A strategy is a plan for getting from a point in the present to a more advantageous point in the future in the face of uncertainty and resistance. Absent uncertainty and resistance, you don't need a strategy. You just need a to-do list. Goals and objectives are not strategies. They are end points. Strategies are pathways. They define not what constitutes success but how success will be achieved. "Increase market share to 70 percent" is not a strategy. It is an objective. It defines an end point. "Establish primary care physicians in areas of growth" is a strategy. It provides the how.
Ask a hospital about its strategies and you may be presented with a set of "pillars," typically one each for quality, service, growth, finance and people. Arrayed around each pillar may be a set of goals or objectives. Although this is a useful framework for conveying performance targets, it isn't strategic unless it explains how improved performance will be achieved.
Goals and objectives are like the instrument panel in an airplane's cockpit with such performance indicators as air speed, fuel consumption, altitude and rate of climb. Strategies are analogous to the things the designers and manufacturers can do to improve the performance those instruments measure. Improved aerodynamics, lighter construction and technological breakthroughs in engine design can make the plane fly faster, use less fuel and climb more quickly. There are fundamental distinctions between performance and the strategies that improve it. Here are some characteristics that executives can use to assess the quality of their strategies:
Good strategies lead to a difference that matters. They plot a path to a future that is "different" in a way that is meaningful and valuable. As the Harvard Business School strategist Michael Porter emphasizes, organizations should strive to be different rather than compete to be the best. Competing to be the best results in convergence: Everyone steers toward the same destination defined by a consensus view on what constitutes "best."
Good strategies are well-targeted. A vision is an overarching goal. It is not a strategy. It is the target of an organization's strategies, what it aspires to become. The quality of a strategy depends greatly on the quality of the vision it supports. Lack of clarity in a vision, including its reduction to a vacuous slogan, will result in a lack of precision in strategies. The effectiveness of the path depends on the effectiveness with which the destination is defined. It is the role of the vision to clarify that destination with enough specificity that strategies and organizational attention can be oriented to it.
Good strategies focus on what it is most important for the organization to do. Thus, strategy formulation is primarily an executive responsibility because it is the executive team's job to deal with the organization's most important questions and ensure execution of its most important initiatives. An executive team's effectiveness is defined by how well it accomplishes what's most important. An executive without strategic responsibility is really not an executive.
Good strategies drive operations. Another point emphasized by Porter and others is that strategies must be supported by a differentiated value chain. A value chain describes those activities that deliver the output of the organization. No strategy can generate meaningful differentiation unless it is underpinned by a well-tailored and unique value chain. Obviously, there are many thousands of such activities for most organizations and hundreds of thousands for a complex organization like a hospital. The challenge is to group key activities into clusters that flow into one another in a way that simplifies the complexity, operationalizes the strategies and results in a unique value proposition.
Good strategies are multidimensional. "What is your strategy?" isn't the right question. The right question is, "What are your strategies?" It takes multiple strategies to generate a difference that matters — but not too many strategies. Focus is essential in an environment of scarce resources. Five to seven strategies is about the right number for most organizations.
Good strategies are codependent. They are not well-represented by a set of pillars, any one of which can crumble and bring the roof down. Instead, each strategy should be thought of as one in a cluster of five to seven highly interrelated circles, all arranged in a dynamic balance. Touch one and you touch them all. Overlaps in the cluster of circles reflect synergy and strength.
Good strategies require trade-offs. Formulating a strategy involves not only deciding what you're going to do, but what you're not going to do. There's path dependence associated with any sound strategic plan. Deciding to take one path precludes taking others. And investment along one path ought to generate synergy associated with further investment as strengths beget related strengths. Consideration of "what not to do" should be as explicit as discussions of "what to do." If you are a cheetah, it's better to invest in becoming a better cheetah than to seek transformation into a falcon.
Good strategies are infused with resolve. Abandoning a strategy should occur only if conditions change dramatically, if there is clear evidence the strategy has become unworkable, or if it's apparent the strategy has been substantially accomplished. Strategist Dan Wolf, board chair for Munson Healthcare in Traverse City, Mich., distills the challenge of executing strategy into two words: prepared and resolved. An essential aspect of preparation is dialogue that leads to understanding and commitment regarding the organization's future and how it intends to get there. Preparation is a necessary precursor to resolve. Preparation takes time and intent. Few organizations commit the time or reflect the intent needed to give resolve its sinew.
Good strategies are supported by rigorous accountability. In most organizations, executive accountability is associated with performance. But performance can be quite unintentional. Strategies generate the differences that translate into intentional performance. And accountability for strategy requires a different standard than accountability for performance. Strategies operate in the realm of accomplishment. They say, "Here is what we are resolved to do." So the question essential to assessing an executive team's accountability for strategy is, "Did you accomplish what you committed to accomplish? Did you do what you said you would do?"
Good strategies are well-communicated. According to Porter, "Strategy is useless if it's a secret, if nobody else in the organization knows what the strategy is. The purpose of strategy is to align the behavior of everyone in the organization and to help them make good choices when they're on their own. People are out there, every day, making choices. You want them to make the choice that fits the strategy. So you've got to communicate it."
A clear strategy is distilled into a single sentence that invariably contains a verb because strategies connote action. One of the most significant and overlooked barriers to effective strategic leadership is nomenclature. Too often executives are sloppy in how they describe things. They don't draw distinctions or provide consistent definitions. They call the same things by different names. And this turns organizations into towers of Babel.
Good strategies are sustainable. No strategy lasts forever, but the best ones have a lifespan extended by a unique value chain and culture that other organizations find difficult to emulate. Continuity is the shape of resolve. There ought to be a degree of consistency in the trajectory of strategies, as 90-degree turns are distracting and destroy momentum. One of the most debilitating of strategic disorders is the attention deficit syndrome exhibited by executives who shift regularly from one silver bullet fad to another, giving their organizations whiplash in the process.
Good strategies are nonnegotiable. Input strengthens strategy formulation output but shouldn't devolve into a show of hands. Again, according to Porter, "If there are individuals who don't accept the strategy, who simply refuse to get on board, they cannot have an ongoing role in the company. That's a polite way of saying they've got to go. It's healthy for people to disagree, and managers should be given a chance to make their case and to change minds, but there comes a time when the discussion has to end. It's not about democracy, or consensus, or about making everyone happy."
Good strategies cascade. They're supported by a hierarchy of tactics, which are, in turn, supported by more specific actions. Tactics should identify who's primarily responsible to accomplish them and when they are targeted to be accomplished, along with an estimate of the resource commitments necessary to accomplish them. While strategies and tactics are appropriately top-down in origin, actions should be more self-defined and bottom-up. Strategies and tactics ought to align the daily work of the organization by guiding decisions at every level.
Good strategies evolve. Although it is certainly possible for a strategy to spring forth perfectly formed, most strategies take time to grow into their skins. They clarify and solidify over time. Thus, Toyota's Lean production emerged gradually not from strategy formulation sessions at corporate headquarters but out of the brutal realities of a war-ravaged Japan in which space and many other resources were in exceedingly short supply.
Southwest Airline's strategies also emerged out of an environment of intense scarcity that forced the startup to standardize its aircraft, avoid head-to-head competition and make the best use of its limited assets, including its people.
To save on expensive warehousing and shipping, Ikea defaulted to "flat-pack" packaging and "assemble-yourself" products that became, over time, powerful differentiators with its economy-minded customers.
Similarly, the Cleveland Clinic's century-old multispecialty group practice model and the unique value chain that supports it has made possible the same-day appointments the clinic now touts persistently and consistently in its national advertising.
In Chicago, Advocate Health Care has emerged as a national leader in clinical integration that unifies employed and independent physicians in collaboration that results in demonstrable advantages in quality and cost as well as the ability to contract as one through a "super physician-hospital organization." But this strategy was forged in the fire of a lawsuit brought against it by a major insurance company contending that the PHO, at the heart of Advocate's still emergent model, had an unfair advantage. The Federal Trade Commission saw it differently and gave Advocate the running room it needed to develop a powerful differential advantage.
Good strategies are universal in scope. They are not limited to questions of competition. Strategy is relevant wherever uncertainty or resistance characterize the environment. Indeed, Mayo Clinic's differentiation always has been underpinned by a culture of collaboration. And today, Mayo's future is being interwoven with that of IBM as the two organizations mine the clinic's deep reservoir of patient data derived from its disciplined use of a standardized medical record system implemented early in the clinic's formative years.
For decades, many hospitals and physicians have been able to rely on location and proximity as their primary points of differentiation. And those are powerful points of advantage. But they are advantages that often have been quite accidental. Differential advantage, and the intentional strategies that generate it, will become increasingly important as more environmental uncertainty and resistance flow from unexpected sources.
Rather than continuing to react to their crosstown competitors, executives should begin to consider the reflections of David Johnson, managing director of BMO Capital Markets, regarding the possibly growing role for Walmart and other retailers in health care: "Large retail chains will pursue a health and wellness business strategy that provides value to customers, grows same-store sales and increases profitability. They will be rational and relentless. Given the opportunity, they will displace health systems and commoditize services.
"The real question is how health systems will respond to this competitive challenge. Will they make the structural changes required to win customer loyalty? Will they align their business objectives with customer needs? Will they have the courage and skill required to manage population health? Will they be nimble enough to create their own alliances, possibly even with a large retailer? Will they fight for their customers as though their futures depend upon it? Answers to these questions will determine which health systems ‘win' in the reform era."
Dan Beckham is the president of The Beckham Company, a strategic consulting firm based in Bluffton, S.C. He is also a regular contributor to H&HN Daily.