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12 Implementation, Evaluation, and Control
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It is a bad plan that admits of no modification. —Publilius Syrus
Maxim 469
Learning Objectives
After reading this chapter, you should be able to do the following:
• List the four types of implementation skills that are necessary to successfully translate a strategic goal into implemented activities.
• Identify six forces that can affect or cause resistance to change and innovation in a healthcare setting.
• Explain the roles played by people, systems, corporate cultures, and organizational structures in success- fully organizing for the implementation of an organization’s strategy.
• Describe the relationship between planning and control in the planning process.
• Discuss the use of the balanced scorecard approach to performance evaluation, and identify the four key control areas for performance evaluation.
Section 12.1Implementation
Introduction This chapter focuses on the processes for creating and evaluating the activities that are necessary to implement both the strategic and marketing plans. Through the implementa- tion process, employees are assigned tasks and given the authority and resources needed to create the activities that bring the plans to life. Plans are written documents that specify what the organization wants to accomplish in the future; the tasks carried out by the orga- nization’s managers and staff turn those plans into reality. The evaluation and control of the plans involve determining whether objectives are being accomplished and taking the actions needed to align results with objectives. Evaluation involves comparing actual results to objec- tives and analyzing differences. Control refers to decisions or actions taken by management to bring results into alignment with objectives.
12.1 Implementation A classic Harvard Business Review article carried the title “Hustle as Strategy”—the point being that more is gained from a good strategy with great implementation than from a great strategy with good implementation (Bhide, 1986). “Hustle,” or implementation, can make or break a company in many marketing situations. The firm that achieves excellence in the skills needed for implementing a marketing plan may be achieving a competitive advantage that perhaps has eluded it in the strategy development stage of the planning process. However, excellent implementation of a poorly conceived strategy is akin to great advertising of a ter- rible product—the disaster occurs much sooner than if the excellence was not there! Thus, successful organizations have found ways to be good at both the development and implemen- tation of marketing plans.
Implementation Skills To this point of the textbook, the emphasis has been on developing plans that focus on deliv- ering patient value at a competitive advantage. The goal is the desire to consider the impact of actions on the long-term as well as the short-term welfare of patients and society at large. From an implementation perspective, the trick is to accomplish this feat by translating our strategy into a series of assigned activities in such a way that everyone can see their job as a set of value-added actions. These actions should be seen as contributive to the organization, by the people assigned those tasks, because they ultimately result in greater value being deliv- ered to the patient. Thomas Bonoma (1985) has suggested four types of implementation skills that must be used to successfully translate a strategic goal into implemented activities:
• Allocating skills are used by managers to assign resources (for example, money, effort, personnel) to the programs, functions, and policies needed to put the strat- egy into action. For example, allocating funds for special-event marketing programs or setting a policy of when to voluntarily recall a defective product are issues that require managers to exhibit allocating skills.
• Monitoring skills are used by managers who must evaluate the results of activities. • Organizing skills are used by managers to develop the structures and coordination
mechanisms needed to put plans to work. Understanding informal dynamics as well as formal organization structure is needed here.
Section 12.1Implementation
• Interacting skills are used by managers to achieve goals by influencing the behav- ior of others. The motivation of people who are internal as well as external to the company—community, third-party payers, advertising agencies, and so forth—is a necessary prerequisite to fulfilling objectives.
Figure 12.1 continues the example begun in Figure 7.2 by showing how a pharmaceutical com- pany might have used these four skills to implement the strategy and objectives formulated at the corporate, strategic business unit, and product-market levels of planning. Note that, in this example, there is a consistency between every level and every action taken with respect to the various manifestations of strategy and tactics. Contemporary marketing managers, perhaps unlike their predecessors, would find it important to tell the revenue force and external agents why these assignments were being made and not just what and how much to do.
Figure 12.1: Eli Lilly Pharmaceutical Company
Each of the four types of implementation skills should be used to ensure a strategic goal is successfully implemented.
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Corporate Level
Objective: Maintain product leadership in each market we enter. Strategy: Adapt a product leadership value discipline.
Strategy Business Unit Level
Objective: Maintain a market share of the nonnarcotic analgesic market of 80% plus for the next five years. Strategy: Introduce new products to take place of high-revenue- producing products when they lose patent protection.
Product Market Level
Objective: Call on physicians to detail Darvocet as a more advanced analgesic than Darvon with more efficacy and fewer side effects; call on pharmacists to leave order blanks for Darvon at sales prices. Strategy: Product line extension and aggressive pricing.
Allocating
Assigning to sales force the targeted number and types of MDs and pharmacists to receive a sales call during a specified period of time.
Budgeting of funds to cover expenses such as advertising, selling, and direct mail.
Monitoring
Annual plan controls will monitor sales to make sure total sales objectives are achieved as well as percent of sales to old vs. new product, sales calls to MDs and pharmacists to ensure that the correct price for old and new products are printed, and that “sale” announcements are received by pharmacists at speci- fied time.
Profitability controls by type of MDs, chain vs. independent pharmacies, etc.
Organizing
Ensuring that existing market organization structure aids in the execution of the specified strategy and tactics.
Interacting
Motivating sales force to devote the effort necessary to make the number of calls needed to fulfill strategic plan.
Providing sales force with information and material needed to change MDs’ prescribing habits toward new product and obtain orders from pharmacies for both old and new product. Working with ad agency in preparation of promotional materials.
(For an interesting example, see “Marion Labs Succeeds with Different Approach,” The Wall Street Journal, August 31, 1987.)
Source: Loudon, D., Stevens, R., & Wrenn, B. (2005). Marketing management: Text and Cases. The Hawthorne Press, Inc., p. 183.
Section 12.1Implementation
Internal Implementation Issues Chronologically, strategy development precedes implementation. Conceptually, both should occur simultaneously. That is, strategy, when it is conceived, should be thought through to the point of implementation. Otherwise, strategic plans and goals might be impractical, or at least inefficient, requiring far more resources than might have been the case if some thought had been given to implementation issues when the strategy was devised.
One of the most important considerations when implementing plans is to foster ownership of the process (Third Sector Strategy, 2013). Several resources can be used by management to foster ownership of a plan, including the following:
1. Detailed action plans—One effective way of getting key people to own the strategy is to develop a detailed plan for implementing the strategy. Such a plan sets respon- sibilities for specific actions for individuals, and includes a measure and time frame for the action. For example, a strategy to add a direct sales program to a channel that previously used only retailers would specify a number of actions and responsibilities. One action might be for the hospital to secure a list of 3,000 previous patients’ names and addresses from the database within the next three days. By specifying what actions specific individuals will be accountable for, management can ensure that plan ownership has been achieved. Those activities required for the plan’s successful implementation will be assigned and thus will not go wanting because no one took responsibility for them. An example of an action plan was provided in Table 11.2.
2. Champion and ownership team—Champions are individuals who see their over- all responsibility as the successful implementation of the marketing strategy and marketing plan. Better yet is a team of people, with different expertise areas, who can make sure that the assigned responsibilities are fulfilled within their spheres (Narayanan, 2010).
3. Compensation—Another means of ensuring ownership of a plan is to tie people’s compensation to the performance of those actions involved in the plan’s implemen- tation. These performance measures can be results oriented for internal revenue and profit measures as well as external market numbers, such as referrals, market share, brand awareness, percent of patients who would recommend the clinic, and so forth (Meehan, 2010).
4. Management involvement—Top managers must sustain a commitment to the plan and review its implementation progress periodically. Other people involved in the plan’s implementation will look to management for cues on the interest and impor- tance placed in its implementation.
Obviously, managers must do a good job of internal marketing if plans are to be translated into successful implementation activities. Internal marketing refers to the managerial actions necessary to make all staff within the organization understand and accept their respective roles in implementing the chosen strategy. All staff means that everyone, from the receptionist to the president, must understand that what they do has an impact on the delivery of customer satisfaction via the implementation of the planned strategy. This requires everyone to under- stand and be committed to the underlying tenets of the marketing concept (see Chapter 7), which may mean that marketers devote time to employee training in, and employee sensitizing to, a customer philosophy. Thus, internal marketing necessitates segmenting groups of people within the organization; analyzing their needs, motives, objectives, and level of understanding
Section 12.2Resistance to Change
of marketing philosophy; devising specific training programs for each segment; carrying out the training and motivation; and then measuring the success of these programs.
While external marketing focuses on informing, persuading, and reminding external con- stituents about the HCO and its vision, services, and accomplishments, internal marketing addresses the knowledge, attitudes, and perspectives of the staff about the organization. Both internal and external marketing may have similar messages, but the goals of these programs are different. The staff needs to be knowledgeable and have positive attitudes toward the HCO because they are the interface between the HCO and its external stakeholders. What the staff project to these external stakeholders is an important part of the image that the stakeholders have of the HCO, and the trust they put in it.
12.2 Resistance to Change As noted throughout this textbook, healthcare is undergoing radical changes. While the pres- sure for change will continue, organizations often find that changing the ways employees and managers perform their duties is difficult. Employees often view change with suspicion, especially when they believe that any change implemented is unlikely to have the intended effect (Jones, Jimmieson, & Griffiths, 2005).
Resistance to change may also take place when an organization believes it is doing “well- enough.” For example, in 1995 the president of Cigna®’s individual health insurance division reported that while the unit was experiencing profitable earnings growth, it was lagging behind industry leaders. Moreover, the unit’s focus was out of alignment with Cigna’s stra- tegic direction. Clearly, change was called for. Yet there was strong resistance to any change because the unit was doing well-enough and had achieved its profitability by doing things that were “tried and true” (Quinn, 2004). This example shows that change in organizations, even when needed, can be difficult to implement.
In healthcare, several forces can affect or cause a resistance to change and innovation. Regina Herzlinger (2006) identifies six such forces: players, funding, policy, technology, customers, and accountability. Players, the first force, are powerful stakeholders that can help or hurt an HCO. Players often have different agendas, such as when insurers and medical service provid- ers dispute which patient treatments and services should receive payment.
A second force that affects change and innovation in healthcare is funding. The main prob- lem with funding is the long payback time for some healthcare innovations. For example, a venture capitalist that backs a new drug therapy may have to wait up to ten years to learn whether the FDA will even approve it for use. Additionally, in healthcare, the payback comes not from the consumer but a complex system of third-party payers, such as insurance compa- nies and the government.
A third force that can hamper change or force change not intended by the HCO is policy or regulation. An extensive network of regulations exists in all areas of healthcare. For exam- ple, recent regulations placed a moratorium on certain new specialty hospitals in the United States. Another example is the Affordable Care Act, which mandates insurance companies to provide specific benefits, such as birth control.
Section 12.3Organizing for Implementation
Competition in the technology sector also can lead to resistance to change. The adoption of a new technology will make the old technology obsolete. Advocates of the old technology may challenge the efficacy of the new methods. For example, new drugs for kidney disease have reduced the need for dialysis treatments.
Fifth, as noted in the subsection on social media in Chapter 11, customers are becom- ing increasingly informed and are more involved in their own healthcare. Empowered and engaged customers demand certain levels of care and can influence the allocation of research funds. Information obtained from the Internet results in customers adopting such alterna- tive medical practices as acupuncture and herbal remedies. Additionally, physicians are often opposed to direct-to-consumer advertising of pharmaceuticals because they feel pressure to prescribe an advertised drug rather than a more effective alternative (Silver, Stevens, & Loudon, 2009).
Finally, the pressure to enact change at HCOs is due to the accountability demanded by engaged consumers and third-party payers, which are increasingly under cost constraints. HCOs must change to become more accountable, but cosmetic change in order to please regu- latory bodies or consumer groups without improving patient outcomes will have a negative effect on organizations.
In summary, implementing changes within an organization is difficult even in the best of circumstances. People naturally resist change. In addition to this mind-set, which is com- mon to all organizations, change and innovation challenges in the healthcare industry are often external to the HCO. Understanding and managing these challenges is essential to an HCO’s success.
12.3 Organizing for Implementation In the past few decades, management theorists have increasingly turned their attention to the interactions of people, systems, corporate culture, and organizational structure as the key to understanding the successful implementation of an organization’s strategy. Each of these components will be discussed regarding their role as a contributor to the successful imple- mentation of an organization’s strategy.
People Success within organizations does not come from everyone doing their best, but rather from everyone doing their best, at an assigned role, to achieve an objective everyone understands and works to achieve. Managers need to gain the cooperation of involved parties to success- fully achieve the implementation of marketing strategies. One study revealed that the imple- mentation process was improved if the manager seeking change adhered to the following advice (Stanleigh, 2013):
1. Simplify performance measures—Do not try to measure everything. 2. Measure the right things—Measure performance output, not just activity.
Section 12.3Organizing for Implementation
3. Eliminate silo thinking—Use teams and share what works among departments to get everyone involved.
This approach is more effective than implementation by edict, persuasion, or more demo- cratic and participative approaches. By using this approach, the manager unfreezes old beliefs, norms, attitudes, and behaviors and engages in the supervision of the change process.
An experienced HCO manager can identify subordinates with a superior ability to accomplish assigned tasks. These people usually receive the assignments most demanding and critical to the implementation process. Taken to the extreme, however, this approach of “giving the busy person the job you need done well” may overburden even the most competent subordinate, or executive. Establishing systems that allow senior management to review assigned tasks and responsibilities for the implementation of a program can ensure that bottlenecks are not created by making too many demands on talented executives.
Systems A number of systems are relevant to the implementation of strategies. A system is a set of interrelated activities relating to some function in an organization. Among these are account- ing and budgeting systems, information systems, and measurement and reward systems. The system most directly involved in the implementation of plans is the project planning system, which involves the scheduling of specific tasks for carrying out a project, such as opening a new wing in a hospital. Two of the better known project plan-implementation tools are the program evaluation review technique (PERT) and the critical path method (CPM) (CPM- Scheduling, 2013).
Using CPM in the implementation of a strategy requires the completion of the following steps:
1. Specific activities and sequences must be identified in the strategy. 2. Specific dates for completion and review points for progress are identified. 3. Specific individuals are assigned responsibility for completion of each task.
To achieve success with the use of CPM, managers must foster ownership of the process by means previously outlined in this chapter (that is, detailed action plans, a champion and own- ership team, compensation, and management involvement).
Mapping out the activities, sequencing, and determining the time required to execute the actions makes it possible to identify the “critical path”—the sequence that will take the longest time to complete. Although other paths will have some slack time and delays, these will not add to the overall time of the project. If everyone understands the critical nature of perform- ing his or her task, within the allotted time, the process can become self-managing. Everyone is dependent on one another for performing their tasks in sequence in a timely fashion, and peer pressure prevents procrastination.
A competitive advantage can be obtained in certain markets by reducing the time it takes to implement a strategy. Firms such as Toyota®, Hitachi, Honda, Sharp, Benetton, The Limited, FedEx®, and Domino’s® Pizza have gained a competitive advantage in their markets by greatly decreasing the time it takes to perform key implementation activities.
Section 12.3Organizing for Implementation
Corporate Culture Organizational or corporate culture is the pattern of role-related beliefs, values, and expec- tations that are shared by the members of an organization. It is a social control system with norms as behavioral guides. Rules and norms for behavior within an organization are derived from these beliefs, values, and expectations. Norms of behavior can actually exert more con- trol over employee behavior than a set of objectives or sanctions, which people can some- times ignore, because norms are based on a commitment to shared values. For instance, if an employee goes to heroic lengths to satisfy the needs of a patient, such behavior is seen as laudable by management and peers because it is consistent with the shared values of the organization’s employees. Norms can also work to discourage sloppy work, which would vio- late a set of shared values of excellence held by employees. Jim Collins (1995), coauthor of Built to Last, describes “cult-like” cultures as one of the traits of visionary companies. Vision- ary companies tend to be cult-like with respect to core ideologies, not charismatic individuals. According to Collins (1995), such companies translate their ideologies into tangible mecha- nisms that are aligned to send a consistent set of reinforcing signals by indoctrinating their employees, and imposing a tightness of fit to create a sense of belonging to something special. Collins (1995) suggests that visionary companies adhere to or use the following practices to sustain their core ideologies:
• Hiring – Tight screening processes during hiring and for the first few years – Rigorous up-through-the-ranks policies—hiring young, promoting from within,
and shaping an employee’s mind-set from a young age • Training
– Developing internal “universities” and training centers – Training programs that convey not only practical content but also teach ideologi-
cal values, norms, history, and tradition – On-the-job socialization with peers and immediate supervisors – Using unique language and terminology (such as Disney’s “cast members,” and
Motorola’s “Motorolans”) – Corporate songs, cheers, affirmations, or pledges that reinforce psychological
commitment and a sense of belonging to a special, elite group • Reward
– Incentive and advancement criteria explicitly linked to corporate ideology “buy- in” mechanisms (financial, time investment)
– Celebrations that reinforce successes, belonging, and specialness – Awards, contests, and public recognition that reward those who display great
effort consistent with the ideology; severe tangible and visible penalties or termi- nation for breaching the ideology
• Operations – Facility layouts that reinforce norms and ideals
The successful nurturing of a corporate culture, as embodied by such visionary companies, results in a governance of behavior that is sometimes described as a clan system. A clan sys- tem, using norms, exercises control over employees by socializing individuals into an infor- mal social system that stresses teamwork rather than strict adherence to a set of bureaucratic rules and regulations. If a corporation’s ideology, which has internalized by the employee
Section 12.3Organizing for Implementation
through indoctrination (see the preceding core ideologies list), stresses customer service as a shared value, then the clan system operates to reinforce that value. A clan system can aid in improving the implementation of strategies in the following ways (Swallow, n.d.):
1. Employees share the goals and beliefs of the organization, resulting in less conflict. 2. Clan members support one another because they believe that their self-interest is
best served through their cooperation as teammates. 3. Costs associated with formalized control methods are reduced because of the
increase in commitment and the reduction of politics and conflict associated with implementation activities.
Structure When preparing an organization for the implementation of strategies, managers must build an internal structure capable of carrying out the strategic plans. Changes in an organization’s strategy initiate new administrative problems which, in turn, require changes in the new strategy if it is to be successfully implemented. Alfred Chandler’s study of 70 large corpora- tions revealed this pattern: new strategy creation; emergence of new administrative prob- lems; a decline in profitability and performance; a shift to a more appropriate organizational structure; and then recovery to more profitable levels and improved strategy execution (Far- rell, 2007).
The axiom that structure follows strategy is well ingrained as a corporate heuristic. However, if an organization’s current structure is so out of line with a particular strategy that it would be thrown into total turmoil to implement the strategy, then the strategy is neither practical nor realistic for that firm. Therefore structure, to some degree, does influence the choice of strategy. However, structure should generally be of service to strategy, acting as a means of aiding people to pull together in carrying out their tasks toward implementation.
Organizational structure can refer to either formal or informal structure. The formal struc- ture can be seen on an organization chart. The informal organizational structure refers to the social relations among the organizational members. Wise managers take both the for- mal and informal structures into account when planning strategy implementation. A strategy that requires the ability to make fast reactions to a changing market might be inhibited by a structure with multiple layers of management whose approval is required before changes can be made. For example, General Electric (GE®) found that it needed to eliminate several echelons of management and reorganize 15 businesses into three areas in order to make fast responses to environmental change.
Decisions must be made regarding which management levels and specific personnel will be responsible for carrying out the various tasks involved in the implementation of strategy. Sometimes top management will need to be involved. Other times it is just a middle man- agement issue. Finally, informal organizational structure can be used to facilitate the imple- mentation tasks. For example, in some HCOs, managers confer regularly on implementation issues. This type of informal network can be helpful in encouraging the adoption of changes in implementation tasks.
Section 12.3Organizing for Implementation
Types of Organizational Structures Organization structure refers to how people and functions are arranged within a company. Five strategy-related approaches to organizational structure can be used to structure func- tions for implementation purposes: functional, geographic, divisional, strategic business units, and matrix.
Functional Organizational growth usually includes the development of several products and markets, resulting in structural change reflecting greater specialization in functional business areas. These structures tend to be effective when key tasks revolve around well-defined skills and areas of specialization. Performance of such functional-area activities can enhance operational efficiency and build distinctive competence. Companies that are a single-busi- ness, dominant-product type of enterprise or vertically integrated usually adopt this type of structural design. In different types of organizations, such functional structures might appear as follows in business firms: R&D, production, marketing, finance, and human resources; in municipal governments: fire, public safety, health, water and sewer, parks and recreation, and education; in universities: academic affairs, student services, alumni rela- tions, athletics, buildings and grounds, and so on. In a hospital, the functional structure would usually include a board of directors, a hospital administrator and chief of medical staff, a chief financial officer, a chief information officer, a chief nursing officer, and a chief operating officer.
Whatever the configuration, the disadvantages of this structural form center on obtaining good strategic coordination across the functional units. Thinking like a marketer, accountant, or engineer may, in many ways, be a good thing because an organization might need high levels of expertise in such fields. However, such tunnel vision can penalize a general manager seeking to resolve cross-functional differences, joint cooperation, and open communication lines between functional areas. In addition, functional structures are not usually conducive to entrepreneurial creativity, rapid adjustments to market or technology change, and radical departures from conventional business boundaries.
Geographic Organizations that need to tailor strategies for the particular needs of different geographical areas might adopt a geographic structure. The advantages of this structural form include the delegation of profit/loss responsibility to the lowest strategic level, the improvement of functional coordination within the target geographic market, and the opportunity to take advantage of the economics of local operations. Disadvantages include increased difficulty in maintaining consistency of practices within the company, the necessity of maintaining a large staff of managers, duplication of staff service, and problems with control of local operations from corporate headquarters.
Section 12.3Organizing for Implementation
Divisional Firms that develop or acquire new products in different industries and markets may evolve into a divisional structure. Divisional lines might be made on the basis of organizing on the basis of services (ambulatory/nonambulatory); markets (industrial, consumer); or chan- nel of distribution (main, satellite). Divisional mangers are given authority to formulate and implement strategy for their divisions, but it may be difficult to coordinate strategies, and turf battles may erupt.
Strategic Business Units CEOs with too many divisions to manage effectively may use a structure that is organized around strategic business units (SBUs). These forms are popular in large, conglomerate firms. SBUs are divisions grouped together based on such common strategic elements as an overlapping set of competitors, a closely related strategic mission, a common need to compete internationally, common key-success factors, or technologically related growth opportunities. Vice presidents might be appointed to oversee the grouped divisions and report directly to the CEO. For example, a large hospital with several locations and satellite clinics may decide to group the satellite clinics into a separate SBU and assign a manager to oversee this group of similar facilities. SBU structures are particularly useful in reducing problems of integrating corporate-level and business-level strategies and in “cross-pollinating” the growth opportu- nities in different, but related, industries. Disadvantages include a proliferation of staff func- tions, policy inconsistencies between divisions, and problems in arriving at the proper bal- ance between centralization and decentralization of authority.
Matrix In matrix structures, subordinates have dual assignments—to the business/product line/ project managers and to their functional managers. This approach allows project managers to cut across functional departmental lines and promotes efficient implementation of strate- gies. Such an approach creates a new kind of organizational climate. In essence, this system resolves conflict because strategic and operating priorities are negotiated, and resources are allocated based on what is best overall. When at least two of several possible variables (prod- ucts, customer types, technologies) have approximately the same strategic priorities, then a matrix organization can be an effective choice for organizational structure. The primary disadvantage of this form is its complexity. Employees become confused over what to report to whom and by the need to communicate simultaneously with multiple groups of people.
As might be surmised from the listing of the advantages and disadvantages to each of these structures, there are no hard and fast rules for selecting a structure appropriate for any par- ticular organization at a specific point in time. While line and line and staff structures are the most commonly used structures in HCOs, the process of analyzing organizational structure is a beneficial step to take in considering how to best implement marketing strategy and any needed changes in structure.
Section 12.4Evaluation and Control of Plans
12.4 Evaluation and Control of Plans Many companies fail to understand the importance of establishing procedures to evaluate and control the planning process, which is a failing that leads to less than optimal perfor- mance. This section reviews the need for control, what is to be controlled, and some control procedures. Control should be a natural follow-through in developing a plan. No plan should be considered complete until controls are identified and the procedures for recording and transmitting control information to managers are established.
The need for controls was clearly pointed out in a study of 75 companies of various sizes in several industries. The findings were as follows (Kotler, 2003):
• Smaller companies had less adequate control procedures than larger ones. • Less than one-half of the companies knew the profitability of individual products,
and one-third had no system set up to spot weak products. • Almost half of the companies failed to analyze costs, evaluate advertising or revenue-
force call reports, or compare their process to competitors. • Many managers reported long delays—four to eight weeks—in getting control
reports, and many of their reports were inaccurate (Bonoma, 1985).
Such problems can be avoided when a sound control system is established.
Integration of Planning and Control Planning and control should be integrated processes. In fact, planning was defined as a pro- cess that included establishing a system for feedback of results. This feedback reflects the company’s performance in reaching its objectives through implementation of the strategic marketing plan. The relationship between planning and control is depicted in Figure 12.2.
The planning process results in a specific plan being developed for a product or service. This plan is implemented (marketing activities are performed in the manner described in the plan), and results are produced. These results are revenues, costs, profits, and accompanying consumer attitudes, preferences, and behaviors. Information on these results is given to man- agers, who compare the results with objectives to evaluate performance. This performance evaluation identifies the areas where decisions must be made. The actual decision-making controls the plan by altering it to accomplish stated objectives, and a new cycle begins. The information flows are the key to a good control system. Deciding what information is pro- vided to which managers in what time periods is the essence of a control system.
Section 12.5Performance Evaluation and Control
Figure 12.2: Planning and control model
A manager compares the plan objectives with the results when conducting a performance evaluation.
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Information feedback
Specific plans
Planning process
Plan implementation
Results: revenues, costs, profits, patient
attitudes, behavior, etc.
Control decisions
Plan alteration
Decision areas
Evaluation objectives vs. results
Source: Adapted from Stevens, R., Loudon, D., Wrenn, B., & Mansfield, P. (2006). Marketing planning guide. The Hawthorne Press, Inc., p. 257.
Timing of Information Flows The strategic plan in the firm is composed of many annual operating plans. An economist once noted that “we plan in the long run but live in the short run.” If each of a firm’s annual operating plans is controlled properly, the long-run plans are more likely to be controlled. The planner cannot afford to wait for the time period of a plan to pass before control informa- tion is available. The information must be available within a time frame that is long enough to allow results to accrue but short enough to allow actions to align results with objectives. Although some types of businesses may find weekly or bimonthly results necessary, most companies can adequately control operations with monthly or quarterly reports. Cumulative monthly or quarterly reports become annual reports, which in turn become the feedback needed to control the plan.
12.5 Performance Evaluation and Control Performance evaluation and control, as shown in Figure 12.2, should be viewed as a con- tinuous process. The evaluation process analyzes what has been accomplished during the planning period, and the control process is used for making corrections to the plan to align activities with objectives.
Section 12.5Performance Evaluation and Control
The Balanced Scorecard Approach The balanced scorecard approach to evaluation is one that combines the use of strategic and financial objectives. Thus, the balanced scorecard gives management a more balanced view of how the organization is performing (Gamble, Thompson, Jr., & Peteraf, 2013). The balanced scorecard should address four main areas of strategy:
1. Customer perspective—That is, how do our customers see us? 2. An internal perspective that examines those areas the organizations needs to excel
in. 3. Value creation—How can the organization improve its value proposition? 4. Shareholders or other financial providers—How does the organization look to those
who provide the money for the operation (Kaplan & Norton, 1992)?
While the balanced scorecard has been widely adopted by many different industries, its use by HCOs is relatively recent (Rodgers, 2011). This shift to the balanced scorecard approach is due to, in large part, mounting financial pressures facing HCOs (Garling, Nevius, & LaCasse, 2009). The balanced scorecard has been used in such institutions as St. Mary’s/Duluth Clinic Health System (SMDC Health System) (Johnson, Kaplan, & Nevius, 2009), the National Health Service of the UK (Rodgers, 2011), and Saint Vincent Catholic Medical Centers in New York (Garling et al., 2009). While it is understood that strategic planning and implementation are both arts, the process needs to be systematic and as quantifiable as possible (Kaplan, Nor- ton, & Barrows, Jr., 2008). For example, the balanced scorecard approach helped Saint Vin- cent Catholic Medical Centers move from crisis management to strategic management with a strong dedication to its mission (Garling et al., 2009). Additionally, the balanced scorecard helped SMDC Health System achieve its goal of linking strategic and financial objectives by encouraging collaboration between administrators and physicians (Johnson et al., 2009). An example of the SMDC Health System balanced scorecard approach is shown in Figure 12.3.
Performance should be evaluated in many areas to provide a complete analysis of results and the causes for those performance results. The four key control areas for performance evalu- ation are revenues, costs, profits, and consumers. Objectives should have been established in three of these areas for the operating and strategic plans. The fourth, costs, is a measure of marketing effort and is directly tied to profitability analysis.
Section 12.5Performance Evaluation and Control
Figure 12.3: A balanced scorecard for the SMDC Health System
This organization utilizes a balanced scorecard to address four main areas of strategy: customer perspective, internal perspective, value creation, and financial providers.
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Financial To financially sustain our mission, on what must we focus?
Learning How can we develop our ability to improve as a system?
Internal processes To satisfy our clients, at which internal processes must we excel?
Clients How should we appear to our clients?
Mission: SMDC brings the soul and science of healing to the people we serve
Vision: SMDC will be the best place to work and the best place to receive care
We will pursue our mission and vision through a focus on quality, safety and value
Service Excellence Quality Clinical Excellence Management Excellence
Timely care Patient-centered care
Equitable care
Provide easy, timely, coordinated access
to services
Right patient, right care,
right process
Optimize physician and staff
productivity
Efficient processes and
operations
Design and implement coordinated
care models
Effective and safe medical care
Capital investment in technology and facilities to support clinical and financial objectives
Create an environment that has an expectation of consistently delivering quality health care
Achieve a 3% operating margin in 2008 to sustain our mission and achieve our vision
Efficient care
Create direct access to specific programs
and services
Emphasize entity and system
missions
Grow key specialty services
and programs
Restructure the regional clinical and
financial model
Redesign the SMDC primary care strategy
Capture new revenue
Recruit and develop people to outstanding levels
of performance
Engage physician leaders and managers as partners
in success with SMDC
Source: © St. Mary’s Duluth Clinic. Reprinted with permission of Essentia Health.
Section 12.5Performance Evaluation and Control
Revenue Control Revenue control data are provided from an analysis of revenue by individual segments (products, territories, and so forth), market share data, and data on revenue inputs (sales force, advertising, and promotion).
Revenue by Segment Revenue performance can be evaluated by segment by developing a revenue performance report, as shown in Table 12.1. When such a format is used, the revenue objectives stated in the annual operating plan are broken down on a quarterly basis and become the standard against which actual revenue results are compared. Dollar and percentage variations are cal- culated because, in some instances, a small percentage can result in a large dollar variation.
Table 12.1: Revenue performance report—Quarter 1 (by service)
Service
Revenue objective
Actual revenue
$ Variation
Percent variation
Index
A $100,000 $ 90,000 *10,000 *10.0 .90
B 95,000 102,000 *7,000 *7.4 1.07
C 120,000 92,000 *28,000 *23.0 .77
D 200,000 203,000 *3,000 *1.5 1.02
*Asterisk indicates variation between objective and actual.
A performance index can be calculated by dividing actual revenue by the revenue objective. Index numbers of approximately 1.00 indicate that expected and actual performance is about equal. Index numbers that are larger than 1.00 indicate above-expected performance, and index numbers below 1.00 reveal below-expected performance. Index numbers are especially useful when a large number of services are involved because they enable managers to identify those services that need immediate attention.
The same procedures can be followed to analyze revenue performance by patient category or location. They could also be combined to check performance of services in various locations and revenue to various patient types.
Market Share Data Another important type of revenue control data is provided through market share analysis. A firm’s performance should be compared to that of its competitors, and a common method for doing this is to calculate a firm’s share of a market. External forces do not affect all firms in the same way, and the impact of those forces can be analyzed through market share analysis.
To calculate market share, the relevant market must be identified. It is possible to calculate market share on at least two bases:
1. Share of total market. This is the firm’s revenue divided by the total revenue in the markets in which the firm is exerting marketing effort.
Section 12.5Performance Evaluation and Control
2. Relative market share. This is one firm’s share of the market held by the top two, three, or four firms. It reflects the firm’s share of the market captured by the major competitors.
Unless some effort is made to understand why a firm’s market share has changed or failed to change, this analysis is more of a scorekeeping task. If the components of market share are analyzed—such as number of patients reached, loyalty, and repeat visits—then meaningful control decisions can be made.
Sales Input Data A great deal of analysis of performance can be done on sales inputs. For the sales force or mar- keting representatives, these inputs can be divided into qualitative and quantitative inputs.
Qualitative inputs:
1. Time management 2. Planning effort 3. Quality of revenue presentation 4. Product knowledge 5. Personal appearance and health 6. Personality and attitudes
Quantitative inputs:
1. Days worked 2. Calls per day 3. Proportion of time spent selling 4. Selling expenses 5. Non-selling activities
a. Calls to prospects b. Display setups c. Service calls
6. Miles traveled per call
Analysis of these factors will help a manager evaluate the efficiency of the revenue effort. For many of these input factors, an average can be computed to serve as a standard for analyzing individual performance. If the number of calls per day for one representative is three and the average is six, this case warrants attention. The low calls per day could be caused by a large, sparsely populated territory, or it could be that the representative is spending too much time on each client. Whatever the problem, management must be alerted to its existence.
Advertising inputs are difficult to evaluate but must be dealt with nonetheless. The following factors can be evaluated to help determine the efficiency of this input:
• Competitive level of advertising • Readership statistics • Cost per thousand readers or viewers • Number of inquiries stimulated by an ad
Section 12.5Performance Evaluation and Control
• Number of conversions of inquiries to patients • Changes in clinic traffic generated by an ad campaign
These measures help evaluate the results of advertising decisions. Tracking these data over several years can help identify successful appeals, ads, or media.
Many promotional tools can be directly evaluated if objectives are set before their use. For example, if a dentist offers free whitening to new patients, then the number of new patients is one measure of this offer’s results. The number of people who visit a display, the number of patients who try a different service based on referrals, and so forth are examples of how data on these activities can be used to evaluate their effectiveness.
The key to evaluating performance is the setting of objectives, which become the standards by which actual performance can be evaluated.
Cost Control Several tools are available for establishing cost control procedures, including budgets, expense ratios, and segment and functional costs analyses. Budgets are a common tool used by most organizations for anticipating expense levels on a yearly basis. The budget is often established by using historical percentages of various expenses as a percent of revenue. Thus, once the revenue forecast is established, expense items can be budgeted as a per- cent of total revenue. If zero-based budgeting is used, the objectives to be accomplished must be specified and the expenditures necessary to accomplish those objectives estimated, rather than relying on historical budget data. The estimates are the budgeted expenses for the time period.
Once the budget is established, expense variance analysis by line item or expenditure category is used to control costs. Although it is not possible to establish standard costs for marketing expenditures, the budget amounts are the standards for performing variance analysis. A typi- cal procedure is to prepare monthly or quarterly budget reports that show the amount bud- geted for the time period and the dollar and percentage variation from the budgeted amount, if any exists. Expenditure patterns that vary from the budgeted amounts are then analyzed to determine why the variations occurred.
Expense ratio analysis is another tool for controlling costs. An important goal of every plan is to maintain the desired relationship between expenditures and revenues. Calculations of expense ratios provide information on what this relationship is at any time. Monthly, quar- terly, and yearly ratio calculations should satisfy most managers’ needs for this type of data. Common expense ratios are as follows:
• Profit margins • Selling expense ratio • Cost per call • Advertising expense ratio
Many other financial ratios, such as asset turnover, inventory turnover, and accounts receiv- able turnover, also provide measures that can be used to reduce or maintain cost levels.
Section 12.5Performance Evaluation and Control
Segment and functional costs analyses can also be used as tools to control costs. These types of analyses, which permit evaluation of cost by individual departments, locations, procedure usage, and so forth, involve allocating costs to specific operating units to obtain detailed cost information. Analysis of these costs in relation to revenue volume produced by segment is a key type of analysis for identifying profitable and unprofitable services and departments.
Profit Control Profit control begins with profitability analysis by services, facilities, and patient type. This method involves a breakdown of revenues and costs by various market segments to deter- mine either a profit contribution or a contribution being made to cover indirect costs and earn a profit. Profitability analysis is the only way to identify the strong and weak services, locations (facilities), or patient type. Until specific services can be identified as unsuccessful, no action can be taken to correct the situation. A manager needs specific information, about a service, location (facility), or patient type, on both revenues generated and the costs associ- ated with a given level of revenue.
Profit control is achieved through the action taken once the specific information is available. Table 12.2 presents data on procedures for a medical clinic. It was discovered that many of the ENT (ear, nose, and throat) patients were heavily using some services but not others at the medical clinic. Some of the corrective actions that could be taken at the medical clinic to increase underused services are as follows:
1. Use cross-selling—someone in one department refers a patient to another service offered.
2. Match staffing to service usage. 3. Hire a nurse practitioner to do follow-ups on patients.
Table 12.2: Number of ENT patients by service
Number of ENT patients Service
31 Routine examination
50 Sinus/ear infections
80 Hearing issues
90 Surgery
75 Follow-up visits
65 New-patient workup
Patient Feedback The final area of performance evaluation is consumer or patient feedback, which involves the analysis of patient awareness, knowledge, attitudes, behaviors, and satisfaction with the services received. Chapter 11 pointed out that communications efforts are goal oriented. The
Section 12.5Performance Evaluation and Control
goals of communications efforts are to have consumers or patients become aware of products, services, or locations; possess certain knowledge; and exhibit certain attitudes and behaviors. These goals should be specified in the HCO’s operating and strategic objective statements and then become the standards to which current consumer data are compared through patient feedback.
Analysis of data on patients must be performed by the organization’s staff or outsourced to firms that perform those analytical services. Many research firms specialize in providing patient data, either as a one-time research project or on a regular basis. Audits, awareness studies, and attitudinal surveys are available from a variety of firms. Many firms special- ize in healthcare research and provide appropriate data on consumers. For example, Olson Research Group, Inc. (2013), with offices in Pennsylvania and California, provides a wide vari- ety of research services for HCOs, including online surveys and industry insights.
Patient data are especially valuable if collected over a long period of time because awareness levels, attitudes, and purchase behavior can be analyzed to reveal trends and areas for further investigation. Also, changes in consumer attributes can be related to marketing activities, such as coupons or the introduction of a new advertising theme. One area of patient feedback that has received considerable attention recently has been patient satisfaction measures. Much has been written about how to define and measure patient satisfaction, and the importance of obtaining this type of feedback on a regular basis so that corrective action can be taken when areas of dissatisfaction appear. More recently, it has been argued that patient satisfac- tion measures are too narrowly focused and that “patient value delivery” is a more important gauge of how well an HCO is doing in its provision of services and products to its patients. Here, the organization is seeking to determine the level of patient loyalty by determining the patient’s sense of value delivered to him or her via the organization’s value package: price, product quality, innovation, service quality, and company image relative to the competition. All of these areas should be monitored to determine the degree to which patients are loyal to the organization versus which patients are at risk to be lost to competitors (Porter, 2012).
Establishing Procedures It should be pointed out that none of the performance evaluation data described in the pre- ceding subsections are going to be available unless they are requested and funds are made available to finance them. Thus, data collecting and reporting procedures must be set up by the marketing planner in consultation with the marketing managers who are going to use the control data in decision-making.
The reporting procedures will usually change over time as some types of analysis or report- ing times are found to be better than others. The most important requirement is that the data meet the needs of marketing managers in taking corrective actions to control marketing activities.
Summary & Resources
Summary & Resources
Chapter Summary No planning process should be considered complete until the details of implementation, monitoring, and control procedures have been established. Without such information, it is impossible to manage marketing activities with any sense of clarity about what is actually happening in the marketplace.
A performance evaluation of revenues, costs, profits, and patient data is vital for control deci- sions. Information obtained from the evaluation of these areas tells a manager what has actu- ally happened and serves as the basis for any actions needed to control the organizational activities that are directed toward the fulfillment of predetermined objectives.
Key Points 1. Through the implementation process, employees are assigned tasks and given
authority, and resources are allocated as needed to create the activities that bring the marketing plans to life. The evaluation and control of the marketing plans involves determining whether objectives are being accomplished and taking the actions needed to align results with objectives. The evaluation involves comparing actual results to the marketing plan’s stated objectives.
2. While a firm may have an excellent marketing strategy on paper, the strategy is not effective until it has been successfully implemented. In order for this to happen, the marketing strategy needs to be translated into a series of assigned activities in such a way that everyone can see his or her job as a set of value-added actions. Chrono- logically, strategy development precedes implementation, but it is best if a market- ing strategy, when it is conceived, is simultaneously thought through to the point of implementation.
3. Several skills are essential to the implementation of strategy. These include allocat- ing skills, which are used by managers to allocate resources; monitoring skills, which are used by managers to evaluate results; organizing skills, whereby managers develop the structures and coordinate the mechanisms needed to put plans to work; and interacting skills, which influence the behavior of others through motivation.
4. People naturally resist change. Thus, change in any organization is difficult to implement no matter how necessary. Healthcare has its own particular forces that hamper change. These include players (the organization’s stakeholders); funding, or the problem of long payback periods in healthcare; policy, including governmental regulations and legal concerns; technology, where one form of treatment replaces another; customers, who are more empowered and demanding; and, accountability, or the need for HCOs to prove themselves to the public and third-party payers.
5. Managers need to gain the cooperation of involved parties to successfully achieve the implementation of marketing strategies. For example, it is important to not try to measure everything. Instead, measure performance and not just activity, and eliminate silo thinking. Managers can also use tools such as PERT charts and the critical path method (CPM) to evaluate strategy. Organizational culture, or “the way we do things around here,” can support control by helping employees conform to organizational expectations. Finally, organizational structure, the way people and
Summary & Resources
functions are arranged within an organization, aids in evaluating strategy as long as the strategy has been designed with the organizational structure in mind.
6. The balanced scorecard method of evaluation combines the use of strategic and financial objectives, giving management a more balanced view of the results of stra- tegic implementation. The scorecard addresses four main areas: customer perspec- tive, internal organizational perspective, value creation, and shareholders or other financial stakeholders.
7. Performance should be evaluated in many areas to provide a complete analysis of what the results are and what caused them. The four key control areas are revenues, costs, profits, and consumers. Objectives should have been established in each of these four areas during the strategic planning process. During the planning process, management also should have decided how data will be collected and how it will be reported. Feedback in the form of an evaluation may alert management to poten- tial problems, and the organization must exercise flexibility to take fast, corrective actions to resolve those potential problems.
Key Terms balanced scorecard An approach to evaluation that uses a framework involving critical indicators or key business factors to balance the long-term and short-term objectives.
budget A common tool used by most orga- nizations for anticipating expense levels on a yearly basis. It is often established by using historical percentages of various expenses as a percent of revenue.
champion and ownership team Individu- als or groups who see their overall respon- sibility as the successful implementation of the marketing strategy and marketing plan.
clan system A cultural system which, through the use of norms, exercises control over employees by socializing individuals into an informal social system that stresses teamwork rather than strict adherence to a set of bureaucratic rules and regulations.
corporate culture The pattern of role- related beliefs, values, and expectations that are shared by the members of an organization.
cost control Procedures, including budgets, expense ratios, and segment and functional costs analyses, to manage cost.
CPM An approach to the scheduling of spe- cific tasks for carrying out a project, using the project implementation tool known as the critical path method.
detailed action plans Set responsibili- ties for specific actions for individuals, and include a measure and time frame of the action.
divisional structure Organizing on the basis of services (ambulatory/nonambula- tory); markets (industrial, consumer); or channel of distribution (main, satellite).
functional structure Organizing activities and people around functions to be per- formed, such as R&D, production, marketing, finance, and human resources.
geographic structure Organizing for the particular needs of different geographical areas.
Summary & Resources
implementation skills Skills that must be used for a strategic goal to be successfully translated into implemented activities; that is, allocating, monitoring, organizing, and interacting skills.
implementation The process of assigning tasks, giving authority, and allocating the resources needed to commence and carry out the activities that bring the marketing plans to life.
internal marketing Refers to the mana- gerial actions necessary to make all staff within the organization understand and accept their respective roles in implement- ing the chosen strategy.
market share analysis A firm’s perfor- mance as compared to competitors by calcu- lating the firm’s share of a total market.
matrix structures Structures in which subordinates have dual assignments—to the business/product line/project managers and to their functional managers.
organization structure Refers to how people and functions are arranged within a company.
patient feedback Involves the analysis of patient awareness, knowledge, attitudes, behaviors, and satisfaction with the services received at an HCO.
performance index An index created by dividing actual revenue by the revenue objective.
PERT An approach to the scheduling of spe- cific tasks for carrying out a project, using the project implementation tool known as the program evaluation review technique.
profit control Profitability analysis by services, facilities, and patient type. This
method involves a breakdown of revenues and costs by various market segments to determine either a profit contribution or a contribution being made to cover indirect costs and earn a profit.
resistance to change Opposing or strug- gling with modifications or transformations of people and processes that alter the status quo in the workplace.
revenue control data Data provided from an analysis of revenue by individual segments (products, territories, and so forth), market share data, and data on rev- enue inputs (sales force, advertising, and promotion).
sales inputs Qualitative and quantitative analyses of effort and results of marketing representatives’ or sales force activities.
share of total market The firm’s revenue divided by the total revenue in the markets in which the firm is exerting marketing effort.
strategic business units (SBUs) Divisions of a large firm that are grouped together based on such common strategic elements as an overlapping set of competitors, a closely related strategic mission, a common need to compete internationally, common key- success factors, or technologically related growth opportunities.
systems A set of interrelated activates relat- ing to some function in an organization.
zero-based budgeting Budgeting requir- ing that objectives to be accomplished are specified and the expenditures necessary to accomplish those objectives estimated, rather than relying on historical budget data.
Summary & Resources
Critical Thinking Questions 1. Why is the integration of planning and control so important to the success of
an HCO? 2. Are the skills needed for implementation the same as those needed for planning? If
not, explain why. 3. How does the use of the balanced scorecard approach to performance evaluation aid
an HCO?
