How HCA Brought Business, IT Together

By Victor Chase  |  Posted 07-01-2002

How HCA Brought Business, IT Together

 

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Three years ago, about 30 people reported to Larry Egger, an assistant vice president for IT at HCA Inc. Not anymore. Egger is still a member of HCA's Information Technology & Services department, but he has moved his desk to a completely different department, one that monitors HCA's $3.2 billion annual supplies purchase of everything from bandages to heart monitoring equipment.

Egger now lives a dual life, working in one department but belonging to another. But he isn't complaining. He is one of five so-called alignment "solution leaders" appointed by CIO Noel Brown Williams in 1999 to help close the gap between business and IT at Nashville, Tenn.-based HCA. His mission: to help the nation's largest healthcare provider, with almost $18 billion in 2001 revenues, better use technology to cut costs throughout its almost 200 hospitals and 80 outpatient surgery centers in 23 states, England and Switzerland.

Noel Brown WilliamsIT View: "Alignment is hard. It requires time and energy from both sides, and good listening and communication skills that in the past have not been strengths for many IT staffers."
Noel Brown Williams
Senior Vice President and CIO, HCA Inc.

"We were having trouble staying synced up with the business, making sure that the people in IT were always working on the highest business priorities," Williams says. So she appointed five people from IT to work side-by-side with business people to come up with new ways to support HCA's bottom line. The five were relieved of their previous responsibility of managing large technology staffs to focus on learning HCA's business—patient billing, finance, employee services, clinical technology and supply chain operations—and recommend ways IT could help each unit reach its goals.

Biz View: "I think it was felt that a lot of decisions were made by IT without the proper input from those of us on the business side."
James A. Fitzgerald, Jr.
Senior Vice President
Contracts and Operations Support, HCA Inc.

Is the team having an impact? So far, so good. Internal surveys show a jump in satisfaction among the business units, and executives point to big savings. Jim Fitzgerald, the senior vice president of Contracts and Operations Support, whose department is in the throes of a reorganization as part of an overall corporate consolidation along regional lines that was designed to cut costs and give the company greater bargaining power with insurance companies, says that IT's help in the reorganization has boosted his group's productivity by about 15 percent. Meanwhile, HCA has kept the lid on the cost of supplies; it's been hovering around 16 percent for several years. That's not bad, considering that Cap Gemini Ernst & Young estimates the typical cost of supplies in the industry at between 20 percent and 30 percent. Meanwhile, Merrill Lynch estimates that HCA's net margins will climb to 6.8 percent this year, from 5.9 percent in 2001.

Photos by David Johnson

Improving Communications

Improving Communications

Before Williams created the new alignment positions, there was no formal effort to align IT at HCA, and that led to some cultural problems. "It was felt that a lot of decisions were made by IT without proper input from those of us on the business side," Fitzgerald says.

Meanwhile, among IT managers, there was a sense that the businesses did not solicit their input. Says Williams, "The business side sometimes tried to determine how to use technology to solve a business problem without involving IT, and then would come back to us and say, 'This is what we need.' Often, this would include predetermined schedules, and sometimes we were in the awkward position of having to explain why it wouldn't work. Today, we are at the table understanding and defining business needs and solutions together."

When IT's Egger first joined up with Fitzgerald, however, it wasn't exactly love at first sight. The initial sentiment Egger sensed, he says, was, "This is business strategy. I don't necessarily need you here for that. After a while we'll give you a call and tell you what we've decided." IT was looked at as a separate entity, there simply to do the bidding of the business units. "It was pretty much 'dump it over the wall and see what happens,'" says Egger.

Even worse, many of the supply chain executives looked upon Egger as little more than an on-site help desk. Tough as that was to swallow for an executive with more than 15 years in healthcare IT at HCA and its predecessors, Egger went along in the interests of building the relationship. "We made a decision to support those kinds of requests because the onus was on us to develop a relationship," he says. "We had to prove the value we were bringing. It may not have been the value we initially set out to bring, but if you answer a couple of questions like 'Why is my computer locking up?' you find that the relationship sweetens a little."

It took a while to get his new colleagues to talk to him about strategy, Egger says, but they eventually saw that his knowledge of technology and his willingness to understand their business needs made him invaluable on the team. "Larry steered us in a better direction once we gave him our objectives and priorities," Fitzgerald says. "I work with him just as I would with my direct reports. He's involved in planning, implementation, identification and resolution of issues. I don't know how you get any better aligned than having that start-to-finish, day-to-day involvement."

Egger's move couldn't have come at a better time, considering HCA's recent restructuring. Responsibility for purchasing and stocking medical supplies was moved from individual hospitals to 11 centralized purchasing centers aligned with 11 regional divisions, each with a supply chain officer responsible for procurement and distribution. These officers report to Fitzgerald, who holds quarterly strategic meetings with them as a group. IT issues are on the agenda, and Egger attends. He also meets independently with each of the divisional supply chain officers at least once a year. "That allows me to take back to IT opportunities to improve the systems that support supply chain operations," he says.

For example, Egger and his business cohorts determined early on in the consolidation that the system each hospital was using to purchase and distribute supplies for its own stockroom was heavily dependent on paper pick lists and would no longer work at the 40,000 to 60,000 square-foot warehouses to be built under the new plan. The answer: an automated system using Dick Tracy-like radio frequency devices that warehouse workers wear on their wrists. The system knows the locations of each item in the warehouse, plots the most efficient route up and down the aisles and relays the route to the workers. As the workers scan bar codes on each item, inventory is adjusted in real time. Meanwhile, the hospitals are tied into the system through bar-code scanners at nursing stations. The system greatly reduces the risk that doctors and nurses won't have the supplies they need. When nursing floor stock hits critical levels, the system generates warnings to replenish. Real-time inventory at the warehouse ensures that the right product is delivered at the right time to the right location. The system was first instituted at a warehouse in Richmond, Va., and six more will be up and running by the end of the year.

Were it not for Egger being at Fitzgerald's management table, things would not be as far along as they are. "We had an earlier start on a system than we would have if that strategy had become known to IT later," Egger says. He recognized immediately the limits of the old system, and "we were able to deliver when the business required it."

Egger and his four alignment team counterparts also help business executives decide whether to buy or build new technology. Such was the case with the automated warehouse and scanning technologies; Egger set up the process to help Fitzgerald and his people evaluate companies selling those systems. A newer and better version of the accounts payable software for purchasing, on the other hand, is being developed in-house, with Egger's guidance.

In another example of this kind of cooperation, the supply chain group is collecting ideas from hospital workers and administrators on ways to cut supply costs. Egger and his IT team created a database to share these ideas across the company. "That's been very effective for us in reducing cost," Fitzgerald says. Savings have been more than $100 million in three years. For example, a suggestion to use unbleached paper towels led to savings of $40,000 to $50,000 annually. Egger and supply chain executives also worked together to develop a system that allows HCA to get volume discounts by aggregating the purchase of items that cannot be negotiated nationally.

Tracking Effectiveness

Tracking Effectiveness

Williams keeps tabs on the effectiveness of her alignment leaders in two ways. One is through 360-degree reviews, in which the senior officer in each business area contributes to the annual performance review of the unit's alignment leader. The other is a yearly survey of all hospital and corporate officers that seeks their opinions on the value of IT, the value of involving IT in forming strategy and how well business and IT are working together. "Before I appointed these [alignment] leaders," Williams says, "I don't know that we would have gotten as high marks from the business leaders as we do today."

Jim Gabler, a former CIO at Christus Santa Rosa Health Care Corp. in San Antonio, Texas, and now a research director at Gartner, Inc., says HCA's alignment process is an "excellent" way to avoid problems. It allows the company to recognize them early, before they flare up into major problems. "One of the best ways an organization can close the alignment gap is with what we call relationship managers," Gabler says. "That's the generic term we use at Gartner for someone who is physically working in the business unit but reports to IT. That seems to be exactly the model that HCA is following, and we have found that to be extremely effective. It's a very powerful way for IT to be very responsive to the business."

Mary Silva Doctor, a consultant with Omega Point Consulting who has worked on alignment with HCA and other companies, notes that the alignment leader concept is not new, but HCA's results, as seen in Williams' survey, are notable: HCA tries to encourage a very close working relationship among all its departments, she says. "To be able to have IT's business partners say, 'Yes, we feel like we are all 100 percent aligned,' after only two years, is a kind of change we haven't seen elsewhere."

But the use of alignment leaders isn't the only way HCA is trying to boost IT-business cooperation. Williams, for example, meets regularly with Fitzgerald and other top executives on broader company issues. And each IT project has an IT manager and a business "owner," who work independently of the alignment executives.

Can this alignment process sometimes work too well? Getting one person to conflicting meetings in two different departments can be hard. "The solution leaders are so aligned with the businesses that they sometimes forget they are really IT," Williams says. "We've had a couple of instances where we've had to say, 'Wait a minute now, you're doing such a good job representing the business, do you remember you work for IT?'"

On balance, however, the program's success has inspired Williams to take another couple of steps. Under a portfolio-management program, every IT initiative is rated on its contribution to key business priorities, such as regulation compliance and patient safety, and then given priority based on cost and other factors. Then a work-management plan allocates money and people within each project.

HCA's alignment leader concept is succeeding for Egger personally, as well. "It's a great opportunity for an IT guy such as myself to be immersed in the business side of the company," he says. "So I find it very rewarding. And for IT and the businesses, it's been a home run."

VICTOR D. CHASE is a Yorktown, N.Y.-based writer specializing in science and technology. Please send comments on this story to editors@cioinsight.com.

How HCA Bridges the

Gap">

How HCA Bridges the Gap

  • Physically relocates IT execs to business units.
  • Involves IT execs in planning, implementation and resolution of business issues.
  • IT execs meet frequently with key business managers.
  • Business managers contribute to the performance review of IT execs.
  • IT solicits corporate and hospital officers' views of IT effectiveness.