AG: Were you in the loop that IBM had layoffs in the works when you signed the deal, or was it a shock?
PF: What you are talking about was not an announcement by IBM, but rather press reports. It was hard to distinguish. IBM had not made any announcement. Those reports were material assembled by some in the press talking to people who were employees of IBM. I have no idea why they would be talking about that, as it was not publicly announced. IBM, like any other company of that size, does reorganizations from time to time and people get affected, as is standard operating procedure. Whatever the situation is, it doesn’t affect our relationship with IBM. There will be no impact at all on the announcement we made. Taking it in context, their 5,000 layoffs are a very small percentage of the company workforce. None of the layoffs envisioned have to do with anyone associated with Kaiser Permanente.
AG: It sounds from your announcement like IBM is going to be dealing with the infrastructure layer, ensuring redundancy, uptime and availability of the applications, but they won’t be touching the applications. Is that correct?
PF: They are going to manage our data center for us and help manage all of our infrastructure across the organization.
AG: When it comes to outsourcing, there seem to be two different points of view, and each side is very passionate. I’ve spoken to CIOs who are dead against outsourcing, claiming it cost more money than it saves. You obviously see some merit in outsourcing. What is your thinking when it comes to the outsourcing discussion?
PF: To give you a sense of who I am, I do not look at outsourcing IT, in general, as they way to run an organization. IT is core to our strategy at Kaiser Permanente — our entire approach is called “technology-enabled healthcare.” I have 6,000 employees and 700 of them were affected by the IBM deal. I describe that deal as a partnership rather than outsourcing. The difference between those two is that IBM will be bringing world-class data center expertise to bear, and they will also be retaining many of our people. As part of this relationship, we will also be looking to leverage other capabilities from IBM, such as those from its research arm. That company invests $6 billion a year into research and development and this deal offers us the ability to access IBM people at the senior level, so we will benefit from that relationship, in addition to the core services that we are getting from them.
AG: Since availability and reliability are such a big part of this deal, will having IBM manage that part of the infrastructure help you sleep at night?
PF: It will help me sleep at night, but that will happen over time. The thing is, we are already highly performing. If you think about Kaiser Permanente today, we are performing in the multiple nines (99.99 etc) up time, and by any standard that is respectable. This is part of our journey. Since we rely on technology so much in our clinical operations, for us, being in the three nines isn’t good enough — we need to be always on. We must always be available to our users and customers and clinicians. They must be able to have the highest degree of confidence in the systems.
AG: How did you come to select IBM? Were there other finalists?
PF: We went through the process of assessing a number of different providers in this space, but we quickly centered on IBM. We determined early on that IBM had both world-class capability in this and the ability to manage our scale very effectively. They also had deep knowledge of our operations, which gave them an advantage that allowed us to move very quickly through the execution of this plan with a high degree of confidence in our success.
AG: You mention that since IBM knew your operations well, it had an advantage, but I thought it was just as likely Kaiser’s prior relationship with IBM, and the unsuccessful way it concluded (KP spent over $700 million to develop an EMR with IBM, before that project was shelved in favor of a partnership with Epic), would have left them at a disadvantage in terms of getting back into business with you.
PF: You have to remember that IBM is enormous. The company is more than twice the size of us, in terms of revenue and employees. The part of IBM that was involved in that undertaking and the part we are involved with now are completely different; different people and operations and competencies. We are dealing with them now on the things they do best, such as managing infrastructure and data centers. They have done this work on an even larger scale than we are asking them to do for us. This is their specialty, and they have the best people in the world in this area.
AG: Will IBM and Epic have to work together in any way?
PF: The IBM deal really has nothing to do with Epic, because this is not our applications activity. These are our data-center operations. So when you think of our applications, those are core to our company. Our Epic relationship is managed by Kaiser Permanente. We manage and have responsibility for all our applications and Epic continues to be a partner of ours, a significant partner of ours, in the clinical space. IBM is managing the data center operations which Epic will run on, but our people have responsibility for all the oversight, for managing IBM. So we will maintain those responsibilities. We anticipate continuing to have a deep relationship with Epic.
So, to be clear, the application and application database stays in the application space for us. IBM just manages the data center, manages our disaster recovery capability, helps us maintain reliability. Those are the things that IBM is doing. We stay focused on all the data and information systems and applications.