Children's Healthcare of Atlanta Picks Oracle for Cloud ...

Case Type: new product, new technology.
Consulting Firm: IBM Global Business Services (GBS) first round job interview.
Industry Coverage: healthcare: hospital & medical; software, information technology (IT).

Case Interview Question #00556: Our client Children?s Healthcare of Atlanta is a not-for-profit healthcare organization formed in 1998 when Egleston Children?s Health Care System and Scottish Rite Children?s Medical Center merged. The organization now owns a number of pediatric-accredited hospitals in the southern 10 states, offering family-centered care while providing specialized medical procedures and supplies, age appropriate play therapy, psychosocial support and a hospital-based school program. With more than a million annual patient visits, the client Children?s Healthcare of Atlanta is one of the country?s leading pediatric healthcare providers.

The client has been among the highest revenue-earning players in the southern 10 states. Recently, their IT department realizes that their data storage capacity is not large enough with the increasing needs internally. They are interested in using cloud computing only for additional data storage needs. Should they do it? If so, how long until our client breaks even (compared to the current IT system)? If not, what strategic alternatives can you offer?

Exhibit 1: Revenue and Local Market Share

	2009 Expected Revenue Growth $mm	Local Market Share
Florida	300	30
Kentucky	80	33
Georgia	550	66
Alabama	400	49
Texas	180	21
North Carolina	120	27
South Carolina	40	29
Louisiana	50	35
Oklahoma	60	42
Virginia	40	22

Exhibit 2: Cloud Computing Vendors

	Cloud computing market share	Public stock: year-over-year change	Relations with us	Recent news
Oracle Corporation	12	2.1%	medium	Acquired Sun Microsystems, a major data storage company based in Texas
Dell Computers	8	-12.3%	medium	Entered 4 different emerging markets in last 3 months

Exhibit 3: Costs

Cloud Options	Installation cost (one-time cost)	Cloud service fee ($)	Energy consumption	Full-time engineers	Annual fee ($)
Self implementation	$5.0 million	0	50 kW per hour per server	10	0
Oracle Corporation	$2.1 million	2.5 per day per server	0	2	700,000
Dell Computers	$2.7 million	2.0 per day per server	0	3	600,000

Exhibit 4: IT Costs For Continuing With Current Storage System

Costs are in millions of U.S. dollars. Straight-line represents long-run trend line.
Costs include existing storage needs and storage needs from growth in demand. Costs will remain constant after 2010.

Additional Information: (to be given to candidate if asked)

• Cloud computing is a style of computing in which data is stored as a service over the internet, as opposed to traditional storage on local servers. It means that a company does not have to pay for the physical storage devices, but instead pays a service fee to a vendor to store data over the internet.
• The client company is also considering ?self implementation? of cloud computing: purchase and implement the equipment itself, rather than pay a service provider.
• Our client need 1 server for each $300 million in new revenue in each location. For example, a location with $200 million in new revenue requires 1 server, $400 million in new revenue requires 2 servers, and $700 million in new revenue requires 3 servers.
• Cloud computing vendors being considered are Oracle Corp. and Dell Computers.
• For Exhibit 3:
  • 1 kW costs $0.02 on average.
  • Servers run all the time (24 hours per day, 365 days per hour).
  • Annual cost of full-time engineer: $100,000 per engineer.

Possible Answer:

This ?whether to adopt a new technology or not? type of case involve several steps.

First, the candidate must determine what the capacity needs are; this is based on new revenue in each location (Exhibit 1). Then discuss the vendors who can offer the storage service: Oracle and Dell. Oracle appears a little bit more successful and also more focused on our client?s region, the southern United States.

Next, the candidate must calculate the cost of each of the options in Exhibit 3. The vendors have the lowest annual cost and between them, Oracle has the lower installation cost. Then, these costs can be compared to Exhibit 4, the costs of continuing with the current IT system and not self implementing cloud computing or using an outside vendor.

Then, the candidate can calculate a breakeven time. The savings from the new cloud system is the difference between Exhibit 4 (continuing with current IT system) and Exhibit 3 (self implementing or using vendors for cloud computing system). Use these savings to calculate how many years until the initial installation cost has been recouped.

Calculations:

Exhibit 1: New revenue used to calculate number of servers needed: 1 per location plus 1 extra for Georgia and Alabama = 12 server needed.

Exhibit 2:

• Oracle appears to have more of a focus in the geography of our client, based on the recent acquisitions of Texas based data storage company Sun Microsystems.
• Market share and relations are both comparable.
• Public stock performance is irrelevant in this case, except perhaps to suggest that Oracle is managing its business better in a recession.

Exhibit 3: Annual costs of the new cloud computing system

• Self Implementation: 50kW / hour * (365 * 24) hours * $0.02 / kW + 10 engineers * $100, 000 per engineer = $1,008,760
• Oracle: $2.5 / server * 365 * 12 servers + 2 engineers * $100,000 per engineer + $700,000 = $910,950
• Dell: $2.0 / server * 365 * 12 servers + 3 engineers * $100,000 per engineer + $600,000 = $908,760

Note that all of these annual costs is lower than the projected cost of the current IT system ($1.2 million in 2009, $1.5 million in 2010).

Exhibit 4: Costs are rising dramatically. Projections will be used in breakeven calculations

• Using self implementation, savings are approximately $200,000 in year 1 ($1.2 million ? $1,008,760) and $500,000 in year 2 and thereafter ($1.5 million ? $1,008,760).
• Using either vendor, savings are approximately $300,000 in year 1 and $600,000 thereafter.

Add the number of years of savings to reach the initial installation cost (one time cost):

• Self Implementation: $200K + ($500K * 10) = $5.2 million, or in the middle of year 10
• Oracle: $300K + ($600K * 3) = $2.1 million, or 3 years
• Dell: $300K + ($600K * 4) = $2.7 million, or 4 y ears

Conclusion: The option with the lowest annual cost and fastest breakeven is to use the vendor Oracle Corp.

Finally, a strong candidate will also discuss creative thoughts about details in the case, such as: suggestions to negotiate the contracts in different ways, changing costs of power consumption over time, and costs of engineers in the future.

Source: http://www.consultingcase101.com/children%E2%80%99s-healthcare-of-atlanta-picks-oracle-for-cloud/

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