question for all BPO providers: Should you, too, sell your truck while it’s still running? Should you harvest these BPO pockets or should you run them out and let them decline?

If you leave them in place, the best that can happen is they become an anchor against growth because their future growth prospects are limited. It will make it more difficult to grow your company going forward. These BPO pockets contribute to mass but not to growth.

We wonder if others will follow CSC and Dell down the path of divestitures. What do you think? Other than these providers and IBM, we we have not seen many firms with the discipline to prune their business. Will we see a movement of others learning from these examples and start pruning back some of their portfolio?

For the right buyer, it might be a great model to aggregate these BPO business pockets and build a business around them. Pull them out of the fast-growing areas and build a separate company that has an appetite for this kind of investment. There’s an interesting proposition.

Selling the truck while it still runs is poignant advice that we should reflect on. Who knew that CSC and Dell were getting their strategic thinking from country/western songs?

Photo credit: Don O’Brien

How Will the IT/BPO Industry Leaderboard Change? | Sherpas in Blue Shirts

This past weekend, many people were glued to their televisions watching the 2011 Masters Golf Tournament at Augusta National. As the days rolled by, the leaderboard changed in some surprising ways – the young McIlroy slid a long way from Number 1 on Day 1; Tiger Woods finally showed his old spark and stayed steadily within the top 5 throughout the game; and Charl Schwartzel jumped into the front-runner spot to take the Green Jacket.

While we now know the Masters winner, there is significant speculation on the changes in the IT services leaderboard, both today and going forward. The market is rife with questions on where Wipro and Cognizant will end up this season. The discussion on C-level changes at Infosys made a leading Indian newspaper speculate on issues it may be facing, with TCS speeding on and Cognizant being on steroids and catching up quickly. The next day, analysts said TCS would continue to outpace the other TWITCH majors as the quarterly results season starts.

We will know the answers to these questions in the next few weeks, after all companies report their numbers. But the more important long-term question is, what else will change in that leaderboard? Will we see more M&As, new entrants, or exits? And fundamentally, what will the future structure of the IT services industry be, and who will the winners be?

In a recent meeting, a CEO of an IT services company made an interesting point about there being steps at the US$500 million, $1 billion, $5 billion, and $10 billion marks, and that it is progressively challenging to get to the next level. It was clear he was thinking that some, including those in the $2+ billion scale, will struggle to reach the next level, and some will stabilize in their current or adjacent level.

The TWITCH discussion is interesting, but then there are the mid-tier IT players. We are just past the first quarter of 2011, and already three (iGate, Patni, and Headstrong) no longer exist, at least not in their original form. From all we hear or understand, several more may go before the end of 2011.

Then there are continuous speculations about pure play BPO players being shopped about. The rumor that Cognizant will take out Genpact has been around for ages. EXL is up for some action, and the market is abuzz with other speculations. As one of my colleagues recently blogged – will the Indian pure play BPO companies survive in the same shape and form past 2011 or 2012?

Net, net, here is the big picture. Some large Tier 1 players are struggling, mid-sized IT is not necessarily the best place to be, and pure play BPO companies are a vanishing tribe.

All this raises more questions: What is the future structure of the global services industry? Will Accenture, IBM, Dell, the Japanese majors, TCS and probably a few others become the super majors by 2015 or 2020, and will the rest need to find their own places under the sun? What other categories and groups of service providers will exist, and what will their characteristics be, for example, regional specialists, vertical specialists, etc.?

Irrespective of how the industry evolves, consolidation will continue, and the M&A juggernaut will roll. This business generates cash, and doesn’t require a lot to sustain it…so companies will invest in buying capabilities, assets, businesses, and people in attempts to win top spots on the leaderboard.

We certainly are headed for some interesting months ahead. Is anyone betting on who the winners will be at the end of 2011?

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