KPMG, one of the "big five" audit, tax and consulting firms, has one of the largest consulting units in the United States, with over 7,500 staff who generated approximately $1.5 billion in 1998 revenue. The healthcare division of its consulting practice is also substantial, encompassing 1,200 consultants, generating $265 million in 1998 revenue, and averaging 15 years experience (see Figure 1 and Figure 2).

Figure 1

KPMG's Healthcare Consulting Practice

Source: KPMG and GartnerGroup

KPMG's healthcare consulting practice has grown rapidly in recent years, as U.S. revenue has increased over 30 percent every year since 1995. This growth has been primarily realized in the provider and life sciences segments, especially capitalizing on KPMG's "rapid return on investment" implementation methodology for ERP vendors PeopleSoft and SAP. KPMG's greatest healthcare strength is its implementation skills and capacity with the general financial and human resources modules of ERP applications. These ERP capabilities have evolved and joined with KPMG's Internet integration strength to allow the practice to develop robust supply chain management initiatives for healthcare clients. The practice has also begun aggressively pursuing payer clients. KPMG believes that the three segments are interdependent and the ultimate objective of any IT initiative for HCOs in these segments should be improving consumer satisfaction. Toward that end, it has invested most heavily in building strong e-business and CRM capabilities.

To further its e-business capabilities, KPMG just entered into a joint venture with Cisco Systems, in which Cisco will invest $1 billion to finance the addition of 4,000 Internet systems integrators at KPMG (of which 2,000 will be redeployed from within KPMG) over 18 months, as well as six Internet innovation centers. The healthcare industry will be a major focus of this partnership, as the two firms develop Web-enabled solutions to improve consumer interaction with each healthcare segment.

In another major development, KPMG and Qwest formed a joint venture called Qwest Cyber.Solutions in June 1999. This venture will utilize Qwest's national IP backbone and 450 KPMG systems integrators to immediately form one of the largest ASPs in the United States. Its initial focus will be on implementing and hosting ERP and other back-office software, as well as front-office packages including CRM. This relationship should also serve to enhance KPMG's healthcare position, since the demand for applications outsourcing and ERP and CRM systems is expected to grow rapidly through 2004.

Finally, KPMG formed an alliance with ChannelPoint, a significant MCO vendor (see Research Note C-08-6451), in December 1998. This relationship should help KPMG's healthcare practice begin to establish a presence in the payer implementation and operational improvement markets.

KPMG leverages strong linkages between its consulting, audit and tax businesses, and derives 25 percent of its consulting revenue from its audit clients. Despite that, to enhance accessibility to capital and further establish brand recognition, it plans to spin off its consulting practice and issue an initial public offering by year-end 2000.

Strategy:

• Expand e-business and Web services through strategic joint ventures.
• Begin to penetrate the payer market via alliances and leveraging provider and life sciences ERP and e-business experience.
• Not pursue projects for implementation of clinical or hospital information systems.

Strengths:

• Sustained healthcare consulting revenue growth of over 30 percent for last five years.
• Rapid return-on-investment methodology for ERP implementations is a differentiator.
• Cisco and Qwest joint ventures position KPMG well for rapid growth in e-business and as an ASP.
• Overall client satisfaction with KPMG is higher than average (determined from reference checks and GartnerGroup's client inquiry process).

Challenges:

• KPMG is starting from behind in the payer segment and must overcome stiff market competition from established C/SI firms in recruiting staff and clients.
• Its 20 percent turnover rate is slightly higher than most C/SI firms we have evaluated.
• It does not hire staff right out of college, which might make it difficult to sustain growth (and find 2,000 new consultants for the Cisco venture), given competition for experienced hires. Some balance is usually optimal, if internal KM can be leveraged.
• Although its internal KM initiative is impressive, there is not much indication of KM offerings for clients (and we have feedback from clients regarding inadequate knowledge transfer).

Bottom Line: KPMG healthcare consulting espouses a vision of developing the right business strategies and operating processes and integrating them with Internet-based technologies to allow HCOs to capture market share and better serve customers and business partners. Through its recent strategic joint ventures and demonstrated ERP, supply chain management and CRM skills, KPMG is well-positioned to realize continued growth in the provider and life sciences segments and begin to establish a strong payer presence.

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