Assessing and Achieving Value in Health Care Information Systems

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Chapter 7 Assessing and Achieving Value in Health Care Information Systems

Learning Objectives

To be able to discuss the nature of IT-enabled value.

To review the components of the IT project proposal.

To be able to understand steps to improve IT project value realization.

To be able to discuss factors that ensure value delivery.

Virtually all the discussion in this book focuses on the knowledge and management processes necessary to achieve one fundamental objective: organizational investments in IT resulting in a desired value. That value might be the furtherance of organizational strategies, improvement in the performance of core processes, or the enhancement of decision making. Achieving value requires the alignment of IT with overall strategies, thoughtful governance, solid information system selection and implementation approaches, and effective organizational change.

Failure to achieve desired value can result in signi�icant problems for the organization. Money is wasted. Execution of strategies is hamstrung. Organizational processes can be damaged.

This chapter carries the IT value discussion further. Speci�ically, it covers the following topics:

The de�inition of IT-enabled value

The IT project proposal

Ensuring the delivery of value

Analyses of the IT value challenge

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7.1 De�inition of IT-Enabled Value We can make several observations about IT-enabled value:

IT value can be tangible and intangible.

IT value can be signi�icant.

IT value can be variable across organizations.

IT value can be diverse across IT proposals.

A single IT investment can have a diverse value proposition.

Different IT investments have different objectives and hence different value propositions and value assessment techniques.

These observations will be discussed in more detail in the following sections.

Tangible and Intangible Tangible value can be measured whereas intangible value is very dif�icult, perhaps practically impossible, to measure.

Some tangible value can be measured in terms of dollars:

Increases in revenue

Reductions in labor costs: for example, through staff layoffs, overtime reductions, or shifting work to less expensive staff members

Reductions in supply costs: for example, because of improvements in purchasing

Reductions in maintenance costs for computer systems

Reductions in use of patient care services: for example, fewer lab tests are performed or care is conducted in less expensive settings

Some tangible value can be measured in terms of process improvements:

Fewer errors

Faster turnaround times for test results

Reductions in elapsed time to get an appointment

A quicker admissions process

Improvement in access to data

Improvements in the percentage of care delivery that follows medical evidence

Some tangible value can be measured in terms of strategically important operational and market outcomes:

Growth in market share

Reduction in turnover

Increase in brand awareness

Increase in patient and provider satisfaction

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Improvement in reliability of computer systems

By contrast, intangible value can be very dif�icult to measure. The organization is trying to measure such things as

Improved decision making

Improved communication

Improved compliance

Improved collaboration

Increased agility

Becoming more state of the art

Improved organizational competencies: for example, becoming better at managing chronic disease

Becoming more customer friendly

Signi�icant IT can be leveraged to achieve signi�icant organization value. The following are some example studies:

A study that compared the quality of diabetes care between physician practices that used EHRs and practices that did not found that the EHR sites had composite standards for diabetes care that were 35.1 percent higher than paper- based sites and had 15 percent better care outcomes (Cebul, Love, Jain, & Herbert, 2011).

EMC (a company that makes data storage devices and other information technologies) reported a reduction of $200 million in health care costs over ten years through the use of data analytics, lifestyle coaches, and remote patient monitoring to help employees manage health risks and chronic diseases (Mosquera, 2011).

A cross-sectional study of hospitals in Texas (Amarasingham, Plantinga, Diener-West, Gaskin, & Powe, 2009) found that higher levels of the automation of notes and patient records were associated with a 15 percent decrease in the adjusted odds of a fatal hospitalization. Higher scores in the use of computerized provider order entry (CPOE) were associated with 9 percent and 55 percent decreases in the adjusted odds of death for myocardial infarction and coronary artery bypass graft procedures, respectively. For all cases of hospitalization, higher levels of clinical decision- support use were associated with a 16 percent decrease in the adjusted odds of complications. And higher levels of CPOE, results reporting, and clinical decision support were associated with lower costs for all hospital admissions.

A clinical decision support (CDS) module, embedded within an EHR, was used to provide early detection of situations that could result in venous thromboembolism (VTE). A study of the impact of the module showed that the VTE rate declined from 0.954 per one thousand patient days to 0.434 comparing baseline to full VTE CDS. Compared to baseline, patients bene�itting from VTE CDS were 35 percent less likely to have a VTE (Amland et. al., 2015).

Variable Even when they implement the same system, not all organizations experience the same value. Organizational factors such as change management prowess and governance have a signi�icant impact on an organization’s ability to be successful in implementing health information technology.

As an example of variability, two children’s hospitals implemented the same EHR (including CPOE) in their pediatric intensive care units. One hospital experienced a signi�icant increase in mortality (Han et al., 2005), whereas the other did not (Del Beccaro, Jeffries, Eisenberg, & Harry, 2006). The hospital that did experience an increase in mortality noted that several implementation factors contributed to the deterioration in quality; speci�ic order sets for critical care were not created, changes in work�low were not well executed, and orders for patients arriving via critical care transportation could not be written before the patient arrived at the hospital, delaying life-saving treatments.

Even when organizations have comparable implementation skill levels, the value achieved can vary because different organizations decide to focus on different objectives. For example, some organizations may decide to improve the quality of diabetes care, and others may emphasize the reduction in care costs. Hence, if an outcome is of modest interest to an

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organization and it devotes few resources to achieving that outcome, it should not be surprised if the outcome does not materialize.

Diverse across Proposals Consider three proposals (real ones from a large integrated delivery system) that might be in front of organizational leadership for review and approval: a disaster noti�ication system, a document imaging system, and an e-procurement system. Each offers a different type of value to the organization.

The disaster noti�ication system would enable the organization to page critical personnel, inform them that a disaster—for example, a train wreck or biotoxin outbreak—had taken place, and tell them the extent of the disaster and the steps they would need to take to help the organization respond to the disaster. The system would cost $520,000. The value would be “better preparedness for a disaster.”

The document imaging system would be used to electronically store and retrieve scanned images of paper documents, such as payment reconciliations, received from insurance companies. The system would cost $2.8 million, but would save the organization $1.8 million per year ($9 million over the life of the system) through reductions in the labor required to look for paper documents and in the insurance claim write-offs that occur because a document cannot be located.

The e-procurement system would enable users to order supplies, ensure that the ordering person had the authority to purchase supplies, transmit the order to the supplier, and track the receipt of the supplies. Data from this system could be used to support the standardization of supplies, that is, to reduce the number of different supplies used. Such standardization might save $500,000 to $3 million per year. The actual savings would depend on physician willingness to standardize. The system would cost $2.5 million.

These proposals re�lect a diversity of value, ranging from “better disaster response” to a clear �inancial return (document imaging) to a return with such a wide potential range (e-procurement) that it could be a great investment (if you really could save $3 million a year) or a terrible investment (if you could save only $500,000 a year).

Diverse in a Single Investment Picture archiving and communication systems (PACS) are used to store radiology (and other) images, support interpretation of images, and distribute the information to the physician providing direct patient care. These systems are an example of the diversity of value that can result from one IT investment. A PACS can do the following:

Reduce costs for radiology �ilm and the need for �ilm librarians.

Improve service to the physician delivering care, through improved access to images.

Improve productivity for the radiologists and for the physicians delivering care (both groups reduce the time they spend looking for images).

Generate revenue, if the organization uses the PACS to offer radiology services to physician groups in the community.

This one investment has a diverse value proposition; it has the potential to deliver cost reduction, productivity gains, service improvements, and revenue gains.

Different Analyses for Different Objectives The Committee to Study the Impact of Information Technology on the Performance of Service Activities (1994), organized by the National ResearchCouncil (NRC), has identi�ied six categories of IT investments in service industries, re�lecting different objectives. The techniques used to assess IT investment value should vary by the type of objective that the IT investment intends to support. One technique does not �it all IT investments.

Infrastructure IT investments may be for infrastructure that enables other investments or applications to be implemented and deliver desired capabilities. Examples of infrastructure are data communication networks, workstations, and clinical data repositories. A delivery system–wide network enables a large organization to implement applications to consolidate clinical laboratories, implement organization-wide collaboration tools, and share patient health data between providers.

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It is dif�icult to quantitatively assess the impact or value of infrastructure investments because of the following:

They enable applications. Without those applications, infrastructure has no value. Hence, infrastructure value is indirect and depends on application value.

The allocation of infrastructure value across applications is complex. When millions of dollars are invested in a data communication network, it may be dif�icult or impossible to determine how much of that investment should be allocated to the ability to create delivery system–wide EHRs.

A good IT infrastructure is often determined by its agility, potency, and ability to facilitate integration of applications. It is very dif�icult to assign return on investment (ROI) numbers or any meaningful numerical value to most of these characteristics. What, for instance, is the value of being agile enough to speed up the time it takes to develop and enhance applications?

Information system infrastructure is as hard to evaluate as other organizational infrastructure, such as having talented, educated staff members. As with other infrastructure,

Evaluation is often instinctive and experientially based.

In general, underinvesting can severely limit the organization.

Investment decisions involve choosing between alternatives that are assessed for their ability to achieve agreed-on goals. For example,if an organization wishes to improve security, it might ask whether it should invest in network monitoring tools or enhanced virus protection. Which of these investments would enable it to make the most progress toward its goal?

Perspective Four Types of IT Investment

Complementing the NRC study, Jeanne Ross and Cynthia Beath (2002) studied the IT investment approaches of thirty companies from a wide range of industries. They identi�ied four classes of investment:

Transformation. These IT investments had an impact that would affect the entire organization or a large number of business units. The intent of the investment was to effect a signi�icant improvement in overall performance or change the nature of the organization.

Renewal. Renewal investments were intended to upgrade core IT infrastructure and applications or reduce the costs or improve the quality of IT services. Examples of these investments include application replacements, upgrades of the network, or expansion of data storage.

Process improvement. These IT investments sought to improve the operations of a speci�ic business entity—for example, to reduce costs and improve service.

Experiments. Experiments were designed to evaluate new information technologies and test new types of applications. Given the results of the experiments, the organization would decide whether broad adoption was desirable.

Different organizations will allocate their IT budgets differently across these classes. An of�ice products company had an investment mix of experiments (15 percent), process improvement (40 percent), renewal (25 percent), and transformation (20 percent). An insurance �irm had an investment mix of experiments (3 percent), process improvement (25 percent), renewal (18 percent), and transformation (53 percent).

The investment allocation is often an after-the-fact consideration—the allocation is not planned, it just “happens.” However, ideally, the organization decides its desired allocation structure and does so before the budget discussions. An organization with an ambitious and perhaps radical strategy may allocate a very large portion of its IT investment to the transformation class, whereas an organization with a conservative, stay-the-course strategy may have a large process improvement portion to its IT investments.

Source: Ross and Beath (2002, p. 54).

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Mandated Information system investment may be necessary because of mandated initiatives. Mandated initiatives might involve reporting quality data to accrediting organizations, making required changes in billing formats, or improving disaster noti�ication systems. Assessing these initiatives is generally approached by identifying the least expensive and the quickest to implement alternative that will achieve the needed level of compliance.

Cost Reduction Information system investments directed to cost reduction are generally highly amenable to ROI and other quanti�iable dollar- impact analyses. The ability to conduct a quanti�iable ROI analysis is rarely the question. The ability of management to effect the predicted cost reduction or cost avoidance is often a far more germane question.

Speci�ic New Products and Services IT can be critical to the development of new products and services. At times the information system delivers the new service, and at other times it is itself the product. Examples of information system–based new services include bank cash-management programs and programs that award airline mileage for credit card purchases. A new service offered by some health care providers is a personal health record that enables a patient to communicate with his or her physician and to access care guidelines and consumer-oriented medical textbooks.

The value of some of these new products and services can be quanti�iably assessed in terms of a monetary return. These assessments include analyses of potential new revenue, either directly from the service or from service-induced use of other products and services. An ROI analysis will need to be supplemented by techniques such as sensitivity analyses of consumer response. Despite these analyses, the value of this IT investment usually has a speculative component. This component involves consumer utilization, competitor response, and impact on related businesses.

Quality Improvement Information system investments are often directed to improving the quality of service or medical care. These investments may be intended to reduce waiting times, improve the ability of physicians to locate information, improve treatment outcomes, or reduce errors in treatment. Evaluation of these initiatives, although quanti�iable, is generally done in terms of service parameters that are known or believed to be important determinants of organizational success. These parameters might be measures of aspects of organizational processes that customers encounter and then use to judge the organization, for example, waiting times in the physician’s of�ice. A quanti�iable dollar outcome for the service of care quality improvement can be very dif�icult to predict. Service quality is often necessary to protect current business, and the effect of a failure to continuously improve service or medical care can be dif�icult to project.

Major Strategic Initiative Strategic initiatives in information technology are intended to signi�icantly change the competitive position of the organization or rede�ine the core nature of the enterprise. In health care it is unusual that information systems are the centerpiece of a rede�inition of the organization, although as we discussed in Chapter Four (c04.xhtml) IT is a critical foundation for provider efforts to manage population health. However, several other industries have attempted IT-centric transformations.

Amazon is an effort to transform retailing. Venmo (which enables micropayments between individuals) is an effort to disrupt aspects of the branch bank. There can be a ROI core or component to analyses of such initiatives, because they often involve major reshaping or reengineering of fundamental organizational processes. However, assessing the ROIs of these initiatives and their related information systems with a high degree of accuracy can be very dif�icult. Several factors contribute to this dif�iculty:

These major strategic initiatives usually recast the organization’s markets and its roles. The outcome of the recasting, although visionary, can be dif�icult to see with clarity and certainty.

The recasting is evolutionary; the organization learns and alters itself as it progresses over what are often lengthy periods of time. It is dif�icult to be prescriptive about this evolutionary process. Most accountable care organizations are confronting this phenomenon.

Market and competitor responses can be dif�icult to predict.

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IT value is diverse and complex. This diversity indicates the power of IT and the diversity of its use. Nonetheless, the complexity of the value proposition means that it is dif�icult to make choices between IT investments and also dif�icult to assess whether the investment ultimately chosen delivered the desired value or not.

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7.2 The IT Project Proposal The IT project proposal is a cornerstone in examining value. Clearly, ensuring that all proposals are well crafted does not ensure value. To achieve value, alignment with organizational strategies must occur, factors for sustained IT excellence must be managed, budget processes for making choices between investments must exist, and projects must be well managed. However, the proposal (as will be discussed in Chapter Thirteen (c13.xhtml) ) does describe the intended outcome of the IT investment. The proposal requests money and an organizational commitment to devote management attention and staff effort to implementing an information system. The proposal describes why this investment of time, effort, and money is worth it—that is, the proposal describes the value that will result. In this section we discuss the value portion of the proposal and some common problems encountered with it.

Sources of Value Information As project proponents develop their case for an IT investment, they may be unsure of the full gamut of potential value or of the degree to which a desired value can be truly realized. The organization may not have had experience with the proposed application and may have insuf�icient analyst resources to perform its own assessment. It may not be able to answer such questions as, What types of gains have organizations seen as a result of implementing a population health system? To what degree will IT be a major contributor to our efforts to improve patient access through telehealth?

Information about potential value can be obtained from several sources (discussed in Appendix A). Conferences often feature presentations that describe the efforts of speci�ic individuals or organizations in accomplishing initiatives of interest to many others. Industry publications may offer relevant articles and analyses. Several industry research organizations—for example, Gartner and the Advisory Board—can offer advice. Consultants can be retained who have worked with clients who are facing or have addressedsimilar questions. Vendors of applications can describe the outcomes experienced by their customers. And colleagues can be contacted to determine the experiences of their organizations.

Garnering an understanding of the results of others is useful but insuf�icient. It is worth knowing that Organization Y adopted computerized provider order entry (CPOE) and reduced unnecessary testing by x percent. However, one must also understand the CPOE features that were critical in achieving that result and the management steps taken and the process changes made in concert with the CPOE implementation.

Formal Financial Analysis Most proposals should be subjected to formal �inancial analyses regardless of their value proposition. Several types of �inancial measures are used by organizations. An organization’s �inance department will work with leadership to determine which measures will be used and how these measures will be compiled.

Two common �inancial measures are net present value and internal rate of return:

Net present value is calculated by subtracting the initial investment from the future cash �lows that result from the investment. The cash can be generated by new revenue or cost savings. The future cash is discounted, or reduced, by a standard rate to re�lect the fact that a dollar earned one or more years from now is worth less than a dollar one has today (the rate depends on the time period considered). If the cash generated exceeds the initial investment by a certain amount or percentage, the organization may conclude that the IT investment is a good one.

Internal rate of return is the discount rate at which the present value of an investment’s future cash �low equals the cost of the investment. Another way to look at this is to ask, Given the amount of the investment and its promised cash, what rate of return am I getting on my investment? On the one hand, a return of 1 percent is not a good return (just as one would not think that a 1 percent return on one’s savings was good). On the other hand, a 30 percent return is very good.

Table 7.1 ( shows the typical form of a �inancial analysis for an IT application.

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Table 7.1 ( Financial analysis of a patient accounting document imaging system

Current Year

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7


One-time capital expense

$1,497,466 $1,302,534

System operations

System maintenance

— 288,000 $288,000 $288,000 $288,000 $288,000 $288,000 $288,000

System maintenance

— 152,256 152,256 152,256 152,256 152,256 152,256 152,256

TOTAL COSTS 1,497,466 1,742,790 440,256 440,256 440,256 440,256 440,256 440,256


Revenue gains

Rebilling of small secondary balances

— 651,000 868,000 868,000 868,000 868,000 868,000 868,000

Medicaid billing documentation

— 225,000 300,000 300,000 300,000 300,000 300,000 300,000

Disallowed Medicare bad debt audit

— — — — 100,000 100,000 100,000 100,000

Staff savings

Projected staff savings

— 36,508 136,040 156,504 169,065 169,065 169,065 171,096

Operating savings

Projected operating savings

— 64,382 77,015 218,231 222,550 226,436 226,543 229,935


— 976,891 1,381,055 1,542,735 1,659,615 1,663,502 1,663,608 1,669,031

CASH FLOW (1,497,466) (765,899) 940,799 1,102,479 1,219,359 1,223,246 1,223,352 1,228,775


(1,497,466) (2,263,365) (1,322,566) (220,087) 999,272 2,222,517 3,445,869 4,674,644

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Current Year

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

NPV (12% discount )


IRR 33%

Comparing Different Types of Value Given the diversity of value, it is very challenging to compare IT proposals that have different value propositions. How does one compare a proposal that promises to increase revenue and improve collaboration to one that offers improved compliance, faster turnaround times, and reduced supply costs?

At the end of the day, judgment is used to choose one proposal over another. Health care executives review the various proposals and associated value statements and make choices based on their sense of organizational priorities, available monies, and the likelihood that the proposed value will be seen. These judgments can be aided by developing a scoring approach that enables leaders to apply a common metric across proposals. For example, the organization might decide to score each proposal according to how much value it promises to deliver in each of the following areas:

Revenue impact

Cost reduction

Patient or customer satisfaction

Quality of work life

Quality of care

Regulatory compliance

Potential learning value

In this approach, each of these areas in each proposal is assigned a score, ranging from 5 (signi�icant contribution to the area) to 1 (minimal or no contribution). The scores are then totaled for each proposal, and, in theory, one picks those proposals with the highest aggregate scores. In practice, IT investment decisions are rarely that purely algorithmic. However, such scoring can be very helpful in sorting through complex and diverse value propositions:

Scoring forces the leadership team to discuss why different members of the team assigned different scores—why, for example, did one person assign a score of 2 for the revenue impact of a particular proposal and another person assign a 4? These discussions can clarify people’s understandings of proposal objectives and help the team arrive at a consensus on each project.

Scoring means that the leadership team will have to defend any decision not to fund a project with a high score or to fund one with a low score. In the latter case, team members will have to discuss why they are all in favor of a project when it has such a low score.

Perspective Prerequisites for Effective IT Project Prioritization

Jeanne Ross and Emmett Johnson (2009) identi�ied four prerequisites to effective IT project prioritization.

Explicit operating vision of the business. An operating vision is more than the sum of the operations of individual departments. Rather, it is a solid understanding of how the organization wants to operate as a whole. For example, how will the organization manage patients with a chronic disease? What processes must be in place to ensure a superior patient experience?

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Operating visions lead to enterprise-wide requirements for integration and standardization. IT projects should support this vision and conform to these requirements.

Business process owners. Process owners are those senior leaders who are responsible for the performance of core organization processes, such as patient access. These owners must sponsor IT initiatives and be held accountable for their successful completion and value delivery. These owners are in a good position to understand the IT priorities of their processes.

Transparent IT operating costs. Organizational leadership must understand IT costs and the drivers of those costs. This understanding prepares them to thoughtfully assess the risks and bene�its of proposed new systems and to identify alternative approaches to achieving desired process gains.

Rigorous project governance. Excellent IT governance must exist for the overall IT agenda (to be discussed in Chapter Twelve (c12.xhtml) ) and for individual projects (to be discussed in Chapter Thirteen (c13.xhtml) ).

Source: Ross and Johnson (2009).

The organization can decide which proposal areas to score and which not to score. Some organizations give different areas different weights—for example, reducing costs might be considered twice as important as improving organizational learning. The resulting scores are not binding, but they canbe helpful in arriving at a decision about which projects will be approved and what value is being sought.

Tactics for Reducing the Budget Proposals for IT initiatives may originate from a wide variety of sources in an organization. The IT group will submit proposals, as will department directors and physicians. Many of these proposals will not be directly related to an overall strategy but may nevertheless be good ideas that if implemented would lead to improved organizational performance. So it is common for an organization to have more proposals than it can fund. For example, during the IT budget discussion, the leadership team may decide that although it is looking at $2.2 million in requests, the organization can afford to spend only $1.7 million, so $500,000 worth of requests must be denied. Table 7.2 ( tbl-002) presents a sample list of requests.

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Table 7.2 ( Requests for new information system projects

Community General Hospital

Project Name Operating Cost

TOTAL $2,222,704

Clinical portfolio development 38,716

Enterprise monitoring 70,133

HIPAA security initiative 36,950

Accounting of disclosure—HIPAA 35,126

Ambulatory Center patient tracking 62,841

Bar-coding infrastructure 64,670

Capacity management 155,922

Chart tracking 34,876

Clinical data repository 139,902

CRP research facility 7,026

Emergency Department data warehouse 261,584

Emergency Department order entry 182,412

Medication administration system 315,323

Order communications 377,228

Transfusion services replacement system 89,772

Wireless infrastructure 44,886

Next-generation order entry 3,403

Graduate medical education duty hours 163,763

Reducing the budget in situations such as this requires a value discussion. The leadership is declaring some initiatives to have more value than others. Scoring initiatives according to criteria is one approach to addressing this challenge.

In addition to such scoring, other assessment tactics can be employed, prior to the scoring, to assist leaders in making reduction decisions.

Some requests are mandatory. They may be mandatory because of a regulation requirement (such as a new Medicare rule) or because a current system is so obsolete that it is in danger of crashing—permanently—and it must be replaced soon. These requests must be funded.

Some projects can be delayed. They are worthwhile, but a decision on them can be put off until next year. The requester will get by in the meantime.

Key groups within IT, such as the staff members who manage clinical information systems, may already have so much on their plate that they cannot possibly take on another project. Although the organization wants to do the project, it would be ill-advised to do so now, and so the project can be deferred to next year.

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The user department proposing the application may not have strong management or may be experiencing some upheaval; hence, implementing a new system at this time would be risky. The project could be denied or delayed until the management issues have been resolved.

The value proposition or the resource estimates or both are shaky. The leadership team does not trust the proposal, so it could be denied or sent back for further analysis. Further analysis means that the proposal will be examined again next year.

Less expensive ways of addressing the problems cited in the proposal may exist, such as a less expensive application or a non-IT approach. The proposal could be sent back for further analysis.

The proposal is valuable, and the leadership team would like to move it forward. However, the team may reduce the budget, enabling progress to occur but at a slower pace. This delays realizing the value but ensures that resources are devoted to making progress.

These tactics are routinely employed during budget discussions aimed at trying to get as much value as possible given �inite resources.

Common Proposal Problems During the review of IT investment proposals, organizational leadership might encounter several problems related to the estimates of value and the estimates of the resources needed to obtain the value. If undetected, these problems might lead to a signi�icant overstatement of potential return or understatement of costs. An overstatement or understatement, obviously, may result in signi�icant organizational unhappiness when the value that people thought they would see never materializes and never could have materialized.

Fractions of Effort Proposal analyses might indicate that the new IT initiative will save fractions of staff time, for example, that each nurse will spend �ifteen minutes less per shift on clerical tasks. To suggest a total value, the proposal might multiply as follows (this example is highly simpli�ied): 200 nurses × 15 minutes saved per 8-hour shift × 250 shifts worked per year = 12,500 hours saved. The math might be correct, and the conclusion that 12,500 hours will become available for doing other work such as direct patient care might also be correct. But the analysis will be incorrect if it then concludes that the organization would thus “save” the salary dollars of six nurses (assuming 2,000 hours worked per year per nurse).

Saving fractions of staff effort does not always lead to salary savings, even when there are large numbers of staff members, because there may be no practical way to realize the savings—to, for example, lay off six nurses. If, for example, there are six nurses working each eight-hour shift in a particular nursing unit, the �ifteen minutes saved per nurse would lead to a total savings of 1.5 hours per shift. But if one were then to lay off one nurse on a shift, it would reduce the nursing capacity on that shift by eight hours, damaging the unit’s ability to deliver care. Saving fractions of staff member effort does not lead to salary savings when staff members are geographically highly fragmented or when they work in small units or teams. It leads to possible salary savings only when staff members work in very large groups and some work of the reduced staff members can be redistributed to others.

Reliance on Complex Behavior Proposals may project with great certainty that people will use systems in speci�ic ways. For example, several organizations expect that consumers will use Internet-based quality report cards to choose their physicians andhospitals. However, few consumers appear to actually rely on such sites. Organizations may expect that nurses will readily adopt systems that help them discharge patients faster. However, nurses often delay entering discharge transactions so that they can grab a moment of peace in an otherwise overwhelmingly busy day.

System use is often not what was anticipated. This is particularly true when the organization has no experience with the relevant class of users or with the introduction of IT into certain types of tasks. The original value projection can be thrown off by the complex behaviors of system users. People do not always behave as we expect or want them to. If user behavior is uncertain, the organization would be wise to pilot an application and learn from this demonstration.

Unwarranted Optimism

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Project proponents are often guilty of optimism that re�lects a departure from reality. Proponents may be guilty of any of four mistakes:

They assume that nothing will go wrong with the project.

They assume that they are in full control of all variables that might affect the project—even, for example, quality of vendor products and organizational politics.

They believe that they know exactly what changes in work processes will be needed and what system features must be present, when what they really have, at best, are close approximations of what must happen.

They believe that everyone can give full time to the project and forget that people get sick or have babies and that distracting problems unrelated to the project will occur, such as a sudden deterioration in the organization’s �iscal performance, and demand attention.

Decisions based on such optimism eventually result in overruns in project budgets and timetables and compromises in system goals. Overruns and compromises change the value proposition.

Shaky Extrapolations Projects often achieve gains in the �irst year of their implementation, and proponents are quick to project that such gains will continue during the remaining life of the project. For example, an organization may see 10 percentof its physicians move from using dictation when developing a progress note to using structured, computer-based templates. The organization may then erroneously extrapolate that each year will see an additional 10 percent shift. In fact, the �irst year might be the only year in which such a gain will occur. The organization has merely convinced the more computer-facile physicians to change, and the rest of the physicians have no interest in ever changing.

Underestimating the Effort Project proposals might count the IT staff member effort in the estimates of project costs but not count the time that users and managers will have to devote to the project. A patient care system proposal, for instance, may not include the time that will be spent by dozens of nurses working on system design, developing work�low changes, and attending training. These efforts are real costs. They often lead to the need to hire temporary nurses to provide coverage on the inpatient care units, or they might lead to a reduced patient census because there are fewer nursing hours available for patient care. Such miscounting of effort understates the cost of the project.

Fairy-Tale Savings IT project proposals may note that the project can reduce the expenses of a department or function, including costs for staff members, supplies, and effort devoted to correcting mistakes that occur with paper-based processes. Department managers will swear in project approval forums that such savings are real. However, when asked if they will reduce their budgets to re�lect the savings that will occur, these same managers may become signi�icantly less convinced that the savings will result. They may comment that the freed-up staff member effort or supplies budgets can be redeployed to other tasks or expenses. The managers may be right that the expenses should be redeployed, and all managers are nervous when asked to reduce their budgets and still do the same amount of work. However, the savings expected have now disappeared.

Failure to Account for Post-Implementation Costs After a system goes live, the costs of the system do not go away. System maintenance contracts are necessary. Hardware upgrades will be required. Staff members may be needed to provide enhancements to the application. These support costs may not be as large as the costs of implementation, butthey are costs that will be incurred every year, and over the course of several years they can add up to some big numbers. Proposals often fail to adequately account for support costs.

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7.3 Ensuring the Delivery of Value Achieving value from IT investments requires management effort. There is no computer genie that descends on the organization once the system is live and waves its wand and—shazzam!—value has occurred. Achieving value is hard work but doable work. Management can take several steps to ensure the delivery of value (Dragoon, 2003; Glaser, 2003a, 2003b). These steps are discussed in the sections that follow.

Make Sure the Homework Was Done IT investment decisions are often based on proposals that are not resting on solid ground. The proposer has not done the necessary homework, and this elevates the risk of a suboptimal return.

Clearly, the track record of the investment proposer will have a signi�icant in�luence on the investment decision and on leaders’ thinking about whether or not the investment will deliver value. However, regardless of the proposer’s track record, an IT proposal should enable the leadership team to respond with a strong yes to each of the following questions:

Is it clear how the plan advances the organization’s strategy?

Is it clear how care will improve, costs will be reduced, or service will be improved? Are the measures of current performance and expected improvement well researched and realistic? Have the related changes in operations, work�low, and organizational processes been de�ined?

Are the senior leaders whose areas are the focus of the IT plan clearly supportive? Could they give the project proposal presentation?

Are the resource requirements well understood and convincingly presented? Have these requirements been compared to those experienced by other organizations undertaking similar initiatives?

Have the investment risks been identi�ied, and is there an approach to addressing these risks?

Do we have the right people assigned to the project, have we freed up their time, and are they well organized?

Answering with a no, a maybe, or an equivocal yes to any of these questions should lead one to believe that the discussion is perhaps focusing on an expense rather than an investment.

Require Formal Project Proposals It is a fact of organizational life that projects are approved as a result of hallway conversations or discussions on the golf course. Organizational life is a political life. While recognizing this reality, the organization should require that every IT project be written up in the format of a proposal and that each proposal should be reviewed and subjected to scrutiny before the organization will commit to supporting it. However, an organization may also decide that small projects—for example, those that involve less than $25,000 in costs and less than 120 person-hours—can be handled more informally.

Increase Accountability for Investment Results Few meaningful organizational initiatives are accomplished without establishing appropriate accountability for results. Accountability for IT investment results can be improved by taking three major steps.

First, the business owner of the IT investment should defend the investment—for example, the director of clinical laboratories should defend the request for a new laboratory system and the director of nursing should defend the need for a new nursing system. The IT staff members will need to work with the business owner to de�ine IT costs, establish likely implementation time frames, and sort through application alternatives. But the IT staff members should never defend an application investment.

Second, as will be discussed in Chapter Thirteen (c13.xhtml) , project sponsors and business owners must be de�ined, and they must understand the accountability that they now have for the successful completion of the project.

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Third, the presentation of these projects should occur in a forum that routinely reviews such requests. Seeing many proposals, and their results, over the course of time will enable the forum participants to develop a seasoned understanding of good versus not-so-good proposals. Forum members are also able to compare and contrast proposals as they decide which ones should be approved. A manager might wonder (and it’s a good question), “If I approve this proposal, does that mean that we won’t have resources for another project that I might like even better?” Examining as many proposals together as possible enables the organization to take a portfolio view of its potential investments.

Figure 7.1 ( IT investment portfolio

Source: Adapted from Arlotto and Oakes (2003). Copyright 2003 Healthcare Information and Management Systems Society (HIMSS) Used with permission.

Figure 7.1 (�ig-0001) displays an example of a project investment portfolio represented graphically. The size of each bubble re�lects the magnitude of a particular IT investment. The axes are labeled “reward” (the size of the expected value) and “risk” (the relative risk that the project will not deliver the value). Other axes may be used. One commonly used set of axes consists of “support of operations” and “support of strategic initiatives.”

Diagrams such as the one in Figure 7.1 (�ig- 0001) serve several functions:

They summarize IT activity on one piece of paper, enabling leaders to consider a new request in the context of prior commitments.

They help to ensure a balanced portfolio, promptly revealing imbalances such as a clustering of projects in the high- risk quadrant.

They help to ensure that the approved projects cover an appropriate spectrum of organizational needs: for example, that projects are directed to revenue cycle improvement, to operational improvement, and to patient safety.

Manage the Project Well One guaranteed way to reduce value is to mangle the management of the implementation project. Implementation failures or signi�icant budget and timetable overruns or really unhappy users—any of these can dilute value.

Perspective Types of Portfolio Investments

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Peter Weill and Sinan Aral (2006) note that organizations should manage their IT investments as a portfolio. Speci�ically, they describe four types of IT investments in a portfolio.

Infrastructure. Infrastructure refers to the core information technology that serves as the foundation for all applications. Examples of infrastructure include networks, servers, operating systems, and mobile devices.

Transactional. Transactional systems are those applications that support the core operations processes. Examples of transactional systems include CPOE, scheduling, clinical laboratory automation, and clinician documentation.

Informational. Informational IT assets are those that support decision making such as clinical decision support, quality measurement and analyses, market assessment, and budget performance.

Strategic. Strategic investments are IT systems that are critical to the furthering of an organization’s strategy. These investments could be infrastructure, transactional, and informational, but they differ in that they are clearly directed to furthering a strategic initiative as distinct from being helpful to support ongoing operations.

Weill and Aral note that different industries have different allocations of IT investments across these categories. Financial services emphasize infrastructure in an effort to ensure high reliability and low costs. However, retail has emphasized informational as they seek to understand customer buying patterns.

Source: Weill and Aral (2006).

Among the many factors that can lead to mangled project management are the following:

The project’s scope is poorly de�ined.

The accountability is unclear.

The project participants are marginally skilled.

The magnitude of the task is underestimated.

Users feel like victims rather than participants.

All the world has a vote and can vote at any time.

Many of these factors were discussed in Chapters Five (c05.xhtml) and Six (c06.xhtml) .

Manage Outcomes Value is not an automatic result of implementing an information system. Value must be managed into existence. Figure 7.2 (�ig-0002) depicts a reduction in days in accounts receivable (AR) at a physician practice. During the interval depicted, a new practice management system was implemented. The practice did not see a precipitous decline in days in AR (a sign of improved revenue performance) in the time immediately following the implementation in the second quarter of 2015. The practice did see a progressive improvement in days in AR because someone was managing that improvement using the new capabilities that came with the new system.

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Figure 7.2 ( Days in accounts receivable

If the gain in revenue performance had been an “automatic” result of the information system implementation, the practice would have seen a quick, sharp drop in days in AR. Instead it saw a gradual improvement over time. This gradual change re�lects the following:

The gain occurred through day-in, day-out changes in operational processes, �ine-tuning of system capabilities, and follow-ups in staff training.

A person had to be in charge of obtaining this improvement. Someone had to identify and make operational changes, manage changes in system capabilities, and ensure that needed training occurred.

Conduct Post-Implementation Audits Rarely do organizations revisit their IT investments to determine if the promised value was actually achieved. They tend to believe that once the implementation is over and the change settles in, value will have been automatically achieved. This is unlikely.

Post-implementation audits can be conducted to identify value achievement progress and the steps still needed to achieve maximum gain. An organization might decide to audit two to four systems each year, selecting systems that have been live for at least six months. During the course of the audit meeting, these �ive questions can be asked:

What goals were expected at the time the project investment was approved?

How close have we come to achieving those original goals?

What do we need to do to close the goal gap?

How much have we invested in system implementation, and how does that compare to our original budget?

If we had to implement this system again, what would we do differently?

Post-implementation audits assist value achievement by the following:

Signaling leadership interest in ensuring the delivery of results

Identifying steps that still need to be taken to ensure value

Supporting organizational learning about IT value realization

Reinforcing accountability for results

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Celebrate Value Achievement Business value should be celebrated. Organizations usually hold parties shortly after applications go live. These parties are appropriate; a lot of people worked very hard to get the system up and running and used. However, up and running and used does not mean that value has been delivered. In addition to go-live parties, organizations should consider business value parties,celebrations conducted once the value has been achieved—for example, a party that celebrates the achievement of service improvement goals. Go-live parties alone risk sending the inappropriate signal that implementation is the end point of the IT initiative. Value delivery is the end point.

Leverage Organizational Governance The creation of an IT committee of the board of directors can enhance organizational efforts to achieve value from IT investments. At times the leadership team of an organization is uncomfortable with some or all of the IT conversation. Board members may not understand why infrastructure is so expensive or why large implementations can take so long and cost so much. They may feel uncomfortable with the complexity of determining the likely value to be obtained from IT investments. The creation of a subcommittee made up of the board members most experienced with such discussions can help to ensure that hard questions are being asked and that the answers are sound.

Shorten the Deliverables Cycle When possible, projects should have short deliverable cycles. In other words, rather than asking the organization to wait twelve or eighteen months to see the �irst fruits of its application implementation labors, make an effort to deliver a sequence of smaller implementations. For example, one might conduct pilots of an application in a subset of the organization, followed by a staged rollout. Or one might plan for serial implementation of the �irst 25 percent of the application features.

Pilots, staged rollouts, and serial implementations are not always doable. When they are possible, however, they enable the organization to achieve some value earlier rather than later, support organizational learning about which system capabilities are really important and which were only thought to be important, facilitate the development of reengineered operational processes, and create the appearance (whose importance is not to be underestimated) of more value delivery.

Benchmark Value Organizations should benchmark their performance in achieving value against the performance of their peers. These benchmarks might focus on process performance—for example, days in accounts receivable or average time to get an appointment. An important aspect of value benchmarkingis the identi�ication of the critical IT application capabilities and related operational changes that enabled the achievement of superior results. This understanding of how other organizations achieved superior IT-enabled performance can guide an organization’s efforts to continuously achieve as much value as possible from its IT investments.

Communicate Value Once a year the IT department should develop a communication plan for the twelve months ahead. This plan should indicate which presentations will be made in which forums and how often IT-centric columns will appear in organizational newsletters. The plan should list three or so major themes—for example, speci�ic regional integration strategies or efforts to improve IT service—that will be the focus of these communications. Communication plans try to remedy the fact that even when value is being delivered, most people in the organization may not be fully aware of it.

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7.4 Analyses of the IT Value Challenge The IT investment and value challenge plagues all industries. It is not a problem peculiar to health care. The challenge has been with us for �ifty years, ever since organizations began to spend money on big mainframes. This challenge is complex and persistent, and we should not believe we can fully solve it. We should believe we can be better at dealing with it. This section highlights the conclusions of several studies and articles that have examined this challenge.

Factors That Hinder Value Return The Committee to Study the Impact of Information Technology on the Performance of Service Activities (1994) found these major contributors to failures to achieve a solid return on IT investments:

The organization’s overall strategy is wrong, or its assessment of its competitive environment is inadequate.

The strategy is �ine, but the necessary IT applications and infrastructure are not de�ined appropriately. The information system, if it is solving a problem, is solving the wrong problem.

The organization fails to identify and draw together well all the investments and initiatives necessary to carry out its plans. The ITinvestment then falters because other changes, such as reorganization or reengineering, fail to occur.

The organization fails to execute the IT plan well. Poor planning or less than stellar management can diminish the return from any investment.

Value may also be diluted by factors outside the organization’s control. Weill and Broadbent (1998) noted that the more strategic the IT investment, the more its value can be diluted. An IT investment directed to increasing market share may have its value diluted by non-IT decisions and events—for example, pricing decisions, competitors’ actions, and customers’ reactions. IT investments that are less strategic but have business value—for example, improving nursing productivity—may be diluted by outside factors—for example, shortages of nursing staff members. And the value of an IT investment directed toward improving infrastructure characteristics may be diluted by outside factors—for example, unanticipated technology immaturity or business dif�iculties confronting a vendor.

The Investment-Performance Relationship A study by Strassmann (1990) examined the relationship between IT expenditures and organizational effectiveness. Data from an Information Week survey of the top one hundred users of IT were used to correlate IT expenditures per employee with pro�its per employee. Strassmann concluded that there is no overall obvious direct relationship between expenditure and organizational performance. This �inding has been observed in several other studies (for example, Keen, 1997). It leads to several conclusions:

Spending more on IT is no guarantee that the organization will be better off. There has never been a direct correlation between spending and outcomes. Paying more for care does not give one correspondingly better care. Clearly, one can spend so little that nothing effective can be done. And one can spend so much that waste is guaranteed. But moving IT expenditures from 4 percent of the operating budget to 6 percent of the operating budget does not inherently lead to a 50 percent increase in desirable outcomes.

Factors other than the appropriateness of the tool to the task also in�luence the relationship between IT investment and organizational performance. These factors include the nature of the work (for example, IT is likely to have a greater impact on bank performancethan on consulting �irm performance), the basis of competition in an industry (for example, cost per unit of manufactured output versus prowess in marketing), and an organization’s relative competitive position in the market.

The Value of the Overall Investment Many analyses and academic studies have been directed to answering this broad question: How can an organization assess the value of its overall investments in IT? Assessing the value of the aggregate IT investment is different from assessing the value of a single initiative or other speci�ic investment. And it is also different from assessing the caliber of the IT department.

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Developing a de�initive, accurate, and well-accepted way to answer this question has so far eluded all industries and may continue to be elusive. Nonetheless there are some basic questions that can be asked in pursuit of answering the larger question. Interpreting the answers to these basic questions is a subjective exercise, making it dif�icult to derive numerical scores. Bresnahan (1998) suggests �ive questions:

How does IT in�luence the customer experience?

Do patients and physicians, for example, �ind that organizational processes are more ef�icient, less error prone, and more convenient?

Does IT enable or retard growth? Can the IT organization support effectively the demands of a merger? Can IT support the creation of clinical product lines—for example, cardiology—across the integrated delivery system?

Does IT favorably affect productivity?

Does IT advance organizational innovation and learning?

Progressive Realization of IT Value Brown and Hagel (2003) made three observations about IT value.

First, IT value requires innovation in business practices. If an organization merely computerizes existing processes without rectifying (or at times eliminating) process problems, it may have merely made process problems occur faster. In addition, those processes are now more expensive because there is a computer system to support. Providing appointment scheduling systems may not make waiting times any shorter or enhance patients’ ability to get an appointment when they need one.

All IT initiatives should be accompanied by efforts to materially improve the processes that the system is designed to support. IT often enables the organization to think differently about a process or expand its options for improving a process. If the process thinking is narrow or unimaginative, the value that could have been achieved will have been lost, with the organization settling for an expensive way to achieve minimal gain.

For example, if Amazon had thought that the Internet enabled it to simply replace the catalogue and telephone as a way of ordering something, it would have missed ideas such as presenting products to the customer based on data about prior orders or enabling customers to leave their own ratings of books and music.

Second, the economic value of IT comes from incremental innovations rather than “big bang” initiatives. Organizations will often introduce very large computer systems and process change all at once. Two examples of such big bangs are the replacement of all systems related to the revenue cycle and the introduction of a new EHR over the course of a few weeks.

Big bang implementations are very tricky and highly risky. They may be haunted by series of technical problems. Moreover, these systems introduce an enormous number of process changes affecting many people. It is exceptionally dif�icult to understand the rami�ications of such change during the analysis and design stages that precede implementation. A full understanding is impossible. As a result, the implementing organization risks material damage. This damage destroys value. It may set the organization back, and even if the organization grinds its way through the disruption, the resulting trauma may make the organization unwilling to engage in future ambitious IT initiatives.

By contrast, IT implementations (and related process changes) that are more incremental and iterative reduce the risk of organizational damage and permit the organization to learn. The organization has time to understand the value impact of phase n and then can alter its course before it embarks upon phase n + 1. Moreover, incremental change leads the organization’s members to understand that change, and realizing value, are never-ending aspects of organizational life rather than things to be endured every couple of years.

Third, the strategic impact of IT investments comes from the cumulative effect of sustained initiatives to innovate business practices. If economic value is derived from a series of thoughtful, incremental steps, then the aggregate effect of those steps should be a competitive advantage. Most of the time, organizations that wind up dominating an industry do so through incremental movement over the course of several years (Collins, 2001).

Persistent innovation by a talented team, over the course of years, will result in signi�icant strategic gains. The organization has learned how toimprove itself, year in and year out. Strategic value is a marathon. It is a long race that is run and won one mile at a time.

Companies with Digital Maturity

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CapGemini (2012) examined digital innovations at four hundred large companies. The study examined the digital maturity of these companies and compared this maturity with the performance of the companies. Digital maturity is de�ined according to two variables:

Digital intensity, or the extent to which the company had invested in technology-enabled initiatives to change how the company operates. Example investments included advanced analytics, social media, digital design of products, and real-time monitoring of operations.

Transformation management intensity, or the extent of the leadership capabilities necessary to drive digital transformation throughout the company. Example capabilities included vision, governance, and ability to change culture.

The study examined the degree to which digital intensity and transformation-management intensity separated those that performed well from those that did not. (See Figure 7.3 (�ig-0003) .)

The study found that companies that had low scores on both intensity dimensions fared the poorest (24 percent less pro�itable than their competitors), whereas companies that had high scores on both intensity dimensions performed the best (26 percent more pro�itable than their competitors).

However, the study found that transformation-management intensity was more important than digital intensity. Companies that had high transformation-management intensity but low digital intensity performed 9 percent better than their competitors. And companies that had high digital intensity but low transformation intensity were 11 percent less pro�itable than competitors.

Transformation ability was more important than investment in IT although IT investments enabled transformation skills to achieve more value.

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Summary IT value is complex, multifaceted, and diverse across and within proposed initiatives. The techniques used to analyze value must vary with the nature of the value.

Figure 7.3 ( Digital intensity versus transformation intensity

Source: CapGemini (2012). CapGemini Consulting and the MIT Center for Digital Business, “The Digital Advantage: How digital leaders outperform their peers in every industry,” Nov. 5, 2012. Used with permission.

The project proposal is the core means for assessing the potential value of an IT initiative. IT proposals have a commonly accepted structure. And approaches exist for comparing proposals with different types of value propositions. Project proposals often present problems in the way they estimate value—for example, they may unrealistically combine fractions of effort saved, fail to appreciate the complex behavior of system users, or underestimate the full costs of the project.

Many factors can dilute the value realized from an IT investment. Poor linkage between the IT agenda and the organizational strategy, the failure to set goals, and the failure to manage the realization of value all contribute to dilution.

There are steps that can be taken to improve the achievement of IT value. Leadership can ensure that project proponents have done their homework, that accountability for results has been established, that formal proposalsare used, and that post- implementation audits are conducted. Even though there are many approaches and factors that can enhance the realization of IT- enabled value, the challenges of achieving this value will remain a management issue for the foreseeable future.

Health care organization leaders often feel ill-equipped to address the IT investment and value challenge. However, no new management techniques are required to evaluate IT plans, proposals, and progress. Leadership teams are often asked to make decisions that involve strategic hunches (such as a belief that developing a continuum of care would be of value) about areas where they may have limited domain knowledge (new surgical modalities) and where the value is fuzzy (improved morale). Organizational leaders should treat IT investments just as they would treat other types of investments; if they don’t understand, believe, or trust the proposal or its proponent, they should not approve it.

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Key Terms

Digital maturity Internal rate of return

IT project proposal IT value

Net present value Value realization

Learning Activities Interview the CIO of a local health care provider or payer. Discuss how his or her organization assesses the value of IT investments and ensures that the value is delivered.

Select two articles from a health care IT trade journal that describe the value an organization received from its IT investments. Critique and compare the articles.

Select two examples of intangible value. Propose one or more approaches that an organization might use to measure each of those values.

Prepare a defense of the value of a signi�icant investment in an electronic health record system.

References Amarasingham, R., Plantinga, L., Diener-West, M., Gaskin, D. J., & Powe, N. R. (2009). Clinical information technologies and inpatient outcomes. Archives of Internal Medicine, 169(2), 108–114.

Amland, R., Dean, B., Yu, H., Ryan, H., Orsund, T., Hackman, J., & Roberts, S. (2015). Computerized clinical decision support to prevent venous thromboembolism among hospitalized patients: Proximal outcomes from a multi-year quality improvement project. Journal for Healthcare Quality, 37(4), 221–231.

Arlotto, P., & Oakes, J. (2003). Return on investment: Maximizing the value of healthcare information technology. Chicago, IL: Healthcare Information and Management Systems Society.

Bresnahan, J. (1998, July 15). What good is technology? CIO Enterprise, pp. 25–26, 28, 30.

Brown, J., & Hagel, J. (2003). Does IT matter? Harvard Business Review, 81, 109–112.

CapGemini. (2012). The digital advantage: How digital leaders outperform their peers in every industry. Paris, France: CapGemini.

Cebul, R. D., Love, T. E., Jain, A. K., & Herbert, C. J. (2011). Electronic health records and the quality of diabetes care. New England Journal of Medicine, 365, 825–833.

Collins, J. (2001). Good to great. New York, NY: HarperCollins.

Committee to Study the Impact of Information Technology on the Performance of Service Activities. (1994). Information technology in the service society. Washington, DC: National Academies Press.

Del Beccaro, M. A., Jeffries, H. E., Eisenberg, M. A., & Harry, E. D. (2006). Computerized provider order entry implementation: No association with increased mortality rates in an intensive care unit. Pediatrics, 118(1), 290–295.

Dragoon, A. (2003, Aug. 15). Deciding factors. CIO, pp. 49–59.

Glaser, J. (2003a, March). Analyzing information technology value. Healthcare Financial Management, pp. 98–104.

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Glaser, J. (2003b, Sept.). When IT excellence goes the distance. Healthcare Financial Management, pp. 102–106.

Han, Y. Y., Carcillo, J. A., Venkataraman, S. T., Clark, R.S.B., Watson, R. S., Nguyen, T. C., Bayir, H., & Orr, R. A. (2005). Unexpected increased mortality after implementation of a commercially sold computerized physician order entry system. Pediatrics, 116(6), 1506–1512.

Keen, P. (1997). The process edge. Boston, MA: Harvard Business School Press.

Mosquera, M. (2011). How PHRs boosted shareholder value at EMC. Government Health IT. Retrieved August 2011 from ( employers-say-phrs-cut-healthcare-costs)

Ross, J., & Beath, C. (2002). Beyond the business case: New approaches to IT investment. MIT Sloan Management Review, 43(2), 51–59.

Ross, J. W., & Johnson, E. (2009). Prioritizing IT investments. Research Brie�ing, IX(3). Cambridge, MA: MIT Center for Information Systems Research.

Strassmann, P. (1990). The business value of computers. New Canaan, CT: Information Economics Press.

Weill, P., & Aral, S. (2006). Generating premium returns on your IT investments. MIT Sloan Management Review, 47(2), 54–60.

Weill, P., & Broadbent, M. (1998). Leveraging the new infrastructure. Boston, MA: Harvard Business School Press.

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Chapter 8 Organizing Information Technology Services

Learning Objectives

To be able to describe the roles, responsibilities, and major functions of the IT department or organization.

To be able to discuss the role and responsibility of the chief information of�icer (CIO), chief medical informatics of�icer (CMIO), chief security of�icer (CSO), chief technology of�icer (CTO), and other key IT staff members.

To be able to describe the different ways IT services might be organized and governed within a health care organization.

To be able to identify key attributes of highly effective IT organizations.

To be able to describe the role and function of the data analytics department or unit.

To be able to develop a plan for evaluating the effectiveness of the IT function within an organization.

By now you should have an understanding of health care data, the various clinical and administrative applications that are used to manage those health care data, and the processes of selecting, acquiring, and implementing health care information systems. You should also have a basic understanding of the core technologies that are common to many health care applications, and you can appreciate some of what it takes to ensure that information systems are reliable and secure.

In many health care organizations, an information technology (IT) function requires staff members who are involved in these and other IT-related activities—everything from customizing a software application to setting up and maintaining a wireless network to performing system backups. In a solo physician practice, this responsibility may lie with the of�ice manager or lead physician. In a large hospital setting, this responsibility may lie with the IT department in conjunction with the medical staff, the administration, and the major departmental units—for example, admissions, �inance, radiology, and nursing.

Some health care organizations outsource a portion or all of their IT services; however, they are still responsible for ensuring that those services are of high quality and support the IT needs of the organization. This responsibility cannot be delegated entirely to an outside vendor or IT �irm. Health care executives must manage IT resources just as they do human, �inancial, and other facility resources.

This chapter provides an overview of the various functions and responsibilities that one would typically �ind in the IT department of a large health care organization. We describe the different groups or units that are typically seen in an IT department. We review a typical organizational structure for IT and discuss the variations that are often seen in that structure and the reasons for them. This chapter also presents an overview of the senior IT management roles and the roles with which health care executives will often work in the course of projects and IT initiatives. IT outsourcing, in which the health care organization asks an outside vendor to run IT, is reviewed. Finally, we examine approaches to evaluating the ef�iciency and effectiveness of the IT department.

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8.1 Information Technology Functions The IT department has been an integral part of most hospitals or health care systems since the early days of mainframe computing. If the health care facility was relatively large and complex and used a fair amount of information technology, one would �ind IT staff members behind the scenes developing or enhancing applications, building system interfaces, maintaining databases,managing networks, performing system backups, and carrying out a host of other IT support activities. Today the IT department is becoming increasingly important, not only in hospitals but also in all health care organizations that use IT to manage clinical and administrative data and processes.

Throughout this chapter we refer to the IT department usually found in an integrated health care system. We chose this setting because it is typically the most complex and IT intensive. Moreover, many of the principles that apply to managing IT resources in this setting also apply in other types of health care facilities, such as an ambulatory care clinic or rural community health center. The breadth and scope of the services provided may differ considerably, however, depending on the extent to which IT is used in the organization.

IT Department Responsibilities The IT department has several responsibilities:

Ensuring that an IT plan and strategy have been developed for the organization and that the plan and strategy are kept current as the organization evolves; these activities are discussed in Chapter Twelve (c12.xhtml)

Working with the organization to acquire or develop and implement needed new applications; these processes were discussed in Chapters Five (c05.xhtml) and Six (c06.xhtml)

Providing day-to-day support for users: for example, �ixing broken workstations, responding to questions about application use, training new users, and applying vendor-supplied upgrades to existing applications

Managing the IT infrastructure: for example, performing backups of databases, installing network connections for new organizational locations, monitoring system performance, and securing the infrastructure from denial of service attacks

Examining the role and relevance of emerging information technologies

Core Functions To ful�ill their responsibilities, all IT departments have four core functions. Depending on the size of the IT group and the diversity of applications and responsibilities, a function may require several subsidiary departments or subgroups.

Operations and Technical Support The operations and technical support function manages the IT infrastructure—for example, the servers, networks, operating systems, database management systems, and workstations. This function installs new technology, applies upgrades, troubleshoots and repairs the infrastructure, performs “housekeeping” tasks such as backups, and responds to user problems, such as a printer that is not working.

This function may have several IT subgroups:

Data center management: manages the equipment in the organization’s computer center

Network engineers: manage the organization’s network technologies

Server engineers: oversee the installation of new servers and perform such tasks as managing server space utilization

Database managers: add new databases, support database query tools, and respond to database problems such as �ile corruptions

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Security: ensure that virus and intrusion detection software is current, physical access to the computer room is constrained, disaster recovery plans are current, and processes are in place to manage application and system passwords

Help desk: provide support to users who call in with problems such as broken of�ice equipment, trouble operating an application, a forgotten password, or uncertainty about how to perform a speci�ic task on the computer

Deployments: install new workstations and printers, move workstations when groups move to new buildings, and the like

Training: train organization staff members on new applications and of�ice software, such as presentation development applications

Applications Management The applications management group manages the processes of acquiring new application systems, developing new application systems, implementing these new systems, providing ongoing enhancement of applications, troubleshooting application problems, and working with application suppliers to resolve these problems.

This function may have several IT groups:

Groups that focus on major classes of applications: for example, a �inancial systems group and a clinical systems group

Groups dedicated to speci�ic applications (this is most likely in large organizations): for example, a group to support the applications in the clinical laboratory or in radiology

An applications development group (this is found in organizations that perform a signi�icant amount of internal development)

Groups that focus on speci�ic types of internal development: for example, a web or mobile device development group

Specialized Groups Health care organizations may develop groups that have very specialized functions, depending on the type of organization or the organization’s approach to IT. For example:

Groups that support the needs of the research community in academic medical centers

Process redesign groups in organizations that engage in a signi�icant degree of process reengineering during application implementation

Decision-support groups that help users and management perform analyses and create reports from corporate databases—for example, quality-of-care reports or �inancial performance reports

In addition, the chief information of�icer (CIO), who is the most senior IT executive, is often responsible for managing the organization’s telecommunications function—the staff members who manage the phone system, overhead paging system, and nurse call systems. Depending on the organization’s structure and the skill and interests of the CIO, one occasionally �inds these other organizational functions reporting to the CIO. These additional functions are often added because of the executive skills of the CIO and not strictly because they are IT-related:

The health information management or medical records department

The function that handles the organization’s overall strategic plan development

The marketing department

IT Administration Depending on the size of the IT department, one may �ind groups that focus on supporting IT administrative activities. These groups may perform such tasks as these:

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Overseeing the development of the IT strategic plan

Managing contracts with vendors

Developing and monitoring the IT budget

Providing human resource support for the IT staff members

Providing support for the management of IT projects: for example, developing project status reports or providing project management training

Managing the space occupied by an IT department or group

A typical organizational structure for an IT department in a large health system is shown in Figure 8.1 (�ig-0001) .

Figure 8.1 ( IT organizational chart: Large health system

Figure 8.1 (�ig-0001) shows the enterprise-wide CIO, a deputy CIO, and CIOs for each of the major divisions, for example, an academic medical center and the physician network of the health system. The division CIOs must ensure that the IT needs of each division are met and that the division needs are considered during the development and execution of enterprise-level initiatives such as the implementation of a common revenue cycle system.

Figure 8.1 (�ig-0001) also shows roles for specialized functions: telehealth, genomics IT, research, medical imaging, and medical informatics. The �igure shows the operations and technical support groups (technical services and operations and network services and communications), application management groups (clinical systems and �inance and administrative systems), the IT administration group (IS administration), and health information management.

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Finally, the �igure shows the presence of a CTO (chief technology of�icer) and CISO (chief information security of�icer), which will be discussed in the following section on IT senior leadership roles.

IT Senior Leadership Roles Within the overall IT group, several positions and roles are typically present ranging from senior leadership—for example, the chief information of�icer—to staff members who do the day-in, day-out work of implementing application systems—for example, systems analysts. In the following sections we will describe several senior-level IT positions:

Chief information of�icer (CIO)

Chief technology of�icer (CTO)

Chief information security of�icer (CISO)

Chief clinical informatics of�icer (CCIO), speci�ically the chief medical information of�icer (CMIO)

This is not an exhaustive list of all possible senior-level positions, but the discussion provides an overview of typical roles and functions.

The Chief Information Of�icer Many midsize and large health care organizations employ a chief information of�icer (CIO). The CIO not only manages the IT department but also is seen as the executive who can successfully lead the organization in its efforts to apply IT to advance its strategies.

The role of the CIO in health care and other industries has been the subject of research and debate over the years (Glaser & Kirby, 2009; Glaser & Williams, 2007). Studies conducted by College of Healthcare Information Management Executives (CHIME) (1998, 2008) have chronicled the evolution of the health care CIO. This evolution has involved debates on CIO reporting relationships, salaries, and titles and the role of the CIO in an organization’s strategic planning. Through extensive research, CHIME has identi�ied seven key attributes, or competencies, exhibited by high-performing CIOs (CHIME, 2008). CHIME provides intensive “boot camp” training sessions for its CIO members to aid in their professional development of these competencies.

Earlier work by Earl and Feeney (1995) found that CIOs from a wide range of industries who added value to their respective organizations had many of these same characteristics:

Obsessively and continuously emphasize business imperatives so that they focus the IT direction correctly

Have a track record of delivery that causes IT performance problems to drop off management’s agenda

Interpret for the rest of the leadership team the meaning and nature of the IT success stories of other organizations

Establish and maintain good working relationships with the members of the organization’s leadership

Establish and communicate the IT performance record.

Concentrate the IT development efforts on those areas of the organization where the most leverage is to be gained

Work with the organization’s leadership to develop a shared vision of the roles and contributions of IT

Make important general contributions to business thinking and operations

Perspective Seven Key Attributes of a High-Performing CIO

Sets vision and strategy. Collaborates well with senior leaders to set organization vision and strategy and to determine how technology can best serve the organization.

Integrates information technology for business success. Applies knowledge of the organization’s systems, structures, and functions to determine how best to advance the performance of the business with technology.

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Makes change happen. Is able to lead the organization in making the process changes necessary to fully capitalize on IT investments.

Builds technological con�idence. Helps the business assess the value of IT investments and the steps needed to achieve that value.

Partners with customers. Interacts with internal and external customers to ensure continuous customer satisfaction.

Ensures information technology talent. Creates a work environment and community that draws, develops, and retains top IT talent.

Builds networks and community. Develops and maintains professional networks with internal and external sources and effectively leverages those networks to further the effective use of IT.

Source: CHIME (2008).

Earl and Feeney (1995) also found that the value-added CIO, as a person, has integrity, is goal directed, is experienced with IT, and is a good consultant and communicator. Those organizations that have such a CIO tend to describe IT as critical to the organization, �ind that IT thinking is embedded in business thinking, note that IT initiatives are well focused, and speak highly of IT performance.

Organizational excellence in IT doesn’t just happen. It is managed and led. If the health care organization decides that the effective application of IT is a major element of its strategies and plans, it will need a very good CIO. Failure to hire and retain such talent will severely hinder the organization’s aspirations.

Whom the CIO should report to has been a topic of industry debate and an issue inside organizations as well. CIOs will often argue that they should report to the chief executive of�icer (CEO). This argument is not wrong nor is it necessarily right. The CIO does need access to the CEO and clearly should be a member of the executive committee and actively involved in strategy discussions. However, the CIO needs a boss who is a good mentor, provides appropriate political support, and is genuinely interested in the application of IT. Chief �inancial of�icers (CFOs) and chief operating of�icers (COOs) can be terri�ic in these regards. In general about one-third of all health care provider CIOs report to the CEO, one-third report to the CFO, and one-third report to the COO.

The Chief Technology Of�icer The chief technology of�icer (CTO) has several responsibilities. The CTO must guide the de�inition and implementation of the organization’s technical architecture. This role includes de�ining technology standards (for example, de�ining the operating systems and network technologies the organization will support), ensuring that the technical infrastructure is current (for example, that major vendor releases and upgrades have been applied), and ensuring that all the technologies �it. The CTO’s role in ensuring �it is similar to an architect’s role in ensuring that the materials used to construct a house come together in a way that results in the desired house.

The CTO is also responsible for tracking emerging technologies, identifying the ones that might provide value to the organization, assessing them, and when appropriate, working with the rest of the IT department and the organization to implement these technologies. For example, the CTO may be asked to investigate the possible usefulness of the Internet of Things. The CTO role is not often found in smaller organizations but is increasingly common in larger ones. In smaller organizations, the CIO also wears the CTO hat.

The Chief Information Security Of�icer As will be discussed in Chapter Nine (c09.xhtml) , the chief information security of�icer (CISO) is a relatively new position that has emerged as a result of the growing threats to information security and the health care organization’s need to comply with federal and state security regulations. The primary role and functions of the CISO are to ensure that the health care organization has an effective information security plan, appropriate technical and administrative procedures are in place to ensure that information systems are secure andsafe from tampering or misuse, and appropriate disaster recovery procedures exist.

The Chief Clinical Informatics Of�icer

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There are several roles that fall under the broad umbrella of the chief clinical informatics of�icer (AMIA Task Force Report on CCIO Knowledge, Education and Skillset Requirements, 2016). These roles include the chief nursing informatics of�icer (CNIO) and the chief pharmacy informatics of�icer. Of these roles the chief medical information of�icer (CMIO) is the most common (approximately 30 percent of CIOs employ a CMIO (AMIA Task Force Report on CCIO Knowledge, Education and Skillset Requirements, 2016) although still a relatively new position. The CMIO position emerged as a result of the growing interest in adopting clinical information systems and leveraging those systems to improve care. The CMIO is usually a physician, and this role may be �illed through a part-time commitment by a member of the organization’s medical staff.

Murphy (2011) identi�ied the skills of the CCIO (including the CMIO and CNIO):

Guide an EHR selection process

De�ine a clinical information systems governance process

Engage senior executives in an EHR culture and practice changes

Advise on implementation methodologies and the sequencing of EHR modules

Identify the value proposition and key performance indicator metrics of EHR use

Determine an EHR enhancement request system and prioritization process

Staff ongoing clinical process improvement initiatives

Educate about health technology and the interactions between people and process changes

Develop strong relationships with key stakeholders in the organization

The CIO, CTO, CISO, and CMIO all play important roles in helping to ensure that information systems acquired and implemented are consistent with the strategic goals of the health care organization, are well accepted and effectively used, and are adequately maintained and secured. Sample job descriptions for the CIO and the CMIO positions are given in Appendix B.

IT Staff Roles The IT leadership team cannot carry out the organization’s IT agenda unilaterally. The department’s work relies heavily on highly trained, quali�ied professional and technical staff members to perform a host of IT-related functions. In this section are brief descriptions of some key professionals who work in IT:

The project leader

The systems analyst

The programmer

The database administrator

The network administrator

The Project Leader The project leader manages IT projects such as the implementation of a new revenue cycle application, deployment of infrastructure in a new medical of�ice building, or determination of the need for a new system. At times project leaders are staff members from user departments, though in general they are members of the IT department. This role was discussed in more depth in Chapter Six (c06.xhtml) .

The Systems Analyst The role of the systems analyst will vary considerably depending on the analyst’s background and the needs of the organization. Some analysts have a strong computer programming background, whereas others have a business orientation or come from clinical disciplines, such as nursing, pharmacy, or the laboratory. In fact, because of the increased interest in the adoption of clinical information systems, systems analysts with clinical backgrounds in nursing, pharmacy, medical technology, and the like

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(often referred to as clinical systems analysts) are in high demand. Most systems analysts work closely with managers and end users in identifying information system needs and problems, evaluating work�low, and determining strategies for optimizing the use and effectiveness of particular systems.

When an organization decides to develop a new information system, systems analysts are often called on to determine what computer hardware and software will be needed. They prepare speci�ications, �lowcharts, and process diagrams for computer programmers to follow.

They work with programmers and vendor staff members to test new systems and system upgrades, recommend solutions, and determine whether program requirements have been met. They may also prepare cost-bene�it and return-on-investment analyses to help management decide whether implementing a proposed system will deliver the desired value.

The Programmer Programmers write, test, and maintain the programs that computers must follow to perform their functions. They also conceive, design, and test logical structures for solving problems with computers. Many technical innovations in programming—advanced computing technologies and sophisticated new languages and programming tools—have rede�ined the role of programmers and elevated much of the programming work done today.

Programmers are often grouped into two broad types—applications programmers and systems programmers. Applications programmers write programs to handle speci�ic user tasks, such as a program to track inventory within an organization. They may also revise existing packaged software or customize generic applications such as integration technologies. Systems programmers write programs to maintain and control infrastructure software, such as operating systems, networked systems, and database systems. They are able to change the sets of instructions that determine how the network, workstations, and central processing units within a system handle the various jobs they have been given and how they communicate with peripheral equipment such as other workstations, printers, and disk drives.

The Database Administrator Database administrators work with database management systems software and determine ways to organize and store data. They identify user requirements, set up computer databases, and test and coordinate modi�ications to these systems. An organization’s database administrator ensures the performance of the database systems, understands the platform on which the databases run, and adds new users to the systems. Because they may also design and implement system security, database administrators often plan and coordinate security measures. With the volume of sensitive data growing rapidly, data integrity, backup systems, and database security have become increasingly important aspects of the job for database administrators.

Perspective Analytics Department

The advent of payment reform is placing increasing pressure on providers to improve the ef�iciency and quality of clinical, operational, and �inancial performance. Moreover, the arrival of population health requires that providers de�ine their populations and manage the health and care received by that population. These pressures result in the need for a group that provides superior analytics support to the organization.

Most providers have had an analytics group for some time. Providers have used analytics to measure referral patterns, DRG performance, payer mix, and expected reimbursement and patient volumes. However, these pressures have elevated the importance of this group and often expanded their staff and the scope of their work.

This group can be a department within the IT organization but increasingly the group reports up through a non-IT function, usually the function responsible for clinical quality or �inance.

Wadsworth (2016) de�ines a proposed structure and role for a typical provider analytics group. A content and analytics team, composed of data architects and outcomes analysts, mines the data contained in an enterprise data warehouse (which is the aggregation, across the organization, of the clinical, �inancial, operational, and market data deemed most important to the organization). The team works with a senior leadership committee to identify potential areas of organizational improvement. The committee prioritizes the areas and assigned workgroups to engage in process improvement.

Workgroups are teams that identify steps that should be taken to improve clinical, operational, and �inancial performance of a particular area (e.g., pharmacy) or process (e.g., total joint replacement). This work usually de�ines a current state and outlines

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a desired future state. The core of the workgroup typically consists of a physician lead, an operations lead, and a nurse who understands the patient work�low.

Members of the workgroup typically ful�ill these functions:

Data architect: Builds a solid architecture to capture and provide data from disparate source systems into an integrated platform

Application administrator: Ensures source-system applications function to capture needed data elements

Outcomes analyst: Mines data to identify statistically valid trends and variability that may exist

Knowledge manager: Acts as a liaison between the technical and clinical teams; usually staffed by a nurse, this critical role helps the technical team understand and interpret clinical data as he or she seeks to build algorithms that mimic clinical work�low

Clinical implementation team (CIT): Consists of practicing clinicians who own a clinical process within an organization, will champion adoption of the improvements, and guide the rollout of the improvement process

Guidance team: Provides governance over all the workgroups and CITs under a clinical program—for example, a guidance team for the women and children’s clinical program may oversee three separate workgroups focusing on gynecology, pregnancy, or normal newborn; takes into account resources, organizational readiness, and political climate to determine which workgroups receive priority; reports to the senior leadership committee

Source: Wadsworth (2016).

The Network Administrator It is essential that the organization has an adequate network or network infrastructure to support all its clinical and administrative applications and also its general applications (such as e-mail, intranets, and videoconferencing). Networks come in many variations, so network administrators are needed to design, test, and evaluate systems such as local area networks (LANs), wireless networks, the Internet, intranets, and other data communications systems. Networks can range from a connection between two of�ices in the same building to globally distributed connectivity to voice mail and e-mail systems across a host of different health care organizations. Network administrators perform network modeling, analysis, and planning; they may also research related products and make hardware and software recommendations.

Staff Positions in High Demand As the technology evolves (for example, advances in analytics) and the focus of organizations shifts (for example, shifts to population health) various IT staff roles will become in high demand. The core positions will always be needed but new roles and re�inements of existing roles emerge constantly. In 2016 high-demand positions (across industries) include these functions (Florentine, 2015):

User interface designers

Web infrastructure developers

Network engineers

Security and cyber security professionals

Mobile application developers

Systems analysts

Industry knowledgeable project managers

Cloud application architects

Data scientists

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When positions are in high demand organizations may face signi�icant challenges hiring the staff members they need; salaries may be very high, availability will be limited, and organization’s will need to sell themselves to prospective recruits. A CHIME (2012) survey of CIOs found 67 percent were experiencing IT staff shortages. The positions in greatest demand were clinical information systems project managers and systems analysts.

Staff Attributes In addition to ensuring that it has the appropriate IT functions and IT roles (and that the individuals �illing these roles are competent), the health care organization must ensure that the IT staff members have certain attributes. These attributes are unlikely to arise spontaneously; they must often be managed into existence. An assessment of the IT function (as discussed further on in this chapter) can highlight problems in this area and then lead to management steps designed to improve staff member attributes.

High-performing IT staff members have several general characteristics:

They execute well. They deliver applications, infrastructure, and services that re�lect a sound understanding of organizational needs.These deliverables occur on time and on budget so that those involved in a project give the project team high marks for professional comportment.

They are good consultants. They advise organizational members on the best approach to the application of IT given the problem or opportunity. They advise when IT may be inappropriate or the least important component of the solution. This advice ranges from help desk support to systems analyses to new technology recommendations to advice on the suitability of IT for furthering an aspect of organizational strategy.

They provide world-class support. Information systems require daily care and feeding and problem identi�ication and correction. This support needs to be exceptionally ef�icient and effective.

They stay current in their �ield of expertise. They keep up to date on new techniques and technologies that may improve the ability of the organization to apply IT effectively.

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8.2 Organizing IT Staff Members and Services Now that we have introduced the various roles and functions found in the health care IT arena, we will examine how these roles and functions can be organized. Essentially, three factors in�luence the structure of the IT department:

Degree of IT centralization or decentralization

Core IT competencies

Departmental attributes

Degree of IT Centralization or Decentralization A critical factor in determining the structure for the IT department is the degree of centralization of organizational decision making. A health care organization might be a highly structured hierarchy in which decisions are made by a few senior leaders. Conversely, an organization might delegate authority to make many decisions to the department level or to the hospital level in an integrated delivery system, resulting in decentralized decision making. Referring to Figure 8.1 (�ig-0001) , in a highly centralized organization, division CIOs may not be necessary because virtually all decisions are made at the enterprise level. Conversely, in a highly decentralized organization, thecentral role of corporate director, clinical systems shown in Figure 8.1 (�ig-0001) may not be necessary because all EHR decisions are made at the local level.

The following describes some of the advantages to centralizing IT services (Oz, 2006):

Enforcement of hardware and software standards. In a centralized structure, the organization typically develops software and hardware standards, which can lead to cost savings, facilitate the exchange of data among systems, make installations easier, and promote sharing of applications.

Ef�icient administration of resources. Centralizing the administration of contracts and licenses and inventories of hardware and software can lead to greater ef�iciency.

Better staf�ing. Because it results in a pool of IT staff members from which to choose, the centralized approach may be able to identify and assign the most appropriate individuals to a particular project.

Easier training. In a centralized department, staff members can specialize in certain areas (hardware, software, networks) and do not need to be jacks of all trades.

Effective planning of shared systems. A centralized IT services unit typically sees the big picture and can facilitate the deployment of systems that are to be used by all units of a health care system or across organizational boundaries.

Easier strategic IT planning. A strategic IT plan should be well aligned with the overall strategic plan of the organization. This alignment may be easier when IT management is centralized.

Tighter control by senior management. A centralized approach to managing IT services permits senior management to maintain tighter control of the IT budget and resources.

The following describes some of the advantages to a decentralized structure (Oz, 2006):

Better �it of IT to business needs. The individual IT units are familiar with their business unit’s or department’s needs and can develop or select systems that �it those needs more closely.

Quick response time. The individual IT units are typically better equipped to respond promptly to requests or can arrange IT projects to �it the priorities of their business unit or department.

Encouragement of end user development of applications. In a decentralized IT services structure, end users are often encouraged to develop their own small applications to increase productivity.

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Innovative use of information systems. Given that IT staff members are closer in proximity to users and know their needs, the decentralized structure may have a better chance of implementing innovative systems.

Most IT services in a health care organization are not fully centralized or decentralized but a combination of the two. For example, training and support for applications may be decentralized, with other IT functions such as application development, network support, and database management being managed centrally. The size, complexity, and culture of the health care organization might also determine the degree to which IT services should be managed centrally.

For example, in an ambulatory care clinic with three sites that are fairly autonomous, it may be appropriate to divide IT services into three functional units, each dedicated to a speci�ic clinic. In a larger, more complex organization, such as an integrated delivery network (with multiple hospitals, outpatient clinics, and physician practices), it may be appropriate to form a centralized IT services unit that is responsible for speci�ic IT areas such as systems planning and integration, network administration, and telecommunications, with all other functions being managed at the individual facility level.

There is no right level of centralization. Centralized organizations can be as effective as decentralized organizations. Ideally, the management and structure of IT will parallel that of the executive team’s management philosophy; centralized management tends to want centralized control over IT, whereas decentralized management is more likely to be comfortable with IT that can be locally responsive.

Core IT Competencies Organizations should identify a small number of areas that constitute core IT capabilities and competencies. These are areas where getting an A+ from the “customers” matters. For example, an organization focused on transforming its care processes would want to ensure A+ competency in this area and would perhaps settle for B− competency in its supply chain operations. An organization dedicated to being very ef�icient would want A+ competency in areas such as supplier management and productivity improvement and would perhaps settle for a B− in delivering superb customer service.

This de�inition of core competencies has a bearing on the form of the IT organization. If A+ competency is desired in care transformation, the IT department should be organized into functions that specialize in supporting care transformation—for example, a clinical information systems implementation group and a care reengineering group.

Partners HealthCare, for example, de�ined three areas of core capabilities: base support and services, care improvement, and technical infrastructure.

Base Support and Services The category of core capabilities at Partners HealthCare included two subcategories:

Frontline support: for example, mobile device problem resolution

Project management skills

The choice of these areas of emphasis resulted in many management actions and steps—for example, the selection of criteria to be used during annual performance reviews. The emphasis on frontline support also led to the creation of an IT function responsible for all frontline support activities, including the help desk, workstation deployments, training, and user account management. The emphasis on project management led to the creation of a project management of�ice to assist in monitoring the status of all projects and a project center of excellence to offer training on project management and established project management standards.

Care Improvement Central to the Partners agenda was the application of IT to improve the process of care. One consequence was to establish, as a core IT capability, the set of skills and people necessary to innovatively apply IT to medical care improvement. An applied medical informatics function was established to oversee a research and development agenda. Staff members skilled in clinical information systems application development were hired. A group of experienced clinical information system implementers was established.

An IT unit of health services researchers was formed to analyze de�iciencies in care processes, identify IT solutions that would reduce or eliminate these de�iciencies, and assess the impact of clinical information systems on care improvement. Organizational units possessing unique technical andclinical knowledge in radiology imaging systems and telemedicine were also created.

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Technical Infrastructure Because Partners HealthCare recognized the critical role of a well-conceived, well-executed, and well-supported technical architecture, infrastructure architecture and design continued to serve as a core competency. A technology strategy function was created, and the role of chief technology of�icer was created. Signi�icant attention was paid to ensuring that extremely talented architectural and engineering staff members were hired along with staff members with terri�ic support skills.

Departmental Attributes IT departments, similar to people, have characteristics or attributes. They may be agile or ossi�ied. They may be risk tolerant or risk averse. These characteristics can be stated, and strategies to achieve desired characteristics can be de�ined and implemented. To illustrate, this section will discuss brie�ly two characteristics—agility and innovativeness—and discuss how they might affect the organization of IT functions. These two characteristics are representative and are generally viewed as desirable.

There are many steps that an organization can take to increase its overall agility and also that of the IT department (Glaser, 2008a). For example, it is likely to try to chunk its initiatives so that there are multiple points at which a project can be reasonably stopped and yet still deliver value. Thus, the rollout of an EHR might call for implementation at ten clinics per year but could be stopped temporarily at four clinics and still deliver value to those four. Chunking allows an organization and its departments to quickly shift emphasis from one project to another.

An agile IT department will have the ability to form and disband teams quickly (perhaps every three months) as staff members move from project to project. This requires that organizational structures and reporting relationships be �lexible so staff members can move rapidly between projects. It also means that during a project, the project manager is (temporarily anyway) the boss of the project team members. The team members might report to someone else according to the organizational chart, but their real boss at this time is the project manager. Because team members might move rapidly from project to project, they might have several bosses during the course of a year. And a person might be the boss on one project and the subordinate on another project. (Many consulting �irms operate with this model.) Agileorganizations and departments are organized less around functions and more around projects. The IT structure must accommodate continuous project team formation, and project managers must have signi�icant authority.

An organization or department that wants to be innovative might take steps such as implementing reward systems that encourage new ideas and successful implementation of innovative applications and also punishment systems that are loath to discipline those involved in experiments that failed (Glaser, 2008b). The innovative IT department might create dedicated research and development groups. It might form teams composed of IT and vendor staff members in an effort to cross-fertilize each group with the ideas of the other. It might also permit staff members to take sabbaticals or accept internships with other departments in the organization in an effort to expand IT members’ awareness of organizational operations, cultures, and issues.

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8.3 In-House Versus Outsourced IT For many years, health care organizations have generally provided IT services in-house. By in-house we mean that the organization hired its own IT staff members and formed its own IT department. In recent years, however, health care organizations have shown a growing interest in outsourcing part or all of their IT services. Outsourced IT means that an organization asks a third party to provide the IT staff members and be responsible for the management of IT.

The reasons for outsourcing IT functions are varied. Some health care organizations may simply not have staff members with the skills, time, or resources needed to take on new IT projects or provide suf�icient IT service. Others may choose to outsource certain IT functions, such as help desk services or website development, so that internal IT staff members can focus their time on implementing or supporting applications central to the organization’s strategic goals.

Outsourcing IT may enable organizations to better control costs. Because a contract is typically established for a de�ined scope of work to be done over a speci�ic period of time, the IT function becomes a line item that can be more effectively budgeted over time. This does not mean, however, that outsourcing IT services is necessarily more cost-effective than providing IT services in- house.

At times, new organizational leadership �inds an IT function that is in disastrous condition. After years of mismanagement, applications may function poorly, the infrastructure may be unstable, and the IT staff members may be demoralized. An outsourcing company may be brought in as a form of rescue mission.

A number of factors come into play and should be considered when evaluating whether outsourcing part or all of IT services is in the best interest of the organization. The following questions should be asked:

Does our organization have IT staff members with the knowledge and skills needed to provide necessary services? Effectively manage projects? Adequately support current applications and infrastructure?

How easy or dif�icult is it to recruit and retain quali�ied IT staff members?

What are our organization’s major IT priorities? How equipped is our organization to address these priorities? Do we have the right mix of skills, time, and resources?

What bene�its might be realized from outsourcing this IT function? What are the risks? Do the bene�its outweigh the risks?

What parts, if any, of the IT department does it make the most sense to outsource?

If we opt to outsource IT services, with whom do we want to do business? How will we monitor and evaluate IT performance and service? What provisions will we make in the contract with the outsourcing company to ensure timeliness and quality of service? How will the terms of the contract be monitored?

It is important to evaluate the cost and effectiveness of the IT function and services, whether they are performed by in-house staff members or outsourced. There are pros and cons to each approach, and the organization must make its decision based on its strategy goals and priorities. There is no silver bullet or one solution for all.

Related to decisions to outsource all or a portion of the organization’s IT staff are decisions to have a third-party supplier run the organization’s applications in the third party’s data center. Cloud computing growth has been explosive recently. Gartner (2013) estimates that by the time this book is published the majority of business computing will involve a cloud. The cloud approach can be full (all of an organization’s applications are run on a third-party cloud) or hybrid (the third party runs some applications and the organization runs the remaining applications in its data centers).

Cloud computing can be less expensive, easier to scale, and more able to adopt newer technologies. Keeping some applications internally enables the organization to maintain control over sensitive or critical applications and data.

Perspective Future Demands on the IT Function

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Broaden the knowledge base. For the IT staff members steeped in inpatient care, knowledge of hospital operations must expand to include knowledge of the operations and needs of long-term care facilities, patient support communities, and small physician practices. Understanding of the intricacies of fee-for-service must expand to include payments based on bundles and capitation.

Skills in managing complex implementations will still be necessary, but those skills must broaden to include redesigning processes that traverse care settings, turning clinical decision-support logic to achieve chronic care outcomes, and assisting clinicians and managers in developing the analytics capabilities necessitated by new payment arrangements.

Address IT innovation and management. The IT staff members must grapple with IT innovation that continues at a remarkable pace. Social media use continues to grow and become more sophisticated and capable. Mobile personal devices have become the device of choice for personal and professional activities. Big data has exceptional potential, although it is cloaked in a dense fog of hype.

In addition, the organization’s dependence on IT for it to function heightens the importance of a well-managed and secure IT infrastructure and application base.

A shift in strategic emphasis. With the EHR core in place (courtesy of Meaningful Use), the IT function must shift from focusing on the large-scale implementation of EHRs to extending that investment to support care management, enabling the management of a population’s health, introducing extensive evidence-based decision support, developing superior analytics capabilities, creating and redesigning processes, and improving the ef�iciency of clinical and administrative processes.

Step up leadership skills. Leadership skills and attributes include emotional intelligence, communication skills, integrity, business understanding, and the ability to hire, grow, and manage a world-class team. As the pressures on operations and clinical practice increase, there will be a growing premium placed on having superlative leadership skills.

Source: Glaser (2016).

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8.4 Evaluating IT Effectiveness Whether IT services are provided by in-house staff or are outsourced, it is important to evaluate IT performance. Is the function ef�icient? Does it deliver good service? Is it on top of new developments in its �ield? Does the function have a strong management team?

At times, health care executives become worried about the performance of an IT function. Other organizations have IT functions that seem to accomplish more or spend less. Management and physicians frequently express dissatisfaction with IT: nothing is getting done, it costs too much, or it takes too long to get a new application implemented. Many factors may result in user dissatisfaction: poor expectation setting, unclear priorities, limited funding, or inadequate IT leadership. An assessment of IT services can help management understand the nature of the problems and identify opportunities for improvement.

One desirable approach to assessing IT services is to use outside consultants. Consultants can bring a level of objectivity to the assessment process that is dif�icult to achieve internally. They can also share their experiences, having worked with a variety of different health care organizations and having observed different ways of handling some of the same issues or problems.

Whether the assessment is done by internal staff members or by consultants, several key areas should be addressed:


Budget development and resource allocation

System acquisition

System implementation

IT service levels

Governance How effective is the governance structure? To what degree are IT strategies well aligned with the organization’s overall strategic goals? Is the CIO actively involved in strategy discussions? Does senior leadership discuss IT agenda items on a regular basis? We will discuss governance in Chapter Thirteen (c13.xhtml) .

Budget Development and Resource Allocation The IT budget is often compared to the IT budgets of comparable health care organizations. The question behind a budget benchmark is, Are we spendingtoo much or too little on IT? Budget benchmarks are expressed in terms of the IT operating budget as a percentage of the overall organization’s operating budget and the IT capital budget as a percentage of the organization’s total capital budget.

These budget benchmarks are useful and in some sense required because most boards of directors expect to see them. Management has to be careful in interpreting the results, however. These percentages do not necessarily re�lect the quality of IT services or the extent and size of the organization’s application base or infrastructure. Hence, one can �ind a poorly performing IT group that has implemented little having the same percentage of the organization’s budgetary resources as a world-class IT group that has implemented a stunning array of applications.

Spending a high percentage of the operating budget does not per se mean that the organization is spending too much and should reduce its IT budget. The organization may have decided to ramp up its IT investments in order to achieve certain strategic objectives. A low percentage—for example, 1 percent—does not necessarily mean that underinvestment is occurring and the IT budget should be signi�icantly increased. The organization may be very ef�icient, or it may have decided that given its strategies its investments should be made elsewhere.

We will discuss the IT budget and resource allocation in Chapter Thirteen (c13.xhtml) .

System Acquisition

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How effective are system acquisitions? How long did they take? What process was used to select the systems? We discussed system acquisition in Chapter Five (c05.xhtml) .

System Implementation Are new applications delivered on time, within budget, and according to speci�ication? Do the participants in the implementation speak fondly of the professionalism of the IT staff members or do they view IT staff members as forms of demonic creatures? We discussed system implementation in Chapter Six (c06.xhtml) .

IT Service Levels IT staff members deliver service every day—for example, they manage system performance, respond to help desk calls, and manage projects. The quality of these services can be measured. An assessment of the IT function invariablyreviews these measures and the management processes in place to monitor and improve IT services. IT users in the organization are interested in measures such as these:

Infrastructure. Are the information systems reliable, that is, do they rarely “go down”? Are response times fast?

Day-to-day support. Does the help desk quickly, patiently, and effectively resolve my problems? If I ask for a new workstation, does it arrive in a reasonable period of time?

Consultation. Are the IT folks good at helping me think through my IT needs? Are they realistic in helping me to understand what the technology will and will not do?

An organization faces a challenge in de�ining what level of IT service it would like and also how much it is willing to pay for IT services. All of us would love to have systems analysts with world-class consulting skills, but we may not be able to afford their salaries. Similarly, all of us would love to have systems that never go down and are as fast as greased lightning, but we might not be willing to pay the cost of engineering very, very high reliability and blazing speed. The IT service conversation attempts to establish formal and measurable levels of service and the cost of providing that service. The organization seeks an informed conversation about the desirability and the cost of improving the service or the possibility of degrading the service in an effort to reduce costs.

In general, it can be very dif�icult to measure quality and consequences of consultative services. This makes it dif�icult to understand whether it is worth investing to improve the service other than at the service extremes. For example, it can be clear that you need to �ire a very ineffective systems analyst and that you need to treat your all-star analyst very well. But it may not be clear whether paying $10,000 extra for an IT staff member is worth it or not.

Formal, measurable service levels can be established for many infrastructure attributes and day-to-day support. Moreover, industry benchmarks exist for these measures. Common infrastructure metrics are as follows:

Reliability: for example, the percentage of time that systems have unscheduled downtime

Response time: for example, how quickly an application moves from one screen to the next

Resiliency: for example, how quickly a system can recover after it goes down

Software bugs: for example, the number of bugs detected in an application per line of program code or hour of use

Perspective Assessing the IT Function

Glaser (2006) proposes a series of questions that can be used to assess the IT function. These questions cover the areas of infrastructure and application performance, execution, and strategic alignment.

Infrastructure and Application Performance

External and internal auditors’ reports on IT controls and management. Do these reports note material problems with signi�icant downtime, failure to perform adequate management of the data center, and adequacy of security controls?

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IT infrastructure management processes. Does IT track downtime and what steps have been taken to reduce it? Are they current with vendor releases? How does IT manage virus protection? When the infrastructure has problems, what are the procedures for responding?


Achieving desired application outcomes. Picking three recent implementations, what were the objectives? To what degree were the objectives achieved? If the organization fell short in achieving objectives, why did this happen?

User engagement. Do implemented systems improve the operation of key departments? Was the training good? Were the IT group and the vendor responsive to issues and problems?

Managing the implementation. Were clear project charters developed? Are sound project management techniques used? Do most projects get done on time and on budget?

Frontline support. Does the IT organization measure its service? Has the IT organization established service goals? Was the organization’s management involved in setting those goals?

Departmental IT liaisons. Who are the IT liaisons to major user departments? Do they do a good job? Do the liaisons keep the department up-to-date on IT plans? Are liaisons considered to be members of the department’s team?

Alignment of the IT Agenda with the Organization’s Agenda

IT linkage to organizational strategy. Can the major elements of the organization’s strategy be mapped to the IT initiatives needed to support the strategic plan? Is there a regular senior leadership discussion of the IT agenda, and does the leadership take responsibility for making decisions about which IT initiatives to fund?

Governance. What processes and committees are used to set priorities? Is the process for setting the IT budget well understood, ef�icient, suf�iciently rigorous, and perceived as fair? Is there a well-accepted approach for acquiring new applications?

Source: Glaser (2006).

Common day-to-day support metrics are as follows:

The percentage of help desk calls that are resolved within twenty-four hours

The percentage of help desk calls that are not resolved after �ive days

The percentage of help desk calls that are repeat calls, that is, the problem was not resolved the �irst time

The time that elapses between ordering a workstation and its installation

It is important that the management team de�ine the desired level of IT service. For example, is the goal to achieve an uptime of 99.99 percent, or does the organization want to have 90 percent of help desk calls closed within twenty-four hours? If the service levels are deemed to be inadequate, a discussion can be held with IT managers to identify the costs of achieving a higher level of service. Additional staff members may be needed at the help desk, or the organization may need to develop a redundant network to improve resiliency. Conversely, if the organization needs to reduce IT costs, the management team may need to examine the service consequences of reducing the number of help desk staff members.

The assessment of the IT function requires examining areas that range from strategy development to service levels. And the assessment can use a variety of data collection techniques. Appendix B contains a sample survey used by an IT services department to assess user satisfaction.

Perspective Managing Core IT Processes

Agarwal and Sambamurthy (2002) have identi�ied eight core IT processes that must be managed well for an IT department to be effective:

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Human capital management involves the development of IT staff skills and the attraction and retention of IT talent.

Platform management is a series of activities that designs the IT architecture and constructs and manages the resulting infrastructure.

Relationship management centers on developing and maintaining relationships between the IT function and the rest of the organization and on partnerships with IT vendors.

Strategic planning links the IT agenda and plans to the organization’s strategy and plans.

Financial management encompasses a wide range of management processes—developing the IT budget, de�ining the business case for IT investments, and benchmarking IT costs.

Value innovation involves identifying new ways for IT to improve business operations and ensuring that IT investments deliver value.

Solutions delivery includes the selection, development, and implementation of applications and infrastructure.

Services provisioning centers on the day-to-day support of applications and infrastructure—for example, the help desk, workstation deployments, and user training.

Source: Agarwal and Sambamurthy (2002).

Answers to these questions provide an indication, clearly rough, of how well the IT function is being run and, to a degree, of whether the aggregate IT investment is providing value. All these questions come from commonsense management beliefs about what is involved in running an organization well and tests of IT domain knowledge.

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Summary It is critical that health care organizations have access to appropriate IT staff members and resources to support their health care information systems and system users. IT staff members perform several common functions and have several common roles. In large organizations, the IT department often has a management team comprising the chief information of�icer, chief technology of�icer, chief information security of�icer, and chief medical information of�icer, who provide leadership to ensure that the organization ful�ills its IT strategies and goals. Having a CIO with strong leadership skills, vision, and experience is critical to the organization achieving its strategic IT goals. Working with the CIO and IT management team, one will often �ind a team of professional and technical staff members including systems analysts, computer programmers, network administrators, database administrators, web designers, and support personnel. Each brings a unique set of knowledge and skills to support the IT operations of the health care organization.

The organizational structure of the IT department is in�luenced by several factors: level of centralization, core IT competencies, and desired attributes of the IT department.

IT services may be provided by in-house staff members or outsourced to an outside vendor or company. Many factors come into play in deciding if and when to outsource all or part of the IT services. Availability of staff members, time constraints, �inancial resources, and the executive management team’s view of IT may determine the appropriateness of outsourcing.

Whether IT services are provided in-house or outsourced, it is important for the management team to assess the ef�iciency and effectiveness of IT services. The governance structure, how the IT resources are allocated, the track record of system acquisitions and system implementations, and user satisfaction with current IT service levels are some of the key elements that should be examined in any assessment. Consultants may be employed to conduct the assessment and offer the organization an outsider’s objective view.

Key Terms

Application management Chief information of�icer (CIO)

Chief information security of�icer (CISO) Chief medical information of�icer (CMIO)

Chief technology of�icer (CTO) Database administrators

Governance IT centralization and decentralization

Network administrators Operations and technical support

Outsourced IT Programmers

Systems analyst

Learning Activities Visit an IT department in a health care facility in your community and interview the CIO or department director. Examine the IT department’s organizational structure. What functions or services does the IT department provide? How centralized are IT services within the organization? Does the organization employ a CMIO, CISO, or CTO? If so, what are each person’s job quali�ications and responsibilities?

Find an article in the literature that outlines either the advantages or disadvantages or both of outsourcing IT. Discuss the �indings with your classmates. What have others learned about outsourcing that may be important to your organization?

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Plan and organize a panel discussion with CIOs from local health care facilities. Find out what some of their greatest challenges are and what a typical day is like for them. To what degree are their organizations facing workforce shortages? In what areas, if any? What strategies do they employ to recruit and retain top-notch staff members?

Investigate any one of the following roles and interview someone working in this type of position. Find out the individual’s roles, responsibilities, quali�ications, background, experience, and challenges.

Chief medical information of�icer

Chief information security of�icer

Chief technology of�icer

Clinical systems analyst

Mobile application developer

References Agarwal, R., & Sambamurthy, V. (2002). Organizing the IT function for business innovation leadership. Chicago, IL: Society for Information Management.

AMIA Task Force Report on CCIO Knowledge, Education and Skillset Requirements (2016). The chief clinical informatics of�icer (CCIO). Washington, DC: American Medical Informatics Association.

College of Healthcare Information Management Executives (CHIME). (1998). The healthcare CIO: A decade of growth. Ann Arbor, MI: Author.

College of Healthcare Information Management Executives (CHIME). (2008). The seven CIO success factors. Retrieved April 2008 from (http://www.cio-

College of Healthcare Information Management Executives (CHIME). (2012). Demand persists for experienced health IT staff. Retrieved in April 2016 from hhn/pdfs/resources/CHIME_Workforce-_survey_report-2012.pdf ( hhn/pdfs/resources/CHIME_Workforce-_survey_report-2012.pdf)

Earl, M., & Feeney, D. (1995). Is your CIO adding value? McKinsey Quarterly, 2, 144–161.

Florentine, S. (2015). 10 hot IT skills for 2016. Retrieved April 2016 from�ing/10-hot-it-job-skills-for-2016.html#slide1 (�ing/10-hot-it-job-skills-for-2016.html#slide1)

Gartner. (2013). Gartner says cloud computing will become the bulk of new IT spend by 2016. Retrieved April 2016 from (

Glaser, J. (2006, Jan.). Assessing the IT function in less than one day. Healthcare Financial Management, pp. 104–108.

Glaser, J. (2008a, April). Creating IT agility. Healthcare Financial Management, pp. 36–39.

Glaser, J. (2008b, Feb. 6). The four cornerstones of innovation. Most Wired Online.

Glaser, J. (2016, Feb. 8). The evolution of the health care chief information of�icer. H&HN Daily.

Glaser, J., & Kirby, J. (2009). Evolution of the healthcare CIO. Healthcare Financial Management, 63(11), 38–41.

Glaser, J., & Williams, R. (2007). The de�initive evolution of the role of the CIO. Journal of Healthcare Information Management, 21(1), 9–11.

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Murphy, J. (2011). The nursing informatics workforce: Who are they and what do they do? Nursing Economics, 42(11), 20–23.

Oz, E. (2006). Management information systems: Instructor edition (4th ed.). Boston, MA: Course Technology.

Wadsworth, J. (2016). The best organizational structure for healthcare analytics. Health Catalyst. Retrieved May 31, 2016, from (

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Part Three Laws, Regulations, and Standards That Affect Health Care Information Systems

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