Thought Leadership In Healthcare Digital Transformation

Damo Consulting thought leaders regularly write in different media articles. We also invite guest posts from industry leaders.

Global IT Consulting Firms In Healthcare: In Search of the New Killer App

Global IT consulting firms, especially those with an India heritage, have had a long run at high growth rates, fueled by one idea: Outsourcing information technology (IT) operations to countries with low labor costs and a skilled engineering talent pool with a strong English language proficiency offered a huge arbitrage opportunity. The Indian IT services industry monetized this idea with a single-minded focus over the past 25 years and is now estimated to be more than $150 billion. Over the past decade or so, many western multi-national firms, including end-user clients for these companies, have jumped on the labor arbitrage model.

My firm has been focusing on how global technology consulting firms have been doing in the healthcare markets, and reviewing their financial and operating performance since 2015. Our latest mid-year review of 11 publicly held global technology consulting firms indicates that organic growth from the healthcare vertical is trailing overall company growth for most consulting firms, and is slowing down relative to previous quarters. Three of the 11 firms we cover in our report have seen leadership exits for the healthcare business, and the Board of Directors of one high-profile firm is looking to replace its CEO. No major contract signing in healthcare has been reported by any of the firms.

Where is the whole sector headed next? No one knows for sure, but the labor arbitrage model is now surely past its sell-by date. The question therefore is: what’s the next killer app for global IT consulting firms ?

If one were to go by the term most-often used by these firms in earnings calls, annual reports, and marketing messages, it would seem that the new killer app goes by the all-encompassing name of “digital.”

However, unlike a clear concept like low cost labor, digital is much harder to understand. In much the same way as that other overused term – artificial intelligence or AI — the technology vendor market has whipped itself up into a frenzy of “digital” offerings, with each firm defining “digital” in its own way.

However, the global IT consulting firms, and in particular the India heritage firms, seem to discuss a common theme when referring to digital. They are mostly referring to automation when they say digital. These firms are betting on intelligent automation (IA) as the killer app for the future of their business model.

Consulting firm KPMG has released a report declaring that IA is fueling the next generation of outsourcing. As IT operations move to the cloud, automation targets the same IT operations that substituted high-cost labor pools a generation ago, and is eliminating the low-cost pools with even lower cost robots a.k.a robotic process automation or RPA. The implications are like a double-edged sword: Automation is a new revenue opportunity, but it is one that necessarily cannibalizes a current revenue opportunity. The implications reach far beyond the board rooms of multi-billion dollar tech firms, and raise questions about a low-cost labor-pool based model of IT services.

In other words, the killer app of tomorrow is killing the jobs of yesterday, a fact that the KPMG report delicately refers to as a “negative though not significant (at least in the near term) impact on the use of traditional outsourcing and shared services.” However, the Schumpeterian principle of creative destruction may be at play here, with an entirely new class of jobs and entirely new revenue opportunities on the horizon arising from the increasing savings and efficiencies brought about by automation.

This now raises the question of digital transformation. The whole premise of the “digital” opportunity is about recognizing that every business is re-imagining its core business operations from marketing and consumer engagement to back-end operations through the lens of digitally enhanced “experiences”, in many cases powered by advanced analytics and AI technologies. Indeed, the greatest opportunities from digital over the long term are in revenue-generating interactions and processes, more so than from operational efficiencies. In my firm’s work with health systems, there is much more focus on telehealth opportunities and moving the needle on digital interactions for improved patient engagement than there is for improving IT operations by a few percentage points.

Today, we are at a point where the exploding ecosystem of digital health startups is developing innovative solutions for every conceivable aspect of patient engagement and caregiver enablement. The global IT consulting firms are trying to get in on this as well. However, a consulting firm’s DNA is very different from a platform or a product company’s DNA, and even less that of a startup. Which explains much of the M&A activity by cash-rich consulting firms who are trying to move into IP-based businesses and away from pure services.

The good news is that the overall healthcare technology market demand environment seems to be holding up, based on the high growth rates for many technology firms such as Microsoft, Google and Salesforce, as well as the high levels of venture capital investment in digital health startups. As the market for traditional services such as infrastructure management and outsourced applications support falls into decline, healthcare IT consulting firms are focusing on emerging opportunities in cloud, AI, automation and digital with varying degrees of progress over the past few quarters.

It would be futile to try and guess where the equilibrium between declining and growing businesses will be for these firms and how soon they will get to it. A safer prognostication would be that there will be no such thing called equilibrium.

Originally published on electronichealthreporter.com/

The Healthcare Digital Transformation Leader Newsletter

Subscribe to stay informed on the latest news, trends, and insights from Damo

Damo Logo White

Get in touch!

One of our experts will get in touch with you shortly.

(815) 900-9840

info@damoconsulting.net

THE HEALTHCARE DIGITAL TRANSFORMATION LEADER

Join the digital healthcare revolution. Stay on top of the latest news, trends, and insights with Damo Consulting.

Sign me up for the latest news, trends, and insights from Damo.

Sign me up for the latest news, trends, and insights from Damo.

THE HEALTHCARE DIGITAL TRANSFORMATION LEADER

Join the digital healthcare revolution. Stay on top of the latest news, trends, and insights with Damo Consulting.

Sign me up for the latest news, trends, and insights from Damo.

THE HEALTHCARE DIGITAL TRANSFORMATION LEADER

Join the digital healthcare revolution. Stay on top of the latest news, trends, and insights with Damo Consulting.