Strategic Planning in Healthcare

STRATEGIC PLANNING IN HEALTHCARE 1 LEARNING OBJECTIVES  By the end of this lecture, the student will be able to: 1. Describe strategic planning and the strategic planning process; 2. Discuss the importance of strategic planning as a dynamic process in healthcare organisations; 3. Identify healthcare market powers and trends, and understand their potential impact on health services; 4. Describe SWOT analysis; 5. Identify methods to monitor and control strategy execution; and 6. Identify the role of the manager in the strategic planning process 2 STRATEGIC PLANNING (SP)  Every organization needs to be successful over the long term in order to survive; a critical factor leading to that success lies in how well an organization can plan for the future and tap market opportunities.  Strategic planning is the process of identifying a desired future state for an organization and a means to achieve it.  Strategic planning is the systematic and organized process whereby an organization creates a document indicating the way it plans to progress from its current situation to the desired future situation.  Through an ongoing analysis of the organization's operating environment, matched against its own internal capabilities, an organization's leadership is able to identify strategies that will drive the organization from its present condition to that desired future state.  Healthcare managers at all levels need to understand the purpose of strategic planning, its benefits and challenges, the key factors for its success, and their vital role in the process. 3 PURPOSE AND IMPORTANCE OF STRATEGIC PLANNING (IN ANY ORGANISATION)  In any organization's operating environment, there are market forces, both controllable and uncontrollable, that will undoubtedly influence the future success of that organization.  Only by identifying these forces and planning for ways to adapt to them can an organization achieve the greatest success.  At the extreme, completely ignoring these forces can most certainly lead to organizational death.  Although no one can predict the future, one can systematically think about it.  The purpose of strategic planning is to identify market forces and how they may affect the organization and to determine an appropriate strategic direction for the organization to take that will counteract those forces and/or tap their potential.  Furthermore, strategic planning serves to focus the organization and also its resource allocation. At any given point in time, there are multiple and often competing initiatives and projects to be undertaken in an organization.  By understanding the organization's operating environment and identifying a strategy to reach a desired future state, resources can be allocated appropriately and effectively. 4 WHY SHOULD HEALTHCARE ORGANIZATIONS (HCO) USE STRATEGIC PLANNING? DOES IT MATTER?  Strategic planning in health care organizations entails taking proactive steps toward a goal, not just addressing immediate problems as they arise. 1. Increasingly informed, demanding and non loyal clients (with the capacity to choose). 2. Increasingly professional and skilled competitors. The system of resident physicians, access to updated knowledge, and continuous training have led to the following: a) it is increasingly easy to find highly qualified trained professionals outside the major centers of large cities; and b) b) the high level of specialization and excellence among these professionals is increasingly widespread. 5 WHY SHOULD HEALTHCARE ORGANIZATIONS USE STRATEGIC PLANNING? DOES IT MATTER? 3. Limited resources for production. A possible response to this situation is the increased obligation to allocate resources on a rational basis, allowing only the best and most efficient HOs to remain. 4. Focus is shifted from the product or service to the client. The focus is no longer solely on the quality of the product or service, but also on how this is transferred to the client and their experience. HOs no longer simply focus on carrying out the processes to the best of their ability, but on achieving patient satisfaction and obtaining the best results possible. What matters is not only what, but how. 5. Size and complexity of the HOs. Increases in the size of the population, their needs, and the diagnostic and treatment options offered has led to physical growth in the size of HOs and increased organizational complexity. Another source of complexity arises from the need to act in collaboration with primary care in relation to a range of diseases, especially chronic ones. 6 WHY SHOULD HEALTHCARE ORGANIZATIONS (HO) USE STRATEGIC PLANNING? DOES IT MATTER?  All these circumstances clearly affect HOs, immersing them in an environment of constant and sudden change both in their external and internal circumstances, and those of their clients.  In these circumstances, SP is a fully applicable tool that is both useful and relevant to the HO.  If SP is not conducted, then in a few years HOs could become irrelevant or even cease to exist. 7 THE PLANNING PROCESS  The strategic planning process consists mainly of two interrelated activities: the development of the strategic plan and execution of the organization's strategy.  The development of the plan is most often done with a multiyear time horizon (3 or 5 or 10 years, for example) and updated annually.  Strategy execution, on the other hand, is done on a continuous basis and is the critical factor in management of the organization's strategic intentions, optimally providing continual feedback for the development of any future plans. 8 THE PLANNING PROCESS  Strategic planning is a dynamic and not a linear process.  the SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis provides a foundation for strategy development.  This analysis serves two important functions: to gather a snapshot of how the organization is currently interacting with the market in comparison to the internal capabilities and intended strategic direction of the organization, and to identify market opportunities and threats that the organization may want to address in future strategic efforts. 9 SWOT DEFINITION • Strengths – Factors that are likely to have a positive effect on (or be an enabler to) achieving the clinic’s objectives • Weaknesses – Factors that are likely to have a negative effect on (or be a barrier to) achieving the clinic’s objectives • Opportunities – External Factors that are likely to have a positive effect on achieving or exceeding the clinic’s objectives, or goals not previously considered • Threats – External Factors and conditions that are likely to have a negative effect on achieving the clinic’s objectives, or making the objective redundant or un-achievable. 10 EXAMPLE OF SWOT 11 PLANNING PROCESS  Through analysis of the SWOT, strategy identification can begin.  In this stage, the organization's leadership team uses the information provided in the SWOT analysis to identify specific strategies that may be worthy of pursuit either to grow the organization or to protect current areas of strength.  Once these strategies have been identified, they must be narrowed down to a manageable number through selection and prioritization, and tactical implementation plans must be created.  With the strategic plan completed, operating, marketing, and other supporting plans are developed. Control and monitoring of the plan follows and is most effectively done on an ongoing basis throughout the year. 12 SWOT ANALYSIS  The initial planning phase is often referred to as a SWOT analysis, as it aims to identify the internal strengths and weaknesses of an organization, along with external market opportunities and threats.  It includes three distinct but intricately related components: the market assessment; the statement of the mission, vision, and values of the organization; and the organizational assessment. 13 MARKET ASSESSMENT  The development of the market assessment may be the most complex and time consuming section of the strategic plan in that, in this component, virtually all aspects of the market must be examined to determine whether they represent opportunities or threats for the organization and to determine their future implications for the organization.  Any of a number of market assessment models can be utilized for this analysis, but one of the most common is the Five Forces Model developed by Harvard University professor Michael Porter (1998).  In this model, Porter identifies five market or industry forces that, when combined, determine the attractiveness of competing in a particular market. For health care, this model can be adapted to analyse the interactions between the power of the healthcare workforce, the power of consumers and payers, innovations in technology, the regulatory environment, and competitive rivalry, 14 MARKET ASSESSMENT 15 MARKET ASSESSMENT MODEL 16 POWER OF THE HEALTHCARE WORKFORCE  The power of the healthcare workforce can have significant strategic implications for any healthcare organization, as the workforce is composed of the front line of caregivers in providing services.  In the SWOT analysis, an organization should look at the availability of all subsets of healthcare providers that are critical to its success.  As an example, if obstetrics is a major clinical program of the organization, the organization should closely consider the future anticipated supply and demand of obstetricians (OBs) in its market. With the significant increases in malpractice insurance targeted at obstetricians across the country, many OBs have elected to discontinue delivering babies and focus solely on gynecology, while others have opted to retire early.  This has dramatically reduced the supply of obstetricians in many areas of the country and forced some hospitals to hire their affiliated obstetrical staff in an effort to cover their malpractice insurance premiums and keep them practicing.  Other hospitals have developed “laborists”—OBs who are hired solely to work in the hospital and deliver babies. These moves are examples of strategies that could be adopted by organizations to either maintain or grow their obstetrical services and are in response to market trends. 17 POWER OF THE HEALTHCARE WORKFORCE  Another example of the power of the healthcare workforce is the potential ramifications of the current nursing and radiology personnel shortages. With a shortage of personnel, wage and hiring expenses increase, jeopardizing the ability to offer those specific services.  A nursing shortage may affect a hospital's ability to add beds to meet growing demand for services. A shortage of radiology technicians may affect an organization's opportunity to offer new state-of-the-art technologies.  The influence and availability of these and other healthcare personnel (and the organization's dependency on them) must be considered when developing future strategies. 18 POWER OF CONSUMERS AND PAYERS  At the other end of the spectrum, as the ultimate purchasers of health care, the power of consumers is becoming a more significant market force—and one that has required a dramatic shift in the way the industry offers services.  Today's consumers are demanding more and more from their healthcare providers on all levels (e.g., physicians, payers, hospitals), both in terms of the availability of specific service offerings and in the delivery of those services.  Historically, healthcare organizations viewed physicians as the primary customers; without them, the organization could not provide services. However, in today's world, the patient is becoming the central focus of customer service.  The potential impact of this shift to a patient-centric model needs to be considered when developing future strategies. 19 POWER OF CONSUMERS AND PAYERS  Consumers can influence the healthcare market in other ways as well.  Different communities have different healthcare needs—one community may need increased access to primary care channels, while another may need better health education and screenings.  By identifying specific community needs, healthcare organizations can better target their services and potential growth opportunities. The best way to do this is to understand the consumer. 20 POWER OF CONSUMERS AND PAYERS  Some markets have multiple payers of various sizes and strengths, while others have one or two major payers that dictate market payments.  In either case, a healthcare organization that relies on these payers must stay abreast of their needs and demands and how each may affect future operations and strategies.  A good example of this is a market with one or two powerful payers that prefer a “late adopter” stance for new medical technologies. In other words, they prefer not to pay for new technologies until the technologies have been proven either medically effective or financially efficient or both. This would be a significant threat to an organization that strives for a competitive advantage by being first to market with the adoption of new medical technologies.  Alternately, the power of payers may also create opportunities for an organization. An example would be the general preference of payers for less costly outpatient services. Healthcare organizations that specialize in these types of service offerings (e.g., ambulatory surgery centers, diagnostic/imaging centers) have capitalized on this payer influence in many areas of the country. 21 INNOVATIONS IN TECHNOLOGY  Another market force to be considered is innovations in technology. These innovations may represent the threat of substitute products, as new technologies often replace standard operations and services.  A good example of this is the introduction of Picture Archive Communication Systems (PACS). This filmless imaging system significantly reduces the need for storage space for films and readers and the staff to maintain those areas and allows for remote electronic accessing of files, ultimately requiring a potentially smaller number of physicians necessary to interpret the images.  Innovations in technology may also reduce the need for other types of clinical staff, as in the case of some surgical innovations (e.g., minimally invasive surgery, robotic technologies, drug advancements, etc.) and/or they may significantly increase the requirement of financial resources, as in the case of new radiology equipment (e.g., a new CT scanner, new fluoroscopy equipment, MRI, etc.).  As these and other new technologies become available, their potential impact on operations and systems needs to be considered in strategy development. 22 THE REGULATORY ENVIRONMENT  As a market force, the regulatory environment—on all levels, federal, state, and local—needs to be monitored for its effects on strategy development as well.  Congress continually enacts influential legislation, such as the 1986 Emergency Medical Treatment and Active Labor Act (EMTALA), the 1996 Health Insurance Portability and Accountability Act (HIPAA), and the current focus on mandatory error reporting and physician self-referrals, that has significant and rippling effects on all participants in the healthcare industry.  the Centers for Medicare and Medicaid Services (CMS) take the lead in changes in healthcare payment formulas that are frequently followed by payers at local levels.  Other far-reaching issues such as quality of care measures may be dealt with on local, state, and federal levels as well.  All of these actions can influence a particular healthcare organization's strategy and need to be monitored and analyzed for their potential impacts. 23 COMPETITIVE RIVALRY  Competitive rivalry, the last market force to be considered, is probably given the most significant attention in most organizations' strategy development.  Although it is highly unlikely that you will gain access to the actual strategy of your competitors, much information on their strategic intent can be gleaned from their market activities.  Information on their service volumes, market share, and news coverage and press releases should be monitored.  Compiling this information together to see a larger picture often leads to an indication of competitors' strategies.  Once their strategic intent has been identified, market opportunities for and threats against your own organization can be further addressed. 24 MISSION, VISION, VALUES  The information gleaned regarding the interaction of these five forces (healthcare workforce, consumers and payers, innovations in technology, regulatory environment, and competitive rivalry) in the market is matched against the organization's Mission, Vision, and Value (MVV) statements.  As the driving purpose of the organization, the MVVs are reviewed as part of the strategic planning process to ensure they continue to be aligned with the organization's future market environment and to help identify future desired strategic directions.  The mission of any organization is its enduring statement of purpose. It aims to identify what the organization does, whom it serves, and how it does it.  For example, Radiologix, a radiology services company, “strives to be the premier provider of diagnostic imaging services through high-quality service to patients, referring physicians and mutually beneficial relationships with radiologists who provide expert interpretations of diagnostic images” 25 MISSION, VISION, VALUES  On the other hand, a vision statement strives to identify a specific future state of the organization, usually an inspiring goal for many years down the road.  The vision of the American Hospital Association is “of a society of healthy communities, where all individuals reach their highest potential for health”.  The values statement should help define the organization's culture—what characteristics it wants employees to convey to customers.  An example of one such value from Duke University Health System in North Carolina is: “We earn the trust our patients place in us by involving them in their health care planning and treatment and by exceeding their service expectations”. 26 MISSION, VISION, VALUES  Although the mission statement is generally the most enduring of the three, each of these statements may be altered over time to adapt to the environment.  As an example, the increasing influence of consumerism in health care drove an organization to revise its vision and value statements to become more customer service focused, which in turn (hopefully) helped to change the organization’s culture.  Reaffirming and/or adjusting these three statements in relation to market activity is a critical step in determining the desired future state of the organization. 27 ORGANIZATIONAL ASSESSMENT  Now that we have an idea of what our market looks like and understand our desired intent from our (reaffirmed) MVV, it's time to take a hard, honest look at our own organization.  In conducting an internal assessment, an organization turns the analytical lens inward to examine the areas in which it has strengths and weaknesses, as well as how it may build or sustain a competitive advantage in the market.  The organizational assessment has both quantitative as well as qualitative components.  The quantitative section of the internal assessment consists mainly of the organizational volume forecast and an assessment of the financial condition.  The qualitative section focuses on past strategic performance and leadership's interpretation of the organization's core capabilities (or lack thereof). 28 ORGANIZATIONAL VOLUME FORECAST  The volume forecast is initiated by identifying the organization's service area— usually a zip code– defined area where 70–80% of its patients are drawn from—and  determining the population use rates for applicable service lines (e.g., cardiology, orthopedics, home care visits, CT scans, etc.).  These data are usually collected for several historical time periods (e.g., the previous three years) and can then be forecasted out several more time periods simply by using a mathematical trend formula, resulting in a baseline scenario. 29 FINANCIAL CONDITION  As with the volume forecast, several years' worth of key financial indicators should be analyzed to highlight additional strengths and weaknesses of the organization.  Any financial forecasts that are available should also be included, as well as any routine or planned capital spending and/or facility improvement plans.  It is critical to tie the financial reserves and needs of the organization to the strategic planning process to ensure the resulting strategies can and will be funded appropriately.  Tying the financial information to the volume forecast also serves to provide budget targets for the upcoming year(s). 30 STRATEGIC PERFORMANCE  It is important to remember that strategic planning is a dynamic rather than linear process and, as such, there should optimally be no distinct beginning or end.  Thus, a review of the organization's past strategic performance should be included as part of future strategy development.  This review can be as simple as an assessment of whether past strategies accomplished their intended goals or as multifaceted as an ad hoc leadership meeting to discuss roadblocks that led to failure or factors that drove success.  Either way, this review can and should provide valuable information for future strategy development and implementation. 31 ORGANIZATIONAL CORE CAPABILITIES  In addition to the more quantitative strengths and weaknesses that can be outlined through the volume forecast and financial condition review, there are subjective strengths and weaknesses that need to be identified for strategy development as well.  Identifying these capabilities can be quite challenging, as planners usually have to rely on surveys of and/or interviews with the leadership of the organization to gather this information.  This can be both time-consuming and value laden, but this  information will be critical input for the plan's overall success. 32 ORGANIZATIONAL CORE CAPABILITIES  The key to gathering the most value from the leadership input is to challenge leaders (e.g., executives, physicians, managers, etc.) to think within a strategic context, as opposed to the operational mode they are involved in on a day-to-day basis.  Merely asking leaders to identify an organization's weaknesses, for example, can result in responses such as poor parking or a lack of marketing, whereas framing the question to identify challenges to the organization in growing service volumes may better yield answers such as an aging medical staff, lack of capacity.  It is important to incorporate these identified strengths and weaknesses into the organizational assessment for further discussion. 33 STRATEGY IDENTIFICATION AND SELECTION  Throughout the development of the SWOT, the building blocks for strategy identification begin to emerge.  If the organization is at the start of the development of a multiyear plan, it will usually conduct a rather thorough SWOT analysis. However, if the organization has an identified long-term strategic direction, the SWOT may selectively analyze only those areas that are relevant to the identified strategic direction.  For example, if the organization has resolved to grow defined service lines, the analysis may focus more specifically on those areas of the market.  Alternately, if the direction is diversification, the analysis may focus more on areas related to the organization's current strengths, whether they are related to service line or internal capability.  Regardless of the depth of the SWOT, it serves as input for the next step in the process, strategy identification and selection. 34 SCENARIO DEVELOPMENT  Strategy identification usually begins with the baseline scenario developed for the volume forecast. However, at this point, it is important to apply planning assumptions to the scenario and not simply accept the baseline.  For example, will the organization plan to hold market share constant for a particular service, or will the organization hope to grow that market? Alternatively, the organization may decide to discontinue a specific service, perhaps due to predicted declining reimbursement or lack of physicians.  By applying different planning assumptions, many different scenarios may result. 35 SCENARIO DEVELOPMENT  It is also critical that the information and data gathered in the market assessment, including the competitor assessment, be incorporated into this forecast in the form of further planning assumptions.  For example, are there new technologies on the horizon that will affect service volumes? Or is there a dearth of providers that may counteract predicted increasing utilization of a particular service for a period of time? Desired financial targets also need to be incorporated here.  Overlaying these planning assumptions onto the baseline scenario can result in number of future scenarios by adjusting their relative impacts. 36 SCENARIO DEVELOPMENT  From this scenario analysis, several potential strategic directions for the organization may emerge.  The strategic direction is the goal that the organization desires to accomplish within the planning time frame.  Generally, as each scenario may have different probabilities for success and may require different levels of resource investment, the specific scenario (and strategic direction) that will ultimately be chosen will often depend on an organization's tolerance for risk. 37 OUTCOMES  Once a strategic direction is chosen, specific desired outcomes should be targeted and strategies to accomplish this identified.  As an example, if an organization concludes it will differentiate itself through its orthopedic services (strategic direction), the desired outcome may be to lead the market in orthopedic service volumes within two years.  To accomplish this, the organization may identify strategies to increase its surgeon base, add rehabilitation services, or develop a center-of-excellence program.  A strategy is a carefully designed plan to accomplish the desired outcomes. 38 OUTCOMES  Even the largest and most fiscally sound organization cannot successfully implement all the strategies it can conceive of, nor should it try to.  A successful strategic plan is focused and, just as importantly, executable; too many strategies may render the plan ineffective simply because there is too much to do.  Strategy is all about making choices. A clear and focused strategy will guide decision making, prioritize resource allocation, and keep the organization on its desired course;  In choosing which strategies to pursue, an organization is also choosing which strategies not to pursue.  At this stage in the planning process, the organization’s leadership must determine its ability to successfully execute the strategies it has identified. 39 STRATEGY TACTICAL PLANS  The final step in the actual development of the strategic plan is the creation of specific tactical plans for each strategy, which are necessary for translating the plan into action.  Tactical plans answer the who, what, when, where, and how questions of strategy implementation. 40 41 ROLLOUT AND IMPLEMENTATION  With the development of the tactical plans, the strategic plan is complete. The plan is then presented to the board of directors for approval and endorsement and is then rolled out across the organization.  Rollout of the plan has two main steps: first, the plan is communicated at all levels of the organization; only by communicating the strategy to all necessary stakeholders can an organization gain the support necessary for successful execution of the strategy. Second, supporting plans such as the financial and budgeting, operating, marketing, capital, and master facilities plans are developed or updated with their intent and strategies developed in the strategic plan.  Having all of the organization's supporting plans tied to the strategic plan is a critical factor in reinforcing its strategic direction. 42 43 OUTCOMES MONITORING AND CONTROL  Monitoring and control of the strategic plan is most often accomplished through the use of an organizational dashboard, or scorecard.  A dashboard is a visual reference used to monitor an organization's performance against targets over time.  Its simplistic design should allow for quick assessment of areas that may need adjustment, similar to car dashboard.  Dashboards can depict strategic, operational, and/or financial outcome indicators, depending on the organization’s needs, but care must be taken to highlight a manageable number of indicators, or the dashboard will lose its functionality. 44 45 OUTCOMES MONITORING AND CONTROL  Depending on the organization's needs and on the types of indicators management identifies, the dashboard should be monitored regularly (e.g., monthly or quarterly).  At a minimum, as soon as an indicator highlights a variance from the desired target, managers must address the variance with tactics that correct or alter the results.  Optimally, the dashboard should serve to facilitate ongoing management discussion regarding execution of the strategy.  To help best ensure success of the strategic plan, dashboard indicators are aligned with operational plans and their associated identified goals. 46 STRATEGY EXECUTION  Strategy execution is crucial for organizational success and cannot be overstated in terms of importance; unfortunately, this is often an element of strategic planning that many organizations overlook.  With the flurry of activity and intensity that usually surrounds the development of the strategic plan itself, there can be a collective sigh of relief following board approval of the plan, and leadership may be relieved to be able to return to their “real work” and the day-to-day operations.  Yet successful organizations know that execution is much more important than the plan. 47 STRATEGIC PLANNING AND EXECUTION: THE ROLE OF THE HEALTHCARE MANAGER  The value of strategic planning lies not in the plan itself, but in the planning process.  Properly conducted, the strategic planning process will challenge management to robustly confront the facts of its market, to persistently test planning assumptions, and to continually refine the organization's execution skills. 48 STRATEGIC PLANNING AND EXECUTION: THE ROLE OF THE HEALTHCARE MANAGER  Healthcare managers at all levels have the responsibility to continually monitor their environment—both internal and external—and assess and act upon the possible implications of any trends or events that are of note.  They have the responsibility to understand their local market on an ongoing basis and to know their organization’s strategic direction and intent.  They are responsible for identifying ways to support the organization's strategy and for ensuring that their subordinates have the knowledge and understanding of the strategy in order to do the same.  Strategic planning may be driven by the planning or business development function of an organization, but it is the responsibility of leadership at all levels to help execute and manage the organization's strategy.  Strategic plans may also be developed for departments and other levels within the organization and may be helpful to the manager in achieving the department's goals as well. 49 CONCLUSION  Effective strategic planning is a critical element in the success of today's healthcare organizations.  Through understanding its competitive and other market environments, an organization can best identify a desired future state and a means to achieve it, but as discussed, the true value of strategic planning lies in the process, and less in the resulting plan.  Strategic planning will likely continue to be a valued function in healthcare organizations in the future, and management at all levels needs to understand the process, and its purpose and their critical role in development and execution of the successful strategy. 50