Growth In Outsourcing: Revisiting A Joint Venture In Information Technology
Ziegler Capital Markets Group's Senior Living Report
As printed by the Ziegler Z-News Newsletter, May 5, 2006
A Ziegler Trivia Question....
Who in our sector not only serves many senior living organizations but also is instrumental in supporting IT for world relief and refugee services’ organizations across the world, many of whom were actively involved in the coordination of relief efforts for Hurricane Katrina? On a lighter note, this group has enabled the development of Lutheran Services in America’s (LSA) Trading Graces Online Auction, an alternative form of re-gifting done entirely on-line. That’s right, as highlighted on Good Morning America, they’re helping to develop a platform for sending Grandma’s rum cake across the country!
Stumped? The answer is Prelude Services, a joint venture of Presbyterian Homes Inc. and Diakon, both AZ 100 members in Pennsylvania, created in 1998 when both organizations were starting to implement the same new integrated financial and clinical systems. The joint venture, which is equally represented by key leadership personnel from both organizations, has continued to grow into an important resource for the senior living sector. “We found there are substantial needs in senior living – just to keep up with the business environment. We try to make innovative approaches and cutting edge technology available to all organizations regardless of their size. ” says Dennis Stufft, President/CEO of Prelude Services. Having grown from a desire to improve efficiency in each of their organizations, Prelude is now supporting nearly 200 software packages, providing information technology support to a variety of clients, not all health care. Prelude’s model for success is acumen on the business and technical side – in that they are not a software company, nor a management company---but have competencies and understanding in both areas. For example, Prelude Services Enterprise Reporting, a decision-making tool, was developed to help quickly manage and analyze the mountains of data stored within the organization’s data warehouse. At the stroke of a key, users can access a business scorecard which identifies revenue, budget variances, census, labor costs, and nursing care hours from their personal computer or even their PDA. As professionals have become more mobile, Prelude has integrated messaging, phone services for residents, website hosting and other tools for users. Prelude Services is filling a definite need: Prelude’s staff of 50 professionals serves over 14 organizations and are fielding 2,400 to 2,600 support calls a month while providing comprehensive training and new employee training.
The growth of Prelude Services is an example of the movement toward outsourcing in the senior living sector and beyond. In June, 2001, Prelude was initially highlighted in a Z-News report on the progress to date within the sector in outsourcing non-core competencies. This article highlighted several key initiatives and approaches in outsourcing information technology services as a beneficial way to keep senior living organizations on the cutting edge. In a September 1999 Wall Street Journal, Scott McNealy, CEO of Sun Microsystems, declared that “Saving money is not the only reason, or even the main reason, to look into outsourcing. The best thing about outsourcing is that it frees you to concentrate on your business – your core competencies.” The creation of Prelude Services allowed PHI and Diakon to concentrate on their own core competencies and made the outsourcing of information technology and services available to others.
Outsourcing as a key business strategy hasn’t disappeared from the business landscape as a recent article in the January 30, 2006 issue of Business Week, entitled “The Modular Corporation” points out. In 2005, outsourcing is a standard operating procedure for corporate America with over $90 billion spent in information technology (software development, tech support, website design, IT infrastructure), $13 billion in human resources (including payroll administration, benefits and training programs) and $ 14 billion in finance and accounting (includes accounts payable, billing, financial and tax statements).
So what does this mean for the senior living sector? The ever-increasing complexity of the senior living sector is driving providers to consider and reconsider outsourcing in a multitude of areas. Proactive organizations continue to critically evaluate their core competencies, strengths and weaknesses of their management team, and business plans to determine where outsourcing makes the most sense. Operational areas such as information technology, dietary services or property maintenance are clearly targeted as candidates for outsourcing. Clinical regulatory and human resource compliance are also being considered. In some cases, single-site providers will opt for management oversight or advisory services provided by a larger senior living system or development firm to ease the ever growing management requirements of providing services to older adults. Additionally, providers facing substantial repositioning of their campuses also see outsourcing some or all of the development process to qualified senior living developers as prudent business practice, one that allows the administration to continue to successfully operate the core business while executing on the development process. In these cases, the expertise of the management or development firm is accessed but does not become part of the overall permanent cost structure of the organization.
Will this trend continue? Do you believe that the senior living sector is someday going to be less complex? If you are among the truly optimistic, then consider outsourcing as a passing fad. If not, critically examine your organization – with an eye toward areas that might fit the outsourcing model; areas that are complex, technical, ever-changing and generally a drain on your time and energy. These are the ideal candidates for outsourcing.
Prepared by Steven J. Jeffrey, Senior Vice President, Ziegler Capital Markets Group. Posted by permission
