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  • Porter is considered the leading expert on cluster economics and he addressed this concept specifically in regards to competition in the healthcare industry. The fundamental economic structure of the healthcare industry has always been inefficiently distributed. However, competition will be a critical component of improving both quality and value within the healthcare delivery process in the future.
  • Silicon Valley = key companies emerged; RTP = heavy university focus/incentives; Detroit = companies supporting auto industry; Nevada = started with regulatory incentives; Houston/TX = purely geographical (even though oil had long been discovered in PA); Switzerland = historical strength of friendly customer incentives; Nashville = everything spawned from HCA (one company)
  • Why would one company – McKesson – want their competitor – Cerner – to be located in the same area? Are there more costs or benefits? Proximity in a globalized economy likely won’t have much negative impact; however, the positives can be greater synergies and partnership opportunities, access to talent and workforce development, group leveraging and purchasing power, etc.
  • Tangential awareness – other types of companies/industries see there is a benefit in locating in a certain cluster region for a certain group of companies, which could mean more opportunity for their own company. In Detroit, most of the industry that went there during the heightened years of growth were NOT auto manufacturers – they were companies that supported or sold to the auto manufacturers. Downstream benefits arise when a positive environment is developed, thus resulting in improved education, infrastructure, taxes, etc; therefore, other companies want to benefit from these same advantages.
  • Much of the concentration in CA comes from larger tech corporations whose main focus is NOT healthcare (i.e., Intel, Cisco, Google, etc)
  • This does not even include those companies with significant operations in Atlanta, such as Allscripts, NextGen, GE Healthcare, etc
  • Things we are missing: friendly policy/regulatory environment, poor education, lack of incentives to keep growing companies here, lack of focus, etc. The State began allocating revenues to invest in early stage bio companies (via the GRA, ATDC, et al), yet there were some fundamental flaws: 1) wrong people; 2) poor/no execution plan; 3) no model for long-term sustainability; 4) too small of investment.
  • Other companies with heavy presence here but not based here: GE Healthcare, Allscripts/Eclypses, NextGen
  • Transcript

    • 1. Building an Economic Cluster for Healthcare Technology in Georgia
      Mark Reiboldt, Vice President
      Coker Capital Advisors LLC
      July 22, 2010
    • 2. Atlanta and the HCIT Economic Cluster
      Why is Silicon Valley the center of the technology world? What is the significance of Research Triangle on life sciences? How did Detroit become the epicenter of the auto industry? The primary characteristic that these regions and others like it share is explained in an aspect of economic theory known as “Cluster Economics,” which was coined by the famous strategy expert Michael Porter of the Harvard Business School.
      We will be considering the healthcare IT (HCIT) industry in Georgia and its significance on the broader economy. We will also explore how the rich combination of technology leaders and healthcare industry organizations have been laying the foundation for a new economic cluster in Atlanta and throughout the State to ultimately form the basis of Georgia emerging as the “Silicon Valley of Healthcare IT.” And finally, we will explore the potential benefits of such a model in terms of benefitting Georgia’s private business sector as well as the social and community benefits that ultimately make economic clusters so valuable to a region’s economic infrastructure and growth.
      Why discuss economic clusters in the context of healthcare IT?
    • 3. Economic Clusters 101
      Geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Considered to increase the productivity with which companies can compete, nationally and globally.
      Alfred Marshall (Agglomeration in urban studies)
      Michael Porter (The Competitive Advantage of Nations, 1990)
      Paul Krugman (Geography and Trade)
      Common Types:
      What is an economic cluster?
    • 4. Economic Clusters 101
      Clusters typically impact competition within a given market in the following ways …
      Increasing productivity of companies involved
      Driving innovation within industry / sector
      Stimulates new businesses within the field
      Geographical / Regional clusters emerge when …
      There are enough resources and competences amassed to reach a critical threshold;
      The cluster represents a key position in a given economic branch of activity;
      There is a decisive sustainable competitive advantage over other places, or even a world supremacy in that field.
      Impact of economic clusters on competition (Porter)
    • 5. Examples of Economic Clusters
      Silicon Valley – Technology
      Research Triangle – Medical Technology
      Charles River (Boston) – Life Sciences
      Detroit – Auto Industry
      Delaware – Corporate Registration
      Nevada – Gaming & Entertainment
      Houston – Energy
      Switzerland – Banking
      Wall Street – Financial Services
      Nashville – Healthcare Services
      Despite representing completely different industries and having entirely different backgrounds, economic clusters typically have some common characteristics
      Key Traits
      Catalyst for attracting companies / industry to a region or cluster
      Some degree of value for participants beyond geography
      Model for long-term growth and sustainability exists
    • 6. Nashville Health
      Care Council’s
      Nashville Health Care Industry Family Tree (2009)
    • 7. Value of Clusters
      Economies of Scale / Scope
      “Keep your friends close and enemies closer”
      Regulatory / Policy Incentives
      Group Leveraging Opportunities
      How do companies benefit?
    • 8. Value of Clusters
      Employment / Career Growth
      Training / Workforce Development
      Revenues / Financial Value
      Tangential Awareness (cottage industries, etc)
      Downstream Benefits (housing, education, etc)
      Pleasant, attractive places attract new people
      How do communities benefit?
      In order for an economic cluster to truly pose long-term value, there must be an efficient combination of both financial valueand economic value, which are distinctly different characteristics
    • 9. Making the Case for HCIT in Atlanta / Georgia
      Georgia represents the largest concentration of revenues from HCIT companies
      The value of Georgia’s HCIT industry competes with entire REGIONS
    • 10. Making the Case for HCIT in Georgia
      Twenty percent of the largest publicly-traded HCIT firms are based in Georgia
      As a region, Georgia ranks 3rd in terms of market cap and 4th in revenues
      As a state, Georgia comprises the most market cap and revenues among US-based HCIT companies
      None of these data points account for or include those companies with headquarters outside of Georgia but with significant operations (and revenues) in the State
      This also does not include smaller growth companies
      Incubation-stage companies
      Academic and government affiliated entities
    • 11. Snapshot of Atlanta’s HCIT Market
      • Over $25 billion market cap concentrated in Georgia
      • 12. Over $35 billion in revenues allocated to HCIT in Metro Atlanta area
      Health Systems
      Clear Wave
    • 13. Other Advantages (Besides Geography)
      Transportation (Hartsfield)
      Innovation coming out of Universities
      Significant healthcare provider market
      Innovative nature of regional healthcare providers
      Proximity to complementary areas
      Cost of living, environment, people, jobs, etc
      The value is not entirely just about location of existing HCIT companies
    • 14. Making the Case for HCIT in Georgia
      Research Triangle
      Medical Technologies
      Healthcare Services
      Approx. 18-25% of HCIT revenues and over 80% of all healthcare industry revenues
      Healthcare IT
      *Does not account for companies with corporate HQ’s outside the region despite the majority of HCIT related revenue, operations and personnel being located in the Southeast (e.g., MCK revenue = $108bn, approx 35-40% of which comes from HCIT)
    • 15. Questions & Contacts
      Mark Reiboldt
      Vice President
      O: 678-832-2004
      M: 678-637-2040
      F: 678-832-2016