In 2004 Stanford Hospital & Clinics in Palo Alto, CA decided to outsource its IT operations to Perot Systems Corp. for $380 million. All of the hospital's 140 IT staff was offered positions with the new company. Ninety-eight percent accepted. This case study shows how the hospital managed to entice so many of its employees to stay on through the deal.
Outsourcing is always hardest on your IT staff. If they are offered a position with the vendor, they face an unknown environment and a new set of managers. Such a situation can sometimes result in a sort of “changing of the guard,” with many of the most talented people leaving and new workers filling those empty positions. This isn't necessarily a good thing. Your IT staff has an institutional memory; they know how things work and are familiar with the ins and outs of your IT operations. If you are forced to replace those employees, the learning curve for the new hires could resemble the track of a roller coaster.
Stanford's IT staff “was very fearful at first,” explained Carolyn Byerly, the hospital's chief information officer. Byerly joined Stanford in May 2002 and has 30 years of experience in IT management and planning, including 20 years with healthcare organizations. Stanford counts around 613 beds and a total of about 1,800 medical staff. Around $60 million of the Perot IT outsourcing agreement involves Stanford's affiliate Lucile Packard Children's Hospital, which Byerly does not oversee.
Byerly said keeping Stanford's IT staff calm during the outsourcing process proved a difficult task. However, she said that the key was keeping everyone — all 140 employees — in the loop. The IT staff's average length of employment is seven years.
“You cannot go through a process like that and think it will be confidential,” she said. “I briefed the whole staff after every major meeting.”
Byerly alerted the staff that the hospital was planning to outsource its IT functions shortly after Stanford's senior leadership made the decision. The hospital decided to outsource in order to unify its IT operations, bring its systems up to federal regulatory compliance, and to keep pace with the rest of the industry. Stanford contracted with outsourcing consulting firm Everest Group to find the right outsourcing partner. And finding the right outsourcing partner depended greatly on how the vendor would treat Stanford's IT staff.
“We wanted to understand how they (the potential vendor) would treat our employees,” Byerly said. “We wanted to make it very attractive” for the staff to move to the outsourcing vendor.
For 10 months, Byerly worked alongside a five-member team from Everest to cover all of Stanford's bases. The team included a senior account executive, an IT expert, a number cruncher, a former outsourcing vendor executive, and a consultant with experience in the medical field.
Together, Byerly and the team conducted a systematic review of all of Stanford's potential outsourcing partners. Byerly said the hospital did not send out RFPs but instead worked with Everest to evaluate various vendors. The evaluations covered vendors' services, corporate philosophy, cost structure — and employment practices.
In reviewing the vendor selections presented by Everest, Byerly eventually settled on Perot. She said she and the rest of Stanford's IT staff got to know Perot's senior executives during their several day-long visits to Stanford. Byerly and the staff quizzed Perot's executives about the company, its benefits and its values. Byerly said that over the course of these meetings she became convinced that Perot's value system coincided with that of Stanford.
For Stanford's employees specifically, Perot offered comparable salaries and benefits. In the cases where the benefits from Perot were less than those from Stanford, Perot agreed to increase salaries to compensate. Further, Perot said it would be able to offer three weeks of IT training a year, and better opportunities in the IT field than Stanford. Finally, Stanford would retain some control over its former employees once they moved to Perot — for the first three years of the agreement, Perot would need Byerly's approval to move an employee off of its Stanford account.
However, Stanford's contract with Perot did not require Perot to employ any of the workers for a specific amount of time.
As negotiations with Perot advanced, Byerly worked to keep Stanford's IT staff involved in the discussions. In the last two months before Stanford signed the deal with Perot, Byerly and Stanford's vice president of human resources held a brown bag lunch every Friday for all of the hospital's IT staff. The lunches gave Byerly the chance to update the staff on the course of the negotiations, and for the staff to ask questions and vent their feelings.
In the first such meetings, the staff wanted to know if outsourcing meant they would lose their jobs. In subsequent meetings, the staff began asking about Perot's salary and benefit offers.
“I think appropriate open communication is more beneficial than not,” Byerly said.
Stanford approved its agreement with Perot late last year. All but seven of Stanford's 140 IT employees opted to join the new company. Byerly said that of those seven, some retired, some left and a few returned to their first career — nursing.
The day when Stanford's IT department officially became part of Perot, they got a surprise. Ross Perot, the entrepreneur who ran for president in 1992 and is chairman emeritus of the board for Perot Systems, came and spoke to the gathered staff. Not only that, he spent the next hour and a half mingling with the workers, answering questions and signing autographs. Perot makes such appearances when his schedule allows. Byerly said the event further served to convince the staff of the quality of their new employer.
As part of the outsourcing agreement, about 99 new employees joined the 133 former Stanford employees at Perot. The increased workforce was necessary to manage and update the hospital's IT functions. Byerly said the former Stanford staffers will be able to educate the new workers on Stanford's current IT situation.
However, not everything is settled under the agreement between Stanford and Perot. The hospital is relocating and consolidating its four data centers to Perot's headquarters in Plano, Texas. Byerly said some of the hospital's staff will have to relocate to Plano, although how many and who had yet to be decided at the time of this writing.
Byerly said she has no regrets in moving Stanford's IT staff to Perot, and the 98% approval rating backs up her claim. Stanford's IT staff consisted of longtime hospital employees, and Byerly said she felt they would be happy with their new employer. Byerly partially attributes the high approval rating to Stanford's work in keeping its IT staff abreast of the outsourcing situation. She said the staff felt involved, and somewhat in control of their future.
So if you're thinking about outsourcing and are concerned about your current IT staff, you might do well to let them know it. All offices have their share of secrets and gossip, but with employees' careers on the line, it might be best to keep them in the loop.
Stanford Hospital & Clinics