McKesson Corp: Randy Spratt, CIO

Summary:CIO explains IT's critical role in America's oldest and largest health care services company.

Q: McKesson is an old company in business since 1833 with US$88 billion in revenue and 22,500 people. What can you tell me about McKesson, in terms of how IT is helping to innovate in the health care industry?
Spratt: When you've been around 173 years, you've seen a few things and over those years McKesson has managed to find themselves everywhere health care is. So, asking this question about the innovation in health care is a very complicated question, it touches payers, it touches pharmacies, it touches physicians, it touches hospitals, it touches patients, and suppliers and manufacturers.

But to give you a sense of where we're having some of our largest impact, I'd steer you to two areas. One is around the supply chain, where very large proportions of the cost of health care are found today. As we -- as employers, as patients, as interested consumers -- try to drive those costs down, the margins become razor thin, and the ability to stay in those markets and compete in those markets requires very, very strong technologies to push large scales of pharmaceuticals and large scales of medical supplies.

What specifically from a technology point are you doing to innovate in the supply chain? Are there protocols, standards, services that you've applied to take cost out of delivering?
Spratt: First of all, we've moved a very large amount of our supply chain purchasing to Internet-based ordering. It's the Amazon.com, if you will, of health care. And yet our volumes are significantly larger than even Amazon's. We'll do a billion and half dollars of pharmaceuticals every month through our online capabilities. You also see a tremendous amount of regulation to try to keep that supply chain safe, make sure that counterfeit drugs aren't entering the supply chain, so many states are implementing e-pedigree laws to demonstrate that the supply chain is safe from end to end. We're innovating in that space with RFID technologies to make sure that you can reliably track a manufactured lot through every single handler all the way to the end consumer.

There are many technologies that could come under the umbrella of innovation, and I wanted to ask you to get your opinion on some of them. Starting with open source, and what do you think of open source?
Spratt: I think that open source is a marvellous innovation in and of itself. We take great advantage of open source tools, both in our infrastructure and in the products that we resell. It has taken a significant amount of cost out of both. In our product world that allows us to sell capabilities to customers at lower costs than our competitors, and internally obviously it does the same. There's still some unanswered questions about where this will all go, as we see Oracle and Microsoft entering the market ... the open source market and embracing it more fully. But still in all, competition's welcome, it probably will help not hurt.

So it's not exactly free software, but it does force everybody to look at their cost models quite differently.
Spratt: It does. It's doing to those elements that open source covers today. Well fundamentally it's commoditising it, and it's bringing a huge labour force onto assuring the quality of that software that otherwise couldn't be had. So I think it's a win for the industry.

And how about Web 2.0? I'm not exactly sure how to define it, but I know it came after Web 1.0, which was the Web we had where it was about putting up Web sites, and now it's more about things like collaboration, social networking, Ajax interfaces; is that something that as a CIO at a large corporation that you think about at all?
Spratt: I think if you're a CIO at a large global corporation today, and it isn't at least on your strategy and planning radar, that you may want to wake up and smell the coffee.

We are keenly interested in the velocity and the outcome of deployment of Web 2.0 in the United States especially, mostly because it offers the promise of drastically lower network operating costs, and at the same time allows us to individually address an unlimited number of devices, when you think about what that means in health care it means that you could be covered in sensors with your bed, in your shoes, in your room and every one of those devices individually addressable and individually able to deliver its information to a care-giver without any network intervention or infrastructure other than carrying messages. So in the product world, in our infrastructure world, it's going to have a gigantic impact.

So RFID, as a part of that whole issue of this next generation of the Internet, and having everything with its basically own URL that's passing information back and forth. From that point of view, are you developing tools, such as analytics, that allow you take that data and do something, given all the companies that you work with, to aggregate that data and try to extract some meaning from it?
Spratt: We have some extensive data warehousing business intelligence capabilities, largely around our pharmaceutical business because of the huge scale that that business operates. But in terms of aggregating the kind of information that we'll be able to acquire and use in a Web 2.0 world, that's years away. We're in early planning stages of how we will approach that today.

What do you think about outsourcing in general?
Spratt: Well if you think about it, there isn't very much that a corporate IT function, an infrastructure function does that technically couldn't be outsourced. So the question becomes what's the business relevance of an IT department. And that relevance fundamentally comes from an intimacy with the business. A strong linkage to the business's strategy. A knowledge, expertise and awareness in what the businesses need to succeed and how IT can help drive that. And that's a core competency that's inherent to the business and can't possibly be given up.

At the other end of the spectrum there are surely commodity activities that if they can be digitised they're going to [be] arbitraged to the lowest priced provider. That in-between world where they often intersect is a little stickier, and I think fundamentally that comes down to how you organise and the incentives the business goals that you drive your shop to.

Topics: CXO

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