Cloud Technology Forcing the Re-evaluation of Traditional IT Operational Models in Healthcare Organizations

Dr. Tina Rourk, Practice Leader for IT Optimization and Planning, Diane Meiller & Associates, Inc.

Dr. Tina Rourk, Practice Leader for IT Optimization and Planning, Diane Meiller & Associates, Inc.

As more and more Healthcare organizations are shifting to cloud solutions, it is forcing a re-evaluation of some traditional IT operating models. The shift to cloud-based technologies not only impacts the way technology platforms are deployed, it also impacts some of the traditional models in IT management. Three of those models include: IT Budgeting, IT Governance, and Vendor Management. These traditional models also need to change to better support the transition to cloud-based solutions.

"Two of the benefits of cloud-based technologies is that they can be deployed quickly and without the need for any IT resources"

IT Budgets The traditional financial treatment of technology purchases is to capitalize the cost of the hardware and software. As healthcare organizations transition to cloud technologies, those costs shift from capital to expense thus impacting the bottom line and decreasing operating margins. The lack of available operating expense dollars can lead to decisions to stay with a premised-based solution when a cloud solution is really the preferred direction for the organization. IT and financial leadership in healthcare organizations should expect IT operating budgets to grow as more and more of the technology solutions shift to cloud platforms. A recent IDG Enterprise research titled Computerworld Forecast Study 2015 reports that enterprises predict the spend on cloud computing will increase by 42 percent. Gartner predicts IT spending for enterprise applications to increase as much as 6 percent over the next 4 years resulting in an overall increase in IT budgets across industry segments. While the overall budgets are increasing, according to Gartner, the allocation of IT budget dollars between capital spending and operating expense has already

started to change with the first decrease in capital spending and subsequent increase in operational spending occurring in 2015. Some Healthcare IT leaders expect to see the trends in increased IT spending and reallocation of how that spend is treated financially to continue over the next several years. This also means that IT leaders need to have a good handle on the life cycle of their technology solutions so that they can plan at least 12 to 18 months ahead to ensure they understand the true costs of the cloud solution. Healthcare IT leaders recognize the importance of a more in-depth and detailed planning cycle for cloud technologies because of the financial treatment.

IT Governance

Two of the benefits of cloud-based technologies is that they can be deployed quickly and without the need for any IT resources. For IT leaders, those two benefits can also be drawbacks to cloud-based technologies because it makes it easier for non-IT departments to procure and deploy technology solutions by-passing the traditional IT Governance process. IT leaders report that they have seen an increase in “business implemented” cloud solutions. By-passing the IT Governance process, from an organizational perspective, can lead to some challenges. Those challenges include interoperability issues because IT wasn’t involved in evaluating the solution, poorly constructed contracts, acquiring multiple systems that perform the same or similar functions, and an increase in overall costs for technology systems. Healthcare leadership needs to fully support and reinforce the importance of the IT Governance process.

Vendor Management

The traditional model of vendor management, with premise-based solutions, centers mostly on support contracts, negotiating new purchases, and understanding the product-life cycle. As healthcare organizations shift more to cloud technologies, the approach to vendor management also needs to change. The first change is in the negotiation of the overall contract because now the vendor is responsible for the day to day support and management of the infrastructure and/or application. The data is no longer housed and controlled by the hospital. The contractual language needs to be very clear on expectations around performance, availability, continuity, and data ownership. In addition, it is essential for healthcare organizations need to work much more closely with the vendors on new releases to ensure that all integrations and required functionality are not impacted when an upgrade occurs and that there is appropriate planning and testing time. Disaster recovery (DR) testing and planning also has to involve the vendor more when using cloud-technologies. Some healthcare organizations have very rigorous processes around testing for DR prior to the actual implementation. Many cloud vendors do not offer this as a standard practice so IT leaders need to be prepared to negotiate this up front. As healthcare organizations migrate more systems to the cloud, the importance of strong vendor management and relationship skills increases. IT leaders will need to continue to recruit for and grow this skill set in their organizations.

As Healthcare organizations continue the transition to cloud solutions, these traditional IT operational models will also need to evolve to better support IT and the entire healthcare organization.

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