In the midst of a strategic planning project or shortly after it’s concluded, it’s not unusual for me to get a phone call from a CEO with an important question. Over the past 30 years, the questions in these calls have fallen into 10 categories, to which I have offered the following observations:
1. For a CEO, strategy is Job 1.
A CEO’s job is not quality, productivity, finance, human resources or marketing. These are delegated responsibilities. It is the CEO’s job to orchestrate competencies and capabilities into a sustainable value advantage.
In their superb text Strategic Management of Health Care Organizations, Linda Swayne, Jack Duncan and Peter Ginter reinforce the importance of strong strategic leadership: “Ultimately, strategic decision-making for health care organizations is the responsibility of top management. The CEO is a strategic manager with the pre‑eminent responsibility for positioning the organization for the future. They prioritize constantly, aware that wars are lost by fighting on too many fronts. They know the key messages to communicate from day to day, from audience to audience. If the CEO does not fully understand or faithfully support strategic management, it will not happen.”
Too many organizationwide strategic planning efforts seem to assume employees will resent and resist efforts by leaders to set overall direction. My experience suggests just the opposite. Generally, employees expect and welcome it when their leaders provide strategic direction. Followers are more likely to follow when they sense insight and depth of commitment at the top of the organization.
Making strategy happen requires toughness and resolve. As Harvard Business School’s Michael Porter emphasizes: “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.”
2. Organizations succeed because they generate value.
If there is one fundamental truth in management, it is that organizations are sustained on the difference between their costs and their prices. An ability to charge more than your costs means you have generated outputs that are worth more than the inputs that produced them.
Quality isn’t enough. No one buys quality. People buy value. In theory, they are willing to trade quality for a lower price (or conversely, pay a higher price for higher quality). The ditches are littered with high-quality organizations, products and services kicked aside by high-value competitors.
In the health care value equation, Q stands for more than clinical quality. It also encompasses the quality of the patient’s experience. And there’s another essential component to the value equation: access. It doesn’t matter how high your quality or how low your price if you’re not conveniently available or are locked out of a health plan’s network.
The willingness to trade off quality is less elastic for health care than it is for other services; quality is expected to be relatively the same regardless of price paid. That puts the onus on clearly demonstrating a competitive level of quality while relentlessly driving down costs and expanding access.
All value in health care is generated at the interface between a patient and a caregiver. Everything else is overhead. By patient, I mean anyone whose health can be improved.
3. Clarity is key.
Much ink is spent exhorting CEOs to inspire employees and customers. But it is not the CEO’s job to send shivers up spines, spark applause or make people weep with joy. It is the CEO’s job to be clear. Clarity trumps emotion. I try to remind health care CEOs that theirs is a social and business enterprise committed to converting labor and technology into improved health. Their defining challenge: In as simple and straightforward language as possible, describe what the organization aspires to become and how it intends to accomplish those aspirations, then enlist the effort necessary to turn its intentions into reality.
In Good Strategy, Bad Strategy, the UCLA Anderson School of Management’s Richard Rumelt advises leaders to be diligent in avoiding what he calls “fluff.” “Fluff is superficial restatement of the obvious combined with a generous sprinkling of buzzwords,” he says. “Fluff masquerades as expertise, thought, and analysis. As a simple example of fluff in strategy work, here is a quote from a major retail bank’s internal strategy memoranda: ‘Our fundamental strategy is one of customer-centric intermediation.’ The Sunday word ‘intermediation’ means that the company accepts deposits and then lends them to others. In other words, it is a bank.”
Focus is key to clarity. Success in a world of scarce resources requires choices. Trade-offs are required. Opportunities and options have to be constantly tested against vision and driving strategies. Focus means not chasing cars.
4. Compete to be different, not to be the best.
This advice, persistently reinforced by Porter, seems counterintuitive but is key. Organizations that compete to be the best converge on the same pasture and stand shoulder to shoulder gnawing short grass. By definition, when organizations compete to be the best, they drive out the differences that yield value because they are running toward the same place — a place of homogeneity and commoditization.
For decades, many hospitals and physicians have been able to rely on location and proximity as their primary points of differentiation. And while those can be powerful points of advantage, they are often quite accidental. Being different requires a unique operating discipline. To be different, you’ve got to do different. An organization that is differentiated on the basis of being patient-centered will have a distinctive chain of activities and processes compared with an organization differentiated on the basis of advanced clinical capabilities or lowest cost.
As Harvard’s masterful Joan Magretta reminds us: “In a competitive world, doing a good job of creating value is only the necessary first step toward superior performance. Competition demands that you do a better job than the alternatives. And doing better, by definition, means being different. Organizations do better — they achieve superior performance — when they are unique, when they do something that no one else does in ways that no one else can duplicate. When you cut away all the jargon, this is what strategy is all about: how you are going to do better by being different.”
5. Physicians are different.
It should go without saying that physicians are fundamental to hospital success. There is no way to manage quality, cost and access to care without them. Indeed, there are very few high‑level strategic initiatives in health care today that don’t require physician support to succeed.
Because of predispositions dating to childhood as well as their education, training, acculturation and experience, physicians are a unique subset of society. They don’t fit neatly into the psychographic segmentation models developed by marketers or into personality types offered up in management texts. They are generally independent, professionally conservative and pragmatic as well as surprisingly conflict-averse and democratic.
Physicians rarely give trust. It has to be earned. They are relatively unresponsive to the “leader on top” model of management and tend to prefer a “first among equals” approach. You don’t lead physicians. You lead with them. Most physicians resent being “economically aligned” as if money’s all that matters to them.
As many hospitals are discovering, employment often does little to overcome the defining characteristics of physician personality, including tendencies toward independence. As most health care CEOs know, the old adage still holds: “Boards hire CEOs, and physicians fire them.” As in all professions, there are saints and devils in medicine, but the bell curve is much fatter at the saints’ end of the distribution. If you don’t believe that, you haven’t been paying attention and may be in the wrong career.
6. You don’t need a strategy. You need strategies.
“What is your strategy?” is the wrong question. The right question is, “What are your strategies?” No organization can get by with one strategy. You need a handful.
Thomas Aquinas advised, “Beware the man of one book.” The same advice applies to strategies. That handful of “driving strategies” should be synergistic. They should strengthen and feed on one another. Each is a linchpin. Remove one driving strategy, and the others suffer; that one strategy is often reduced to impotence.
A handful of strategies persistently and consistently pursued in support of a compelling vision unifies, integrates and coordinates the daily work of the organization. According to Rumelt: “The idea that coordination, by itself, can be a source of advantage is a very deep principle. It is often underappreciated because people tend to think of coordination in terms of continuing mutual adjustments among agents. Strategic coordination, or coherence, is not ad hoc mutual adjustment. It is coherence imposed on a system by policy and design. More specifically, design is the engineering of fit among parts, specifying how actions and resources will be combined.”
7. Economies of scale are fictional.
When it comes to most of a hospital’s operations, including its inpatient and outpatient enterprises, there are very limited opportunities to create economies of scale through merger. Hospital operations are tied to a particular location. Such locally dependent production cannot simply be consolidated as it can in many other industries. Its utilization depends on proximity to particular communities and caregivers who themselves are highly localized.
The only economies most hospital mergers can create relate to administration, which typically accounts for about 15 percent of total expenses. The savings potentially available from economies of scale resulting from most mergers is some percent of 15 percent. Expectations of higher credit ratings are often used to justify mergers, but the evidence is scarce. A single hospital with a record of strong market share and margins will earn a high rating from the credit agencies just as easily as a big multihospital system.
Not only are most mergers incapable of creating economies of scale, they can be immensely expensive and distracting. As a strategy consultant, I love to see my clients’ competitors engaged in merger discussions. I can usually count on the competitor to be effectively paralyzed for two to three years.
Size does matter, but big doesn’t. A hospital can be too small. And it can be too big. A hospital that’s too small can’t generate the proficiencies necessary to consistently deliver high-quality care or the volume necessary to effectively amortize the cost of technology.
On the other hand, a hospital that’s too big can become lumbering and ponderous. Organizational coherence, including consistency in care, becomes more difficult to orchestrate. Wayfinding becomes onerous not only for patients but for caregivers as well.
There is a right size for a hospital — somewhere between 100 and 300 beds. Unfortunately, there’s not much hope for the too‑small hospital beyond government subsidies. The too‑big hospital, on the other hand, can break itself up into a collection of smaller, focused hospitals. The big elephant may not be able to dance. But the little one can. Size is a choice.
8. Boldness is overrated.
Hospitals and health systems are often encouraged to jump boldly to a "second curve" lest they end up riding their current curve down to certain demise. The second curve is presumably a fundamentally different and better place. All this, of course, implies that the different, better place is knowable and attainable. Knowability and attainability require predictability.
Doyne Farmer is a professor at Oxford University and the Santa Fe Institute. He is also a pioneer of chaos theory and complexity science. Farmer has suggested that in an environment that is uncertain and rapidly changing, while you can predict short, you can’t predict far. But bold leaps are, by definition, long leaps. Predicting long in the face of complexity has a name. It’s called gambling. Bold leaps to second curves always seem to be advocated by those who haven’t done much leaping. Nothing ventured, nothing gained — or lost.
The only thing worse than knowingly jumping off a cliff is blindly falling off one. For example, in health care, many information technology investments remain costly leaps of faith. Research studies confirm that physicians and nurses are deeply unhappy with the new information systems they are compelled to use. For many of them, electronic health records waste precious time, don’t contribute to coordinating care and may actually threaten patient safety.
CEOs and boards are clueless as to the returns their investments in IT are generating. Just ask them. Too many hospital IT departments operate behind a fog of technobabble. As a result, there is little to no accountability associated with what has increasingly grown into the largest line item in the capital budget. It’s also become clear that botched IT initiatives can lead to disaffected doctors. And disaffected doctors can lead to disaffected board members, and that can lead to a terminated CEO.
The best way forward when confronted by uncertainty and resistance is to imagine a better place and then get there incrementally by building on legacy strengths, using short predictions, making frequent adjustments and demanding accountability. When speed is required, opt for accelerated incrementalism.
9. A preference‑market share gap is a problem.
Market share is how much people actually use you. “Preference share” is how much people would prefer to use you. It’s good to grow profitable market share. It’s also good to increase your preference. But it’s important to keep an eye on the relationship between market share and preference. If the gap between the two is significant — say you have 25 percent market share and 35 percent preference — that means there are people who would like to use you but aren’t. Why? And what if you have 35 percent market share and 25 percent preference? Well, that means you’ve got people using you who would rather not. Why? Either way, you’ve got a problem.
Maybe your preference is low because you’ve got a lousy brand. Branding hype has wasted a lot of resources in health care. Too often it’s been sold by design firms and ad agencies as a costly exercise in generating new logos and name changes, often accompanied by vacuous slogans posing as vision statements.
A brand is not a logo. A brand is the visible manifestation of differentiation for an organization or a product. For a brand to be authentic and meaningful, the differentiation it represents must be authentic and meaningful. It has to be real. Authenticity and meaning are embedded in the way an organization does things or the way a product functions day in and day out.
It takes hard work, time and consistency to build organizations that can claim a preferred brand. The most valuable brands in health care — Mayo, Hopkins, Cleveland Clinic — took a century of disciplined consistency to create. You can’t flip a switch that creates preference. But you can quickly flush a lot of money and goodwill down the toilet by trying to brand an empty promise.
10. Strategic thinking is an acquired skill.
Some people are born with a natural affinity for strategy, but even a natural batter improves with practice. And every CEO has the capacity for strategic leadership. Much strategic insight comes from just being introspective and asking, “OK, what the heck just happened there? Why?” Learning comes from doing but increases exponentially when it is reinforced with a feedback loop animated by the question “Why?”
The work of a complex organization, like a hospital, provides one source of strategic insight, but there are others. Indeed, any activity characterized by a high degree of uncertainty and resistance holds lessons.
Some of the most strategic CEOs I’ve known over the years have been fly fishermen. It takes foresight and finesse to put a fly where a fish wants it. Rushing water creates complexity, but there are patterns to be discerned. For example, trout like to lurk in the downstream shadow of rocks, and their preferred diet shifts as the insect hatch progresses. Is the fly right? Is the fish there? Will it rise and bite? There are insights in a rushing stream and on a chess board. These are more than metaphors. Anything that exercises strategic muscle strengthens a leader, but only with introspection and repetition.
A CEO must not only cultivate personal strategic thinking skills, but also those of the leadership team. This is best accomplished by opening up space for strategic dialogue focused on important questions. As Peter Drucker once suggested: “Great leaders ask questions. The right questions.”
Resolve, hard choices and differentiated value are the cornerstones of sustainable organizations. Persistent uncertainty and resistance, the hallmarks of a complex and volatile environment, require one attribute above all others of a leader: an ability to define and navigate a consistent and coherent path toward clear organizational purpose and aspirations — in other words, an ability to be strategic.
Dan Beckham is president of The Beckham Co., a strategic consulting firm based in Bluffton, S.C. He is also a regular contributor to H&HN Daily.