Corporate Strategic Goals

September 26, 2025 Claire B 0 Comments

Learning Outcomes

Analyze the current internal and external driving forces affecting the healthcare industry.
Develop strategic goals for various levels of a healthcare organization.
Compare strategic thinking, strategic planning and strategic momentum.

Action Items

Conduct research regarding the current internal and external driving forces affecting the healthcare industry.
Write a paper (recommended minimum of 6 pages) in which you:

Identify a healthcare organization within your local area (Columbus) or region (Ohio).
This should be the same healthcare organization that you have chosen for your capstone assignment. (Note: you will revisit this organization in future assignments.)
Discuss the current driving forces that impact the system. Some of these include key competitors, governmental health policies, information systems and technologies; clinical and non-clinical workforce, population demographics, local economic climate, etc.
Conduct a brief analysis of the external environment of the system including the general environment, the service area, and the healthcare environment (see Exhibit 2-2, p. 42 in your textbook).
Use SMART criteria to write a strategic corporate goal that responds to the driving forces you identified. Justify the goal using information from your external analysis.
Write SMART goals for each major level of the organization (refer to Exhibit 1-5, p. 26, in your textbook).
Distinguish and explain the concepts of strategic thinking, strategic planning, and strategic momentum that are unique to each organizational level as they relate to the strategic goals that you wrote.
Prepare your assignment for submission:
Follow all applicable APA guidelinesLinks to an external site. regarding in-text citations, list of cited references, and document formatting for this paper. Failure to properly cite and reference sources constitutes plagiarism.
The title page and reference list are not included in the page count for this paper.
Proofread your assignment carefully. Improper English grammar, sentence structure, punctuation, or spelling will result in point deductions per rubric.
Submit your assignment. Your work will automatically be checked by Turnitin.

Reading

Read the following chapters in (PDF Attached)

Chapter 1
Chapter 2
Resource 1

Read the following article:

Sollenberger, D. K. (2006). Strategic planning in healthcare: the experience of the University of Wisconsin Hospital and ClinicsLinks to an external site.. Frontiers of Health Services Management, 23(2), 17–31. https://eds-s-ebscohost-com.links.franklin.edu/eds/detail/detail?vid=0&sid=cc0a3a06-987e-420e-b2fc-19cc0a450795%40redis&bdata=JnNpdGU9ZWRzLWxpdmU%3d#AN=23450761&db=buh

Weblink: Difference Between Strategic Thinking and Strategic Planning https://chisellabs.com/blog/difference-between-strategic-thinking-strategic-planning

Weblink: Strategic Planning In Healthcare Organizations: Models, Examples & Benefits https://risingmax.com/blog/strategic-planning-in-healthcare-organizations

Chapter 2 External Analysis

Why External Analysis Is Important

President Kennedy’s quote reminds us that organizational failure is often the result of failing to look to the future. Organizations fail to anticipate significant external changes and subsequently do not make the necessary adjustments in strategy that might save them. Organizational success is predicated on tailoring strategy – not to the past or even the present – but rather to well-informed, cred- ible assumptions about the future.

Looking to the future is both an art and a science. The art involves strategic think- ing and the science involves rigorous external analysis. Together, strategic think- ing and external analysis processes enable the generation of realistic strategic

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

—JOhn F. KenneDy, 35Th PresiDenT OF The UniTeD sTATes

Ginter, Peter M., et al. The Strategic Management of Health Care Organizations, John Wiley & Sons, Incorporated, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/franklin-ebooks/detail.action?docID=5228460. Created from franklin-ebooks on 2023-09-29 01:09:17.

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38 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

assumptions about the future for strategy building. Both the art and science are critical for envisioning the future.

The art of looking into the future requires a strategic manager who is informed about and perceptive to an organization’s external changes – requiring an external orientation and inquisitive awareness. strategic managers must be able to see the big picture, understand relationships, and use systems thinking. They have to use critical thinking to determine the consequences and implications of what they see. These leaders need creativity to transform change signals into actions as well as create visions and strategic goals. As introduced in Chapter 1, strategic thinking is an art made up of awareness, anticipation, analysis, interpretation, synthesis, and reflection driven by a passion to know, understand, and succeed.

The science of anticipating the direction of change involves using structured processes for understanding an organization’s external conditions – the general (macro-environment), health care system, and service area changes – utilizing the processes of a number of external analysis tools and techniques. These processes help organize and structure information, aid in focusing on what is important, and provide a foundation for integrative strategic thinking. external analysis coupled with strategic thinking will generate new perspectives and insights to provide a plausible glimpse of tomorrow.

Use the concepts in this chapter to see into the future!

learning objectives

After completing the chapter you will be able to: 1. Discuss the significance of external analysis for health care organizations. 2. Articulate the specific goals of external analysis. 3. Point out some limitations of external analysis. 4. Describe how various types of organizations in society (the macro-environment),

the health care system, and the service area influence the delivery of health care. 5. Identify major general environment, health care system, and service area trends

affecting health care organizations. 6. Describe the utilization of key sources of external information. 7. Discuss important techniques used to identify and analyze external issues, trends,

and events. 8. Suggest several questions to initiate strategic thinking that focus on identifying

and responding to external change.

Strategic Management Competency After completing this chapter you will be able to map and analyze external issues, trends, and events in the general environment, the health care system, and the service area for a health care organization.

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Chapter 2 external analysis 39

The External Nature of Strategic Management

external analysis requires strategic managers who search for ways to radically alter the status quo, create something totally new, or revolutionize processes. They search for opportunities to do what has never been done or to do known things in a new way. Therefore, the fundamental nature of strategic management requires awareness and understanding of outside forces. strategic managers encourage adoption of new ideas in the system, maintain receptivity to new ways of operating, and expose themselves to broad views. More specifically, leaders must have an understanding of the current and potential external issues, trends, and events that may impact the organization and be able to see new possibilities that these changes may bring. This understanding is informed through the pro- cess of external analysis. External analysis is a strategic thinking activity directed toward identifying, aggregating, and interpreting the issues outside an organiza- tion to determine the implications of those issues on the organization as well as providing information for internal analysis and the development of the direc- tional strategies. external analysis can remove the protective covering in which organizations often seal themselves.1 external analysis is a part of the situational analysis section of the strategic thinking map presented in Chapter 1 (exhibit 1–1).

The Goals of External Analysis Although the overall intent of external analysis is to position the organization within its industry and service area, more specific goals may be identified. The specific goals of external analysis are:

● To identify and analyze current important issues and changes that will affect the organization.

● To detect and analyze early or weak signals of emerging issues and changes that will affect the organization.

● To speculate on the likely future issues and changes that will have signifi- cant impact on the organization.

● To classify and order issues and changes generated by outside organizations.

● To provide organized information for the development of the internal analy- sis, mission, vision, values, goals, and strategy of the organization.

● To foster further strategic thinking throughout the organization.

in addition to the identification of current issues, external analysis attempts to detect early or weak signals outside the organization that may portend a future issue. Weak signals are early evidence of emerging trends from which it might be possible to deduce important changes in demography, technology, customer tastes, social, political or regulatory shifts, or economic patterns.2 sometimes based on little hard data, managers attempt to identify patterns that suggest emerging issues that will be significant for the organization. such issues, if they continue or actually do occur, may represent significant challenges or opportuni- ties. Timely identification of external issues aids in developing strategy.

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40 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

strategic managers must go beyond what is known and speculate on the nature of the industry, as well as the organization, in the future. This process often stimu- lates creative thinking concerning the organization’s present and future products and services. such speculation is valuable in the formulation of a guiding vision and the development of mission and strategy. The bulleted list of evolving exter- nal issues at the beginning of Chapter 1 provided some of the emerging and spec- ulative forces that strategic managers might incorporate into their thinking today. There is an abundance of such external data. For it to be meaningful, managers must identify the data sources and aggregate and classify the information. Once classified, important issues that will affect the organization may be identified and evaluated. This process encourages managers to view external changes as issues that may affect the organization.

When strategic managers – top managers, middle managers, and front-line supervisors – throughout the organization are considering the relationship of external forces to the organization, innovation and improved customer satis- faction are likely. strategic thinking within an organization fosters adaptability, and those organizations that adapt best will ultimately displace the rest.

The Limitations of External Analysis external analysis is critical for understanding external changes, but it provides no guarantees for success. The process has some practical limitations that the organi- zation must recognize. These limitations include:

● external analysis cannot foretell the future. ● Managers cannot see everything. ● sometimes pertinent and timely information is difficult or impossible to

obtain. ● There may be delays between the occurrence of external events and man-

agement’s ability to interpret them. ● sometimes there is a general inability on the part of the organization to

respond quickly enough to take advantage of the detected issue. ● Managers’ strongly held beliefs sometimes inhibit them from detecting

issues or interpreting them rationally.3

even the most comprehensive and well-organized external analysis processes will not detect all the changes taking place. events may occur that are significant to the organization but were preceded by few, if any, signals; or the signals may be too weak to be discerned.

Perhaps the greatest limiting factor in external analysis is the preconceived beliefs of management. in many cases, what leaders already believe about the industry, important competitive factors, or social issues, inhibits their ability to perceive or accept signals for change. Because of managers’ beliefs, signals that do not conform to what they believe may be ignored. What an individual actually perceives is often determined by established paradigms (ways of thinking and beliefs). Thus, data that exist in the real world that do not fit the paradigm will have a difficult time permeating the individual’s filters – he or she will simply not see it.4 As creativity

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Chapter 2 external analysis 41

expert edward De Bono explains, “[w]e are unable to make full use of the informa- tion and experience that is already available to us and is locked up in old structures, old patterns, old concepts, and old perceptions.”5 Despite long and loud signals for change, some organizations do not change until it is too late.

The Process of External Analysis

external analysis often is a complex undertaking. Therefore, a step-by-step process helps the identification and assessment of external issues likely to affect the organi- zation. As illustrated in exhibit 2–1, there are six steps to effective external analysis efforts.6 The strategic thinking states of awareness, anticipation, analysis, inter- pretation, synthesis, and reflection are particularly important in external analysis.

ExhIbIT 2–1 Process for External Analysis

Step 1 – Organize the External Analysis Process and Create an Issue Map Template

Step 2 – Scan the General Environment, Health Care System, and Service Area

Step 3 – Monitor and Con�rm External Issues

Step 4 – Forecast External Issues

Step 5 – Assess External Issues

Step 6 – Complete an Issue Map

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42 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Step 1: Organize the External Analysis Process engaging in strategic thinking and the process of external analysis can be over- whelming without some organization. Therefore, breaking the external analysis process into logical components can help focus strategic thinking to engage in the analysis process. in many respects organizations are similar to biological species – both are complex adaptive systems that are nested in broader systems. For example, natural systems are nested in the ecosystem, which is nested in the broader biological environment. similarly, health care organizations are nested in their service areas, the services areas are nested in the industry, and the industry is nested in the broader general or macro-environment as con- ceptualized in exhibit 2–2.7 in these nested systems, changes in one system will initiate changes in another system. For example, a change in national health policy, made in the macro-environment, will affect how the health industry

ExhIbIT 2–2 The Nested Environments of a Health Care Organization

General Environment

Health Care System

Service Area

Organization

• Government Institutions • Business Organizations • Educational Institutions • Religious Institutions • Research Organizations/Foundations • Individuals/Consumers

• Planning/Regulatory Organizations • Primary Providers • Secondary Providers • Provider Associations • Individuals/Patients

• Competitors • Government Services • Business Organizations • Not-for-Profit Organizations • Other Local Organizations • Individuals/Consumers

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Chapter 2 external analysis 43

works (the health care system). These changes in the health care system affect the service areas in which health care organizations operate and ultimately influence the way in which health care organizations operate in those service areas. reciprocally, actions by the organization will change the nature of the service area, changes in service area will be a factor in determining the nature of the health care system, and how the health care system will impact the general environment.

Within these nested systems, organizations and individuals create change. Therefore, if health care managers are to become aware of the changes tak- ing place outside their own organization, they must have an understanding of the types of organizations that are creating change and the nature of the change. When systems are nested, change generally cascades from one sys- tem to another; however, similar to the natural environment, changes in any one system may simultaneously affect the other systems as well as individual organizations.8

in this chapter we will explore the types of change initiated in the general envi- ronment, health care system, and the service area. Chapter 3 will focus on service area competitor analysis and Chapter 4 will examine the organization.

The General Environment All types of organizations and independent indi- viduals generate important issues – and subsequently change – within the general environment. For example, a research firm that is developing imaging equipment may introduce a new technology that could be used by a variety of other organi- zations in diverse industries such as hospitals (magnetic resonance imaging) and manufacturing (robotics). The general environment is the broadest system and members may be broadly classified in a variety of ways depending on the strate- gic management needs of the organization but certainly include:

● Government institutions. ● Business organizations. ● educational institutions. ● religious institutions. ● research organizations and foundations. ● individuals and consumers.

Organizations and individuals in the general environment, acting alone or in concert with others, initiate and foster the macro-environmental changes within society. These organizations and individuals generate economic, social/demographic, legislative/political, technological, and competitive change that will, in the long run, affect many different industries (including health care) and may even directly affect individual organizations. Therefore, external organizations engaged in their own processes, and pursuing their own missions and strategic goals, will affect other industries, organizations, and individuals.

in general, external changes affect a number of different sectors of the economy. For example, passage of the prescription drug bill during the George W. Bush presidency affected a variety of organizations as well as individuals,

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44 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

including insurance companies, organizations representing the elderly, and retir- ees. similarly, the early health care reform initiatives of the Obama administration resulted in the passage of ACA; however, its implementation was spread over a number of years and affected virtually all institutions in society, not just health care organizations. As U.s. national health care legislation evolves during the Trump administration, virtually all institutions and organizations will again be impacted.

The organization itself may be affected rather quickly by the economic, social/ demographic, legislative/political, technological, and competitive change initi- ated and fostered by organizations in the general environment. in the aggregate, these alterations represent the general direction of societal change that may affect the success or failure of any organization. Therefore, an organization engaging in strategic management must try to sort out the fundamental general environment changes and detect major shifts taking place. A shift in consumer attitudes and expectations concerning health care is an example of a societal change that may affect the success or failure of health care organizations. Demographic changes are somewhat more predictable and the growing number of seniors in the U.s. population will impact every aspect of society as well as the health care system. sometimes the demographics of the general environment provide leading indica- tors of health care trends.

Typically, as information is accumulated and evaluated by the organization, it will be summarized as issues affecting the industry or organization. The identi- fication and evaluation of the issues in society are important because the issues will accelerate or retard changes taking place within the industry and may affect the organization directly as well.

The Health Care System events in the health care system typically impact most significantly those organizations and individuals directly or indirectly involved in health care. Organizations and individuals within the health care system develop and employ new technologies, deal with changing social and demographic issues, address legislative and political change, compete with other health care organizations, and participate in the health care economy. Therefore, strategic managers should view the health care system with the intent of understanding the nature of all these issues and changes. Focusing attention on major change areas facilitates the early identification and analysis of industry-specific issues and trends that will affect the organization. in today’s health care system a more focused service area competitor analysis is typically required as well (see Chapter 3).

The wide variety of health care organizations makes categorization difficult; however, the health care system may generally be grouped into five segments: 1. Planning/regulatory Organizations. 2. Organizations that provide health services (primary providers). 3. Organizations that provide resources for the health care system (secondary

providers). 4. Organizations that represent the primary and secondary providers. 5. individuals involved in health care delivery and patients (consumers of

health care services).9

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Chapter 2 external analysis 45

exhibit 2–3 lists the types of organizations and individuals within each segment and provides examples. The categories of health care organizations listed under each of the health care segments are not meant to be all-inclusive, but rather to provide a starting point for understanding the wide diversity and complexity of the industry.

ExhIbIT 2–3 Organizations in the Health Care System

Planning/Regulatory Organizations

Federal regulating agencies ● Department of Health and Human Services (DHHS) ● Center for Medicare and Medicaid Services (CMS) ● Centers for Disease Control and Prevention (CDC) ● Food and Drug Administration (FDA) ● U.S. Agency for Toxic Substances and Disease Registry (ATSDR) ● Environmental Protection Agency (EPA)

State regulating agencies ● Public Health Departments ● State Health Planning Agency (e.g. Certificate of Need or CON)

Voluntary regulating groups ● The Joint Commission (accredits 21,000 health care organizations in the United States) ● National Committee for Quality Assurance (NCQA)

Primary Providers (Organizations that Provide Health Services)

Hospitals ● Voluntary (e.g. Barnes/Jewish Hospital) ● Governmental (e.g. Veteran’s Administration Hospitals) ● Investor-owned (e.g. HCA – The Healthcare Company, Tenet)

State public health departments

Non-hospital health care facilities ● Skilled nursing facilities (e.g. HCR ManorCare) ● Assisted living facilities (e.g. Brookdale Senior Living Solutions) ● Intermediate care facilities (e.g. Avalon Memory Care) ● Ambulatory care institutions (e.g. Ambulatory Care Centers) ● Hospices (e.g. Hospice Care & Palliative Care, Inc.) ● Home health care institutions (e.g. CareGivers Home Health)

Physicians’ offices

Secondary Providers (Organizations that Provide Resources)

Educational institutions ● Medical schools (e.g. Johns Hopkins, University of Alabama at Birmingham [UAB]) ● Schools of public health (e.g. The University of North Carolina at Chapel Hill, Harvard) ● Schools of nursing (Presbyterian School of Nursing) ● Health administration programs (University of Washington, The Ohio State University)

Organizations that pay for care (third-party payers) ● Government (e.g. Medicaid, Medicare) (See Essentials for a Strategic Thinker 2–1, “What is

Government Health Care Insurance?” for an overview of public health insurance) ● HMOs and IPAs (e.g. United Healthcare) ● Insurance companies (e.g. Prudential, Metropolitan)

(Continued)

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46 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

● Businesses (e.g. Microsoft, Ford Motor Company) ● Social organizations (e.g. Shriners, Rotary Clubs)

Pharmaceutical and medical supply companies ● Drug distributors (e.g. McKesson) ● Drug and research companies (e.g. Bristol Myers Squibb) ● Medical products companies (e.g. Johnson & Johnson, 3M, GE)

Organizations that Represent Primary and Secondary Providers

National associations ● American Medical Association (AMA) ● American Hospital Association (AHA)

State associations (e.g. Illinois Hospital Association, New York Medical Society)

Professional associations ● Health care (e.g. American College of Healthcare Executives [ACHE] or Medical Group

Management Association [MGMA]) ● Physicians (e.g. American College of Physician Executives [ACPE]) ● Medical products (e.g. Pharmaceutical Manufacturers Association [PMA])

Individuals and Patients (Consumers) ● Independent physicians ● Nurses ● Non-physician professionals (Physician Assistants, X-ray Technicians) ● Patients and consumer groups (American Heart Association)

Source: Adapted from Beaufort B. Longest Jr., Management Practices for the Health Professional, 4th edn (Norwalk, CT: Appleton & Lange, 1990).

ExhIbIT 2–3 (Continued)

ESSENTIALS fOr A STrATEGIC ThINkEr 2–1

What is government Health care insurance?

In the United States, there are several govern- ment programs that enhance access to health care for specific groups of eligible beneficiar- ies. Some programs only provide health insur- ance coverage such as Medicare, Medicaid, and Children’s Health Insurance Program (CHIP), whereas others may also deliver services directly to beneficiaries such as TRICARE (Military Health Care System, formerly CHAMPUS), the Veterans Administration (VA), and the Indian Health Service (IHS).

Medicare is a federal program that provides health insurance coverage to persons over the age of 65, some disabled workers, and people with end-stage renal disease (ESRD). Individuals who are assessed a payroll tax for forty quarters of employment and are over the age of 65 are eligible for Medicare coverage. People over the age of 65 may also buy into Part A. There is no dependent coverage under Medicare, but an individual that receives a spousal benefit under Social Security is also eligible for Medicare.

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Chapter 2 external analysis 47

The Medicare program consists of four parts: Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage), and Part D (Prescription Drug Insurance). Although Part A is funded by the Hospital Insurance Trust Fund (tax revenues), Parts B and D are funded by a combination of monthly premiums and gen- eral tax revenues. Part D coverage is provided by private insurers (premiums). Many Medicare beneficiaries purchase private Medigap policies (sold by insurance companies such as Humana, Blue Cross Blue Shield, and Aetna) to help with cost-sharing and supplement coverage. Rather than participating in traditional Medicare (i.e. Parts A, B, and D), beneficiaries may enroll in private Medicare Advantage Plans that typi- cally provide more coverage than traditional Medicare, but utilize narrower provider net- works (e.g. HMOs, PPOs). Additional premi- ums for Medicare Advantage Plans may be charged plus enrollees usually are required to pay the government-funded Part B premiums. For Medicare Advantage (Medicare beneficiaries have had the option to receive their Medicare benefits through managed capitated-fee health plans), Medicare pays the health plan a set amount every month (a per person set fee or capitation) at a capitated rate that is 95 per- cent of expenditures for beneficiaries under Medicare Parts A and B.

State Medicaid programs receive federal matching funds from the Federal Matching Funds Program (Maternal Health and Family Planning Program) to provide coverage to low-income pregnant women and children,

low income families, the elderly, persons on Supplemental Security Income (SSI), and disa- bled persons. Medicaid eligibility standards for the non-elderly vary greatly from state to state. Under the ACA Medicaid expansion, all adults with incomes below 138 percent of the Federal Poverty Level (FPL) are eligible for Medicaid cov- erage, but a number of states refused to expand Medicaid. A majority of states now contract with Medicaid Management Care Organizations (MCOs) to deliver services and most beneficiar- ies receive benefits through such plans. The Children’s Health Insurance Plan (CHIP) provides federal matching funds for coverage of children in families with incomes up to 300 percent FPL.

TRICARE provides health care in accordance with a group-priorities list to active duty/retired military, National Guard/Reserve members, and spouses and children through military facilities and civilian networks. In addition, the VA may pay for private care when wait times or com- mutes are excessive.

The Indian Health Services (IHS) provides care to members of federally-recognized tribes in the form of direct care (DC) and purchased/ referred care (PRC). Tribal members may receive DC from any IHS facility, but the availability of PRC care is geographically restricted to areas in close proximity to the home reservation. In addi- tion, tribal members are eligible to participate in all government programs open to the general population.

Source: Leonard J. Nelson, III, Adjunct Professor at UAB School of

Public Health and Professor Emeritus at Samford University.

The Service Area The service area is the geographic space surrounding the health care provider from which it pulls the majority of its customers/patients. it is often limited by sometimes ill-defined geographic borders. Beyond these borders, services may be difficult to render because of distance, cost, time, and so on; however, in some circumstances the service area might be world- wide. nevertheless, a health care organization must not only define its service

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48 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

area, but also understand the changes taking place that will directly affect the organization. Organizations generating change in the service area typically include:

● Competitors. ● Local government services. ● Local business organizations. ● Local not-for-profit organizations. ● Other local organizations. ● individuals and patients.

Defining the Service Categories The first step in defining the service area is to specify the service category to be analyzed because different service categories may have vastly different service areas. A service category is a distinct product/ service that may be defined very broadly (hospital care) or very narrowly (pedi- atric hematology) depending on the level of analysis. Many health care organiza- tions have several service categories or products, and each may have different geographic and demographic service areas. For a multihospital chain deciding to enter a new market, the service category may be defined as acute hospital care, but for a rehabilitation hospital, the service category might be defined as physi- cal therapy, occupational therapy, or orthopedic surgery. in addition, because many health care services can be broken down into more specific subservices, the level of service category specificity should be agreed on before analysis begins. For example, pediatric care may be broken down into well-baby care, infectious diseases, developmental pediatrics, pediatric hematology–oncology, and so on. Certainly pediatric hematology–oncology as a service category would have a far larger service area than well-baby care. A parent with a child who has cancer would travel farther (to a larger service area) for care from a specialist than a par- ent who sought well-baby care available from nurse practitioners in the neighbor- hood (smaller service area).

The service area is further defined by customers’ preferences and the health care providers that are available. The 21st-century consumer has become empowered by the amount of information available concerning disease conditions. exhibit 2–4 shows the determinants of a service area including the consumer variables and the market (provider) variables. For the consumer, the services needed could include health care that is preventive, diagnostic, alternative, routine, episodic, acute, chronic, or cosmetic. Usage rates would be related to a variety of economic, demographic, psychographic, and disease pattern variables.

Brand predisposition indicates the consumer has a preference for some health care providers over others. For example, if there is only one hospital in town, and the consumer does not like its “looks,” location, or perceived quality of care, he or she may prefer to drive to the nearest larger city. For routine medi- cal care, some consumers prefer to go to specialists; others prefer a primary care doctor; still others prefer clinics that have primary care physicians and specialists; and, finally, some consumers prefer physician assistants or nurse practitioners. These different consumer preferences will be determinants in defining the service area.

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Chapter 2 external analysis 49

Another group of consumer determinants will be related to personal factors such as personal and social values, epistemic (knowledge) values, past experi- ences, and the individual’s personal state of health. in concert, these variables develop the individual’s preferences for health care providers; however, if provid- ers are not available – meaning that limited or no options are in the immediate area, the consumer will travel greater distances to gain the desired care.

Options or choices are controlled by the health care structure. The market and organizations within it determine what will be offered or made available to the consumer. The “market” contains health care providers in a variety of locations that bear on convenience and image. Location includes drive time from home (or increasingly, work), availability of transportation, as well as access and parking ease. Convenience may be hours of operation, safety, availability of food, signs to assist in finding the way, and so on. image for the market entails positioning among the various providers. The health care provider might have the image of being more caring, friendlier, or more high-tech; or the practice may be perceived as attracting desirable or undesirable demographic, socioeconomic, or ethnic groups. The organization itself has a perceived or self-image of its services (health care) provided as well as its quality of service and the information provided.

ExhIbIT 2–4 Service Area Determinants

Services Type Personal Values Usage Rates Social Values Brand Predisposition Epistemic Values Preferred Image Past Experiences

Personal State of Health

Consumer Determinants

Location • Drive Time • Transportation • Parking Ease/Access

Convenience • Hours of Operation • Safety • Way�nding

Price Level Image

Services Available Service • Friendliness • Caring • Wait Time

Quality of Information • Website • Phone Consults • Brochures and Advertisements • Instructions • Demonstrations

Service Area

Market/Organization Determinants

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50 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Location, convenience, and image are all in relationship to the other providers in the area, including those within driving distance and those that are remote but perceived as providing better quality, additional services, or other desirable characteristics. health care providers make these decisions, in part, based on their understanding of consumers’ needs and wants.

Managed care interrupts the normal decision making by consumers. An employed individual today usually has some choice in health care insurance. The employer may offer one or more different health plans; however, once the con- sumer has selected a managed care plan, the ability to choose providers – both hospitals and physicians – becomes more restrictive. And, in fact, the more the hMO attempts to control health care costs by further structuring health care delivery, the more restricted the choice becomes for consumers. restricted choice is not favored by most Americans and they have been quite vocal about it with their employers. The result is that many employers are only willing to commit to a health plan that offers choice (and thereby removes the quantity discounts previ- ously offered) and, hence, these organizations have seen health care cost increases in double digits.

Multiple Service Areas Understanding the geographic boundaries is impor- tant in defining the service area, but is often difficult because of the variety of services offered. in an acute care hospital, the service area for cardiac services may be the entire state or region, whereas the service area for the emergency room might be only a few blocks. Thus, for a health care organization that offers several service categories, it may be necessary to conduct several service area analyses. For example, the Des Moines, iowa market has two geographic components: the metropolitan area of the city as well as the suburbs of Polk County (popula- tion approximately 446,700) and the 43 primarily rural counties of central iowa that surround the capital (population of over 1 million). The issues for each of these multiple service areas may be quite different; therefore, considerable effort is directed toward understanding and analyzing the nature of the health care organization’s various service areas. At the same time, for certain organizations, defining only one service category may suffice (such as in the case of a long-term care facility in a major metropolitan area).

service areas will be unique for each organization. A national for-profit hos- pital chain may define its service area quite generally, but even then, different strategies may be in place. For example, hCA holdings inc. (hCA) is a holding company that owns and operates hospitals and related health care entities. As of 2017, it operated 171 hospitals and 118 freestanding surgery centers in 20 states and the United Kingdom.10 hCA’s strategy is to become a major health care presence in highly concentrated markets in the nation. On the other hand, the hospital Association of southern California owns more than 184 hospitals, 40 hospital systems, and numerous related professional associations and associate members.11 its strategy is to improve the operating environment for member hospitals and the health status of the communities they serve in Los Angeles, Orange, riverside, san Bernardino, santa Barbara, and Ventura counties in California (note that this six-county service area contains a population of over 19 million – larger than the population of all states except California, Texas, Florida, and new york).

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Chapter 2 external analysis 51

ESSENTIALS fOr A STrATEGIC ThINkEr 2–2

What is a community?

Community is a very important concept in public health as well as health care policy, plan- ning, and management. In general parlance, a community refers to a group of people living together in a defined place; the place could be a neighborhood, a rural village, an urban area, or an entire country. In addition, community implies a collective group of individuals who share some feature in common, be it a pro- fession (the scientific community), a religion (the Jewish community), or some other char- acteristic (the LGBT community, the Hispanic community).

The public health community (a group of professionals who share a common purpose) spends considerable effort monitoring the health of communities (groups of people living together in geographic areas within states and nations) because of its interest in promoting and preserving the health of entire populations. Issues relating to the larger community within which health care organizations do business

must be critically examined and either accom- modated or exploited to promote successful health care outcomes.

In this context, the community represents the service area within which health care organizations function, while also represent- ing a set of community factors – values, needs, resources, and constraints – that may suggest modifications to a typical health care structure or the usual set of services offered/delivered. Therefore, the service area would include such factors as access to care, available financing strategies, the ways in which resources are allo- cated, and systems of accountability.

Examples of community factors that can affect health care organizations include:

● The level and scope (federal, state, regional, local) of governmental entities that regulate the health system and the extent of regulation directed at health care organizations.

An individual hospital, home health care organization, or hMO may define its service area much more specifically. in general, health services are provided and received within a well-defined service area, where the competition is clearly iden- tified and critical forces for the survival of the organization originate. For instance, hospitals in rural areas have well-defined service areas for their particular ser- vices. These hospitals must be familiar with the needs of the population and with other organizations providing competing services. similarly, the service areas for public health departments vary within a state, depending on whether they are metropolitan or rural, and may suggest quite different opportunities and threats.

Determining the geographic boundaries of the service area may be highly subjective and is usually based on factors such as patient histories, the reputation of the organization, available technology, physician recognition, and so on. in addition, geographic impediments such as rivers, mountains, and limited access highways can influence how the service area is defined. The definition of com- munities (see essentials for a strategic Thinker 2–2, “What is a Community?”) is often helpful in determining a service area.

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● The nature and scope of professional organizations that set standards, accredit, or otherwise engage in accountability functions for health care organizations.

● The nature and scope of health care financing agencies, including purchasers and private and public insurers, that participate in the health care marketplace in the community.

● The availability of health care providers, facilities, supplies, and ancillary services across the community.

● The characteristics of the populations ultimately paying for and receiving health care services. These characteristics could include socioeconomic status (education, occupation, and income),

race and ethnicity, language, family structure, health status, health risk, and health-seeking behaviors.

A community, then, in this context, can refer to the health care community, the com- munity of individuals served by a health care system, the physical community within which the individuals reside and the health system functions, and the service area within which any given health care organization operates. Identifying and considering the community of interest (service area) facilitates strategic plan- ning and strategic management of health care organizations.

Source: Donna J. Petersen, MHS, ScD, CPH, Dean, College of Public

Health, University of South Florida.

External Information Categories Breaking the external macro-environment into the general environment, the health care system, and the service area compo- nents helps focus strategic thinking and external analysis. similarly, categorizing issues by type – economic, social/demographic, legislative/political, technologi- cal, and competitive – further aids in focusing on the identification of issues. such categories not only assist in tracking but also facilitate the subsequent assessment of the issues. issues are not inherently categorical; however, using these categories helps managers to understand the nature of the issues and aggregate and organize information. Through the aggregation and organization process, patterns may be identified and evidence accumulated on an issue.

Combining the system components with these categories of issues results in an issue map. More specifically, an issue map is a matrix of issues that com- bines the components of the external systems (general environment, health care system, and service area) on one axis with categories of issues (economic, social/demographic, legislative/political, technological, and competitive) on the other axis. The format of the issue map that organizes the external analy- sis process is shown in exhibit 2–5. The cells of the issue map may be filled in with identified issues and their implications through the remaining steps of the external analysis process – the scanning, monitoring, forecasting, and assessing stages. Additionally, the issue map will provide the foundation for a more focused analysis of the organization’s competitors in the service area (Chapter 3).

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Chapter 2 external analysis 53

ExhIbIT 2–5 External Issue Map

Issue Map

General Environment Service Area

Health Care System

Categories of Issue

Economic

Competitive

Technological

Legislative/ Political

Social/ Demographic

Step 2: Scan the General Environment, health Care System, and Service Area

Scanning is the process of identifying and documenting a number of external organizations in the general environment, health care system, and service area in search of pertinent, current, and emerging trends/issues. scanning the exter- nal systems requires the strategic thinking states of awareness and anticipation. strategic managers who practice effective external analysis are so “close” to the external issues that by the time change becomes apparent to others, they have already detected the signals of change and have explored the significance of the changes. These managers are often called visionaries; however, vision is often the result of their strategic awareness – thoughtful detection and interpretation of subtle signals of change. such strategic managers are able to eliminate predictable surprises for the organization – surprises that should not have been. These man- agers are able to avoid disasters by recognizing the issue, making it a priority in the organization, and mobilizing the resources required to address it.12 “The most important task of an organization’s leader is to anticipate crisis. Perhaps not to avert it, but to anticipate it. To wait until the crisis hits is already abdication. One has to make the organization capable of anticipating the storm, weathering it, and in fact, being ahead of it.”13

To be successful, health care organization leaders must have an understanding of the external systems in which they operate; they must anticipate and respond

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54 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

to the significant shifts taking place within those systems. strategic thinking, and the incorporation of that thinking into the strategic plans for the organization, is now more important than ever. “in times of turbulence the ability to anticipate dramatically enhances your chances of success. Good anticipation is the result of good strategic exploration.”14 Organizations that fail to anticipate change, ignore external forces, or resist change will find themselves out of touch with the needs of the market, especially because of antiquated technologies, ineffec- tive delivery systems, or outmoded management. institutions that anticipate and recognize significant external forces and modify their strategies and opera- tions accordingly will prosper. essentials for a strategic Thinker 2–3, “What Are inevitable and Predictable surprises and Gray rhinos?” examines the nature of these “surprises.”

ESSENTIALS fOr A STrATEGIC ThINkEr 2–3

What Are inevitable and Predictable surprises and gray rhinos?

Inevitable surprises are events occurring in the future that have discernable signs, patterns, or signals of their occurrence today. By examin- ing the dynamics at work, the strategist can predict the inevitable surprises of tomorrow; thus the future is foreseeable.1 Occurrence is inevitable and prediction is possible because many “surprises” are already taking place through predetermined events – forces that can be anticipated with certainty. If these events are identified, will there be surprises? The answer is simple – while the events are predetermined, the timing, results, and conse- quences are not.

Predetermined events can be anticipated because their early stages are already in motion – either they have already happened or they are currently happening, and experienced strate- gists are able to characterize likely implications. Leaders can increase the probability of success- fully predicting future events and trends by using a systems approach and incorporating the elements of strategic thinking into the deci- sion making process (awareness, anticipation, analysis, interpretation, synthesis, reflection). By

training themselves to carefully consider exter- nal systems, analyze data, question assumptions, and generate new ideas, decision makers can develop the ability to forecast predetermined events and even second- and third-degree effects that will impact the organization.

A related concept, that of predictable surprises, indicates that leaders may not be able to anticipate crises because of their cognitive, organizational, or political short- comings.2 Such faults may include inher- ent biases (cognitive); faulty external scans that do not identify threats or do not col- lect and analyze information appropriately (organizational); or specialized interests that invoke individuals or groups to act in their own self-interest rather than the organiza- tion as a whole (political). Those in leadership positions must champion the recognition of threats that are emerging, the subsequent prioritization of threats, and the activation of effective response.

In contrast to inevitable and predictable surprise, gray rhinos are high-probability, high- impact issues that everyone acknowledges

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Chapter 2 external analysis 55

as threats because a series of signals and vis- ible evidence has occurred. Leaders can see them coming yet fail to address them (obvious but neglected risks).3 These issues tend to be significant social, economic, and political issues or unsolved problems that threaten a profound impact and yet are not typically addressed until they create disaster. Such issues might include growing income inequal- ity, a deepening racial divide, global warming (climate change), political gridlock, or lack of access to health care for millions of people. Charging gray rhinos may pose significant risks to organizations; therefore, leaders must work to induce momentum for positive change or be flattened by inaction.4

Leaders can improve their organization’s abil- ity to anticipate and respond to events by learn- ing to recognize behaviors that cloud judgment (such as cognitive, organizational, and politi- cal imperfections) and incorporating lessons learned into the organizational culture.

RefeRenCeS

1. Peter Schwartz, Inevitable Surprises: Thinking

Ahead in a Time of Turbulence (New York:

Gotham Books, 2003).

2. Max Bazerman and Michael D. Watkins,

Predictable Surprises: The Disasters You Should

Have Seen Coming and How to Prevent Them

(Boston, MA: Harvard Business School Press,

2004).

3. Michele Wucker, The Gray Rhino (St. Martin’s

Press, 2016).

4. Ibid.

See also: Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Parameters, 2006). Book Review by Mark J. Eshelman, retrieved from www.thefreelibrary. com/Predictable±Surprises%3A±The±Disasters ±You±Should±Have±Seen±Coming±and± …-a0148856135.

Source: Lauren Wallace MPH, MPA, DrPH Candidate, University of

Alabama at Birmingham.

Organizational and Individual Focus A number of organizations and individuals comprise the general environment, health care system, and service area. some external organizations and individuals have little direct involvement with the health care system while others are directly connected. The distinction is not always clear. These organizations and individuals, through their normal oper- ations and activities, are generating changes that may be important to the future of other organizations. Changes in the general environment are always “breaking through” to the health care system. For example, health care often advances hand in hand with technology, as is the case with the convergence of imaging technol- ogy and biotechnology – enabled by advanced health care information technology – which promises to radically change diagnosis and treatment for many chronic diseases.15

The external scanning process acts as a “window” to these organizations. These organizations and individuals are generating strategic issues that may shape the entire health care system or have a direct impact on any one health care organiza- tion. Managers engaged in external scanning carry out three functions. They: 1. View external data. 2. Organize external information into several desired categories. 3. identify issues within each category.

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http://www.thefreelibrary.com/Predictable%C2%B1Surprises%3A%C2%B1The%C2%B1Disasters%C2%B1You%C2%B1Should%C2%B1Have%C2%B1Seen%C2%B1Coming%C2%B1and%C2%B1%E2%80%A6-a0148856135

56 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Strategic issues are external trends, developments, dilemmas, and possible events that affect an organization and its position. strategic issues are often ill-structured and ambiguous and require effort in interpretation.16 Often, in attempting to identify important external issues, general labels such as oppor- tunities or threats are used to classify issues. however, signals are typically neutral in their implications and their interpretation can only be assessed in the context of strategy.17 Therefore, at this stage in strategic planning, it is ben- eficial to avoid using the terms opportunities/threats, positive/negative, gain/ loss, or controllable/uncontrollable, and instead consider the consequences of the issue itself. strategies can be worked out later, after leaders have a better understanding of external issues as well as internal resources, competencies, and capabilities.

The scanning function serves as the organization’s “window” or “lens” on the external world. The scanning function is a process of viewing a number of external organizations either in the general environment, health care system, or service area in search of current and emerging trends or issues. in the scan- ning process, planners focus on data generated by external organizations and individuals, and compile and organize it into meaningful categories. As a result, external issues are organized through the scanning process. Prior to this interpre- tation process, issues are diverse, unorganized, sporadic, mixed, and undefined. The scanning process categorizes, organizes, accumulates, and, to some extent, evaluates issues.

Information Sources There are a variety of sources for external information. Although organizations create change, they are often difficult to monitor directly. however, various secondary sources (published information) are readily avail- able. essentially, people and publications both outside and inside the organiza- tion serve as external information sources. Typically, within the organization, there are a variety of experts who are familiar with external issues and who may be the best sources of such information. in addition, many organizations collect patient and consumer information, and subscribe to and archive industry, techni- cal reports, and databases. Outside the health care organization, patients, physi- cians, nurses, suppliers, third-party payers, pharmaceutical representatives, and managed care companies may be considered important direct sources. indirect sources are mostly newspapers and journals, the internet, television, libraries, and public and private databases.

external scanning is perhaps the most important part of external analysis because it forms the basis for the subsequent processes. in the scanning activity, issues and changes are specified and sources identified. it is from this begin- ning that a database for decision making will be built. it is crucial that managers understand the thinking that led to the development and selection of strategic and tactical issues from among those identified in the scanning process. it is therefore advantageous if as many managers as possible take part in scanning. An important aspect of external scanning is that it focuses leaders’ attention on what lies outside the organization and enables them to create an organization that can adapt and learn.

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Chapter 2 external analysis 57

Step 3: Monitor and Confirm External Issues Monitoring is the tracking of issues identified in the scanning process to add data concerning the issue to confirm or deny its impact. This activity accomplishes four important functions: 1. researches and identifies additional sources of information for specific

issues delineated in the scanning process that were determined to be important or potentially important to the organization.

2. Adds to the external issue database. 3. Attempts to confirm or disprove issues (trends, developments, dilemmas,

and the possibility of events). 4. Attempts to determine the rate of change within issues.

Once the organizations creating change and the publications or other infor- mation sources reporting change have been identified, special attention should be given to these sources.

The monitoring function has a much narrower focus than scanning; the objec- tive is to accumulate a database around an identified issue. The database will be used to confirm or deny the trend, development, dilemma, or possibility of an event and to determine the rate of external change taking place.

The intensity of monitoring is reflected in management’s understanding of the issue. When managers believe they understand the issue well, less monitor- ing will be done. however, when external issues appear ill-structured, vague, or complex, the issues will require a larger amount of data to arrive at an interpretation.18

Step 4: forecast External Issues Forecasting external change is a process of extending the trends, developments, dilemmas, and events that the organization is monitoring to predict the future state. Further, forecasting looks at how hidden trends in the present signal possi- ble changes in direction for organizations and societies in the future. The forecast- ing function attempts to answer the question: “if these trends continue, or if issues accelerate beyond their present rate, or if this event occurs, what will the issues and trends ‘look like’ in the future?” An organization’s forecasting competence (coupled with its assessment) can yield a competitive advantage.19

Three processes are involved in the forecasting function: 1. extending the issues (trends, developments, dilemmas, or occurrences of an

event). 2. identifying the interrelationships among the issues. 3. Developing alternative projections.

Step 5: Assess External Issues information concerning external issues, though abundant, is seldom obvious in its implications. strategic managers must interpret the data they receive.

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ESSENTIALS fOr A STrATEGIC ThINkEr 2–4

What is Big Data Analytics?

Simplistically stated, Big Data means too much disparate data from too many sources to process with non-distributed techniques; thus analytics are employed. Big Data actually comprise multi- ple large datasets that are analyzed in conjunc- tion to uncover patterns and correlations among the data that likely would not be apparent if the datasets were analyzed independently. These collections of datasets include structured, semi- structured, and unstructured data extracted from many public and private sources that con- tribute to understanding or solving a complex problem. Such analyses are useful for operational purposes such as improving work processes and reducing cost, and for strategic purposes such as making future market predictions based on past sales behavior patterns.

Data VOlume

Compiling Big Data is not the point – Big Data provide no competitive advantage without ana- lytics (unless you are selling some exceptionally

important data to other users) – it is about the knowledge to be gleaned through expert explo- ration of the unique elements of the datasets in their combined contexts.

Data mining, the process of extracting knowl- edge about previously unknown relationships from massive datasets, is possible because of technological innovations such as cost-effective data storage options, high-speed distributed processing capability, robust device connectiv- ity with high-speed data transmission, and dis- tributed data platforms. Despite these and other technological capabilities available, Big Data still present many challenges to optimal utilization beyond the obvious challenge of volume.

Data VaRIety (DISPaRate Data StRuCtuReS)

Significant data from source databases may take many forms, including text, aggregated statistical data, raw data transmitted from mobile devices, video and graphic data, and other formats, that

After all, facts do not speak for themselves; one has to make sense of the facts, not just get them straight.20 Assessing is a process for the evaluation of the significance and impact of forecasted external issues on an organization that is largely non-quantifiable and therefore judgmental. The assessment process includes evaluation of the significance of the extended (forecasted) issue on the organization; identification of the issues that must be considered in the internal analysis; development of the vision and mission; and formulation of the strategic plan. however, even when exposed to identical issues, different managers may interpret their meaning quite differently. interpretations are a result of a variety of factors, including perceptions, values, past experiences, and context. Assessing may also initiate additional scanning, monitoring, and forecasting as part of the assessment process. Today, organizations are increas- ingly turning to “Big Data” and analytics in the assessment process. essentials for a strategic Thinker 2–4, “What is Big Data Analytics” examines Big Data and analytics in assessment.

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Chapter 2 external analysis 59

require sophisticated data management and analytical approaches. Data scientists with these skills are scarce.

Data VelOCIty

In the current environment, large volumes of data are captured and transmitted rapidly, often in real-time at exceptionally high speeds. Repositories of these data are dynamic or moving targets from an analytics perspective. Processing speed must be compatible with cap- ture speed.

Data VeRaCIty

The accuracy and reliability of data is a concern with any data analysis, and is compounded in Big Data rather than minimized, because analysis is based on numerous highly variable datasets, rather than a single constructed and cleaned dataset. Errors in one component data- set may affect a conclusion drawn from a com- plex relationship involving multiple datasets. Cleaning Big Data to enable analytics requires skilled data scientists, specific data tools, and much time.

Data CuRatIOn

The extreme volume of combined data, the variation among the multiple source datasets, and the velocity of data capture and processing all contribute to the challenge of establishing metadata for Big Data. Defining the logic model underlying the metadata structure and crafting a searchable data structure requires special tech- nical skills and data tools. Again, data scientists with these skills are scarce. Big Data, of neces- sity, are cloud-based, stored and processed on multiple servers that may be subscription-based, involve multiple vendors, and require compre- hensive data sharing agreements.

RegulatIOn anD OVeRSIgHt

Enforcement of consumer protection laws, such as those regulated by the Federal Trade Commission, as well as information security and privacy regulations such as the Health Insurance Portability and Accountability Act (HIPAA) are evolving with regard to Big Data.

Source: Donna J. Slovensky, PhD, RHIA, FAHIMA, Professor and

Senior Associate Dean, School of Health Professions, University of

Alabama at Birmingham.

strategic decisions are made in the context of changing financial, social, politi- cal, technical, and competitive forces – understanding the context in which an organization operates is, therefore, fundamental. Understanding the context of a situation so that complexity can be better explained is called sensemaking.21 strategic leaders who have a sense of context know how to quickly capture the complexities of their situation and explain them to others in simple terms. This explanation helps to ensure that everyone is working from the same map, which makes it far easier to discuss and plan for the journey.22

The assessment process is not an exact science, and sound human judgment and creativity may be bottom-line techniques for sensemaking – a process with- out much structure. For example, assessing the commercial potential of drugs in clinical trials requires not only an understanding of the science but also sound business judgment.23 The fundamental challenge is to make sense out of vague, ambiguous, and unconnected data. strategic leaders have to infuse meaning into data; they have to make the connections among discordant data such that signals of future events are created. sensemaking involves acts of perception

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and intuition. it requires the capacity to suspend beliefs, preconceptions, and judgments that may inhibit connections being made among unclear and dispa- rate data.24

several different strategic thinking frameworks and techniques may be used to examine issues identified in the scanning, monitoring, and forecasting stages of external analysis. These frameworks, which are informal and generally not overly sophisticated, have been variously described as “judgmental,” “speculative,” or “conjectural.”25 indeed, external analysis is largely an individual effort and is directed to person-specific interests. Further, external analysis usually is not limited to just one of the external analysis tools and techniques. The remainder of this chapter will discuss external analysis frameworks that identify and help assess issues in the general environment, the health care system, and the service area. An approach and techniques for more specific market segmentation and competitive analysis will be discussed in Chapter 3.

Issue Impact and Probability Prioritization Issue impact and probability prioritization is the classification of external issues based on an assessment of the importance of the issue and the likelihood that the issue will continue to remain an issue in the future. Perhaps because of its relative simplicity, issue prioritiza- tion is a widely practiced analysis method. Unfortunately, external issues are rarely presented as a neat set of quantifiable data; rather, external issues are ill- structured and conjectural. Thus, in many cases, external analysis is a matter of reaching consensus on the existence and impact of an issue and speculating on the likelihood of its continuance.

As illustrated in exhibit 2–6, the issue impact and probability prioritization process for a nursing home includes the identification of issues by external sys- tem category and the determination of its probable impact on the organization. Additionally, managers may assess the likelihood that the trend, development, or dilemma will continue or that the event will occur, and then identify the sources for additional information.

ExhIbIT 2–6 Issue Impact and Probability Prioritization by a Nursing Home

trend/Issue evidence

Impact on Our Organization

(1–10)

Probability of trend Continuing

(1–10)

Aging population 1 in 5 Americans will be at least 65 by 2030

9 9

Wealthier elderly Income of those 60+ has increased 10 percent faster than any other group

7 6

Local competition Over 5 years, the number of nursing homes in the service area has increased from 5 to 7

7 9

10 = High impact or probability; 1 = Low impact or probability

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Chapter 2 external analysis 61

ExhIbIT 2–7 External Trends/Issues Plot

Low Impact Low Probability

Impact on the

Organization

Critical issues to the right of the line should be addressed in the strategic plan

Low High 015

Low Impact High Probability

High Impact Low Probability

High Impact High Probability

Wealthier Elderly

Local Competition

Aging Population

High

Critical issues to the right of the line should be addressed in the strategic plan

Probability of Trend Continuing

The formats illustrated in exhibit 2–6 and exhibit 2–7 are useful for organizing external data and providing a starting point for speculating on the direction and rate of change for identified trends. however, trend extrapolation of external issues requires extensive familiarity with the issues and a great deal of sound judgment.

Solicitation of Expert Opinion Expert opinion is well-informed individu- als’ insight into an issue/trend/situation, typically used in external analysis to identify, monitor, forecast, and assess external trends. experts play a key role in shaping and extending the thinking of leaders. health care leaders can use these opinions to stimulate their strategic thinking and begin developing human resources strategies. To further focus leaders’ thinking and generate additional perspectives concerning external issues, there are a number of more formal expert-based external analysis techniques. These strategic thinking frameworks help to solicit and synthesize the opinions and best judgments of experts within various fields.

These issues may then be plotted on the chart shown in exhibit 2–7. The assumption is that the issues to the right of the curved line in the exhibit have a significant impact (high impact) on the organization and are likely to continue or occur (high probability) and should be addressed in the strategic plan.

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The Delphi Method The Delphi method is a process for the development, evaluation, and synthesis of individual points of view through the systematic solicitation and collation of individual judgments on a particular topic; it is a popular, practical, and useful approach for identifying issues and analyzing external data. The Delphi method may be used to identify and study current and emerging trends within each issue category (technological, social/demographic, economic, and so on). Opinions are summarized and then sent back to the par- ticipating individuals for the development of new judgments concerning the topic. After several rounds of solicitation and summary, a synthesis of opinion is formulated.26

The traditional Delphi method has undergone a great deal of change in the con- text of external analysis. The salient features of the revised Delphi method are to:

● identify recognized experts in the field of interest. ● seek their cooperation and send them a summary paper (based on a litera-

ture search). ● Conduct personal interviews with each expert based on a structured

questionnaire.27

in contrast to traditional Delphi methods, there is no further feedback or repeated rounds of questioning. The major advantage is that it is easier to recruit recognized experts because they do not need to commit as much of their time.

The Delphi method is particularly helpful when health care managers want to understand a specific external issue. For example, a Delphi study was designed to define the role and responsibilities of sports medicine specialists in the United Kingdom. A mail questionnaire was sent to a random sample of 300 members of the British Association of sport and exercise Medicine. The original questionnaire contained 300 attributes and allowed participants to modify their responses based on feedback from other participants. The study was recognized as the first system- atic attempt to define the role and responsibilities of the sports medicine special- ist and concluded that sports medicine was an evolving specialty in the United Kingdom.28 More recently, methods and experts from other disciplines have been applied to health care issues such as the forecasting of infectious diseases.

Nominal Group Technique, Brainstorming, and Focus Groups The nominal group technique (nGT), brainstorming, and focus groups are interac- tive group problem identification and solving techniques. The nominal group technique is a facilitated group discussion process for developing consensus on an issue or problem where individuals present ideas, discussion occurs, and consensus is reached through a voting process. in the nominal group technique, a group is convened to address an issue, such as the impact of consolidation within the health care system or the impact of an aging population on hospi- tal facilities. each individual independently generates a written list of ideas surrounding the issue. Following the idea-generation period, group members take turns reporting one idea at a time to the group. Typically, each new idea is recorded on a large flip chart for everyone to consider. Members are encouraged to build on the ideas of others in the group. After all the ideas have been listed, the group discusses the ideas. After the discussion, members privately vote or

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Chapter 2 external analysis 63

rank the ideas. After voting, further discussion and group generation of ideas continue. Typically, additional voting continues until a reasonable consensus is reached.29

Brainstorming is a group process of free flowing idea generation and discus- sion, typically used in strategic management to better understand an issue, assess the impact of an issue, or to generate alternatives. in this process, participants present ideas and are allowed to clarify them with brief explanations. each idea is recorded, but evaluation is generally not allowed. The intent of brainstorming is to generate fresh ideas or new ways of thinking. Participants are encouraged to present any ideas that occur to them, even apparently risky or impossible ideas. such a process often stimulates creativity and sparks new approaches that are not as risky, crazy, or impossible as first thought.30

nGT and brainstorming could be used to understand and respond to the increasing competition for ambulatory surgery. non-hospital access points, such as specialized ambulatory surgery centers, represent a rapidly growing trend and hospitals are very concerned about the impact this growth could have on their bottom line. inpatient surgeries requiring a one-day or longer length of stay constitute a small and decreasing percentage of hospital surgery profits. The most popular outpatient areas are gastroenterology, orthopedics, gynecol- ogy, ophthalmology, as well as podiatry, enT, and general surgery. however, increasingly there are signs that angioplasty, peripheral vascular surgery, and low-risk coronary interventions such as pacemakers and cardiac defibrillators may be next.

These changes and the prospect of even greater changes offer an opportunity for hospital managers to employ brainstorming groups to plan for the future. some of the major uncertainties that could be addressed by the groups include the future of Medicaid, Medicare, and other forms of government health care insurance (see essentials for a strategic Thinker 2–1). Brainstorming groups could provide serious insights into how willing physicians are to continue perform- ing their procedures in hospitals and turn away from investments in outpatient facilities that could provide a 25 percent return on invested capital. Moreover, outpatient surgeries are easier for physicians to schedule without the aggravation of sharing operating rooms with inpatient and emergency services. Brainstorming groups might also be used to project the future direction of hospital reimburse- ment. Although both of these factors represent major uncertainties, informed groups could be very useful in preparing for the increasingly competitive health care system.31

similar to the process of brainstorming, focus groups bring together 10 to 15 key individuals to surface issues and develop, evaluate, and reach conclusions. Focus groups provide an opportunity for management to discuss particularly impor- tant organizational issues with qualified individuals. hospitals and large group practices have used focus groups of patients to better understand the perceived strengths and weaknesses of the organization from the patient’s view. For exam- ple, Johns hopkins was considering the establishment of an integrated delivery system under one umbrella name. Focus groups of physicians, present and past patients, non-patients, and others convinced them to change plans. Focus groups can provide new insights for understanding issues and suggest fresh alternatives for their resolution.

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Dialectic Inquiry Dialectic inquiry is a “point and counterpoint” process of argumentation in which a thesis is argued against an antithesis to develop a syn- thesis of ideas or issues. The 19th-century German philosopher hegel suggested that the surest path to truth was the use of a dialectic process – an intellectual exchange in which a thesis is pitted against an antithesis. According to this prin- ciple, truth emerges from the search for synthesis of apparently contradictory views.32

More specifically, in external analysis, dialectic inquiry is the development, evaluation, and synthesis of conflicting points of view (concerning issues) through separate formulation and refinement of each point of view.33 For instance, one group may argue that health care costs will be declining between 2018 and 2025 (thesis) because of changes in health regulation. Another group may present a case that the trend toward rising health care costs will continue (antithesis) because of hospital failures, the high cost of new technology, shortage of primary care pro- viders, and so on. Debating this issue will unearth the major factors influencing health care costs and the implications for the future.

Any health care provider can utilize this technique by assigning groups to debate specific external issues. The groups make presentations and debate con- flicting points of view concerning the issues. After the debate, the groups attempt to form a synthesis of ideas concerning the likely future.34

Stakeholder Analysis Stakeholder analysis is the systematic identification and evaluation of external and internal individuals, groups, and organizations that have an interest (or stake) in the success or failure of an organization. it is based on the belief that there is a reciprocal relationship between an organiza- tion and certain other organizations, groups, and individuals. examples of pos- sible health care stakeholders, shown as a “stakeholder map,” are presented in exhibit 2–8.

Stakeholders are individuals, groups, and organizations that are directly or indirectly impacted by the success or failure of the organization and may be cat- egorized as internal, interface, and external. internal stakeholders are those who operate primarily within the bounds of the organization, such as managers and other employees. interface stakeholders are those who function both internally and externally, such as the medical staff and the corporate officers of the parent company. external stakeholders operate outside the organization and include such entities as suppliers, third-party payers, competitors, regulatory agencies, the media, the local community, and so on.35 such stakeholders have been referred to as the “organization ecosystem”– organizations that affect and are affected by the creation and delivery of the organization’s product or service. Part of stake- holder analysis is to systematically identify the organizations with which their future is most closely intertwined and determine the dependencies that are most critical.36

some of these stakeholders are almost always powerful or influential; others are influential regarding only certain issues; still others have little influence or power. if the stakeholders can be identified and evaluated, then the “forces” affecting the organization may be specified. The needs and wants of these constituencies may dramatically affect the strategy of an organization.37

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Chapter 2 external analysis 65

Typically, managers tend to focus attention on known, salient, or powerful stakeholders to help protect existing competitive advantages. however, there is growing evidence that “fringe” stakeholders are important as well – particularly for developing new ways of thinking. researchers suggest that “the knowledge needed to generate competitive imagination and to manage disruptive change increasingly lies outside the organization, at the periphery” of the organization’s established stakeholder network.38 Therefore, strategic thinkers must be open to fringe ideas and non-traditional thinking developed by fringe players. At first, these stakeholders may appear to be poor, weak, isolated, non-legitimate, or radi- cal.39 in reality, they may be strong purveyors of change.

Scenario Writing and Future Studies Many businesses regularly use sce- narios when assessing the external trends. Scenarios are probable visions, stories, or pictures of the future based on forecasting the impact of current trends, events, and issues. The popularity of scenario analysis is due in large part to the inability of other, more quantitative, forecasting methods to predict and incorporate major

ExhIbIT 2–8 A Stakeholder Map for a Large Multispecialty Group Practice

Specialty physician referrals

Nonspecialty physician referrals

Competing physicians

Third-party payors

Self-insured employers

Local paying patients

Organizations managing

care

Nonlocal patients

Professional associations

Federal, state, and local regulators

Federal Medicare

State Medicaid

Indigent patients

Professional employees

Practice administrative

services

Multispecialty group medical

practice

Nonlocal physicians

Hospital

Governing board

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66 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

external shifts and provide a context for strategic thinking. scenarios avoid the need for single-point forecasts by allowing users to explore several alternative futures.40 scenario analysis is an alternative to conventional forecasting that is better suited to situations with numerous uncertainties or imponderables – where there is no map.

A scenario is a coherent story about the future, using the world of today as a starting point. Based on data accumulated in the scanning and monitoring pro- cesses, a scenario or narrative that describes an assumed future is developed. The objective of scenarios and future studies is to describe a point of time in the future as a sequence of timeframes or periods of time. scenario writing often requires gen- erous assumptions. Few guidelines prescribe what to include in a scenario. in most cases several plausible scenarios should be written. it is an all-too-common mistake to envision only one scenario as the “true picture of the future.”41 Most authorities advocate the development of multiple scenarios. however, to avoid decision mak- ers focusing only on the “most likely” or “most probable” scenario, each scenario should be given a distinctive theme name, such that they appear equally likely.

Multiple scenarios allow the future to be represented by different cause–effect relationships, different key events and their consequences, different variables, and different assumptions. The key question is: “if this external event happens (or does not happen), what will be the effect on the organization?” The use of mul- tiple scenarios is particularly helpful in considering the future of public health. see essentials for a strategic Thinker 2–5 to answer the question “What is Public health in the United states?” and exhibit 2–9 to examine four scenarios or alter- native futures for public health care through 2030. The scenarios were developed by the institute for the Future to provide a description of critical factors that will influence public health in the 21st century.

ESSENTIALS fOr A STrATEGIC ThINkEr 2–5

What is Public Health in the United states?

The work of public health developed over time in response to community need and is carried out at federal, state, and local levels. In 1988, after an intense study of public health in six states, the Institute of Medicine defined the basic functions of public health as assess- ment, policy development, and assurance. The Centers for Disease Control and Prevention (CDC) proposed organizational practices to implement the three core functions. In spring 1994, a national working group comprised of representatives of the Public Health Services

Agencies and the major public health organ- izations developed a consensus list of the “essential services of public health.” The new statement on essential services provided a vision for public health in America – “Healthy People in Healthy Communities” – and stated the mission of public health – “Promote physi- cal and mental health and prevent disease, injury, and disability.” The statement described what public health seeks to accomplish in pro- viding essential services to the public and how it carries out these basic public responsibilities.

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Chapter 2 external analysis 67

ExhIbIT 2–9 Public Health 2030: A Scenario Exploration

Scenario 1: One Step forward, Half a Step Back Amidst continued fiscal constraints, public health agencies and health care slowly advance their capabilities. Many use automation and advanced analytics to improve services and community and population health. However, climate change challenges continue to grow, and there is lit- tle progress in improving the social determinants of health. Great variations in technological capabilities, funding, and approaches to prevention – along with a continuous rise in health care costs – significantly limit public health gains.

tHe eSSentIal SeRVICeS

The fundamental obligation or purpose of pub- lic health agencies responsible for population- based health is to:

● Prevent epidemics and the spread of disease.

● Protect against environmental hazards. ● Prevent injuries. ● Promote and encourage healthy behaviors

and mental health. ● Respond to disasters and assist communities

in recovery. ● Assure the quality and accessibility of health

services.

Part of the function of public health is to assure the availability of quality health services. Both distinct from and encompassing clinical services, public health’s role is to ensure the conditions necessary for people to live healthy lives, through community-wide prevention and protection programs.

Public health serves communities (and indi- viduals within them) by providing an array of essential services. Many of these services are invisible to the public. Typically, the public only becomes aware of the need for public health services when a problem develops (for instance, when an epidemic occurs). The practice of public health is articulated through the list of “essential services.”

aSSeSSment SeRVICeS InCluDe

● Monitoring health status to identify commu- nity health problems.

● Diagnosing and investigating health prob- lems and hazards in the community.

● Researching for new insights and innovative solutions to health problems.

POlICy DeVelOPment SeRVICeS InCluDe

● Informing, educating, and empowering peo- ple about health issues.

● Mobilizing community partnerships and actions to identify and solve health problems.

● Developing policies and plans that support individual and community health efforts.

aSSuRanCe SeRVICeS InCluDe

● Enforcing laws and regulations that protect health and ensure safety.

● Linking people to needed personal health services and ensuring the provision of health care when otherwise unavailable.

● Assuring a competent public and personal health care workforce.

● Evaluating effectiveness, accessibility, and quality of personal and population-based health services.

Source: Ray M. Nicola, MD, MHSA, FACPM, Senior CDC Consultant

to the Turning Point National Program Office.

(continued)

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68 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Scenario 2: Overwhelmed, under-Resourced Funding cuts and a hostile political context undermine the role of public health agencies, which subsequently fail to attract talented young people. Public health crises grow worse and more frequent, largely due to climate change. Private sector initiatives produce significant innova- tions for health and wellness, but these primarily benefit the middle-class and affluent groups. Technological, economic, educational, and health disparities grow, and the institutions of public health have little capacity for doing anything about them.

Scenario 3: Sea Change for Health equity National and local economies gradually grow, and changes in values and demographics lead to “common sense” policies and support for health equity. Public health agencies develop into health development agencies that use advanced analytics, gamification, and diverse partner- ships to identify problems and opportunities, and catalyze and incentivize action to improve community health. While some disparities persist, in 2030 the vast majority of U.S. residents have attained greater opportunity for good health through quality improvements in housing, economic opportunity, education, and other social determinants of health.

Scenario 4: Community-Driven Health and equity Public health agencies, partners, and local health improvement initiatives coalesce via technol- ogy and social media into a national web of community-health enhancing networks. These networks help communities exchange their innovations and best practices, and leverage the expertise of public health agencies and others. The nation also strives to come to terms with its racial and socioeconomic histories, and supports real changes and legislation to create a more equitable society. This value shift to equity is accelerated by the proliferation of new community economic models that help households sustain themselves and improve health and well-being. Public health sheds many functions and facilitates these movements to improved health.

Source: Institute for Alternative Futures. Public Health 2030: A Scenario Exploration. Alexandria, VA. May 2014. Available from www.altfutures.org/pubs/PH2030/IAF-PublicHealth2030Scenarios.pdf.

Select the Strategic Thinking framework The purpose of analyzing the general environment, the health care system, and the service area is to identify and understand the significant shifts taking place. exhibit 2–10 summarizes the primary focus, advantages, and disadvantages of each strategic thinking framework.

ExhIbIT 2–10 Primary Focus, Advantages, and Disadvantages of External Analysis Techniques

technique Primary focus advantage Disadvantage

Issue Impact and Probability Prioritization

Scanning Monitoring Forecasting Assessing

● Simple. ● Logical. ● Easy to communicate.

● Need a good deal of data to effectively extend a trend.

● Limited to existing trends.

● May not foster creative thinking.

ExhIbIT 2–9 (Continued)

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Chapter 2 external analysis 69

technique Primary focus advantage Disadvantage

Delphi Method Scanning Monitoring Forecasting Assessing

● Use of field experts. ● Avoids intimidation

problems. ● Eliminates management’s

biases.

● Members are physically dispersed.

● No direct interaction of participants.

● May take a long time to complete.

Nominal Group Technique

Scanning Monitoring Forecasting Assessing

● Everyone has equal status and power.

● Wide participation. ● Ensures representation. ● Eliminates management’s

biases.

● Structure may limit creativity.

● Time consuming.

Brainstorming Forecasting Assessing

● Fosters creativity. ● Develops many ideas,

alternatives. ● Encourages communication.

● No process for making decisions.

● Sometimes gets off track.

Focus Groups Forecasting Assessing

● Uses experts. ● Management/expert

interaction. ● New viewpoints.

● Finding experts to participate.

● No specific structure for reaching conclusions.

● Multiple focus groups needed to gain insight.

Dialectic Inquiry Forecasting Assessing

● Surfaces many sub-issues and factors.

● Conclusions are reached on issues.

● Based on analysis.

● Does not provide a set of procedures for deciding what is important.

● Considers only a single issue at a time.

● Time consuming.

Stakeholder Analysis

Scanning Monitoring

● Considers major independent groups and individuals.

● Ensures major needs and wants of outside organizations are taken into account.

● Emerging issues generated by other organizations may not be considered.

● Does not consider the broader issues of the general environment.

Scenario Writing Forecasting Assessing

● Portrays alternative futures. ● Considers interrelated

external variables. ● Gives a complete picture

of the future. ● Focus is on what might be.

● Requires generous assumptions.

● Always a question as to what to include.

● Difficult to write.

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70 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

The approach selected for evaluating the general environment, health care sys- tem, and service area will depend on such factors as the size of the organization, the diversity of the products and services, and the complexity and size of the mar- kets (service areas). Organizations that are relatively small, do not have a great deal of diversity, and have well-defined service areas may opt for a simple stra- tegic thinking framework that may be carried out in-house, such as trend identi- fication and extrapolation, in-house nominal group technique or brainstorming, or stakeholder analysis. such organizations may include independent hospitals, hMOs, rural and community hospitals, large group practices, long-term care facilities, hospices, and county public health departments.

health care organizations that are large, have diverse products and services, and have ill-defined or extensive service areas may want to use a strategic thinking framework that draws on the knowledge of a wide range of experts. As a result, these organizations are more likely to set up Delphi panels, outside nominal groups, or brainstorming sessions. in addition, these organizations may have the resources to conduct dialectics concerning external issues and engage in scenario writing. such approaches are usually more time consuming, fairly expensive, and require extensive coordination. Organizations using these approaches may include national and regional for-profit health care chains, regional health care systems, large federa- tions and alliances, and state public health departments. Ultimately, the strategic thinking framework selected for external analysis may depend primarily on the style and preferences of management. if used properly, any of the frameworks are powerful tools for identifying, monitoring, forecasting, and assessing issues.

Step 6: Complete an Issue Map exhibit 2–11 shows the abbreviated results of a general environment, health care system, and service area external analysis with the issues categorized as eco- nomic, social/demographic, legislative/political, technological, and competitive.

ExhIbIT 2–11 Example of a Completed Issue Map

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Economic ● Economy experiencing slow overall growth.

● Decrease in regulations of businesses and financial institutions.

● Emphasis on keeping jobs in the United States.

● Economic fallout of Brexit. ● Likely changes in

corporate/ individual tax policy.

● Continued growth in the industry.

● Procedure costs falling, total spending is rising.

● Many employers unwilling to shoulder costs for health care.

● Over 27.3 million Americans still without health insurance.

● Provisions of the Affordable Care Act have resulted in an estimated 20 million people gaining health insurance coverage.

● After 9.6 percent unemployment during the recession, Charlotte is back to its norm of about 4.5 percent.

● The focus on banking has been broadened to include energy and analytics technology.

● Cost of living is 96.2 percent of the national average.

● Top city for entrepreneurs.

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Chapter 2 external analysis 71

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Social/ Demographic

● By 2020, the U.S. population over the age of 65 is expected to increase from 47.5 million to 53.7 million or approximately 20 percent of the U.S. population.

● Hispanics are the largest minority population representing about 18 percent of the U.S. population by 2050.

● Rising social unrest/ protests.

● The U.S. population is becoming more ethnically diverse; the trend continues.

● An aging population and increased average life span will place capacity burdens on some health care organizations while a lessening of demand threatens the survival of others.

● Charlotte is the 17th largest city in the United States, with a growing population (842,051 in 2017); 2.4 million in the area.

● The city is diverse: African American (31 percent), Hispanics (12.8 percent).

● More than 30 percent increase in millennials (past five years).

● Year-round outdoor activities.

● Sports (professional and college) are supported.

● Philanthropic support for the arts, education.

Legislative/ Political

● Changes to the Patient Protection and Affordable Care Act (ACA).

● General deregulation occurring, e.g. environmental.

● Moves to stop corporate inversion (moving funds to foreign countries).

● United States moves more to the right politically.

● New concerns on immigration.

● Passage of the ACA generally supported by the Supreme Court (only the mandate/penalty for Medicaid was disallowed, resulting in the right of states to opt out of that requirement).

● Employer-based insurance may diminish as the penalties to be paid under ACA are less than the cost of health insurance.

● NC rejected Medicaid expansion under ACA.

● HB2 limited LGBT rights; partially repealed after 18 months.

● NC is conservative; Charlotte is not.

● Charlotte is a sanctuary city for immigrants (cities/ counties in the United States that chose not to partner with the federal government to enforce immigration laws).

Technological ● Virtual reality. ● Increasing use of

automation. ● Increasing number of

on-demand services. ● Robotics applications

continue to be developed.

● Electronic health records will supply copious amounts of data and many will struggle to utilize the information to improve the quality of care; will be used to determine payments for hospitals and physicians.

● FinTech (financial services technology) is growing based on need for IT security in banking.

● Energy sector research, especially solar and alternatives.

(continued)

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72 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Issue Categories general environment – united States

Health Care System – united States Service area – Charlotte, nC

Technological (continued)

● Big Data and Analytics increasingly being used.

● Increased application of 3-D printer technology.

● Increased applications of artificial intelligence (AI).

● Significant advances in medical information, such as automation of basic business processes, clinical information interfaces, data analysis, and telehealth.

● New technologies emerging in drug design, imaging, minimally invasive surgery, genetic mapping and testing, gene therapy, vaccines, artificial blood, and xenotransplantation (transplantation of tissues and organs from animals into humans).

● Google Fiber and AT&T U-verse High Speed internet connectivity.

● Adoption of electronic health records (EHRs) is widespread in MD offices, urgent care, hospitals.

● Telemedicine and other remote access medicine is growing.

Competitive ● Global competition – threat of “trade wars.”

● Increasing importance of market niche strategies and services marketing.

● Increasing emphasis on adaptability.

● Increasing concerns for data security (avoiding hackers) for businesses.

● The disintegration of some health care networks. In some markets this significantly reduced the options available to patients insured under the ACA.

● A changing role for public health is expected, moving back to “core” activities (prevention, surveillance, disease control, assurance).

● Nurses, the largest segment of the health care workforce will be in short supply – 1.2 million vacancies will emerge for RNs between 2014–2022.

● Two major hospitals purchased many physician practices (but not many dermatologists or plastic surgeons) during the recession.

● Fewer health insurance companies in the state; coverage is dominated by Blue Cross Blue Shield.

Strategic Momentum: Validating the Strategic Assumptions

A strategic plan is based in part on an external analysis. initially this analysis provides the basic beliefs or assumptions that management holds concern- ing various external trends, issues, and events. Once strategic management

ExhIbIT 2–11 (continued)

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Chapter 2 external analysis 73

is adopted as the operating philosophy of managing, strategic thinking, stra- tegic planning, and strategic momentum require frequent validation of the strategic assumptions to determine whether external issues have changed and to what extent. Continued strategic thinking is vital to maintaining strategic momentum.

The strategic thinking map presented in exhibit 2–12 provides a series of questions designed to detect signals of new perspectives regarding these assumptions. The questions examine management’s understanding of the external situation and the effectiveness of the strategy. The board of directors, strategic managers, or others may use these questions as a beginning point to confirm the assumptions underlying the strategy. such strategic thinking ques- tions may indicate the emergence of new external opportunities or threats that will affect the organization and may suggest areas where additional information will be required in future planning efforts. Current, accurate information may mean survival for many health care organizations. Questions concerning the external situation may reveal that a group practice knows far too little about the views of its major constituents (stakeholders) or the existence of new technolo- gies or social trends. A validation (or invalidation) of the strategic assumptions reinvigorates strategic thinking and provides a basis for investigating whether to change the strategy.

ExhIbIT 2–12 Strategic Thinking Questions for Validation of the Strategic Assumptions

1. Has the organization’s performance been adversely affected by unexpected or new general environment trends or issues?

2. Has the organization’s performance been adversely affected by unexpected or new trends or issues in the health care system?

3. Has the organization’s performance been adversely affected by unexpected or new trends or issues in the service area?

4. Have new opportunities emerged as a result of new external trends, issues, or events?

5. Is the strategy acceptable to the major stakeholders?

6. Are there new technological developments that will affect the organization?

7. Have there been social or demographic changes that affect the market or strategy? Changes in ethnic mix? Language barriers? Family structure?

8. Has the legislative/political environment changed?

9. Are there new local, state, or federal regulations or laws being introduced, debated, or passed that will affect operations or performance?

10. Are there new economic issues?

11. Have new competitors outside the industry considered entering – or actually entered – into health-related areas?

12. Is the strategy subject to government response?

13. Is the strategy in conformance with the society’s moral and ethical codes of conduct?

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74 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Chapter Summary

health care managers must be able to understand and analyze the general envi- ronment, the health care system, and their service area to be effectively positioned. The goal of external analysis is to classify and organize issues and changes gener- ated outside the organization. in the process, the organization attempts to detect and analyze current, emerging, and likely future issues. The gathered information is used for internal analysis; development of the vision and mission; and formu- lation of the strategy for the organization. in addition, the process should foster strategic thinking throughout the organization.

Although the benefits of external analysis are clear, there are several limita- tions. external analysis cannot foretell the future; nor can managers hope to detect every change. Moreover, the information needed may be impossible to obtain or difficult to interpret, or the organization may not be able to respond quickly enough. The most significant limitation may be managers’ preconceived beliefs.

The steps in external analysis include organizing the process, active scanning to identify signals of change, monitoring and confirming identified issues, fore- casting the future direction of issues, and assessing organizational implications. external changes that may be important to health care organizations are generated by organizations and individuals in the general environment (government institu- tions and agencies, business firms, educational institutions, research organizations and foundations, individuals and consumers); organizations and individuals in the health care system (organizations that regulate, primary providers, secondary providers, organizations that represent providers; and individuals and patients); and competitors and local organizations in the service area. Typically, such change is classified as economic, social/demographic, legislative/political, technological, or competitive. such a classification system aids in aggregating information con- cerning the issues and in determining their impact.

People, organizations, databases, and publications both outside and inside the organization serve as external information sources. There are a variety of experts who are familiar with external issues; in addition, many organizations collect patient and consumer information, and subscribe to and archive industry, technical reports, and databases. Further, patients, physicians, nurses, suppliers, third-party payers, pharmaceutical representatives, and managed care companies as well as newspapers and journals, the internet, television, libraries, and public and private databases may be important information sources.

scanning is the process of viewing and organizing external information in an attempt to detect relevant issues that will affect the organization. Monitoring is the process of searching for additional information to confirm or disprove the issue (trend, development, dilemma, or likelihood of the occurrence of an event). Forecasting is the process of extending issues, identifying their interrelationships, and developing alternative projections. Finally, assessing is the process of evaluat- ing the significance of the issues.

There are several strategic thinking frameworks to conduct the scanning, moni- toring, forecasting, and assessing processes. These methods include issue impact and probability prioritization, solicitation of expert opinion, dialectic inquiry, stakeholder analysis, and scenario writing. The information garnered from

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Chapter 2 external analysis 75

external analysis may be documented in an issue map and serves as a foundation for competitor analysis, internal analysis, the development of the vision and mis- sion, and formulation of the strategy for the organization. Finally, as part of man- aging the strategic momentum, evaluation of the strategic assumptions (external issues) should periodically take place. The next chapter focuses on service area competitive analysis.

Practical Lessons for health Care Strategic Thinkers

1. external analysis is one of the most important steps in developing a strate- gic plan and provides an understanding of the context in which the organi- zation has to be successful.

2. strategic thinking – awareness, anticipation, analysis, interpretation, syn- thesis, and reflection – is key in external analysis. Awareness and anticipa- tion help identify issues, trends, and events; analysis and interpretation infuse meaning and consequences; and synthesis and reflection provide conclusions that serve to build a strategic plan.

3. external analysis is an ongoing process and requires organization. Using a systems perspective to focus strategic thinking can help in identifying and tracking important external trends, issues, and events that will impact the organization.

4. external analysis tools and techniques provide no answers in themselves; but rather they are processes that help strategic managers identify and think through issues and reach conclusions.

5. The issue map provides a foundation for the analysis of competitors in the service area.

THE LANGuAGE OF STrATEGIC MANAGEMENT: KEy TErMS AND CONCEPTS

Assessing Brainstorming Community Delphi Method Dialectic inquiry expert Opinion external Analysis Focus Groups Forecasting General environment Gray rhinos

inevitable surprise

issue impact and Probability Prioritization

issue Map

Medicaid

Medicare

Monitoring

nested systems

nominal Group Technique (nGT)

Predictable surprise

Primary Providers

scanning scenarios secondary Providers sensemaking service Area service Category stakeholder Analysis stakeholders strategic Awareness strategic issues

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76 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

Notes

1. James M. Kouzes and Barry Z. Posner, The Leadership Challenge: How to Keep Getting Extraordinary Things Done in Organizations (san Francisco, CA: Jossey-Bass Publishers, 1995), pp. 47–48 and ross Dawson, Living Networks: Leading Your Company, Customers, and Partners in the Hyper-Connected Economy (Upper saddle river, nJ: Prentice hall/Financial Times, 2003), see especially Chapter 9.

2. Govindarajan, Vijay, “Planned Opportunism,” Harvard Business Review 94, no. 5 (2016), pp. 54–61.

3. J. O’Connell and J. W. Zimmerman, “scanning the international environment,” California Management Review 22 (1979), pp. 15–22 and Bradley J. Olson, satyanarayana Parayitam, and yongjian Bao, “strategic Decision Making: The effects of Cognitive Diversity, Conflict, and Trust on Decision Outcomes,” Journal of Management 33, no. 2 (2007), pp. 196–222.

Questions for Class Discussion

1. What types of changes are likely to occur in the health care system in the next several years?

2. Describe the “setting” for health care management. is the setting too complex or chang- ing too rapidly to accurately predict future conditions?

3. Why is external analysis important for an organization?

4. What are the specific goals of external analysis?

5. What are the limitations of external analysis? Given these limitations, is external analy- sis worth the effort required? Why?

6. What processes are involved in external analysis? What are their subprocesses?

7. Why must the service categories be specified first in service area analysis for health care organizations?

8. Why is it important to clearly define the service area?

9. how does the scanning process create a “window” to the external systems? how does the window concept help in understanding organizations and the types of information they produce?

10. Why is the process of external analysis as important as the product?

11. Which of the external analysis strategic thinking frameworks are most useful? Why?

12. Using exhibit 2–7 as an example, develop a “stakeholder map” for a health care organization in your metropolitan area or state. On this map show the important health care organizations and indicate what impact they may have on the industry.

13. Which of the scenarios in exhibit 2–8 do you think is most likely? Why?

14. What is an issue map? how is it helpful for strategic thinking?

15. What are an organization’s strategic assumptions? how may the strategic assumptions be evaluated as part of managing strategic momentum?

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Chapter 2 external analysis 77

4. Joel A. Barker, Future Edge: Discovering the New Paradigms of Success (new york: William Morrow, 1992), p. 86.

5. edward De Bono, Serious Creativity: Using the Power of Lateral Thinking to Create New Ideas (new york: harperBusiness, 1992), p. 17. see also Bradley L. Kirkman, Benson rosen, Paul e. Tesluk, and Christina B. Gibson, “The impact of Team empowerment on Virtual Team Performance: The Moderating role of Face-to- Face interaction,” Academy of Management Journal 47, no. 2 (2004), pp. 175–192.

6. Liam Fahey and V. K. narayanan, Macroenvironmental Analysis for Strategic Management (st. Paul, Mn: West Publishing, 1986).

7. Martin reeves, simon Levin, and Daichi Ueda, “The Biology of Corporate survival,” Harvard Business Review 94, no. 1/2 (2016), pp. 46–55.

8. ibid., p. 50. 9. Beaufort B. Longest Jr., Management Practices for the

Health Professional, 4th edn (norwalk, CT: Appleton & Lange, 1990), pp. 12–28.

10. www.hcahealthcare.com/about/our-history.dot. 11. www.hasc.org/about-hasc. 12. Michael D. Watkins and Max h. Bazerman, “Predictable

surprises: The Disasters you should have seen Coming,” Harvard Business Review 81, no. 3 (2003), pp. 72–80. For a comprehensive assessment see Max h. Bazerman and Michael D. Watkins, Predictable Surprises: The Disasters You Should Have Seen Coming and How to Prevent Them (Boston, MA: harvard Business school Press, 2004).

13. Peter F. Drucker, Managing the Nonprofit Organization: Principles and Practices (new york: harperCollins Publishers, 1990), p. 9.

14. Barker, Future Edge, p. 86. 15. Klaus Kleinfeld, “seeing is Treating,” Harvard Business

Review 85, no. 2 (February 2007), p. 47. 16. James B. Thomas and reuben r. McDaniel Jr.,

“interpreting strategic issues: effects of strategy and the information-Processing structure of Top Management Teams,” Academy of Management Journal 33, no. 2 (1990), p. 288. see also Peer C. Fiess and edward J. Zajac, “The symbolic Management of strategic Change: sensegiving via Framing and Decoupling,” Academy of Management Journal 49, no. 6 (2006), pp. 1173–1193.

17. Govindarajan, “Planned Opportunism,” p. 58. 18. Thomas and McDaniel, “interpreting strategic issues,”

pp. 289–290. 19. Paul J. h. schoemaker and Philip e. Tetlock,

“superforecasting: how to Upgrade your Company’s Judgment,” Harvard Business Review 94, no. 5, (2016), pp. 72–78.

20. Kathleen M. sutcliffe and Klaus Weber, “The high Cost of Accurate Knowledge,” Harvard Business Review 81, no. 5 (2003), p. 75.

21. Karl e. Weick, Sensemaking in Organizations (Thousand Oaks, CA: sage Publications, 1995); Deborah Ancona,

Thomas W. Malone, Wanda Orlikowski, and Peter M. senge, “in Praise of the incomplete Leader,” Harvard Business Review 85, no. 2 (February 2007), pp. 94–95.

22. ibid. p. 95. 23. schoemaker and Tetlock, “superforecasting: how to

Upgrade your Company’s Judgment,” p. 74. 24. Fahey and narayanan, Macroenvironmental Analysis,

p. 39. 25. h. e. Klein and r. e. Linneman, “environmental

Assessment: An international study of Corporate Practice,” Journal of Business Strategy 5 (1984), pp. 66–75. see also Jonathan Parry, “Making sense of executive sensemaking,” Journal of Health Organization & Management 17, no. 4 (2003), pp. 240–263 and Linda rouleau, “Micro-Practices of strategic sensemaking and sensegiving: how Middle Managers interpret and sell Change every Day,” Journal of Management Studies 42, no. 7 (2005), pp. 1413–1441.

26. James L. Webster, William e. reif, and Jeffery s. Bracker, “The Manager’s Guide to strategic Planning Tools and Techniques,” Planning Review 17, no. 6 (1989), pp. 4–13; Pamela Tierney and steven M. Farmer, “The Pygmalion Process and employee Creativity,” Journal of Management 30, no. 3 (2004), pp. 413–432.

27. s. C. Jain, “environmental scanning in U.s. Corporations,” Long Range Planning 17 (1984), p. 125. see also Dovev Lavie, “Capability reconfiguration: An Analysis of incumbent responses to Technological Change,” Academy of Management Review 31, no. 1 (2006), pp. 153–174.

28. B. Thompson, D. MacAuley, O. Mcnally, and s. O’neill, “Defining sports Medicine specialist in the United Kingdom: A Delphi study,” British Journal of Sports Medicine 38, no. 2 (2004), pp. 14–18.

29. Craig s. Fleisher and Babette e. Bensoussan, Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition (Upper saddle river, nJ: Prentice hall, 2003), p. 287; Lucy L. Gilson and Christina e. shalley, “A Little Creativity Goes A Long Way: An examination of Teams’ engagement in Creative Processes,” Journal of Management 30, no. 4 (2004), pp. 453–470.

30. Fleisher and Bensoussan, Strategic and Competitive Analysis, p. 257.

31. information for this example was adapted from richard haugh, “Competition Keeps Getting hotter for Ambulatory surgery,” Hospitals & Health Networks 80, no. 10 (2006), pp. 68–72.

32. Barbara Karmel, Point and Counterpoint in Organizational Behavior (hinsdale, iL: Dryden Press, 1980), p. 11; W. Jack Duncan, Peter M. Ginter, and Linda e. swayne, Strategic Issues in Health Care Management (Boston, MA: PWs-Kent Publishing, 1992), p. 6.

33. Webster, reif, and Bracker, “The Manager’s Guide,” p. 13.

34. ibid.

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78 strAtEgic mAnAgEmEnt of HEAltH cArE orgAnizAtions

35. Myron D. Fottler, John D. Blair, Carlton J. Whitehead, Michael D. Laus, and G. T. savage, “Assessing Key stakeholders: Who Matters to hospitals and Why?” Hospital and Health Services Administration 34, no. 4 (1989), p. 527.

36. Marco iansiti and roy Levien, “strategy as ecology,” Harvard Business Review 82, no. 3 (2004), pp. 68–78.

37. Fottler, Blair, Whitehead, Laus, and savage, “Assessing Key stakeholders,” p. 532.

38. stuart L. hart and sanjay sharma, “engaging Fringe stakeholders for Competitive imagination,” The Academy of Management Executive 18, no. 1 (2004), pp. 7–18.

39. ibid. 40. Audrey schriefer, “Getting the Most Out of scenarios:

Advice from the experts,” Planning Review 23, no. 5 (1995), pp. 33–35; J. Alberto Aragón-Correa and sanjay sharma, “The social side of Creativity: A static and Dynamic social network Perspective,” Academy of Management Review 28, no. 1 (2003), pp. 89–106; Mats Lindgren and hans Bandhold, Scenario Planning: The Link between Future and Strategy (houndsmills, UK: Palgrave Macmillan, 2003).

41. Peter schwartz, The Art of the Long View: Planning for the Future in An Uncertain World (new york: Currency Doubleday Publishers, 1991).

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Chapter 1 The Nature of Strategic Management

Why the Nature of Strategic Management Is Important

Charles Darwin’s quote speaks to a core concept of strategic management – responsiveness to change. For organizations in a world where there is no change, strategic management is unnecessary; however, for organizations in an ever- changing world, strategic management is essential. Similar to biology, the organi- zation that best adapts to the demands of its environment prospers and those organizations that do not adapt become less and less relevant. Staying relevant is the key to success. The rate of technological, social, economic, competitive, and political change impacting organizations continues to accelerate. Although change affects all industries, nowhere has greater change occurred than in the

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

—ChArleS DArwin, BriTiSh nATurAliST

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2 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

health care sector. Strategic management enables leaders to make sense of change and develop strategies to position organizations for success in the continuously evolving health care environment.

More than simply being responsive to change, strategic management attempts to create the future by envisioning what could be and charting a course toward that dream. in addition to the processes underlying the pursuit of the dream, strategic management provides the organization with structured thinking and practices for translating dreams into effective visions, missions, strategies, and plans that will move organizations toward their aspirations. Dreams, without the enabling strategic management processes and direction, are just fantasies; with the structure provided by strategic management, dreams can become reality.

Strategic management is leadership – responding to change, setting direction, and focusing the organization’s momentum. Strategic management is the clearest manifestation of leadership in organizations. As a result, virtually all successful health care organizations have embraced strategic management to cope with change and translate their visions, missions, and strategic goals into actuality. learning about strategic management also means learning about leadership – the ability to utilize strategic thinking, strategic planning, and strategic momentum in organizations.

use concepts in this chapter to remain relevant!

learning objectives

After completing the chapter you will be able to: 1. Describe why strategic management is crucial in today’s dynamic health care

environment. 2. Trace the evolution of strategic management. 3. Discuss the rationale and usefulness of strategic thinking maps. 4. Define and differentiate between strategic management, strategic thinking,

strategic planning, and strategic momentum. 5. Articulate the necessity for both the analytic and emergent models of strategic

management. 6. Clarify whether an organization may realize a strategy that it never intended. 7. Discuss the benefits of strategic management for health care organizations. 8. Explain the links between the different levels of strategy within an organization. 9. Describe the various leadership roles of strategic managers.

Strategic Management Competency After completing this chapter you will be able to create a process for developing a strategic plan for a health care organization.

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Chapter 1 the Nature of StrategiC MaNageMeNt 3

Managing in a Dynamic Industry

A major aspect of strategic management concerns responsiveness to change to remain relevant. Significant change in the health care system comes from many sources, including: legislative and policy initiatives; international as well as domestic economic and market forces; demographic shifts and lifestyle changes; technological advances; and fundamental health care delivery changes. Furthermore, a multitude of interests are directly or indirectly involved in the delivery of health care. For instance, the for-profit provider segment has grown dramatically; private-sector businesses are largely responsible for the develop- ment and delivery of drugs, medical supplies, and many technical innovations, and government agencies regulate much of the actual delivery of and payment for health care services. Certainly, health care systems, as well as other domestic and international health care organizations, have had to continuously adapt to these and other changes. As suggested in the introductory quote, health care organiza- tions must be responsive to change and effectively manage that change in this dynamic industry.

The Nature of Health Care Change The health care system has experienced considerable change and will undoubt- edly contend with even more intensive transformations in the future. interviews with health care professionals and a review of the health care literature suggest that the types and magnitude of change for which health care organizations will have to be responsive include some or all of the following areas: legislative/ political, economic, social/demographic, technological, and competitive.1 A few illustrations are provided below.

Economic Changes ● Continued growth in the industry – health care by most measures is the

largest u.S. industry and non-government employer.2

● Procedure costs may be falling while total spending is rising.3

● employers will become increasingly unwilling to shoulder the burden of the costs of health care for their employees and retirees.

● Over 27.3 million Americans were without health insurance in 2016. however, the uninsured rate dropped to 8.6 percent, which is the first time in recent history the rate has dropped below 9 percent.

Social/Demographic Changes ● without a truly radical reduction in health care spending, which there is no

reason to expect, demographics alone will drive health care’s share of GDP (gross domestic product) as high as 25 percent.4

● The 2010 Affordable Care Act (ACA) resulted in 20 million people gain- ing health insurance coverage – continuing evolution of health care leg- islation will no doubt further affect the number of people with health insurance.

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4 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

● An aging population and increased average life span will place capacity burdens on some health care organizations while a lessening of demand threatens the survival of others. By 2020, the u.S. population over the age of 65 is expected to increase from 47.5 million to 53.7 million or approxi- mately 20 percent of the u.S. population.

● The u.S. population will become increasingly diverse. ● The hispanic population will continue to grow; some experience dif-

ficulty with health literacy. hispanics have become the largest minority group, representing about 18 percent of the u.S. population. By 2050, it is estimated that as many as one out of every four Americans will be hispanic.

Legislative/Political Changes ● legislative changes in health care regulation will become the “new normal”

in conjunction with changes in government administrations as policy mak- ers try to balance costs and issues related to health care access.

● The most significant external factor affecting health care may be how it is financed. See essentials for a Strategic Thinker 1–1, “what is Private health insurance?” and essentials for a Strategic Thinker 2–1, “what is Government health Care insurance?” to understand why the health care insurance market is so important for this industry.

● employer-based insurance may diminish as the penalties for not providing insurance for employees are eliminated or are significantly less than the cost of health insurance; more employees will likely shift to government sponsored policies.

Technological Changes ● Further growth in the adoption of electronic health records (ehrs)

will produce more data to improve the quality of care, that will be used to determine payments for hospitals and physicians (value-based payment).

● Significant advances in medical information technology are anticipated, such as automation of basic business processes, clinical information inter- faces, data analysis, and telehealth.

● new technologies will emerge in the areas of drug design, imaging, mini- mally invasive surgery, genetic mapping and testing, gene therapy, vac- cines, artificial blood, and xenotransplantation (transplantation of tissues and organs from animals into humans).

Competitive Changes ● The disintegration of some health care networks can be expected. in 2016

Aetna and united health, two of the largest u.S. insurance companies, announced they could not sustain the losses and were significantly reduc- ing their participation in government health care exchanges.

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Chapter 1 the Nature of StrategiC MaNageMeNt 5

ESSENTIalS for a STraTEgIC THINkEr 1–1

What is Private Health insurance?

Private health insurance buys health care cover- age offered by commercial and non-profit organ- izations that requires enrollment (membership) and premiums (fees) usually paid monthly to cover some or all costs of care. According to the U.S. Census Bureau, over 214 million people had private health insurance in the United States at some time during 20151 – representing two- thirds of the population and over four times the number of people that have Medicare coverage.

Private coverage is offered in three market segments: the large-group, small-group, and individually-purchased markets. The distinc- tion between large and small groups varies but is often defined as having more or less than 500 covered lives; most such groups are employer-based.

Virtually all private health plans are either health maintenance organizations (HMOs) or preferred provider organizations (PPOs). HMOs typically have a relatively narrow set of hospital and physician providers who are contracted to provide health services for enrollees. PPOs typically offer a broader panel of providers, but some of these will require higher cost sharing on the part of enrollees. HMOs usually bear under- writing risk (a guarantee made by an insurer that will pay for losses incurred), while PPOs often do not. Increasingly many private plans are high- deductible health plans; lower premiums are

offered for these PPO or HMO insurance plans that require that the first few thousands of dol- lars of health care costs be paid by the enrollee before insurer coverage begins.

In the large-group market virtually all employers offer health insurance to employees and their dependents, often sponsoring two or more plans. In this market segment the PPOs offered are almost always self-insured (mean- ing that the employer is effectively its own insurer). It pays an administrative-services-only fee to a traditional insurer or a third party to manage the plan; however, the actual medi- cal claims are paid from the employer’s funds. The HMOs offered are usually simple insurance products offered by insurers and paid for by premiums.

The small-group market is more diverse. Only about half of firms with three to nine employees offer coverage and about 70 percent of those with 10 to 24 employees offer coverage. Nearly all firms with more than 50 employees offer cov- erage, and did so even prior to the Affordable Care Act’s employer mandate. Most of these employers offer a single health plan that is purchased from a traditional insurer; however, around 30 percent of the larger small employers (more than 100 workers) are self-insured.

The individually-purchased market segment is much smaller, covering only 18 to 24 million

● A changing role for public health is expected, moving back to “core” activi- ties (prevention, surveillance, disease control, assurance) and away from the delivery of primary care.

● According to the Bureau of labor Statistics, more than 1.2 million vacancies will exist for registered nurses (the largest segment of the health care work- force) through 2022.

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6 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

people. Individuals and families buy coverage from an insurer licensed by their state. This seg- ment tends to be dominated by a single insurer in most states although multiple insurers often offer coverage. This market segment has been most affected by the ACA. The law established Health Insurance Marketplaces or exchanges through which people may buy coverage, although they may buy coverage through an agent or directly from an insurer. The exchanges, however, provide access to subsidies for coverage. Prior to the ACA, premiums in this market segment were often determined, in part, by the health status of the

applicant; the ACA precluded the use of pre- existing conditions to set premiums.

RefeRence

1. J. C. Barnett and M. S. Vornovitsky, Current

Population Reports, P60–257(RV), Health

Insurance Coverage in the United States: 2015

(Washington, DC: U.S. Government Printing

Office, 2016).

Source: Michael A. Morrisey, PhD, Professor and Head, Department

of Health Policy & Management, School of Public Health, and

Adjunct Professor, Bush School of Government & Public Service,

Texas A&M University.

Coping with Change

how can leaders of health care organizations deal with the diversity and mag- nitude of change anticipated in the industry? which issues are most important or most pressing? Furthermore, what new issues will emerge? undoubtedly, issues that have yet to be identified or fully assessed will arise. Surviving rapid, complex, and often discontinuous change requires strong leadership. Successful health care organizations have leaders who understand the nature and implica- tions of external change, possess the ability to develop effective strategies to navigate change, and have the will as well as the ability to actively manage the momentum of the organization. These activities are collectively referred to as “strategic management.” More specifically, strategic management is the process of strategic thinking, strategic planning, and managing the strategic momentum of an organization to provide direction and achieve the organization’s mission and vision. Strategic management is essential for leading organizations in dynamic industries.

Organizational change is a fundamental part of success. As health care lead- ers chart new courses into the future, in effect, they create new beginnings, new chances for success, new challenges for employees, and new hopes for patients. Therefore, it is imperative that health care managers understand the changes tak- ing place in their industry; they should not simply be responsive to them, they must envision and create the future. health care leaders must be prospective, construct new visions for success, and be prepared to make significant improve- ments. Such preparation may include educating staff concerning the necessity for change. For example, the Jersey City Medical Center in Jersey City recognized that moving from a paper system to electronic records would require helping doctors understand the value of an ehr and assuring them that education and individual mentoring would be available to assist in the implementation.5

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Chapter 1 the Nature of StrategiC MaNageMeNt 7

This chapter provides a practical model for dealing with change, transforming an assessment of the implications of that change into a workable plan, and managing the plan. Coping with change requires leadership as well as careful management. Therefore, the chapter examines the role of leadership and its relation to strategic management. in addition, the foundations and evolution of strategic management provide an excellent underpinning for understanding its nature and function.

The foundations of Strategic Management

A strategy is a consistent, relatively enduring approach to achieve a goal or objec- tive; a type of plan that provides a set of guidelines or a line of attack for an organization to move from where it is today to a desired state sometime in the future. in political and military contexts, the concept of strategy has a long his- tory. For instance, the underlying principles of strategy were discussed by Sun Tzu, homer, euripides, and many other early strategists and writers. The english word strategy comes from the Greek strate -go -s, meaning “a general,” which in turn comes from roots meaning “army” and “lead.”6 The Greek verb strate -go – means “to plan the destruction of one’s enemies through effective use of resources.”7 Similarly, many of the terms commonly used in relation to strategy – objectives, strategy, mission, strengths, and weaknesses – were developed by the military.

long-range Planning to Strategic Planning The development of strategic management began with much of the business sec- tor adopting long-range planning. Long-range planning forecasts demand for cur- rent products/services to enable managers to develop marketing and distribution, production, human resources, and financial plans, thereby matching production capacity to demand. long-range planning was developed in the 1950s in many organizations because operating budgets were difficult to prepare without some idea of future sales and the flow of funds. Post-wwii economies were growing and the demand for many products and services was accelerating. long-range forecasts of demand enabled managers to develop detailed marketing and distri- bution, production, human resources, and financial plans for their growing organ- izations. The objective of long-range planning is to predict for some specified time in the future the size of demand for an organization’s products and services and to determine where demand will occur. Many organizations have used long-range planning to determine facilities expansion, hiring requirements, capital alloca- tions, and other operational growth needs.

As industries became more volatile, long-range planning was replaced by stra- tegic planning because the assumption underlying long-range planning – that the organization will continue to produce its present products and services – was not necessarily valid. in contrast, the assumption underlying strategic planning is that there is so much economic, social, political, technological, and competitive change taking place that the leadership of the organization must periodically evaluate whether it should even be offering its present products and services, whether it should start offering different products and services, or whether it should be operating in a fundamentally different way.

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8 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

Although strategies typically take considerable time to implement, and thus are generally long range in nature, the time span is not the principal focus of strategic planning. in fact, strategic planning, supported by the management of the strategy, compresses time. Competitive shifts that might take generations to evolve instead occur in a few short years.8 in a survey of senior executives, 80 percent indicated that the productive lives of their strategies were getting shorter and 75 percent believed that their leading competitor would be different within five years.9 Therefore, it is preferable to use “long range” and “short range” to describe the time it will take to accomplish a strategy rather than to indicate a type of planning.

Strategic Planning to Strategic Management The 1960s and 1970s were decades of major growth for strategic planning in business organizations. leading companies such as General electric were not only engaged in strategic planning but also actively promoted its merits in the business press. The process provided these firms with a more systematic approach to managing business units and extended the planning and budget- ing horizon beyond the traditional 12-month operating period. in addition, business managers learned that financial planning alone was not an adequate framework.10 in the 1980s the concept of strategic planning was broadened to strategic management. This evolution acknowledged not only the impor- tance of the dynamics of industries and that organizations may have to totally reinvent themselves, but also that continuously managing and evaluating the strategy are keys to success. Thus, strategic management was established as an approach or philosophy for managing complex enterprises and, as discussed in essentials for a Strategic Thinker 1–2, “what are These?”, should not be viewed as a passing fad.

ESSENTIalS for a STraTEgIC THINkEr 1–2

What are These?

“Management fads” is usually the flippant answer. However, each of these management approaches was a genuine attempt to change and improve the organization – to focus efforts, to improve the quality of the products and services, to improve employee morale, to do more with less, to put meaning into work, and so on. Some of the approaches worked better than others; some stood the test of time and others did not. Yet, it would be too harsh to simply dismiss them as fads

or techniques. The goals for all of these manage- ment approaches were to manage and shape the organization – to make it better and move it toward excellence. One thing that has distinguished all of these “fads” is the enthusiasm and commit- ment they have engendered among managers and workers. For many, these approaches have significantly increased the meaning of work – no small accomplishment in an era in which people are increasingly hungry for purpose.1 A definition

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Chapter 1 the Nature of StrategiC MaNageMeNt 9

for each of these management approaches may be found in Resource 4 – Glossary of Strategic Management Terms at the end of this textbook.

1950s

● Theories X and Y ● Management by Objectives ● Quantitative Management ● Diversification

1960s

● Managerial Grid ● T-Groups ● Matrix Management ● Conglomeration ● Centralization/

Decentralization

1970s

● Zero-Based Budgets ● Participative Management ● Portfolio Management ● Quantitative MBAs

1980s

● Theory Z ● One-Minute Managing ● Organization Culture ● Intrapreneuring ● Downsizing ● MBWA (Management by

Wandering Around) ● TQM/CQI

1990s

● Customer Focus ● Quality Improvement ● Re-engineering ● Benchmarking ● Resource-Based View

2000s

● Six Sigma ● Balanced Score Card ● Transformational Leadership ● Self-Managed Teams ● Dynamic Capabilities ● Virtual Organizations ● Blue Oceans ● The Learning Organization

2010s

● Knowledge Management ● LEAN Six Sigma ● Strategic Mapping ● Black Swan ● Disruptive Innovation ● Predictable Surprises ● Big Data Analytics

When management approaches such as these fail, it is usually because they become ends in themselves. Managers lose sight of the real purpose of the approach and the process becomes more important than the product. Managers start working for the method rather than letting the method work for them.

What will be the “management fads” of the next decade?2 Will you be an active par- ticipant in such efforts to make the organiza- tion better or will you simply dismiss them as fads? Perhaps benchmarking, quality improve- ment, the learning organization, or LEAN Six Sigma will turn your organization around. One of these approaches may help to make your organization truly excellent or save it from decline.

Is strategic management just another fad? Will it stand the test of time? If strategic man- agement becomes an end in itself, if its activities do not foster and facilitate thinking, it will not be useful. However, if strategic management helps managers to think about the future and guide their organizations through turbulence, strate- gic management will have succeeded.

RefeRences

1. J. Daniel Beckham, “The Longest Wave,”

Healthcare Forum Journal 36, no. 6 (November/

December 1993), pp. 78, 80–82.

2. ”Rethinking the Cause of Management Fads,”

Strategic Direction 21, no. 4 (2005), p. 28.

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Strategic Management in the Health Care System Strategic management concepts have only been seriously employed within health care organizations since the adoption of prospective payment in 1983. Prior to that time, individual health care organizations had few incentives to employ strategic management because typically they were independent, freestanding, not-for- profit institutions, and health services reimbursement was on a cost-plus basis. The prospective payment system, established by Medicare (now the Centers for Medicare and Medicaid Services, or CMS), was a result of the Social Security Act of 1983 that created a fee structure (diagnosis-related groups or DrGs) for services to determine reimbursements. The change in reimbursement policy forced health care organizations to begin to develop strategies to deliver high-quality care and, at the same time, become more efficient.

Strategic management provided the tools for health care leaders to think through reimbursement and other changes taking place in the industry. As a result, in many respects, health care became a complex business using many of the same processes and much of the same language as the most sophisticated business corporations. Certainly, as the health care system continued to evolve, many health care organiza- tions had much to learn from strategically managed businesses. As a result, many of the management methods adopted by health care organizations, both public and private, were originally developed in the business sector.

Although the values and practices of business enterprises in the private sector have been advocated as appropriate models for managing health care organizations, a legitimate question arises concerning the appropriateness of the assumption that business practices are always relevant to the health care system. Certainly, not all the “big ideas” have delivered what was promised, even in busi- ness.11 it has been pointed out that:

● Some strategic alternatives available to non-health care organizations may not be realistic for many health care organizations.

● health care organizations have unique cultures that influence the style of and participation in strategic planning.

● health care has always been subject to considerable outside control. ● Society and its values place special demands on health care organizations.12

Over time business approaches increasingly have been modified to fit the unique aspects of health care organizations, and today health care organizations have strategic management processes uniquely their own. Strategic management, especially when customized to health care, provides the necessary processes for health care organizations to cope with changes in health policy as well as other changes that have been occurring in the industry. As can be observed world-wide, referendums, elections, and changes in government can have a substantial impact on organizations and a clear understanding of the difference in health policy and strategic management is essential.

Strategic Management Versus Health Policy There has been and continues to be substantial health planning (policy) in the united States. health planning is initiated by either state or local governments

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Chapter 1 the Nature of StrategiC MaNageMeNt 11

and the resulting health policies are implemented through legislation or private or non-governmental agencies. Generally, health policy sets the rules, regulations, legislation, and executive actions that apply to consumers and providers of health care. Many health policies are disease specific; that is, they are categori- cal approaches directed toward specific health problems (e.g. the work of the national Tuberculosis Association that stimulated the development of state and local government tuberculosis prevention and treatment programs).13 As a result, a variety of state and federal health planning or policy initiatives have been designed to: (1) enhance quality of care and reduce medical errors; (2) provide or control access to care; and (3) contain costs.

These health-planning efforts are not strategic management. health planning is the implementation of local, state, and federal health policy and affects a variety of health care organizations. As explained in essentials for a Strategic Thinker 1–3, “what is health Policy?” the intent of health policy is to provide the context for the development of the health care infrastructure as a whole. in contrast, strategic management concerns the activities of only one organization. Strategic manage- ment helps an individual organization to respond to state and federal policy and planning efforts, as well as to a variety of other external forces.

ESSENTIalS for a STraTEgIC THINkEr 1–3

What is Health Policy?

Formally, health policy is the development and maintenance of an infrastructure to efficiently enhance the health of the public. Informally, health policy determines the rules that apply to all consumers and providers.

An infrastructure need not imply a govern- mentally-financed health care system nor the delivery of services by a governmental entity. What it does imply is a set of institutions that meet the preferences of most of the society. These institutions can take many forms, rang- ing from unfettered markets to the provision of services by governments.

The role of health policy is to determine the preferences of the society and to develop and fine tune institutions that can efficiently meet those preferences. Satisfying preferences may mean defining the ground rules under which insurers and providers compete. It may mean

defining those services that will be provided by only a single provider, and then deciding whether that provider will be a public or private organization. It will certainly mean revisiting these decisions as new ways of doing things and new problems emerge.

Congress, the state legislatures, and the administrative authority given to executive branches and their agencies set health policy. Therefore, the Center for Medicare and Medicaid Services determines much of the health pol- icy for federally funded Medicare and federal/ state funded Medicaid. The Centers for Disease Control and Prevention, the Food and Drug Administration, and the Occupational Health and Safety Administration set and enforce health and safety standards. State departments of health, insurance, and environmental quality set health policy within their own spheres of influence.

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The Dimensions of Strategic Management

Many ways are possible to think about strategic management in organizations.14 These approaches can be broadly grouped into two distinct views – those that assume that with proper analysis a workable strategy can be prescribed in advance, then carried out, versus those with the underlying assumption that too much complex- ity and change exists for a complete and viable plan to be worked out in advance, thus the strategy will emerge over time. These two fundamental views of strategic management are referred to as the analytical or rational approach and the emergent approach.15 Specifically, analytical or rational approaches to strategic management rely on a logical sequence of steps or processes (linear thinking) to develop a predeter- mined logical plan and carry it out without change. An emergent approach, on the other hand, relies on intuitive thinking, leadership, and learning with the understanding that because of external change, strategic plans evolve as strategy unfolds and the organization learns what works and what does not. Both approaches are valid and useful in explaining an organization’s strategy and neither the analytical approach nor the emergent view, by itself, is enough. As one author explains:

The key question is not which of these approaches of action is right, or even which is better, but when and under what circumstances they are useful to understand what managers should do. Modern organizational life is charac- terized by oscillations between periods of calm, when prospective rationality seems to work, and periods of turmoil, when nothing seems to work. At some times, analysis is possible; at other times, only on-the-ground experi- ences will do.16

As a result, both approaches are required. it is difficult to initiate and sustain organizational action without some predetermined logical plan. Yet in a dynamic industry, such as health care, managers must expect to learn and establish new directions as they progress. The analytical approach is similar to a map, whereas the emergent model is similar to a compass. Both may be used to guide one to a

Many analytic tools come into play to help in determining the rules that are adopted. These include economics, law, political science, epide- miology, medicine, and health services research. Health policy questions are sometimes very broad and at other times very specific. Some important questions include:

● Is health care a right or an individual responsibility?

● Can the human costs of poor health be quantified?

● Can higher taxes on saturated fats reduce the prevalence of obesity?

● Would a refundable tax credit encourage the uninsured to buy coverage?

● Would higher incomes or more health ser- vices do more to improve health status?

● Who pays if employers are required to pro- vide health insurance?

Source: Michael A. Morrisey, PhD, Professor and Head, Department

of Health Policy & Management, School of Public Health, and

Adjunct Professor, Bush School of Government & Public Service,

Texas A&M University.

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Chapter 1 the Nature of StrategiC MaNageMeNt 13

destination. A map is a convenient metaphor for a predetermined plan, guideline, or method. Maps are better in known worlds – worlds that have been charted before. A compass serves as a useful metaphor for an intuitive sense of direction and leadership. Compasses are helpful when leaders are not sure where they are and have only a general sense of direction.17

Managers may use the analytical approach to develop a strategy (map) as best they can from their understanding of the industry and by interpreting the capabilities of the organization. Once they begin pursuing the strategy, new understandings and strategies may emerge and old maps (plans) must be modified. harvard Professor rosabeth Moss Kanter concluded from her research that pacesetter organizations “did not wait to act until they had a perfectly conceived plan; instead, they create the plan by acting.”18 Therefore, managers must remain flexible and responsive to new realities – they must learn. however, the direction must not be random or haphaz- ard. it must be guided by some form of strategic sense – an intuitive, entrepreneurial sensing of the “shape of the future” that transcends ordinary logic. The concept of the compass provides a unique blend of thinking, performance, analysis, and intui- tion.19 Similar to the scientific method, which in theory has clear specific steps to be followed, in reality strategy making is a messy process with many starts and stops.

what is needed is some type of model that provides guidance or direction to strategic managers, yet incorporates learning and change. if strategy making can be approached in a disciplined way, then there will be an increased likelihood of its successful implementation. A model or map of how strategy may be developed will help organizations view their strategies in a cohesive, integrated, and system- atic way.20 without a model or map, managers run the risk of becoming totally incoherent, confused in perception, and muddled in practice.21

Combining the analytical and Emergent Views in this text, a series of “strategic thinking maps” are presented. A strategic thinking map depicts an intellectual process guided by a logical plan of action (set of guidelines) and is used to describe approaches, guidelines, or analytical methods leading to a strategic plan or components of a strategic plan. These maps are designed to initiate strategic thinking as well as strategic planning and foster new thinking and planning when required. The strategic thinking maps start the journey to develop a compre- hensive strategy for the organization, yet maps are not dynamic and cannot anticipate every change or contingency. Managers will learn a great deal about their strategic plans as they manage them. Therefore, strategic managers will have to think, analyze, use intuition, and reinvent the strategy as they proceed. As the physicist David Bohm observed, the purpose of science is not the “accumulation of knowledge” but rather the creation of “mental maps” that start our journey to further discovery.22

A model or map that accounts for both the analytical and the emergent views of strategic management is presented in exhibit 1–1. This strategic thinking map serves as a general model for health care strategic managers, illustrates the inter- relationships, organizes the major components, and provides the framework for much of the discussion in this book. As illustrated in exhibit 1–1, strategic man- agement has three interrelated components – strategic thinking, strategic plan- ning, and strategic momentum. These activities are interdependent; activities in each element affect, and are affected by, the others.

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effective strategic managers are strategic thinkers with the ability to evalu- ate the changing industry, analyze data, question assumptions, and develop new ideas. Additionally, they must be able to develop and document a plan of action through strategic planning. Strategic planning is a decision-making and documentation process that creates the strategic plan. Once a strategic plan is developed, strategic managers must manage and control the strategic momen- tum of the organization. As strategic managers attempt to carry out the strategic plan, they evaluate its success, learn more about what works, and incorporate new strategic thinking. As indicated by the double-headed arrows in exhibit 1–1, any one element of the model may initiate a rethinking of another element. For example, planning the implementation may provide new information that neces- sitates taking another look at strategy formulation. Similarly, managing strategic momentum may provide new insights for implementation planning, strategy formulation, or situational analysis.

The distinction among the terms strategic thinking, strategic planning, and strategic momentum is important and all three activities must occur in true stra- tegically managed organizations. Therefore, each element of the model is explored in more depth.

Strategic Thinking Strategic thinking is an intellectual activity underlying strategic management that is perceptive to emerging changes, considers strategic implications, and devel- ops transformative responses. At its most fundamental level, strategic thinking includes the states of awareness, anticipation, analysis, interpretation, synthesis, and reflection. The abilities and behaviors associated with and supportive of each of the strategic thinking states are described in exhibit 1–2.

ExHIbIT 1–1 Model of Strategic Management

Strategic Planning Situational Analysis

• External Analysis • Internal Analysis • Directional StrategiesStrategic

Thinking • Awareness • Anticipation • Analysis • Interpretation • Synthesis • Reflection

Strategy Formulation • Directional Strategies • Adaptive Strategies • Market Entry/Exit Strategies • Competitive Strategies

Implementation Planning • Service Delivery Strategies • Support Strategies • Action Plans

Strategic Momentum

• Managerial Action • Strategy Evaluation • Strategic Control • Emergent Learning • Re-initiate Strategic Thinking

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Chapter 1 the Nature of StrategiC MaNageMeNt 15

ExHIbIT 1–2 Strategic Thinking Activities

strategic Thinking states supporting Abilities and Behaviors

Awareness Mindfulness and external orientation; perception of and hypersensitivity to change.

Anticipation Projects the present; keenly considers/envisions (imagines) the future; links issues and finds new meanings; high level of expectancy; conceptualization.

Analysis Systems perspectives and critical thinking to examine changing issues; combining and assessing quantitative and qualitative data.

Interpretation Transformative, divergent, innovative, creative, and visionary perspectives; accurate assessment and use of data; ability to incorporate different perspectives.

Synthesis Links issues and summarizes their implications using systems perspectives and vision grounded in reality.

Reflection Re-consideration of interpretation and synthesis; reality testing; evaluation; and opinion seeking.

Strategic thinking may proceed as a linear process; however, most of the time these are non-linear activities and may occur in any order and in combi- nation with each other. indeed, reflection may occur before interpretation or with anticipation, and synthesis may occur simultaneously with all the states. More broadly, although strategic thinking is depicted in the model of strategic management in exhibit 1–1 as a separate process from strategic planning and strategic momentum, it is inherent to both. Strategic thinking does not neces- sarily come first or before strategic planning takes place; it is a part of every step in the strategic planning process and managing strategic momentum. Strategic thinking affects and is affected by strategic planning and strategic momentum.

Central to Leadership Strategic thinking asks people to position themselves as leaders and see the “big picture.” it has been observed that leaders, similar to great athletes, must simultaneously play the game and observe it as a whole.23 Mired in a complex situation, the leader must rise above it to understand it. Preserving distance may be the only way to see the full picture.24 This skill is similar to an athlete leaving the playing field and going to the press box to observe the game and see its broader context. Thus, strategic managers must be able to keep perspective and see the big picture – not get lost in the action. Continuing the sports metaphor, to truly understand the big picture, one must not only go to the press box to observe the “game,” but must also have a “quiet room” to periodically think about it, to understand it, and perhaps to change the strategy or players.

Strategic thinkers see the future. Vision and a sense of the future are inherent parts of strategic thinking. Strategic thinkers are constantly reinventing the future – creating windows on the world of tomorrow. James Kouzes and Barry Posner

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in their book The Leadership Challenge indicated: “All enterprises or projects, big or small, begin in the mind’s eye; they begin with imagination and with the belief that what is merely an image can one day be made real.”25 Strategic thinkers draw on the past, understand the present, and envision an even better future. Strategic thinking requires a mindset – a way of thinking or intellectual process that accepts change, analyzes the causes and outcomes of change, and attempts to direct an organization’s future to capitalize on the changes. More specifically, strategic thinking:

● Acknowledges the reality of change. ● Questions current assumptions and activities. ● Builds on an understanding of systems. ● envisions possible futures. ● Generates new ideas. ● Considers context, organizational fit, and industry dynamics.

Strategic thinking generates ideas about the future of an organization and ways to make it more relevant – more in tune with the world. Strategic thinking assesses the changing needs of the organization’s stakeholders and the changing technological, social and demographic, economic, legislative/political, and com- petitive demands of the world. in that assessment, strategic thinking includes and employs several types of thinking or framing perspectives, including thinking that is systems oriented, critical or logical, innovative, creative, transformative, divergent, and visionary. The essential focus of these framing perspectives is illustrated in exhibit 1–3.

ExHIbIT 1–3 Strategic Thinking Framing Perspectives

framing Perspectives essential focus

Creative Thinking Focuses on unique imaginative solutions that are new to the organization for all types of issues or problems.

Critical Thinking Focuses on rationality; a logical, fact-based analysis and critique.

Divergent Thinking Focuses on non-traditional solutions; explores different innovative responses rather than commonly accepted solutions.

Innovative Thinking Focuses on introducing something new, better, or different – a pioneering breakthrough in processes, product/services, or solutions to issues.

Transformative Thinking Focuses on challenging accepted beliefs, assumptions, perspectives, and premises; redefines issues using a different perspective.

Systems Thinking Focuses on understanding the whole and the relationships of its components including interrelationships and interdependencies.

Visionary Thinking Focuses on the future and possible future states.

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Strategic thinkers are always questioning: “what are we doing now that we should stop doing?” “what are we not doing now, but should start doing?” and “what are we doing now that we should continue to do but perhaps in a funda- mentally different way?” For the strategic thinker, these questions are applicable to everything the organization does – its products and services, internal processes, pol- icies and procedures, strategies, and so on. Successful strategies often require being what you haven’t been, thinking as you haven’t thought, and acting as you haven’t acted.26 Strategic thinkers examine assumptions, understand systems and their interrelationships, and develop alternative scenarios of the future. Strategic thinkers forecast external technological, social, and demographic changes, as well as critical changes in the legislative and political arenas. Strategic thinking is very much a leadership activity and quite different from the work of subject matter experts. For example, strategic thinkers specialize in relationships and context, whereas expert thinkers specialize in well-defined disciplines and functions. Strategic thinkers act on intuition and “gut feel” when data is incomplete, whereas experts pay rigorous attention to knowledge, evidence, and existing data. Strategic thinkers focus on action and moving forward; experts focus on understanding.

Everyone a Strategic Thinker Strategic thinking provides the foundation for strategic management; however, strategic thinking is not just the task of the CeO, health officer, or top administrator of the organization. For strategic management to be successful, everyone must be encouraged to think strategically – think as a leader. Leadership is a performing art – a collection of practices and behaviors – not a position.27 everyone, at all levels, should be encouraged to think strategically and consider how to reinvent what he or she does. For example, understanding that a nursing home’s image is based on the customers’ perception of cleanliness can motivate custodians to think strategically and reinvent the way the nursing home is cleaned. Strategic thinking is supported by the continuous management of the strategy and documented through the periodic process of strategic planning.

Strategic Planning Strategic planning is the next activity in the general model of strategic manage- ment illustrated in exhibit 1–1. Strategic planning is the periodic process of devel- oping a set of steps for an organization to accomplish its mission and vision using strategic thinking. Therefore, periodically, strategic thinkers should come together to reach consensus on the desired future of the organization and develop decision rules for achieving that future. The result of the strategic planning process is a plan or strategy. More specifically, strategic planning:

● Provides a sequential, step-by-step process for creating a strategy. ● involves periodic group strategic thinking (brainstorming) sessions. ● requires data/information, but incorporates consensus and judgment. ● establishes organizational focus. ● Facilitates consistent decision making. ● reaches consensus on how the organization fits within its industry. ● results in a documented strategic plan.

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The process of strategic planning defines where the organization is going, sometimes where it is not going, and provides focus. The plan sets direction for the organization and – through a common understanding of the vision and broad strategic goals – provides a template for everyone in the organization to make consistent decisions that move the organization toward its envisioned future. Because strategic planning provides a platform for setting direction for an organization, it is seen as essential for all types of organizations. Bain and Company, a global consulting firm, tracks the trends in management concepts. They accomplish this tracking by means of a survey of executives throughout the world. in most years of the survey, strategic planning has ranked as the number one management concept used by the responding executives. in its most recent ranking, strategic planning was tied with benchmarking as the second most often used management tool.28

Strategic planning, in large part, is a decision-making activity. Although these decisions are often supported by a great deal of quantifiable data, strategic deci- sions are fundamentally judgments. Because strategic decisions cannot always be quantified, managers must rely on “informed judgment” in making this type of decision. As in our own lives, generally the more important the decision, the less quantifiable it is and the more we will have to rely on the opinions of others and our own best judgment. For example, our most important personal decisions such as where to attend college, whether or not to get married, and where to live are largely informed judgments or intuitions. Similarly, the most important organizational decisions, such as entering a market, introducing a new service, or acquiring a competitor, although based on information and analysis, are essen- tially judgments.

Decision consistency is central to strategy; when an organization exhibits a consistent behavior it is, at least implicitly, manifesting a strategy. Therefore, strategy is the consistent behavior of an organization in coping with technological, social and demographic, economic, legislative/political, and competitive forces. Optimally, the strategy is well thought out and moves the organization from where it is today to a desired state in the future. The strategic plan is the set of decision-making guidelines or road map for carrying out the strategy and helps to ensure decision consistency. Developing the road map (strategic plan) requires situational analysis, strategy formulation, and planning the implementation of the strategy.

Situational analysis is a process of understanding and documenting an organi- zation’s: (1) external analysis; (2) internal analysis; and (3) the development or refinement of the organization’s directional strategies. The interaction and results of these activities form the basis for the development of strategy. These three interrelated activities drive the strategy (see exhibit 1–4). external forces, such as a change in health policy or an increase in competition, suggest “what the organi- zation should do.” That is, success is a matter of being effective – doing the “right” thing. Strategy is additionally influenced by the internal resources, competencies, and capabilities of the organization and represents “what the organization can do.” Finally, strategy is driven by a common mission, common vision, and com- mon set of organizational values and goals – the directional strategies “what the organization wants to do.”

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The directional strategies are the result of considerable thought and analysis by top management. Directional strategies are the broadest strategies, set the fun- damental direction of the organization, and generally include the organization’s mission, vision, values, and strategic goals. Together, these forces are the essential input to strategy formulation. They are not completely distinct and separate; they overlap, interact with, and influence one another.

whereas situational analysis involves a great deal of strategic thinking – aware- ness, anticipation, analysis, interpretation, synthesis, and reflection – strategy for- mulation involves decision making that uses the synthesis to create a plan. hence, strategy formulation is the process of developing strategic alternatives, evaluating alternatives, and making strategic choices. Typically, these decisions are made in strategic planning sessions.

Once the strategy for the organization has been formulated (including direc- tional, adaptive, market entry/exit, and competitive), implementation plans that accomplish the organizational strategy are developed. An implementation plan is a series of steps/activities that are formulated to accomplish strategic goals and are developed in the key areas that create value for an organization – service delivery and support activities. Strategies must be developed that best deliver the products or services to the customers through pre-service, point-of-service, and after-service activities. in addition to service delivery strategies, strategies must be developed for value-adding support areas, such as the organization’s culture, structure, and strategic resources.

ExHIbIT 1–4 Interrelated Activities that Drive Strategy

Mission, Vision,

Values, & Goals

What an organization wants to do

Basis for Strategy

Formulation

Integration of what the organization should do, wants to do, and can do

External

Force s

What a n

organiza tio

sh ould do

InternalForces What an

organization can do

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A Group Process of Key Players The CeO or a separate planning department can develop a strategy. however, such approaches run into trouble during implemen- tation, as there is no common “ownership” of the plan or the tasks associated with it. Therefore, strategic planning for organizations typically should be a group process. it involves a number of key participants working together to develop a strategy. Although strategic planning provides the structure for thinking about strategic issues, effective strategic planning also requires an exchange of ideas, sharing perspectives, developing new insights, and critical analysis. Strategic planning efforts will be diminished without future-oriented highly provocative thinking and dialog.29

For most organizations, it is not possible for everyone to be a full participant in the strategic planning process. Decision making is protracted if everyone must have a say – and a consensus may never be reached. A few key players – senior staff, top management, or a leadership team – are needed to provide balanced and informed points of view. Often, representatives of important functional areas are included as well. An effective leader will incorporate a variety of individuals with different backgrounds and perspectives to provide input to the process. Some participants may be mavericks and nudge the group in new ways. if everyone is pre-programmed to agree with the leader, participation is not required – but neither will an actionable and exciting plan be realized.

The key to successful strategic planning is to have a recurring group process. having a periodic structured process initiates reflection, reconsideration, discus- sion, and documentation of all the assumptions. without a planned process, managers may never quite get to it. without a process, ideas are not discussed, conclusions are not reached, decisions are not made, strategies are not adopted, and strategic thinking is not documented. The nature of the group and the process are often pivotal to achieve the best possible outcome.

Strategic Momentum Sometimes a strategic plan is created but nothing really changes, strategic momentum is lost, and plans are never implemented. As the next year rolls around, it is once again time for the annual strategic planning retreat and the cycle repeats itself. This example is one of strategic planning without managing strate- gic momentum. Alan weiss, in his irreverent book Our Emperors Have No Clothes, explains that in these situations the problem is that “[s]trategy is usually viewed as an annual exercise at best, an event that creates a ‘product,’ and not a process to be used to actually run the business.”30

The third element of strategic management shown in exhibit 1–1, strategic momentum, concerns the day-to-day activities of managing the strategy directed toward achieving the strategic goals of the organization. Once plans are devel- oped, they must be actively managed, implemented, and controlled to maintain the momentum of the strategy. Strategic thinking and periodic planning should never stop; they should become ingrained in the culture and philosophy of a stra- tegically managed organization. Strategic momentum:

● Addresses the management of the actual work to accomplish specific objectives.

● Concerns decision-making processes and their consequences.

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Chapter 1 the Nature of StrategiC MaNageMeNt 21

● Shapes the style and culture. ● evaluates strategy performance. ● Controls strategy implementation by making necessary adjustments. ● is a learning process. ● relies on and initiates new strategic thinking and new periodic strategic

planning.

For many organizations, strategic planning is the easiest part of strategic management and the planning process receives the greatest attention. however, plans must be implemented to create momentum and realize strategic intent. Poor implementation or lack of adequate control has rendered many strategic plans worthless. whereas the strategic plan and its underlying strategic thinking must be viewed as critical elements of the strategy-making process, without attentive implementation and the decision-making guidelines provided for managers at all levels in the organization, they become useless. if the strategy is not actively controlled, it will not happen. See essentials for a Strategic Thinker 1–4, “what is Management Control?” that examines the nature of management control.

ESSENTIalS for a STraTEgIC THINkEr 1–4

What is Management control?

To control means to regulate, guide, or direct. To manage means to control, handle, or direct. Therefore, management and control both focus on guiding, influencing, and directing behavior; indeed, management is control and control is management. The very act of managing sug- gests controlling the behavior or outcome of some process, program, or plan. Vision, mis- sion, values, and strategies are types of con- trols. Similarly, policies, procedures, rules, and performance evaluations are clearly organiza- tional controls. All of these are attempts to focus organizational efforts toward a defined end. Yet, if these tools are improperly used, employees may perceive control to be dominating, over- powering, dictatorial, or manipulative.

When processes are poorly managed, control runs afoul as well. It is interpreted as domi- nation when management enforces too much control and manages too closely by controlling

subprocesses or too many details. Management requires the right touch. If control is too far reach- ing, it can foster a hopeless bureaucracy. If control is too weak, there may be a lack of direction caus- ing difficulty in accomplishing organizational goals. When there is too much management (control), then innovation, creativity, and indi- vidual initiative will be stifled; when there is too little, chaos ensues. Management should focus efforts but not be tyrannical or overbearing.

Given how easy it is to overdo management (control), a general rule of thumb is that “less is best.” Setting direction and empowering peo- ple to make their own decisions on how best to achieve the vision seems to work. Effective management (control) is essential if organiza- tions are to renew themselves; however, over managing (over controlling) can destroy initia- tive and be viewed as meddling, often reducing motivation as well.

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At the same time, managers often need to react to unanticipated developments and new competitive pressures. Such shifts may be subtle, other times they can be discontinuous and extremely disruptive. when external changes occur, new opportunities emerge and new competencies are born, while others die or are ren- dered inconsequential. inevitably, the basic rules of competing and survival will change.31 Managing strategic momentum is how an organization constructively manages change, evaluates strategy, and reinvents or renews the organization. As management expert henry Mintzberg has indicated, “… a key to managing strategy is the ability to detect emerging patterns and help them take shape.”32

Learning as the Strategy Unfolds Changing societal and industry char- acteristics and evolving organizational forms require new and different ways of defining strategy.33 Strategy may be an intuitive, entrepreneurial, political, culture-based, or learning process. in these cases, past maps are of limited value. Managers must create and discover an unfolding future, using their ability to learn together in groups and interact politically in a spontaneous, self-organizing manner. however, learning is difficult in organizations. learning requires engage- ment, mastering unfamiliar ideas, and adopting new behaviors. engaged learning demands that executives share leadership, face harsh truths, and take learning personally. it requires them to fundamentally change the way they manage.34 it requires a renewed concentration on managing strategic momentum.

Clearly, just because a strategy is rational does not mean that it will work out as envisioned or planned (an unrealized strategy). in other cases, an organization may end up with a strategy that was unexpected, developed as uncontrollable and unanticipated external events unfolded – as a result of having been “swept away by events” (an emergent strategy). leadership, vision, and “feeling our way along” (learning) often provide a general direction without a real sense of specific objec- tives or long-term outcomes. it is quite possible for a strategy to be developed and subsequently work out successfully (a realized strategy); however, we must be realistic enough to understand that when we engage in strategic management the theoretical ideal (strategy developed, then realized) may not, and in all probability will not, be the case. A great deal may change. The possibilities include:

● There is a reformulation of the strategy during implementation as the organization gains new information and feeds that information back to the formulation process, thus modifying intentions en route.

● Society or the industry is in a period of flux and strategists are unable to accurately predict conditions; the organization may therefore find itself unable to respond appropriately to powerful external forces.35

● Other organizations implementing their own strategies may block a strate- gic initiative, forcing the activation of a contingency strategy or a period of “groping.”

Obviously, health care organizations formulate strategies and realize them to varying degrees. For instance, as a part of a deliberate strategy to broaden their market, improve service to the community, and retain referral patients, many community hospitals began offering cardiac services such as catheterization and open-heart surgery. As a result, some of these hospitals have broadened their

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Chapter 1 the Nature of StrategiC MaNageMeNt 23

market share and increased profitability. Other community hospitals have not fared as well. Their managers had unrealistic expectations concerning the profit- ability of cardiac services and the number of procedures required. A large volume is crucial to cardiac services because it allows the hospital to order supplies in bulk and provides physician experience that produces better outcomes and shorter lengths of stay. in addition, some community hospital managers misjudged the level of reimbursement from Medicare, thereby further squeezing profitability. The strategies of those community hospitals that ultimately left the cardiac ser- vices market were not realized.

Still other community hospitals seemed to move into a full range of cardiac services without an explicit strategy to do so. in an effort to retain patients and enhance their images, these hospitals began by offering limited cardiac services but shortly found that they were not performing enough procedures to be “world class.” They added services, equipment, and facilities to help create the required volume and, without really intending to at the outset, ended up with emergent strategies that resulted in significant market share in cardiac services.

Everyone Must Manage the Strategic Momentum As with strategic think- ing, everyone plays a role in managing strategic momentum. everyone in the organization should be working for the strategy and understand how their work contributes to the accomplishment of the strategic goals. As leadership author Max DePree has suggested, “leaders are obligated to provide and maintain momentum.”36 Although organizations may accomplish superior results for a brief period of time, it takes the orchestration of management as well as leadership to perpetuate these capabilities far into the future.37

The benefits of Strategic Management The three stages of strategic management – strategic thinking, strategic planning, and strategic momentum – will provide many benefits to health care organizations. however, because strategic management is a philosophy or way of managing an organization, its benefits are not always quantifiable. Overall, strategic management:

● Ties the organization together with a common sense of purpose and shared values.

● Often improves financial performance.38

● Provides the organization with a clear self-concept, specific goals, and guidance as well as consistency in decision making.

● helps managers to understand the present, think about the future, and rec- ognize the signals that suggest change.

● requires managers to communicate both vertically and horizontally. ● improves overall coordination within the organization. ● encourages innovation and change within the organization to meet the

needs of dynamic situations.

Strategic management is a unique perspective that requires everyone in the organization to cease thinking solely in terms of internal functions and operational

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24 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

responsibilities. it insists that everyone adopt what may be a fundamentally new attitude – an external orientation and a concern for the big picture. it is basically optimistic in that it integrates “what is” with “what can be.”

health care leaders require a comprehensive strategic management approach to guide their organizations through general environment and health care system changes. Strategic management concepts, activities, and methods presented in this text will prove to be valuable in coping with these changes. in addition, the internal, non-quantifiable benefits of strategic management will aid health care organizations in better integrating functional areas to strategically utilize limited resources and satisfy the various populations served. Strategic management is the exciting future of effective health care leadership.

What Strategic Management Is Not Strategic management should not be regarded as a technique that will provide a “quick fix” for an organization that has fundamental problems. Quick fixes for organizations are rare; it often takes years to successfully integrate strategic man- agement into the values and culture of an organization. if strategic management is regarded as a technique or gimmick, it is doomed to failure. Similarly, strategic management is not just strategic planning or a yearly retreat where the leader- ship of an organization meets to talk about key issues only to return to “business as usual.” Although retreats can be effective in refocusing management and for generating new ideas, strategic management must be adopted as a philosophy of leading and managing the organization.

Strategic management is not a process of completing paperwork. if strategic management has reached a point where it has become simply a process of filling in endless forms, meeting deadlines, drawing milestone charts, or changing the dates of last year’s goals and plans, it is not strategic management. effective stra- tegic management requires little paperwork. it is a process, not a series of docu- ments. Similarly, strategic management should not be undertaken solely to satisfy a regulatory body’s or an accrediting agency’s requirement for a “plan.” in these situations, no commitment is made on the part of key leadership, no participa- tion is expected from those in the organization, and the plan may or may not be implemented.39

Strategic management is not simply extending the organization’s current activ- ities into the future. it is not based solely on a forecast of present trends. Strategic management attempts to identify the issues that will be important in the future. health care strategic managers should not simply ask the question, “how will we provide this service in the future?” rather, they should be asking questions such as, “Should we provide this service in the future?”, “what new services will be needed?”, “what services are we providing now that are no longer needed?”

a Systems Perspective A system may be defined as “a perceived whole whose elements ‘hang together’ because they continually affect each other over time and operate toward a com- mon purpose.”40 More simply, a system is a set of interrelated elements. each element connects to every other element, directly or indirectly, and no subset of elements is unrelated to any other subset. A system must have a unity of purpose

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Chapter 1 the Nature of StrategiC MaNageMeNt 25

in the accomplishment of its goals, functions, or desired outputs. Further, bio- logical as well as organizational systems must continually adapt to their environ- ments to survive.

The problems facing organizations are often so complex that they defy simple solutions. understanding the nature of the health care system, the relationship of the organization to that industry, and the often-conflicting interests of the organization’s internal departments requires a broad conceptual paradigm. Yet, it is difficult to comprehend so many multifaceted and important relationships. Strategic managers have found viewing organizations as complex adaptive systems – interacting structures evolving in response to change – to be useful for organizing their strategic thinking.41

A systems perspective is a way of understanding a phenomenon by perceiving the whole as well as its interactive elements (subsystems). understanding compli- cated adaptive systems through a systems perspective:

● Aids in identifying and understanding the big picture. ● Facilitates the identification of major components. ● helps to identify important relationships and provides proper perspective. ● Avoids excessive attention to a single part. ● Allows for a broad scope solution. ● Fosters integration. ● Provides a basis for redesign.

using a systems perspective and viewing organizations as complex adaptive systems requires strategic managers to define the organization in broad terms and to identify the relevant variables and interrelationships that will affect decisions. By defining systems, strategic managers are able to accurately see the “big picture” and avoid devoting excessive attention to relatively minor aspects of the total system. A systems perspective permits strategic managers to concentrate on those facets of the problem that deserve the most attention and allows for a more focused attempt at resolution. As American systems scientist and lecturer Peter Senge has indicated, systems perspectives help us to see the total system and how to change the pieces within the system more effectively and intelligently.42

recognizing the importance of a systems framework, health care managers commonly refer to “the health care system” or “the health care delivery system” and strive to develop logical internal organizational systems to succeed in the industry.43 in a similar manner, health care strategic managers must use systems to aid in strategically thinking about the external conditions. The community and region may be thought of as an integrated system with each part of the system (subsystem) providing a unique interdependent contribution.

The level and orientation of the Strategy A systems perspective will be required to specify the level of the strategy and the relationship of the strategy to the other strategic management activities. Therefore, the organizational level and orientation should be carefully considered

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26 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

and specified before strategic planning begins. For example, as illustrated in exhibit 1–5, strategies may be developed for large, complex organizations, divi- sions within a broader organization, individual organizations such as for a hospi- tal, or for well-focused functional units. The range of the strategic decisions that are considered at different organizational levels is quite different, but all entities can benefit from strategic management and all engage in strategic thinking, stra- tegic planning, and strategic momentum.

Strategic Thinking

Ends – Means Hierarchy of Strategies

Organizational Levels

Corporate Of�ces

Divisional Level

Organizational Level

Unit Level

Corporate Level

Outpatient Facilities

Long-term Care

Home Health

Hospital Division

Hospital West

Hospital Central

Hospital East

Surgery Orthopedics Pharmacy

Strategic Planning

Input

Strategic Momentum

Strategic Thinking

Strategic Planning

Strategic Momentum

Strategic Thinking

Strategic Planning

Strategic Momentum

Strategic Thinking

Strategic Planning

Strategic Momentum

ExHIbIT 1–5 The Link between Levels of Strategic Management

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A large integrated health care system would likely develop strategy for a num- ber of levels – a corporate level, a divisional level, an organizational level, and a unit level. when considered together, these strategic perspectives create a hierar- chy of strategies that must be consistent and support one another. each strategy provides the “means” for accomplishing the “ends” of the next level. Thus, the unit level provides the means for accomplishing the ends of the organizational level. The organizational level, in turn, provides the means for accomplishing the ends of the divisional level. Finally, the divisional level is the means to the ends established at the corporate level. As illustrated in the hypothetical example in exhibit 1–5, the strategic planning of higher-order strategies provides part of the context or input for lower-order strategy – the corporate strategic plan is an input to strategic thinking at the divisional level (hospital Division). Similarly, the divisional strategic plan is an input to the organizational level strategic thinking (hospital Central) and so on.

As a practical example, Trinity health is an integrated health system that devel- ops strategic plans at a number of organizational levels. Trinity health is one of the largest multi-institutional Catholic health systems in the united States and serves people in 22 states. As of the beginning of 2017, Trinity had over $23.4 billion in assets, $15.9 billion in revenues, and was comprised of 93 hospitals, and 120 con- tinuing care facilities, home care agencies, and outpatient centers. Clearly, strate- gies should be developed for the corporate level – Trinity health, for each major division such as Saint Joseph Mercy health System, for each distinct organization within the division such as Saint Joseph Mercy Ann Arbor hospital, and within the various hospital units (clinical operations).

Corporate-Level Strategy A corporate-level strategy is an overall plan for the broadest organizational level that positions the organization in multiple markets served with multiple products and addresses the question: “what business(es) should we be in?” Such strategies consider multiple, sometimes unrelated, mar- kets and typically are based on return on investment, market share or potential market share, and system integration. For Trinity health, clearly the corporate perspective is an important one. The question of “what businesses should we be in?” has resulted in several semi-autonomous “businesses” operating in a num- ber of different markets, including hospitals, outpatient facilities, long-term care, home health, and hospices. Key strategic questions might include: “what other types of businesses, such as wellness or mental health centers, should Trinity con- sider?” Once consensus is reached regarding the corporate strategy, the process continues at the next organizational level – the divisional level.

Divisional-Level Strategy A divisional-level strategy is an overall plan for a corporate division or a single product, single market organization. These strat- egies are more focused than corporate-level strategies and provide direction for a single business type. Divisional strategies are most often concerned with positioning the division to compete. These semi-autonomous organizations are often referred to as SBus (strategic business units) or SSus (strategic service units). Therefore, strategic managers for these units are most concerned with a specified set of competitors in well-defined markets.

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For Trinity health, strategies must be developed for the hospital division, outpatient facilities division, long-term care division, and so on. For the hospital division, key strategic questions may include: “how many hospitals are optimal?” or “which markets should Trinity enter with a new hospital?” This perspective concerns a single business type and its markets. Therefore, it is quite different from the corporate perspective of considering different types of businesses. Once divisional-level strategies have been developed, strategy making continues down the organizational chain to the organizations within the division.

Organizational-Level Strategy within a division, individual organizations may develop strategies as well. An organizational-level strategy is an overall plan for one organization competing within a specified well-defined market. For exam- ple, each hospital in Trinity’s hospital division may develop a strategic plan to address its own particular market conditions. Key strategic questions for this level of strategy may include: “what combination of hospital services is most appropri- ate for this market?” and “what strategies are the competitors using to increase market share?” After organizational strategies have been developed, the process may continue within the departmental units of the organization.

Unit-Level Strategy A unit-level strategy is an overall plan for an individual department within an organization that supports higher-level organizational strategies through accomplishing specific objectives. unit operational strategies may be developed within departments of an organization such as clinical opera- tions, marketing, finance, information systems, human resources, and so on. unit strategies are intended to integrate the various subfunctional activities as well as creating internal capabilities across functions (for example, quality programs or changing the organization’s culture).44

Strategy Hierarchy Strategic management may be employed independently at any organizational level. however, it is much more effective if there is top- down support and strategies are integrated from one level to the next. For some organizations, of course, there is no corporate or divisional level, such as with a free-standing community hospital or independent long-term care organization. For these organizations the question of scope and perspective and integration of the strategy is much more straightforward.

The Importance of leadership

ultimately, strategic decision making for health care organizations is the respon- sibility of top management. The CeO is a strategic manager with the pre-eminent responsibility for positioning the organization for the future. At this level of leadership, such an individual must be able to inspire, organize, and implement effective pursuit of a vision and maintain it even when sacrifices are required.45 A 10-year study of CeO performance across all major industries found that the most effective CeOs: (1) were able to be decisive, recognizing that they could not wait for perfect information, (2) worked to understand the priorities of stakeholders

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Chapter 1 the Nature of StrategiC MaNageMeNt 29

and incorporate those needs into goals of value creation, (3) were able to adjust to rapidly changing conditions, and (4) reliably produced results over time.46

As a result, the leader must have an ability to identify what needs to be done today and what can wait. They prioritize constantly; aware that wars are lost by fighting on too many fronts. They know the key messages to communicate day to day, from audience to audience.47 if the CeO, as the organization’s leader, does not fully understand or faithfully support strategic management, it will not hap- pen. The essentials for a Strategic Thinker 1–5 further answers the question “what is leadership?”

ESSENTIalS for a STraTEgIC THINkEr 1–5

What is leadership?

Leadership involves creating a vision and sharing it, aligning individuals and building coalitions, motivating and inspiring.1 Leadership is a choice, not a rank or a position. It is a behavior, not a trait. Behaviors can be learned and so can leadership. Some have argued that leaders are born; but the evidence suggests that anyone can become an effective leader.

We, the authors of this textbook, think of leaders as people who: (1) establish organiza- tional direction and (2) shape organizational cul- ture. Setting direction involves understanding the organization’s industry and developing and communicating the mission, vision, values, and goals for the future that make the organization as relevant as possible. Internally, shaping cul- ture is a matter of affecting the intrinsic habits, customs, and norms of individuals as well as the social, structural, and decision-making context of the organization.

Establishing direction is accomplished by shaping strategic consensus through the strate- gic management processes of strategic thinking, strategic planning, and strategic momentum. Shaping the organization’s culture involves instilling attributes such as teamwork, qual- ity, trust, innovation, customer orientation, and so on to make the organization adaptive to

change. In addition, leaders create an organi- zational context by creating an appropriate cul- ture for adaptation and response to external change while shaping internal organizational practices, rules, procedures, decision making, and views of risk.

Although they are equally important to cre- ate efficient and effective organizations, leader- ship and management are different in many respects. Management is about efficiency and order while leadership is about change. More specifically, comparing managers and leaders indicates that:2

● Managers administer; leaders innovate. ● Managers are copies; leaders are

originals. ● Managers focus on systems and structure;

leaders focus on people. ● Managers rely on control; leaders inspire

trust. ● Managers have a short-term view; leaders

have a long-term perspective. ● Managers ask “how” and “when”; leaders ask

“what” and “why.” ● Managers have an eye on the bottom line;

leaders have an eye on the horizon. ● Managers initiate; leaders originate.

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30 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

● Managers accept the status quo; leaders challenge it.

● Managers are classic good soldiers; leaders are their own person.

● Managers do things right; leaders do the right things.

There are no honorary leaders. Leadership is an art that must develop and evolve. Leadership is an achievement that no organization can bestow.

It is something that must be earned through hard work, enthusiasm, and commitment.

RefeRences

1. John Kotter, A Force for Change: How Leadership

Differs from Management (New York: Free Press,

1990).

2. Warren G. Bennis, On Becoming a Leader

(Reading, MA: Addison-Wesley, 1989).

leadership roles throughout the organization in the past, strategy development was primarily a staff activity. The planning staff would create the strategy and submit it for approval to top management. This process resulted in plans that were often unrealistic, did not fully consider all the contingencies and resources of the divisions or departments, and separated plan- ning from leadership.

Over the past two decades, many large formal planning staffs have been dis- solved as organizations learned that strategy development cannot take place in relative isolation. Therefore, the development of the strategy has become the responsibility of key managers. The coordination and facilitation of strate- gic planning may be designated as the responsibility of a single key manager (often the CeO), but the entire leadership team is responsible for strategy development and its management. The rationale underlying this approach is that no one is more in touch with the external conditions (regulations, tech- nology, competition, social change, and so on) than the managers who must deal with it every day and lead change. The leadership team must coordinate the organization’s overall strategy and facilitate strategic thinking throughout the organization. As a result, the organization’s top managers act as an exten- sion of the CeO to ensure that an organized – and one that is used – planning process ensues.48

The remainder of this text provides processes for strategic management presented in the model of strategic management (exhibit 1–1). Chapter 2 provides strategic thinking maps for examining the general environment and health care systems as well as the service area and Chapter 3 concentrates on service area competitor analysis. Chapter 4 discusses internal analysis and provides strategic thinking maps for evaluating the organization’s strengths and weaknesses and the creation of competitive advantage. The development of the directional strategies through strategic thinking maps is explored in more detail in Chapter 5. Strategic thinking maps for strategy formulation are presented in Chapters 6 and 7. Strategy implementation is discussed further in Chapters 8 through 10.

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Chapter Summary

Strategic management is often a complex and difficult task. A model of strategic management provides a useful framework or intellectual map for conceptualizing and developing strategies for an organization. Strategic management includes strategic thinking, strategic planning, and strategic momentum. in reality, these elements are blended together as the strategy is formed and reformed through leadership, intuition, and organizational learning. indeed, implementing the strat- egy may actually create an entirely new, unintended strategy.

The concept of strategic management has been successfully used by business organizations, the military, and government agencies; health care managers are finding it essential for their organizations as well. The strategic management model presented and discussed in this chapter is applicable to a variety of health care organizations operating in dramatically different segments of the industry, is useful for both large and small organizations, and facilitates strategic thinking at all levels of the organization.

The strategic planning portion of the model incorporates situational analysis, strategy formulation, and strategy implementation. The strategic thinking activi- ties – awareness, anticipation, analysis, interpretation, synthesis, and reflection – within situational analysis combine to influence strategy formulation. Strategy formulation in turn affects planning the implementation. Finally, the strategy must be managed, evaluated, controlled, and modified as needed. Managing stra- tegic momentum is an iterative process that may incorporate new understandings of the situation, change the fundamental strategy, or modify strategy implemen- tation. Strategic momentum essentially continues strategic thinking and strategic planning.

The model of strategic management (the strategic thinking map) presented in this text is designed to provide the essential logic of the activities involved in strategic management and therefore is based on both analytical (rational) as well as emergent (learning) approaches to understand strategy making in organiza- tions. The analytical model provides an excellent starting point for understanding the concept of strategy and a foundation for comparing and contrasting strategies. however, the strategic management model does not perfectly represent reality and must not be applied blindly or with the belief that “life always works that way.” Strategic management is not always a structured, well-thought-out exer- cise. in reality, thought does not always precede action, perfect information con- cerning the industry and organization never exists, and rationality and logic are not always superior to intuition and luck. Sometimes organizations “do” before they “know.” For instance, intended strategies are often not realized strategies. Sometimes managers are able to just “muddle through.” Or, managers may have a broad master plan or logic underlying strategic decisions; but, because of the complexity of external and internal factors, incremental adjustments and guided evolution are the best they can do.49

Managers must realize that, once introduced, strategies are subject to a variety of forces, both within and outside the organization. Sometimes we learn by doing. Yet, without a plan (a map) it is difficult to start the journey, challenging to create any type of momentum for the organization, and hard to develop and maintain

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consistent decision making. Thus, strategic managers begin with the most rational plan that can be developed and continue to engage in strategic thinking. effective strategic managers become adept at “freezing” and “unfreezing” their thinking and strategic plans as the situation changes.

Practical lessons for Health Care Strategic Thinkers

1. A conceptual model of strategic management is not just an academic exercise nor is it a passing fad. if managers are going to engage in strategic planning in an organization and be successful, they must understand how strategic thinking, strategic planning, and strategic momentum fit together and the nature of each.

2. The strategic management processes provide the “road map” for all the activities and decisions in the organization. They create organizational momentum and keep everyone informed – one has to have a plan to start a journey.

3. even the best strategic plans may not work out; therefore, strategic managers must be ready to learn what is working and what is not working as the plan unfolds and adjust the implementation, the strategy itself, or their understanding of the situation.

4. All strategies are temporary; there is just too much social, economic, competitive, and political change for a strategy to be effective forever; therefore, in the long term, to be successful the strategy has to change.

5. in organizations, strategic management and leadership are the same thing; vision and a future orientation are essential.

6. Strategic managers should focus on keeping the organization relevant and creating momentum.

ThE LAnguAgE oF STrATEgIC MAnAgEMEnT: KEy TErMS AnD ConCEPTS

Analytical/rational Approach Compass Complex Adaptive System Corporate-level Strategy Directional Strategies Divisional-level Strategy emergent Approach emergent Strategy health Policy implementation Plan

leadership long-range Planning Map Organizational-level Strategy realized Strategy Situational Analysis Strategic Business unit (SBu) Strategic Management Strategic Momentum Strategic Planning

Strategic Service unit (SSu) Strategic Thinking Strategic Thinking Map Strategy Strategy Formulation System Systems Perspective unit-level Strategy unrealized Strategy

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Notes 1. This partial list of issues in the health care system results

from tracking the strategic issues in health care in the professional and trade literature, government and foun- dation reports, and numerous interviews with both pub- lic and private health care professionals by the authors.

2. Charles r. Morris, “why u.S. health Care Costs Aren’t Too high,” Harvard Business Review 85, no. 2 (February 2007), p. 50.

3. ibid. 4. ibid., pp. 50, 52. Additional data obtained from Kaiser

Family Foundation based on u.S. Census Bureau’s “Current Projections: Annual Social and economic Supplement, March, 2016.”

5. Stuart M. hochron and Paul Golfberg, “Overcoming Barriers to Physician Adoption of ehrs,” Healthcare Financial Management 68, no. 2 (2014), pp. 48– 52.

Questions for Class Discussion

1. explain why strategic management has become crucial in today’s dynamic health care system.

2. what is the rationale for health care organizations’ adoption of strategic management?

3. Trace the evolution of strategic management. have the objectives of strategic manage- ment changed dramatically over its development?

4. how is strategic management different from health policy?

5. Compare and contrast the analytical view of strategic management with the emergent, learning approach. which is most appropriate for health care managers?

6. why are conceptual models of management processes useful for practicing managers?

7. what is a strategic thinking map? how are strategic thinking maps useful? what are their limitations?

8. what are the major activities of strategic management? how are they linked together?

9. Differentiate among the terms strategic management, strategic thinking, strategic plan- ning, and strategic momentum.

10. in an organization, who should be doing strategic thinking? Strategic planning? Managing strategic momentum?

11. is strategic thinking enough? why do we engage in strategic planning? what are the elements of strategic planning?

12. what is meant by realized strategies? how can strategies be realized if they were never intended?

13. what can cause well-thought-out strategies that were developed using all the steps in strategic planning to change?

14. explain and illustrate the possible benefits of strategic management. what types of health care institutions may benefit most from strategic management?

15. At what organizational level(s) may a strategy be developed? if at more than one level, how are these levels linked by the planning process?

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34 STraTegic MaNageMeNT of HealTH care orgaNizaTioNS

6. Jeffrey Bracker, “The historical Development of the Strategic Management Concept,” Academy of Management Review 5, no. 2 (1980), pp. 219–224.

7. ibid. 8. Bruce D. henderson, “The Origin of Strategy,” Harvard

Business Review 67, no. 6 (november–December 1989), p. 142. See also Peer C. Fiss and edward J. Zajac, “The Symbolic Management of Strategic Change: Sensegiving via Framing and Decoupling,” Academy of Management Journal 49, no. 6 (2006), pp. 1187–1190.

9. Chris Zook, “Finding Your next Core Business,” Harvard Business Review 85, no. 4 (April 2007), p. 75.

10. Bracker, “The historical Development of the Strategic Management Concept,” pp. 219–224.

11. Margarete Arndt and Barbara Bigelow, “The Transfer of Business Practices into hospitals: history and implications,” in John D. Blair, Myron D. Fottler, and Grant T. Savage (eds) Advances in Health Care Management (new York: elsevier Science, 2000), pp. 339–368.

12. Peter M. Ginter and linda e. Swayne, “Moving Toward Strategic Planning unique to healthcare,” Frontiers of Health Services Management 23, no. 2 (winter 2006), pp. 33–34.

13. ernest l. Stebbins and Kathleen n. williams, “history and Background of health Planning in the united States,” in william A. reinke (ed.), Health Planning: Qualitative Aspects and Quantitative Techniques (Baltimore, MD: Johns hopkins university, School of hygiene and Public health, Department of international health, 1972), p. 3.

14. henry Mintzberg, “The Design School: reconsidering the Basic Premises of Strategic Management,” Strategic Management Journal 11, no. 3 (1990), pp. 171–195.

15. henry Mintzberg, The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners (new York: Free Press, 1994).

16. David K. hurst, Crisis and Renewal: Meeting the Challenge of Organizational Change (Boston , MA: harvard Business School Press, 1995), pp. 167–168.

17. ibid. See also eric Dane and Michael G. Pratt, “exploring intuition and its role in Managerial Decision Making,” Academy of Management Review 32, no. 1 (2007), p. 49.

18. rosabeth Moss Kanter, “Strategy as improvisational Theater,” MIT Sloan Management Review (winter 2002), p. 76.

19. ian h. wilson, “The 5 Compasses of Strategic leadership,” Strategy & Leadership 24, no. 4 (1996), pp. 26–31 and Dusya Vera and Mary Crossan, “Strategic leadership and Organizational learning,” Academy of Management Review 29, no. 2 (2004), pp. 222–240.

20. robert S. Kaplan and David P. norton, “having Trouble with Your Strategy? Then Map it,” Harvard Business Review 78, no. 5 (September–October 2000), pp. 167–176. See also robert S. Kaplan and David P. norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston, MA: harvard Business School Press, 2004).

21. hurst, Crisis and Renewal, p. 7.

22. Peter M. Senge, The Fifth Discipline: The Art & Practice of The Learning Organization (new York: Currency Doubleday, 1990), pp. 239–240.

23. ronald A. heifetz and Marty linsky, “A Survival Guide for leaders,” Harvard Business Review (June 2002), pp. 65–74.

24. Kevin Kelly, “roller Coaster leadership,” Business Strategy Review 18, no. 1 (Spring 2007), p. 26.

25. James M. Kouzes and Barry Z. Posner, The Leadership Challenge: How to Keep Getting Extraordinary Things Done in Organizations (San Francisco, CA: Jossey-Bass Publishers, 1995), p. 93.

26. Kathleen K. reardon, “Courage as a Skill,” Harvard Business Review 85, no. 1 (January 2007), p. 63.

27. Kouzes and Posner, The Leadership Challenge, p. 30. 28. Darrell rigby and Barbara Bilodeau, “Management

Tools and Trends 2015,” Boston, MA: Bain and Company. www.bain.com/publications/articles/management- tools-and-trends-2015.aspx.

29. Alan M. Zuckerman, “Advancing the State of the Art in healthcare Strategic Planning,” Frontiers of Health Services Management 23, no. 2 (winter 2006), p. 7.

30. Alan weiss, Our Emperors Have No Clothes (Franklin lakes, nJ: Career Press, 1995), p. 20.

31. Michael A. Mische, Strategic Renewal: Becoming a High- Performance Organization (upper Saddle river, nJ: Prentice hall, 2001), p. 21 and Cynthia A. lengnick- hall and Tammy e. Beck, “Adaptive Fit Versus robust Transformation: how Organizations respond to environmental Change,” Journal of Management 31, no. 5 (2005), p. 739.

32. henry Mintzberg, Mintzberg on Management (new York: Free Press, 1989), p. 41.

33. John C. Camillus, “reinventing Strategic Planning,” Strategy & Leadership 24, no. 3 (1996), pp. 6–12. See also Clayton M. Christensen, Scott D. Anthony, and eric A. roth, Seeing What’s Next: Using Theories of Innovation to Predict Industry Change (Boston, MA: harvard Business School Press, 2004).

34. Jane linder, “Paying the Personal Price for Performance,” Strategy & Leadership 28, no. 2 (March– April 2000), pp. 22–25.

35. henry Mintzberg, “Patterns in Strategy Formation,” Management Science 24, no. 9 (1978), p. 946.

36. Max DePree, Leadership Is An Art (new York: Doubleday, 1989), p. 14.

37. Craig r. hickman, Mind of a Manager, Soul of a Leader (new York: John wiley & Sons, 1992), p. 261.

38. After almost four decades of research, the effects of stra- tegic planning on an organization’s performance are still unclear. Some studies have found significant benefits from planning, although others have found no relation- ship, or even small negative effects. For an extensive survey of the strategic planning/financial performance literature, see lawrence C. rhyne, “The relationship of Strategic Planning to Financial Performance,” Strategic Management Journal 7, no. 5 (September–October 1986),

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http://www.bain.com/publications/articles/management-tools-and-trends-2015.aspx

Chapter 1 the Nature of StrategiC MaNageMeNt 35

pp. 423–436 and Brian K. Boyd, “Strategic Planning and Financial Performance: A Meta-analytic review,” Journal of Management Studies 28, no. 4 (July 1991), pp. 353–374.

39. Jim Begun and Kathleen B. heatwole, “Strategic Cycling: Shaking Complacency in healthcare Strategic Planning,” Journal of Healthcare Management 44, no. 5 (September–October 1999), pp. 339–351.

40. Peter M. Senge, Charlotte roberts, richard B. ross, Bryan J. Smith, and Art Kleiner, The Fifth Discipline Fieldbook: Strategies and Tools for Building A Learning Organization (new York: Currency Doubleday, 1994), p. 90.

41. Martin reeves, Simon levin, and Daichi ueda, “The Biology of Corporate Survival,” Harvard Business Review 94, no. 1/2 (2016), pp. 46–55.

42. Senge, The Fifth Discipline, p. 7. 43. Michael P. Dumler and Steven J. Skinner, A Primer for

Management (Mason, Oh: Thomson South-western, 2005), pp. A10–A11.

44. Dan e. Schendel and Charles w. hofer, “introduction,” in D. e. Schendel and C. w. hofer (eds), Strategic Management: A New View of Business Policy and Planning (Boston, MA: little, Brown, 1979), p. 12.

45. russell l. Ackoff, “Transformational leadership,” Strategy & Leadership 27, no. 1 (1999), pp. 20–25.

46. elena lytkina Botelho, Kim rosenkoetter Powell, Stephen Kincaid, and Dina wang, “what Sets Successful CeOs Apart: The Four essential Behaviors that help Them win the Top Job and Thrive Once They Get it,” Harvard Business Review 95, no. 3 (2017), pp. 70–77.

47. Kelly, “roller Coaster leadership,” p. 26. 48. Donald l. Bates and John e. Dillard, Jr., “wanted:

Strategic Planner for the 1990s,” Journal of General Management 18, no. 1 (1992), pp. 51–62.

49. henry Mintzberg, “The rise and Fall of Strategic Planning,” Harvard Business Review 72, no. 1 (1994), pp. 107–114.

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Resource 1 Analyzing Strategic Health Care Cases

How do students of management gain experience in strategic thinking and mak- ing strategic decisions in health care organizations? One way is to work their way up the organization – holding a variety of positions, observing others, experi- menting as they develop their decision-making skills – as they deal with issues and develop strategies. Then, when the opportunity presents itself, they combine what they have learned from others and their own management philosophy, and do the best they can. Unfortunately, learning chiefly through experience may be risky in rapidly changing environments and in the often unique situations that health care managers and leaders face.

Hospitals, HMOs, long-term care facilities, public health and other health ser- vices organizations prefer to trust important decision making to accomplished managers and leaders. Case studies have been used successfully as a surrogate method to provide aspiring managers and leaders with experience in strategic thinking, strategic planning, and making decisions without undertaking sub- stantive risk. The best case studies contain real situations actually faced by man- agers and leaders in health care organizations and are documented in a way that makes them useful in providing experience for future strategic decision makers.

“Case studies provide low-risk experience.”

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Because many instructors in strategic management classes use case studies to provide future health care decision makers experience in making strategic deci- sions, this resource has been included, not to prescribe how cases should always be solved, but to offer some initial direction on how to surface and address the real issues.

An Overview of Case Analysis

Case analysis provides health care students with an exciting opportunity to act in the role of a key decision maker. From hospitals to community blood centers to physicians’ offices, students have the chance to learn about a variety of health and medical organizations and to practice decision-making skills through analyzing cases.

The decisions required to “solve” cases represent a wide range of complex- ity, so that no two cases are addressed in exactly the same manner. However, the strategic thinking maps presented in this text provide frameworks to aid in strategically thinking about case issues. The fundamental task of the case analyst is to make decisions that will serve as a map to guide the organization into the future. Therefore, most case instructors will expect a comprehensive plan for the organization that addresses relevant current issues and provides a viable and reasonably complete strategy for the future. To achieve this goal, the case analyst typically should:

● Summarize the key issues. ● Analyze the situation. ● Develop an organizational strategy. ● Develop an implementation plan. ● Set benchmarks to measure success.

These categories represent the major elements of strategy development and make appropriate section headings for a case analysis written report or presenta- tion. First, using the strategic thinking map presented in Chapter 1 (Exhibit 1–1), it is important to do some serious strategic thinking about the external environment of the organization – the political/legal, economic, social/cultural, technological, and competitive situations faced by the case characters. After gathering informa- tion about the issues in the general environment, health care system, and the service area, the service area competitors should be assessed. Next, it is important to relate the internal resources, competencies, and capabilities of the organization to external conditions, which will require a thorough and objective analysis of the competitively relevant strengths and weaknesses. The value chain provides a useful tool for uncovering these strengths and weaknesses. These strengths and weaknesses must be evaluated according to their potential to create competitive advantages or disadvantages for the organization. External issues and the organi- zation’s competitive advantages and disadvantages provide the basis for strategy formulation. In addition, to create the strategy for a health care organization,

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ResouRce 1 AnAlyzing stRAtegic HeAltH cARe cAses 433

understanding its unique mission, vision, values, and strategic goals (directional strategies) is necessary.

Once the situational analysis is complete, strategic alternatives can be gener- ated as possible solutions to the issues identified in the case. Consideration must be given to the feasible adaptive strategies, market entry/exit strategies, and competitive strategies that provide the means for achieving the organization’s mission and goals and lead to the accomplishment of its vision. The effectiveness of the chosen alternative for each type of strategy must be evaluated. In addi- tion, attention must be given to the likely outcomes resulting from the different choices. After the evaluation, a recommendation needs to be made from among the alternatives.

Nothing will happen, of course, unless the strategy can be implemented. Therefore, the case analyst must address how the strategy will be carried out. The development of a practical implementation plan should include specific service delivery and support strategies and, where possible, action plans. These areas are important because they create value for the organization and translate strategy into organizational and individual actions – the work to be done.

Finally, the case analyst should consider how the success of the proposed strat- egy should be measured. Returning to the mission, vision, values, and goals will provide an initial measure of success. Other measures will include fit with the changing external environment, internal changes (development of competitive advantages and lessening of competitive disadvantages), and other more specific measures such as financial measures, market share, revenue growth, and so on.

Although the approach outlined here is logical, it is important to remember that a case should be approached and appreciated as a unique opportunity for problem solving. If everyone agrees that a case has only one solution – there’s only one right answer – then it is not a good decision-making aid, and rather than applying decision logic and learning from others, participants will simply rehash case facts. Moreover, managers in health care organizations rarely face problems where the solution is obvious to everyone. This does not mean that there are no good and bad answers or solutions in case analysis; some are better than others on the basis of the logic presented. Sometimes the issues presented in a case are not even problems (defined as a negative occurrence that needs to be addressed). Often the greatest challenge facing an organization is recognizing and acting on an opportunity rather than solving a problem. The evaluation of a case analysis is often based more on the approach and logic employed than the precise recom- mendation offered.

Cases, Strategic Management, and Health Care Organizations

Cases add realism that is impossible to achieve in traditional lecture classes. Realism results from the essential nature of cases, although students may com- plain that cases fail to provide all the information necessary for decision making. The complaint is valid because cases rarely provide everything that is needed;

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however, decision makers in health care organizations rarely have all the infor- mation they want or need when they face decisions. Risks must be taken in case analysis just as in actual decision making.

Risk Taking in Case Analysis Any decision about the future involves uncertainty. Decision making under con- ditions of uncertainty requires that means be devised for dealing with the risks faced by leaders. Cases are valuable aids in this area because they allow the ana- lysts to practice making decisions in low-risk environments. Decisions in a poor case analysis may be embarrassing, but at least they will not result in the closure of a hospital or medical practice. At the same time, the lessons learned by solving cases and participating in discussions will begin to build problem-solving skills.

Solving Case Problems Solving a case is much like solving any problem. First, information is gathered and issues are defined; the competitive situation is analyzed; alternatives are generated, evaluated, selected, and implemented. Although the person solving the case seldom has the chance to implement a decision, he or she should always keep in mind that recommendations must be tempered by the limitations imposed on the organization in terms of its resources, competencies, and capabilities (although strategies to improve these areas may be required). As the success or failure of the recommendation is analyzed, lessons are learned that can be applied to future decision making.

Alternative Perspectives: Passion or Objectivity

Different hypothetical roles can be assumed when analyzing cases. Some prefer to think of themselves as a passionate advocate for a particular course of action while others prefer to observe the case from the detached objectivity of a consult- ant who has been employed by the organization to solve a problem.

Either the advocate or the consultant perspective may be assumed, but the first offers some unique advantages. To answer the questions from the advocate’s perspective, understanding what is inside the decision maker’s head – to feel the excitement and fear of doing new and innovative things in the dynamic and complex health care system – is important. The passion and frustration of the advocate suggest why some case analysts prefer to assume the objective posture of a consultant. Not being in the front line can sometimes suggest alternatives that cannot be seen by those directly involved in making payroll and paying the bills. The consultant can more easily play the devil’s advocate and point out how actions are at odds with current theory. Although the fun and excitement of case analysis is enhanced by assuming the decision maker’s role of an influential advocate with a specific strategy in mind, the options might be expanded through the more objective and detached outlook of an outsider. There are no absolutely correct or incorrect answers to complex cases. The most important lesson is to learn problem-solving and strategic management skills.

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Reading the Case

Effective case analysis begins with data collection. This means carefully reading the case, re-reading it, and sometimes reading it yet again. Rarely can anyone absorb enough information from the initial reading of a comprehensive case to adequately solve it. From the very first reading of the case, the analyst should start to list the external issues and the organization’s internal strengths and weaknesses. For example, when a significant issue is discovered it should be marked for more detailed examination. “Is the issue financial? Do the primary issues appear to be those of human resources, capital investment, or marketing?” Perhaps there are few, if any, apparent issues with negative consequences. The strategic issue fac- ing the organization may be one to be exploited or it may have both positive and negative aspects. For example, health insurance reform has created some interest- ing positive and negative consequences for many health care organizations.

Listing the possible strengths and weaknesses in the initial reading provides some perspective concerning the organization’s resources, competencies, and capabilities. This list will provide a basis for further investigation and provide a guide for additional information gathering. Once the situation has been reviewed, a better evaluation of the issues facing the organization can be made. An effective way of summarizing the results is through the use of a SWOT analysis (refer to Chapter 7, Exhibit 7–3) or an external/internal strategy matrix (refer to Chapter 7, Exhibit 7–4), which shows the long- and short-term competitive advantages and disadvantages as well as external issues.

Gathering Information The information required to successfully analyze a case comes in two forms. The first type of information is given as part of the case and customarily includes history of the organization, its organizational structure, its management, and its financial condition. Gathering this information is relatively easy because the author of the case has typically done the work.

A second type of information is “obtainable.” This information is not provided in the case or by the instructor but is available from secondary sources in the library, familiar magazines and other publications, as well as online. Obtainable secondary information helps with understanding the nature of the service cat- egory, the competition, and even some managers, past and present, who may have made an impact on the service category.

If the case does not include service category information or competitor infor- mation, the instructor may expect the class to do some detective work before pro- ceeding. Students should investigate to find out what is happening in the service category and learn enough about trends to position the problems discussed in the case in a broader health care context. The culture of the organization or the style of the chief executive officer may constitute relevant information (though some instructors do not want students to investigate beyond the date of the case or to gather additional service category data; therefore, students must ask the instructor’s preference). Be sure to consult the professor prior to analyzing your first case. Furthermore, if the first thing that students do after receiving a case

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assignment is to go to the web to search what the company did in the situation presented, they are much less likely to be able to develop innovative solutions. The assumption is that the company did the right thing, when in fact if the com- pany had a chance to do it all over again, a completely different strategy might have been pursued. Good cases, as in life, have a number of options that have to be weighed, and a number of reasonable alternatives evaluated before drawing a defensible solution.

Case Analysis Using the Strategic Thinking Maps

The strategic thinking maps presented in this text provide a means of thinking through strategic management issues and serve as road maps to case analysis. They are useful for analyzing cases and succinctly presenting strategic manage- ment decisions in written reports and presentations. The following discussion provides some tips for using the strategic thinking maps in each of the major ele- ments of case analysis – surfacing the issues, situational analysis, development of the strategy, and development of the implementation plan.

Tips on Surfacing the Issues The discussion and questions presented in the “Managing Strategic Momentum” section of each chapter are designed to bring attention to present and potential issues. In case analysis, issues include not only problems that need to be rectified, but also situations where things may be working well but improvements are pos- sible. The problem may actually be an opportunity that can be capitalized on if the organization acts consciously and decisively. With careful analysis, patterns can be detected and discrepancies between what actually is and what ought to be become more apparent. In other words, fundamental issues, not mere symptoms, begin to emerge.

Problems vs. Symptoms It is important to realize that the things observed in an organization and reported in a case may not be the real or essential issues. Often what analysts observe are the symptoms of more serious core problems. For example, increasing interest rates and cash-flow discrepancies appear to be problems in many case analyses. In reality, the issue is the fundamental absence of adequate financial planning. The lack of planning simply manifests as a cash-flow problem and rising interest rates certainly complicate cash flow.

Frequently, hospitals conclude that they have a marketing problem when bed occupancy rates decline. Someone may suggest that the marketing department is not doing a good job of convincing physicians to use the hospital or that the hospi- tal is not spending enough on advertising. The real issue, however, might be fun- damental changes in the demographics of the market area or an outdated services mix that no amount of advertising will overcome. In organizations as complex as health care, problems may have more than a single cause, so the analyst must not be overly confident when a single, simple reason is isolated. In fact, the suggestion of a simple solution should increase rather than decrease skepticism.

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Using Tools Identifying key issues requires that information be carefully exam- ined and analyzed. Often, quantitative tools are helpful. Financial ratio analysis of the exhibits included in the case will sometimes be helpful in the identification of the real problems. In arriving at the final determination of core problems, the ana- lyst should try not to slip into “paralysis by analysis” and waste more time than is necessary on identifying problems. At the same time, premature judgments must be avoided because then real issues may be missed. One general guideline is that when research and analysis cease to generate surprises, the analyst can feel relatively, though not absolutely, sure that adequate research has been conducted and the key issues have been identified.

Check Facts The issue discovery process should not become myopic. For example, there may be a tendency on the part of individuals interested and experienced in accounting and finance to see all problems in terms of accounting and finance, whereas a physician approaching the same case will likely focus on the medical implications. This approach is too limited a view for effective stra- tegic decision makers. Strategic analysis effectively transcends a single function. Insistence on approaching case analysis exclusively from the viewpoint of the analyst’s expertise and training is not likely to produce an accurate overall picture of the situation facing the organization; nor is this approach likely to improve the organization’s performance.

Information, either given or obtained, must never be accepted at face value. If a CEO states that the hospital delivers outstanding quality care, it should not be accepted as a statement of fact without some thought. For example, a charac- ter in the case may voice an opinion that is not grounded in fact. The ratios on a long-term care facility’s financial statements may look strange, but are they? Before jumping to such a conclusion, analysts should look at the financial ratios in a historical perspective. Even better, they should look at the history (as well as similar ratios) of other long-term care facilities of the same size during the same time period.

Relevant Issues Once the issues are identified, they must be precisely stated and their selection defended. The best defense for the selection of the key issues is the dataset used to guide the issue discovery process. The reasons for selection of the issues should be briefly and specifically summarized along with the support- ive information on which judgments have been based. The issue statement stage is not the time for solutions. Focusing on solutions at this point will reduce the impact of the issue statement. If the role of consultant has been assumed, the issue statement must be convincing, precise, and logical to the client organization, or credibility will be reduced. If the role of the strategic advocator has been selected, the student must be equally convincing and precise. The strategic decision maker should be as certain as possible that the correct issues have been identified to pur- sue the appropriate alternatives.

The statement of the issues should relate only to those areas of strategy and operations where actions have a chance of producing results. The results may be either increasing gains or cutting potential losses. Long- and short-range aspects of issues should be delineated. In strategic analysis the emphasis is on long-range issues rather than merely handling emergencies and holding things together.

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However, in some situations, immediate problems have to be solved and then a strategy developed to avoid similar situations in the future (combination strategy).

It is important for students to keep in mind that most strategic decision makers can deal with only a limited number of issues at a single time. Therefore, iden- tify key result areas that will have the greatest positive impact on organizational performance.

Tips on Analyzing the Situation Situational analysis is one of the most important steps in analyzing a case. In most instances instructors will expect comprehensive external and internal analyses. For external analysis, the case analyst may want to use and present a variety of tools including a trend analysis, stakeholder analysis, the development of a scenario, and service area competitive analysis. Whatever method is used, a clear picture and assessment of the external environment should be presented. Chapters 2 and 3 provide strategic thinking maps for assessing the external environment.

For the internal analysis, it is important that the case analyst understands the strengths and weaknesses of the organization in terms of its resources, competen- cies, and capabilities. Therefore, the case analyst may want to use the value chain, as discussed in Chapter 4, to map resources, competencies, and capabilities and assess their strategic relevance using the criteria of value, rareness, imitability, and sustainability.

Understanding the mission is a good starting point to assess the directional strategies. If a mission statement is included in the case, the analyst should ask “Does it serve the purpose of communicating to the public why the organization exists? Does it provide employees with a genuine statement of what the organiza- tion is all about?” In addition, the other directional strategies (vision, values, and strategic goals) should be evaluated as to their appropriateness to the organiza- tion and its environment. The vision and goals provide a profile of the future and targets to focus organizational actions. The case may (or may not) indicate what the health care organization plans to achieve in the next year and where it hopes to be in three years, or even in five years. As with mission statements, if the vision and goals are not explicitly stated, there is a need to speculate about them because they will be the standards against which the success or failure of a particular strategy will be evaluated. Moreover, because strategic planning is futuristic and no one can predict the future with complete accuracy, vision and goals should always be adaptable to the changing conditions taking place in the organization and in the service category. An organization may be forced to face a major strate- gic problem simply because it was unwilling to alter its vision and goals in light of changing conditions.

Tips on Formulating the Strategy After the situational analysis, a recommended course of action – the strategy – must be developed. Thus, adaptive, market entry/exit, and competitive strategies for the organization must be recommended and defended. Exhibit 6–4 provides a strategic thinking map depicting the various alternatives for each of the types of strategy in the strategy formulation process.

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Effective Alternatives If obtaining and organizing information have been done well, the generation of strategic alternatives will be a challenging yet attain- able task. Good alternatives possess specific characteristics:

● They should be practical or no one will seriously consider them. Alternative courses of action that are too theoretical or abstract to be under- stood by those who have to accomplish them are not useful.

● Alternatives should be specific. ● Alternatives should be related to the key issue they are intended to

address. If the strategic alternatives generated do not directly address key issues, the analyst should ask how important the issues are to the case analysis; rethinking the issues may be required.

● Alternatives should be implementable. An implementable alternative is one that can be reasonably accomplished within the constraints of the financial and human resources available to the organization.

● Alternatives should be able to be placed into action in a relatively short period of time. If it takes too long to implement a proposed solution, it is likely that the momentum of the recommended action will be lost.

Alternative Evaluation Alternatives should be evaluated according to both quantitative and qualitative criteria. Financial analysis provides one basis for examining the impact of different courses of action. However, a good alternative course of action is more than merely the one with the highest payoff. It may be that the culture of the organization cannot accommodate some of the more financially promising alternative courses of action. For the adaptive strategies, one or more of the decision-making tools discussed in Chapter 7 should be used – external/ internal strategy matrix, PLC analysis, BCG portfolio analysis, extended portfolio matrix analysis, SPACE analysis, or program evaluation. For the market entry/ exit and competitive strategies, matching the external conditions appropriate for the strategies with the internal requirements of the strategies as discussed in the text, alongside the internal strengths and weaknesses and external conditions described in the case, provides a basis for selecting and defending these strategies (Chapter 7).

The case analyst should be able to map the strategies selected in the strategy formulation process. Strategy maps similar to the one presented in Exhibit 7–25, an example for a long-term care organization, show the decision logic for each strategic initiative and provide an excellent overview of the strategy of the organization.

Tips on Developing Implementation Strategies Once a strategic alternative has been selected, an action plan is required. Action planning moves the decision maker from the realm of strategy to operations. Now the question becomes, “How does the group accomplish the work in the most effective and efficient way possible?”

The task of case analysis does not require actual implementation; however, because the strategies must be implementable, it is necessary that thought be given to how each strategy would be put into action. Therefore, value-adding

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service delivery and support strategies must be developed as well as action plans. This process is a continuation of the linkage started in strategy formulation – the implementation strategies are the means to achieve the overall organizational strategies.

Each element of the value chain should be addressed, comparing the results of the internal analysis with the requirements of the selected strategy. Matching the present situation with the requirements of the strategy provides a basis to maintain the value chain element or change it to meet the needs of the strategy. Exhibits 8–9 and 9–7 provide templates for information instructors might expect for presenting the value-adding strategies. Exhibits 8–10 and 9–9 provide exam- ples of completed templates for a skilled nursing facility.

Next, action plans for the major organizational units affected by the strategy should be developed. Objectives, action plans, and budgets should be addressed if enough detail is provided in the case. Finally, the responsibility for accomplish- ing the different groups of tasks must be clearly assigned to the appropriate indi- viduals. Although this is not always possible in case analysis, it is important that consideration is given to how, in a real organization, the recommendations would be accomplished. If, in the process of thinking about how different activities will be completed, it becomes apparent that the organization lacks the resources or the structure to accomplish a recommendation, another approach should be proposed.

The process of developing action plans for important organizational units – whether a highly focused unit, such as a pharmacy, or a broadly focused unit, such as a hospital division for a health system – should not be neglected. Organizations sometimes spend large amounts of money and resources developing strategic plans only to discover that they are not prepared to implement them in an effective manner.

Making Recommendations

Making good recommendations is a critical aspect of successful case analysis. If recommendations are theoretically sound and justifiable, people will pay attention to them. If they are not, little is likely to result from all the work done to this point.

One effective method for presenting recommendations is to relate each one to organizational strengths. Or, if necessary, a recommendation may be related to addressing a weakness. If the organization has sufficient financial strength, the recommendations should highlight how each alternative will capitalize on the strong financial condition. If, on the other hand, the resources are limited, it will be important to avoid recommendations that rely on resources that are not available; a combination strategy to gain new resources might be recommended.

It will be particularly useful to ask the following questions when making recommendations:

● Does the organization have the financial resources needed to make the rec- ommendation work?

● Does the organization have the personnel with the right skills to accom- plish what will be required by each recommendation?

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● Does the organization have methods to monitor whether or not the recom- mendations are being accomplished?

● Is the timing right to implement each recommendation? If not, when will the timing be right? Can the organization afford to wait?

Finalizing the Report

Preparation and presentation is the final activity in most case analyses. Although the form of the report may vary, the goal is the same – to summarize and com- municate in an effective manner what the analysis has uncovered and what the organization should do.

Decision making is the intended result of the report. The analysis must be complete; but the emphasis should be on making the entire report brief enough to encourage people to read it and comprehensive enough to ensure that no major factors are overlooked – especially those that might adversely affect the decision. Therefore, charts and flow diagrams can be effective. In a brief outline, the impor- tant sections of a case analysis report include:

● Executive summary – Usually one page, and rarely more than two pages, it functions as an abstract. Its purpose is to force the writer to carefully evalu- ate what is really important in all the accumulated facts and data. It is not an introduction (no company history, no re-statement of case facts, etc.). Include what the CEO would want to know: what is the issue, what are the recommended strategies (the hierarchy of strategies), how much will it cost. If he or she wants more information on any of the points in the Executive Summary, they should be discoverable in the Table of Contents to find the correct pages for more information.

● Body of the case report Key Issues: with the rationale for focusing on them. Situational Analysis: results of the external analysis, service area compet-

itor analysis, and internal analysis, as well as analysis of the directional strategies.

Strategy Formulation: feasible alternatives for directional, adaptive, mar- ket entry/exit, and competitive strategies.

Recommendation: analysis of the feasible alternatives, and which one or ones is/are recommended.

Implementation Strategies: service delivery and support strategies with linkage to the directional, adaptive, market entry/exit, and competitive strategies.

Benchmarks for Success and Contingency Plans: measures of success for the strategy and alternative plans if a major opportunity or threat is subject to change in the short run (contingency plan).

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Conclusions

Case analysis is an art. There is no one precise way to accomplish the task, and the analysis has to be adapted to the case problem under review. The analyst must keep in mind that case analysis is a logical process that involves: (1) clearly defin- ing strategic issues; (2) understanding the situation – the organization, service area/service category, and environment; (3) developing a strategy to enable the organization to accomplish its mission and vision; and (4) formulating an imple- mentation plan.

The work of case analysis is not over until all these stages are completed. Often a formal written report or oral presentation of the recommendations is required. Case problems provide a unique opportunity to integrate all that students have learned about decision making and direct it toward issues faced by real organi- zations. It is an exciting way to gain experience with decision making. Students should take it seriously and develop their own systematic and defensible ways of solving management problems.

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