'Competitive Friction' Helps Health System Move to New Technology

West Penn Allegheny Health System
REVENUE: $1.46 billion
CIO: Nicholas J. Valadja
BUSINESS COLLEAGUE: David M. Zimba, vice president, corporate contracting
IT/BUSINESS CHALLENGE: To revive an ailing health system that was losing $95 million a year
UPSHOT: Eliminated nearly $75 million in costs and upgraded technology with "competitive friction"

When Nick Valadja and David Zimba started working together at West Penn Allegheny Health System in 1999, the organization might best have been described as a sick giant. A third-tier health care provider in the competitive Pittsburgh market, West Penn (then known as Western Pennsylvania Healthcare System) had taken over four near-bankrupt hospitals of a competitor twice its size. The acquired hospitals were losing $95 million a year, and industry observers were skeptical that the merged organization, with six hospitals, some 2,500 physicians and 13,000 employees, would survive. Valadja, West Penn's CIO since 1992, took over IT operations for all six hospitals; Zimba, a former consultant with Arthur Andersen who assisted in the acquisition, became the new entity's vice president of corporate contracting.

Since then, West Penn has healed itself, posting $38 million in profits last year. A central ingredient in the dramatic turnaround was the highly coordinated effort of this tough-minded pair. One of their first joint projects involved negotiating a new telecommunications contract with Global Crossing that five years later still provides the lowest rates available. Using a strategy of "competitive friction," Zimba cut $42.5 million out of the supply chain in 18 months, and Valadja pushed the health care provider into new technology. We met up at the Western Pennsylvania Hospital in Pittsburgh, where the dynamic duo talked about helping bring West Penn into the black.

You looked to the grocery business for the replenishment system and took a page from the airline industry to launch an online appointment scheduling system. How did you do this?

David Zimba: I really try to draw practices from different industries and see how they can apply. Nick and I worked together [on a larger enterprise-wide project] to identify a team of people to put together requirements, and then we created this sourcing strategy to acquire and implement the system. We first went out to acquire only a procurement system. We developed a strategic plan that allowed us to [also] acquire the general ledger system and an operating-room module, all for much less -- roughly half -- the budgeted dollars for the procurement model. That was because we created a competitive friction environment -- together.

What is competitive friction?

Nicholas Valadja: One of the biggest problems health care has had over the years is it invests tons of money in buying hardware and software but does not pay attention to the process you're attempting to improve. So you have a prettier information system that is not giving you any more value than your old one did. When we took over this organization, it was an IBM organization. At one time, they were paying $12 million a year in leases to IBM. I blew that model apart, because what I'm looking for is the best [price-to-performance ratio] that meets the needs of our business.

Zimba: Competitive friction is creating the greatest number of viable competitors for a product or service. I needed to get people to recognize that IBM may be the preferred solution, but it is not the only one. My ultimate objective is to serve the interests of the end user. So they may in fact end up buying IBM, but I want them to buy IBM at the most competitive price. We do that by defining the requirements in a way so that more vendors can participate, [which] creates more competition. I never want a participant to feel comfortable. I want them to feel as if they are at risk of not being chosen.

How often do you talk to each other?

Zimba: We probably don't talk daily. We have staff that talks to each other. We talk to each other every week.

Valadja: Sometimes it's e-mail, sometimes it's phone. Sometimes it's in person.

Zimba: It depends on the strategy we're going to deploy and how together we're going to bring that out to the organization. We are going to work soon on a project dealing with patient-interactive television.

What's that?

Zimba: Today you can get a TV that will be right at the bedside that will not just be a TV; it can provide clinical results. You can also make the TV an interactive Internet site: a portal for movies, games. So we had a group of end users who are saying, "I need a new TV, and I need it now." And we're saying, "If we're going to make an expense, let's step up the technology."

This was first published in February 2006

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