How a Well-Planned Outsourcing Transition Weathered a Changing Economy and Vendor Challenges | Article

Kathy Young, Client Executive, Dell Services; Debra Floyd, COO, Outsourcing Center; Carl Esposti, Principal, Everest Group

Kathy Young, Client Executive, Dell Services; Debra Floyd, COO, Outsourcing Center; Carl Esposti, Principal, Everest Group

Best Transition: Centegra Health Systems and Dell Services

Awards Criteria: The buyer and service provider worked collaboratively up front to eliminate anticipated transition challenges and to ensure timelines and budgets were met. They also worked collaboratively throughout the transition phase to address any unanticipated challenges that arose.

The seeds of a successful transition start at the contract negotiating table, according to Aaron Shepley, General Counsel and Senior Vice President, Administrative Services for Centegra Health System.

During the negotiations for this relationship “we actually anticipated the joint tackling of new issues and projects,” writing 17 separate strategic projects into the contract. “We dealt with the what and the how we were going to partner on those projects in advance. We didn’t wait until after we signed the contract,” says Shepley.

Centegra signed its outsourcing agreement with Perot Systems in 2008. Dell purchased Perot Systems in 2009.

The Centegra executive says Dell Services’ actions during the transition underscored the fact that Centegra, a multi-hospital health system with over 30 sites serving the residents of McHenry County, Illinois, selected the right service provider. Dell Services provides application management services, infrastructure services, project management office services, and strategic and tactical project delivery to Centegra. “Everything IT is now them,” Shepley explains succinctly.

The relationship, which has non-customer-facing development activities in India and Mexico, serves 3,500 Centegra employees and 440 medical staff members. Centegra is the county’s largest employer.

Dealing with challenges during the transition

There are always unanticipated challenges in even the most well-thought-out transition. This relationship faced three major ones.

Challenge No. 1: A software vendor made the transition difficult 60 days into the transition. The hospital’s contract required the outsourcer to get the consent of this vendor to use its software, but the rebadged Dell employees “were doing exactly what they had been doing all along. Basically, this vendor tried to extract $300,000 and Dell Services was on the hook,” the Centegra lawyer explains.

When this difficult situation arose, Dell Services did not “try to evade its responsibility. At no point did they look to us for one penny of support. And at no point did any of their team express even an ounce of unhappiness with the situation,” says Shepley.

Instead, “they did not blink. They stepped up to the plate without hesitation and fixed it in a matter of days.” He says the service provider renegotiated the fee “but still had to pay a pretty big chunk of change. To me, this was a major gold star for Dell and a harbinger of good things to come.”

Challenge No. 2: When this outsourcing relationship began, the global recession was just getting started. “We had no idea what was just around the corner,” says Shepley. When the first day of the contract arrived, “things had already taken a turn for the worse. Dell did not miss a beat,” he recalls. The service provider “devoted substantial resources to review our IT strategic plan to triage the capital expenditures in our queue,” he adds thankfully.

He says the changing economy “forced an acceleration of efforts” during the transition. “Both parties worked together, were flexible, and worked to achieve the requirements,” he continues.

Challenge No. 3: On the first day of the contract, Centegra experienced a catastrophic failure with a server. The service provider worked around the clock to resolve the issue. “This commitment helped build the trust that now exists,” says Shepley.

The Dell Services performance during transition set the stage for the future. “There’s not an executive on our team, from the CEO on down, who does not believe Dell Services will continue to go the extra mile for us,” Shepley reports.

Why this relationship works

At the outset, the two partners decided to make Kathy Young, Dell Service’s Client Executive for the Centegra relationship, Centegra’s CIO instead of retaining its own. “We felt there might be a reluctance to let go and let the service provider do its work. Our vision was to create a stronger partnership with a stronger alignment of priorities,” says Shepley of this decision.

There is clear communication between the two companies. The Dell Services team “has always been ready to sit down at the table if necessary,” says Shepley. He adds he is “in frequent contact” with members of the Dell Services negotiating team and has “a great relationship” with Young.

When a new need arises, Dell Services is ready. Last year’s American Recovery and Reinvestment Act (ARRA) encourages hospitals to move to electronic medical records, a project that the two didn’t include in their outsourcing contract. Centegra is partnering with Dell Services to provide electronic medical records to its independent physicians and to create a health information exchange “so we can take advantage of the available ARRA stimulus dollars.” Centegra hopes to collect $11 million of those dollars. Shepley says this work “is another excellent example of the benefits of working with Dell.”

Dell Services also keeps Centegra apprised of what’s going on in Washington, D.C. As the healthcare legislation was forming, the service provider brought in experts “to update us and explain what it means for our organization,” says Shepley. He adds, “None of that is required contractually, but they did it anyway.” Young adds, “We bring in thought leadership, which a community hospital couldn’t afford to have.”

Trust is a key pillar. “Our goal at the negotiating table was that we would sign the contract and never have to pick it up again. That has been our experience,” says Shepley.

Results

Centegra is currently replacing its entire IT platforms, from clinical information systems to the patient revenue cycle. “We could not do this without Dell,” Shepley says.

Centegra is able to save money because Dell Services experts are aiding in contract negotiations with the new IT vendors. “We have their front-line experts and my legal background. We are saving a couple hundred thousand dollars on legal fees because we have all the expertise we need already sitting at the table,” says Shepley. Adds Young, “We can negotiate better discounts through our vendors,” says Young. So far, she says Centegra has saved over $1 million through better pricing.

Today the IT environment is stable, Young points out. Server availability has improved from 97.8 percent to 99.7 percent. Day-to-day IT operations now meet ITIL standards. These practices resulted in a 20 percent reduction in calls to the helpdesk, Young reports. “We are managing IT proactively not reactively,” she says.

The Centegra executive says Dell Services “pays constant attention to improve our IT operating environment through innovation.”

Dell Services experts are available to help Centegra think through decisions. “They have spent hours and hours explaining the consequences of taking option A or C or merely reserving the status quo,” Shepley says with appreciation.

The rebadged employees are expanding their career opportunities. “They have expressed gratitude for providing them with the opportunity to expand their professional horizons,” Shepley says.

To date, Shepley says he has seen no add-on charges. All the projects are on schedule and within budget.

The reasons for outsourcing

Centegra’s IT systems had various solutions “that arrived on the scene because individual departments were free to buy what they wanted to do a one-off solution to a problem,” Shepley says. The problem was, none of the one-off solutions communicated with each other. “We had 72 different applications that were worthless because they couldn’t communicate with each other,” he explains.

Another challenge was capacity constraints. “Our IT infrastructure was dated and no longer could provide the needed capability,” notes Shepley. The onsite data center was already at capacity and building an additional data center was cost prohibitive. In addition, there was no redundancy. “The prevailing thought was Centegra required an infrastructure overhaul. The only way to achieve this was with a partner,” he says.

Young says the hospital provider “didn’t have the IT leadership needed to go forward.” Instead, Centegra wanted “IT leadership that could engage with the executive team to help with hospital strategy,” she says.

Centegra Health realized its IT environment “lacked discipline.” It liked Perot Systems because of its demonstrated organizational discipline. “They possessed it and we wanted it,” recalls Shepley. The Centegra executives hoped this discipline “would allow us to cure our IT ailments in a more expeditious manner.”

Centegra also respected the service provider’s management skills.

Summing up, Shepley says Dell Services “has really shaken the rug out and put us on the right track. Dell Services’s impact on us has been profound. If the first year is any indication, this is going to be a great 10 years.”

Lessons from the Outsourcing Journal:

  • The contract negotiation process is a good opportunity to learn about a service provider’s culture. The relationship has a good chance of succeeding if both parties start with a high degree of trust that comes out of the negotiations.
  • During the transition, don’t deviate from the mission the first time there is negative feedback from the buyer. Just tweak the part of the process causing the frustration or communicate why things need to work they way they are.
  • Handling difficult challenges in a transition creates a good foundation for working together in the future.
  • Distributing surveys throughout the transition reinforces policies and procedures and checks for end-user satisfaction.


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