We are keeping our content light during the dog days of August. Perhaps you have seen our previous posts regarding CEO personalities? Our Mid-Cap Software CEO Personality Analysis made the rounds this spring (access HERE). For fun we thought we would put a new spin on the debate that has dominated NBA circles this offseason…
1.) Be Bold:
- Similar to VCs, public investors want to invest in a bold vision. (See Tesla). Why does TSLA enjoy a premium valuation to other Auto OEMs? Answer: Musk’s vision and spin.
2.) Don’t Be Bullied by Investors – Dictate Your Story:
- Tell the Street you plan to take margins down temporarily to pursue “X” initiative. Investors will cut you slack so long as you explain the rationale, the execution and the intended outcome.
3.) Balance Execution Today with Investment for Tomorrow:
- Don’t fall into the short-term EPS growth trap at the expense of new product development, keeping your products fresh and building a culture of innovation.
- If you pursue the short-term – investors will love you in the short-term (fleeting). The key is to build long-term value over years and decades (see AMZN, CSGP and SSNC as examples of the latter).
Some have asked the question regarding our most recent article: Personality Analytics: Technology CEOs Analyzed – “what does it mean?”
Let’s contemplate one example as depicted in the enclosed picture which plots the 56 Mid-Cap Software CEOs we reviewed against the personality trait “Openness“. The output is that the two CEOs who scored in the 99th percentile (Ryu of Guidewire Software, “GWRE” and Marr of Tyler Technologies, “TYL”) are:
1.) less likely to suffer stalled revenue growth on their watch;
2.) less likely to allow their products and services to become stale;
3.) less likely to be disrupted by a competitor or new market entrant;
4.) less likely to see their respective customers move elsewhere and/or become disintermediated from customers;
5.) more likely to adopt new technology to deliver their respective products and services;
6.) more likely to identify adjacent market opportunities..
..as compared to the Mid-Cap Software CEO universe we analyzed (56 CEOs in total), all else held equal.
We created the CEORater Technology Founder CEO Index in 2017 in large part to illustrate our strong belief that founder CEOs are better qualified to lead Technology companies than are “hired” CEOs/ professional managers. The CEORater Technology Founder CEO Index returned 13.0% and 10.5% on a Weighted and Unweighted Return basis respectively (click here for detail) during the January 2nd 2018…
Everyone Wants Their 15 Minutes of Fame
It’s a primary reason why Instagram “Stories” are so popular. That and the feature’s ease-of-use. Instagram has created an engaging, almost frictionless user experience that enables anyone to vlog their life in a series of micro videos with a 24-hour shelf life – i.e “Stories”. Stories is the platform feature that single-handedly kneecapped Snap before its March 2017 IPO (we reviewed in our piece about CEO overreach). We covered the “Stories” topic in episodes 58 and 67 of our CEORater Podcast.
Snap recently countered by opening its Stories feature to platforms outside of snapchat whereas Instagram remains within Facebook’s walled garden. Were the two platforms equal, Snap’s counter move likely would have provided an advantage. However, the two platforms are not equal. Instagram continues to enjoy the ease-of-use advantage over snapchat (a powerful advantage) and Facebook’s walled garden is an expansive one with 2 billion-plus monthly active users (“MAUs”).
Mobile Devices that Best Leverage Social Media Platforms Will Win
The “Stories” feature matters not only for social media companies but also for mobile phone OEMs as consumers increasingly record and consume mobile video. Therefore, mobile phone camera features, in-phone storage (external storage devices add friction to the user experience) and battery life will increasingly matter.
Here’s a look at four mobile phones across attributes:
Platform Cloud Vendors Also Win
Facebook stores Instagram videos. Google stores Snap’s content. Expect cloud service leader AWS (Netflix on AWS) to make its mark as companies that were built on top of AWS roll out video content (Amazon/Open Tube?)
The mobile video phenomenon extends beyond user-generated content to professional content. For example, Steven Soderbergh’s forthcoming theatrical feature – “UNSANE” – was recorded entirely on an iPhone.
We published CEORater Podcast episode 120 subsequent to posting this article.
Welcome to Apple Health
Apple recently announced that this spring it will release an update to its iOS for iPhones and iPads that will include a new “Health Records” feature that will provide access to personal medical records covering allergies, conditions, immunizations, lab results, medications, procedures and vitals. Given the ubiquity of the iPhone we believe that Apple is well-positioned to succeed where others – most notably Microsoft and Google – have failed. Listen to our recent podcast on the subject:
Tower of Babel
The Healthcare IT industry suffers from data fragmentation. Some healthcare providers store medical records using difficult to account for paper-based filing systems. Forward-thinking healthcare providers leverage Electronic Medical Records (“EMR”) which are an improvement over paper-based records yet are far from perfect. EMR products from different vendors don’t talk to one another and it’s common for different software versions from the same vendor to experience less than perfect communication. A lack of standards typically creates friction in any technology process and healthcare IT is no different.
EMR software is used by healthcare professionals at small, mid-sized and large medical practices/ healthcare providers to replace inefficient paper-based medical records. EMRs are required to store patient/consumer data in compliance with HIPAA.
How to Achieve EMR Nirvana
Step 1.) Universal Adoption of Secure EMRs: All electronic medical records are required to be stored in a secure-HIPAA-compliant format. This includes text-based, image-based and video-based health records. I considered breaking out “security” as its own “step” given that many CEOs and Boards are slow to address CyberSecurity (see our many CEORater Podcasts and TEK2day.com writings that cover CyberSecurity). No industry is more at risk of CyberBreaches than healthcare given the vast stores of sensitive Personally Identifiable Information (“PII”). We’ve frequently communicated about CyberSecurity and have been a vocal critic of Equifax and “sleepy” CEOs and Boards in the aftermath of Equifax’s 2017 CyberBreach (discovered in July 2017, disclosed in September 2017). I ultimately decided against breaking out CyberSecurity as a separate step given that it must become a way of life, embedded in every workflow, implicit in every operational process. That said, the EMR should become the single version of the truth replacing paper-based medical records.
Step 2.) EMRs On-Demand: EMR data elements must be searchable and readily accessible by any authorized person any time, anywhere in a HIPAA-compliant manner across platforms (zero friction goal). This is true both at the point of care and outside the point of care. One such example outside the point of care would be the application of advanced analytics across millions (if not billions) of anonymous personal medical records – only of course when patients/consumers elect to share their anonymous information. For example, if everyone who owns an iPhone volunteered certain anonymous health record elements to Apple it is not unreasonable to expect that Apple could move society steps closer to personalized healthcare by way of machine learning analytics at massive scale. For our money the world’s most valuable company over the next 100 years will be the company that cracks the code to personalized healthcare/medicine. But I digress..
Step 3.) Portability: EMRs must be portable. For example, if I take a job with a new employer that moves me from Dallas TX to Seattle WA a great deal of friction is eliminated from my move process if my complete EMR is readily accessible from one location that I control (iPhone).
M&A as a Catalyst
Apple could accelerate its Health initiative with one of several Healthcare IT acquisitions. We would focus on the EMR segment. Acquiring an EMR vendor would enable Apple to tightly integrate its Health App with EMRs to a greater degree than would be possible through EMR partnerships. Cerner and Epic are the leading EMR software vendors – each with a long history and vast domain expertise. Cerner recently recruited a new CEO – Brent Shafer – after the untimely passing of its former founder and CEO Neal Patterson. Epic continues to be led by its founder and CEO Judith Faulkner. Were we to advise Apple from an M&A perspective we would focus on Cerner (tkr: CERN) and Epic (private) with athenahealth (tkr: ATHN) as the alternate.
- athenahealth: Boston-based athenahealth is led by its founder and CEO – Jonathan Bush – cousin to former President George W. Bush. Jon Bush is an entrepreneurial dynamo and in the event of an acquisition would be unlikely to stay beyond the negotiated earn-out period. In addition, ATHN has recently experienced senior-level turnover. Therefore, it would be essential that Apple gain comfort with the key senior leadership team members before executing an acquisition of athenahealth.
- Epic: Judith Faulkner founded Epic in 1979 and doesn’t have to deal with the turnover that is typical in San Francisco, New York and Boston. The firm is culturally stable.
- Cerner: enjoys similar cultural stability. New CEO Brent Shafer comes from Philips North America where he was CEO since February 2014. Co-founder and former interim CEO Cliff Illig remains a significant CERN shareholder.
“Consumerization” of Healthcare
We believe that if the iPhone becomes the preferred EMR access point the patient/consumer will be empowered at the expense of:
- Healthcare Providers: will have less customer lock-in as a result of portability/ reduced friction associated with changing providers. Many healthcare providers will gravitate toward transparency (i.e. publish pricing if they feel they are price competitive) in an effort to capture business. Major hospital systems are already losing share to neighborhood providers and urgent care centers. We expect this pressure on the large hospital systems to continue (see our earlier post on the healthcare industry).
- Health Insurers: will continue to face economic pressure. The perverse government subsidization of various components of the healthcare system makes it impossible to have true price discovery and to establish a real healthcare market.
More Fodder for Apple Pay
- Apple Pay and Apple Insurance? Should Apple Health effectively execute its strategy of becoming the preferred medical record access point it will be the connective tissue between consumers and healthcare providers. This will afford Apple the opportunity to monetize this symbiotic relationship by way of facilitating payments and/or offering its own brand of healthcare insurance – perhaps offering pay-as-you-go and peer-to-peer insurance models. Time will tell.
Healthcare IT Vendors
Partial List of Healthcare IT vendors sorted by Run Rate revenue. The “Run Rate” figure for each company was derived by multiplying the “Most Recent Reported Q” or “MRRQ” revenue figure for each company by “4” unless otherwise noted. For example, GE’s MRRQ revenue figure of $5,402 x 4 = Run Rate revenue of $21,608. Note that rounding may impact certain of the Run Rate revenue figures.
Time for A CEO Change and Board Swap Out at IBM
Neither IBM’s CEO Ginni Rometty nor IBM’s Board understand the nuances of crafting a story for Wall Street nor executing a strategic M&A program to offset the negative impact to IBM’s revenue as a result of the strategic shift to recurring revenue products & services.
GE CEO John Flannery has his work cut out starting with re-vamping GE’s Board. Our advice? 100% of GE’s BoD members should have experience within the industry verticals GE cares about. Equally important – GE BoD members should consist of a mix of Insiders and Outsiders with the weighting in favor of Insiders. More detail in CEORater Podcast Episode 81:
The Three “I”s for Selecting Board Members:
1.) Intellectual Curiosity
2.) Industry Experience
IBM lacks Board members that have Software industry experience other than CEO Ginni Rometty. We recommend that IBM turn over its Board and replace BoD members with new members who have significant Software industry experience given that Software – particularly a strategic M&A plan focused on Software/SaaS/AI/ML/Info Services acquisitions – is likely what will lead IBM out of its malaise. If IBM does not address its BoD and Executive shortcomings proactively it is probable that an Activist investor will make changes for IBM – with or without the latter’s consent. Click HERE for our CEORater Podcast episode concerning the 3 “I”s.