While Aetna will operate
as a standalone company under CVS Health, the deal requires the elimination of
redundancies and merging best practices.
March 7, 2019
When
retail pharmacy CVS Health and health insurer Aetna came together last year in
a $78 billion deal, the
acquisition created what Healthcare Dive refers to as a "mammoth
healthcare entity," which will earn $245 billion in revenue annually.
While
Aetna will continue to operate as a standalone company under CVS Health, the
deal requires integration.
Running
separate companies is expensive and CVS expects to save $300 to $350 million
this year by eliminating duplicate corporate and operational functions, purchasing
efficiencies and medical cost savings, according to the company's Q4 2018 earnings report released
last month. CVS says it is "on track" to exceed its goal of $750
million in 2020.
Beyond
customer-facing work required to weave two businesses together, there are
technical considerations.
That
responsibility will fall to Roshan Navagamuwa, the newly appointed executive
vice president and CIO of CVS Health.
Previously
the SVP of client services, Navagamuwa will lead "all areas" of
technology operations and innovation, according to a statement from CVS. He had
served as interim CIO for CVS following the departure of former CIO Stephen Gold.
Navagamuwa
will work closely with Meg McCarthy, formerly EVP of technology and operations
at Aetna and now the EVP of CVS Health, to bring together CVS and Aetna's IT
organizations, according to CVS.
The
announcement of Navagamuwa's appointment, first spotted by The Wall Street Journal,
highlights the complexity of an integration of this size.
Technology
executives are tasked with quickly bringing together two distinct brands, technology
stacks, architectures and infrastructures, according to Matthew Guarini, VP and
co-lead of the CIO practice at Forrester. CIOs have the most challenging part
of an integration following a merger or acquisition.
But
more important to the CIO is supporting the evolving place of and reliance on
technology in a business.
Technology
is so integral to how companies operate and the opportunity to create a culture
is important, Guarini said, in an interview with CIO Dive. You don't want to go
and "quell" the work that either group is doing.
First,
do no harm
All
businesses are not created equal in an integration. Some are more adept at
technology than others, creating an imbalance that can threaten a smooth
transition.
"It
is critical to consider the technology fit in any M&A
activity." Alastair Pooley, CIO at Snow Software, told CIO in an email. "A CIO must
swiftly assess the complexity and overlap of the two firms to comprehend how
technology in the two entities could fit together."
Understanding
the necessary alignment can determine whether additional costs of integration
or potential for savings in combining the two organizations exist, Pooley said.
Johnson
& Johnson, for example, has more than 200 operating companies as part of
its company, and each operates with a fair amount of
autonomy. Distinct parts of businesses require different enterprise
resource planning (ERP) systems, and holding them to a rigid standard is
cumbersome.
Instead,
J&J worked to reduce its number of ERPs but introduce a common footprint,
creating a common data platform to better understand customers and trends.
When
starting an integration, immediately after the acquisition is complete CIOs
need to start with the statement, "do no harm," said Guarini. "A
lot of folks will try to bite off more than they can chew on Day One."
Instead,
CIOs need to form a core list of needs and objectives to focus the company on
running the transformation from a customer-first view rather than a technical
one.
"Employees
are highly engaged when they can make progress against what they feel is
important," said Guarini. But when employees lack access to data, struggle
to get on the internet or are working with a broken laptop, it can drive down
customer experience and negatively impact a company.
Allowing
for seamless lines of communication by adapting the IT environment can help share
and preserve culture and work practices, according to Pooley.
It
is up to CIOs to push on the experience they want to deliver, innovating with
technology and offering great service to people outside the office, which
contributes to better employee experience and can raise the profile of IT
teams, according to Guarini.
"We're
always beat down on the CIO side of things for all
these [technology] problems, but strong performance can help buck
that," he said.
Avoid
the middle of the road
An
integration can serve as motivation to modernize — and in some cases can serve
as a way for one company to acquire the more mature technical assets of
another.
When
presented with two distinct portfolios and technology strategies, it begs the
question: What should the business keep?
Guarini
is a big fan of adopting best practices of both companies, but sometimes you
just end up with a "very middle of the road mess that doesn't get you to
where you need to be."
The
areas with gaps are where executives can start to learn the other company's
strengths and weaknesses.
Understanding
the underlying technology is important too. CIOs can do rapid mapping of what
technology each organization is using to fully grasp compatibility and cost,
according to Pooley. It allows an organization to "understand whether
there is a risk of overspending —or opportunity to gain value."
"The
goal of any M&A activity is to create additional value by bringing the
entities together," said Pooley. "Understanding the desired
business outcomes will allow the CIO to ensure that the strategic priorities
are protected and value is maximized."
Follow Naomi Eide on Twitter
https://www.healthcaredive.com/news/the-cios-role-in-ma-cvs-aetna-undergo-integration/549910/
No comments:
Post a Comment