Introductory Incident
Relentlessly Pursuing the Vision
It could have gone either way. On June 4, 2007 the deal was struck and Rite Aid formally acquired Brooks-Eckerd. At the September 2006 annual senior management meeting of Rite Aid, excite- ment over the proposed Rite Aid acquisition of Brooks–Eckerd was building, as was the insecurity among some Brooks–Eckerd associates. The acquisition created an industry leader with com- bined revenue of almost $27 billion and made Rite Aid the largest pharmacy chain on the East Coast. Then CEO (now Chairman of the Board) Mary Sammons challenged Rite Aid ’s associates
5 Directional Strategies
“CEOs and boards love a good mission statement – that is, after the pain of writing it is over. They should. A mission statement is literally a defi ning moment and something you would proudly show your mom.”
—MARY GRAYSON
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166 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
to make the company “bigger, better, and faster.” Others were not so optimistic and cautioned that success of the consolidation would not be just fi nancial.
At the Brooks–Eckerd managers’ meeting in 2007, Sammons stated that “I feel so fortunate to share with you Rite Aid ’s vision and how we can make this vision a reality.” The guiding force, simply stated is “With Us, It ’s Personal.” The goal was to close the gap between Rite Aid and its national competitors, CVS and Walgreens, and make the company the customer ’s fi rst and only choice when it comes to health and wellness. As worthy as the goal was, some insiders cautioned Rite Aid that “talk is cheap; it ’s action that delivers results.” Vision, “is nothing without execution.” Ultimately, success depends on the associates. Sammons agreed, stating that “great vision with- out great people simply doesn ’t matter.”
The Brooks–Eckerd acquisition was a turning point in Rite Aid ’s history. At the time of the acquisition, Rite Aid operated about 5,000 stores in 31 states and the District of Columbia. Although the sales growth in the pharmacy industry has slowed signifi cantly in recent years, Rite Aid has maintained its competitive position and currently operates 4,700 stores with a substantial increase in its West Coast operations. Almost 68 percent of its revenues come from prescriptions, with the other 32 percent accounted for by “front-end products” such as over-the- counter medications, cosmetics, health and beauty aids, and so on. The challenge is to continue to gain acceptance of the Rite Aid vision and transfer it to the new and larger organization. According to Mary Sammons, “it stopped being about survival a long time ago and started being about growth. We are in the best fi nancial shape we ’ve ever been in.” It is true that the success or failure of the combination will not be in the numbers – fi nancial or growth. The key to success, according to Rite Aid ’s COO at the time, will be in everyday actions that make the numbers come to life. “Our business is only as strong as we make it.” The new Rite Aid is solidly in third place in the retail pharmacy and wellness business. Integrating the existing cultures and building a mutually challenging vision of the future will be the deciding factor.
In 2003, Rite Aid is working hard to distinguish itself from the competition. The company ’s strategic alliance with GNC, a leading retailer of vitamin and mineral supplements, provides greater opportunities for front-end sales. In 2010 Rite Aid rolled out its wellness+ card-based loyalty program that provides benefi ts to cardholders based on the points they accumulate for purchases of prescriptions and front-end products. Currently, wellness+ cardholders account for about 67 percent of front-end sales and 58 percent of fi lled prescriptions.
Rite Aid ’s mission is clear:
“To be a successful chain of friendly, neighborhood drugstores. Our knowledgeable, caring associates work together to provide a superior pharmacy experience, and off er everyday products and services that help our valued customers lead healthier, happier lives.”
In 2003, Rite Aid continues to face challenges in assuring the success of the acquisition. Experts indicated that the 2007 acquisition of Brooks–Eckerd bogged the company down, with debt accounting for much of the $2.9 billion loss in fi scal 2009. First-quarter losses in 2012 were
Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-11-20 18:43:13.
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CHAPTER 5 DIRECTIONAL STRATEGIES 167
Directional Strategies
Mission, vision, values, and strategic goals are appropriately called directional strategies because they guide strategists when they make key organizational decisions. The mission attempts to capture the organization ’s distinctive purpose or reason for being. The vision creates a mental image of what leaders want the organization to achieve when it is accomplishing its purpose or mission. It is the organization ’s hope for the future. Values are the principles that are held dear by members of the organization. These are guiding principles the managers
still at $28 million but projections indicated the company expected a 1 percent increase in 2013 sales. Rite Aid continues to struggle but has done well to maintain its market position during extremely diffi cult conditions. It is well positioned for the future challenges it and the pharmacy industry, in general, face.
Source: Rite Aid website, 2011 Annual Report, SEC Form 10-K, and Michael Johnsen and Antoinette Alexander, “Rite Aid and Brooks–Eckerd Meetings Set the Vision, Spirit of the Future,” Drug Store News 28, no. 12 (September 25, 2006), pp. 1–3.
Learning Objectives
After completing the chapter you will be able to: 1. Understand the roles of and relationships among organizational mission, vision,
values, and strategic goals and why they are called directional strategies. 2. Recognize the important characteristics and components of organizational mis-
sion and be able to write a mission statement. 3. Recognize the important characteristics and components of vision and be able
to write an organizational vision statement. 4. Recognize the important characteristics and components and be able to write a
values statement. 5. Recognize the important characteristics and components and be able to write
strategic goals. 6. Identify service category critical success factors. 7. Develop a set of strategic goals that contribute to the mission, move the organi-
zation toward the realization of its vision, and are consistent with the organiza- tion’s values.
8. Recognize the important issues in the governance of health care organizations and the role of boards of directors in maintaining policy-making direction.
Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-11-20 18:43:13.
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168 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
and employees will not compromise while they are in the process of achieving the mission and pursuing the vision and strategic goals. Strategic goals are those overarching end results that the organization pursues to accomplish its mission and achieve its vision. Unfortunately, there is rarely a clear distinction among the concepts and terms actually used in these statements – especially in the mis- sion, vision, and value statements. Studies of actual statements reveal that even though the statements are clearly labeled there is a wide variety of terms used to express the ideas contained in them. 1
Organizational Purpose and Mission
Chester Barnard, in The Functions of the Executive , stated that only three things are needed to have an organization: (1) communication, (2) a willing- ness to serve, and (3) a common purpose (for more detail, see the Health Care Manager ’s Bookshelf at the end of this chapter). The inculcation of the “belief in the real existence of a common purpose” is, according to Barnard, “the essential executive function.” 2 Purpose, among other things, helps managers make sense of the environment. When the purpose of an organization is clearly understood, the complexity of the environment can be reduced and organized in a way that can be analyzed in light of the goals the organization wishes to achieve. The complex environment is no longer a “mere mess of things.” 3 As a statement of purpose, the mission plays an important role in focusing strategists’ attention on relevant aspects of the environment.
For example, if the CEO of a long-term care facility simultaneously consid- ers all the turbulence in the organization ’s environment, the environment will appear confusing and overwhelming. Can anyone effectively track all of the changes taking place in biotechnology, cultural values, demographics, and poli- tics? However, if the CEO focuses on only those aspects of the environment that relate to the mission of the long-term care organization, the task becomes more manageable.
The common purpose (mission) to which Barnard referred is the reason that organizations exist. Some organizations exist to make money for the owners; some are founded to provide health care to indigent patients; others are started to deliver health services in as convenient a way as possible or to provide the care needed by groups of individuals who belong to the same managed care plan.
Mission: A Statement of Distinctiveness
In the hierarchy of goals (end results and organizational plans to accomplish them), the mission captures the organization ’s distinctive character. Although a well-conceived mission is general, it is more concrete than vision. An organiza- tional mission is not an expression of hope. On the contrary, it is an attempt to capture the essence of the organizational purpose and commit it to writing.
Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-11-20 18:43:13.
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CHAPTER 5 DIRECTIONAL STRATEGIES 169
DaVita Inc., a Fortune 500 company, is a leading provider of kidney care. In its mission statement, DaVita states that the company is committed “To be the pro- vider, partner, and employer of choice.” 4 In this case DaVita chooses to empha- size the way it does business rather than the services it provides. The company attempts to differentiate itself from other kidney care companies by focusing on quality outcomes, building a diverse community as a provider of services, partnering with other organizations, and becoming a good place to work for its almost 37,000 “teammates.”
An organizational mission is a broadly defi ned and enduring statement of purpose that distinguishes a health care organization from other organizations of its type and identifi es the scope of its operations in product, service, and market (competitive) terms. 5 The mission statement of the University of Texas M. D. Anderson Cancer Center in Exhibit 5–1 , for example, distinguishes the center from other health care organizations in the service area by its relationship with the University of Texas; its emphasis on a specifi c disease (cancer); and its com- mitment to the integration of patient care, research, education, and prevention and its intention to accomplish these through education at the undergraduate as well as graduate levels. M. D. Anderson employs an effective logo on its website that states it is the M. D. Anderson Cancer Center with a bold red line through the word “cancer,” thus emphasizing its commitment to eliminating cancer. Although mission statements are relatively enduring, they must be fl ex- ible in light of changing conditions. The changes facing academic medicine will continue to impose pressures on specialized centers of excellence such as M. D. Anderson because of the substantial costs involved in integrating patient care with the teaching and research mission and the increasing reluctance of payers to reimburse for educational costs.
Mission statements are sometimes not the true “living documents” that are capable of encouraging high performance. Studies of mission statements confi rm that the full potential of this directional strategy is rarely achieved. 6 Often mis- sion statements appear to be obligated to make reference to specifi c stakeholder groups such as patients or communities because of institutional pressures and refer to pressing social issues because of policy decisions within the organiza- tion. 7 To be effective, service delivery and support strategies must be designed to contribute to mission accomplishment.
One study of hospital mission statements found that almost 85 percent of the respondement by employees or that specifi c actions were infl uenced very much by the mission. 8
EXHIBIT 5–1 Mission Statement of the University of Texas M. D. Anderson Cancer Center
The mission of the University of Texas M. D. Anderson Cancer Center is to eliminate cancer in Texas, the nation and the world through outstanding integrated programs in patient care, research, edu- cation and prevention, and through education for undergraduate and graduate students, trainees, professionals, employees, and the public.
Source: University of Texas M. D. Anderson Canter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-11-20 18:43:13.
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170 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Another study of state-level departments of public health indicated that more than 90 percent had formal, written mission statements. Despite the frequency with which formal mission statements are encountered, a great deal of confu- sion exists regarding their value and the infl uence that these statements actually have on behavior within organizations. This confusion is unfortunate because the mission statement is a crucially important part of strategic goal setting. It is the superordinate goal that stands the test of time and assists top management in navigating through periods of turbulence and change. It is, in other words, the “stake in the ground” that provides the anchor for strategic planning. It must be emphasized, however, that mission statements, even at their best, can never be substitutes for well-conceived and carefully formulated strategies. 9 Moreover, a sense of mission is not a guarantee of success. As illustrated in Perspective 5–1 , a nice sounding mission statement is not enough. The organization has to adhere to the mission and regularly review it to be sure that it remains relevant in changing times. When the mission is carefully crafted, mission fulfi llment infl uences a variety of key psychological states related to employee motivation (e.g., employment engagement, organizational identifi cation, and so on). 10 It has also been suggested that “mythopoetic leaders,” who use the mission of the organization to anchor behaviors, can be instrumental in building robust cultures that can lead to a competitive advantage. 11
Mission statements remind managers in health care organizations to ask questions of themselves and their colleagues. It is important to ask individuals throughout the organization the following questions as the answers radically affect how the organization performs. These questions include:
1. Are we not doing some things now that we should be doing? A rehabilita- tive medicine center, after analyzing the environment and studying its own referral patterns, might determine that it should enter a joint venture with a group of surgeons to provide outpatient surgery services. The rehabilita- tive medicine center, located in a professional building adjacent to an acute care hospital, had simply referred patients requiring surgery to the hospital. However, insurance company policies and patient preferences suggested that the majority of surgeries could be performed on an outpatient basis.
2. Are we doing some things now that we should not be doing? The rehabili- tative medicine center, after extensive analysis, concluded that it should divest its rehabilitative equipment business and contract with medical and sports equipment suppliers for needed services.
3. Are we doing some things now that we should be doing, but in a different way? Throughout its history the rehabilitative medicine center required patients to come to the facility for services. For many patients, particularly those with serious injuries, travel to the facility was diffi cult and often impossible. Recently, the center purchased a mobile trailer with a fully equipped diagnostic and treatment facility that can transport services to local high schools and industrial locations. 12
An organization should carefully evaluate strategic decisions with the use of its mission statement. When new opportunities are presented it can use the three key questions to determine whether or not the new opportunity is consistent
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CHAPTER 5 DIRECTIONAL STRATEGIES 171
with its essential distinctiveness. Moreover, these three questions are important guards against mission drift , which tempts many health care organizations to go into businesses and programs that are not in line with their stated mission. 13 As an example, Express Scripts’ mission statement (see Exhibit 5–2 ) provides guidance for its strategic leaders and 13,000 employees in determining whether or not new opportunities should be pursued. To be consistent with the mission, opportunities need to involve services or processes that make prescription drugs safer and more affordable to the members of the health plans. Adherence to the mission has led the company to be an industry leader – striving for the lowest net cost to provide better health and value at the consumer level. The company notes that its generic fi ll rate leads the industry.
PERSPECTIVE 5–1
Do Mission Statements Matter?
Prominent displays of mission statements in the elevator, on employees’ name badges, and business cards are not enough to ensure that the message is taken to heart. Some managers wonder why organizations spend so much time talking about mission statements when they are often not taken seriously. Do organizations actually plan their future based on the mission (directional strategy) or do they simply respond to changing conditions?
Undoubtedly, some mission statements are not very good. They may sound fi ne and even have been crafted by an astute consultant or public relations fi rm; however, if they do not speak the language of employees and stake- holders they will not have much infl uence on behavior or performance. Organizations must think seriously about the future of their indus- try and their unique role in capitalizing on the opportunities created by changing times. This distinctiveness must then be captured in the mission statement.
Mission statements sometimes suff er from the following problems:
● Mission statements are written solely for their public relations value.
● Mission statements describe the purpose of all the organizations in the service category.
● Mission statements may have more time invested in their crafting than in their implementation.
Mission statements, if they are to be useful, must state the purpose of the organization and provide a good sense of what makes the organi- zation diff erent and what it is devoted to accom- plish. A mission statement should help the organization focus on its uniqueness. Writing a mission statement is important; however, living it is more important. Whatever is incorporated into the mission statement must be credible, realistic, attainable, and assist in diff erentiating the organization from all its competitors.
Sources: Greg Kitzmiller, “Do Mission Statements Matter? Reviewing the Importance of a Mission Statement and, More
Importantly, Sticking to It,” Nutraceuticals World 6, no. 10 (October
2003), p. 22; Tracy Turner, “Mission Statement Useful, Expert Says
’Companies Benefi t by Defi ning, Acting on Their Goals’, ” Knight
Ridder Tribune Business News (May 13, 2007), p. 1.
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172 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Characteristics of Mission Statements The mission statement of St. Jude Medical in St. Paul, Minnesota (Exhibit 5–3 ) illustrates some of the important characteristics of an effective mission state- ment. St. Jude Medical produces implantable cardioverter defi brillators, cardiac resynchronization therapy devices, pacemakers, spinal cord stimulation, deep pain stimulation devices, and so on. The product portfolio is carefully stated in the mission statement so the interested individuals can see immediately that St. Jude Medical competes with companies such as Medtronic in selected product lines. St. Jude Medical attempts to lessen risk and increase control by collabo- rating with physicians on product design, seeking simpler solutions to complex problems, designing products that help lessen procedural risks, expanding education and product training, and developing expertise in all employees that assists them in fulfi lling the mission. Four important characteristics of effective mission statements are:
1. Missions are broadly defi ned statements of purpose. Well-formulated mis- sion statements are written and communicated to those involved in doing the work of the organization. They are broad but also, in a sense, specifi c. The St. Jude Medical mission makes it clear that the company ’s focus is on selected medical products and technologies but at the same time outlines a number of ways the mission can be accomplished. That is, mission statements should be general enough to allow for innovation and expansion into new activities when advisable, yet narrow enough to pro- vide direction. 14
2. Mission statements are enduring. The purpose, and consequently the mis- sion, of an organization does not change often and should be enduring. People are committed to ideas and causes that remain relatively stable over time.
3. Mission statements should underscore the uniqueness of the organization. Mission statements distinguish the organization from all others of its type. The important uniqueness for St. Jude Medical is the focus on selected
EXHIBIT 5–2 Mission Statement of Express Scripts
Express Scripts makes the use of prescription drugs safer and more aff ordable for tens of millions of consumers through thousands of employers, government, union, and health plans.
Source: Express Scripts.
EXHIBIT 5–3 Mission Statement of St. Jude Medical
It is our mission to develop medical technology and services that put more control into the hands of those who treat cardiac, neurological, and chronic pain patients worldwide. We do this because we are dedicated to advancing the practice of medicine by reducing risk wherever pos- sible and contributing to successful outcomes for every patient.
Source: St. Jude Medical.
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CHAPTER 5 DIRECTIONAL STRATEGIES 173
medical technologies, increased control by those who treat cardiac, neuro- logical, and chronic pain patients.
4. Mission statements should identify the scope of operations in terms of service and market. It is important for the mission statement to specify what business the organization is in (health care) and who it believes are the primary stakeholders. Note that St. Jude Medical is specifi c in its com- mitment to physicians that use its products.
Although missions are enduring, this should not imply that the mission will never, or should never, change. New technologies, demographic trends, and so on might be very good reasons to rethink the mission of an organization. For example, a number of hospitals have incorporated the desire to be an “inde- pendent provider of health care” in their mission statement. In today ’s managed- care-oriented health care environment, that aspect of mission may need to be revisited. In some markets, alignment with managed care organizations might become a necessity for survival and the mission statement should not stand in the way.
These characteristics illustrate the essential properties of well-conceived and communicated mission statements. 15 They outline worthy ideals that are always in the process of being achieved by strategic leaders in health care institutions. The mission provides direction. Mission statements are not easy to write, but fortunately there is general agreement on what they should include.
Components of Mission Statements There is no single way to develop and write mission statements. Studies of Canadian not-for-profi t hospitals indicate that they emphasize a variety of fac- tors in their mission statements. 16 To defi ne the distinctiveness of an organiza- tion, mission statements must highlight those things that constitute uniqueness. Some of the more important components of a mission are discussed and illustrated with the use of mission statements from a variety of health care institutions. 17
1. Mission statements target customers and markets. Frequently the mis- sion statement provides evidence of the kind of customers or patients the organization seeks to serve and the markets where it intends to com- pete. The mission statement of the Little Clinic states that it will “offer America ’s most convenient and accessible delivery of affordable non- emergency health and wellness care for the whole family.” To this end the clinic diagnoses and treats minor illnesses for patients 18 months of age (24 months in Kentucky) and up with certifi ed nurse practitioners or physician assistants in its 80 locations in select Kroger, Fry ’s, and King Sooper stores in Ohio, Kentucky, Tennessee, Arizona, Georgia, and Colorado. Exhibit 5–4 provides the mission statement of St. Jude Children ’s Research Hospital. This mission statement clearly states the target patients served by this prestigious health care organization.
2. Mission statements indicate the principal services delivered or products provided by the organization. A specialized health care organization might
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highlight the special services it provides in its mission statement. The mis- sion statement of Alcon illustrates a statement built around innovative pri- mary services designed to enhance the quality of life by helping people see better and hopefully one day to eliminate blindness (see Exhibit 5–5 ).
3. Mission statements specify the geographical area within which the organi- zation intends to concentrate. This element is most frequently included when there is a local, state, or regional aspect to the organization ’s ser- vice delivery. Aurora Health System, for example, specifi cally mentions that it is a Wisconsin not-for-profi t health care system in its mission state- ment (see Exhibit 5–6 ).
4. Mission statements identify the organization ’s philosophy. Frequently the mission of an organization will include statements about unique beliefs, values, aspirations, and priorities. Beliefs and values are often included in mission statements for health facilities operated by religious denomina- tions. The mission statement of Resurrection Health Care in Exhibit 5–7 illustrates the faith-based philosophy of this health services organization.
5. Mission statements include confi rmation of the organization ’s preferred self-image. The manner in which a health care organization views itself may constitute a uniqueness that should be included in the mission. The mission statement of Unitedhealth Group emphasizes the organization ’s desire to help people live happier lives and make better health care deci- sions (see Exhibit 5–8 ).
EXHIBIT 5–4 Mission Statement of St. Jude Children ’s Research Hospital
The mission of St. Jude Children ’s Research Hospital is to advance cures, and means of prevention, for pediatric catastrophic diseases through research and treatment. Consistent with the vision of our founder Danny Thomas, no child is denied treatment based on race, religion, or a family ’s ability to pay.
Source: St. Jude Children ’s Research Hospital.
EXHIBIT 5–5 Mission Statement of Alcon
To provide innovative products that enhance quality of life by helping people see better. As the global leader in eye care, this mission means that we strive to make signifi cant contributions in the fi ght to prevent and, one day, eliminate blindness.
Source: Alcon.
EXHIBIT 5–6 Mission Statement of Aurora Health Care
The mission of Aurora Health Care, as a not-for-profi t Wisconsin health care system, is to promote health, prevent illness, and provide state-of-the-art diagnosis and treatment, whenever and wherever we can best meet people ’s individual and family needs.
Source: Aurora Health Care.
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CHAPTER 5 DIRECTIONAL STRATEGIES 175
6. Mission statements specify the organization ’s desired public image. This image customarily manifests itself in statements such as the organization ’s desire to be a “good citizen” or a leader in the communities where its opera- tions are located or a similar concern. However, organizations may have a unique approach or focus that they want to communicate to the public. The mission statement of Universal Health Services, Inc. clarifi es the organiza- tion ’s commitment to its multiple stakeholders (see Exhibit 5–9 ).
Not every one of the characteristics can or should be included in the mission statement. Any particular statement will likely include one or several of these characteristics but seldom will all of the components be included. The organiza- tion must decide which of these, or some other characteristics, really account for its distinctiveness and emphasize them in the mission statement. Interestingly, studies have found that higher-performing organizations generally have more comprehensive mission statements. Moreover, it seems that components such as
EXHIBIT 5–7 Mission Statement of Resurrection Health Care
Faithful to the spirit of our sponsors, Resurrection Health Care exists to witness God ’s sustaining love, through compassionate, family-centered care. Motivated by a reverence for life and respect for those we serve, we are committed to improving the health and well-being of our community. We promote a climate that empowers all of us to eff ectively steward our human and fi nancial resources.
Source: Resurrection Health Care.
EXHIBIT 5–8 Mission Statement of Unitedhealth Group
Our mission is to help people live happier lives. Our role is to help make health care work for everyone.
● We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
● We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an aff ordable price.
● We support the physician/patient relationship with the information, guidance and tools they need to make personal health choices and decisions.
Source: UnitedHealth Group.
EXHIBIT 5–9 Mission Statement of Universal Health Services, Inc.
To provide superior healthcare services that patients recommend to families and friends, physi- cians prefer for their patients, purchasers select for their clients, and investors seek for long-term returns.
Source: Universal Health Services, Inc.
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organizational philosophy, self-concept, and desired public image were particu- larly associated with higher-performing organizations in the sample studied. 18
Building a Mission Statement For a mission statement to be useful there has to be a leader who begins the discussion concerning the need to examine or re-examine the organization ’s mission to clearly state its purpose. This statement helps all employees focus their efforts on the most important priorities. One process that has been use- ful in building mission statements is to convene a group of interested employ- ees (administrative and non-administrative) to begin the task of developing or rethinking a mission statement. This group should be composed of individu- als who understand the issues facing the health care industry as well as the strengths and weaknesses of the organization.
Prior to actually writing the mission statement, a series of meetings should be held to ensure that there is a desire for a well-understood and widely communicated statement of organizational distinctiveness. Once commitment has been established, assessments should be made of what makes the organization successful from the perspectives of employees and other key stakeholders. Further, consideration should be given to what these perceptions of success would likely be in the future.
After the group has been given time to think about the organization, its dis- tinctiveness in its environment, and the likely future it will face, the group may meet in a planning retreat. Often it is useful to remove the participants from the offi ce, phones, and beepers to have the opportunity to truly focus on the organi- zation ’s mission. To stimulate strategic thinking, each person should be asked to refl ect on the mission statement components listed in Exhibit 5–10 . Recognizing that some members may not have been previously involved in writing a mission statement, this exhibit was developed to encourage initial thought without intro- ducing too much structure into the process. Group members should be asked to present key words relative to each of the components. The key words should be recorded and eventually used as the raw material for the mission statement. Participants are encouraged to generate the key words through a series of fi ll-in- the-blank statements listed under each mission statement component.
After discussion and fi ne-tuning the language, a draft of the mission state- ment can be developed. The draft should be refi ned and rewritten by the group until there is consensus on the wording and meaning of the mission statement. Once the group is satisfi ed with the statement, it should be circulated among key individuals to gain their input and eventually their support for the mission. Moreover, as illustrated by Perspective 5–2, the mission must be continuously re-examined to ensure it remains relevant.
Top-Level Leadership: A Must for Mission Development For a mission statement to be a living document, employees must develop a sense of ownership and commitment to the mission of the organization. For this reason, employees should be involved in the development and communication of the mission. However, top-level leadership must be committed if the process is to actually begin. Top-level management must stay engaged in the mission
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CHAPTER 5 DIRECTIONAL STRATEGIES 177
development process but not dominate it. Board rooms and executive suites can be places where great ideas for mission development originate but people at all levels must be involved if commitment to the mission is to be obtained. 19
Developing a mission statement is a challenging task. Frequently, attempts are made to formulate “blue sky” statements of environmental and competitive constraints and little more. For example, it is of little real value to state that a health care organization is devoted to being a good citizen in the community and to paying wages and benefi ts comparable to those of other organizations in the area. Realistically, the organization must be a good citizen and, if it wants employees, its wages and benefi ts must be competitive.
The role of the chief executive offi cer in formulating the mission should not be underestimated. Mission statement development is not a task that should be delegated to a planning staff. The CEO, the leadership team, and other key individuals who will be instrumental in accomplishing the mission should have input into the document.
Although the process appears to be simple, the actual work of writing a mis- sion statement is time consuming and complex, with many “drafts” before the fi nal document is produced. The strategic thinking map (Exhibit 5–10 ) is a useful
EXHIBIT 5–10 Strategic Thinking Map for Writing a Mission Statement
Component Key Words Refl ecting Component
1. Target customers and clients:
“ The individuals and groups we attempt to serve are… ” Do not be limited to only the obvious.
2. Principal services delivered:
“ The specifi c services or range of services we will provide to our customers are… ”
3. Geographical domain of the services delivered:
“ The geographical boundaries within which we will deliver our services to our customers are… ”
4. Specifi c values:
“ Specifi c values that constitute our distinctive- ness in the delivery of our services to customers are….”
5. Explicit philosophy:
“ The explicit philosophy that makes us distinctive in our service area is… ”
6. Other important aspects of distinctiveness:
“ Any other factors that make us unique among competitors are… ”
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178 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
PERSPECTIVE 5–2
Redefi ning the Organization ’s Purpose
Threats often create opportunities and some- times the greater the threat, the greater the opportunity. Some people believe that scan- dals, although a threat to the competitive enter- prise system, create an opportunity to carefully re-evaluate and redefi ne the purpose of the organization. An important competitive advan- tage may be gained for those who redefi ne themselves and become more responsive to the environment. Self-reform is almost cer- tain to eff ect more fundamental change than externally imposed regulations. The agenda for self-reform consists of fi ve important actions:
1. Develop consensus on a revised state- ment of purpose and values. The terms “profi t making” and “creating shareholder value” do not refl ect the reality of today ’s environment. The function of the profi t- oriented concern is economic but its purpose is social. Profi t-oriented fi rms in health care or any other industry exist at the discretion of society and must serve society ’s needs.
2. Clarify the true role of profi t. Organizations must have profi ts (revenues in excess of expenses). If they do not generate a profi t, they cease to exist (over the long run). Profi t is a means, a motivator, and a meas- ure of performance. Moreover, profi t is an important incentive for entrepreneurial action and innovation. It provides the reward for taking the risks that are critical to success.
3. Articulate and communicate the distinc- tions between the old purpose, values, and behaviors, and the new. Once the new mis- sion and values are crafted, they require a cheerleader and advocate to empha- size the importance of the value shift. Strategic leaders must use every oppor- tunity to explain and, if necessary, defend the importance of the culture and value shifts.
4. Set a strong personal example. A culture balances the interests of employees, customers, the community, and other relevant stakeholders; it also requires that leaders embody in action, as well as in pronouncements, the qualities of the new culture.
5. Revise the management measurement and reward system. If the purpose is defi ned broadly and responsibly, measures have to be refi ned and utilized. The triple-bottom- line approach – focusing on economic performance as well as on social and environmental outcomes – is a step in the right direction.
George Merck, founder of the pharmaceutical giant, stated, “We try never to forget that medi- cine is for people. It is not for profi ts. The profi ts follow, and we have to remember that they have never failed to appear. The better we have remembered that, the larger they have been.”
Source: Ian Wilson, “The Agenda for Redefi ning Corporate Purpose: Five Key Executive Actions,” Strategy & Leadership 32, no.
1 (2004), pp. 21–27.
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CHAPTER 5 DIRECTIONAL STRATEGIES 179
aid to thinking about clients, services, and domain; however, the development and communication of a well-conceived mission statement requires use of the compass (leadership) as well. Although developing a mission statement is not an easy task, it is a necessary one. Missions must be relevant not only to the present but also to the future.
Vision: Hope for the Future
The mission is developed from the needs of all the stakeholders – groups who have a vested interest in the success and survival of the organization. Vision, on the other hand, is an expression of hope. It is a description of the organization when it is fulfi lling its purpose. 20 Vision involves creating compelling images of the future and produces a picture of what could be and, more important, what a leader wants the future to be. 21
Effective visions possess four important attributes: idealism, uniqueness, future orientation, and imagery. 22 Visions are about ideals, standards, and desired future states. The focus on ideals encourages everyone in the organi- zation to think about possibilities. It is dynamic and collaborative, a process of articulating what the members of an organization want to create. 23 Vision communicates what the organization could be if everyone worked diligently to realize the potential. Health care organizations need leaders who are forward looking. Effective visions are statements of destination that provide a compass heading to where the organization ’s leadership collectively wants to go. Finally, visions are built on images of the future. When people are asked to describe a desirable place or thing, they almost always do so in terms of images. Rarely do they focus on tangible outcomes. Images motivate people to pursue the seem- ingly impossible.
Origins of Vision Health care leaders acquire vision from an appreciation of the history of the organization, a perception of the opportunities present in the environment, and an understanding of the strategic capacity of the organization to take advantage of these opportunities. All these factors work together to form an organization ’s hope for the future.
History and Vision An organization ’s history is comprised of a variety of events and activities that affect the development of vision. For example, the founder ’s philosophy might be important. The Mayo Clinic in Rochester, Minnesota, is an organization that is rich in history and tradition. Children ’s books tell succes- sive generations how a destructive tornado in Rochester one night caused the Sisters of Saint Francis to aid the elder Dr. Mayo in caring for storm victims and encouraged his two sons, Will and Charlie, to follow in their father ’s footsteps. Mayo Clinic ’s website presents the story as well in rich and passionate terms. The result is a world-famous research, teaching, and patient care facility that continues to thrive and expand far beyond the boundaries of Minnesota. Anyone
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180 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
who hopes to succeed at the Mayo Clinic and understand its unique vision must be aware of the founders and the past. The history of an organization is instru- mental in the formation of its image and its vision or hope for what it is capable of becoming. 24
Vision and the Environment Another important determinant of an organi- zation ’s vision is the leader ’s view of the environment. Some organizations have negative experiences with environmental forces such as the government. Many private physicians and health care managers look at government attempts to set rates, regulate quality, and so on as unnecessary and unwarranted interven- tions in private enterprise. When this view is adopted, adversaries are seen in the environment and the vision becomes altered accordingly. 25 The vision is compromised and lack of accomplishment is blamed on these external forces. Sometimes the past experiences of organizations and the uncontrollable nature of environmental forces cause managers to either over- or under-react.
The vision must bear a relevant relationship to the larger system in that it must be sensitive to the changes taking place in the general and health care environments. As illustrated in Perspective 5–3, future trends of health systems are key considerations in formulating the health care strategist ’s vision.
Vision and Internal Capacity A leader ’s vision is related to the perceived strengths and weaknesses of the organization. The challenge to reconcile vision with internal capacity is illustrated by Senge ’s integrative principle of creative ten- sion. 26 Creative tension comes into play when leaders develop a view of where they want to be in the future (vision) and tell the truth about where they are now. The current reality is heavily determined by the organization ’s present internal capacity and how this capacity relates to its aspirations.
Organizations deal with this creative tension in different ways. If the organiza- tion has been successful in the past, it may be aggressive about the future and raise its current aspirations in pursuit of the vision. If it has experienced failure, limited success, or merely has a cautious philosophy, management may choose instead to revise and reduce the vision to bring it more in line with current reality.
Leaders have visions; organizations gain and lose competitive advantage based on how the vision fi ts the environment and the strategic capability of the organization to capitalize on opportunities. However, developing a vision is “messy work,” and for this reason it is necessary to examine more closely what organizational vision actually means. 27
Health Care Strategists as Pathfi nders The job of building a vision for an organization is frequently referred to as pathfi nding. 28 When the leader of a health care organization functions as a pathfi nder, the focus is on the long run. The goal of the pathfi nder is to provide a vision, fi nd the paths the organization should pursue, and provide a clearly marked trail for those who will follow. As Senge notes, pathfi nders have an abil- ity to create a natural energy for changing reality by “holding a picture of what might be that is more important to people than what is.” 29
Ginter, P. M. (2013). The strategic management of health care organizations. Retrieved from http://ebookcentral.proquest.com Created from apus on 2019-11-20 18:43:13.
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CHAPTER 5 DIRECTIONAL STRATEGIES 181
Strategic leaders are the key to establishing a vision for an organization. A vision-led organization is guided by a philosophy to which leaders are commit- ted but has not yet become obvious in the daily life of the organization. The vision-led approach hopes for higher levels of performance that are inspiring
PERSPECTIVE 5–3
If You Want to Be a Visionary, Be Sensitive to Trends
Formulating a vision requires one to be sensi- tive to trends. However, predicting the future of health care is a risky business. Some major trends or changes predicted by health care experts con- tacted by Hospitals & Health Networks are listed below. These experts envision a health care future with larger, more integrated systems, more patient-centered care, new relationships between hospitals and physicians, and a shift of many inpa- tient procedures to outpatient or home settings.
Financing the future. Paying for technologi- cal and procedural improvements will not be cheap. But the investments will be worth the cost. The impact of potentially high-value tech- nologies on operating costs, staffi ng capacity, physician relations, infrastructure and support requirements, and quality and safety will far outstrip the cost of capital investments.
Fewer, larger, better systems. Larger organi- zations will likely be able to cope better with future demands because of their resource base. Smaller systems are likely to fi nd it more diffi cult to attract needed capital. Larger organizations with stronger balance sheets will be preferred by lenders and investors. Moreover, these larger systems could do a better job of overhauling the currently fragmented delivery system.
Hospital–physician relationships. Reimburse- ment trends, technological changes, and phy- sician entrepreneurship are causing changes in hospital–physician relationships and could even pose competitive threats to hospitals.
A specifi c challenge is the extent to which phy- sicians set up large practices independent of hospitals and duplicate services off ered in the hospital. Some experts see physician competi- tion for outpatient services as a bigger threat than the creation of specialty hospitals.
Patient-centered. Health care organiza- tions are paying more attention to the needs of patients and their families, especially the elderly. This segment of the population is becoming ever more important as the fi rst of America ’s baby boomers are reaching retire- ment age. There are approximately 78 million baby boomers.
Cost and collaboration. According to the Centers for Medicare and Medicaid Services, the cost of health insurance will increase about 6.4 percent annually for the next decade. Cost containment will continue to be at the top of the list for politicians and policy makers. Pressure from baby boomers, continuation of the cost squeeze, and increased numbers of uninsured seem certain to be part of the health care future.
What does all this have to do with vision? Visions need to take into account the reality of the health care environment and its evolution. Regardless of the type of health care organiza- tion, leaders should formulate their vision based on a likely health care future.
Source: Dave Carpenter, “Visions of Health Care ’s Future: Bigger, More Patient-Focused Systems?” Hospitals & Health Networks 81,
no. 5 (May 2007), pp. S4–S7.
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182 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
although they cannot yet be achieved. 30 A primary role of management under this approach is to clarify goals and priorities and to ensure that they are understood and accepted by employees. 31 Individuals become engaged in the organization when they see a clear line of sight between vision, performance objectives, and personal contributions to the purpose of the organization. 32
The role of the strategic leader, however, is more than pathfi nding. As Barnard noted, because executives are responsible for inculcating the purpose into every employee, the leader must also be the keeper of the vision – a cheerleader who holds on to the vision even when others lose hope. Employees want to believe that what they are doing is important, and nothing convinces employees of the importance of their jobs more than a leader who keeps the inspirational vision before them (especially when things are not going well).
Strategic leadership has traditionally focused on top management, particularly the CEO. This individual is considered the person most responsible for scanning and infl uencing the environment, developing adaptive strategies, and managing key constituencies. 33 Unfortunately, the exclusive focus on the CEO ’s role in strategic leadership has implied that middle management has little or no involve- ment in determining the strategic direction of the organization. Admittedly, the primary responsibility of middle management is strategy implementation; how- ever, certain strategic directions require middle-management involvement. The increasing importance of quality as a strategic goal and middle management ’s role in keeping this goal before all employees is a good example. 34 Quality has become an important value to which employees at all levels can be commit- ted; middle managers are in the best position to encourage and reinforce this commitment.
Another important area in which middle management should be involved is in the redefi nition of organizational vision. Grand strategies and futuristic visions are important for health care organizations. If the vision is to become meaningful to nurses, pharmacists, medical laboratory technicians, and others, middle and fi rst-line managers must take the lead in helping to redefi ne the organizational vision in terms that are meaningful to departments and work groups. Finally, with regard to building involvement and commitment to service and quality, middle managers are in the best position to appeal to the social and economic motives important to health care employees.
Characteristics of Effective Vision If vision is based on hope, it is – in reality – a snapshot of the future that the health care leader desires to create. It has been said that for an organizational vision to be successful it must be clear, coherent, consistent, have communicative power, and be fl exible. 35
A clear vision is simple. Basic directions and commitments should be the driving forces of a vision, not complex analysis beyond the understanding of most employees. 36 A vision is coherent when it “fi ts” with other statements, including the mission and values. It is consistent when it is refl ected in deci- sion-making behavior throughout the organization. 37 A vision “communicates” when it is shared and people believe in the importance of cooperation in creating the future that managers, employees, and other stakeholders desire. Finally, to be meaningful, a vision must be fl exible. The future, by defi nition,
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CHAPTER 5 DIRECTIONAL STRATEGIES 183
is uncertain. Therefore, an effective vision must remain open to change as the picture of the future changes and as the strategic capabilities of the organiza- tion evolve over time.
According to Tom Peters, to effectively outline the future and facilitate the pursuit of organizational and individual excellence, visions should possess cer- tain characteristics:
1. Visions should be inspiring, not merely quantitative goals to be achieved in the next performance evaluation period. In fact, visions are rarely stated in quantitative terms. They are, however, nothing less than revolu- tionary in character and in terms of their potential impact on behavior. The vision of Tenet Healthcare, for example, states the lofty vision to “redefi ne health care delivery.” It also speaks to the passion of Tenet ’s people and partners (Exhibit 5–11 ).
2. Visions should be clear, challenging, and about excellence. There must be no doubt in the manager ’s mind about the importance of the vision. If the “keeper of the vision” has doubts, those who follow will have even more. The vision statement of Princeton HealthCare System provides a great deal of “specifi cs” in its guidance for executive decision makers. It makes it clear the Princeton HealthCare is an integrated system that is dedicated not only to responding to the lifelong needs of residents; however, pro- viding leadership in anticipating these needs (see Exhibit 5–12 ).
3. Visions must make sense in the relevant community, be fl exible, and stand the test of time. If the vision is pragmatically irrelevant, it will not inspire high performance.
4. Visions must be stable, but constantly challenged and changed when nec- essary. The vision statement of Hebrew Health Care illustrates the manner in which a vision can be formulated so as to provide focus but remain broad enough to allow for changing conditions and developments (see
EXHIBIT 5–11 Vision of Tenet Healthcare
Tenet will distinguish itself as a leader in redefi ning health care delivery and will be recognized for the passion of its people and partners in providing quality, innovative care to the patients it serves in each community.
Source: Tenet Healthcare.
EXHIBIT 5–12 Vision Statement of Princeton HealthCare System
Princeton HealthCare System is a premier, integrated healthcare system that strives to antici- pate and respond to the lifelong needs of the residents of Central New Jersey and beyond by providing excellent clinical care. Princeton HealthCare System is recognized for its commitment to enhancing the health of its community; providing superior services to its patients, delivering outstanding value, embracing clinical innovations; providing exceptional medical and health education; and supporting a knowledgeable, skilled and caring medical and employee staff .
Source: Princeton HealthCare System.
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184 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Exhibit 5–13 ). Future advances in health care can easily be accommo- dated with only minor changes in the vision statement.
5. Visions are beacons and controls when everything else seems up for grabs. A vision is important to provide interested people with a sense of direction. A well-formulated vision statement guides decision mak- ing because it provides inspiration for success in the future. More than three-quarters of a century ago, the founders of the Cleveland Clinic Foundation set out to develop an institution where diverse specialists would be able to think and act as a unit. This can only be realized when everyone understands the vision and accepts the legitimacy of the direc- tion it offers.
6. Visions empower employees (the organization ’s own people) fi rst and then the clients, patients, or others to be served. Because visions are about inspiration and excellence, it is critical to recognize that employ- ees are the ones who must be inspired fi rst. Employees must ultimately be inspired to achieve excellence. Many health care organizations make a mistake by devoting resources to pre-service promotion programs designed to enhance potential patients’ image of the organization only to disappoint them when they arrive and are greeted by the same lack of service they experienced before the advertising campaign. The vision statement of Optima Healthcare Insurance Services is simple and to the point. It states that our vision is “To make a positive difference in health care.” With proper orientation this simple vision statement can convey to employees the importance of making a positive difference individually if the organization is to achieve its vision of making a positive difference in health care.
7. Visions prepare for the future while honoring the past. Although vision is the hope an organization has for the future, it is important to always acknowledge and honor a history of distinction and service. The University of Texas M. D. Anderson Cancer Center acknowledges its com- mitment to making history using a play on words: “We shall be the pre- mier cancer center in the world, based on the excellence of our people, our research-driven patient care, and our science. We are ‘Making Cancer History.’” Not only is Anderson making history through its continued
EXHIBIT 5–13 Vision Statement of Hebrew Health Care
In all of our programs and services, we will strive to be the provider of choice.
We will collaborate with educational, medical institutions and other providers with similar goals and philosophies to establish model centers of excellence.
We will seek recognition as a progressive system of quality services.
We will pursue creative means to enhance the organization ’s fi nancial health so that we may fulfi ll our mission.
Source: Hebrew Health Care.
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CHAPTER 5 DIRECTIONAL STRATEGIES 185
commitment to cancer research, but, as noted earlier, the center also expects to eliminate cancer. This is an example of an ambitious and industry-changing vision.
8. Visions come alive in details, not in broad generalities. The accomplish- ment of the vision eventually has to lead to tangible results, whether in health care, business, government, or education. Although visions are futuristic and based on hope, they require strategic leaders who can artic- ulate the vision and translate it into terms that everyone in the organiza- tion understands and accepts. Details should be provided in words that relevant parties understand. 38
In the past decade more and more attention has been given to written vision statements. Vision statements are diffi cult to write because they require insights into the future. However, there are some useful aids that can assist managers in thinking about their vision and the direction they desire for the future. Exhibit 5–14 provides a strategic thinking map to assist in developing a vision statement and provides a series of questions that are a useful aid in thinking about the vision statement.
EXHIBIT 5–14 Strategic Thinking Map for Writing a Vision Statement
Component Key Words Refl ecting Component
1. Clear hope for the future:
“If everything went as we would like it to go, what would our organization look like fi ve years from now? How would we be diff erent/ better than today?”
2. Challenging and about excellence:
“When stakeholders (patients, employees, owners) describe our organization, what terms would we like for them to use?”
3. Inspirational and emotional:
“When we think about the kind of organiza- tion we could be if we all contributed our best, what terms would describe our collec- tive contributions?”
4. Empower employees fi rst:
“How can we ensure that employees under- stand and are committed to the vision? What needs to be done to get everyone ’s buy in?”
5. Memorable and provides guidance:
“What types of words should be included to ensure all organizational stakeholders remember and behave in accordance with the vision?”
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186 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Planning retreats can be used as effective forums for gaining insights into the thinking of organization stakeholders regarding their hopes for the future.
A Cautionary Note: The Problem of Newness Strategic leaders are one of the most important elements in the strategically managed organization. Visionary leaders provide their greatest service by mak- ing the organization fl exible and able to enter new markets, disengage from old ones, and experiment with new ideas. By entering into a new market fi rst, organizations may achieve fi rst-mover advantages . Pioneering organizations seek fi rst-mover advantages. A reputation for pioneering can be generated and market position can be more easily established when there are no, or only a few, competitors. Sometimes it is expensive (monetarily and emotionally) for clients and patients to switch to other providers once loyalty and mutual trust have been developed.
However, visionary change, when directed toward early entry into markets, has its disadvantages. This has been referred to as the liability of newness . 39 Innovators often experience pioneering costs. Pioneers make mistakes that others learn from and eventually correct. First movers face greater uncertainty because the demand for the service has not been proven. Patient and client needs may change and, particularly when large technological investments are required, the fi rst mover may be left with expensive equipment and little demand. Therefore, it is important that the demand for visionary management be tempered with realistic knowledge of the market, consumers, and other factors that will affect the organization. The rewards often go to the fi rst mover, but the risks are greater.
Research confi rms some of the dangers of being the fi rst mover. Studies of companies that were fi rst in their markets exclude those fi rms that failed by focusing only on those that survived, prospered, and eventually dominated their markets. 40
Arguably, market pioneers rarely endure as market leaders. Market leadership has less to do with an organization ’s entry into the market and more to do with will and vision. Enduring leaders seem to have inspiring visions and the will to realize the vision. These enduring leaders are persistent in the pursuit of their vision, innovative, committed fi nancially to the vision, and know how to lever- age their assets.
Values as Guiding Principles
Values are the fundamental principles that organizations and people stand for – along with the mission and vision, they shape organizational culture. Most often, discussions of organizational values relate to ethical behavior and socially responsible decision making. Ethical and social responsibility values are extremely important, not just to a single hospital, HMO, or long-term care facil- ity, but to all citizens. There are, however, other values that may be specifi c to an organization and characterize its members’ behavior in the past or the behavior
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CHAPTER 5 DIRECTIONAL STRATEGIES 187
to which members collectively aspire. For example, total quality management or continuous improvement is a value, as is entrepreneurial spirit, teamwork, innovation, and so on. 41 It is important that managers, employees, and key stake- holders understand the values that are expected in an organization. It is also important, as Perspective 5–4 makes clear, that values be more than slick public relations statements. “Talking the talk” is insuffi cient, “walking the walk” is what matters when it comes to values.
PERSPECTIVE 5–4
Organizational Values Statements
Ethics and values are fundamental aspects of the culture of health care organizations. Ethically driven organizations have a shared mission and vision and strong core values in their culture. Health care organizations are extremely com- plex and it is impossible to provide policies and guidelines to direct all clinical and administrative behaviors. An organization ’s core values can set the standards of conduct that are considered important. Unfortunately, the importance of mis- sion, vision, and values receives less attention from most leaders than other topics such as strategy, operations, and structure.
Eff ective values statements clarify how the organization will conduct its activities to achieve its mission and vision. Values statements fre- quently refl ect common morality, and emphasize respect, integrity, trust, caring, and excellence. These statements represent the core principles within the organization ’s culture. All staff should be aware of, accept, and integrate the organi- zation ’s values into their decision making and behavior. Values statements are particularly useful when an organization faces trade-off s among goals such as profi ts or quality. The organization ’s values will drive the choice.
Although some organizations develop and live by eff ective values statements, in other organizations the statement is carefully crafted and adopted, yet set aside and generally
ignored. The worst statements are those that clearly confl ict with the organization ’s practices and behaviors. These statements undermine staff morale, breed cynicism, and sometimes lead to the acceptance of unethical practices.
Similar to other documents, values state- ments should be reviewed regularly to ensure they are eff ectively assimilated into the organi- zation ’s day-to-day activities. The object of the review is not to change or modify the state- ment, but to ensure an in-depth assessment of the organization ’s values. The most eff ective reviews are undertaken by work groups of indi- viduals within the organization. Participation in the review process not only ensures appropri- ate guidelines for behavior but also involves individuals in better understanding and thereby encouraging ownership of the values.
In the same way, top leadership must own and participate in the values review process. The values statement should be a living document that is frequently referred to and referenced. The educational aspect of the review is more than merely handing out copies of the core values. Individuals at all levels should foster discussion of the values and illustrate how they apply to behaviors and decisions throughout the organization.
Source: William A. Nelson and Paul B. Gardent, “Organizational Values Statements,” Healthcare Executive 26, no. 2 (2011), pp. 56–59.
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Core values, beliefs, and philosophy seem to be clear during the early stages of an organization ’s development but become less clear as the organization matures. 42 Therefore, statements such as Universal Health Services’ perpetuate important values such as service excellence, continuous improvement, employee development, ethical and fair treatment, teamwork, and service innovation. Its statement of values (principles) makes explicit how the organization intends to conduct its business (see Exhibit 5–15 ).
Exhibit 5–16 illustrates American Dental Partners’ (a provider of services to multidisciplinary dental practices) well-developed and articulated set of organi- zational values. These values focus on what the organization believes are its key responsibilities to people, communities, shareholders, and so on. Throughout the values statement are references to ideals such as honesty, respect, dignity, and excellence. Anyone reading this set of guiding principles can understand the motivational force such a statement of values might have on employees and the comfort it might provide consumers.
EXHIBIT 5–15 Statement of Principles of Universal Health Services, Inc.
Service excellence ● Provide timely, professional, eff ective, and effi cient services to our customers.
Continuous improvement in measurable ways ● Identify key needs and assess how well we meet those needs. ● Continuously improve services and measure progress.
Employee development ● Hire talented and driven people. ● Increase skills through training and development. ● Provide opportunities for growth within UHS.
Ethical and fair treatment of all ● We are committed to fairness and trust with our patients, the physicians, purchasers of our
services, and employees. ● We conduct our business according to the highest ethical standards.
Teamwork ● Work together to provide ever-improving customer service. ● Our team approach supersedes traditional departmental organization and creates a true
customer focus. ● People at all levels of the organization participate in decision making and process
improvements.
Compassion ● Never lose sight of the fact that we provide care and comfort for people in need. ● Patients and families who rely on us receive respectful and dignifi ed treatment at all times.
Innovation in service delivery ● Invest in the development of new and better ways of delivering our services.
Source: Universal Health Services, Inc.
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CHAPTER 5 DIRECTIONAL STRATEGIES 189
Not all statements of values or guiding principles are as elaborate as that of American Dental Partners, however, they need to be as well conceived. Values statements can be useful in clarifying to employees the specifi c behavioral norms that are expected of them as members of the organization. This clarifi cation is effectively accomplished in the values of Becton, Dickinson, and Company, a medical technology company serving health care institutions, life science researchers, clinical laboratories, and the general public with offi ces in more than 50 countries. This statement of core values focuses specifi cally on how organizational members are expected to behave and conduct the company’s business (see Exhibit 5–17 ).
Mission, vision, and value statements are tools for “becoming better at what we do.” The usefulness of any of these statements is through the ownership taken by employees and their observed actions by stakeholders. Framed mission, vision, values, and slogans are merely exercises – and futile ones at that – if they are not made real by commitment and action. 43 The point is to motivate and guide all employees, managerial and non-managerial; provide high-quality care and respond to external as well as internal customers; to distinguish the organi- zation from others in the perceptions of key stakeholders; and to let everyone know the organization stands for something important.
Values and beliefs are directional strategies that provide the focus and param- eters for strategic goals. In addition, directional strategies provide a means of
EXHIBIT 5–16 Core Values of American Dental Partners
We believe in fi ve core values which provide the foundation on which our American Dental Partners is built. These values represent the way we intend to do business, and we endeavor to uphold them at all times.
Ethical – A promise to conduct business in an honest, fair manner and with the utmost integrity.
Relationship – Put people fi rst. A commitment to treat all people with respect and human decency.
Social responsibility – A commitment to act in a responsible manner with total regard for our families, communities, and environment.
Fiscal responsibility – An obligation to act in a fi nancially prudent manner for the benefi t of our patients, shareholders, affi liates, and employees.
Excellence – In all we do, commitment to achieving the best results.
Source: American Dental Partners.
EXHIBIT 5–17 Core Values of Becton, Dickinson, and Company
We treat each other with respect. We do what is right. We always seek to improve. We accept personal responsibility.
Source: Becton, Dickinson, and Company.
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determining the essentials that must be accomplished if the organization is to be effective. To be most effective, the values statement for an organization should capture the guiding principles by which the staff is expected to function while achieving the organization ’s mission. 44
From Mission, Vision, and Values to Strategic Goals
Once strategic leaders are confi dent that the mission, vision, and values are well formulated, understood, communicated, and expressed in writing, they are able to focus on the activities that will make the most progress toward accomplish- ing the mission and moving the organization toward a realization of its vision – strategic goals. Well-written mission statements are the beginning point for stra- tegic goal setting. Goal setting should be focused on those areas that are critical to mission accomplishment. Steven Hillestad and Eric Berkowitz recommend the following questions when attempting to ensure that mission statements and strategic goals are consistent:
1. Does the mission of the organization refl ect a broad enough orientation and provide fl exibility to make required changes?
2. Did all important constituencies have an opportunity to provide input or comment on the mission?
3. Did the organization work through possible alternative operations sce- narios to see how the mission might be applied?
4. Does the mission provide for the formulation of a set of goals that are specifi c enough to give guidance to the organization yet broad enough to provide for the necessary fl exibility? 45
Critical success factors provide the foundation for strategic goal setting. The strategic goals, in turn, become the anchors for objectives and action plans.
Critical Success Factors for the Service Category Critical success factors are those things that organizations must accomplish if they are to achieve high performance. 46 Critical success factors for the service category, as the term implies, are similar for all members of a strategic group; however, the factors may vary from one service category to another and one strategic group to another. 47 The critical factors for success in a medical practice are not the same as the critical success factors in acute care hospitals.
As an example, Alex. Brown & Sons, Inc., an investment research service, indi- cated that there are fi ve critical success factors for providers of health care ser- vices: (1) ability to serve a market; (2) strong information systems; (3) low-cost structure; (4) ability to replicate its services in other geographical markets; and (5) ability to accept near-term risks. The critical success factors for the service category provide an important bridge between external and internal environ- mental analysis. 48 Strategic leaders must continually ask themselves whether the
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CHAPTER 5 DIRECTIONAL STRATEGIES 191
mission, vision, and values of the organization are compatible with the critical success factors. Once compatibility is ensured, leaders must identify a relatively small number of activities that are absolutely essential to accomplish the mission and build momentum to realize the vision.
Additional detail is provided on the requirements for health care organizations competing in a given service category (as identifi ed by Alex. Brown & Sons, Inc.) in Exhibit 5–18 . The application of the critical success factors relative to individual organizations is briefl y noted in the second column. Strategic leaders need to ensure that they address the factors that lead to success in the service category.
Strategic Goals Strategic goals should relate to critical success factor activities, providing more specifi c direction in accomplishing the mission and vision. At the same time, strategic goals should be broad enough to allow considerable discretion for man- agers to formulate their objectives for individual units. 49 The most appropriate strategic goals possess the following characteristics:
1. Strategic goals should relate specifi cally to activities that are critical to accomplish the mission. Strategic goals that focus on activities that are not mission critical have the potential to divert leadership attention and employee energy.
2. Strategic goals should be the link between critical success factors and strategic momentum (carrying out unit objectives).
EXHIBIT 5–18 Critical Success Factors Related to a Service Category
Critical Success Factors Related to Individual Organizations
Ability to serve entire market Complete range of services demanded in a given market. One-stop shopping for health services provides an important advantage.
Strong information systems State-of-the-art, integrated administrative and clinical information systems are required to manage a network of health care organi- zations (underscores the importance of elec- tronic medical records).
Lowest cost structure Specialized service categories ensure low cost relative to the competition to be suc- cessful, especially true in specialty areas.
Ability to replicate services in other geographical markets
Successful competitors are able to develop business models that apply to diverse markets.
Ability to accept near-term risks Financially conservative leadership maintains liquidity and allows for resources to pursue new opportunities.
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192 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
3. Strategic goals should be limited in number. When too many goals are pursued, the “trivial many” rather than the “critical few” activities are accomplished.
4. Strategic goals should be formulated by leaders but should be stated in terms that can be easily understood and appreciated by everyone in the organization.
American Dental Partners developed a set of seven strategic goals that address the company ’s mission and are consistent with its core values. These goals con- cern partnerships in management, operating excellence, integration of technol- ogy, continuous growth, fi nancial performance, quality of work life, and quality of care and service. More specifi cally, American Dental Partners’ goals are as follows:
1. Partnership in management . To ensure the appropriate sharing of oper- ating governance and fi nancial risk and reward in the organization and operation of each affi liate.
2. Operating excellence . To pursue continuous improvements in the perfor- mance and profi tability in each affi liate.
3. Integration of technology . To optimize the provision of dental care and service through the integration of technology.
4. Continuous growth . To progressively increase the market share and geo- graphic presence of each affi liate.
5. Financial performance . To achieve attractive returns on capital, which will allow continuous reinvestment.
6. Quality of worklife . To foster a work environment that is rewarding and motivating to team members.
7. Quality care and service . To ensure the provision of high-quality, high- value dental care and service.
American Dental Partners has maintained its strategic focus through its goals.
Governing Boards and Directional Strategies
The discussion of directional strategies has emphasized the importance of the involvement and participation of as many people as practical. The governing board is an important group that should be involved in the development of the strategic direction of the health care organization. The board members should be regularly informed about the strategic goals and the progress being made toward their accomplishment. Governing boards have taken on particular importance in the past several years as ethical issues have escalated. Health care has not been exempt, as evidenced by major corporate scandals involving companies such as HEALTHSOUTH and the stock option scandal at United Health Care. Increasingly, the question of the role and responsibility of governing boards is discussed in health care management.
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CHAPTER 5 DIRECTIONAL STRATEGIES 193
Historically, three modes of governance have been applied to boards of directors. The fi rst is the fi duciary responsibility mode or stewardship of assets; the second is the strategic mode which involves collaboration with management to develop a vision for the future; and the third is the genera- tive mode where the board engages in shared creative thinking to make sense of data available to decision makers. More recently, the idea of the progres- sive board has been added. Here the focus is on contributions of individual members to a cohesive and comprehensive whole. The board is viewed as engaging in lively debate, discussion of important issues, and learning from one another. 50
In the strategic mode, boards of directors or boards of trustees are respon- sible for making policies – providing general guidelines under which the organization will operate. Therefore, boards are important in formulating the mission, vision, and value statements of the organization (see Perspective 5–5 ). Board members are not likely to be directly involved in the process although, in some cases, members do participate. More likely, board members are inter- viewed during the formulation of the mission, vision, and values and their input is incorporated into the statements. The board should be informed about the statements and involved in the strategic thinking that results in their formula- tion; therefore, the selection and composition of board members is a critical strategic decision. 51
Health Care Performance and the Usual Suspects Much of the discussion regarding governing boards has related to issues that have been referred to as the “usual suspects.” 52 Primary attention has been given to questioning how these usual suspects infl uence the fi nancial perfor- mance of an organization. Some usual suspects are the number of outsiders on the board, shareholdings of board members, board size, and CEO duality (CEO simultaneously functioning as the chief executive and board chair). 53 An issue of particular interest has been board size. A comparative study of board composition by the executive search fi rm Spencer Stuart looked at the boards of the S&P 500. The results were reported in the Harvard Business Review. The authors noted that today boards of these leading corporations are smaller in size and composed of older members, and are more independent compared with 1987. Board independence has been particularly infl uenced by the Sarbanes–Oxley Act. 54
Generally two different types of governing boards – philanthropic governing boards (those that are service oriented and concerned primarily with fundrais- ing) and corporate governing boards (those that are more involved in strategic planning as well as policy making). Philanthropic boards are larger and more diverse to gain as much community representation as possible. The inclusion of different types of stakeholders is important and requires that board members be selected from among business leaders, physicians, local politicians, consumers of health care services, and so on. The corporate board is smaller and composed of individuals who possess expertise that will aid the organization in accom- plishing its strategic goals. 55 Membership diversity is important, but less so than the actual skills or expertise possessed by the members.
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194 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
PERSPECTIVE 5–5
Board ’s Role in Strategy
Boards of trustees and executive teams share greater responsibility in building more robust and adaptive strategies that support strategic planning and decision making. Health care as an industry is aff ected by many changes that are of direct relevance to governing boards. The contemporary agenda embraces a more focused board mindset for guiding growth, improving performance, and leading change.
A strategic agenda is a narrative that provides the context for purpose, vision, and mission. It creates a process for developing a culture that refl ects the organization ’s values and beliefs. Moreover, it provides a protocol for the ongo- ing direction, integration, and execution of the system ’s priorities.
The board ’s role is that of a navigator that organization into focus with regard to short- and long-term realities of the marketplace. Strategic leadership brings together three elements that boards govern and executives manage. These are:
1. Strategic direction – provides focus for the organization as it makes strategic choices. Strategic direction provides the platform for short- and long-term planning and decision making. It represents the ideas that shape an organization ’s values.
2. Strategic integration – involves matching programs and resources with processes and priorities and is instrumental in “mak- ing things happen.” Health care delivery
presents a number of integration chal- lenges such as quality, cost management, care coordination, and so on.
3. Strategy execution – links specifi c actions with outcomes and adapts to external conditions. Strategy execution connects the dots between board and executive team intentions and the capacity to pro- vide outstanding patient care.
The strategic agenda encourages deeper thinking about key issues and problems and provides a bridge among assumptions, options, and preferences. Boards need to have a major role in strategic direction because it sets the focus for all major decisions. In addition, boards must be confi dent that the executive leadership has the ability, assets, and urgency to eff ectively manage strategic integration. Finally, boards must leave leaders free to manage while ensur- ing their support and engagement.
The ultimate goal of the strategic agenda is to drive economic and strategic value for a system. Strategic value is the composite of the system ’s reputation, operating competence, innovative capacity, and key resources. Boards have an “appetite” for strategy and oversight of the strategy is one of the board ’s primary respon- sibilities. Involving the board in strategic direc- tion, integration, and execution is a fundamental challenge of executive leadership.
Source: Daniel Wolf, “The Board ’s Role in Strategy,” Trustee 64, no. 10 (2011), pp. 21–23.
The current trend in health care organizations is toward the corporate board. To a great extent, the trend is the result of the increasingly competitive environ- ment facing health care organizations and the need for expertise in dealing with the complexities of the economic environment. 56 However, it should be noted
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CHAPTER 5 DIRECTIONAL STRATEGIES 195
that virtually no research confi rms any positive relationship between the size and nature of board membership and organizational fi nancial performance. 57
Research fi ndings on boards of directors suggest that when profound or radical organizational change confronts a health care organization, the corpo- rate board is more likely to propose effective, positive responses. Philanthropic boards, on the other hand, are more likely to be associated with either no change or negative responses to profound change. 58 Boards of directors in health care organizations undergoing corporate restructuring (defi ned as the segmentation of the organization ’s assets and functions into separate corpora- tions to refl ect specifi c profi t, regulatory, or market objectives) tend to become less philanthropic and more corporate, not only in composition but also in the way they operate. 59
Other research provides additional information about various types of govern- ing boards in health care organizations. When compared with boards of directors of successful high-technology fi rms, for example, governing boards in a sample of multihospital health care systems were almost twice as large (11 to 15 mem- bers). 60 In fact, boards are frequently too large to be effective aids in decision making, and where the goal is stakeholder representation, board members often know so little about health care that CEOs are forced to spend a great deal of their time informing and educating lay members.
Another study examined the issue of outside directors in large investor-owned health care organizations. Four major subsamples were examined, including hospitals, elder care organizations, HMOs, and alternative care facilities such as psychiatric clinics and ambulatory care centers. 61 This study found that, in general, governing boards of health care organizations were composed of more members from outside, rather than inside, the organization. Outside representa- tives were primarily physicians, fi nancial professionals, attorneys, and academ- ics. The inclusion of physicians was found to be particularly signifi cant in terms of bottom-line performance. The presence of physicians on governing boards enhanced the support of the medical community, improving the organization ’s market share and quality.
The evidence to date is underwhelming with regard to the usual topics of board independence (percentage of outside members), board size, CEO dual- ity, and so on. 62 Although it is dangerous to generalize, some inferences can be drawn from the research on governing boards in health care organizations. In not-for-profi t health care organizations, governing boards are more in line with the philanthropic model. They are generally large (in fact, too large to be effective aids in strategic decision making), do not compensate members, select members primarily as stakeholder representatives, and do not hold the CEO formally accountable for performance. In this case, the primary motivation for board membership is service and recognition. When health care organizations are profi t oriented, their boards take on more corporate characteristics. They tend to be smaller, compensate members for service, select members for spe- cifi c expertise, involve the CEO as a voting member, make him or her formally accountable to the board, and require the participation of board members in strategic decision making. From the perspective of the individual board member, the motivation to be on the hospital ’s board may be to provide a valuable service to the community, but board membership may be a source of income as well.
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Primarily because of corporate scandals of recent years and the passage of the Public Company Accounting Reform and Investor Protection Act of 2002 (Public Law 107-240), also known as the Sarbanes–Oxley Act, board of director research has been reignited. 63 This law, which applies to publicly traded corporations, dramatically impacts the fi duciary responsibility of chief executive offi cers and boards of directors. Some states have considered enacting similar legislation that would apply to not-for-profi t organizations.
Board Process: Missing Link? The lack of consistent association between factors such as board size, inde- pendence, CEO duality, member expertise, and organizational performance on fi nancial measures has encouraged researchers to look at different variables. Of particular interest is the board process – the means by which boards of directors undertake their work. 64
Interviews with experienced board members indicate that several behaviors lead to more effective boards:
1. Engage in constructive confl icts (especially with the CEO) . It is important that board members hold and debate diverse views among themselves and with the CEO. An overabundance of insiders on a board may diminish the presence of constructive confl ict since debate with the CEO amounts to debate with the boss.
2. Avoid destructive confl ict. Personal friction and tension in the boardroom should be minimized. There must be a clear distinction between construc- tive debate and destructive confl ict.
3. Work together as a team. The most important component of board process is teamwork and is the primary characteristic of the progressive board. The development of strong team norms, however, is hard to accomplish because board members are busy and spend little time together. Given the often limited time available, maximizing board member interaction is critical.
4. Know the appropriate level of strategic involvement. Board members should limit their involvement to major strategic decisions. They should be very careful not to become too involved in the day-to-day management of the organization.
5. Address decisions comprehensively. Board members should consciously attempt to address issues with suffi cient depth to make sound decisions. Too often, time demands and confl icting priorities tempt boards to deal superfi cially with important issues. Effective boards fi nd the time needed for important strategic decisions. 65
The work of boards of directors is extremely important. Boards are cre- ated to ensure that strategic leaders have additional expertise available to them for making policy decisions that provide direction to the organization. The effectiveness of the board is a key factor in the effectiveness of the organization.
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CHAPTER 5 DIRECTIONAL STRATEGIES 197
Managing Strategic Momentum – Evaluating Directional Strategies
As part of managing strategic momentum, managers assess the performance of the organization and try to determine whether the mission, vision, values, and goals are – and continue to be – appropriate. To illustrate, hospices today reap billions of dollars annually in Medicare reimbursement. In just two decades since hospices began receiving reimbursement for their services, end-of-life care has emerged as an integral part of the health care system. Palliative care (end-of-life and comfort care) has become so important that hospitals and other providers have seized opportunities in this area. One hospice states that its mission is to provide care for dying patients and their families in their homes. The second hospice, aware of the changes in the environment and concerned with managing strategic momentum, has slightly revised its mission to refl ect the change in the competitive environment. Its new mission is to provide end-of-life and palliative care services. If both organizations should decide to offer services to Alzheimer ’s patients living in nursing homes, only the second hospice would be acting in accordance with its mission. 66
Decisions to change an organization ’s mission, vision, values, and goals are complex and involve many variables. To manage strategic momentum, questions should be asked that concern the fundamental activities and direction of the organization. Exhibit 5–19 provides guidance through several questions that will aid managers in their strategic thinking concerning the appropriateness of the organization ’s directional strategies. Perhaps the best approach for managing the directional strategies is to place the vision for the future, the existing mission statement, statement of values, and the organization ’s goals next to the ques- tions in Exhibit 5–19 and ask the board of directors/trustees and the strategic
EXHIBIT 5–19 Managing Strategic Momentum – Evaluating Directional Strategies
● Are we not doing some things now that we should be doing? ● Are we doing some things now that we should not be doing? ● Are we doing some things now that we should do but in a diff erent way? ● Are our organization ’s mission and vision unique in some way? ● Is our mission relatively enduring? ● Do our mission and vision allow for innovation? ● Do our mission and vision allow for expansion? ● Is our scope of operations clear (market, products/services, customers, geographic
coverage)? ● Do our mission, vision, and values fi t the needs of our stakeholders? ● Do our fundamental values make sense? ● Are our strategic goals moving us toward achievement of our mission? ● Are our strategic goals moving us toward achievement of our vision? ● Have we addressed the critical success factors? ● Based on the mission, vision, and values, is the image of the organization what it should be?
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management team to freely discuss and reach a consensus on each question. This process will either validate the existing mission, vision, values, and goals or indicate that there should be changes to maintain strategic momentum. This process invites clarifi cation, understanding, and reinforcement of exactly “what this organization is all about” or “what this organization should be about.”
Lessons for Health Care Managers Directional strategies allow leaders to state what they believe the organization should be doing and make explicit how they intend to conduct their business. Every attempt should be made to develop and communicate well-conceived and written statements of the organization ’s mission, vision, values, and strategic goals.
Directional strategies are the superordinate goals or outcomes that health care organizations plan to accomplish. Strategic leaders should recognize that strategic planning is a logical process. The progression of directional strategies illustrates the importance of the logic. The mission of the organization drives decision making because it is the organization ’s reason for existing. The vision provides hope for the future and values tell everyone – employees, stakeholders, patients, and so on – how the organization will operate. The strategic goals more specifi cally state what the leaders believe is required to achieve the mission.
A mission alone is not enough. The mission, as a statement of purpose that distinguishes the organization from all others of its type, such as the care given to patients, physical location of the facility, the unusual commitment of physi- cians to research as well as to healing, or any other factor that is important in the minds of those served, is only the fi rst step. The mission may motivate a few physicians and department managers, but real motivation comes from visionary leadership.
The vision is a hope that says what key stakeholders think the organization should look like and be like when the mission is being achieved. Values, as guid- ing principles, can be powerful motivating forces, as well.
Even a well-developed and communicated mission is likely to leave the health care strategist with far too many areas of responsibility, resulting in an impos- sible task. For this reason, critical success factors for the service category must be identifi ed and strategic goals must be set to accomplish the mission. Strategic goals help to make the strategist ’s job feasible and help focus strategists on those tasks that really make a difference with respect to organizational success.
Management research shows that the existence of goals can be extremely motivating. Clearly stated and communicated strategic goals provide a sense of direction – they specify what leaders are expected to accomplish and remove anxiety from those who want to succeed. Formulating mission, vision, values, and strategic goals and identifying critical success factors are often “messy” and unappreciated. In the end, however, setting directional strategies is a major responsibility for all strategic leaders.
Engaging as many groups as practical in the process of developing directional strategies is important. The board of directors should be involved in the thinking that ultimately results in the mission, vision, and value statements. In addition,
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CHAPTER 5 DIRECTIONAL STRATEGIES 199
board members should be regularly informed about the strategic goals of the organization and the progress being made in their accomplishment. Most impor- tantly, the board should engage in a process that contributes to organizational effectiveness. Research confi rms that merely electing or selecting a board of directors/trustees comprising an appropriate percentage of outsiders, of individ- uals with the appropriate expertise, and small enough to be manageable, will not ensure its effectiveness. The board must also be willing to engage in constructive confl ict, minimize destructive interpersonal tensions, avoid micromanagement, and devote the time required to make important strategic decisions. Chapter 6 addresses strategy formulation and the strategic alternatives available to health care organizations.
Health Care Manager ’s Bookshelf
Chester I. Barnard, The Functions of the Executive (Cambridge, MA: Harvard University Press, 1938)
Some people might think that the discussion of directional strategies is something new. Actually, there is a rich history of concern for the purpose and mission of organizations that dates at least to 1938. Chester Barnard in The Functions of the Executive (1938) made no less than 45 references to the topic of purpose in this classic work and “set the stage” for much of our modern thinking on the subject. 1
Barnard ’s most cited reference concerning purpose has to do with the essence of organi- zations themselves. He contends that an organization exists when there are people who communicate with one another and are willing to contribute action to accomplish a common purpose (p. 83). He concludes that the three essential components of organization are com- munication, willingness to serve, and purpose.
At a practical level the most important role of the purpose, objective, or aim relates to the nature of cooperative systems or complex
organizations made up of specialized parts. 2 Complex organizations necessarily specialize to accomplish their purpose. 3 The primary function of the purpose is to coordinate the eff orts of individuals and functional units so that the pur- pose of the “whole” or the general purpose [mis- sion] may be accomplished (p. 136). When the purpose of the cooperative system is attained, the organization is eff ective. When the purpose is not attained, the organization is ineff ective. Thus, Barnard gave us one of our earliest defi ni- tions of eff ectiveness as goal accomplishment (p. 43).
Organizations progress toward the accom- plishment of their missions by redefi ning the general purpose into purposes for specialized units such as medicine, nursing, pharmacy, and so on (in the case of a hospital). The purpose is the unifying element of formal organizations and provides an ends–means chain (p. 137) (dis- cussed in Chapter 6).
Barnard provides an exceptionally interest- ing observation by pointing out that it is not “essential” for the specialized units to under- stand completely the general purpose of the
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200 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
complex or corporate-level organization. 4 Each unit must, however, understand and accept its own purpose as derived from the general pur- pose. The more complete the understanding of the general purpose, the more likely the unit will enthusiastically pursue the organization ’s mis- sion. When a specialized unit believes the whole organization depends on the achievement of its unit ’s purpose, the “intensity of its actions will ordinarily be increased” (p. 138).
Barnard argues that the “most important inherent diffi culty” in operating complex organi- zations is “the necessity for indoctrinating those at lower levels (in specialized units) with the general purpose of the organization so they can ‘remain cohesive’ and make decisions con- sistent with the purpose of the larger system” (p. 233). This is a primary responsibility of stra- tegic leaders.
The Functions of the Executive remains a genu- ine classic of management and, as such, it is not surprising that a major portion is devoted to the role of the purpose or, in today ’s terms, the
mission of the organization. Its message is as relevant today as it was the day it was published. It is signifi cant to note that the publisher distrib- uted almost four times as many copies annually 30 years after its original publication as it did during the fi rst year of its publication.
REFERENCES
1. Chester I. Barnard, The Functions of the
Executive (Cambridge, MA: Harvard University
Press, 1938).
2. Dave McMahon and Jon C. Carr, “The
Contributions of Chester Barnard to Strategic
Management,” Journal of Management History
5, no. 5 (1999), pp. 228–232.
3. William G. Scott and Chester I. Barnard, The
Guardians of the Managerial State (Lawrence,
KS: University of Kansas Press, 1992).
4. Steven P. Feldman, “Incorporating the
Contrary Politics of Dichotomy in Chester
Barnard ’s Organizational Sociology,” Journal of
Management History 2, no. 2 (1996),
pp. 26–30.
KEY TERMS AND CONCEPTS IN STRATEGIC MANAGEMENT
Corporate Governing Boards
Critical Success Factor
First-Mover Advantage
Liability of Newness
Mission
Mission Drift
Philanthropic Governing Boards
Pioneering
Strategic Goals
Values
Vision
Vision-Led Approach
Questions for Class Discussion
1. Is it necessary for organizational mission statements to include all the components dis- cussed in this chapter? How do you decide what components to include?
2. Think of an organization that you know relatively well and attempt to construct a mission statement in light of the components of missions discussed in this chapter.
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CHAPTER 5 DIRECTIONAL STRATEGIES 201201
What components did you choose to emphasize in the statement? Why? What compo- nent do you think really embodies the distinctiveness of the organization?
3. Where do organizational missions originate? How do you explain the evolution of organizational missions as an organization grows and matures? If mission statements are “relatively enduring,” how often should they be changed?
4. Indicate two ways in which an organizational vision is different from other types of directional strategies.
5. It has been said that vision is necessarily a responsibility of leaders. Why is it impor- tant for health care organizations to have “keepers of the vision?”
6. Who determines the values of the health care organization? What values do you think should be shared by all health care organizations? Why?
7. Why are values referred to as an organization ’s guiding principles? In what sense do values constitute a directional strategy for the organization?
8. How many strategic goals should a health care organization develop? 9. How can health care managers more effectively use directional strategies to stimulate
higher levels of performance among all personnel?
10. Why is the board of directors an important group to include in the formulation of directional strategies? What is the board ’s proper role in formulating these strategies?
11. What is the best way to involve the board in the development of directional strate- gies? Explain your answer.
12. What are critical success factors for an organization? How are they developed? How may they be used?
13. List three reasons why boards of directors or trustees have become increasingly impor- tant factors in the effectiveness of health care organizations.
Notes 1. Steven H. Cady, Jane V. Wheeler, Jeff DeWolf, and
Michelle Brodke, “Mission, Vision, and Values: What Do They Say?” Organizational Development Journal 29, no. 1 (2011), pp. 63–79.
2. Chester I. Barnard, Functions of the Executive (Cambridge, MA: Harvard University Press, 1938), p. 87.
3. W. Jack Duncan, Management: Ideas and Actions (New York: Oxford University Press, 1999), pp. 122–123.
4. Website of DaVita, Inc. 5. Perry Pascarella and Mark A. Frohman, The Purpose
Driven Organization (San Francisco: Jossey-Bass Publishers, 1989), p. 23.
6. Forest R. David and Fred R. David, “It ’s Time to Redraft Your Mission Statement,” Journal of Business Strategy 24, no. 1 (2003), pp. 11–14; Marshall B. Jones, “Multiple Sources of Mission Drift,” Nonprofi t and Voluntary Sector Quarterly 36, no. 2 (2007), p. 229.
7. Barbara R. Bartkus and Myron Glassman, “Do Firms Practice What They Preach? The Relationship between
Mission Statements and Stakeholder Management,” Journal of Business Ethics 83, no. 2 (2008), pp. 207–217.
8. C. Kendrick Gibson, David J. Newton, and Dennis S. Cochran, “An Empirical Investigation of the Nature of Hospital Mission Statements,” Health Care Management Review 15, no. 3 (1990), pp. 35–46; W. J. Duncan, P. M. Ginter, and W. K. Kreiel, “A Sense of Direction in Public Health: An Analysis of Mission Statements in State Health Departments,” Administration & Society 26, no. 1 (1994), pp. 11–27.
9. Thomas T. Brown, “Noble Purpose,” Executive Excellence 21, no. 1 (January 2004), p. 7; Robert E. McDonald, “An Investigation of Innovation in Nonprofi t Organizations: The Role of Organizational Mission,” Nonprofi t and Voluntary Sector Quarterly 36, no. 2 (2007), pp. 256–258.
10. Teewon Suh, Mark B. Houston, Steven M. Barney, and Ik-Whan G. Kwon, “The Impact of Mission Fulfi llment
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202 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
on the Internal Audience: Psychological Job Outcomes in A Service Setting,” Journal of Service Research 14, no. 1 (2011), pp. 76–87.
11. Chip Jarnagin and John Slocum Jr., “Creating Corporate Cultures through Mythopoetic Leadership,” Organizational Dynamics 36, no. 3 (2007), pp. 288–295.
12. R. Duane Ireland and Michael A. Hitt, “Mission Statements: Importance, Challenge, and Recommendations,” Business Horizons 35, no. 3 (1992), pp. 34–42. See also David J. Forbes and Siju Seena, “The Value of a Mission Statement in an Association of Not-for-Profi t Hospitals,” International Journal of Health Care Quality Assurance 19, no. 5 (2006), pp. 409–419.
13. Roger Bennett and Sharmila Savani, “Surviving Mission Drift: How Charities Can Turn Dependence on Government Contract Funding to Their Own Advantage,” Nonprofi t Management and Leadership 22, no. 2 (2011), pp. 217–228.
14. Darrell Rigby, “Management Tools Survey 2003: Usage Up As Companies Strive to Make Headway in Tough Times,” Strategy & Leadership 31, no. 5 (2003), pp. 4–7.
15. Aimee Forehand, “Mission and Organizational Performance in the Healthcare Industry,” Journal of Healthcare Management 45, no. 4 (2000), pp. 267–275. See also Joseph Peyrefi tte and Forest R. David, “A Content Analysis of the Mission Statements of United States Firms in Four Industries,” International Journal of Management 23, no. 2 (2006), pp. 296–301.
16. Christopher K. Bart and John C. Tabone, “Mission Statement Content and Hospital Performance in the Canadian Not-for-Profi t Health Care Sector,” Health Care Management Review 24, no. 2 (1999), pp. 18–26; Christopher K. Bart and J. C. Tabone, “Mission Statement Rationales and Organizational Alignment in the Not-for-Profi t Health Care Sector,” Health Care Management Review 23, no. 1 (1998), pp. 54–70.
17. These components adapted from John A. Pearce II and Fred David, “Corporate Mission Statements and the Bottom Line,” Academy of Management Executive 1, no. 1 (1987), pp. 109–116.
18. Ibid. 19. Mary Grayson, “Whose Mission Is It Anyway?” Hospital
& Health Networks 85, no. 1 (2011), p. 6. 20. Cecilia Falbe, Mark Driger, Lauri Larwood, and Paul
Miesing, “Structure and Meaning of Organizational Vision,” Academy of Management Journal 38, no. 3 (1995), pp. 740–767.
21. Deborah Ancona, Thomas W. Malone, Wanda J. Orlikowski, and Peter M. Senge, “In Praise of the Incomplete Leader,” Harvard Business Review 85, no. 2 (February 2007), p. 97.
22. James M. Kouzes and Barry Z. Posner, “Envisioning Your Future: Imagining Ideal Scenarios,” Futurist 30, no. 3 (1996), pp. 14–19. See also Shelley A. Kirkpatrick, J. C. Wofford, and J. Robert Baum, “Measuring Motive Imagery Contained in the Vision Statement,” Leadership Quarterly 13, no. 2 (2002), pp. 139–151.
23. Ancona, Malone, Orlikowski, and Senge, “In Praise of the Incomplete Leader,” p. 97.
24. See Alan M. Zuckerman, “Creating a Vision for the Twenty-First Century Health Care Organization,” Journal of Healthcare Management 45, no. 5 (2000), pp. 294–306; Stanley Harris, Kevin W. Mossholder, and Sharon Oswald, “Vision Salience and Strategic Involvement: Implications for Psychological Attachment to Organization and Job,” Strategic Management Journal 15, no. 3 (1994), pp. 477–489; Terrence Femsler, “Build Mission and Vision Statements Step by Step: Book Review,” Nonprofi t World 21, no. 2 (2003), p. 32; Anonymous, “Preparing A Vision Statement: Book Review,” Futurist 36, no. 4 (2002), p. 59.
25. Manfred F. R. Kets de Vries, “The Leadership Mystique,” Academy of Management Executive 8, no. 3 (1994), pp. 73–83. See also T. C. Reeves, W. J. Duncan, and P. M. Ginter, “Leading Change by Managing Paradoxes,” Journal of Leadership Studies 7, no. 1 (2000), pp. 13–30.
26. Peter M. Senge, “The Leader ’s New Work: Building Learning Organizations,” Sloan Management Review 31, no. 1 (1990), pp. 13–14.
27. Montgomery Van Wart, “The First Step in the Reinvention Process: Assessment,” Public Administration Review 55, no. 5 (1995), pp. 429–438. See also John J. Sosik and Sandi L. Dinger, “Relationships between Leadership Style and Vision Content: The Moderating Role of Need for Social Approval, Self-Monitoring, and Need for Social Power,” Leadership Quarterly 18, no. 1 (2007), pp. 134–153.
28. G. B. Morris, “The Executive: A Pathfi nder,” Organizational Dynamics 16, no. 2 (1988), pp. 62–77.
29. Senge, “The Leader ’s New Work,” p. 8. 30. James C. Collins and Jerry I. Porras, “Organizational
Vision and Visionary Organizations,” California Management Review 34, no. 1 (1991), pp. 30–52.
31. Timothy W. Coombs and Sherry J. Holladay, “Speaking of Visions and Visions Being Spoken,” Management Communication Quarterly 8, no. 2 (1994), pp. 165– 189; Bing Ran and P. Robert Duimering, “Imaging the Organization: Language Use in Organizational Identity Claims,” Journal of Business and Technical Communication 21, no. 2 (2007), pp. 155–188.
32. Anonymous, “Clear Vision, Dialogue Help Align Employee Actions to Business Goals,” PR News 67, no. 25 (2011), p. 2.
33. Howard S. Zuckerman, “Redefi ning the Role of the CEO: Challenges and Confl icts,” Hospital & Health Services Administration 34, no. 1 (1989), pp. 25–38. See also Stephen C. Harper, “The Challenges Facing CEOs: Past, Present, and Future,” Academy of Management Executive 6, no. 3 (1992), pp. 7–25.
34. Arnold D. Kaluzny, “Revitalizing Decision Making at the Middle Management Level,” Hospital & Health Services Administration 34, no. 1 (1989), pp. 39–51. See also S. W. Floyd and Bill Wooldridge, “Dinosaurs or Dynamos? Recognizing Middle Management ’s Strategic Role,”
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CHAPTER 5 DIRECTIONAL STRATEGIES 203
Academy of Management Executive 8, no. 4 (1994), pp. 47–57.
35. Ian Wilson, “Realizing the Power of Strategic Vision,” Long Range Planning 25, no. 5 (1992), pp. 18–28.
36. James R. Lucas, “Anatomy of a Vision Statement,” Management Review 87, no. 2 (1998), pp. 22–26.
37. David Silvers, “Vision – Not Just for CEOs,” Management Quarterly 35, no. 2 (1994), pp. 10–15.
38. Tom Peters, Thriving on Chaos (New York: Alfred A. Knopf, 1988), pp. 401–404.
39. The term “liability of newness” was suggested by James March. However, the most extensive treatment of “fi rst- mover” advantages and disadvantages is presented in Michael E. Porter, Competitive Advantage (New York: Free Press, 1986), pp. 186–191.
40. Gerald J. Tellis and Peter N. Golder, Will and Vision: How Latecomers Grow to Dominate Markets (New York: McGraw-Hill, 2002).
41. L. D. DeSimone, “How Can Big Companies Keep the Entrepreneurial Spirit Alive?” Harvard Business Review 73, no. 5 (1995), pp. 183–186; I. Morrison, “Creating a Vision from Our Values,” Modern Healthcare 29, no. 39 (2000), p. 30.
42. Gerald E. Ledford, James T. Strahley, and Jon R. Wendenhof, “Realizing a Corporate Philosophy,” Organizational Dynamics 23, no. 3 (1995), pp. 4–19. See also D. P. Ashmos and Dennis Duchon, “Spirituality at Work: A Conceptualization and Measure,” Journal of Management Inquiry 9, no. 2 (2000), pp. 134–145; Susan Taft, Katherine Hawn, Jane Barber, and Jamie Bidwell, “The Creation of a Value Driven Culture,” Health Care Management Review 24, no. 1 (1999), pp. 17–32; Fred Wenstøp and Arild Myrmel, “Structuring Organizational Value Statements,” Management Research News 29, no. 1 (2006), pp. 673–685.
43. For some criticisms of these tools see Colin Coulson- Thomas, “Strategic Vision or Strategic Con: Rhetoric or Reality,” Long Range Planning 25, no. 1 (1992), pp. 81–89; Lee D. Parker, “Financial Management Strategy in a Community Welfare Organization: A Boardroom Perspective,” Financial Accountability and Management 19, no. 4 (2003), pp. 341–374.
44. William A. Nelson and Paul B. Bardent, “Organizational Values Statements,” Healthcare Executive 26, no. 2 (2011), pp. 56–59.
45. Steven G. Hillestad and Eric N. Berkowitz, Health Care Marketing Strategy: From Planning to Action (Boston: Jones & Bartlett Publishers, 2004) quoted in “Mission Statement Is Key to a Good Marketing Plan: Goals Should Be Tied to Statement,” Hospice Management Advisor 8, no. 2 (2003), p. 17.
46. M. E. Freisen and J. A. Johnson, The Success Paradigm: Creating Organizational Effectiveness through Quality and Strategy (Westport, CT: Quorum Books, 1995), p. 3. Also see Robert S. Kaplan and David P. Norton, “How Strategy Maps Frame An Organization ’s Objectives,” Financial Executive 20, no. 2 (2004), pp. 40–46; Vincent
R. Kaval and Lawrence J. Voyten, “Executive Decision Making,” Healthcare Executive 21, no. 6 (2006), pp. 16–21.
47. Lavagnon A. Ika, Amadou Diallo, and Denis Thuillier, “Critical Success Factors for World Bank Projects: An Empirical Investigation,” International Journal of Project Management 30, no. 1 (2012), pp. 105– 118; Graham Manville, Richard Greatbanks, Radica Krishnasamy, and David W. Parker, “Critical Success Factors for Lean Six Sigma Programmes: A View from Middle Management,” International Journal of Quality & Reliability Management 29, no. 1 (2012), pp. 7–14.
48. Jeffery K. Pinto and John E. Prescott, “Variations in Critical Success Factors over the Stages in the Product Life Cycle,” Journal of Management 14, no. 1 (1988), pp. 5–18.
49. John Karlewski, “Profi t Versus Public Welfare Goals in Investor-Owned and Not-for-Profi t Hospitals,” Hospital & Health Services Administration 33, no. 3 (1988), pp. 312–329. See also David P. Tarantino, “Using Simple Rules to Achieve Strategic Objectives,” Physician Executive 29, no. 3 (May 2003), pp. 56–57; Fabrizio Cesaroni, Alberto DiMinin, and Andrea Piccaluga, “New Strategic Goals and Organizational Solutions in Large R&D Labs: Lessons from Centro Ricerche Fiat and Telecom Italia Lab,” R&D Management 34, no. 1 (2004), pp. 45–57. The discussion of American Dental Partners’ goals is adapted from information on the ADP website.
50. R. P. Chait, W. P. Ryan, and B. E. Taylor, Governance as Leadership: Reframing the Work of Nonprofi t Boards (Hoboken, NJ: John Wiley & Sons, 2005); R. Charan, Boards that Deliver: Advancing Corporate Governance from Compliance to Competitive Advantage (San Francisco: CA: Jossey-Bass, 2005); J. E. Orlikoff, “Old Board/New Board: Governance in an Era of Accountability,” Frontiers of Health Services Management 21, no. 3 (2005), pp. 3–12; Kathryn J. McDonagh, “Hospital Governing Boards: A Study of Their Effectiveness in Relation to Organizational Performance,” Journal of Healthcare Management 51, no. 6 (2006), pp. 377–391.
51. P. Michel Maher, Malcolm C. Munro, and Flora L. Stromer, “Building a Better Board: Six Keys to Enhancing Corporate Director Performance,” Strategy & Leadership 28, no. 5 (2000), pp. 31–32.
52. Sydney Finkelstein and Ann C. Mooney, “Not the Usual Suspects: How to Use Board Process to Make Boards Better,” Academy of Management Executive 17, no. 2 (2003), pp. 101–113.
53. Wayne F. Cascio, “Board Governance: A Social Systems Perspective,” Academy of Management Executive 18, no. 1 (2004), pp. 97–100.
54. Idea Watch, “Corporate Boards: Now and Then,” Harvard Business Review 89, no. 11 (2011), pp. 38–39.
55. J. A. Alexander, L. L. Morlock, and B. D. Gifford, “The Effects of Corporate Restructuring on Hospital
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204 STRATEGIC MANAGEMENT OF HEALTH CARE ORGANIZATIONS
Policymaking,” Health Services Research 23, no. 2 (1988), pp. 311–338; A. R. Kovner, “Improving Hospital Board Effectiveness: An Update,” Frontiers in Health Services Management 6, no. 2 (1990), pp. 3–27.
56. S. M. Shortell, “New Directions in Hospital Governance,” Hospital & Health Services Administration 34, no. 1 (1989), pp. 7–23. See also M. J. Conyon and Simon I. Peck, “Board Control, Remuneration Committees, and Top Management Compensation,” Academy of Management Journal 41, no. 2 (1998), pp. 158–178.
57. Catherine M. Daily, Dan R. Dalton, and Nandini Rajagopalan, “Governance through Ownership: Cen- turies of Practice, Decades of Research,” Academy of Management Journal 46, no. 2 (2003), pp. 151–158.
58. M. L. Fennell and J. A. Alexander, “Governing Boards and Profound Organizational Change,” Medical Care Review 46, no. 2 (1989), pp. 157–187.
59. J. A. Alexander and L. L. Morlock, “CEO–Board Relations Under Hospital Corporate Restructuring,” Hospital & Health Services Administration 33, no. 3 (1988), p. 436.
60. A. L. Delbecq and S. L. Gill, “Developing Strategic Direction for Governing Boards,” Hospital & Health Services Administration 33, no. 1 (1988), pp. 25–35.
61. R. A. McLean, “Outside Directors: Stakeholder Representation in Investor-Owned Health Care Organi- zations,” Hospital & Health Services Administration 34, no. 1 (1989), pp. 25–38. See also Jayne Oliva, “A Seat at the Power Table: The Physician ’s Role on the Hospital Board,” Physician Executive 32, no. 4 (2006), pp. 62–66;
Bruce Walters, “CEO Tenure, Boards of Directors, and Acquisition Performance,” Journal of Business Research 60, no. 4 (2007), pp. 331–338.
62. Catherine M. Daily, Dan R. Dalton, and Albert A. Cannella Jr., “Corporate Governance: Decades of Dialogue and Data,” Academy of Management Review 28, no. 3 (2003), pp. 371–382; Matthew D. Lynall, Brian R. Golden, and Amy J. Hillman, “Board Composition from Adolescence to Maturity: A Multitheoretic View,” Academy of Management Review 28, no. 3 (2003), pp. 416–431.
63. James E. Orlikoff, “Building Better Boards in the New Era of Accountability,” Frontiers of Health Service Management 21, no. 3 (2005), pp. 3–12; Brian Pusser, Sheila Slaughter, and Scott L. Thomas, “Playing the Board Game: An Empirical Analysis of University Trustee and Corporate Board Interlocks,” Journal of Higher Education 77, no. 5 (2006), pp. 747–775.
64. See Jeffrey Sonnenfeld, “Good Governance and the Misleading Myths of Bad Metrics,” Academy of Management Executive 18, no. 1 (2004), pp. 108–113; Jeffrey Sonnenfeld, “What Makes Great Boards Great?” Harvard Business Review 80, no. 9 (2002), pp. 106–113.
65. Finkelstein and Mooney, “Not the Usual Suspects,” pp. 103–106.
66. “Mission Statement is Key to a Good Marketing Plan,” Hospice Management Advisor , February 1 (2003), pp. 18–19.
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