REVENUE: $1.46 billion
CIO: Nicholas J. Valadja
BUSINESS COLLEAGUE: David M. Zimba, vice president, corporate contracting
WORKING TOGETHER Six years
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.
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."
How did the process work?
Valadja: One of IT's major initiatives is to put in brand-new clinical information systems in at least four of the hospitals. The philosophy is access to clinical information wherever you are. So I'm looking at portable devices, at COW -- computers on wheels. Then the TV conversation came up. David looks into the market and says, "Well, even if we just went with the TV, there are other vendors that allow you to do more with the television than just watch soap operas."
Zimba: Nick likes the application. So then we identify more sources to hopefully create more competitive friction, ultimately to solve an end user's need to fix a snowy TV.
How would you describe each other's negotiating style?
Valadja: The biggest thing David brings to the table is that he doesn't zero in on just what the user wants. He works hard to find out what it is in the marketplace that can help the user and perhaps take the user to the next level in terms of helping the patient. So his ability to look outside the box, and especially stay in touch with what is going on in the marketplace in the technology world, is a good asset. That's why we work well together. We both like to do that.
Zimba: The piece that Nick brings to it is an expert sense of the details, a deep understanding of the requirements and the interrelatedness of technologies to other technologies. In addition, he has an understanding of some of the unique aspects of working with certain manufacturers or vendors and critical things we need to include in a contract that I otherwise wouldn't know. I understand how to create the strategy. He helps me make sure that we are closing all the loopholes and crossing all our t's and dotting all our i's.
Do your end users always happily conform to your suggestions?
Zimba: Not always. Take a user group that wants to buy a scheduling system. Sometimes you get into it, and all of a sudden you're working with a group that's already gone far down the line, talked to all the vendors on their own, and they've got to have only this one! Then they come to me and say, "Negotiate the deal."
Well, I'm basically done. I'm cooked. The vendor knows they have an end user that's really bought into them. And now I have to spend a lot of time loosening [that bond]. Sometimes I'm successful, and the times I'm not, I know we're going to pay a premium for that.
How about between the two of you? Are there occasions when you are working at cross-purposes?
Zimba: We had an example with the MMIS [materials management information system] that we are changing. My division was stretching the old system, using it in ways that nobody had ever used it before. We put a lot of pressure on the application from a capacity perspective.
Valadja: It was outdated technology.
Zimba: Most health care supply chains run with about 30,000 to 40,000 items in their catalog. We run a catalog with about 130,000 items, because that is what the catalog really is. If I only have 30,000 items in the catalog, [our end users] are going to find the other 100,000 items that aren't in there and put them in on paper and send it down. Well, we started having some performance issues with the system.
Valadja: Big time.
Zimba: We had IT finger-pointing in a certain way. We had my staff finger-pointing in one way. And we had the vendors pointing in another way. What Nick and I had to do was move above all the finger-pointing and figure out what the problem is, because we have a group of end users who are being adversely affected by the poor performance of our system.
How did you resolve this?
Valadja: David and I had the chat first. We said, "These are the issues we have to put on the table with the whole group and work through them." And that's what we did. Both of us at times got a little animated. [Laughs.]
Are you two recognized within the organization as being critical to the turnaround?
Zimba: We get our recognition. We're not out there self-promoting. Where I take the most pride is being a part of this thing we've created. Fate was with me. When I left Arthur Andersen, it was still a very successful company and I was on a successful track. But I joined this place because of the challenge. To be a part of overcoming this tremendous hurdle is very self-rewarding.
Valadja: And I stayed because of the challenge. With the two-hospital system, I had done a lot of things and been there a number of years. It was kind of getting routine, and routine doesn't work for me. This just gets the juices flowing. There are days when it could be less challenging. But to hear our CEO talk about the $140-million turnaround and be able to sit there and think I played a part in that, it's cool.