IT Forefront

Trust but verify: Key considerations and practices for a successful IT outsourcing arrangement

by Andrew Rebhan

As IT has become an integral component of nearly all functions within the hospital, CIOs increasingly find themselves balancing more priorities with the same, or fewer, resources. Given the health care industry's ongoing margin pressures, executives continue to look at outsourcing as a viable option to cut costs and increase efficiencies. However, while IT outsourcing partnerships have the potential to benefit hospitals strategically and financially, they may also pose a number of challenges.

IT outsourcing options range significantly, from incremental staffing, to outsourcing small, easily defined services (e.g., help desk, data storage), to full end-to-end IT outsourcing. Many hospital administrators believe outsourcing non-core IT functions—including those beyond the immediate purview of IT (e.g., data transcription, telecommunications)—allow hospitals to focus on care provision.

Purchasing decisions should align the resources and priorities of the hospital with the demands of outsourcing (see the outsourcing matrix below). For large, resource-intensive and IT-progressive institutions, in-house management of IT functions often proves more cost effective than partnering with an outsourcing provider, as larger organizations typically have access to an adequate level of staff skills and IT infrastructure. For smaller institutions, however, outsourcing partnerships may provide economies of scale in terms of infrastructure resources and staff training and available skill sets.

How to succeed with a selective IT outsourcing arrangement

Organizations looking to expand their IT capacity through selective outsourcing are able to focus more on value-added efforts and innovation initiatives, using external sources to supplement departments or offload some of the more commoditized functions (including non-IT functions in other departments, such as human resources or finance). In our previous research, we have addressed four keys to success with a selective IT outsourcing arrangement:

  1. Establish clear goals
    • Recognize an effective partnership requires that both parties are able to achieve their goals;
    • Define and document goals, scope, processes, and metrics for measuring success; and
    • Start with the end in mind—ensure contract flexibility for future opt-outs or renegotiations.
  2. Establish effective governance
    • Determine the best arrangement given the service provided and closeness of the relationship; and
    • Determine how frequently to meet, who will run meetings and set agendas, and how decisions will be made.
  3. Prepare for the transition
    • Inventory current assets;
    • Ensure in-house processes are mature, well-documented, and standardized before outsourcing;
    • Establish performance baseline, measure success, and adjust accordingly; and
    • Consider running parallel processes temporarily.
  4. Lay the foundation for trust
    • Prepare staff to work effectively with the vendor;
    • Encourage staff to view arrangement as collaboration;
    • Communicate reasons behind the move, expected benefits, and potential risks; and
    • Resolve problems immediately.

Partner management in sourcing relationships

The shift to digital health systems necessitates advanced IT capabilities and involves strategic partnerships that offer support services and expertise that may not be available internally. However, given the evolving nature of technology, health care providers often struggle to create value-driven partnerships that balance multiple priorities (e.g., cost, efficiency, quality).

Win-win relationships occur when IT purchasers treat service providers as strategic partners (such relationships usually benefit from shared-risk arrangements, where both parties carry risk for the performance of the health care organization). As the health care system continues to seek ways to drive further efficiencies from operations, the need for strategic partner management will increase significantly. Below we provide some questions for you to consider as you evaluate both outsourcing options and strategic partnerships.

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