Digital technologies offer a wealth of opportunities for healthcare leaders to create value. With their growing significance, CFOs in healthcare need to embrace a corporate policy that drives digital transformation within their organisations, in order to ensure sustainable growth
Imagine yourself visiting a digitally transformed hospital. At its very entrance you see, a huge screen that guides patients on important information about admission process, OPD services, various healthcare services offered by them, as well as a map of all health clinics, diagnostics and pharmacy centres. The hospital also has a well organised digital patient application and response service system that helps patients to fasten their admission process. You move further to see various clinical departments, diagnostics centres which are up to date with the latest advanced technologies; every single system is digitally driven and backed by AI. Further, you see a comprehensive EHR system that tracks and analyses patient data to provide significant clinical information, You also see a dynamic hospital information system that tracks each and every clinical and non-clinical function within the hospital. Moreover, this hospital is extremely steadfast in customer services, inventory systems, pharmacy activities and more. But the most interesting aspect of this hospital is its financial management and response service system.
Let’s enter the CFOs office in this hospital!
Take a pause and quickly glance through his desk — clean and paperless. Aahaa, here is his super computer which is constantly fed with information on the current cash flow, operations, inventory updates, payment systems and the scale and pace of all internal and external dynamics that contribute to the hospital’s balance sheet. The system is smart enough to also give a heads up on critical areas and possible crisis that can impact profitability, ensuring that the CFO can take immediate action to mitigate the problem in time and save the organisation from a huge loss.
Do you think, that this kind of a digitally hightech hospital system in India is too arty to believe?
Many digitally savvy healthcare executives are already aligning their people, processes, and culture to achieve their organisations’ long-term digital success and having such systems within hospitals will soon be a reality.
In the present time, technology is no more a luxury or a ‘nice to have’ capital expenditure for a healthcare organisation. Understanding where technology can be leveraged and where it can’t – is critical for modern healthcare leadership and an intelligent financial decision. As experts say, return on Investment (ROI) and Value of Investment (VOI) are the two key factors that decides the future of digital transformation within an organisation. Therefore, CFOs and financial leaders within hospitals and various healthcare businesses become significant agents who can influence this transformation.
So what does this mean for CFOs in this space, whose role has traditionally been measured in terms of controllership and compliance?
These two traditional metrics are no longer defining the qualities of effective financial leaders today. The most critical skills for successful financial leaders in this space are beyond finance management and are moving towards general management and creative strategy for digital success.
Let’s find out how CFOs in healthcare are aligning with today’s digital landscape and how their creative strategies will lead their respective organisations through their digital transformation journeys.
CFOs as change agents
Most financial leaders in healthcare believe that true success of their organisation lies in achieving a significant and sustainable market share while ensuring customer satisfaction and loyalty. Other metrics include improved top and bottom line growth, improved EBITDA as well as horizontal and vertical growth of business segments. Interestingly, they feel all of these can be achieved by bringing in a digital transformation within their organisations.
“Digital is the new oil for fueling organisational objectives and growth. Digital has been identified clearly as one of our levers for growth going ahead in our strategic plan including embracing data and using digital as a medium and channel for fueling growth and reach. We have started using digital mediums to educate the masses on various diseases, prevention and early detection of diseases, through various digital mediums like You Tube videos, live Facebook chats with our doctors etc. We have invested heavily into a sophisticated Hospital Information System (HIS) at all our facilities which will provide us information and inputs which will help drive higher credibility with our patients and people visiting our centres as we try to provide standardised offerings across our hospitals network. We have developed patient apps, feedback mechanisms which is helping us connect better with our patients and helping us improve our service offerings in real time world. We have already started to see benefits of the same in the current year,” shares Sameer Agarwal, CFO, Manipal Hospitals.
Similarly, Johar Sabuwala, CFO, HN Reliance Hospital, Mumbai says, “Digital technologies play a key role. It can help in providing better transparency and portability of patient data and reduce transaction cost. Especially, in EMR, if effectively rolled out, can help in reducing duplication, storage, retrieval and faster decision making, which at times can be a life and death situation. Lot of analytics is now being done on the fly with cost of hardware going down and the improvements in quality of user interface for quick decision making for the clinicians and business leaders. We too have invested in some cutting edge technologies and have fine-tuned our systems and processes to enhance patient and doctor experience.”
On the same line, financial advisors and financial solution providers from the healthcare sector also believe that digital technology can be a great enabler for growth from a financial strategy point of view. “We are into healthcare consultancy and to be precise, in data analytics. We majorly find most of organisations, be it a small size proprietor or national level giant, all use multiple softwares to handle their different departments i.e. operations, stores, accounts, logistics, HRMS & Payroll. I personally find that any healthcare organisation can multiply its growth if it rightly utilises digital technology. However, one should understand that implementing software is different than utilising its output. There are many useful tools available which help organisations to connect the dots and make it usable to increase their revenue or profit.”
Healthcare technology specialist, Niranjan Ramakrishnan, Vice President, Digital Lexir Resources, explains the financial gains of utilising digital technologies in an organisation business processes. He informs, “Effective utilisation of sales CRM and customer management tools directly defines the top line growth. Implementation of robotic process automation systems, control systems such as inventory systems and business intelligence platforms for data analysis directly defines the 50 per cent of EBITDA. Adoption of new technologies such as 3D printing and 3D milling, digital denture etc., moves us up in the ladder of innovative industry player. Information exchange mobile application and web portals, chatbots and AI tools keeps the customers engaged.”
Giving an example of how digital technologies can boost his business (an ambulance service company), Manish Sacheti, CFO, Ziqitza Health Care discloses, “We believe in the benefits of technologies such as Internet of Things (IOT) offer. Electronic patient care report (E-PCR) can save a lot of money in terms of printing traditional paper PCRs, as well as, eliminate the cost of storage of patient data. Cloud technology and Big Data too can reduce the cost of logistics, considerably. Ambulances are now being fitted with an on-board diagnostics system which can immediately sound off an alarm for any kind of system failure, there by avoiding accidents. Additionally, these on-board tech assistance systems can also reduce fuel costs, by optimising the driving patterns. Thus, when technology is combined with analytics, we can bring in greater efficiency in operations. This will result in cost savings for the company as managing cash flow and other operations within the organisation will become more stream-lined and productive.”
This certainly indicates that financial leaders see immense value in IT investments. The question is, how do they realise the value of this investment and make their organisations profitable?
Shifting technology from Capex to Opex
Traditionally, CFOs most often prefer to account technology investment as capital expenditures (CAPEX) over operating expenses (OPEX)because they could take advantage of amortisation and depreciation of those investments over an extended period of time. “CAPEX intensive technology and OPEX driven technology are two different preferred expenses models and it all depends on the type of business ownership. In private equity driven businesses, the valuation is the biggest factor of success of the business. As CAPEX is shown on the company’s balance sheet, it can be exchanged for an asset, be amortised and depreciated over its lifespan and adds value to the business. Hence, CAPEX intense model of technology expense is preferred as it results in better EBIDA.
In proprietorship, shareholder driven and charitable trusts etc., the OPEX model helps the organisations as business earns the OPEX expenses or pays for it as per the capacity and utilisation,” explains Ramakrishnan.
Sabuwala sharing his opinion says, “For larger organisations a capital investment makes more sense as you remain in full control and ownership of your systems and data, of course provided that you have already invested in IS security.” Further citing an example of how an investment in cloud computing and software as service (SAS) functions as OPEX, he expounds, “Cloud computing and SAS has got immense impetus with significant reduction in data communication cost. These products would be available on an OPEX model so one may avoid high initial capital commitments. This has given small to mid-sized companies an opportunity to jump on the bandwagon of deploying newer technologies. However, these products are for masses and may not be customisable to your needs.”
Mittal shares a different view. “Categorisation of expense is not driven by its need but by its period of a useful life. A big server cost is different from a PET CT programme. Accounting policies applicable in India are well defined to achieve transparency for user of financial programmes. I don’t agree that there is a need for conceptual change with technology expenses,” he believes.
Further on, Agarwal believes that some of the investment in technology is better treated as asset class while placing certain IT spending in OPEX. “Sustainability of superior performance of the organisation is driven by its investment in assets which help generate revenue and control costs. I believe, technology should be treated as asset class, which can be tracked in the balance sheet to ensure that there is a regular discussion on the benefits generated by it and is also reviewed for its obsolesce. I am also aware of the fact that more technologies would move to Cloud, some of these spends might get into OPEX which may impact the operational performance (esp EBITDA) in the short run. This will improve cash flow and the benefit of which would be realised in the long run as spends on cloud could be managed and adjusted on the basis of performance and expansion of the organisation,” he elaborates.
On the other hand, there’s a growing argument that considering technology as OPEX have distinctive advantages. “By shifting technology to an operational expense, we can easily fund our requirements. This also enables us to make multiple investments across the business, as the capital is not tied up in large upfront expenditures,” opines Sacheti.
“This model has already entered implementation stage in the life sciences space. The industry is looking for vendors to provide their services without large investments from their end. The investments are already in and it is a matter of time for the ROI to start flowing in,” informs Subhasri, Sriram, CFO, TAKE Solutions.
According to some financial experts there are some inherent challenges with capital spending on technology:
- Large amounts of cash required
- Error-prone guesswork to estimate future capacity needs for static hardware/software
- Lengthy and arduous processes to estimate budget and get it approved
- Once the technology is purchased, the company is stuck with it – despite technology advancements or changes in company growth
Moreover, technology developments are occurring faster than healthcare organisations can digest and that’s why some CFOs are slowly shifting from a reliance on CAPEX to OPEX. Some of the benefits of shifting from CAPEX to OPEX are:
- Pay only for the capacity it needs at the moment and scale as requirements change
- Ease and speed up the budgeting process because short-term spending requirements are less
- Make multiple investments across the business since capital isn’t tied up in large upfront expenditures
- Fund expenses faster through operations rather than needing to borrow money or divert money from other projects to pay for large, upfront technology costs
- Smooth out cash flows over time instead of requiring lumpy outlays
Having said that, Agarwal has rightly pointed out that as more and more organisations move towards cloud platforms, there will be a considerable amount of IT spending that will move to OPEX. All these decisions will depend heavily on each organisations IT requirements. Therefore going forward, CFOs and financial leaders will need to be agile with their corporate planning and strategies for digital transitions.
So how will success look like for CFOs?
Key to success
Experts inform that digitally influenced CFOs and financial leaders will firstly need to have the ability to maintain responsible investments, be committed to use data in real time to make intelligent decisions and break down silos within the organisation. Secondly, they will need to be abreast with the latest technologies to identify and invest in the right technology to not only generate internal efficiencies, but to improve responsiveness to consumers and have a foresight in determining how technology investments can help drive new business areas.
Here are some strategies that modern day financial leaders in healthcare are adopting to ensure successful digital transformation within their organisations.
“Strategies that are getting discussed and implemented would be around continual automation and upgradation of technology in all spheres or work. Also, upgradation of skills, enhanced training of existing staff, change in organisation structure to bring in skill sets to drive digitisation and faster adoption of new age technologies will be areas that will require some deep thinking. Moreover, CFOs will also need to look at change in process of hiring of transaction-oriented staff to include digital, analytical resources in finance and supply chain functions to bring better forecasting abilities, driving more economic decisions for long-term profitability, growth and sustainability of the organisation,” Ramakrishnan points out.
He also has a strategy to monitor this system. “The monitoring of the progress would be done through monthly / weekly review of the action plans, dashboard for execution, business driven through digital medium, adoption, training programmes and in the long run would be evaluated on the business performance based on sustainable growth and profitability,” he maintains.
Likewise, Sabuwala believes that adoption remains the key challenge for any new technology roll out. “Younger users are fast to adapt provided they see a value addition. However, they can be equally ruthless if the solution is not right. Testing and acceptance of the proposed solution with a mix of demographic of your targeted users remain the key to successful transition to newer digital technologies. Selecting an influential person from amongst the users to be an ambassador for your proposed solution also helps in absorption rate of newer technologies. Moreover, mobility, where possible, also helps in better adoption by doctors and patients as information is consumed more and more on mobiles devices and tabs,” he suggests. “Periodic reviews with the task force and user groups helps to mitigate any unforeseen eventualities. One can course correct, if required and incorporate user inputs for improvements. Change approval boards play a key role to ensure changes suggested by user groups are evaluated diligently before making the required developments,” he adds further.
Talking about the approach that Mittal would take for his company, he says, “I will first adopt the most suitable SOP, and will incorporate it in to software step by step, will design report in alignment with SOPs and deviations will be the key areas of every review. SOP has to be reviewed every six months with reference to various audit outcomes.”
“Training and help desk are two important enablers to make sure the movement to digital is voluntary and meaningful rather than forceful and authoritative,” feels Sriram.
Ramakrishnan recommends some steps for CFOs. He advises, “The primary objective of the digital transformation projects should aim in solving the pain points, saving costs, contributing towards better EBIDA and most importantly, improving the customer experience. These initiatives ensure maximum adoption of technology and digital transformation. Innovation, increased revenue, efficiency and productivity improvement and ROI etc., takes its own time and adoptions would be slow. Instead of identifying the technology and finding a use case, the digital transformation team along with CFO should find the key issues that hurts the business and customers, and find solutions through the technology. Digital road map plan is prepared after acquiring the best business insights, understand the real issues and tangible benefits. Form IT Governance Committee (with sponsors, promoters and top management as members), IT Steering Committee (with heads of various business units, functions and departments) and IT Execution Committee (end user representatives along with IT team, vendors and partners) is the next step. Put together 30 days, 90 days, 180 days., 365 days and 18 months plan are with clearly defined deliverables, user acceptance criteria and most importantly, measures to track the tangible benefits are the mandatory step in monitoring the progress.”
Sharing his recommendation for the future, Sandeep Makhijani, Watson Health Leader, IBM Asia Pacific, suggests healthcare financial leaders looking to invest in cognitive technologies to come up with a careful and appropriate strategy for their organisations to align with such technologies. “In India, the use of cognitive technology in healthcare is still in its infancy. The next decade is likely to see a surge in innovation from established organisations and entrepreneurs alike. Given the complexities, initiatives need to be managed carefully. For healthcare organisations interested in exploring cognitive capabilities, it’s important to first develop a cognitive strategy. Specific goals must be established and critical data sources must be identified, along with services and processes that can fully benefit from cognitive technologies. To build cognition into the devices and systems that matter, the underlying IT core must be open and stable. Hybrid cloud resources underpin this work, along with trusted security throughout the network,” he mentioned.
Finally, to achieve digital success, financial leaders will need to be change agents. As mentioned above, the healthcare industry is soon going to witness a surge in the utilisation of services such as fintech, cognitive technologies, IOT, blockchain and more, which will augment the functions and leadership of CFOs. In future, CIOs of healthcare organsiations can help financial leaders in understanding the right utilisation of digital technologies, facilitating them to take intelligent financial decisions. Thus, a healthy collaboration between the CIOs and CFOs to drive digital transformation will be key to secure business success.