The ripe time to merge?

March 19, 2014

The mere mention of the term “merger” strikes fear and loathing on one side and alternately inspires hope and change on the other among company executives, employees, investors and customers, as well as spectators.

Publicly, the two companies bombastically and confidently promote anticipated revenue gains through an increased customer base and improved customer service over time that is reinforced internally by cost cutting and process streamlining in the form of layoffs or staff reallocation and non-profitable service line eliminations. As administration, finance, operations and corporate cultures blend, information technology forms the backbone fueling it all because computers, databases, diagnostic imaging, laboratory and surgical equipment must communicate with one another.

Terms like interface and integrate emerge – first as a strategic initiative but then as a tactical tedium when efforts are complicated, delayed or otherwise fall short of perhaps unrealistic expectations.

But that’s business, the business of healthcare being no exception.

Health Management Technology explored the IT challenges and complexities during a merger of two corporate entities – be they two suppliers or two provider organizations (e.g., hospitals, integrated delivery networks, etc.) – and asked a small group of IT executives for their insights on how to succeed.

During a merger, what are some of the key hurdles/pain points IT execs have to overcome and why?

Sheldon Newman, Co-Founder, CFO, Executive Vice President, Channel Partner Relationships, ViiMed

I believe the success of mergers of healthcare technology companies usually centers around the combining of two potentially dissimilar cultures that have great products, technology, talent and comparably strong markets. Some of the obstacles that need to be resolved are:

Evaluating the talent and determining who the “keepers” are and who just won’t fit into the combined organizations. The bean counters will always make the case for savings by eliminating redundancies. But mature, seasoned executives must not trade off solid talent for short-term savings. The loss of good people will cost far more in the long run. And of course you never should lose the folks with the knowledge base that got you to the merger table in the first place.

Whether to tightly integrate the organizations or be loosely coupled. Though the right call depends on the facts of the specific situation, remember, the latter will promote innovation and nimbleness without being bogged down by legacy-based technology and short-sighted thinking. 

Relocation of one team. Should one of the organizations be relocated to take advantage of “plant” savings or maintain its original sites to promote innovation without the burdens of conformity?

Merging cultures and retaining the best of both organizations. Cultures that promote the gold standard for service need to prevail, and aggressive product planning must not be thwarted by the old guard. Most of all make sure that customers benefit from the combined cultures.

Steve Matheson, Vice President, Product Management, BridgeHead Software

One key point is critical IT staff retention. Most providers do not realize how dependent they are on their IT staff until a merger. However, IT staff members understand. They are all concerned about the security of their positions, especially when there just might be their equivalent in the same position at the other provider. Unfortunately, the staff members with the most marketable skills often take the opportunity to test the job market first, and often they have institutional knowledge that is key to the merger’s IT success.

IT staff knows the specifics of the application portfolio that runs the clinical and business operations of the hospital. They know the location of all the hardware, especially those servers and network devices that, for example, were temporarily installed in the closet on the 4th floor three years ago. These staff members are the only ones who can interpret all those Microsoft Visio diagrams that supposedly document every critical infrastructure component. They often are the only ones who know the support hotline number and processes you must go through to obtain support for the many IT vendors. I have heard from a number of IT senior execs that they wish more institutional focus, through various incentives options, had been available to IT to retain critical employees.

The other key point is assessing what IT environments stay and what goes. All the efficiencies promised are often predicated upon IT taking what is often completely overlapping technology environments and seamlessly selecting the best from both and eliminating the remainder over time. That is what the brochure says – but  then there is the reality of how IT determines what stays and what goes. You very seldom want to keep redundant applications and the dedicated infrastructure, but culling the IT application herd is itself a large resource commitment if you want to do it right. Here’s a suggestion as to how to approach:

Step 1: Keep what you have up and available at both providers. In other words, have all the IT staff integration planning meetings you need, but act day to day as though the merger never happened. Don’t lose focus on running the current environments well. If you identify major at-risk scenarios, then see whether small tactical new projects, perhaps utilizing the other provider’s resources, could provide you a bandage until you have a chance to find a more permanent solution. 

Step 2: Have each organization provide an inventory of all the applications they run, who utilizes them, what the applications’ main functions are and what infrastructure they utilize. Sometimes this is easily done, because it is all in place waiting to be printed out; other times this process can itself be an eye-opening experience. Having “new” eyes review your list of application environments can sometimes facilitate that IT finally does prioritize the retirement of the application running on Windows NT version 2.0.

Step 3: Where two (or three) different applications perform the function and serve the same community, take the opportunity to do an internal “bake off” and perhaps include the vendor. Yes, it’s more work and yes, it slows down the process. However, getting data sharing between applications to work is often complex and time consuming initially and over time. Also, one of the obvious efficiencies is cost, and shuttering an application can reduce cost in real money terms, people and IT resources.

Step 4: Once you understand what application environments will stay or go, you can begin to look at hardware repurposing and retirement. Not everything has to have new hardware. Sometimes repurposing enables budget to be allocated to other important but unfunded initiatives. Did anyone say Google Glass?

Frank Negro, Practice Leader, Global Healthcare Consulting, Dell Services

There are two overriding hurdles for IT execs to consider during a merger: consolidation of teams and processes, and consolidation of systems. I believe there is a tendency to underestimate the complexity of both.

The consolidation of teams and processes has everything to do with culture, both within the IT department and the merging organizations. Expectations, whether explicitly defined in internal service-level agreements (SLAs), or implicitly defined through relationships and traditions, are most often different between two merging organizations, and the process of consolidating must be initiated long before a “consolidated” IT department needs to be in place.

The consolidation of systems requires a function-by-function evaluation of the current systems environment at both organizations, with a formal decision regarding systems support for each. The three options (System A at both, System B at both or a hybrid System A-B solution) must be considered from the perspectives of functional support for the merged organization’s strategies, supportability and, of course, cost.

The key to successfully clearing these hurdles is the early establishment of a combined and effective governance structure, with a clearly defined (and explicitly granted) set of responsibilities and authorities for making decisions.

Chris Watson, Chief Operating Officer, Brightree

Five key hurdles IT execs have to overcome during a merger include:

Culture shifts. IT execs need to consider everything from the way people interact with one another (e.g., emails, meetings or instant message) to the pace of the business. By understanding such culture shifts up front, they can set new expectations for both parties prior to the close of a deal. 

Change management. It’s critical for IT execs to realize that their employees didn’t choose this new situation, so employees need to understand why the business chose to merge or be acquired. Eliminating uncertainty can help avoid attrition and disruption in productivity.  

Miscommunication. As with any kind of company transition, it goes without saying that communication is a key component to a merger strategy. Not only should staff understand the merger, but customers and other key stakeholders should also be kept in the loop (when appropriate). 

Market awareness. Another key hurdle to assess is market awareness. Every market has it nuances which are difficult to understand during the due-diligence phase. If IT execs understand this hurdle up front, the more quickly they can create a strategy to better understand its new environment. 

Customer engagement. The bottom line of every organization is about the people who are being served. If the process for IT execs to get to know their customers is more immediate, then the quicker the ability for everyone within an organization to fulfill (and hopefully exceed) their customers’ needs.

Steve Fanning, Vice President, Healthcare Industry Strategy, Infor

The pace of mergers is expected to increase in 2014. Key hurdles for IT executives to address include:

Stay ahead of the deal. If integration planning starts after the merger has been announced, you’re already behind. Comprehensive integration planning should be part of due diligence. 

Beware of undefined roles. In a newly combined organization, it is essential to identify a dedicated integration leader and a distinct integration team to ensure focus on the merger integration effort. Without a clearly defined team that is empowered to make decisions, it is likely the integration process may delay or even fail due to lack of leadership. 

CEO that wants it all. Despite what they say in the boardroom, not everything can be accomplished at once. It is critical to have a defined scope and clear plan communicated early and often, as well as updates to reflect adjustments in the project over time. Balancing timelines and resources in organizations pursuing multiple acquisitions is particularly challenging.

Change fatigue. The reality is that mergers drive a lot of change for all involved. To help prevent burn out, it is important to measure progress as it's being made. Define measurable targets to hold the organization accountable as transformation occurs, and be sure to celebrate early wins to build up momentum.

Get ready for more. The Advisory Board expects 88 percent of healthcare executives to pursue a merger in the coming 12 months. Mergers should be treated as a competence to develop, not a one-time project. Come away from early projects with key learnings and a template for future acquisitions.

What are some of the warning signs IT execs should look for when interfacing/integrating systems during a merger?

Frank Negro, Practice Leader, Global Healthcare Consulting, Dell Services

The most significant warning of impending difficulties during system integration discussions during a merger is when discussions occur regarding “source of truth” for key information. To meet (merged) organizational needs, a clear understanding of the role of each of the organization’s systems in providing key organizational information must be clearly defined, and integration activities must be undertaken with these requirements in mind.

Sheldon Newman, Co-Founder, CFO, Executive Vice President, Channel Partner Relationships, ViiMed

Two key warning signs:

Executives must make sure that there is no negative impact on service or support of the respective client bases. Client service should never suffer. There will be many meetings of both organizations and their leaders. They’ll discuss reorganization plans, new product plans, schedules, combining client services, etc. Changes are inevitable. But the quality of the products and the delivery of services should continue to excel.

Secondly, executives need to be tuned into morale issues that affect key talent who are at risk of leaving, and with them, their collective knowledge. Reductions in staffing will occur. But, administered carefully and done with due consideration for a stronger combined outcome, the right people will stay.

Steve Matheson, Vice President, Product Management, BridgeHead Software

Here are four:

No clear agreement that both systems being integrated will be retained in the medium term. 

Integration will not be accomplished using healthcare standard architectures (XDS, HL7, etc.) or technology standard architectures (ODBC, SQL, etc.).

Integration appears to be a never-ending services engagement that requires constant tweaking by the integrator or consulting firm.

The application data is being transformed in a way that it:

Changes its native format (wrapping data into other file formats) that makes it harder to share or manage and requires you to “unwrap” the data if you want it back. The application vendor is often very reluctant to help with data issues when they find out you have “changed” the data format using tools they did provide.

Losing the accompanying information, known as metadata, that describes the data or who or what created it.

Chris Watson, Chief Operating Officer, Brightree

Lack of Web services or application programming interfaces (APIs) can be a challenge when looking to quickly combine two software systems. Additionally, when two systems have different underlying technology stacks, it can be more difficult and time consuming to make them interoperate and “talk to each other.” 

Steve Fanning, Vice President, Healthcare Industry Strategy, Infor

The nature of the technology touches more cross-functional departments than almost any other IT service. If these groups are not actively engaged, you likely are replicating whatever was built years ago, without any consideration of a better way for the combined organization to operate.  

Another key warning sign is failure to embrace an enterprise integration strategy. Part of the value of the merger is the ability to coordinate care across a wider continuum. If the combined organization does not have an enforced standard to interoperate, this can lead to many operational challenges following a merger. 

Frank Negro, Practice Leader, Global Healthcare Consulting, Dell Services

In my opinion, the most common reason for “skidding off the tracks” is underestimating the complexity of the analyses required to consolidate organizations and systems, especially the non-technical (cultural) components of these.

In your experience (and opinion), how, when and where do IT execs typically skid off the tracks during merger-inspired IT convergences? Will you provide an anecdotal example?

Sheldon Newman, Co-Founder, CFO, Executive Vice President, Channel Partner Relationships, ViiMed

Here are three:

Taking their eye off current business and clients while planning for future integration and growth.

Not adopting a communication strategy with their clients and the teams that is open, honest and transparent. No greater failure can occur than for plans to not be properly communicated before or after the merger.

Don’t scapegoat. Surprises will happen. Find solutions.

Yes, I have many stories, but to protect the innocent, or maybe the guilty, I’d rather be generic. In one case, although we did a great job in our due diligence and completed our merger, some of the beneficial outcomes just hadn’t progressed to the point we had anticipated. Rather than focus on assigning blame, or getting frustrated and overwhelmed, we dealt with it like any other small crisis, planned and executed with full team support to get back on track. Not only did we get there, it strengthened our due diligence process.

Steve Matheson, Vice President, Product Management, BridgeHead Software

A failure to balance resource focus between business applications and clinical applications.

Obviously, clinical care applications are important. They are, in the current hi-tech healthcare provider world, what often enables healthcare delivery to happen, especially due to the retiring of paper charts and film. Clinical users can be a daily focus for IT’s attention and resources; they often want what they want. When a merger is announced, one of the first discussions is about a consolidation or integration of patient clinical data records. But not everything in IT is a clinical application.

Business applications and their users can sometimes be a quieter crowd, as long as everything works. Many of these applications interact with payer entities that have large and deep IT staffs, so things have been relatively quiet up to the merger. Now with the merger, these applications, their environments and their processes all must be consolidated or eliminated over time. This activity must be planned, resourced and becomes its own high-priority activity. In other words, the business side of the provider will want IT’s attention.

Chris Watson, Chief Operating Officer, Brightree

During merger-inspired IT convergences, both business and technology executives skid off the tracks when they don’t come together early enough in the due diligence phase to understand the challenges of such a merger and set proper expectations. It’s important for all parties to understand what will be involved in connecting systems to one another and what timeline to work against. 

Most importantly, everyone should understand the incremental value that the combined systems will create for customers and the overall business. For example, when we merged with a company that provides strategic accounting and reimbursement functionality, we needed to have a frank discussion upfront about how our tighter relationship would play out with that company’s need to support healthcare solutions beyond ours – including ones that compete with us. We needed to commit early, not only to creative integrations with our system, but also to continued investment in supporting the broader ecosystem. Then, those commitments needed to flow through to our business plans and models as part of our due diligence process.

Steve Fanning, Vice President, Healthcare Industry Strategy, Infor

People are the greatest risk in a merger overall, but also related to IT consolidations in particular. Interpersonal skills aren’t always the IT professionals’ strength, and the need for leadership and communication during a merger is essential to retain key talent and capabilities. 

I’ve been in a number of meetings with newly minted IT departments where as you go around the table everyone introduces themselves as formerly with “ABC health system” or “XYZ hospital,” reinforcing their stand-alone identity. It’s great to understand where people come from – but it’s telling that people in that room are looking backward, not forward. 

If you needed to prioritize the interfacing/integration of IT systems among suppliers (e.g., administration, finance, operations) or among providers (e.g., administration, clinical, finance, operations), which one(s) would be first vs. last if done in succession and why?

Frank Negro, Practice Leader, Global Healthcare Consulting, Dell Services

In general, the providing and utilization of information is highly matrixed in that there is no absolute source and consumer of information. Again, the complexity of these interactions among systems is often underestimated.

Sheldon Newman, Co-Founder, CFO, Executive Vice President, Channel Partner Relationships, ViiMed

Depending on the financial or market reasons for the merger, I am biased toward these general priorities: operations (services and support), sales and marketing (messaging), product planning and development, administration and finance.

Steve Matheson, Vice President, Product Management, BridgeHead Software

Identify the external entities (clinics, surgical centers, imaging centers, other providers, etc.) that one or both IT organizations have responsibility in providing some IT service or function.

It is very common during a merger for all the focus to be on application environments and their processes that reside in the major data centers. Many providers do not just deliver cinical services but very often IT services to other provider entities. Often they are small, have little to no IT staff of their own and can easily get lost in the identification of priority IT activities.

IT staff knows it’s not just the technology but the process in place that allows an external entity to interact with one of the providers. Very often the process is not written down; it is known by one or two IT staff. This activity can be as simple as providing the help desk for use of Microsoft Exchange to an affiliated clinic. The help desk may get a new telephone extension that both providers communicated internally, but who told the affiliated clinic?

Chris Watson, Chief Operating Officer, Brightree

We tend to focus on the operations (sales, marketing and services) first to better understand the flow and pace of the business. This also drives the requirements of the administrative and financial systems to properly track and report the activity of the operations.

Steve Fanning, Vice President, Healthcare Industry Strategy, Infor

Prioritization of integration opportunities should be based on a combination of the benefit as well as the effort/risk. Most commonly, the administrative and operational systems provide the best combination of shared services savings and relatively lower risk to implement. Early clinical integration, such as EMR lookups, are also important. More comprehensive clinical integration also requires a standardization of practice that involves care transformation in addition to IT integration. These critical initiatives are typically clinically led and require careful planning given the potential impact to patient care.

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