Vendor perceptions: IBM is a consistent European brand recall leader across key digital product/service segments when enterprises were asked to name the vendors that are likely to be most relevant to their digital strategy
Buyer-to-Service Provider Alignment on Business Goals – Some Do Better Than Others
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The top 5 providers hold 55% of the market, but Indian-heritage providers are coming on strong
Vendor perceptions: IBM is a consistent brand recall leader across key digital product/service segments when enterprises were asked to name the vendors that are likely to be most relevant to their digital strategy
The recently announced acquisition of Merge is one in a string of initiatives by IBM to increase both its market presence and depth of offerings to the healthcare sector. With birth rates increasing in many parts of the world and the aging population growing in developed countries, the race is on for data driven and highly efficient healthcare.
IBM is clearly targeting this market. Its recent activities have included:
The US$1 billion acquisition of Merge brings IBM a medical imaging platform to combine with Watson’s image data and analytics capabilities and an extended client base. Excellent and Elementary, Dr. Watson.
With these initiatives, IBM is building specialist competences, to capture, analyze, and recommend treatments or actions that would help healthcare providers, payers, pharmaceuticals, as well as individuals achieve positive health outcomes.
Gaining a wide range of capabilities in specific areas has helped IBM generate specific segment revenue in good and bad times. For example, its large number of information management and WebSphere portfolio acquisitions (e.g., Cognos, Netezza, and SPSS, to name but a few) has seen segment-specific revenues maintain steady growth over the years.
If IBM was to successfully combine its deep specialization in healthcare with Watson’s cognitive computing to enhance its services, it could gain a big edge over competitors at a time when demand is set to grow. At the moment we are seeing more of IBM in healthcare IT infrastructure modernization contracts than data-driven care provisioning and support services. Recent examples include:
These types of contracts give IBM opportunities to tap into new solution and services openings at existing clients.
Other challenges for IBM’s intelligent and data driven healthcare offerings include:
IBM is going all out when it comes to showcasing Watson as a competitive differentiator. In an uncharacteristic move (and a sign of the times), it has launched Watson Developer Cloud, an open platform for developers to build apps on top of Watson for industry-specific solutions (through a set of APIs and SDKs). It is also working with app developers such as Decibel, Epic, Fluid, Go Moment, MD Buyline, TalkSpace, and Welltok to build apps embedded on Watson technology, thereby, rounding up a robust ecosystem. It is abundantly clear that IBM views healthcare as the principal vertical where Watson’s computing prowess can make its mark. In the meantime other service providers are likely to build or acquire their own cognitive capabilities to challenge IBM on pricing and specialist offerings.
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While the healthcare industry is reeling over the massive size of the Department of Defense’s (DoD) US$9 billion EHR contract just awarded to Cerner, Leidos, and Accenture, less attention is being paid to the fact that this team won the deal over the hot favourite joint bid of Epic Systems and IBM. Those who know the EHR landscape know there is scant anything that Epic loses (of course, the same used to be said about IBM, and that is where irony can probably find solace). Hence, the focus of this blog is on the fact that the invincible Epic Systems lost the mother of all deals in the EHR space.
Why are we hung up on Epic Systems? For the uninitiated, here is some context:
Predominant market leader: With over 40 percent market share, Epic has precipitated a large ecosystem of providers that are on its EHR platform. Epic has intelligently used its dominant market position to work with its customers in defining the roadmap for the evolution of EMR systems, and to make its competitors react to the steps it is taking to innovate across various care practices. Epic has focused primarily on large hospital systems, with minimal attention on the mid- to low-sized segment of the market. With its hold on the market, one is led to believe that Epic chooses its clients, rather than the other way around
Highly relationship-driven: Clients have traditionally loved Epic for being proactive in evolving its products, responding to suggestions, and quickly fixing issues. This is what set it apart from the biggies, such as Allscripts and Cerner, in its initial days. Epic has strong consultative sales teams that work closely with administrators, CMOs, and physicians. For large pursuits, it deploys dedicated product customization teams that can deliver POCs, manage change, and implement Epic in record time with partners. And most of Epic’s key product people, who can actually understand and address issues, are just a phone call away.
The “Epic” standard EMR? In an era where healthcare is actively pursuing consumer-focused and highly flexible technological innovation, Epic is facing flak – outside of its existing customer base – because of its highly standardized and rigid architecture. Key areas of question include lack of interoperability, lack of efficient APIs for consumer/end-user application development, and foreseen inability to innovate in a digital world due to its MUMPS-based legacy platform. This is what came out starkly when you read between the lines of Frank Kendall, Under Secretary, Department of Defense’s statement: “Market share was not a consideration, we wanted minimum modifications.”
High upfront capital investment: The upfront cost of Epic adoption is increasingly being mentioned as one of the hindrances. Cost is a major factor, and EMR implementations are hospitals’ biggest IT spend and budget areas. More importantly, some of the highly cited large EHR implementations (such as the US$700 million Duke University and Boston Partners deal) create an impression of a highly rigid commercials image for Epic. The case on cost versus benefit of having EHR has not been settled yet. Epic’s high premium positioning put it in a tight corner, despite the US$35 billion subsidies riding the EMR industry, and the general customer preference for Epic. The irony here is that the US$9 billion size of the deal is the reason Epic was such a natural choice for this DoD deal, but it probably lost it because the government needed a more flexible arrangement
Declining quality of services: Epic is facing the classical quality versus quantity challenge when it comes to managing its growing list of clients. The increasing shortfall in expert support staff is impacting its ability to maintain and support its products across many new and old clients. In the last 18-24 months, an increasing number of client executives have raised flags about outstanding and unresolved issues
Training has become a major area of concern, as more and more hospital systems are complaining of lost revenues due to their staffs’ below par or behind the curve Epic readiness. Epic’s inability to provide efficient training modules, and its tendency to keep things close to its chest, is driving wariness among new clients
Vendor-neutral storage: Given dependency concerns, customers are increasingly demanding vendors be aligned to some sort of vendor-neutral storage or archiving architecture. This is likely to lead to more thought leadership on vendor-neutral technologies, which will be directed at Epic’s predominant control regime.
There may be other commercial reasons for this massive DoD EHR deal not going Epic’s way. However, organizations already had a strong sense of circumspection while evaluating Epic’s EHR in terms of interoperability, next generation technology, digital enablement, and control. While before these reasons were less salient because of Epic’s trailblazing success, this lost deal will spur prospects to question them with a far more discerning eye.
As much has already been written about Cognizant and its Trizetto acquisition – including Everest Group’s take: The New “Big Blue” of Healthcare IT? – it is time for us to do a post-facto check on Cognizant’s healthcare IT services business, and ruminate on the state of the healthcare IT market.
Let’s put Cognizant’s numbers into perspective with our growth estimates for the overall healthcare IT industry. With the healthcare industry set to grow at a CAGR of 12 percent through 2020, and given what we have seen since we published the following in 2013, the market size projections for healthcare appear well on track to humble the pessimists among analysts.
While services spending growth has been steady, especially for the payer and provider markets, the innovation side of healthcare IT has been sulking for a while. Yes, “sulky” is the word that comes to mind when you sit listening to a panel discussion on digital innovation at #AHIPInstitute2015 and not one panelist cites an example of innovation from the healthcare space. They either talk Uber or Airbnb. This is unfortunate.
Despite the huge numbers up for the taking, a big spike in the booming healthcare IT market will not come by unless there is a dawn of new and nimble technology start-ups that change the game of healthcare enterprises looking to move away from bespoke solutions to as-a-service models that reduce their time-to-value exponentially. For good or bad, the healthcare industry in the U.S. has always had an umbilical cord connection closer to Washington D.C. than to Silicon Valley. That is probably what curbs innovation in this industry from breaking out of its shackles to produce its own Ubers and Airbnbs. In my opinion, except for a few fitness/therapeutic/diagnostic wearable-focused investments, little causes titillation in the healthcare technology start-up space. Despite all the brouhaha on the B2C shift, consumer-focused investments are coming more from the enterprise IT side than from third-party innovation. Frankly, do we want to be in a world where Ford not only makes the cars but also drives the cabs? Hence, the question is – in a world dominated by technology vendors (Epic, GE, McKesson, and Philips) are we ready to declutch third-party innovation and let it bloom?
There was a reason we titled our blog about Cognizant’s acquisition of Trizetto, “The New Big Blue of Healthcare IT?” The simile was not to herald the dawn of a new behemoth, but to provoke the sort of nimbleness and courage in healthcare IT industry that IBM (the original Big Blue) has shown over the last many decades to stay relevant in the overall technology industry. In an industry with a muffled voice of innovation (few exciting start-ups), a few big bullies (large technology vendors, EMRs, etc.), and well-meaning presiding deities (government and legislatures), the push for change will have to come from outside.
Why did I harp on Cognizant while writing this blog? It was a rank outsider in the healthcare technology industry (well, almost, given its offshoring, pure play service legacy). Even if it becomes a US$4 billion healthcare enterprise, it will still be a fraction of the market. Via its investments, growth, and outlook, what it has given the industry is a peek into the kind of bravado that can make this market rock. We require more of this bravado. But, if it is going to be just once in a blue (pun unintended) moon, it will be rank boring. So, as the Joker would have said, let’s put a smile on that face!
This is the first in a series of blogs Everest Group is publishing on exciting opportunities and implications to watch out for in the healthcare IT services market.
Everest Group had the opportunity to attend IBM’s APAC analyst day in India on 11-12 June 2015. Business and technology leaders from IBM presented their offering portfolio, demos, and real life transformative case studies with active participation from their clients. One thing that stood out was how Big Blue is communicating not only its technology vision, offerings, and organizational commitment toward open technologies, but also its internal transformation to serve clients and reclaim its technology leadership position. It realizes that the “old IBM” ways will no longer work, and it needs to become more nimble and innovative, and play an important part in shaping the technology disruption the digital age has brought onto us.
Earlier this year, IBM aligned its go-to-market strategy around key industry verticals. It also created internal structures to make myriad of its offerings, technology groups, services business, sales and marketing, and its research lab work in sync. It believes this will help create solutions that are required to leverage digital technologies, and thereby not only redefine itself, but also create a new ecosystem of product and service providers around it.
Going back in the history, IBM truly transformed the technology industry when it invented the Mainframe. And while today’s technology becomes tomorrow’s legacy, no one can deny that the Mainframe was a historical system that shaped and created the technology industry as we know it today.
However, since then, IBM became a nuts and bolts company providing middleware, desktops, and back-end efficiency solutions focused on enterprise computing. While it did introduce incremental innovation and acquire many technology companies, it did not play a meaningful role in shaping the industry vision. It continued to invest in its research labs, and its products were always considered leaders in enterprise computing. But it hasn’t been a leader in true enterprise technology transformations such as the rise of ERP, virtualization, SaaS, or IaaS.
This has changed. The analyst meeting demonstrated that digital has become the new pivot around which IBM will take back its earlier pedestal position of being the company that forms, shapes, and guides the technology industry. This story was ably supported by multiple client interactions during the event. Clients say that this is not the IBM they had earlier worked with, or had expected to work with.
IBM’s much publicized partnerships with digital native firms like Facebook and Twitter, and leading user experience and design companies such as Apple, are an important but small part of its digital journey. The bigger part is moving away from its traditional way of working, and realizing that it must play a key role in the digital everywhere environment. Its increased focus and core commitment toward open technologies is highly apparent. And it has always had the technology, scale, and reach to transform businesses. Now, the muscle it’s putting behind Softlayer and BlueMix, its mobility play, and its investments in analytics, the Internet of Things (IoT), and Watson have the potential to transform not only its clients but itself as well.
With its go-to-market alignment with industry verticals, IBM can bring effective solutions to clients looking to transform their businesses. However, disruption in most industries is happening from the outside, (e.g., Uber to the taxi industry, Airbnb to hospitality, Apple Pay to banks, and Google cars to automotive), rather than within. Therefore, a rigid structure around industries may not work well. IBM will need to ensure that its technology, industry verticals, and innovation groups talk to each other, an area where it has historically struggled.
Moreover, monetization of some of these innovations will be a long, drawn out process. IBM has had significant growth challenges, and has shed many of its businesses. For its growth and profitability to return –which should be the big drivers along with reclaiming its innovator status – IBM has to do a lot more. It has historically been viewed as a company that helps clients’ operations run more efficiently; it now needs to carefully position and communicate its willingness and ability to partner in clients’ growth.
In addition to the digital technologies IBM possesses, other of its strong strategic initiatives include: internal transformation around reskilling the workforce toward innovation and design thinking; commitment to open technologies; collaborative alignment between its services business and its technology groups; renewed commitment toward client centricity; improved sales effectiveness; and focus on solving core industry problems.
IBM’s changes have been pushed right from the CEO’s office, and IBM executives believe results will be visible in the next 6 to 12 months. IBM needs to play a dual role in which it helps some clients disrupt their industries and business models, and assists others sail through the digital disruption. It again needs to become a technology innovator. While it’s a difficult task, we believe it has the needed technology, vision, and now internal alignment to achieve these objectives.
I had the privilege of being at IBM and seeing first hand Watson working on powerful use cases. I must say, even now after a few days of reflecting on it, I think I’m even more impressed with its power and capability than when I was at IBM and saw Watson in use. If, like me, you spend two hours with Watson, you will get a glimpse at our future. It’s highly likely that within five to 10 years all of us will use some kind of cognitive computing to assist us in our daily lives. But I believe there is a major challenge.
Just a quick refresh: Watson is cognitive computing, a form of artificial intelligence. Previously I did not understand the way it will be deployed; it will augment human decision making, not replace people. That’s not to say that an individual assisted by Watson won’t be able to do the work of many more individuals. At least at this stage of development cognitive computing makes humans more capable and smarter.
For example, I saw Watson working as a companion to an oncology doctor, helping him perform more thorough diagnostics. In the situation I observed, the oncologist was able to cut the diagnosis and testing process from six days down to two hours. That doctor was far more effective because Watson can explore many more options and present hypotheses and data to the doctor and medical team than they could have explored on their own (plus it would have taken far more time for them to do it). In addition, it’s not hard to believe that the team would be more likely to do a better diagnostic with Watson as companion than they could achieve through traditional techniques.
With all that being said, I think Big Blue faces a major challenge with Watson at the moment: Watson is a solution looking for a problem.
As I understand it, IBM invested over a billion dollars in Watson’s development. On TV we saw Watson defeat a chess Grandmaster and then win on “Jeopardy.” However, now Watson needs to make the journey to operate in the real world of business problems.
These use cases and applications are still undefined and will emerge over time. It is, in fact, the challenge of problem definition and incremental adoption that stands in the way of progress. It’s easy to imagine that there are limitless applications for Watson; but for Watson to take off quickly, we need to identify big issues with large payoffs. Without these game-changing applications we will wait for several years for cogitative computing to make the contribution that it is clearly capable of.
To recover its billion-dollar investment and create a market for cognitive computing, IBM has every incentive to hasten the adoption. However, it has yet to identify the break-through problems that will drive rapid adoption. It is all very well to believe that the power of the technology will inevitably drive adoption; but if cognitive computing is like other disruptive technologies, it will come slowly and in spurts.
To hasten adoption, my best – and unsolicited – advice to IBM is to identify big business problems where Watson can make a structural change and drive massive benefits. Clearly, working as a companion to oncologists is such an area. And given that healthcare is 20 percent of the U.S. GDP that alone may be worth the journey.
But for enterprises beyond healthcare, I feel challenged as to what other big structural changes Watson and cognitive computing could provide.
I strongly suggest that you find a way to experience Watson’s power. It’s is so powerful that I, like IBM, am struggling with where we should take it.
As I’ve pondered its possibilities, I think underwriting and the claims process in the insurance sector holds tremendous opportunities. And within IT, I think the service desk and problem solving that IT departments contend with could be dramatically enhanced with this technology. With a cognitive computing tool as their companion, they could deliver a higher quality of service and greatly improve productivity. Clearly the area of security would benefit substantially as we find ways to keep the black hats out of our data.
I’m very interested in other points of view as to where we can put cognitive computing to work, so please add your comment below.
Photo credit: Wikipedia
Have you noticed how few service providers have the ability maintain a market leader role when the market changes to favor new technologies, or new service models? It’s very difficult to make this shift, and I’ve seen very few companies achieve the shift – let alone do it three times. Just one. Wow!
If we look back at the service provider landscape in the early 1990s in the classic outsourcing space, the leaders in the service industry were Accenture, CSC, EDS, IBM, and Perot.
Then the growth opportunities shifted to the labor arbitrage model in the late 1990s and early 2000s. Suddenly the group of leaders changed to Accenture, Cognizant, IBM, Infosys, and Wipro.
Now as we move away from those classic leaders and shift to the new models (SaaS, BPaaS, platforms, and consumption-based), there are three leaders: ADP, IBM, and Salesforce.
Looking back at the market leaders over the years, some have disappeared, as the figure above illustrates. EDS is now owned by HP, Perot is owned by Dell, and ACS is owned by Xerox. What stands out in the graph is that only one company has been able to consistently shift when the market shifts – IBM.
How have they managed to do this? Here are some lessons we can learn from Big Blue.
These four strategies have enabled IBM to maintain market leadership despite market shifts. They stand out as lessons for other firms seeking to stay relevant and stay in leadership positions in the market.
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