Background

1. Background The client, a large healthcare provider in a major metropolitan area in the US, felt that outsourcing their IT operation could improve their financial performance. IT was fast becoming a major financial burden, plus the services were not one of their core competencies. They sought help to determine how best to outsource the IT services. SPG’s Consulting Assignment SPG was engaged to define the outsourcing process, and work with potential vendor(s) in conducting a due diligence of the IT operation. The client also asked SPG to work with two existing vendors in determining the potential for a joint venture among the three parties to handle the client’s IT services as well as other company’s IT services. SPG - Business Analysis Findings SPG, along with the two vendors, conducted a Business Analysis of the IT operation to define the most viable option with the following results: Joint Venture (JV): Strong business case exists to set up a JV. Client-owned software and information assets can be used to generate new revenue streams. Partners bring strong skills, processes, and methodologies to assist with client IT efforts. The e-Strategy initiative will deliver high value to the client and JV. One of the partner's global development centers can be leveraged to reduce software development and maintenance costs. General findings: No formal approval process exists for IT projects. The IT Strategic Plan did not have budgets, migration approaches or implementation plans. Apps development projects are department-driven, but value is at the organization level. System and process consolidation will reduce costs, plus too many hardware platforms (79) and nearly 300 software products exist. A facility is well-suited for a data center (floor space, mainframe, server, etc.); a second center is well run and will provide a good operating model. The main data center can be streamlined through better tools for consolidated remote monitoring, support platform reduction, and cross training. The hardware/systems software environment at the data center is stable and reliable. Results and Quantitative Benefits The combined efforts of SPG consultants, client and vendor professionals resulted in a very successful effort, and achieved the following. The team determined that a joint venture was not a viable option, however a joint outsourcing agreement was developed and implemented. The multi-year outsourcing agreement resulted in one vendor taking applications development with the other taking the remaining IT services. A complete transfer of assets, contracts, and personnel to the vendors was accomplished. A significant cost reduction impact for the healthcare provider of over $4 million annually was achieved. There were significant increases in operating and service levels for all IT services provided to the healthcare provider. To achieve the financial and operational impacts for the healthcare provider, the project team: Played a key role in managing a smooth and successful transition from the healthcare provider to the outsourcers. Worked with the outsourcers to implement their policies, procedures and processes at the healthcare provider including the redefinition of roles and responsibilities for the transferred personnel. Leveraged the existing outsourcers’ system for managing including critical reports, and fine tuned them for utilization in the healthcare provider organization. Initiated a renegotiation of all current vendor contracts and leveraged the outsourcers’ national contracting process and existing contracts with large vendors. Cumulative Contract Savings 20000 20000 18000 18000 16000 16000 14000 14000 12000 12000 000’s omitted from monetary values 000’s omitted from monetary values 10000 10000 8000 8000 6000 6000 4000 4000 2000 2000 0 0 2000 2000 2001 2001 2002 2002 2003 2003 Improved Operational and Financial Performance ThroughIT Effectiveness and Strategic Outsourcing of IT Services • Schrudder Performance Group, LLC. Proprietary Information - 2001