(originally published 11/2/2006 on zachmortensen.net)

RaleighHIS asks:

“Re: Meditech. How does the integration story play so well? 30+ servers, databases that need to be ‘synced’. Yet they tell the ‘integration story’ and people buy it!?”

There can be little doubt that Meditech is the most-successful healthcare IT vendor today, having recently posted quarterly net income that rivals that of Cerner on revenues of $87.4M to Cerner’s $345.5M. Cerner may be the industry darling on Wall Street, but Meditech is laughing all the way to the bank.

RaleighHIS seems to infer that Meditech’s “integration story” propels them to success. I disagree. Meditech’s system seems to be no more or less “integrated” than those of the other major vendors, all of whom seem less than eager to admit that they have some fairly loose coupling within their allegedly highly-integrated architectures.

I think Meditech’s currently-unmatched success is a product of their superior understanding of their business and their market. They seem to understand that it’s not economically feasible for them to attempt to be all things to all people, and the resulting focus has a phenomenal impact on the bottom line.

A vendor who understands its business understands its cost structure and avoids making unprofitable commitments under the guise of growing the top line. Meditech frequently tells its clients and prospects “No, we’re not going to do that.” It may seem counterintuitive at first glance, but it is focus that enables excellence and profitability. Focus is by definition exclusive. You can’t be exclusive without saying no, and you can’t know when to say no unless you really understand your business.

What’s more, in order to know when to say no with confidence, you have to know your market. And Meditech does, arguably better than any major vendor. They know that they don’t have the best solutions in terms of functionality — some of their code is probably 35 years old and they have resisted the urge to rewrite it every time a new technology-du-jour is announced — but they can win on value (functionality/cost) every time because their product is rock-solid and offered at a price that no other HIS vendor can match.

So I think Meditech wins not on integration but on value, which is derived from a clear understanding of the market and their particular business.

Meditech’s competitors, on the other hand, seem bent on integrating their way to market dominance. But as I’ve written before, companies in other industries have overestimated the value of integration, sometimes with dire consequences. Similarly, few software businesses seem to appreciate the exponentially-increasing cost of integration, which implies that there is an upper bound on the economic feasibility of any software system of increasingly complex integration.

A sufficiently-integrated, low-cost, rock-solid system like Meditech’s has a distinct competitive advantage over that of any other vendor who hopes to integrate their way to differentiation by pouring an exponentially-increasing number of dollars into R&D. That’s why Meditech wins today, and that’s why no other vendor will be able to touch their financial performance in the forseeable future.