Turning IT Into a Revenue Stream

Susan Nunziata, Director of Editorial | 4/1/2014 | 17 comments

Susan Nunziata
IT has traditionally been thought of as a cost center in the enterprise, but one healthcare organization is changing that perception and, in the process, reaping substantial revenue.

The University of Pittsburgh Medical Center (UPMC) embarked on its journey to turn IT into a revenue source after doing some simple industry comparisons, according to Dan Drawbaugh, SVP and CIO of UPMC, who spoke at the InformationWeek Conference in Las Vegas on March 31.

"As a provider, 2 percent is the profit margin you make on healthcare," said Drawbaugh. "In the IT world, 46 percent is the average top tech company profit."

It was time for a transformation. "Our CEO said, 'No longer are we going to be only a healthcare company; I want us to become an IT company.' He said the IT organization must bring $100 million to the bottom line [in the first fiscal year] growing in our second fiscal year to $200 million."

Or, as Rebecca Kaul, President of the UPMC Technology Innovation Center and Drawbaugh's co-presenter on the session put it: "We aren't your mother's IT shop anymore."

By its fifth fiscal year, UPMC's IT operation is predicted to generate $300 million in revenue.

How are they doing it? One product at a time. According to Kaul, UPMC is leveraging its IT expertise and its clinical experience in a variety of ways, including:

  • Providing advisory services -- helping other healthcare organizations implement electronic medical records, analytics blue prints and program design, virtual care, and natural language processing.
  • As minority investors -– for example, the company is a minority investor in dbMotion. According to Drawbaugh: "The decision was that if we need this technology, so will others."
  • Joint venture development -– the company is involved in developing new solutions in efforts with GE Healthcare, among others.
  • UPMC companies -– the organization is creating its own companies, including Prodigo, Askesis, D3, Dialysis, and eBenefits.

According to Kaul, one of the joint venture development efforts is already bringing in $22 million annually, and it took only 18 months to sign 20 commercial contracts.

So, how does a CIO transform from running a cost-center to running a revenue-generating line of business?

Drawbaugh said he had to learn about development ventures and JVs, not usually the domain of the typical CIO. However, he said the biggest challenge/opportunity in healthcare came in realizing that the typical way of looking at healthcare vendors was skewed. Drawbaugh says the previous assumption was that the traditional vendors providing the products were bringing 80 percent of the value, while UPMC was bringing 20 percent with the clinical domain knowledge piece.

"We realized it's the opposite: Clinical domain knowledge and understanding the workflow of healthcare is really 80 percent of the value. Being committed to the project and then aligning the clinicians to work full time on that initiative has been truly the differentiator. Learning how to do that and how to structure it and how to align incentives has been the most important element" of UPMC's transformation, he said.

What do you think? Can your IT organization become a revenue stream? Is this kind of opportunity unique to the healthcare environment, or are other industries also missing out on an important earning opportunity? Share your thoughts in the comments section below.

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— Susan Nunziata, Circle me on Google+ Follow me on TwitterVisit my LinkedIn pageLike EnterpriseEfficiency on Facebook, Director of Editorial, EnterpriseEfficiency.com

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SunitaT   Turning IT Into a Revenue Stream   5/24/2014 2:21:31 PM
Re : Turning IT Into a Revenue Stream
Turning IT into a revenue system is not a bad idea. It is high time IT organizations advanced into being revenue streams. This is because very many environments are embracing IT and enjoying its benefits. By making it a revenue stream, some of the people who fail to appreciate the importance of IT and even abuse it will be forced to stop. IT can also use its experience in the ways mentioned by Kaul such as acting as minority investors in some companies so as to earn revenue.
The_Phil   Turning IT Into a Revenue Stream   4/28/2014 9:38:48 PM
Re: Re : Turning IT Into a Revenue Stream
This is the internal v. external customer debate when it comes to IT. You would think that external is always revenue-generating & internal is only sustaining the business. Truth is that it's a mix of both that makes the company money. But the systems that facilitate those processes are still beneficial either way.
singlemud   Turning IT Into a Revenue Stream   4/28/2014 3:26:05 PM
Re: Re : Turning IT Into a Revenue Stream
Totally agree, that is the core value of IT.
Anand   Turning IT Into a Revenue Stream   4/14/2014 6:36:11 AM
Re : Turning IT Into a Revenue Stream
Has IT not been beneficial for every organization already? Do the organizations think that they are investing in their IT departments for the sake IT professionals? Besides, every person or department in the organization is not supposed to bring in the money. Some do business for the company, while others facilitate those people and the company. This is exactly what IT is doing.
Anand   Turning IT Into a Revenue Stream   4/14/2014 6:35:31 AM
Re : Turning IT Into a Revenue Stream
It is a strange and amazing proposition. All the departments in an organization including IT are supposed to work in tandem and harmony to bring benefits for the company. Organizations invest in one department and reap the benefits in other departments. That is how it works everywhere.
kstaron   Turning IT Into a Revenue Stream   4/10/2014 2:34:22 PM
Value yes, revenue not sure
I'm really not certain if most IT departments could pull off revenue streams, but without an IT department costs usually go up siginificantly. IT departments are stellar at helping the company work efficiently by automating repetitive tasks and forms, and making sure all your programs play nicely with all your hardware fit to the needs of your day. Sometimes it's about the value not the money the IT department can bring to the company.
DBK   Turning IT Into a Revenue Stream   4/7/2014 11:06:25 AM
Re: Show Us the Money - Hard dollars vs. soft dollars
@ jastro - Certainly the manufacturing world is different from other businesses.  My point about Cisco is that they create this type of mentality that IT should be cash flow positive.  The create this mantra in the IT world and then all of a sudden companies adopt this philosophy.  Then those IT teams go back and try to figure out how to develop a business model that can generate cash flow.  And here comes Cisco to the rescue at least that is the way it is presented.  The reality is much different but in the end Cisco created a top down need for IT to generate cash flow and then Cisco themselves is the benefactor.  Create a need and act like you have the solution.  A false economy if you ask me.
Broadway   Turning IT Into a Revenue Stream   4/6/2014 9:18:20 PM
Re: Show Us the Money - Hard dollars vs. soft dollars
Perhaps the key to revenue would be to own the company client data, and then selling it and the expertise to analyze it?
batye   Turning IT Into a Revenue Stream   4/3/2014 3:51:27 AM
Re: Doh!
agree, I trust you are right... as the way IT think... 
batye   Turning IT Into a Revenue Stream   4/3/2014 3:50:18 AM
Re: Turning IT Into a Revenue Stream
it not an easy task nor simple... as the process... have many factors in play...
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