Children’s Hospital Los Angeles is a 107 year-old, 286-bed, non-profit acute care facility. The organization, which plans to open a new building in July 2010, hired Steve Garske in September of 2006 to rationalize its IT environment and prepare for the future expansion. Recently, HCI Editor-in-Chief Anthony Guerra had a chance to chat with Garske about one of his passions — getting the insourcing/outsourcing equation right.
AG: Do some CIOs need to rely on outsourcing because of the cobbled-together application environments they’ve created, or allowed to take shape?
SG: That is possible. That’s exactly what we faced here two years ago. There were so many different applications and systems, and there were so many different vendors in the door. I would say that a good CIO would have to take the risks that we have taken to be able to get to the point where there is stability. When you have so many different sourcers and suppliers in the door, what we faced was that everyone was blaming each other and no work was getting done. The resulting cost to do any project work was outrageously high. This is a very difficult task (changing your sourcing structure), and it is an extremely hard transformation and transition to get through. We didn’t sleep for a good year, but it had to be done in order to achieve a long term successful IT infrastructure and future strategy.
So yes, I think a lot of the CIOs have built these tremendously complex organizations and that’s what we jumped into here. By simplifying and consolidating, it has really made a tremendous difference in what we are able to do. We have been able to save 30 percent of our IT operating budget and have dramatically improved service within a one year period.
AG: Let me run a scenario by you and just react to it. You could have two CIOs, two different hospital organizations, comparable size — one handling things insourced. You could picture a busier person managing these things, dealing with them, coming in at a lower cost. The other one has almost everything outsourced, sitting with their feet up, smoking a cigar and spending about 30-40 percent more. Could you have those types of scenarios, and is it really incumbent on the CEO and the board to know what they're getting for their money?
SG: First, I've never seen a CIO with their feet up, even if they're completely reliant upon other suppliers. What I have seen was my predecessor here at Children’s pulling his hair out because of the fact that nothing was getting done and the infrastructure was falling apart. Nearly everything the infrastructure suppliers were doing was wrong, and they were not being held accountable.
I think there may be a honeymoon period because I used to do outsourcing transitions, and the CIO would be very happy for the first year — maybe two — but then things would start falling apart. As I stated before, the costs would start coming in different areas. It is also incumbent upon the CEO and the board to be able to understand the direction that the CIO is recommending is the right one. It is really dependent upon the situation. I really believe anything that’s a commodity (like a desktop, server or similar types of infrastructure), it doesn’t make a whole lot of sense to have someone else do that work for 20+ percent above what you could probably do it for yourself. With the red tape from the major outsourcers that are out there, trying to get something done can be very, very difficult. Trying to create deals with them, or to implement successful projects, is tremendously difficult. So I would say that scenario has to be addressed by the CEO, the CIO and board. They must allow the right type of CIO to be able to make these critical decisions for the organization.
AG: You mentioned that in some cases outsourcing could be an appropriate solution, and you also talked about the difficulty, especially if you were outsourcing to multiple companies in having accountability and not having a finger pointing situation. How do you think you can structure that so there is accountability and you know, if you do need to outsource, or if it does make sense, that it’s done properly?
SG: Let me give you an example. Prior to us coming here, the EMR hardware was managed by one supplier down in San Diego. The actual EMR application was managed in Kansas City and by a few people on site here. If there was an outage, then immediately both sides would blame each other — one would say it’s the hardware, the other one would say it’s the software. They would say I’m not necessarily going to do anything because of the fact that I believe it is them, while the other side would be saying exactly the same thing.
What we did, and what I firmly believe, is that you must create accountability by giving the full responsibility to one and only one company. You cannot split that responsibility or accountability; otherwise, you’ll run into those types of situations all the time.
The same type of situation was happening on the infrastructure side and application side. A user would not be able to get into the EMR system and immediately, the application supplier would say it’s probably the network or desktop. Since we've in-sourced our entire network, desktop and helpdesk, it is much more difficult to point at us; they are forced to work with us. That has helped tremendously to be able to resolve these types of issues in a much more efficient, cost effective and rapid fashion.
One other thing I would add is that the outsourcing companies are typically there to make a profit. They will often hire less expensive resources to work on your account in order to maximize their margin. This only breeds incapable and incompetent people, who provide a very low quality of service. This situation led to finger pointing. With this type of staffing, they didn’t have the expertise to be able to resolve these issues — they would just blame the issues on the other supplier due to their lack of understanding the technology itself. After we in-sourced, we were able to not only double our staff, but we were also able to bring in the right technical people to manage these systems, as opposed to unqualified people.
AG: Now when you started at Children’s — what year was that — was that recently?
AG: So you knew essentially what you were walking into — and I don’t want to describe it; you describe it in your own words — but I would imagine you did your due diligence and did you look at this and say wow, this is a mess, but I want to take on this challenge? What was the dynamic there?
SG: Yes, it was interesting. I actually did the complete analysis with one other person, Marty Miller, that I brought over from my previous company. We did the full analysis and of course, yes, we looked at it and said “wow”. At that time we said we should be able to save $5.5 million immediately (we ended up saving $6.5 million). We also discovered that we would be able to completely transform our organization and change nearly everything related to IT at Children’s. We also knew that there was tremendous risk in taking this direction due to the fact that there were a lot of facts that we didn’t know. There were systems that the supplier would put in place to create a “spaghetti effect”.
That is another thing that outsourcers typically do. They will create as much chaos and complexity in the belief that the more entangled the company is with the outsourcer, the more difficult it is to separate. They know that. When this happens, there is a lot of uncertainty of what you're getting yourself into, or out of. We did a complete analysis, and we had all the templates in place. We sat down in front of the CEO — actually I did myself — and the CEO looked me straight in the eye and said “are you sure this will work?” At that point, reality really set in, in the sense that my job is on the line here. I could either succeed or fail at this. Am I willing to take that risk? Obviously in the end we were. The benefits have been, and continue to be, tremendous – and they keep on piling up. So yes, that risk is something that you have to weigh. You have to evaluate each situation on a case by case basis and understand it is dependent on each situation. It is something that has paid off tenfold or even a hundredfold here at Children’s Hospital Los Angeles.