Business Technology: The Real Impact Of The IBM-UPMC Deal

'A Man's Reach Must Exceed His Grasp':

Our cover story this week offers a compelling look at some complex and high-priority issues facing companies of all sizes across all industries: What business am I in today, and how can technology help me stay as relevant as possible to my customers and prospects? How can technology help me develop new revenue streams? How can technology help me be more nimble, opportunistic, and focused on my customers? How can I shift significant dollars away from the almost-crushing toll demanded by legacy and maintenance systems and toward innovative new products, services, and processes? And how will I create new and mutually beneficial models for strategic relationships with my top technology partners?

This week's example, by senior writer Marianne Kolbasuk McGee, comes from the tumultuous health-care industry, which represents about 15% of America's gross national product, and whose customer list includes not only every single person in this country but also a growing percentage of people outside the United States. It has long had a, well, schizophrenic nature when it comes to technology: While it has always developed and deployed a dazzling array of leading-edge medical gadgets and systems, its information technology has in most cases been abysmal: outdated, ineffective, inflexible, and all too often nonexistent. So this particular example is rich with potential for all of you who are charged with some or all of the business challenges outlined above: How do I get my company to be able to move faster? How do I increase customer intimacy? How do use IT to capture not only transactional data but also customer-oriented knowledge and insight? How do I use IT not just to improve what I've built in the past, but rather to create what customers will want tomorrow?

Many of those issues were addressed--or at least deeply considered--in last week's eye-opening megadeal between the University of Pittsburgh Medical Center and IBM. From the blunt-force rip-and-replace storage overhaul that will consolidate 40 systems down to two to the agreement to invest $200 million to jointly develop entirely new IT products and services addressing critical issues in health care to the decision to collaborate on building entirely new ways for UPMC to manage and develop software, the partnership gives UPMC an unprecedented opportunity to create a new health-care model for the 21st century. It is indeed, as UPMC CIO Dan Drawbaugh said, "a landmark relationship."

It's also not entirely surprising that Drawbaugh and UPMC--which runs not only hospitals but also a leading medical-research center, a health-insurance plan, a biosecurity center, and other operating units--are at the center of this industry-rattling collaboration. In the 2004 InformationWeek 500 ranking of the most-innovative business users of technology, UPMC came in at No. 5 on the strength of its leadership in such areas as being a venture-capital funder of innovative spin-offs, being aggressively involved in the national effort to deploy electronic patient records for every American by 2014, working with the Department of Defense on telemedicine and other projects, and its ongoing efforts to remake itself as consumer needs--not to mention industry regulations--evolve.

And over on the IT vendor side, it's also not surprising that IBM is involved. Its recent decisions to focus on offering its customers not only servers and software but also its deep industry knowledge and its growing body of vertical-industry business-process expertise helps give the IBM team the flexibility to structure unique initiatives such as the agreement to jointly develop new health-care-specific IT products that IBM will ultimately sell to others. Not only that, but IBM gains a high-profile showcase account--its largest ever in health care--for its storage products, servers, PCs, and "on-demand" philosophy. By demonstrating significant flexibility in putting together this unprecedented type of deal, IBM creates enormous opportunity for itself as other customers or prospects might now say, "Hey, IBM--we saw that creative deal you did with UPMC. What would you be willing to do with me to help my company plant both feet firmly in the 21st century?"

Somewhere in there lies the model for new relationships between customers and technology vendors. Shared risks and rewards might not be an entirely new concept, but generally that dynamic has been centered on existing products and services, whereas the UPMC-IBM deal encompasses not only that but also future products that will be developed jointly and sold by IBM, with profits to be shared. This deal shatters the sclerotic model wherein a vendor's monolithic "value proposition" consisted of little more than, "Here's what I have to sell--which one do you want to buy?" and the customer's concept of "shared risk" ran no deeper than, "Lower your prices or get lost."

These are tumultuous times in the world of business technology, as we re-examine all of the factors in the complex buyer-seller equation: value, partnerships, risk, reward, competitive advantage, customization, flexibility, strategic relationships, collaboration, and, always the X-factor, trust. It seems the time has come when new values have to be assigned to most or all of those factors, because the old values held by each simply don't work any more. Those old values were predicated on an equation that described a steady-state world, where the goals were predictability, stability, status quo, and an aversion to change. But in today's crazy business world dominated by high change and ruled by customer wants and needs, that buyer-seller equation requires components rich in flexibility, forward thinking, adaptability, and innovation. The factor-values that worked just fine until fairly recently are no longer valid; they don't compute.

That's why the UPMC-IBM deal is so special: It sets a new standard for how a vendor-customer relationship is defined; it demonstrates a clear priority on and a premium for innovation; it underscores that it's no longer enough merely keep doing what you've always done with incremental improvements each year; and it challenges all of us to stretch our vision and our commitment beyond the bounds of what's safe or what's comfortable or even what's known. As my dear mother wrote on a piece of paper she kept taped over the kitchen sink for all of her children to see each day, "Ah, but a man's reach must exceed his grasp, or what's a heaven for?"

Bob Evans
Editorial Director
[email protected]

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