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Executing the Strategy

Learning Objectives

After reading this chapter, you should be able to:

• Distinguish good operational plans from weak ones.

• Detail the value of tracking progress on all operational plans.

• Discuss why emergent strategies occur and how they might affect an organization’s current strategy.

• Implement the ten basic steps of a generic strategic formulation process.

• Manage, improve, and evaluate an existing strategic management process.

Chapter 9 Neil Webb/Ikon Images/Getty Images

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CHAPTER 9Section 9.1 Managing Operational Plans

Implementing a strategy (see Figure 1.1) in the real world is not a leisurely swim across a calm pond on a sunny day, but rather like crossing from one bank of a raging river to the other, encountering hidden eddies, fog, driving rain, lightning, and riptides along the way. While it is not impossible to reach the other bank (the goal), the task often becomes one of overcoming obstacles and making constant adjustments without losing sight of the goal. Implementation is like that. Even the most brilliant strategy is worthless if it cannot be implemented.

This chapter focuses on strategy execution and its difficulties. Part of the chapter is devoted to assessing, improving, and managing the strategy formulation process itself.

9.1 Managing Operational Plans The process for obtaining board approval of operational plans is covered in this chapter. Exactly what is it that gets approved? An operational plan is a document that specifies the projects or tasks that must be accomplished to achieve particular operational objectives. Many of these plans will contain activities that are ongoing. Some will include plans for enhanced or new services. Details specified in operational plans include the names of those

who will be involved and the indi- vidual responsible for each one, what equipment will be needed, when each will start and end, and the estimated costs for each activity. Given the level of detail required, it should come as no surprise that an operational plan for a large functional unit, such as the nursing department in a hospital, can run to many pages, as there are lots of activities to be detailed. Operational plans for small HSOs such as physi- cian clinics and community health centers may be just a few pages long unless new strategic initiatives are to be undertaken.

It takes contributions from everyone who will be involved in that HSO’s operations to create such plans. They will make sure that continuing cur-

rent operations are included in the plans, which is easily done. What adds a level of com- plexity and difficulty is incorporating additional tasks demanded by a change in strategy. Consider the following scenarios, which illustrate the difficulty in creating operational plans that involve more than simply repeating what was done the previous year:

Javier Larrea/age fotostock/Getty Images

Continuing current operations will be included in the operational plans, which is not difficult to do. What adds a level of complexity is incorporating additional tasks demanded by a change in strategy.

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CHAPTER 9Section 9.1 Managing Operational Plans

• Increased patient volume. A higher level of productivity is required to satisfy increased patient demand or the HSO must expand its capacity. Can the increased capacity requirement be met by adding additional shifts, physically expanding the size of the facility, or building a new facility? How many new pieces of equipment and supplies will be needed and of what kind? How many new people must be hired and trained, and how long might all of this take? Also, consider the scenario where a whole new service line will be added and patients receiving this new service must be cared for in addition to caring for existing patients. How can this best be accomplished? In both scenarios, patient care capacity has to be increased through either improved efficiencies or growth.

• Market expansion. The decision to expand from being a local HSO to a regional one presents a host of operational challenges. Should the organization continue to oversee patient care services in these other locations or find a joint venture partner? How many new facilities will it need to reach this expanded market? Which specific parts of the region should be targeted first, second, and so on until the organization covers all of its targeted areas? What advertising media would be most appropriate to introduce services into new areas? Should empha- sis be placed on marketing to physicians or is direct consumer marketing the best? How can this market expansion be realized most expediently?

• Finance. Consider two scenarios: In the first, the organization has decided to invest in either a new integrated information system or a significant enhance- ment of the existing one. How many more information technology specialists will be required? Without intimate knowledge of the completed system, how can creating it be planned for? Should a consulting firm with the requisite experience be engaged? Will training specialists need to be hired to teach people how to use the system functions? In the second scenario, the HSO’s cash needs for the coming year exceed what it can normally access. How can it raise more cash? Should receivables be factored? Should a larger line of credit be negoti- ated? Should payables be delayed? Is grant funding available? Is there a way to maintain negative working capital to free up the most cash?

Ideally, the HSO has been working on these kinds of changes over a longer period, using the formal operational planning time at the end of each fiscal year to finalize its plans and match available resources before the new fiscal year begins. And its plans must be done in some sort of networked way or using Gantt charts to show which projects or tasks can be done independently of others and which are integral to a particular sequence.

A Gantt chart is a type of bar chart that graphically depicts a project schedule. Gantt charts indicate the start and finish dates of each component of a project and can be used to show how much of the component has been completed as well as when it was completed (see Figure 9.1). Some Gantt charts also reveal the dependency relationships between compo- nent activities; that is, the dependency of one activity upon the completion of another is indicated. Gantt charts can also be combined with PERT network software (see Chapter 8) to produce an ideal timeline for completing project activities.

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CHAPTER 9Section 9.1 Managing Operational Plans

Figure 9.1: Example of a Gantt chart

Gantt charts indicate the start and finish dates of each component of an operational project.

When that is done, the total plans for a particular unit should be summarized according to the review period set by the organization. Typically, this is each month. The review cannot begin until all the requisite data have been collected and organized, which usually takes a week after the end of the month. Actual results are then compared to the plan (expected performance and budget) along the following dimensions:

• For each project completed during the period, data show whether the objective was achieved, current and total costs, and whether the deadline was met.

• For each ongoing project, data show progress toward achieving the objective, current and cumulative costs, and a probability that the deadline will be met.

The project leader initially does such a review, with copies given to middle managers on up to functional heads. If the data are entered into a computer system, then those manag- ers will all have access to monthly summaries.

Case Study: Managing the Operational Plan for a New Facility describes how a hospital might have created an operational plan for adding a new outpatient facility, including identifying the tasks to be completed and who was assigned responsibility for complet- ing the tasks.

Task 5

Task 4

Task 3

Task 2

Task 1

8/10/2012 2/26/2013 9/14/2013 4/1/2014 10/18/2014 5/6/2015 11/22/2015

CompletedStart Date: Remaining

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CHAPTER 9Section 9.1 Managing Operational Plans

Case Study: Managing the Operational Plan for a New Facility

In October 2012, the Clearwater Hospital board of trustees approved a project involving the addi- tion of a for-profit sports medicine and rehabilitation facility (SMRF). The facility was intended to contribute to the organization’s strategic objective of growing the business. Revenue for inpatient admissions had been declining due to several factors out of the organization’s control. The board agreed that future revenue growth would need to come from other services such as the SMRF. Not only would the facility generate a profit for the organization, but it would also increase referrals to existing outpatient therapy programs and potentially increase hospital admissions.

An operational plan for the SMRF was created by the steering committee overseeing the project. Using mind mapping, the committee members brainstormed answers to the following questions:

• What will be the major project deliverable? • What tasks must be done to complete these deliverables? • What might go wrong if we implement the project in this way (with these tasks)?

(Iranmanesh & Madadi, 2008, p. 331)

These discussions resulted in the creation of a list of tasks and subtasks to be completed through- out the life of the project. This list served as an outline for the project and assisted in project con- trol. The following is a list of the tasks and the person responsible for completing the task. Many individuals were called upon to help the responsible individuals complete their charges.

Task Responsible individual

1. Develop budgets for each area of the project Chief financial officer

2. Purchase land for facility Construction project manager

3. Identify industry standards and government regulations pertaining to building and practices

Chief operations officer

4. Design building Chief operations officer

5. Manage building construction project Construction project manager

6. Develop management structure Chief operations officer

7. Define what sports medicine and rehabilitative services should be offered to clients based on their expected needs

Rehab services medical director

8. Define and oversee purchase of equipment and supplies Rehab services administrative director

9. Define needs for food services, housekeeping, staffing, and policy/procedure development

Rehab services administrative director

10. Define telecommunications and information system needs for facility

Information services director

11. Develop operating budget for facility Chief financial officer

12. Create payroll and accounting system for facility Chief financial officer

13. Create preliminary marketing and communication plan VP of business development

14. Set up telecommunications and information systems for facility

Information systems director

(continued)

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

Case Study: Managing the Operational Plan for a New Facility (continued)

A Gantt chart was created for each task showing the subtasks and expected start and completion times. As the project progressed, the Gantt charts allowed the steering committee to see if plans were moving ahead as expected and what subtasks were falling behind schedule.

Discussion Questions

1. Clearly, it is much tougher to translate a change in strategy into operational plans than it is to continue with an established strategy. In your opinion, is it acceptable to submit a plan that is full of uncertainties? Explain your point of view.

2. Can you think of anything else that should be part of a good operational plan? 3. Now that you know more about what is involved in coming up with a good operational plan,

do you believe that strategy formulation should be done solely by top management? 4. To what extent, if any, does experience in formulating strategy help an operational manager

develop operational plans to support the organization’s strategies? 5. To what extent should managers be aware of what’s going on in other parts (e.g., functions)

of the organization while preparing operational plans? 6. If quality or effectiveness of a project is important, how can these be incorporated into an

operational plan? Or should a separate project be developed to assess those attributes, requiring additional expenditures?

9.2 Tracking Performance Using Metrics Two old adages underscore why the use of metrics is so vital in organizations:

• “What gets measured gets managed.” • “You can’t improve what you can’t measure.”

By way of illustration, consider the example of a hospital that provided educational work- shops for high school students in an effort to reduce the rate of sexually transmitted dis- eases (STDs) in the area around the city in which it operated. To determine how well this initiative was doing, they kept records of student attendance at every workshop they gave, the number of workshops each week and at which school, who gave the workshops, and the content of each workshop. In other words, what they said they were going to do was measured and reported to the CEO. But how effective were the workshops? What was the purpose for developing and giving them? Did the teen STD rate decline over the couple of years this hospital was giving its workshops? If the rate did decline (a statistic that hadn’t been measured), was it because of the workshops? If the rate did not decline, was the program a failure or was it simply bucking an upward trend line?

Tetra Images/SuperStock

The more systematic and reliable the method for measuring performance, the more credible the data will be in supporting strategic plans and their implementation.

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

Clearly, like many other organiza- tions, this hospital measured what is easy to measure but not what needed to be measured. Unfortunately, those in charge of implementing operational plans may not know what needs to be measured, or they may lack the resources necessary to gather the data. To obtain any meaningful eval- uation of the quality and effective- ness of its educational workshops, the hospital in this example might have partnered with an organiza- tion that was engaged in monitoring the prevalence or incidence of STDs among teenagers in the community. The statistical rate of STDs before the workshops were given could be compared to statistics after the 2-year period. Gathering statistics within each school where the workshops were held would have been another option. There are many ways to measure performance, but the more systematic and reliable the method is, the more credible the data will be in supporting strategic plans and their implementation.

Organizations mistakenly measure whether activities are occurring as planned, not pro- gressing toward achieving objectives. Although getting tasks done is important, progress evaluation is critical to strategic management. Evaluating progress at numerous stages throughout implementation allows the manager and his or her team to make adjustments and modifications to the strategy. For instance, if the hospital had monitored data on STD rates among high school students in the city and found that rates were not dropping, modifications to the educational strategy could have been made.

Operational objectives, discussed in Chapter 8, must be set carefully. Making good prog- ress toward objectives that were set too low is of little value and will not implement the strategy properly. Setting them too high demotivates the workforce and is just as bad. So let us presume that “stretch” objectives—set at just the right level but demanding a little more from everyone to achieve—have been set all the way down the line, plans were devised for every unit that matched its budget allocations, and these plans are now being carried out by everyone in the organization. How does top management monitor whether everything is “on track” or “on plan”?

The manager’s job is to collect and organize current project data for the review period, by project, in his or her respective areas of responsibility. The example shown in Figure 9.1 is a step in the right direction but has to be summarized for the month. For example, the figure shows an almost instantaneous picture for daily monitoring, a time frame and level of detail required only by the people actually doing the work. From such daily reports

9.2 Tracking Performance Using Metrics Two old adages underscore why the use of metrics is so vital in organizations:

• “What gets measured gets managed.” • “You can’t improve what you can’t measure.”

Tetra Images/SuperStock

The more systematic and reliable the method for measuring performance, the more credible the data will be in supporting strategic plans and their implementation.

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

and the status of projects at the end of the month, a manager would need to extract and summarize information on each major project, being careful to note which projects were on schedule and under budget and which were not and by how much. The latter could constitute a separate “exception” report of negative variances (discussed in more detail later), which are projects that have slipped their schedules or are over budget, together with additional information on how much extra it might cost to get all of them back to meeting their deadlines. Time sampling, evaluations at fixed regular intervals of time, could be done as a double check to confirm the accuracy of status reports.

Control Systems

A control system is a mechanism that allows management to compare actual performance to an expectation, measure the variance, take action to reduce the variance, reset or update, and test again.

One of the hallmarks of a good control system is that corrective action is taken as soon as it is found to be needed. Why wait until the end of the year to discover that you have gone over budget? At the other end of the scale, should you check every week? That may make no sense, either. Monthly checking is probably about right unless HSO leaders or health- care regulators want more frequent checks. Keep in mind that these guidelines are gen- eral rules. In certain locales, weekly strategic checks are necessary to fulfill government regulations, but such stringent oversight is not always required. Regardless of when and how often checks are performed, most information systems can provide reports, either as needed onscreen or in a customized format sent to all operational managers.

Case Study: Measuring Progress Toward Improving Patient Satisfaction describes the control system used by a hospital involved in a strategic project aimed at improving patient satis- faction in its emergency department.

Case Study: Measuring Progress Toward Improving Patient Satisfaction

The patient satisfaction scores for emergency department (ED) services at a hospital in the Mid- west were consistently low. During strategy formulation, the hospital’s leadership identified this as a critical strategic issue because low patient satisfaction was harming the hospital’s reputation in the community. This led to the creation of an operational plan for improving these scores.

A project manager from the ED was selected to coordinate the improvement plans. Several steps were taken to change the way emergency services were delivered, including communicating more effectively with patients and family members, changing the staffing schedule to better cover times of peak patient load, and revisions to the admissions and triage process.

(continued)

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

Case Study: Measuring Progress Toward Improving Patient Satisfaction (continued)

Each month, patient satisfaction survey results were shared with managers, physicians, and staff to assess progress toward achieving the goal of 80% overall satisfaction with emergency services (80% of the ratings should be a 4 or 5 in the 5-point rat- ing scale, with 5 being the highest). In addition, the percentage of ratings that were 4 or 5 for individ- ual questions on the survey were monitored each month. Below are the data reported each month to the hospital and emergency department leadership and staff.

Percentage of patients who rated these questions as a 4 (somewhat satisfied) or 5 (very satisfied):

• Overall rating of the ED • Urgency shown • Coordination of care and services • Explanation of new medicines • Doing everything for pain • Comfort asking questions • Informing patients about delays • Doctors caring about patients • Time doctors spent with patient • Doctors’ overall rating • Amount of time in ED • Discharge instructions

When target rates are not achieved, the ED project manager meets with people in the ED to iden- tify barriers and develops plans for overcoming these barriers. The improvement project will be deemed successful when the “overall rating” and all individual component scores achieve the 80% goal for four consecutive quarters. Quarterly monitoring will be continued with a status report to the hospital’s leadership council provided on a semi-annual basis.

OJO Images/SuperStock

Overall patient satisfaction is an important measure of quality for emergency department services.

A common control system is the budget. Action is taken only if expenses exceed the bud- get. Further, cumulative expenses are compared to cumulative budgets so that an opera- tional unit that has overspent one month can “make up” and spend less than its budget in the following month. This budgetary control mechanism is illustrated in Figure 9.2. Note that in addition to monitoring cumulative expenses, operational units often track spend- ing in each budget category.

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

Figure 9.2: Budgetary control system

The budgetary control system allows management to compare actual performance to a standard, mea- sure the variance, take action to reduce the variance, reset or update, and test again.

Addressing Negative Variances

Managers in well-run organizations make a point of meeting with their direct reports regularly to go over progress and discuss any problems. One focus of the meeting should be variances and any exception reports that detail differences between plans or standards and actual performance. A negative variance is an instance where a project’s progress is delayed and could miss a deadline, or where its budget has been exceeded, or where per- formance comes up short of a quantitative standard or expectation.

Typically a monthly cycle

Target

Actual

Variance

Action

Update

Cumulative budget

Cumulative expenses

Update cumulative budget and cumulative expenses

Over budget On budget orunder budget

Reduce expenses next month

Continue as planned

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

What can be accomplished in such a meeting between a manager and a direct report? First, the manager should learn about the particular circumstances surrounding negative variances of some projects, what might have caused the delays or budget overruns, and which other projects might be in jeopardy as a result. They should ask questions and listen carefully to the responses. Both the manager and direct report should note questions to which an answer could not be provided because the direct report didn’t have the neces- sary information.

Second, the manager and direct report should discuss potential solutions to the negative variances. Some projects can be pulled back on track through the direct report getting project personnel to acknowledge problems and solve them, helping them to find solu- tions, or trying to remove obstacles that might be delaying progress. Also, if budgets are overrun, a new lower budget that compensates for the overrun must be communicated to project personnel. The manager should focus on projects where there is a direct relation- ship between schedule and budget, that is, where speeding them up will cost more, and conversely, where reducing the budget results in unacceptable delays. It is in precisely such situations that any critical-path software becomes invaluable, because it lets a project leader or supervisor try out different alternatives until both parameters (project time and budget) meet expectations.

Third, the manager should insist that the direct report file—within the next couple of days—a revised plan containing the points that were dis- cussed that will bring projects and budgets back in line. Finally, meet- ings represent an opportunity for the manager to strengthen a relationship with the direct report. In most cases, the meeting is just between the two of them (although inviting other project managers who are in a better posi- tion to provide explanations is also common). What is the direct report most worried about? Is the commu- nication between them as “open” as it needs to be? What’s really going on? Taking the time to delve a little deeper and offer guidance and coun- seling is often well worth it.

Sometimes face-to-face discussions are needed to ensure that everyone in the HSO follows through in meeting operational objectives.

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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

Be mindful of a couple of potential red flags: Some managers do not like hearing or deal- ing with bad news and might even tell their reports they do not want to hear it. So if a supervisor is repeatedly told that “everything is okay,” he or she might well suspect that it is not. The manager will have to dig deeper and even go to chat informally with the direct report’s colleagues and team members. A manager also needs to be sensitive to whether a direct report is losing control of the team or his or her responsibilities. If the employee feels overwhelmed and relatively powerless to stem the tide, a real problem exists.

This kind of face-to-face meeting with a direct report goes on up and down the hierarchy. Typically, a manager might have a half dozen to a dozen direct reports, some fewer, some more. A manager should schedule all meetings with direct reports over the course of a day or two before meeting with his or her own supervisor, taking on the role of “direct report.”

If this description of the organization conveys the idea that this is one massive control system, that is exactly the intent. During execution or implementation of a strategy, doing the work and controlling the work—its quality, timeliness, and adherence to a budget—is vital. And in the spirit of a good control system, actual performance is compared to a standard, the variance noted (especially negative variance), solutions developed, and a correction applied as soon as possible. Data collected about performance, especially as part of an information system, are essential, but a control system needs more; that is why the face-to-face meetings are imperative and why everyone in the hierarchy must follow through and put the corrections into effect to improve performance the following month.

This description also gives the impression that managers take part in many meetings, and that too is by design. With so many meetings to prepare for and attend, when do managers get time to do their real work? Perhaps this is the fallacy. Recall the definition of a manager as “someone who gets work done through other people.” The time spent in meetings is the work. Whether that time is wasted or not is another issue and goes directly to whether the person conducting the meeting is an effective manager. Managing well is difficult, challenging, time consuming, but ultimately very satisfying. The job gets done on time and within budget, and your direct reports grow and develop into productive, congenial team members.

Discussion Questions

1. It is easy to measure what training was given, to whom, by whom, how often, and whether it was within budget. What measures would you suggest to determine the effectiveness of such training? Is it important?

2. At some time during the year, all managers are told that budgets need to be slashed. What is their likely response? Do all operational managers line up to “make their case” for not cutting budgets on their projects? Do vice presidents and other senior-level managers make the decisions as to where and what to cut?

3. With each manager receiving a monthly report about progress on operational plans and budget compliance, what additional benefit is gained from a face-to-face meeting with indi- viduals tasked with doing the work?

4. If you were a manager who had to oversee people and projects, would you look forward to your monthly face-to-face meetings? Under what circumstances might you dread them? If you can think of any, how could you improve the situation?

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CHAPTER 9Section 9.3 Dealing With Emergent Strategies

9.3 Dealing With Emergent Strategies There is one type of strategy that occurs only during operational execution. Emergent strategies, first proposed by Henry Mintzberg of McGill University, arise as a result of an organization’s response to unexpected events as a strategy is being implemented. In Mintzberg’s terms, an intended strategy is akin to the “best” strategy that was developed and chosen. Such a strategy, when implemented, is then called a deliberate strategy. If it fails for whatever reason, it is considered an unrealized strategy (see Figure 9.3).

As the deliberate strategy is executed, a pattern may emerge that was not intended when the strategy was first proposed. Actions that were taken one at a time take on a cumulative effect and become a strategy. For example, Clearwater Hos- pital, which was discussed in the case study at the beginning of this chapter, has an opportunity to build a sports medicine and rehabilitation facility, and it becomes clear over time that the hospital has diversified into the related market of sports medicine products. That is an emergent strategy that was never a part of the strategy the organi- zation set out to implement. Combined with the deliberate strategy of serving clients needing ath- letic training and treatment of sports-related inju- ries, it evolves into the realized strategy of selling sports medicine products and services. This is also sometimes referred to as an umbrella strategy.

There is much validity to viewing strategy in this way, from how is it formulated to what actually happens in practice. Real life is messy, and rarely do plans actually happen the way they are intended. Few strategies are purely deliberate, just as few are purely emer- gent; the former allows for no learning while the latter means no control (Mintzberg, Ahl- strand, & Lampel, 1998). Reality is some combination of the two.

Accepting the notion of emergent strategies allows the organization to learn from consum- ers and increase its capacity to experiment with new ideas. Learning occurs even when there is no emergent strategy; one of the important byproducts of the strategic thinking and planning process is to increase strategic learning and to update everyone’s mental models in a similar way. The very act of implementing a strategy involves all kinds of learning, which benefits the next round of planning.

Over time, a hospital may develop an emergent strategy that develops into a realized (or umbrella) strategy, such as selling sports medicine products and services.

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CHAPTER 9Section 9.3 Dealing With Emergent Strategies

Discussion Questions

1. Is it possible for an organization to experience emergent strategies all the time? Is that the same as saying that it has no strategy? Explain.

2. Mintzberg and his associates characterize deliberate strategies as exhibiting control but no learning, whereas emergent strategies exhibit the opposite. Do you agree? Why or why not?

3. Do you believe that HSOs in general find it difficult to realize an intended strategy? If so, is it because of emergent strategies cropping up all the time or simply poor execution?

Figure 9.3: Deliberate and emergent strategies

Abraham, S. C. (2006). Strategic planning: A practical guide for competitive success. Miami, OH: Thomson South-Western (Cengage), p. 157.

Realized strategies result from an organization’s response to deliberate and unexpected events.

Keeping one’s eyes open for a pattern that signals an emergent strategy is another way for an HSO to stay agile and flexible. In times of constant and rapid change, taking advantage of opportunities “on the run” as well as formally through strategic thinking is a sign of a healthy organization. Should the emergent strategy become so powerful as to swamp the deliberate strategy, the organization can always have an impromptu strategic planning meeting and, with the board’s approval, acknowledge what is happening and capitalize on it with full budgetary support.

Eme rgen

Stra tegy

Unrealized Strategy

IntendedStrategy

Deliberate Strategy

Realized Strategy

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

9.4 Controlling the Strategy Formulation Process Formulating strategies is usually carried out by a group of people in an organization, and a formal process should be established to get such a group to coordinate its efforts and work as one. What follows is a set of guidelines for setting up and managing the process in an HSO, building on the discussion in previous chapters, which describes a process for doing strategic thinking and strategy formulation. Insofar as the abilities of different orga- nizations to strategically manage with a formal process vary greatly, such guidelines are difficult to write. A few basic assumptions were made in framing the recommendations:

• Most small HSOs do not have a good understanding of strategy formulation and therefore either do not perform it at all or do something they “think” is strategic planning.

• Organizations that do formulate strategies and use a formal process could ben- efit by benchmarking their process with these guidelines.

• Many HSOs do planning without reflecting on whether it is done well or pro- vides the organization with value. That is, they do so without the benefit of any strategic thinking.

Before the process of strategy formulation is begun, it would be a useful exercise for mem- bers of top management to assess the organization’s inventory of needs. One device that could accomplish this is a brief questionnaire, such as the strategy quiz shown in Table 9.1.

Table 9.1: Strategy quiz: How strategic is your organization?

Answer each question with either a Yes or No by checking the appropriate column next to it. Your answers will be scored based on the number of No responses.

Questions Yes No

1. Are you realizing the full potential of your organization and people?

2. Do you have a 5-year vision for your organization?

3. If so, do you believe your organization can achieve it?

4. Are you pleased with your organization’s profitability over the past 3 years?

5. Do you believe the value of your organization is increasing over time?

6. Are your organization’s revenues growing fast enough?

7. Do you have enough money (including ability to borrow) to get the job done?

8. Do you have a significant advantage over your competitors?

9. Are your services competitive?

10. Do you know what your costs are?

11. Are you getting new services to market quickly enough?

12. Does your organization formulate strategies and do operational planning every year?

13. Can you state what your organization’s strategy is and why it will work?

(continued)

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

Table 9.1: Strategy quiz: How strategic is your organization? (continued)

Answer each question with either a Yes or No by checking the appropriate column next to it. Your answers will be scored based on the number of No responses.

Questions Yes No

14. Do you have at least three opportunities you are deciding whether to pursue?

15. Do you know what your organization’s principal problems are?

16. If so, do you know what to do about them?

17. Do you have a set of measurable objectives you are trying to achieve?

18. Are you getting the most out of your people?

19. Do your employees know where the organization is going and how it will get there?

20. Is your organization culture collaborative, innovative, and trusting?

TOTAL

Source: Adapted from Abraham, S. C. (n.d.). Retrieved from www.futurebydesign.biz

Whose Responsibility Is It?

In small HSOs that formulate strategies, a process that is often called “strategic planning,” the CEO or owner typically drives the process. Sometimes, the CEO might use a consul- tant or an executive within the organization to conduct the process and help the group decide on the strategies. Many small HSOs and new ventures, however, do not formulate strategies for the simple reason that there is only one strategy possible, and the organiza- tion’s energies are focused on executing it. A small medical clinic, for example, is not likely

to do planning unless it is faced with several choices or intense competi- tion and, for the first time, is put in a position of not knowing what to do.

In midsize to large HSOs, the job of controlling the process is typically delegated to a director position. Absent such a position, responsibil- ity would go to whomever the CEO believes can do a good job or has some experience with strategy formula- tion, such as the CFO or a functional vice president. Some organizations form ad hoc or standing committees to focus on strategic management. Others employ a vice president or C-level executive to direct strategy formulation and related initiatives. If no one wants the assignment or feels

Tim Brown/The Image Bank/Getty Images

The planning process can potentially be subcontracted or outsourced. The actual decision making should be carried out by the CEO and managers, who alone are accountable for the strategic choices that are made.

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able to do it, someone from outside may be brought in to do it. If housekeeping services, billing, and medical transcription can be outsourced, so can facilitation of the planning process. However, only preparing and conducting the process and achieving its purposes should be subcontracted to a consultant. The actual decisions cannot be subcontracted. The CEO and managers, who alone are accountable for acting on those decisions and achieving the organization’s objectives, must make them.

The person in charge of the planning process should be sure all those involved understand what they have to do and give them time to do it. Part of the process is creating standard reporting formats that everyone understands and that facilitate comparisons with later years. At the outset, there should be a schedule for the planning process that is enforced unless a crisis intervenes. The individual managing the process must remember that these planning tasks are superimposed on people’s regular jobs and may be viewed negatively as an added burden. People involved may need convincing that planning activities are crucial for the organization and worthy of serious consideration.

What Approach Should Be Used?

Strategy formulation steps were covered in several previous chapters. The manner in which HSOs conduct these activities will differ, yet there are certain criteria that should be met. Key managers, particularly the person in charge of the process, must understand the process—what it is, what is involved, who should be involved, why it is needed, and how to realize the benefits from using it. The process must be perceived as appropriate and feasible for the HSO in terms of sophistication, complexity, and culture. The organization must be prepared to commit to the process and its outcomes. All involved must agree to take it seriously and implement those strategies and decisions that result from the process.

The person in charge should explore several different approaches or invite several con- sultants who specialize in this area to discuss their approaches. In fact, hiring a consultant to help in doing planning the first time can be prudent. Ceding this control (and worry) frees managers and executives to participate in the process. Furthermore, a consultant can control the quality of the discussion and strategic ideas that are proposed, as well as ensure that real data and analyses are used as much as possible rather than opinions and conjecture. Finally, a consultant can act as facilitator to make sure that all voices are heard, not just one or two people who might dominate discussions. A neutral facilitator is more likely to ensure that people are not just saying what they think the CEO wants to hear, which is a major problem in many organizations. Ideally, a consultant should be trusted and one with whom the CEO is comfortable—someone who can do a good job of guiding participants in a strategy formulation process that is the best fit for the organization. An effective consultant should deliver benefits to the process that outweigh the fees charged.

A Suggested Strategy Formulation Approach

The following approach would work with HSOs of almost any size. It is generic and can be tailored to fit a particular organization. The process has 10 basic steps; some of them could be broken down into substeps (see Figure 9.4). Perhaps the most crucial planning element is to involve the right people, particularly those who will be called upon to implement the plan. Depending upon their experience, background, and role in the organization,

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

people going through the same pro- cess of strategy formulation will make completely different decisions and achieve completely different results. It is crucial, therefore, to con- sider carefully who is involved in the process. As has been discussed, it would limit the effectiveness of the process and of implementation to restrict the planning group to just the top management. Managers two or three levels down from top man- agement should also be included. If this yields a number that becomes unwieldy for simple meetings, it may be necessary to limit the number that participate or cascade the meetings from one level to the next to accommodate everyone. What is crucial is to obtain as many different perspectives in the planning process as possible and involve the people who will be implementing the strategies. The value of a professional facilitator becomes more pro- nounced when there is a large group of people involved in the process.

Strategy planning is only meaningful if the organization fully intends to implement the decisions taken. A common waste of time and money is for an HSO to bear the cost of top managers meeting at a retreat, sometimes with an expensive facilitator, making impor- tant decisions that lack follow-up. The result is business as usual. One can only conjec- ture some possible reasons for why this happens. Perhaps “going through the motions” of strategy formulation soothes some executives’ consciences. Perhaps they believe that “doing the planning” is all there is to it—a belief that no one has bothered to correct for them. Perhaps it is the amenities at the resort where the retreat is held that has their real interest. However, it is a waste of time to simply go through the motions, so a commitment to the process and implementation are requisite elements.

There are a few key strategic decisions to be made or at least revisited. The first is to confirm a commitment to a vision to which the organization aspires. The outcome of the process is deciding on the best strategic alternatives in the circumstances. That may even happen to be what the HSO is currently doing. After that, overall organization-wide objec- tives are set. Finally, major programs that are to be implemented and resource allocations are developed in detail.

Follow through is much more likely if the participants see these decisions as being the best that could be made, that they are feasible yet challenging to achieve, that some urgency attaches to getting them implemented, and that they would result in a stronger and more competitive organization. Focusing on a small set of objectives increases the chances of them being attained and lessens the likelihood of conflict between objectives that might occur with a larger number. A limited set of objectives would also help focus the organiza- tion. The Delphi approach, discussed in Chapter 3, is a useful method for narrowing the number of objectives.

The following description of each step in the process shown in Figure 9.4 includes some pointers for making the whole process successful.

Strategy formulation involves confirming a commitment to a vision to which the organization aspires.

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

Figure 9.4: A suggested strategy formulation process

Abraham, S. C. (2006). Strategic planning: A practical guide for competitive success. Miami, OH: Thomson South-Western (Cengage), p. 157.

This is a generic 10-step planning process that can be tailored to fit a particular organization.

Situation Analysis (a) Certain key categories of data need to be collected in this initial research step. Any time that data are gathered, it is best to obtain a copy of the source document or at least a com- plete citation of the source. It should be self-evident that it is best to get the most recent data possible. If forecasts can be obtained, the source should be recorded, because it has a huge bearing on the credibility of the forecast itself. Finally, key people in the HSO should be appointed to act as gatekeepers for particular categories of data, and everyone in the organization should know who they are. Everyone can then send items of information or

1. Situation Analysis (a)

Research done by various groups in the organization

2. Situation Analysis (b)

Critique and elaboration of research done

3. Synthesis

Identify key strategic issues for the organization

4. Create Strategic Alternatives

Must meet the four criteria

5. Choose the Best Strategic Alternatives

Perform criteria-based analysis and argue for the best alternatives

6. Set Organization- Wide Objectives

Choose ones to commit to

7. Design Major Programs and Contingencies

10. Assess the Process

Implement the Plans and Monitor Progress

8. Operational Planning

Prepare detailed operational objectives, plans, and budgets

by organizational unit

9. Final Check

Ensure that the detailed plans will achieve the strategic objectives

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

leads about a particular category to these gatekeepers. If done throughout the year, this first step is not needed; otherwise, one must allow sufficient time to collect and analyze the data and prepare useful summaries. Every month, these gatekeepers should summa- rize and make sense of the data collected to date, which is then sent to everyone on the planning team.

Substantial preparation should be done for each step. Research and data collection must be based on fact or analysis, not on opinion. Where data cannot be obtained, for example, on competitors that are privately held, make assumptions and move on. Paying for critical data such as economic forecasts or competitive intelligence may be worth considering as it could be an investment. Also consider adding a health economist or health policy special- ist to the organization’s permanent staff if it turns out to be cost effective.

Situation Analysis (b) Each gatekeeper should make a summary presentation of what is going on in his or her particular category. Such presentations should be based on the data collected and ana- lyzed during the previous 12 months and should include numbers, trends, graphs, and sources wherever possible. The gatekeeper should interpret all the data and conclude with the most significant and relevant facts and trends that will affect the organization. This is one way of educating the planning team about changes and implications arising in that particular category. The presenters should encourage questions in order for com- plex issues or trends to be understood or challenged. This process should appeal to HSOs that like structure. An alternative to this process is a series of strategic conversations, dis- cussed in Chapter 2.

Synthesis This step allows the participants to list all critical uncertainties, that is, the key strategic issues that could have a positive or negative impact on the organization. “Critical” means those issues that must be addressed in the ensuing strategic plan. Everyone’s suggestions should be solicited first before combining or eliminating any issue.

Create the Strategic Alternatives This is a creative activity well suited to an extremely diverse group of people. Ideally, it would include representatives from different functional areas and levels of the HSO, with very different business and healthcare backgrounds, newer members of the organization, and seasoned veterans. Starting with the list of strategic alternatives and working in small groups, each group should come up with its version of alternatives and check to see that they meet all four criteria described in Chapter 7.

When the small groups have designed the proposed alternatives, these can be assessed and debated by the entire planning assemblage. The idea is to synthesize the efforts of the various subgroups into a final grouping of three or four really good strategies that meet the HSO’s criteria. Experience has shown that doing this step well always takes longer than expected. One idea to force an intelligent critique of the alternatives involves exam- ining what could go wrong. Assign a subgroup to tackle each alternative bundle, and instruct them to come up with all the reasons they possibly can as to why that alternative

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

would not work. It is amazing how this extra step adds a humiliating dose of reality to the process, can result in important modifications to the alternative in question, and can even cause one alternative that was going to be considered by the group to be discarded.

Choose the Best Strategic Alternatives Select a subset of five to six relevant criteria and evaluate each strategy according to each criterion. The entire group of participants should reach consensus that whichever strate- gic alternative is finally selected really is the best one in the circumstances and describe why. Ultimately, everyone should understand that this is how the organization will oper- ate over the next 3 to 5 years.

Set Organization-Wide Objectives As discussed earlier, this is a three-step process. Depending on the preferred key indicator, such as revenues, market share, and quality indicators, the organization needs simply to

answer the question “How far do we want to go this next year and in each of the next 2 years toward imple- menting the chosen strategies?” It will depend on the HSO’s current resources and those it could addi- tionally access, as well as the nature of the chosen strategies. In addition, it will depend on whether the com- petitive environment is becoming more difficult or any other threats are looming. Based on how the HSO has been doing in the recent past, the objectives should be set at a chal- lengingly high level while still being achievable. Most importantly, those who must be accountable for achiev- ing these objectives should agree to the level at which they are set, and that level should be challenging.

Of course, the model assumes a participative way of setting objectives; some CEOs still reserve the right to do this on their own. However, a wise CEO knows that when manag- ers charged with implementing a strategy set their own objectives, they are more likely to achieve them.

Design Major Programs and Contingencies Some of these major programs are included in the chosen strategies, while others may need to be added. It is this list of programs that will guide the creation of the operational plans. “Contingencies” here refer to the trigger–contingency pairs that were discussed in Chapter 7.

Andrew Baker/Ikon Images/Getty Images

Setting objectives is a team activity that requires an understanding of the competitive environment and other threats that may prevent the organization from achieving its intended strategy.

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CHAPTER 9Section 9.4 Controlling the Strategy Formulation Process

Operational Planning This is one of the more complex steps in the process because there are many ways to create operational plans. Given the organization-wide objectives and major programs already identified, the directors of functional units (e.g., patient care, finance, marketing) and other support units (e.g., ancillary services, materials, purchasing) take these as mandates to their respective staff and get them to generate detailed operational plans that would contribute to achieving the objectives and chosen strategies. At a minimum, these plans should include the following:

• A timeline of specific tasks the unit will undertake during the year • A proposed budget to accomplish them by task and month • Specific details as to who will be participating in these activities and, in particu-

lar, the person who will be responsible for each activity • A list of additional resources, human and material, that will be required to com-

plete the proposed tasks

Final Check Once the operational plans have been drafted, they should be reviewed by top manage- ment and/or the director of strategic planning to check their feasibility, verify that the requested budgets do not exceed available funds, and confirm that completing all the planned activities will, in fact, achieve the overall objectives for the organization. This mixture of top-down and bottom-up planning may have to endure one or more iterations before the operational plans and budgets are finally approved. For this reason, be sure to allow enough time to complete this process properly.

Assess the Process Those who participated in the strategy formulation process should be asked to complete a detailed questionnaire about how well it went and the quality of the decisions made. The following section discusses measures for improving the process.

Discussion Questions

1. You work for an HSO that has never done any structured strategy formulation. Describe the steps you would take to persuade the CEO that going to the trouble of putting a process in place would really benefit the organization.

2. In your opinion, what might be the most difficult part of the strategic planning process for an organization to develop competence in? Explain your answer.

3. If you had to choose from these two alternatives, which would you choose: good data but poor decision making, or untrustworthy data but good decision making? Why?

4. If an HSO did operational planning well but had no strategic direction, could it be success- ful? If it could, why bother doing strategy formulation?

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

9.5 Improving the Strategy Formulation Process Strategy formulation is, at its heart, a process for arriving at strategic decisions and achieving some purpose. However, unlike other healthcare pro- cesses, the output is not patients with improved health; it is nothing less than the future of the orga- nization. Assuming that improving the planning process will improve the quality of strategic deci- sion making in the future, it should be reviewed every year to see where improvements might be made. Such a review should include every aspect of the process—the quality and adequacy of the data and analyses, whether enough expertise was at hand or applied, the quality and extent of the discussions, the degree to which mental models were changed and unified, whether the key stra- tegic issues were properly identified and well understood, and so on.

Questions for Improving the Process

The following questions should help in assessing the process for formulating strategies and making improvements for the following year.

Situation Analysis 1. Were sufficient data collected for various parts of the situation analysis? If not,

which particular parts were shortchanged? 2. Was enough time allowed for data collection? Where would more time allowed

have been beneficial? 3. Was enough analysis performed on the data? If not, where would more analysis

have been beneficial? 4. Were credible sources used for data and forecasts? If not, for which kinds of data

were they not credible? 5. For those analyses that used subjective estimates, was there consensus as to

how those analyses turned out? Where particularly did the subjectivity affect the credibility of the analytic findings? Were the opinions of some people given undue weight over those of others?

6. Would the use of outside experts have improved any part of the situation analy- sis (e.g., having a health policy analyst talk to the managers about healthcare trends for the coming year)?

7. Did the participants in general understand the terms and terminology used in the situation analysis (e.g., core competence)? Were there any terms or concepts that caused confusion?

Sparky/The Image Bank/Getty Images

The person responsible for facilitating the strategy formulation process should distribute a questionnaire with a similar set of questions to all participants in the process. These responses should be analyzed and the results presented with constructive commentary.

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

Strategic Analysis 8. Were enough key strategic issues identified? If not, what might have been

added? 9. In hindsight, did the key issues identified really represent the most critical issues

facing the organization? If not, why not? Which ones were left out? Was the omission an oversight, or were some people afraid to articulate it?

10. Did the strategic issues reflect the kind of long-term strategic thinking that par- ticipants imagined should have occurred? If not, why not?

11. Were the strategic alternatives sufficiently creative and realistic? 12. When creating the strategic alternatives, were participants unduly influenced

by what the HSO is currently doing, by its current strategies, or by what partici- pants believed the CEO really wanted? If so, how could this be corrected in the future?

13. Did everyone who could have contributed usefully to the process of creating these alternative strategies actually do so? If not, how could this be corrected?

14. Were the criteria used to evaluate the alternative strategies reasonable for this organization? If not, which others should have been used?

15. Did the analysis that was used comparing the alternatives against the criteria produce a believable result? Why or why not?

16. Which of the alternative strategies might the organization have been advised to pursue other than the one chosen? Why? Was every point of view given fair consideration? If not, why not?

17. During the sessions choosing preferred strategies, were participants allowed ample opportunity to express their feelings, agreements, or misgivings? If not, why not?

Recommendations 18. Were the objectives that the organization decided on for the next year appropri-

ate and achievable? If not, why not? 19. Are the objectives for 3 years from now appropriate and reasonable? Are they

unattainable as stated, “stretch” objectives (challenging yet attainable), set with- out much careful thought (e.g., an extrapolation of last year’s), or set too low? Why or why not? What should they have been?

20. Are those who participated pleased and excited about the direction the organiza- tion is taking now as a result of the planning exercise? If not, why not?

Some General Questions 21. Did the whole process take too long? Why? Where could it have been shortened? 22. Did the process stick to the original schedule? If not, where did it deviate? Might

the schedule have been unrealistic? 23. If the process did not keep to the original schedule, were there any adverse

effects? 24. What lessons were learned about the process this year that might be put to good

use next year?

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

Benefiting From the Process

Benefits do not accrue automatically every time an organization engages in strategy formulation; they are more likely to be realized if they are consciously sought. Both strategy planners and the consultant facilitators advising them should strive to ensure that these benefits are realized. The extent to which they are realized, therefore, constitutes an excellent assessment.

The 10 benefits of effective strategy planning may also be viewed as criteria for assessing whether an organization is doing planning effectively. The 10 benefits are organized to follow the Association for Strategic Planning’s rubric of “Think—Plan—Act,” as shown in the following box.

Discussion Questions

1. Participating fully in strategy formulation is unquestionably a learning experience. Do you think that special training beforehand would make a difference? Why or why not?

2. If strategy planning participants are sent materials ahead of the process, what should the materials contain?

3. After a couple of annual iterations of improving the process, an observer might be forgiven for thinking that the process was good enough not to change any more. Give some reasons why that would be wrong.

4. Why is achieving consensus at the post-planning debriefing meeting advisable?

One benefit of effective strategic management is ensuring that all programs are aligned with the vision, strategy, and objectives of the organization.

25. Has the organization’s knowledge of strategic management increased? How do you know? If not, why not?

26. Was everyone who participated in the process substantially “on the same page,” or did the process conclude with a number of people in significant disagree- ment? If the latter, how might such disagreements be addressed more fully and resolved?

27. Overall, is the HSO better off for having been through this strategy planning exercise? Why or why not?

The person responsible for the strategy planning process should distribute a question- naire with the preceding questions (or a similar set) to all participants in the process. The responses should be analyzed and the results presented with constructive commentary and suggestions for what should be changed the following year. The analysis and sug- gestions for change should be discussed at the meeting and consensus sought as to which changes should be implemented. Unless such a debriefing takes place, changes made to the process might be resented; in addition, it serves an educational purpose.

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

The 10 Benefits of Effective Strategy Planning

Think 1. A shared understanding of external changes 2. The ability to anticipate future external changes 3. The ability to search for a better strategy or business model

Plan 4. Having a strategic vision 5. Choosing the best strategy from among viable alternatives 6. A constantly improving strategy formulation process 7. Having the board of directors on the same page

Act 8. Becoming a stronger competitor 9. Having an adaptive, innovative culture

10. Having all programs aligned with the vision, strategy, and organizational objectives

Adapted from: Abraham, S. (2010, February 23). Ten benefits of effective strategic planning—and why you should want them all. Presentation at the 2010 ASP National Conference, Pasadena, CA.

1. A Shared Understanding of External Changes To use a military analogy, just as conflicting accounts about an enemy’s strength, position, and deployment make it difficult to devise a winning strategy, so too does the absence of a shared understanding of external changes and their impacts on the organization make the crafting of a winning strategy extremely difficult. Because changes occur continuously, the only way to keep up with them and even anticipate some is to monitor them year round and keep the strategy planning group and board of directors informed as to key changes and developments in all areas. One person should be responsible for each area and be trained to collect and summarize data in useful form. A summary for the year with emphasis on recent trends should be prepared in advance of the annual planning meet- ings and be distributed to participants. To the extent this is done well, the organization’s decision making will improve.

2. The Ability to Anticipate Future External Changes A number of well-known techniques enable an organization to explore “soft” assump- tions about the future and provide additional options for planning. These include sce- nario planning, forecasts, and simulations (see Chapter 3). It may be that the HSO would be advised to engage a consultant who specializes in one of these areas or pay attention to forecasts that have earned a good reputation over time. Expressed another way, the ben- efit here is that the resulting information can guide the HSO toward actions that enable a preferred scenario to occur or develop a contingency in case a hoped-for scenario does not occur.

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

3. The Ability to Search for a Better Strategy or Business Model By participating in a formal planning process, an HSO can realize the full value of strategy management. How else will an HSO find a “blue ocean” or situational monopoly with no competition? How else can it guard against being disrupted by an organization outside the industry or even plan a disruption itself in a proactive move? How else can it gain a competitive advantage it lacks or strengthen one it already has?

For every different strategy and business model contemplated, someone in the organiza- tion should assess its costs, feasibility, benefits, and risks on an ongoing basis. The results of such assessments play directly into the strategic decision-making process. Except when the HSO needs to act immediately because a decision is imperative, the information can wait until the annual strategic planning process comes around.

4. Having a Strategic Vision Every organization that wants to endure should have a strategic direction and strive to become something. Succeeding is more likely if there is a clear vision and if everyone knows what it is and is motivated to help the organization get there. Visions should be realistic (achievable within a set time frame—5 or 10 years is typical), concise, inspira- tional, and memorable. They sometimes include a value statement, although listing val- ues separately is more common (see Chapter 2).

The real benefit of a clear vision statement is to get everyone in the organization on board and wanting to achieve it, and, though cumbersome, everyone in the organization should also have had a hand in creating it or at least providing feedback before it is adopted. As soon as the organization is close to achieving its vision, it should be changed, with the organization being careful to go through the same process of getting buy-in from every- one before adoption.

5. Choosing the Best Strategy From Among Viable Alternatives Systematically choosing from the best options available is a benefit, as it allows people to trust the decision that was made and have faith in the direction in which the organization is headed. This is beneficial only if strategy formulation generates good viable alternatives and uses a structured decision-making process for selecting the best one.

Having selected the “best strategy” doesn’t guarantee success. It must be well executed for the HSO to succeed. It is much easier to “sell” the strategy down the line in an orga- nization and motivate a high level of execution if people know why it is the best from among the options considered.

6. A Constantly Improving Strategy Formulation Process The benefit of improving the process should be clear: better strategic decision making. This might entail involving different people, getting better information, stimulating more spirited discussions and encouraging diverse views, or even using computer software to include inputs from everyone quickly (Warden & Russell, 2001). Without thoughtful annual improvements, an organization’s strategy formulation can become a rote exercise that is taken ever less seriously and one that participants, for those very reasons, resist wanting to join in.

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

7. Having the Board of Directors on the Same Page For public organizations and nonprofits—and quite a few but not all privately held HSOs—it is imperative to ensure that the board of directors approves of all strategic decisions before any move to implement them is made. In fact, there are instances where the strategic decision comes from the board, as in turning down a joint venture oppor- tunity or deciding to acquire another organization. In the typical case, where strategic planning is done by a top-management or planning team, there has to be some mecha- nism for the board to be kept apprised of the process. In a 2005 survey of more than 1,000 directors, management consulting firm McKinsey & Co. found that agreement between the board and the CEO on strategy was considered the primary reason for success, as well as the primary reason for failure in CEO appointments (Felton & Fritz, 2005). In some organizations, the CEO is also chairperson of the board and so automatically serves as the desired link.

Boards of directors may have a strategic management committee whose chair attends the meetings of the planning group and keeps the board informed. The benefit, of course, is knowing that the strategic decisions made are in the best interests of the stockholders, in the case of a public HSO, or the sponsors and consumers in the case of a nonprofit orga- nization. Ultimately, it is the board that has responsibility for the strategic direction of the organization.

8. Becoming a Stronger Competitor If planning is done well and the strat- egy properly executed, then the orga- nization will thrive. This, of course, is the principal benefit for doing plan- ning in the first place. Many factors have to contribute for this benefit to be realized. For example:

• Knowing how the health- care industry and markets are changing

• Anticipating and meeting consumers’ needs

• Getting more consumers to use your services

• Developing or strengthening a core competence

• Knowing what your com- petitors are up to and outdoing them

• Defending one’s position against attack from competitors • Looking for “blue oceans” or monopolies with no competitors • Looking for new service opportunities before someone else does • Maintaining a strong quality reputation and being true to it

A healthcare organization’s ability to thrive depends partly on how well it anticipates and meets consumer needs.

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CHAPTER 9Section 9.5 Improving the Strategy Formulation Process

Management knows that the organization is successful if it achieves gains in revenues and market share, maintains its reputation for high quality and consumer satisfaction, or achieves other established measures of success the organization holds dear.

9. Having an Adaptive, Innovative Culture When an HSO has been following the same strategy for some time, the culture adapts to that strategy and gets it to work. However, if some major change is deemed necessary, such as pursuing a new strategy or adopting a new healthcare delivery model, and the culture remains what it always was, then the change will not succeed. A mismatched cul- ture is one of the principal reasons why changes and new strategies fail, and it is widely acknowledged that it is difficult to change a culture. The reason is that change imposed from the top meets a lot of resistance.

An adaptive culture is one that is willing to change if the reason for doing so makes sense. It is a culture that values open communication, education, teamwork, and individual ini- tiative. Organizations that have adaptive cultures make the necessary changes over time and succeed. An innovative culture does not simply encourage innovation and new ideas and look for the next “big thing.” It also puts a high value on learning from mistakes and giving people permission to make mistakes. Innovative cultures encourage the sharing of experiences and developing of ideas no matter their source.

It would be difficult to make strategic decisions and implement them if the culture were not adaptive and innovative. The converse, of course, is also true. Making good strategic decisions that call for change and smooth execution will force the culture to be adaptive and innovative. Hiring people with similar traits will ensure that this desirable culture endures.

10. Having All Programs Aligned With the Vision, Strategy, and Organizational Objectives

The importance of aligning everything the organization does with its vision, strategy, and organization-wide objectives was discussed in the context of operational and bud- get planning (see Chapter 8). The benefit is the assurance of knowing that completing all programs, projects, and activities as planned will result in the strategy being imple- mented and the vision and organization-wide objectives being fully realized (barring unforeseen circumstances).

In too many organizations, what employees in the different functional areas and opera- tional units actually do has little to do with the strategy that is in place, because little or no effort was expended to make sure that the two were aligned. As a result, the strategy fails or “business as usual” triumphs. When operational planning is done, critical elements include performance measures (to track progress), appropriate training, and reward and incentive systems.

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CHAPTER 9Summary & Resources

Discussion Questions

1. Of the 10 benefits discussed in this section, which of them, in your opinion, are most often unrealized and why?

2. Which of these benefits, again in your opinion, are most difficult to realize and why? 3. Do you believe that there are any benefits that HSOs are less interested in realizing and so

probably won’t?

Summary & Resources

Chapter Summary

• Some organizations do not create operational plans, as these would consist of just doing whatever the HSO is already doing. For many organizations, however, change is constant and the push to become a stronger competitor and reduce costs is never ending.

• Creating operational plans involves difficult choices; the plan must get the job done, be within the organization’s technical and capacity means to do, and be done for the lowest cost within the allocated budget. Operational plans include projects and activities the organization is currently doing as well as new ones and changes in the way current activities are being done. The plan for each project should include start and end dates, equipment needed or used, people involved, who is accountable, and estimated costs for all elements by month.

• It is conventional wisdom that nothing gets managed or improved that is not measured. Tracking progress of all operational plans is therefore critical to keep them “on track and on budget.” For specific projects, software such as Gantt charts and PERT networks can be used to continually monitor progress.

• Care needs to be exercised to make sure that the right things are being measured. If a better-trained workforce is a goal, knowing how many lectures or workshops are given and how many people attended will not help; a way has to be found for measuring increased effectiveness or capabilities resulting from the training.

• Managers meet face to face with their direct reports regularly to discuss nega- tive variances that have resulted from the previous month’s operations. Negative variances include projects that missed their deadlines, have a higher probability of missing them, or exceeded their budgets. The meetings are vital for managers to understand the causes for such variances and discuss possible solutions. In addition, such meetings are an opportunity to strengthen relationships and help managers understand their direct reports better.

• Operational management variances must be identified and then corrected as soon as possible. After having met with all direct reports, the manager later takes on the role of direct report when a similar meeting is held with his or her supervi- sor. Strategic management involves getting things done (right) through people, and such meetings are a critical part of a manager’s job.

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CHAPTER 9Summary & Resources

• While executing a strategy, changes may result in activities being done or opportu- nities pursued that, in retrospect, bear little resemblance to the original “intended” strategy. Such new activities could form an “emergent strategy,” first described by Henry Mintzberg, and, together with the strategy being implemented (“delib- erate” strategy), could turn into the final “realized strategy.” When intended or deliberate strategies fail, they are considered “unrealized.” Agile or adaptive cul- tures are best able to handle such real ongoing changes in stride.

• Although not an operational plan per se, the strategy planning process must nev- ertheless be managed, especially as it is done in addition to managers’ regular responsibilities. Strategy planning is the responsibility of the CEO or possibly a designated vice president, even though a consultant might facilitate the process. The person responsible for the planning process should survey all participants, analyze the responses, and report to a debriefing meeting to discuss proposed improvements. A consensus on the proposed improvements should be obtained before implementing the changes for the following year.

Web Resources http://www.beckershospitalreview.com/strategic-planning On this site you’ll find short articles on strategic and operational planning in hospitals.

http://www.ibrd.gov.nl.ca/regionaldev/CCB/StratPlan/CCB_StratPlanFacilitator Guide.pdf On this website, you’ll find the Strategic Planning Facilitator Guide developed by the Department of Innovation, Newfoundland and Labrador (Canada). The approach can be adopted for use in HSOs.

http://www.makeuseof.com/tag/build-mind-map-microsoft-word/ This website enables you to build a mind map in Microsoft Word.

http://statehieresources.org/state-plans/ This website contains a list of strategic and operational plans for health information exchanges in various states.

Key Terms control system A mechanism that allows management to compare actual perfor- mance to an expectation, measure the vari- ance, take action to reduce the variance, reset or update, and test again. Corrective action should be taken as soon as it is found necessary.

deliberate strategy The intended strategy, operationalized and executed.

emergent strategy A strategy the organi- zation pursues during implementation that was never a part of the intended strategy.

Gantt chart A type of bar chart that depicts a project schedule, including the start and finish dates of various project elements.

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http://www.beckershospitalreview.com/strategic-planning

http://www.ibrd.gov.nl.ca/regionaldev/CCB/StratPlan/CCB_StratPlanFacilitatorGuide.pdf

http://www.makeuseof.com/tag/build-mind-map-microsoft-word/

http://statehieresources.org/state-plans/

CHAPTER 9Summary & Resources

negative variance An instance where a project’s progress is delayed and could miss a deadline, or where its budget has been exceeded, or where performance comes up short of a quantitative standard or expectation.

realized strategy A combination of delib- erate and emergent strategies.

unrealized strategy A failed strategy.

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