Internal and External Environmental Analyses(read attachment , important )

5 Establishing Organizational Objectives

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Ah, but a man’s reach should exceed his grasp, Or what’s a heaven for?

—Robert Browning

Learning Objectives

After reading this chapter, you should be able to do the following:

• Describe the nature of objectives and the important role of—and management by—objectives in an HCO.

• Discuss the characteristics of good objectives.

• Delineate the types of objectives that are included in a strategic plan, and include examples of objectives for key result areas.

• Provide an example of how to use data from an internal and external environmental analysis to set good objectives.

• Explain how to perform a periodic review of objectives for measuring progress and making updates as needed.

Section 5.1The Nature and Role of Objectives

Introduction An HCO cannot achieve goals if none exist for the organization. Although this idea is quite simple, many people overlook it. To accomplish anything, an organization must have a clear understanding of what is to be accomplished. Strategic objectives are the tool by which organizations define their goals and sketch out a specific road map for achieving them. If we fail to set specific objectives, we simply waste our time and energy by going in circles. Later, we look back at what we accomplished and wonder where the time went. Just being busy and involved in activities does not mean that we are accomplishing what we need to accomplish.

This chapter focuses on the need to establish objectives, the characteristics of good objec- tives, and the process of writing objectives. After the vision and mission of the HCO have been defined, and the internal and external analyses completed, relevant objectives are developed for the strategic plan.

5.1 The Nature and Role of Objectives Objectives can be defined as clear, concise written statements outlining what is to be accom- plished in key result areas in a certain time period, in measurable terms. Peter Drucker argues that “objectives are not fate; they are direction. They are not commands, but they are com- mitments. They do not determine the future, but they are the means by which the resources and energies of the operation can be mobilized for the making of the future” (Drucker, 1954, p. 102).

As noted in Chapter 2, the words key results, goals, and targets often are used synonymously when talking about short- and long-term objectives. Whatever the label used, the idea is to focus on a specific set of target activities and outcomes to be accomplished. Think of the anal- ogy of the archer used in Chapter 2. An HCO administrator wants the whole organization aimed at a single target, just as an archer wants every arrow aimed at the bull’s-eye. People get confused and disorganized if they do not know where they are going. In large measure, the success or failure of an HCO is based on its ability to set goals, as well as on tools with which to measure progress toward those goals. Objectives can be set at upper organizational levels in key result areas, such as range of service offerings, productivity, level of client satis- faction, market share, profitability, financial resources, physical resources, staff development and attitudes, and commitment to social responsibilities as an organization. Every healthcare administrator should consider long-range objectives in each of these areas.

Objectives are also needed in subunits, departments, or divisions of an organization. Objec- tives can be classified in various ways, such as by their nature, which includes routine, prob- lem-solving, and innovative, or by their function, which includes team, personal, and budget performance. Most important, all organizational objectives must be consistent. In this way, a department’s objectives should lead to accomplishing the overall organization’s goals.

Objectives serve two fundamental purposes. First, they serve as a road map. Objectives are the results desired upon completion of the planning period. In the absence of objectives, no sense of direction can be attained in decision making. In planning, objectives answer one of

Section 5.1The Nature and Role of Objectives

the basic questions posed in the planning process: Where do we want to go? These objectives become the focal point for strategy decisions.

Another basic purpose served by objectives is in the evaluation of performance. The objec- tives in the strategic plan become the yardsticks for evaluating performance. It is impossi- ble to evaluate performance without some standard by which results can be measured. The objectives become the standards for evaluating performance because they are the statement of results desired by the planner.

Management by Objectives Objectives have sometimes been called the neglected area of management. In many situa- tions, the objectives that are set forth are unsound and therefore lose much of their effective- ness. Often, organizations fail to set any objectives at all. This happens for at least six reasons:

1. Many HCO managers fear accountability. 2. Many projects continue even when they no longer serve an organization’s goals. 3. HCOs often undertake any activity for which money is available. 4. Some HCO managers fear that a hard-nosed evaluation may undermine humanitar-

ian instincts. 5. HCO managers must spend a great deal of time on activities that do not immediately

further their goals (meeting with donors, fundraising, explaining programs, and so forth).

6. HCOs may have few, if any, financial report cards to tell them how they are doing (Thompson & Strickland, 1986).

Once the process of setting objectives has actually begun within an organization, some of these six goal-making deterrents may no longer be applicable. Unfortunately, however, many of these listed deterrents are applicable in many types of organizational settings.

To counteract the failure to define organizational objectives, a management tool called man- agement by objectives (MBO) was developed by Peter Drucker. This tool emphasizes the need for setting objectives as a basic managerial process, providing coordination of activities at all levels of the organization.

For the HCO administrator, MBO translates into four basic steps (Lumsdon, 1994). First, the administrator and individual staff work out mutual objectives that each staff member will pursue in his or her area of responsibility. These objectives should support the overall objec- tives established by the HCO. Each staff member with supervisory responsibilities, in turn, holds similar meetings with his or her staff or volunteers. These meetings should be held at each management level so that objectives are fully coordinated.

Second, in addition to setting objectives at these meetings, strategies or descriptions of actions to be taken to accomplish each objective should be laid out. Third, follow-up meetings should be held periodically to monitor progress toward reaching objectives, identify problems, and mutually determine methods to correct any difficulties. The final step involves an overall eval- uation of goal accomplishment for individuals and units at year’s end or the end of the plan- ning period. From this, new objectives for the upcoming planning period can be determined.

Section 5.2The Characteristics of Good Objectives

Alternatives to Management by Objectives MBO may be best understood by contrasting it with the following four alternative approaches to management that all lack a sense of direction (Wayne State University, 2013).

Management by extrapolation—This approach relies on the principle, “If it ain’t broke, don’t fix it.” The basic idea is to keep on doing about the same things in about the same ways because what we are doing (1) works well enough and (2) has gotten us where we are. The basic assumption is that, for whatever reason, “Our act is together, so why worry? The future will take care of itself and things will work out all right.”

Management by crisis—This approach to administration is based on the idea that the strength of any really good manager is an aptitude for solving problems. Because there are plenty of crises around—enough to keep everyone occupied—managers ought to focus their time and energy on solving the most pressing problems of today. Management by crisis is, essentially, reactive rather than proactive, and it is the events that already have occurred that dictate management decisions.

Management by subjectives—The subjectives approach to management occurs when no organization-wide consensus or clear-cut directives exist on which way to head and what to do. Each manager translates this to mean “do your best to accomplish what you think should be done.” This is a “do your own thing the best way you know how” approach. This is also referred to as “the mystery approach.” Managers are left on their own with no clear direction ever articulated by senior management.

Management by hope—In this approach, decisions are predicated on the hope that they will work out and that good times are just around the corner. They are based on the belief that if you try hard enough and long enough, then things are bound to get better. Poor performance is attributed to unexpected events and the fact that decisions always have uncertainties and surprises. Much time, therefore, is spent hoping and wishing things will get better.

All four of these approaches represent variations of managerial muddling through. Absent is any effort to calculate what effort is needed to influence where an organization is headed and what its activities should be to reach specific objectives. In contrast, MBO is much more likely to achieve targeted results and show a sense of direction.

5.2 The Characteristics of Good Objectives For objectives to accomplish the purpose of providing direction and a standard for evaluation, they must possess certain characteristics. The more these attributes are possessed by a given objective, the more likely the objective will achieve its basic purpose. Sound internal objec- tives (as opposed to external objectives for public consumption, which may have to be more generalized) should have the following characteristics:

• Objectives should be clear and concise: Objectives should be clear to everyone in the organization. There should not be any room for misunderstanding what results are sought in a given objective. The use of long statements with words or phrases

Section 5.2The Characteristics of Good Objectives

that may be defined or interpreted in different ways by different people should be avoided.

• Objectives should be in written form: This helps solve two problems: unclear, inef- fective communication and the altering of unwritten objectives over time. Everyone who has played the game “gossip” realizes that oral statements can be altered unin- tentionally in the act of being spoken. Written statements avoid this problem and permit ease of communication. Written statements also obviate the human tendency to want or appear to “look good,” which is often at the expense of actual perfor- mance. Unwritten objectives can be altered to fit current circumstances.

• Objectives should name specific results in key areas: The key areas of an organization for which objectives are needed can include the range of service offerings, productiv- ity, level of client satisfaction, market share, profitability, financial resources, physi- cal resources, staff development and attitudes, and commitment to social respon- sibilities as an organization. Specific results, such as “5,000 patients treated for the next year” rather than “a high level of patients served” or “an acceptable level of patient services,” should be used to avoid doubt about what result is sought.

• Objectives should be stated for a specific time period: Objectives should be stated for specific time periods. Objectives can be set for a short-run, nearly immediate time period, such as six months to one year. Building on longer and longer time frames, the accomplishment of short-term objectives should lead to the successful comple- tion of longer-run objectives. The time period specified becomes a deadline for producing results and also sets up the final evaluation of the success of a strategy.

• Objectives should be stated in measurable terms: Objectives must be measurable. Con- cepts that defy precise definition and qualification should be avoided. Patient satis- faction is an example of a concept that is important, but which in itself is difficult to define and measure. If a planner felt patient satisfaction was a concept that needed to be measured, a measure or measures (possibly indirect in nature) would have to be developed. An objective related to patient satisfaction that would be capable of quantification might be stated as follows: To have at least 85% of our constituents rate our HCO as the best organization in the area in our annual survey. A phrase such as improve staffing is not only unclear and nonspecific, it cannot be measured. What does improve mean? Increase the number of staff by 5%? By 40%? In what areas? If the statement is quantified as “increase the number of full-time physical therapists by 10% within the next 18 months,” then it can be objectively measured. The accom- plishment or failure of such a stated objective can be readily evaluated.

• Objectives at each administrative level must be consistent with overall organizational objectives and purpose: The objectives developed for each unit of the organization must be consistent with the overall objectives of the HCO. This idea has been previ- ously stated, but it must be continually reemphasized because of the need for orga- nizational unity.

• Objectives should be attainable, but of sufficient challenge to stimulate effort: Objec- tives need to be attainable but also challenging. Two problems can be avoided if this characteristic is achieved. The first problem that can be avoided is the frustration produced by objectives that cannot be attained at all or cannot be attained within the specified time period. For example, large-percentage increases in patients served at home can be unrealistic, as goals, if the home healthcare agency already has an unusually large patient load. The desirability and likelihood of substantial increases become doubtful. The other problem is that setting easily attainable objectives that require only minimum effort results in positive performance evaluations because

Section 5.2The Characteristics of Good Objectives

goals are too easily accomplished. In reality, the evaluations only camouflage lacklus- ter performance that is well short of potential. Easily attainable goals fail to maxi- mize the contribution of a given strategic plan.

SMART Objectives One approach to writing objectives is to use the SMART philosophy (Wayne State University, 2013). SMART is an acronym for guiding the development of measurable goals. As indicated by the following list, each written objective should be

• Specific • Measurable • Achievable • Relevant • Time-oriented

Specific Specific answers two questions: What is to be done? and How will you know it is done? It also describes the results (end product) of the work to be done. The description is written in such a way that anyone reading the objective will most likely interpret it the same way. For example, Reduce dosage errors to less than 1% is a specifically stated goal.

Measurable Measurable answers this question: How will you know it meets expectations? Measureable also defines the objective, using assessable terms (quantity, quality, frequency, costs, dead- lines, and so forth). Measurable refers to the extent to which something can be evaluated against a standard. An objective with a quantity measurement uses terms of amount, percent- ages, and so forth. For example, measurable could mean the percent of errors, compared to the objective, of less than 1%. A measurement also could be a daily or weekly consideration.

Achievable Achievable answers these three questions: Can it be done? Can the measurable objective be achieved by the organization? Can it be done given the time frame, opportunity, and resources? These considerations should be included as part of the written objective if they will be a factor in the achievement of the objective. For example, if an error rate is currently at 5%, decreasing that rate to less than 1% may not be achievable during a given time period because of the size of the decrease specified.

Relevant Relevant answers these four questions: Should it be done? Why should it be done? What will be the impact, if it is done? Is the objective aligned with the organization’s mission? For

Section 5.2The Characteristics of Good Objectives

example, Dosage error rates are extremely important to providing quality care is a relevantly stated goal.

Time-oriented Time-oriented answers this question: When will it be done? It refers to the fact that an objec- tive has end points and check points built into it. Sometimes a task may only have an end point or due date. Sometimes an objective has several milestones or check points to help you or others assess how well something is going before it is finished so that corrections or modi- fications can be made as needed to ensure that the end result meets expectations. This means including a time frame in the stated objective, such as Reducing the dosage error rate to less than 1% by the end of 2019.

Objectives that meet such criteria are much more likely to serve their intended purpose. The resulting statements can then serve as the directing force in the development of strategy.

Examples of Effective Objectives Table 5.1 provides examples of poorly presented, or weak, objectives, which are contrasted with examples of these same core objectives now strengthened, or better presented, with the inclusion of more precise information to effectively communicate measured goals and the organization’s desired results.

Table 5.1: Contrasting presentations of the same objective

Weaker presentation of objectives

Remarks to transform the weaker presentations of objectives into stronger presentations of objectives

Stronger presentation of objectives

Our objective is to lower the rate of medication errors.

How much is lower? The statement is not subject to measurement. What criterion or yardstick will be used to determine if and when actual error rates are equal to those desired? In addition, no deadline is specified.

Our objective is to lower our medication error rate by 10% within 12 months.

Our objective is to increase our occupancy rates.

How much? A single patient-per-day increase will meet that objective, but is that really the desired target?

Our objective this calendar year is to increase occu- pancy rates by 5%.

Our objective is to boost advertising expenditures by 15%.

Advertising is an activity, not a result. The advertising objective should be stated in terms of what result the extra advertising is intended to produce.

Our objective is to boost patient revenues by 10% in each of the next five years with the help of a 15% annual increase in advertising expenditures.

Our objective is to be the best HCO of its type in our area.

Not specific enough; what measures of best are to be used? Number of patients served? Level of reimbursement? Number of new programs started? Services offered? Number of professional staff ?

We will strive to become the number one HCO of its kind in the metropolitan area within five years in terms of the number of patients served.

Section 5.3The Types of Objectives Included in a Strategic Plan

Seven Rules for Writing Effective Strategic Objectives What follows are seven rules for writing effective strategic objectives.

1. Objectives should include an action verb, because the achievement of an objective must come as a result of specific action.

2. Each objective should specify one major result to be accomplished. 3. An objective should have a target date for accomplishment. 4. An objective should relate directly to the mission statement of the group or orga-

nization. For example, a local facility of a national nursing home chain should not write an objective outside the scope of its own mission statement or one that per- tains more to the mission statement of the parent organization. This may seem obvi- ous, but groups often commit themselves to projects for which they have neither responsibility nor authority.

5. An objective must be understandable to those who will be working to achieve the desired results.

6. An objective must be possible to achieve. 7. An objective should be consistent with a parent organization’s policies and practices.

Refer to Chapter 3, Table 3.2, which lists sample HCO mission statements. Imagine that you have been asked by the CEO of a small, rural hospital to evaluate its strategic objectives. The hospital’s mission statement, as stated in Table 3.2, is “To improve the quality of life of all we serve through excellence in healthcare delivery emphasizing compassionate, personal care.”

The CEO and his or her planning team have come up with the following three objectives. Evaluate the effectiveness of each of these objectives in relation to the guidelines presented in the preceding list of seven rules for writing effective strategic objectives.

• Objective 1: We intend to improve the quality of the healthcare we provide. • Objective 2: We intend to expand the scope of our services to include a birthing cen-

ter, neonatal intensive care, and a children’s orthopedic unit. • Objective 3: We intend to control costs by automating our phone system, eliminating

the need for several patient service representatives.

5.3 The Types of Objectives Included in a Strategic Plan Strategic plans for HCOs usually focus on at least four types of objectives: (1) services offered; (2) staffing; (3) services reimbursement, donations, and funding; and (4) constituents served. However, objectives should be established in all key result areas of the HCO’s operations. Key result areas are those activities that are most likely to impact the performance of the organi- zation. They are the few things that must go right if the HCO is to be effective and thrive. For example, key result areas for a hospital or clinic could include the following:

• Percentage of doctors who are board-certified • Number and quality of services offered • Number of patients treated by inpatient/outpatient services • Successful surgery and treatment rates • Financial condition/budget status/surplus

Section 5.3The Types of Objectives Included in a Strategic Plan

• Status of physical facilities • Quality • Productivity • Patient satisfaction • Innovation • Percent occupancy rate • Number of physicians by specialty • Level of professional staffing

The preceding list of key result areas is lengthy, and it may lead to an HCO’s establishment of, ultimately, an unmanageable number of strategic objectives. One author therefore suggests using only five strategic objectives so as to have a more limited and manageable number of key result areas to work with. The idea is to reduce the number of strategic objectives, which leads to fewer key result areas on which to focus. Based on this suggestion, each of five key result areas is linked with a strategic objective that provides direction by naming a specific result for the identified key result area of an HCO, as shown in the following example:

1. Safety: Decrease the number of never-should-happen events to zero. 2. Quality: Decrease inpatient mortality to zero. 3. Satisfaction: Increase patient satisfaction to 99th percentile. 4. People: Decrease turnover rate to zero. 5. Finance: Increase net margin to 20% (Regan, 2012).

The reasoning for the use of only five strategic objectives is as follows: First, a powerful vision can be created through five strategic objectives, and this vision will serve as a rallying point for the entire organization. Second, the organization is afforded tremendous flexibility in changing the strategies and tactics each year to achieve the stated objectives. Third, everyone in the organization will easily know in what way what they do each day helps achieve the organization’s objectives. Finally, the consistency in objectives from year to year will drive the organization to the relentless pursuit of perfection, and this consistency becomes immersed in the organizational culture (Regan, 2012).

In addition to overall objectives that are to be accomplished in the long term, a set of short- term objectives will need to be developed. Short-term objectives support the attainment of long-term objectives. For example, to have a 1% decrease in supply-cost each year supports a long-term objective of decreasing supply cost by 5% over the next five years. Short-term objectives are stated only for the operating period, normally one year, whereas long-term objectives often span five to ten years. For example, five-year objectives can be set in areas such as clients served, programs offered, fundraising, services offered, and so forth. While the definition of long term varies, HCOs should be planning at least as far into the future as present-day obligations commit them. For example, the planned construction of a new build- ing with a 45-year life means that the organization should be looking 45 to 50 years into the future with regard to the effective use of the facility.

In setting objectives, we first state them in terms of what we want to accomplish, but as we develop the strategy we may discover that we cannot afford what we want. The available resources committed to a given program or service may not be sufficient to achieve a stated objective; if the planning process is resource controlled, then the objective must be altered. It must be remembered, as Peter Drucker has argued, that “objectives are not fate;” but “they

Section 5.3The Types of Objectives Included in a Strategic Plan

are direction”; objectives “are not commands,” but they do become commitments (Drucker, 1954, p. 102). Planners should avoid falling into the trap of thinking that objectives, once they are set, cannot or should not be altered.

Examples of objectives for key result areas, including productivity, funding, and patient/ client, are presented in the following three subheadings.

Productivity Objectives Increasing levels of productivity and cost-effectiveness are essential to the vitality of HCOs, such as home HCOs in managed-care environments. New staffing patterns, the use of teams to improve care plans, and new information systems are often critical to achieving improved productivity (Regan, 2012). Objectives for improvements in productivity may be stated numerically or as a percentage of the total number. If the objectives are stated in percentages, they also need to be converted to numbers for budgeting. The way objectives are stated must reflect what the organization can realistically expect to attain under a given plan.

Productivity objectives may resemble the following:

• Patient care services: Reduce the average number of home visits per patient by 10% for the coming 12 months over last year’s level.

• Business office operations: Reduce paperwork expenses by 15% within the next 24 months when compared with the most recent 24-month period.

Funding Objectives Funding and reimbursement for services rendered are vital aspects of any HCO’s operations, especially in an era when financial sources are drying up. While seeking increased revenues simply for the sake of revenues should not be the only end pursued, the need to increase rev- enues is an inescapable fact of life for an HCO to deliver its services. The issue of continued survival offers a very practical reason for developing a specific statement about funding tar- gets. Getting specific about desirable end results forces the planner to estimate the resources needed to underwrite specific programs and services.

The U.S. healthcare cost crisis is due to the present-day structure of the healthcare system, the fact that third parties rather than patients pay the bill, and the longstanding convention that most reimbursement plans pay for procedures rather than results. Michael Porter and Thomas Lee (2013) believe that the goal of HCOs needs to be this: to deliver better value rather than to reduce costs and increase profits. Value is defined as the “health outcomes achieved that matter to patients relative to the cost of achieving those outcomes” (Porter & Lee, 2013, p. 52). The complexity of the problem is beyond the scope of this textbook. Whether it is Porter and Lee’s value proposition or a traditional reduction of cost, the debate over the nation’s healthcare costs will likely continue.

A statement of whether resources will be available cannot be made without a break-even analysis of the revenue versus the cost of providing services that must carry their own

Section 5.4The Use of Environmental Analysis Data to Set Objectives

financial weight. For new programs, the expenditures and contributions associated with the program should be analyzed before introduction. For existing programs, revenues can be ana- lyzed to project continued levels of financial viability. This information, combined with esti- mates of expenses involved in delivering services, provides a basis for statements of objec- tives about funding levels.

The following statements illustrate potential financial objectives of an HCO: in this case, a medical practice. The inclusion of nebulous phrases, such as acceptable revenue levels or rea- sonable debt levels, has been avoided because of the possible variations in definition and the lack of quantifiability.

• Increase annual return on patient gross revenues to at least 20% by end of year two of planning cycle.

• Reduce long-term debt to 25% of equity within five years. • Hold increases in average charges per patient to 8% above previous year’s average

for the coming year.

Keep in mind that the interactive processes of setting objectives and developing strategies must be carried out realistically. The costs of many aspects of strategy cannot be estimated until a written statement of strategy is developed. For example, if the strategy calls for a new program, then that strategy must be spelled out in detail before the new program’s costs can be estimated.

Patient and Client (Customer) Objectives Patient and client objectives may seem unusual to some, but their inclusion should be obvi- ous. They serve as enabling objectives in areas of productivity and revenue generation. Fun- damentally, however, patient/client objectives represent specific statements about the num- ber and level of services that the HCO will offer to its customers.

Patient objectives are especially important in providing direction for the development of the strategy section of the plan. Patient objectives specify the results desired for constituents by program category. Client objectives should have the same characteristics as other objectives. They must be stated in unambiguously measurable terms and should be evaluated in relation to their accomplishment as part of the monitoring and control system that is used in the plan.

5.4 The Use of Environmental Analysis Data to Set Objectives

The objectives of a given plan are based on the data that can be provided by the use of the five forces model and the SWOT analysis, which were both discussed in Chapter 4. In other words, good objectives are based on a careful analysis of the external and internal environments of the HCO. A specific example of how data are used in setting objectives may assist in your understanding of this point.

Section 5.5The Periodic Review of Objectives

Consider a hypothetical nursing home facility, in a city with a population of approximately 400,000, with a desire to expand its services. In its search for opportunities for service expan- sion, the center has monitored the community’s growth in hospice programs, which now number five in operation. The nursing home has the physical facilities to expand because one of its older wings is only 20% utilized.

The center conducts a survey of the hospice programs to identify potential areas of mutual benefit. Through the survey, the center learns that, at any one time, some of the patients from each hospice program are hospitalized for interim periods for medication adjustments. The center notes that the only current option for this particular service is hospitalization. Know- ing that its current staff of registered nurses is capable of managing this type of medication service, the nursing home sees an opportunity to improve its utilization while providing a needed service for a lower cost than the current hospital–inpatient approach. An immedi- ate question, arising from this opportunity, is how much of a facility commitment would be required for this new service.

Objectives derived through such a process represent the realities of the area and also the HCO’s willingness and ability to commit to such objectives. This example should also reem- phasize the logic in the strategic planning format. The analysis precedes setting objec- tives, because objectives must be based on realistic information that only a careful analysis can provide.

The following represents potential data that could have been obtained through external and internal environmental analyses conducted by the hypothetical nursing home discussed in the preceding example. From this data, an objective is set by the nursing home.

• Average number of hospice patients across five programs = 150. • Average percent of hospice patients hospitalized for medication management at any

one time =10%. • Average number of hospice patients at any one time using in-hospital medication

management services = 15. • Estimated percent of hospice patients receiving medication management whose

conditions are uncomplicated enough to allow nursing center delivery of the service = 90%.

• Total average number of hospice medication patients = 13.5 (i.e., 15 × .9). • Initial estimated acceptance of the program by referring physicians = 60%. • Initial viable target market for program = 8.1 patients (i.e., 13.5 × .6). • Objective: Initially commit 8 beds to the hospice medication service program.

5.5 The Periodic Review of Objectives One practical and easy way to record, communicate, measure, and update objectives is through a performance plan book or a management plan book. The performance or man- agement plan book aids management in determining how well it is achieving its objectives. Measuring progress toward major objectives allows management to make any necessary adjustments. For example, the economic environment may have suffered a recession since an organization agreed upon its stated objectives, making the objectives more difficult to achieve

Section 5.5The Periodic Review of Objectives

now. Management can determine whether to change an objective or devote more resources to achieving it. Each part of the book should be kept by the respective manager responsible for achieving a particular objective and reviewed by senior management on a regular basis. All objectives for the organization should be included in this book. Objectives can be reviewed each quarter and updated. This process greatly reduces paperwork and provides a conve- nient method for review. Examples of how objectives might be set up in a management plan book are shown in Tables 5.2, 5.3, and 5.4.

Table 5.2: Sample management plan book: overall objectives (Use a three-year spread.)

(Year 1) (Year 2) (Year 3)

PATIENTS SERVED

Program one

Program two

Program three

PHYSICIAN STAFFING

Program one

Program two

Program three

Training seminars

FINANCIAL (per existing program)

Revenues

New patients

Budgets

Current ratio

Fixed-asset turnover:

Revenues/Net fixed assets

Total asset turnover:

Revenues/Total assets

Debt ratio:

Total debt/Total assets

Debt/Total revenue:

Times interest earned

Revenue/Interest

(continued)

Section 5.5The Periodic Review of Objectives

(Year 1) (Year 2) (Year 3)

STAFF

Administrator

Assistants

BUILDINGS

Build/Buy/Rent facilities

Existing facilities improvements

New equipment

Equipment repair or replacement

EXISTING FACILITIES

Systematic safety check

Heating and cooling

Security: Burglar alarms

Lighting

Parking

Sound system/Other special systems

STAFF TRAINING AND MORALE

Administrator education seminars

Staff training: In-house

Staff training: External

Seminars and yearly attitude survey

PUBLIC RESPONSIBILITY

Cooperative efforts with other HCOs

NEW PROGRAMS (per program)

Patient needs assessment

Competing programs

Revenue sources

Reimbursement levels

Development/Start-up expenses

Operating budgets

Staff required

Table 5.2: Sample management plan book: overall objectives (continued)

Section 5.5The Periodic Review of Objectives

Table 5.3: Sample management plan book (year): review sheet

Objectives Completion Status

I New program: Set aside $5,000 for consulting for new wellness program.

On target

II Budget performance: Operate within the $2,500,000 budget throughout fiscal (year).

On target

III Problem-solving: Develop an efficient transportation routing schedule to be followed for home equipment deliveries by (date).

Met 90%

IV Innovative: Devise a better layout for patient/staff parking during (month and year).

Done

V Personal: Read the book Fundamentals of Strategic Planning for Healthcare Organi- zations; attend communication course, Fall (year).

Book completed, course registration mailed

Table 5.4: Sample management plan book: department objectives (year) by nature and function

I. Routine objectives • To make at least one round of patient visits per week • To review each program’s objectives and accomplishments by January 5, May 5, and August 5 • To attend the annual state administrators’ meeting

II. Problem-solving objectives • To develop a cooperative-education linkage with the local college to increase recruiting within the

coming year • To develop a staff training seminar by January 31 • To develop a set of criteria and measurable objectives for a professional staff retreat within six weeks • To hold a one-day open house for community education within three months

III. Innovative objectives • To devise a better system of generating new ideas for prospective service programs within six months • To develop improved information systems for giving feedback to all program leaders on their budget

performance. Implementation by (date)

IV. Personal objectives • To improve my understanding of the latest trends in service delivery; visit at least one similar HCO

operation every six months • To exercise four times per week

V. Team objectives • To work with the staff on revision and update of public relations brochure to be introduced in July • To meet with the staff each Wednesday to troubleshoot problems and coordinate activities

VI. Budget objectives • To operate within the $1,500,000 yearly budget • To retire 10% of the debt on the building within the next year

Summary & Resources

Summary & Resources

Chapter Summary Setting objectives is a major part of the strategic planning process. The necessity for good objectives, as well as their characteristics, was presented here to lay the groundwork for iden- tifying the basic types of objectives for key result areas such as patient services, revenue gen- eration, and operational productivity. The statements of objectives given as examples in this chapter possess the basic characteristics that are needed to serve both as a source of direc- tion and in evaluation of the strategies developed in the plan.

Key Points 1. One cannot achieve objectives if none exist. Although this idea is quite simple, many

people overlook it. In order to accomplish anything, we must have a clear under- standing of what is to be accomplished. The words key results, goals, and targets often are used synonymously when talking about both short- and long-term objec- tives. Whatever the label used, the idea is to focus on a specific set of target activities and outcomes to be accomplished. Think of the analogy of the archer from Chap- ter 2. An HCO administrator wants the whole organization aimed at a single target, just as an archer wants every arrow aimed at the bull’s-eye. People get confused and disorganized if they do not know where they are going. In large measure, the suc- cess or failure of an HCO is based on its ability to set goals, as well as on tools with which to measure progress toward those goals.

2. Objectives have sometimes been called the neglected area of management. In many situations there is a failure to set objectives, or the objectives that are set forth are unsound and therefore lose much of their effectiveness. Sometimes administrators are reluctant to set objectives because of the idea that not reaching a stated goal becomes obvious and a basis for criticism. Others feel that accomplishments are too difficult to quantify and so no attempt is made to set quantifiable objectives. To counteract this, a management tool called management by objectives (MBO) was developed. It emphasizes the need for setting objectives as a basic managerial pro- cess, providing coordination of activities at all levels of the organization.

3. One way to be convinced of the usefulness and power of MBO is to consider some of the alternatives (Wayne State University, 2013). These include: (a) management by extrapolation, (b) management by crisis, (c) management by hope, and (d) manage- ment by subjectives. All four of these approaches represent variations of managerial muddling through. Absent is any effort to calculate what effort is needed to influence where an organization is headed and what its activities should be to reach specific objectives. In contrast, MBO is much more likely to achieve targeted results and show a sense of direction.

4. For objectives to accomplish their purpose of providing direction and a standard for evaluation, they must possess certain characteristics. The more these attributes are possessed by a given objective, the more likely the objective will achieve its basic purpose. Characteristics of good objectives are illustrated by the acronym SMART, which is used to guide the development of measurable goals. Each objective should be: S—specific, M—measurable, A—achievable, R—relevant, and T—time-oriented.

5. While it is possible to have 10 to 12 objectives, one author suggests using only five strategic objectives so as to have a more manageable number of key result areas

Summary & Resources

to focus on. An example of five key result areas, each linked with a strategic objec- tive, include the following: (1) Safety: Decrease the number of never-should-happen events to zero, (2) Quality: Decrease inpatient mortality to zero, (3) Satisfaction: Increase patient satisfaction to 99th percentile, (4) People: Decrease turnover rate to zero, and (5) Finance: Increase net margin to 20% (Regan, 2012).

Key Terms break-even analysis The unit or dollar sales volume at which an organization nei- ther makes a profit nor incurs a loss.

cost-effectiveness A form of economic analysis that compares the relative costs and outcomes of two or more courses of action. In healthcare the cost may be expressed in monetary terms, but the outcomes are not.

key result areas The areas of an organi- zation that upper-level management has targeted for strategic improvement. Exam- ples include service offerings, productivity, levels of client satisfaction, market share, profitability, physical resources, and staff development.

management by crisis A managerial sys- tem where management reacts to problems but is not proactive in preventing problems.

management by extrapolation A man- agement process that does not disrupt the status quo. Management continues to do the same things in the same ways because the system is working well enough.

management by hope With this approach, decisions are predicated on the hope that they will work out and that if management tries hard enough, for long enough, things are bound to get better.

management by objectives (MBO) A man- agerial process whereby management and

employees agree on the results they wish to achieve in a given time period. The process provides for the coordination of activities at all levels of the organization.

management by subjectives This approach to management occurs when no organization-wide consensus or clear-cut directives exist on which way to head and what to do. Managers translate this to mean “do your best to accomplish what you think should be done.”

objectives Clear, concise written state- ments outlining what is to be accomplished in key result areas in a certain time period, in measurable terms.

productivity The ratio of inputs to outputs. Labor and capital are examples of inputs. Examples of outputs are the number of products manufactured or the number of patients served in a given time period.

SMART An acronym for a philosophy that guides the development of measurable goals. By using the SMART philosophy as a guide, each objective developed by an organization should be Specific, Measurable, Achievable, Relevant, Time-oriented.

strategic objectives The tools by which organizations define their goals and sketch out a specific road map for achieving them.

Summary & Resources

Critical Thinking Questions 1. Explain the role of objectives in strategic planning. 2. What is management by objectives (MBO)? How does SMART philosophy relate

to MBO? 3. What are key-result-area objectives? Give an example of at least two such objectives.