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Chapter 15: Implementing, Monitoring, and Evaluating Strategy

Strategic Healthcare Management: Planning and Execution

by Stephen L. Walston

Learning Objectives

Understand the role of budgets and controls in the strategic planning process.

Learn methods of implementing strategy.

Be familiar with the various bodies and structures involved in strategic planning, along with their roles.

Discover ways in which progress toward strategic goals can be monitored.

Know what a balanced scorecard is and how it can be used to monitor strategic planning efforts.

Strategic Action Cycle

Strategic Planning

Budgeting

Implementation

Controling/ Monitoring

Is Strategic Planning a Process or an Event?

Refer to the story in Exhibit 15.2

Who Directs Strategic Planning?

An organization’s CEO must direct and be highly involved in overall strategic planning as a strategist, organizer, and tactician, but experts recommend that the person charged with leading the day-to-day strategic process not be the CEO (Zuckerman 2005).

The person responsible for facilitating strategic planning generally reports directly to the CEO.

This person may be responsible for just strategy development or for any or all of the following related duties:

—Strategic formulation

—Business development

—Data generation and analyses

—Marketing

—Public relations

—Change management/organizational development

—Project management

Board’s Role in Strategic Planning

Approval of the organization’s mission, vision, and goals

Discussion and approval of key strategic directions

Final approval of the strategic plan document

Periodic monitoring of implemented strategies

Responsibility of the Strategic Planning Committee

Organizing and facilitating the planning process

Determining key stakeholders’ needs

Regularly (usually annually) reviewing the organization’s mission and vision

Monitoring trends and periodically reviewing the internal and external environment

Developing a strategic plan draft, including planning goals and objectives for board consideration

Evaluating progress toward strategic objectives

Other Key Players

Medical staff: Key medical staff should serve on the governing board, the strategic planning committee, and other task forces established for the strategic planning process. The governing board may also enjoin medical staff to organize their own planning committee and responsibilities. The medical staff committee should report to the strategic planning committee.

Consultants: They are often hired for their expertise, data resources, extra manpower, and insight regarding future changes and innovative strategies.

Recommendations for Dealing with Consultants

Clearly specify up front what the consultants have been hired to produce. Define their deliverables in a visible, unmistakable manner.

A consulting firm, even one with a great international reputation, is only as good as the individuals assigned to the project. Prior to the engagement, find out who will be assigned to your project. Review their backgrounds and experience, and insist on working with more senior consultants, especially on critical project aspects.

Do not turn a project over to a consulting firm. Make time to meet with the consultants on a consistent basis. Meetings keep projects on track and focused on desired results.

Consider establishing an external advisory board of experts to review and evaluate the consultants’ progress. By critiquing the consultants’ planning efforts throughout the project, advisory boards improve the quality and functionality of project outcomes.

Importance of Monitoring Strategic Efforts

It ensures that efforts are following the direction set by strategic planning.

It helps organizations better achieve their goals and objectives.

It helps organizations evaluate the progress they are making toward their mission and vision.

It helps organizations meet the needs of key stakeholders.

It helps managers to assess whether resources are being used efficiently.

It encourages ongoing improvement.

It provides a continuous basis for informed decision making and planning.

Monitoring

An ongoing process of learning and embedding positive change that advances organizations toward mission and vision fulfillment

Involves collecting data and assigning key performance indicators to each strategic objective

Two methods of monitoring and evaluating data: (1) tracking organizational trends and (2) comparing organizational data to data from other firms

Periodic Evaluation

To be able to evaluate outcomes, a group of leaders needs to know the following information about each strategy:

Key objectives and expected results

Key indicators of successful progress

Existing status and challenges

Critical needs

Time frame for completion

Recommended actions

Monitoring Tools

Gantt chart

Balanced scorecard

Budget

Example: Gantt Chart

Item

Task

Depen-dencies

Start Date

Days

% Done

Jul 1-15

Jul 16-31

Aug 1-15

Aug 16-31

Sep 1-15

Sep 16-30

Oct 1-15

Oct 16-31

Mission and vision

None

1-Jul

Environmental analysis

None

1-Jul

Strategic priorities

1 & 2

1-Sep

Strategic programs

1, 2, & 3

16-Sep

Write strategic plan

1 & 2

16-Aug

Board evaluation and approval

1, 2, 3, 4, & 5

16-Oct

Balanced Scorecard Metrics

Financial: Financial metrics that demonstrate achievement of the organization’s mission

Customer/stakeholder: Impacts the organization must make to satisfy customers, funders, and other key stakeholders

Internal business processes: Level of excellence that business processes must reach to satisfy customers

Learning and growth: Presence of leadership/managerial skills and infrastructure needed to achieve desired business outcomes

Mission and Vision

Learning and Growth

Customer/Stakeholder

Internal Business

Processes

Financial

Core dimensions of the Balanced Scorecard

Example: SunnyBrook’s Balanced Scorecard

Refer to Exhibit 15.5

Problems with Balanced Scorecards

Lack of accurate data

Expensive to obtain and maintain

Management too rigid; scorecard as only one indicator of the status of strategic achievement

Provides a snapshot of the firm’s actions

Not tied to and driven by the organization’s strategic efforts

Budget

For strategic actions to be successful, they must be integrated into the firm’s budget process.

Budgets provide the resources needed to implement the strategic plan and monitor achievements.

As strategic directions change, budget allocations likewise need to change.

Strategic thinking

Strategic plans/priorities

Annual projects and actions identified

Capital budget requirements and implications

Development of statistical budgets

Development of operating budgets:

Revenue budgets Expense budgets

Development of cash budgets

Relationship Between Strategic Planning and Budgets

Budget Variances

Difference between budgeted amounts and actual results (Budgeted amount – Actual amount)

Can result from changes in volume, price, and efficiency

Example: Surgical Center Project Actual Variances Per Unit


	Budgeted	Actual	Budget Variance
Volumes (surgeries)	2,000	1,000	(1,000)
Revenues/unit	$500,000 ÷ 2,000 = $250	$350,000 ÷ 1,000 = $350	$100
Expenses/unit	$350,000 ÷ 2,000 = $175	$340,000 ÷ 1,000 = $340	$165
Income (loss)/unit	$75	$10	$(65)

Variance Formulas

Volume variance = (Actual volume − Budgeted volume) × Budgeted income/unit

Price variance = (Actual price/unit − Budgeted price/unit) × Actual quantity

Efficiency variance = (Budgeted expenses/unit − Actual expenses/unit) × Actual quantity

Static Versus Flexible Budget

A static budget is less sophisticated because budget projections are based on a single, fixed level of volume and activity.

A flexible budget is one that can be adjusted according to changes in volume and costs.

The flexible budget approach is more useful than the static budget approach because volume changes can be input and included in the presented budget and actual price and efficiency changes can be more easily examined.

Chapter Questions

How should budgeting reflect strategic planning?

What occurs when strategic planning is an event rather than a process?

In what role should an organization’s CEO serve during the strategic planning process?

What might influence the roles and titles of the person in charge of strategic planning?

What are the key roles of the governing board in strategic planning?

When should an organization create a separate strategic planning committee?

What are the advantages of using consultants for strategic planning? What challenges does the use of consultants present?

What is a KPI, and how should it be developed?

Why is monitoring critical to strategic implementation?

What is the difference between a balanced scorecard and traditional goal metrics?

How should a capital budget reflect strategic priorities?

How can budget variances be used to monitor implementation of strategy?

Chapter Case

Read the case “Managing with Budget Variances” at the end of the chapter.

Review the questions that follow the case.

Chapter Assignment

Read the summer 2003 article by W. Zelman, G. Pink, and C. Mathias titled “Use of the Balanced Scorecard in Health Care” from the Journal of Health Care Finance, volume 29, issue 4, pages 1–16.

Write a two-page paper on the effective use and misuse of this tool.