The State of Healthcare Technology 2017-2018: Cross-Discipline - Research Publication

Cross-Discipline | Research Publication
The State of
Healthcare
Technology
2017-2018
Vele Galovski, Vice President Research, Field Services

2
Executive Insight
SERVICE
CUSTOMER EDUCATION EXPAND FIELD MANAGED PROFESSIONAL REVENUE SUPPORT
SUCCESS SERVICES SELLING SERVICES SERVICES SERVICES GENERATION SERVICES
TSIA-03068
June 27, 2017
The State of Healthcare

Technology: 2017-2018
by Vele Galovski
Executive Overview
In this Executive Insight, TSIA summarizes the top Healthcare Technology (HT) member inquiries of
the past year, identifying the most prevalent business challenges faced by our members. TSIA then
translates these challenges into the core capabilities that healthcare companies will need to embrace
in order to succeed in 2017 and beyond.
Five key healthcare and healthcare technology themes for 2017-2018 include:
1. Service Delivery Optimization

2. Developing Optimization and Outcome-based Offers
3. Benchmarking Business Model Transformation
4. Establishing Customer Success
5. Developing and Retaining Service Personnel
This “State of Healthcare Technology: 2017-2018” is designed to be used by members to maximize

their leverage of TSIA research and resources by providing an overview of the capabilities healthcare
and healthcare information technology organizations are investing in during the coming year.
Tracking the Healthcare Industry

Since 2013, TSIA has monitored trends within the healthcare industry through the Healthcare
Technology (HT) 25 Index. The HT 25 tracks the financial performance of 25 global providers of
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©2017 Technology Services Industry Association | 17065 Camino San Bernardo, Ste. 200 | San Diego, CA 92127 | Tel. 1.858.674.5491
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technology solutions to the healthcare industry. Two industry categories within the index have been
created to enable identification of trends by business model:
• MEDSYS = System Providers (HW+SW) for the healthcare industry.

• MEDSFT = Software Providers for the healthcare industry.
TSIA monitors performance, identifies trends, and issues quarterly reports on the findings. In addition
to the quarterly reports, an HT 25 Data Widget (Figure 1) is published that allows members to mine
insights from simple, interactive visualizations by filtering results based on industry category, service
revenue trajectory, service intensity, and by individual company.
Figure 1: HT 25 Data Widget Q1 2017
Source: http://www.tsia.com/HT25datawidget.html.
HT 25 Data Widget definitions:
• Rev Grow: percent increase of revenues over one year.

• NOI Level: net operating income margin (NOI).
• Serv Rev %: service revenue’s share of total revenues.
• Serv Margin: gross margin on services in percent form.
HT Industry Drivers in 2017

Before itemizing the 2017 Healthcare Service Capability Heatmap, it is important to identify the key
industry trends that are impacting healthcare technology companies.
1. Revenue growth rates are slowing. On the surface, the healthcare technology industry is
booming. For 21 companies that have been in the HT index since its inception, cumulative
revenue has grown by $1.365 billion or 21.3% since Q1 2015 (Figure 2).
However, the year-over-year growth rate for these 21 companies dropped below 10% for the
first time in two years, hitting 9% in Q1 2017. We realize that there are many industries that
can only dream of revenue growing 9% annually, but this is an industry that has been
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accustomed to double-digit year-over-year revenue growth and has based their business
model on maintaining this growth rate. For instance, selling and general and administrative
(SG&A) expenses have consistently been in the low 30% range, which is unsustainable in
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good times, but completely unacceptable as the growth rate declines.
Figure 2: Total Revenue Growth for 21 Companies Since Q1 2015
Source: TSIA Healthcare Technology 25 Data.
2. Profitable revenue growth is elusive. The decline in revenue growth rates is having a
negative impact on profitability, as can be seen in Figure 3. All but one company in the index
grew their topline revenue year over year during Q1 2017. However, only 33% captured
economies of scale and increased their net operating income (NOI) year over year.
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Figure 3: Q1 2017 Change in Revenue versus Change in Net Operating Income
33%
62%
5%
Source: Q1 2017 HT 25 Report.
Further, the observed NOI decline in Q1 2017 is not a one-off phenomenon. The decline is part of a
broader trend that we have observed, especially over the last five quarters (Figure 4). This is yet
another warning sign for the healthcare technology business model.
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Figure 4: Net Operating Income Trends Since Q1 2015
3. Provider consolidation resulting in margin pressures. A key tenet of the existing business
model is “product-attached” services. These are core support and maintenance services that
are designed to implement technology and keep it running. However, these service offers are
no longer exclusive to OEMs. Provider consolidations and competitive renewal pricing from
group purchasing organizations (GPO) are putting incredible pressure on service margins.
As can be seen in Figure 5, service margins are steadily trending down over the last two
years.
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Figure 5: HT 25 Service Margin Trends
4. The rise of the economic buyer and its impact on business models. Although healthcare
policy in the United States is being fiercely debated, the rise of the economic buyer and the
shift to value-based care are two trends that we anticipate will continue regardless of any
policy changes. The shifting of new purchase decisions from clinician to economic buyer is
deemphasizing new product feature innovations and creating a sharp focus on value
realization from technology solutions. This trend will only be accelerated as reimbursement
rates are increasingly tied to patient outcomes.
As a result, we anticipate the revenue mix of healthcare technology providers to shift, with less
revenue and margin from selling technology as an asset, and more revenue from services and
subscriptions.
The MedSys category provides an excellent example of this broader trend. As the product
revenue growth rate slows, service revenue takes on a more important role, as can be seen
by the three-point increase in percentage of total revenue that comes from services over the
last three years (Figure 6).
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Figure 6: Services Percent of Total Revenue for Medical Systems Companies
Industry Trends Summary

While the healthcare technology industry is still relatively strong, we are starting to see the same
trends that signaled a business model disruption in both the enterprise IT and industrial equipment
industries. It starts with a slowing of CapEx revenue as new product feature innovations take a
backseat to value realization. Product-attached services are commoditized, and provider consolidation
and GPOs pressure service margins. Suddenly, the business model that was built on high growth
rates and high profitability needs to adapt. However, the rise of economic buyers and value-based
care can provide an opportunity to reverse the trends by creating new service offers.
Top Business Challenges

These four industry trends are reflected in the inquiries TSIA receives every day. TSIA maps every
inquiry to a specific organizational business challenge, and we are able to track which business
challenges are showing up with the greatest frequency. Figure 7 shows a summary of the top HT
business challenges in 2016.
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Figure 7: Top Healthcare Technology Inquiries
Source: TSIA Research.
As we look across the high-volume service business challenges in 2016, we see five key HT themes
emerge as TSIA members confront the changing business model.
1. Service Delivery Optimization

2. Developing Optimization and Outcome-based Offers
3. Benchmarking Business Model Transformation
4. Establishing Customer Success
5. Developing and Retaining Service Personnel
Key Healthcare Technology Themes

1. Service Delivery Optimization. Reducing the cost to deliver services is a tactic that never
goes out of style, but the decline in service margins has heightened the urgency for many
TSIA members. Inquiries related to traditional productivity approaches include improving
utilization, driving down cost per service incident, reducing spare parts cost, and moving work
to the lowest cost delivery channel. How to best utilize smart, connected products to
implement proactive and preventive technologies is a growing topic in healthcare. During a
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recent TSW conference presentation, Varian shared how they took advantage of the IoT
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technology built into their hardware and software systems to establish advanced monitoring
protocols for 5,000 conditions across their install base. They improved service to their
customers, while reducing costs, by enabling:
• Machine-to-machine communications that identify service incidents.

• Quicker response with Varian’s Digital Experience and Security Center (V-Desc),
initiating proactive contact with customers.
• 60% of hardware-related issues resolved remotely without a field service engineer
dispatch.
• 85% of software issues resolved remotely.
2. Developing Optimization and Outcome-based Offers. The rise of the economic buyer and
demand for value-based care solutions present a unique opportunity to develop differentiated
offers. As accountable care organizations (ACO) continue to tie provider reimbursements to
the quality, appropriateness, and efficiency of the health care provided, the economic buyer is
now more open to new optimization/outcome offer types than ever before.
Within the HT Index, we track Cerner as a “poster child” for the MedSft category. Cerner has
responded to changing market conditions by creating a value creation office (VCO) for
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outcome offers. From Zane Burke, Cerner Corporation president:
“This is a fundamental shift in how we are working together with our clients.
We are embedding teams to live and work with selected clients to build a
deeper understanding of their businesses and the communities they serve.
We established a joint governance process where we look at organizational
improvement opportunities and build business cases for investments to
achieve those improvements. As improvements are achieved and value is
created, Cerner and the clients share in their financial benefits. Some
examples of areas we have had success include coding, infection control,
sepsis, VT prevention, readmissions, ambulatory practice, and population
health.”
Insights on how to develop, price, and launch these new optimization and outcome-based
offers was a frequent request of TSIA members over the last 12 months.
3. Benchmarking Business Model Transformation. TSIA believes the HT industry, like

enterprise IT and industrial equipment, is at the beginning of a massive business model
transformation. However, it is one thing to identify disruptive industry trends and it is quite
another to do anything meaningful about them. To support the transformation, TSIA helps
members by developing strategic frameworks to guide and accelerate their efforts (see Figure
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8). NOTE: Cerner’s Value Creation Office is an excellent example of the Level 3 and Level 4
offers that are being pursued by healthcare companies.
So, it is no surprise that the top business challenge of HT members is: “How do I benchmark
my company performance versus the industry?” Every organization wants to know not only
how they compare, but they want to know why they are different and, ultimately, how to
improve.
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Figure 8: B4B Model
By participating in TSIA’s validated benchmarking process, members are also able to gauge
their performance against the industry, prioritize areas for improvement, and identify best
practices for organizational structure and strategic alignment.
4. Establishing Customer Success. In its simplest form, customer success in the healthcare
industry revolves around the delivery of value-based care. The overarching goal for the
healthcare ecosystem is improving value for patients, i.e., better health outcomes relative to
the cost of delivering those outcomes.
The industry trends noted earlier are pushing healthcare technology suppliers from CapEx
revenue with annual support/maintenance contracts and toward ARR business models.
Adoption, expansion, and renewal processes become a heightened focal point for HT
companies as they establish how they interact throughout the customer life cycle.
The TSIA Customer Engagement Model (Figure 9) has four basic steps that we call the LAER
model:
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a. Land: All the activities required in selling an offer to the customer and the initial
implementation of that offer.
b. Adopt: All the activities involved in making sure the customer is actually adopting the
solution that was implemented.
c. Expand: All the activities required in helping current customers expand their budget
spend with the company.
d. Renew: All the activities required to ensure the customer renews their current
relationship with the company.
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Figure 9: TSIA Customer Engagement Model (LAER)
For the past three years, TSIA has been fielding questions related to “customer success,”
such as how to track adoption and consumption, create customer success organizations,
establish expand selling processes, and improve renewals.
5. Developing and Retaining Service Personnel. The labor market for service personnel is
tightening globally. In addition, the employee skill sets that companies covet will expand from
the traditional obsession with hiring technical and sales skills (that built the last generation of
tech companies) to now include deep vertical industry expertise (Figure 10).
TSIA members are interested in establishing career paths, benchmarking employee attrition
rates, professional development, certifications, and benchmarking base and incentive
compensation.
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Figure 10: New Employee Skill Sets Required
In Table 1, we summarize the Top 15 healthcare business challenges by theme.
Table 1: Top 15 HT Service Business Challenges in 2016
Theme Business Challenge 2016 Ranking

Service Delivery Productivity 2
Connected Product 10
Service Delivery Optimization
Knowledge Management 14
Technology Tools 9
Benchmarking Service Organizations 1
Benchmarking Business Model
Aligning Service Strategy 7
Transformation
Global Service Organization Structure 12
Creating and Launching New Services 3
Developing Optimization and Outcome-based
Developing and Pricing Outcome Offers 6
Offers
Market Rates for Services 11
Sales Coverage Models 5
Establishing Customer Success Customer Success 4
CSAT and Loyalty 8
Talent Management 13
Developing and Retaining Service Personnel
Optimizing Compensation 15
Service Capabilities
TSIA defines service capabilities as “the ability to perform actions that achieve desired results.” In
other words, what must a company master in order to address that specific business challenge?
TSIA has identified over 300 capabilities that address the typical business challenges faced by
technology companies and organized them into the following nine categories:
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1. Strategy and Planning 2. Product

3. Markets 4. Operations
5. Offers 6. Sales and Marketing
7. Financial Model 8. Partner Management
9. Go to Market (GTM)
HT Service Capabilities: 2017-2018 Heatmap

By looking at industry trends and mining the service business challenges reported by members, TSIA
can identify the top organizational capabilities that technology companies will need in order to optimize
their service businesses in 2017-2018—the TSIA HT Heatmap (Figure 11).
Figure 11: 2017-2018 HT Heatmap
Source: TSIA Research.
Table 2 lists the top 21 HT capabilities from the heatmap with a description of each.
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Table 2: Key HT Capabilities
Category Service Capability Description
Organizational We have an effective strategy for developing the organizational

Transformation capabilities required to support our new business model.
Establishing a We have a structured approach for establishing the charter and

Strategy and Customer Success financial model of a customer success capability.
Planning Organization
Customer Outcome We have capabilities in place to help our customers unlock value
Engineering from their existing technology purchases through a targeted project-
based approach.
Shifting Financial Our company has developed a plan for transitioning our company
Financial
Models financial model from the traditional up-front product revenues to
Model
longer-term subscription revenue.
We use market analysis to understand macro and micro segments

Market Analysis
and inform service offering development and delivery decisions.
Markets
Competitive Analysis We have the ability to analyze competitive offerings as we define our
for Level 3 Offerings Level 3 offerings.
Sales Methodologies Our company has a documented sales methodology used by all
for Level 3 and Level sales representatives to effectively position Level 3 and Level 4
Sales and 4 Service Offerings service offerings.
Marketing
Level 3 and Level 4 We have effective programs to drive demand for Level 3 and Level 4
Services Marketing service offerings that customers need and are still willing to pay for.
Sales Coverage We have deployed a sales coverage model that enables us to

Go to Market
Models to Drive optimize incremental product and service sales with existing
(GTM)
Account Expansion customers.
Value Realization We have a process for pricing our technology solutions based on the
Pricing Models actual business value realized by the customer.
Business Value We have developed and apply a business-value-mapping framework

Offers Mapping to new service offering design in order to anticipate how we will help
customers improve their business performance.
Developing Outcome We have the ability to define and develop service offers that are
Offers designed to deliver specific customer outcomes.
Data Handshake to We have identified the key data streams required to enable new
Enable New Offers adoption and outcome-based offers.
Product
Embedded and We use technology for the analysis of customer environments, to
Remote Diagnostics identify failing components, or target preventive action.
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Category Service Capability Description
We have a defined strategy for how the services organization

Service Technology
leverages technology to optimize costs and maximize the customer
Strategy
experience.
Organizational We have implemented an effective services organizational structure

Structure for Global that optimizes the parameters of service costs, service revenue
Services growth, and customer experience.
Core Metrics and We measure operational KPIs that provide an accurate view of
Dashboards organizational performance and tie to corporate objectives.
Compensation We deploy effective sales compensation practices that align with our
Models for Services goals to grow service revenue and ensure customer success.
Operations Consumption We analyze actual customer usage data to determine new service
Analytics and product offerings.
Customer We have an effective program to assess, track, and respond to

Satisfaction/ customer satisfaction and loyalty data.
Enterprise Feedback
Management
Enterprise We maintain effective systems and processes for the creation,

Knowledge/ capture, organization, sharing, distribution, and retrieval of
Content Management knowledge within the organization, including problem resolution data.
TSIA Outcome Chains

In 2016, TSIA introduced outcome chains to deliver research to members as a SaaS experience. The
insight members need is structured in the context of business outcomes to be achieved. Each
outcome chain is crafted to empower members with the verified industry best practices required to
overcome their top service business challenges.
Figure 12 shows an example of an outcome chain. Listed below is a brief description of the questions
answered by each link row:
• Outcome: What is the business outcome (service business challenge) you intend to achieve?
• Financial Result: What are the financial improvements that can be gained by achieving the
outcome?
• Operating KPIs: What are the operating key performance indicators most likely to lead to the
financial improvements?
• Practices: What key, validated business practices and processes can be implemented to
improve and impact the KPIs?
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• Roles: What are the key roles required to execute the practices? What attributes, skills, and
responsibilities are required? Where do these resources report?
• Technology: What tools and technology should be in place to empower your team to execute
the required practices?
• Capabilities: What are the capabilities required to address that business challenge and how
can these be leveraged to solve other business challenges?
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Figure 12: TSIA Outcome Chain Example: Optimize Customer Processes with IoT
While members can still access TSIA resources through the member resource center, we have done
the heavy lifting for you with outcome chains. We have searched and provided the most meaningful
research available in each individual link, including validated correlations between industry best
practices and operating KPIs, benchmark statistics to help organizations prioritize (financial results
and operating KPIs), and conference presentations that provide real-world examples.
There are also “stories within the story” embedded in each outcome chain. For example, Figure 12 has
highlighted the “Business Value Mapping” storyline. Within the overarching business challenge of
optimizing customer processes with IoT, organizations must clearly articulate how their products and
services drive business value for customers to drive effective adoption. The storyline highlights the
critical cause-and-effect relationships related to creating business value maps.
TSIA has published over 60 outcome chains at the time of publication. You can find an updated list at
http://info.tsia.com/outcomechains-titles.
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Perhaps the greatest benefit of outcome chains is that each member organization can customize links
with their company-specific documents. Having the ability to present company initiatives in context,
with supporting TSIA research, will improve the effectiveness and speed of every project team. The
benefit of knowing how people, process, and technology impact operating KPIs and financial results
cannot be overstated.
Finally, each outcome chain is automatically updated with benchmark performance data each quarter,
and research, conference presentations, and correlation insights are updated throughout the year.
TSIA: Driving the Transformation

Mastering the transformation will prove to be extremely challenging, and most healthcare companies
will spend several years working through the process of building and mastering these capabilities. The
greatest concerns TSIA continues to have for member companies is that they delay their efforts in
these areas—holding on to legacy business models that will not be sustainable when the industry
transition is complete—or fail to stay ahead of the curve in an ever-changing environment.
Our goal is to provide members access to the best information available that helps them make better
decisions faster and to make those decisions sooner rather than later. At TSIA we help our members
by providing:
• Assessments of their business through our structured benchmarking process.

• Frameworks for best-of-breed operations.
• Recommendations for actions based on proven pacesetter practices.
• Exceptional networking with industry peers through member-to-member inquiries and TSIA
conferences.
As we enter the next generation of healthcare technology consumption, TSIA firmly believes service
organizations will find themselves at the epicenter of company success. Technology business models
have become more services intensive over the last decade—a trend that we believe will continue.
While the types of services may change, successful service transactions will clearly be at the heart of
market success. Service organizations must develop new organizational capabilities that will help lead
their companies to market success. The time to start developing those capabilities is now.
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Endnotes
1
TSIA HHIT 25, Q1 2017.
2
“Optimizing Customer Processes with Smart, Connected Products.” May 2017. TSW.
3
Cerner Corporation Fourth Quarter 2016 Earnings Call. February 9, 2017.
4
Wood, J.B., Todd Hewlin, and Thomas Lah. 2013. B4B: How Technology and Big Data Are
Reinventing the Customer-Supplier Relationship. San Diego, CA: Point B, Inc.
5
Lah, Thomas. 2015. “TSIA Adoption Framework.” TSIA.
6
Galovski, Vele. 2014. “Long-Term Talent Management Strategies for Field Services.” TSIA.
7
TSIA Outcome Chain Optimize Customer Processes with IoT.
www.tsia.com

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Cross-Discipline | Research Publication

Vele Galovski, Vice President Research, Field Services

The State of Healthcare

1. Service Delivery Optimization

This “State of Healthcare Technology: 2017-2018” is designed to be used by members to maximize

Tracking the Healthcare Industry

• MEDSYS = System Providers (HW+SW) for the healthcare industry.

Figure 1: HT 25 Data Widget Q1 2017

HT 25 Data Widget definitions:

• Rev Grow: percent increase of revenues over one year.

HT Industry Drivers in 2017

Figure 2: Total Revenue Growth for 21 Companies Since Q1 2015

Source: TSIA Healthcare Technology 25 Data.

Figure 3: Q1 2017 Change in Revenue versus Change in Net Operating Income

Source: Q1 2017 HT 25 Report.

Figure 4: Net Operating Income Trends Since Q1 2015

Source: TSIA Healthcare Technology 25 Data.

Figure 5: HT 25 Service Margin Trends

Source: TSIA Healthcare Technology 25 Data.

Figure 6: Services Percent of Total Revenue for Medical Systems Companies

Source: TSIA Healthcare Technology 25 Data.

Industry Trends Summary

Top Business Challenges

Figure 7: Top Healthcare Technology Inquiries

Source: TSIA Research.

1. Service Delivery Optimization

Key Healthcare Technology Themes

• Machine-to-machine communications that identify service incidents.

3. Benchmarking Business Model Transformation. TSIA believes the HT industry, like

In Table 1, we summarize the Top 15 healthcare business challenges by theme.

Table 1: Top 15 HT Service Business Challenges in 2016

Theme Business Challenge 2016 Ranking

1. Strategy and Planning 2. Product

HT Service Capabilities: 2017-2018 Heatmap

Figure 11: 2017-2018 HT Heatmap

Source: TSIA Research.

Table 2: Key HT Capabilities

Category Service Capability Description

Organizational We have an effective strategy for developing the organizational

Establishing a We have a structured approach for establishing the charter and

We use market analysis to understand macro and micro segments

Sales Coverage We have deployed a sales coverage model that enables us to

Business Value We have developed and apply a business-value-mapping framework

Category Service Capability Description

We have a defined strategy for how the services organization

Organizational We have implemented an effective services organizational structure

Customer We have an effective program to assess, track, and respond to

Enterprise We maintain effective systems and processes for the creation,

TSIA Outcome Chains

TSIA: Driving the Transformation

• Assessments of their business through our structured benchmarking process.

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